Bitcoin & Tragedy of the Commons

[Meni Rosenfeld]

Meni's system polls stake and work separately. I believe validity requires concurrence of votes by miners and votes by stakeholders (but am not sure, Meni?).

Stakeholders will only validate a block if it currently enjoys acceptance among miners. But once they do, their validation overrides anything miners have to say on the matter.

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[Dusty]

Joe makes a double-spend, one to Walmart and one to himself. Walmart pays 51% of the pools to commit to the transaction to Walmart. Meanwhile Joes pays the other 49% (or 20%, or whatever) to commit to the send-back. Walmart thinks the transaction is safe and gives the product to Joe, when in fact there's a 49% chance that the next block found will have the payment to Joe, and Walmart will lose the money.

If Walmart pays deepbit (and arguably other pools) to include his block he could also ask to be notified to detect double spends, or simply to ignore other tentative double spendings.
So Joe has to double spend his money to other pools, but if walmart is able to have contracts with a majority of pools (of hashing rate) he can be sure enough.

If the transaction is big enough walmart could decide to change policy as waiting for confirmations, having contracts with more pools (thus paying more) etc.

[Meni Rosenfeld]

Joe makes a double-spend, one to Walmart and one to himself. Walmart pays 51% of the pools to commit to the transaction to Walmart. Meanwhile Joes pays the other 49% (or 20%, or whatever) to commit to the send-back. Walmart thinks the transaction is safe and gives the product to Joe, when in fact there's a 49% chance that the next block found will have the payment to Joe, and Walmart will lose the money.

If Walmart pays deepbit (and arguably other pools) to include his block he could also ask to be notified to detect double spends, or simply to ignore other tentative double spendings.

Then this reduces to waiting to see if there is any conflicting transaction, which is a service which can be provided by any node, it needn't be a miner. In fact waiting a few seconds and querying nodes gives superior security to contracts with miners, so this fails as an extra revenue source for miners.

[cunicula]

Meni's system polls stake and work separately. I believe validity requires concurrence of votes by miners and votes by stakeholders (but am not sure, Meni?).

Stakeholders will only validate a block if it currently enjoys acceptance among miners. But once they do, their validation overrides anything miners have to say on the matter.

Are there incentives for stakeholders to participate actively? If not, isn't there another tragedy of the commons problem [most stakeholders will passively sign off on whatever the miners send to them]?

[ripper234]

Meni's system polls stake and work separately. I believe validity requires concurrence of votes by miners and votes by stakeholders (but am not sure, Meni?).

Stakeholders will only validate a block if it currently enjoys acceptance among miners. But once they do, their validation overrides anything miners have to say on the matter.

Are there incentives for stakeholders to participate actively? If not, isn't there another tragedy of the commons problem [most stakeholders will passively sign off on whatever the miners send to them]?

The incentive for stakeholders is to keep the Bitcoin network working well and decentralized. Most people (including I believe most Bitcoin stakeholders) believe a centralized/monopolistic network is not a huge improvement over current Fiat money, and prefer a true decentralized network. Most people believe this means no double spends or monopolies. So, if a clear (public) mining monopoly emerges, stake holders can reject some of the blocks it signs, especially if they deem that this monopoly is not signing blocks mined by other miners.

[Meni Rosenfeld]

Meni's system polls stake and work separately. I believe validity requires concurrence of votes by miners and votes by stakeholders (but am not sure, Meni?).

Stakeholders will only validate a block if it currently enjoys acceptance among miners. But once they do, their validation overrides anything miners have to say on the matter.

Are there incentives for stakeholders to participate actively? If not, isn't there another tragedy of the commons problem [most stakeholders will passively sign off on whatever the miners send to them]?

You can include signature fees in transactions and in assurance contracts. Since the cost of signing is low, the token incentives that can be obtained from assurance contracts, quid-pro-quo, direct interest and so on should be sufficient.

For the purpose of preventing double-spending, stakeholders aren't supposed to make any judgment about which block is better. As long as enough of them sign, and they never sign more than one block in a given height, the system should work. Preventing other attacks may require a more sophisticated system.

[Boussac]

It seems that this thread overlooks the fact that merchant acceptance  is what determines success or failure of just any currency, including bitcoin.

If bitcoin is accepted by major retailers or by a large number of retailers, certainly third party services (like bitcoin-central merchant API) will add value by mitigating the exchange rate risk or the double-spend risk.

In other words, transactions fees in the future will be made of bitcoin network transaction fees (very low fees, hypothetically zero fees) and value add service fees (more competitive than today bank card fees but non zero fees).

Those who will collect the value add fees have a strong incentive to mine even for zero bitcoin network fees and zero block reward.

Just a sanity check: in France today, 1% of the bank card transactions amounts to 65 000 € in 2000 transactions per block (every ten minutes).

If I command just a 1% share of that market with my bitcoin payment app and charge merchants 0.5%, I am making 325 € per block (with zero reward and zero tx fees, whether I mine the block or not), roughly the same as all the miners combined today.
If I charge mechants 25 cts per transactions (à la Dwolla), I am making 500 € per block.

Hence I am afraid this thread is addressing a dilemma that wo'nt exist.

[Meni Rosenfeld]

It seems that this thread overlooks the fact that merchant acceptance  is what determines success or failure of just any currency, including bitcoin.

If bitcoin is accepted by major retailers or by a large number of retailers, certainly third party services (like bitcoin-central merchant API) will add value by mitigating the exchange rate risk or the double-spend risk.

In other words, transactions fees in the future will be made of bitcoin network transaction fees (very low fees, hypothetically zero fees) and value add service fees (more competitive than today bank card fees but non zero fees).

Those who will collect the value add fees have a strong incentive to mine even for zero bitcoin network fees and zero block reward.

Just a sanity check: in France today, 1% of the bank card transactions amounts to 65 000 € in 2000 transactions per block (every ten minutes).

If I command just a 1% share of that market with my bitcoin payment app and charge merchants 0.5%, I am making 325 € per block (with zero reward and zero tx fees, whether I mine the block or not), roughly the same as all the miners combined today.
If I charge mechants 25 cts per transactions (à la Dwolla), I am making 500 € per block.

Hence I am afraid this thread is addressing a dilemma that wo'nt exist.

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.

[Boussac]

A miner IS a payment processor

[Meni Rosenfeld]

A miner IS a payment processor

I meant a payment processor like Bit-pay.

[FreeMoney]

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

He's going to have to pay the others. Maybe a tiny miner will include all those tx for a small fee, but the tiny miner won't likely get a block soon so if the payment processor wants high assurance of getting in a block before X time he needs to pay what the most expensive miners are demanding.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.

Not really. There might be thousands or more banks and payment processors and there will be no central body keeping anyone out. All you need to get in is to be competitive with the existing services in some way no artificial gatekeeper.

[Boussac]

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.

You are missing the point: the payment porcessor will make 325€ ONLY if the network is functionnal and secure. So the value add fees are his/her incentive to mine (not the bitcoin mining fees).

[FreeMoney]

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.

You are missing the point: the payment porcessor will make 325€ ONLY if the network is functionnal and secure. So the value add fees are his/her incentive to mine (not the bitcoin mining fees).

This is not a complete answer. If the network is healthy the payment proc will just mooch, if it is too weak there isn't anything he can do anyway without spending more than all of his profits (unless his actual mining power will bring him profit, which is what is in question).

[markm]

The payment processors will have incentive to pay fees and maybe also to hold very rapidly exercisable "latest top of the line ASIC mining rig" options.

The latter in order to be ready to rapidly jump to the support of the chain in case of attack or just to enter the mining biz. (Merely paying higher fees might not suffice if a monopolist is secretly setting up top of the line ASIC rigs in co-hosting sites all over the world as you'd be paying the monopolist more and more the closer they got to taking control of the network.)

If you can make over 300 dollars a block just processing payments, a current top of the line ASIC rig would only take what, half a day or less to pay for?

-MarkM-

[FreeMoney]

The payment processors will have incentive to pay fees and maybe also to hold very rapidly exercisable "latest top of the line ASIC mining rig" options.

The latter in order to be ready to rapidly jump to the support of the chain in case of attack or just to enter the mining biz. (Merely paying higher fees might not suffice if a monopolist is secretly setting up top of the line ASIC rigs in co-hosting sites all over the world as you'd be paying the monopolist more and more the closer they got to taking control of the network.)

If you can make over 300 dollars a block just processing payments, a current top of the line ASIC rig would only take what, half a day or less to pay for?

-MarkM-

But when a small player can make 300 dollars a block for processing payments an ASIC will get you virtually no chance of solving a block anyway.

I don't think guessing numbers is really helpful since there there are so many unknown variables. There needs to be a good theoretical game theory type reason why it will work. And I'm pretty sure I know it.

Miners are all different sizes, this gives some of them pricing power in terms of selling "get my txs into a block soon". If all miners are very small and all use the "accept all with fee rule" many may indeed drop out lowering overall power and difficulty. This will make it easier and more likely for someone to gain a pricing power ability. The existence of someone with pricing power ability raises the profitability of all miners causing more small players to enter the mining biz and reducing the possibility/ease with which one party can get >50% (which may not be disastrous anyway, but still makes me uncomfortable).

For example, suppose DeepBit changed policy to only include tx that had fee >= .01BTC. Some people will not care because they can with high likelihood get in a block within 10 blocks anyway. But the few people who need near certainty of getting in within an hour now attach a .01 fee. All miners profit from this in proportion to their hashing power except DeepBit. DeepBit profits (or maybe not if they pick the wrong price) by less depending on how many of the .0005 fees they no longer get.

Interestingly this means that an individual mining at DeepBit will want to leave for solo or a smaller pool when DeepBit makes this change.

I don't claim to completely understand the equilibrium. Some very interesting things can and will happen. Suppose DeepBit wasn't a pool but one entity with a lot of hashing power. Would they "split off" some of their power? This would be the same as using a probabilistic method of determining which tx to include in order to give users incentive to add more fee for better chance, but not completely give up the small fees. I think the right strategy depends heavily on the "willingness to pay distribution". If it is a smooth curve a many tiered solution is probably most profitable. If it's pretty binary then the profit maximizing solution is probably simpler.

[cbeast]

Tragedy of the Commons is a debunked argument. This fallacy was refuted by Nobel laureate Elinor Ostrom. The problem facing Bitcoin is better labeled "Tragedy of the Unmanaged Commons." There are many more reasons than mere financial incentives to keep the Bitcoin network healthy.

Columbia University economist Joseph Stiglitz, also a Nobel winner, commented, “Conservatives used the Tragedy of the Commons to argue for property rights, and that efficiency was achieved as people were thrown off the commons…What Ostrom has demonstrated is the existence of social control mechanisms that regulate the use of the commons without having to resort to property rights.”

When folks use Tragedy of the Commons, it sets up a red flag. Then there's the Proof-of-Stake. I am genuinely interested in better management solutions, but overtly promoting monopolies belies ulterior motives even further. In democratic societies, monopolies usually exist at the pleasure of governmental regulation. Offering a Price Auction as an experiment in monopoly control is at best highly experimental. I would like to see this attempted with a cryptocurrency, but not Bitcoin. At least not until it is thoroughly tested.

I still think technological advancement will offer more than enough solutions in the far future.

[Boussac]

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.

You are missing the point: the payment porcessor will make 325€ ONLY if the network is functionnal and secure. So the value add fees are his/her incentive to mine (not the bitcoin mining fees).

If the network is healthy the payment proc will just mooch, if it is too weak there isn't anything he can do anyway without spending more than all of his profits (unless his actual mining power will bring him profit, which is what is in question).

That is exactly why I am predicting that miners in the zero-block-reward future will be of two kinds
1/payment processors
2/bitcoin hoarders and supporters
I just don't know in what proprotions (equilibrium point has yet to be figured out).
I'd be interested if anyone has a math model for gold usage because it has a nice stable 40%-60% balance between hoarding (investment gold) and industrial applications (jewelry, mint, electronics, etc..) i.e circulating gold.

[cypherdoc]

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.

You are missing the point: the payment porcessor will make 325€ ONLY if the network is functionnal and secure. So the value add fees are his/her incentive to mine (not the bitcoin mining fees).

If the network is healthy the payment proc will just mooch, if it is too weak there isn't anything he can do anyway without spending more than all of his profits (unless his actual mining power will bring him profit, which is what is in question).

That is exactly why I am predicting that miners in the zero-block-reward future will be of two kinds
1/payment processors
2/bitcoin hoarders and supporters
I just don't know in what proprotions (equilibrium point has yet to be figured out).
I'd be interested if anyone has a math model for gold usage because it has a nice stable 40%-60% balance between hoarding (investment gold) and industrial applications (jewelry, mint, electronics, etc..) i.e circulating gold.

Jeffrey Christian has stated many times that the main investment category for gold is from speculation.  can't give you exact figures but it should be easily obtained.

[FreeMoney]

It doesn't really matter if payment processors mine themselves or buy mining services. It would be like if someone said "In the future no one will make cloth" and someone responded "Yes clothing makers will make cloth because they need it to make clothes". The fact that people demand cloth to make clothes is the reason that cloth will still be produced, but there isn't any particular reason why cloth and clothes makers will be one in the same. And it doesn't matter weather there is many or few clothes makers.

What we do know is that there will be demand for blocks, maybe a lot, maybe not, depends on a lot of things.

Here is another angle, I'm not sure how relevant. Another party that wants there to be a lot of honest mining power: Miners. If you make a block, you only get paid if it is still in the longest chain 120 blocks from now. Issuing a tx from your coinbase (can you even do this?) with a high fee will give more incentive to an honest miner to quickly mine off of your block before someone comes along rewriting yours in order to collect the fees from the transactions you included or just to remove them for some nefarious purpose.

[cbeast]

Let me rephrase that.  I would like to see a scheme that regulates a 51% attacker to insure that it does not double-spend.

It seems extremely improbable to me that the monopolist could profit from double-spending. That is regulation enough in my view.

Somehow, I almost think you are serious. Nah.

I am serious. Completely.

https://en.bitcoin.it/w/index.php?title=Proof_of_Stake&action=view#The_Monopoly_Problem

Potentially, the monopolist could choose to do this in malicious ways, such as double spending or denying service.