rpietila Altcoin Observer

[aminorex]

Monero is being dumped my miners because it is profitable to mine.  Price will recover when difficulty increases, emission declines, or miners hoard.  Difficulty will rise as a result of adoption, as it is a CPU minable coin.  Emission is declining exponentially, so that part is predictable, and on that basis in isolation it is a good time to buy, or for miners to hoard.  I have poor expectations for miners hoarding.  That's just another way of burning fiat to get coins, after all.  Adoption is unlikely to increase rapidly until usability improves.  Thus the short story is that everything is in place for the price to rise exponentially when and if the software and economic fundamentals improve.  At this level of development, merchant integration is likely to be approximately zero, so economic fundamentals are virtually frozen, and thus it all boils down to software work.  The exception would be a liquidity event, such as listing on another significant exchange, which might provide a brief burst of buying, but would not result in a sustained change in price level, except for a certain churn due to added arbitrage.

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[aminorex]

All current PoW coins have to prove they can't become centralised (highly unlikely) and PoS ones that they are secure...

That said, be careful with your money people!

Centralization of PoW only results when there is an ASIC, because CPU/GPU hardware is everywhere.  It is always possible to centralize anything.  It is unlikely in the extreme that a valuable and useful coin with a desirable mining reward which is obtainable using COTS hardware will be centralized.  If the coin does not have general interest, then the likelihood of centralization increases with the inverse of interest.

[r0ach]

Centralization of PoW only results when there is an ASIC

Or when IO & bandwidth requirements require data center class hardware to raise TPS.

If a block is 100 megs, it doesn't mean downloading it anytime before 10 minutes is over is acceptable.  That can also be 14.4 gigs in one day of storage.

This also happens to be a terminal problem of PoS coins that nobody seems to address.  PoS coins require legions of users to run wallets on their home machines that are completely incapable of being scaled up to high TPS levels.  This is why Sunny King advertised proof of stake as a "saving's account", because he knows it doesn't support high volume.  He aimed for low volume and store of wealth.  Security issues aside, whether that model can succeed has yet to be seen.

edit:  PoW coins can solve the forced data center problem by keeping block sizes small, using off the block chain transactions, then just using normal block chain transactions as a clearing mechanism.

[aminorex]

We use rules of thumb because rigorous systematic thinking is time-consuming.  That's okay.  We just can't hold to the conclusions derived by trained reflexes when new information shows them to be defective in an important application, or we will suffer the consequences.  

Regarding currency/security distinction, 1.0 coins are functionally like currencies precisely because they lack other value-added functions.  2.0 coins are like cloud service companies.  1.0 coins are a natural monopoly within a given market, where the bounds of the market are defined by barriers to capital flows, such as fitness for purpose, tariffs, or exchange restrictions.  2.0 coins are not natural monopolies, and will operate in a much more competitive manner.  For that reason I consider it much more useful and important to identify the winners for 1.0 functions, which requires identifying the boundaries between markets, before and as well as classifying the competitors for those niches according to their fitness to the niche.

Take away this idea:  Next-generation crypto value-add does not necessarily make next-generation crypto worth more, as an investment.  It typically makes it worth less, because those value-adds sacrifice the ability to achieve monopoly status as a liquidity vehicle for a given niche.  1.0 coins are more abstract, and fit for a larger territory.  The liquidity vehicle for a large territory will almost invariably have a greater value than any of the many layered applications which must subdivide that territory.

[AlexGR]

Need critique of an obvious crypto problem I see developing in the following post entitled:

"Stop kicking the can down the road: Fix the terminal endgame crypto flaw"

https://bitcointalk.org/index.php?topic=644349.0

The number of coins is irrelevant really. Even if half the BTCs are lost, nothing will change in terms of transactions. Price will rise to compensate for the increased scarcity and instead of using 50 satoshis to buy something, you'll just use 25 satoshis.

Regarding the economy and how it can't operate with a deflationary currency, the main fallacy of this argument is in the fact that BTC does not dictate a national economy or the global economy. It operates in parallel with national & international currencies which are inflationary. So national economies & the global economy are ok because there is adequate extra monetary supply to keep things moving. Gold is also increased by 2.5 kilotons per year.

When BTC is considered a better store of value compared to national & global currencies, and, say, 90% of it is hoarded, the remaining 10% for transactions will revalue accordingly (upwards) to cover the transaction volume that is needed by it.

It is the same argument like "we can't go to gold standard because there is not enough gold to cover M1"... yeah well, the world operated with gold & silver for millenia, so there was no real problem. Besides 7 trillion USD worth of gold would simply be revalued to something like 5x-10x and the problem would be instantly solved - as the need for large quantities of gold to create coins would make the price skyrocket. Same goes for silver.

Or when IO & bandwidth requirements require data center class hardware to raise TPS.

If a block is 100 megs, it doesn't mean downloading it anytime before 10 minutes is over is acceptable.  That can also be 14.4 gigs in one day of storage.

Now that's a problem that one must deal with. Bitcoin can't scale to a lot of transactions per second without requiring terabytes. So we either go the supernode way (centralization) or a distributed model to every peer where each one holds only a portion of the blockchain (something like holographic storage) - but that would require a lot of bandwidth in network chatter to compensate.

[r0ach]

Need critique of an obvious crypto problem I see developing in the following post entitled:

"Stop kicking the can down the road: Fix the terminal endgame crypto flaw"

https://bitcointalk.org/index.php?topic=644349.0

The number of coins is irrelevant really. Even if half the BTCs are lost, nothing will change in terms of transactions. Price will rise to compensate for the increased scarcity and instead of using 50 satoshis to buy something, you'll just use 25 satoshis.

I don't think you actually read the post...the post is concerned with miner subsidy and you're talking about something completely unrelated.  Transaction fees on coins with a non-zero block reward will be lower than coins that use only transaction fees as block rewards.  This gives them a market advantage in usage as a transaction medium.  The free market, in theory, should cause the coin with higher fees to go extinct.

[orinoco]

I'm surprised how few of the 1.0 coins are targetting commercial transactions.  I spent a short time earlier looking into extensions for online shopping cart software which enable pricing/sales/clearing using cryptocoins on standard shopping carts.  Even a search for Bitcoin-related extensions brings up an amazingly small number of entrants, and only recently.

It seems that the ideology of crypto-currency is focussing on supplanting fiat, without looking for ways to work alongside it in the interim leveraging the massive infrastructure created to facilitate trade (retail, b2b, etc.).  Granted blockchain sizes and transaction sizes/throughput are issues which affect ultimate scalability and TPS, but until there's a need to solve those issues, there doesn't appear to be much happening on that front.

I get the feeling the cryptocoin community wants a perfect end-to-end solution before taking anything to market?

In the meantime, ebay/amazon/google/facebook/apple will take the bones of cryptocurrency code/theory and use it to generate their own currency which will be an alternative to fiat initially through their stores.  You can bet they're all watching this space with interest, and one of them will try to be first-mover to really take crypto-currency to the masses.

[AlexGR]

Need critique of an obvious crypto problem I see developing in the following post entitled:

"Stop kicking the can down the road: Fix the terminal endgame crypto flaw"

https://bitcointalk.org/index.php?topic=644349.0

The number of coins is irrelevant really. Even if half the BTCs are lost, nothing will change in terms of transactions. Price will rise to compensate for the increased scarcity and instead of using 50 satoshis to buy something, you'll just use 25 satoshis.

I don't think you actually read the post...the post is concerned with miner subsidy and you're talking about something completely unrelated.  Transaction fees on coins with a non-zero block reward will be lower than coins that use only transaction fees as block rewards.  This gives them a market advantage in usage as a transaction medium.  The free market, in theory, should cause the coin with higher fees to go extinct.

It will depend on adoption and number of transactions... If say Bitcoin has 100x adoption compared to an altcoin, doing an enormous volume of transactions, then it can afford to lower its fees and still pay for the miners (given that Bitcoin's price will also be significantly revalued toward the higher end)...

Coins for transactions with block rewards will produce inflation therefore they will devalue themselves relative to a "static" / deflationary coin with no new block rewards. The entry/exit from a store of value to a transaction medium and back and forth etc etc, requires exchange fees... and if you just keep the "transaction coin" to avoid entry/exit fees in the exchanges, it just gets devalued more. So you don't win in the end keeping the "transaction coin" with the lower fees. Or so it seems to me at this point.

[r0ach]

Coins for transactions with block rewards will produce inflation therefore they will devalue themselves relative to a "static" / deflationary coin with no new block rewards.

That aspect is irrelevant to someone that accepts cryptocurrency and immediately cashes out to fiat/gold or other currency with a service like Bitpay or Coinbase.  They aren't trying to use the currency as a store of wealth, only as a transaction medium.  All they care about in that case is how much fees are charged to transfer money.  They don't really care about how "hyper deflationary" a coin is since they don't plan to keep it anyway due to commodity-like volatility.

The only real question concerning Bitcoin is, will it's fees be low enough that anything lower is considered negligible?  After block rewards reach zero, the answer to that question is, probably not.  In that instance, a coin with a non-zero block reward will take it's place, or Bitcoin will be forced to introduce a minimum block reward.

[AlexGR]

Coins for transactions with block rewards will produce inflation therefore they will devalue themselves relative to a "static" / deflationary coin with no new block rewards.

That aspect is irrelevant to someone that accepts cryptocurrency and immediately cashes out to fiat/gold or other currency with a service like Bitpay or Coinbase.  They aren't trying to use the currency as a store of wealth, only as a transaction medium.  All they care about in that case is how much fees are charged to transfer money.  They don't really care about how "hyper deflationary" a coin is since they don't plan to keep it anyway due to commodity-like volatility.

For the receiver, it may be... But the sender is the one who is using the currency for spending. So the spender either has the inflation-ridden transaction coin or the inflation-free store of value coin to do his spending.

- If the sender keeps a stash of "transaction coins" then that stash, by way of inflation, will be losing value which won't really be alleviated by reduced fees during transactions.

- If the sender keeps his stash to a store of value coin, with zero inflation, then he will use it for spending because the alternative (ie converting to transaction coin and then spending) will take a lot more fees during the conversion.

[tacotime]

A coin with mandatory inflation via block subsidy will likely have less fees than one dependent on fees, I believe. This is because miners are less dependent on fees to survive.

My feelings are that Bitcoin's dependence on fees will in the long run drive Bitcoin transactions off-chain, as there will likely need to be substantial, expensive fees required in order to secure the blockchain. Then we get all the same problems with do with gold-backed currencies issued with banks, and the blockchain will only be used to do things like bank-to-bank overnight transactions.

Further, a consensus on standard fees and cost to transact on the Bitcoin blockchain will be approached, which I think is further centralization. Deflation from random, unpredictable loss of supply also makes Bitcoin prone to wild speculation and volatility, which will make it improbable for use as an everyday store of value (like gold).

[AlexGR]

A coin with mandatory inflation via block subsidy will likely have less fees than one dependent on fees, I believe. This is because miners are less dependent on fees to survive.

Suppose a coin has its block subsidy reduced to 1/10th of what it was yesterday. Some miners will bail, thinking its not worth their effort, and some will stay. Thus there is a mining equilibrium as a self-correcting mechanism. If fewer stay, they split the fees into bigger chunks. The paradox lies in expecting a constant number of miners from the POW inflation phase to the tx fee phase.

My feelings are that Bitcoin's dependence on fees will in the long run drive Bitcoin transactions off-chain, as there will likely need to be substantial, expensive fees required in order to secure the blockchain.

From a game theory perspective, the security of BTC's network is played in multiple parallel games. One of these games is the mining game and its equilibrium of hashrate and rewards. Another of these games is the interest of stakeholders.

If you have a real-life fortune, surely you are paying something in some form or the other to secure that fortune from threats. If you have a digital fortune stored in the blockchain you can equally assign some funds (mining costs) to secure your fortune from threats. This means that large stakeholders (aka bagholders) have a vested interest in protecting the network. These stakeholders can operate even when the mining reward is negative for the average miner because the alternative is a non-option. Their cost/reward analysis is different than the average guy because they are co-factoring that if  they had the wealth in physical form they'd still have to pay to secure it.

So you have the mining equilibrium plus the stakeholder backup to secure the network.

[tacotime]

Suppose a coin has its block subsidy reduced to 1/10th of what it was yesterday. Some miners will bail, thinking its not worth their effort, and some will stay. Thus there is a mining equilibrium as a self-adjustment mechanism. If fewer stay, more get the fees. The paradox lies in expecting a constant number of miners from the POW inflation phase to the tx fee phase.

I feel this sentiment is security agnostic.

So you have the mining equilibrium plus the stakeholder backup to secure the network.

I feel this sentiment is centralisation agnostic.

And these are the two greatest threats to a Bitcoin-style monetary system.

[AlexGR]

And these are the two greatest threats to a Bitcoin-style monetary system.

Personally I'm more worried of things like inability to scale, government 51% kill switch through massive NSA-owned ASIC farms and quantum computers.

[aminorex]

And these are the two greatest threats to a Bitcoin-style monetary system.

Personally I'm more worried of things like inability to scale, government 51% kill switch through massive NSA-owned ASIC farms and quantum computers.

A kill switch would never be used.  Centralization will not be used as a kill switch, but rather to force the network to an evolved protocol which serves the interest of the central entity.  There is essentially no probability that the interests of the centralizer would be optimized by killing a dominant coin.

In the long run PoW just will not work, for that reason, if that outcome is deemed a failure mode.  SlipperySlope's CPoS is the best alternative I've seen so far.  I also like that scheme because it should be pretty straightforward to refactor the block chain storage format to distribute it, in that scheme, which would solve the scalability issue.  It would not require much bandwidth, if the refactor kept transaction threads confined to cliques.  Then you could keep a full node on a cellphone.

[canonsburg]

If you have a real-life fortune, surely you are paying something in some form or the other to secure that fortune from threats. If you have a digital fortune stored in the blockchain you can equally assign some funds (mining costs) to secure your fortune from threats. This means that large stakeholders (aka bagholders) have a vested interest in protecting the network. These stakeholders can operate even when the mining reward is negative for the average miner because the alternative is a non-option. Their cost/reward analysis is different than the average guy because they are co-factoring that if  they had the wealth in physical form they'd still have to pay to secure it.

So you have the mining equilibrium plus the stakeholder backup to secure the network.

Then the end result is still the same. It is the same if you have a deflationary currency as if you have a inflationary currency.

If you have large stakeholders with lots of wealth to protect then just like in the real world, people have to pay a "vault fee" to keep their gold secure. Say this is 1% per year to keep it in some vault. So large stakeholders either become miners and paying an amount of electricity equal to the vault fee or pay someone else to secure the network for them, which again would be equal to the vault fee.

But if you have an inflationary currency where there is a percentage increase or as some have proposed a fixed subsidy for miners, then the large stakeholders will lose some percent per year due to inflation, in an ideal situation, this would likely be the same as the vault fee. So stakeholders will still lose say 1% of their holdings per year, equal to the "vault fee" but this would just be inflation.

So either way, you still lose. As others like to say, there is no such thing as a free lunch.

[aminorex]

So either way, you still lose. As others like to say, there is no such thing as a free lunch.

With fixed supply, compound growth in the economy translates to compound growth in the value of the currency.  To maintain the value of the subsidy as a constant, it must decline as the economy grows, and increase as the economy shrinks.  

A fixed subsidy will increase in value with economic growth, but decline as a portion of the economy, over time.  For example, in Monero, there will be about 18mm xmr circulating when subsidy is fixed at ~250k/an, according to the last proposal from core.  The first year that's ca1.4% VAT.  After 10 years it's ca. 1.2% VAT.

Whether the network is viable will depend on whether the tax is high enough to prevent growth/competitiveness, or low enough to prevent adequate funding of security. If mining goes to PoS the cost tends to zero.  

[r0ach]

If you have a real-life fortune, surely you are paying something in some form or the other to secure that fortune from threats. If you have a digital fortune stored in the blockchain you can equally assign some funds (mining costs) to secure your fortune from threats. This means that large stakeholders (aka bagholders) have a vested interest in protecting the network. These stakeholders can operate even when the mining reward is negative for the average miner because the alternative is a non-option. Their cost/reward analysis is different than the average guy because they are co-factoring that if  they had the wealth in physical form they'd still have to pay to secure it.

So you have the mining equilibrium plus the stakeholder backup to secure the network.

Then the end result is still the same. It is the same if you have a deflationary currency as if you have a inflationary currency.

If you have large stakeholders with lots of wealth to protect then just like in the real world, people have to pay a "vault fee" to keep their gold secure. Say this is 1% per year to keep it in some vault. So large stakeholders either become miners and paying an amount of electricity equal to the vault fee or pay someone else to secure the network for them, which again would be equal to the vault fee.

But if you have an inflationary currency where there is a percentage increase or as some have proposed a fixed subsidy for miners, then the large stakeholders will lose some percent per year due to inflation, in an ideal situation, this would likely be the same as the vault fee. So stakeholders will still lose say 1% of their holdings per year, equal to the "vault fee" but this would just be inflation.

So either way, you still lose. As others like to say, there is no such thing as a free lunch.

Yea, it's a pretty obvious choice what has to be done in that regard.  You have the option of having security built into the protocol by a minimum miner subsidy vs forcing people to accommodate with wildcard, unpredictable, real world solutions outside of the protocol that could lead to any number of undesirable solutions such as mining becoming a government run, non-profit utility.

When such a critical element of the Bitcoin protocol was overlooked, it almost feels like it was designed to fail, and we are being driven down a path like this on purpose to a centralized government scheme.  

I'm not sure if BTC has the political will to even introduce a minimum miner subsidy, even though the problem could arise as soon as around 2025.  I would like to see at least Litecoin try to implement such a solution.

[Peter R]

If you have a real-life fortune, surely you are paying something in some form or the other to secure that fortune from threats. If you have a digital fortune stored in the blockchain you can equally assign some funds (mining costs) to secure your fortune from threats. This means that large stakeholders (aka bagholders) have a vested interest in protecting the network. These stakeholders can operate even when the mining reward is negative for the average miner because the alternative is a non-option. Their cost/reward analysis is different than the average guy because they are co-factoring that if  they had the wealth in physical form they'd still have to pay to secure it.

So you have the mining equilibrium plus the stakeholder backup to secure the network.

Then the end result is still the same. It is the same if you have a deflationary currency as if you have a inflationary currency.

If you have large stakeholders with lots of wealth to protect then just like in the real world, people have to pay a "vault fee" to keep their gold secure. Say this is 1% per year to keep it in some vault. So large stakeholders either become miners and paying an amount of electricity equal to the vault fee or pay someone else to secure the network for them, which again would be equal to the vault fee.

But if you have an inflationary currency where there is a percentage increase or as some have proposed a fixed subsidy for miners, then the large stakeholders will lose some percent per year due to inflation, in an ideal situation, this would likely be the same as the vault fee. So stakeholders will still lose say 1% of their holdings per year, equal to the "vault fee" but this would just be inflation.

So either way, you still lose. As others like to say, there is no such thing as a free lunch.

Thanks Canonsburg.  That was essentially the post I was going to write.  

There is one shared cost with a post-distribution cryptocurrency: we must pay to secure the network against double spending.  How much we have to spend depends, I suppose, on some measure of the "maliciousness of the world."  But whatever that cost is, it is more a function of the civility of society than it is a function of the implementation details of the coin.  

We can pay for this cost with transaction fees, by gently increasing the monetary base, by some combination of the two, or possibly by some other method.  In a free market, the manner in which this cost is shared will slowly evolve towards an efficient solution.  

I think it is already fairly obvious that the most efficient solution is a single ledger with a very large market cap.  The cost, C, to attack the network increases monotonically with the trade, Q, that takes place on that ledger. However, the benefit that an economically-motivated attacker can accrue is approximately static (or at worst increases with Q a slower rate than C).  For example, it is much cheaper on average for an attacker to double-spend a $1000 payment on the DOGE network after 30 min of confirmations than it is to double spend a $1000 payment on the bitcoin network after 30 min.  

    

[tacotime]

And these are the two greatest threats to a Bitcoin-style monetary system.

Personally I'm more worried of things like inability to scale, government 51% kill switch through massive NSA-owned ASIC farms and quantum computers.

A kill switch would never be used.  Centralization will not be used as a kill switch, but rather to force the network to an evolved protocol which serves the interest of the central entity.  There is essentially no probability that the interests of the centralizer would be optimized by killing a dominant coin.

In the long run PoW just will not work, for that reason, if that outcome is deemed a failure mode.  SlipperySlope's CPoS is the best alternative I've seen so far.  I also like that scheme because it should be pretty straightforward to refactor the block chain storage format to distribute it, in that scheme, which would solve the scalability issue.  It would not require much bandwidth, if the refactor kept transaction threads confined to cliques.  Then you could keep a full node on a cellphone.

See my PoW/PoS hybrid in MC2. I still like the scheme, though I'm unsure about some incentives issues regarding it (it'll be interesting so see how it plays out upon release).