My take is that if you reduce the block reward to 1 SLR there will be no incentive for any mining at all, other than just for the good of the coin. This may well not, in the long term, be enough to keep the blockchain alive and safe. It depends on the value of the coin as the mining / transaction fee reward must be enough to cover electricity and depreciation at least. Just cutting back over such a relatively short time span may not let the coin value go up in any way proportional to the reducing supply.
However, having read all this :
https://en.bitcoin.it/wiki/Proof_of_Stake I now know a little more about what is going to happen. But I am damned if I can get my head around the deeper consequences.
I agree with you that the price may not go up fast enough as the reward falls to 1 SLR to cover miners' electricity and other costs. This is why my own opinion is for a relatively quick transition to PoS, because it avoids the possible security problem of lack of sufficient mining to keep the blockchain alive and safe.
Regarding the deeper consequences of PoS, here are the ones that I think are most significant:
-- Using PoS as the method to secure the network and thus ending mining has a marketing benefit for SolarCoin, since mining consumes much more energy than staking and our coin is supposed to be about helping to create energy.
-- The low inflation rates typically associated with PoS coins (most of them are anywhere from 1 to a few percent a year) would help SolarCoin have a much better chance to rise in price, compared to the current inflation rate which is 4% per week(!). Changing to 1.5% per year would make the coin more attractive both to investors and to generators to claim their coins.
-- A 1.5% annual interest rate for staked wallets (like an interest-bearing savings account), plus probably a couple more percent inflation per year from generator grants, would mean that SolarCoin's total inflation rate would be in line with mainstream currencies like the US dollar.
-- PoS enables people to mint coins on smartphone-based wallets. Anyone in the world could use their Android or iPhone to create some SLR. This is more egalitarian compared to a mining-based system which favors only those who can afford mining rigs or hash contracts.
Given all of this, my bias is for either Option 1 or Option 3. If people are worried that reducing the block reward to 1 SLR per block while we're still relying on mining to secure the coin is too risky (even if it's only for a few days while the reward is in single digits), then we'd have to go with Option 3. If people think we can get through the risky part with the really low block rewards, relying on solo mining by dedicated SLR supporters, then we can go with Option 1.
Here's an "Option 1B" which would eliminate the most risky period of Option 1: Drop the block reward from 100 to 10 over 30 days (-3 per day) and then automatically go from 10 per block to PoS. A reward of 10 per block would only require a price of 3000 satoshis to keep the current hash rate. My gut feeling is that it won't be too hard to get back to that price (which we traded at for a while in March) if we cut the block reward significantly, but it may be a lot harder to go from 3000 to 30,000 satoshis, which would need to be the price to support a 1 SLR block reward. So if we eliminate the 3 days during which the reward goes from 10 to 1, we cut out an unnecessary risk to the network and we go straight from 10 SLR per block to PoS, at which time we no longer need to worry about the profitability concerns of miners and can set the coin's inflation rate at the 1.5% annually that we think is best for big-picture reasons.
Thoughts on the Option 1B idea?
Eric
