Topic: Annual 10% bitcoin dividends if mining were Proof-of-Stake - page 18. (Read 16688 times)

I do not observe manipulation by the large mining pools. However, many people reading this thread in hopes of receiving 10% bitcoin dividends on the holdings are not aware that of the tens of thousands of Bitcoin mining rigs operating, almost none of them are actual miners. They are rather hashers who do not maintain the blockchain, nor validate blocks, nor propagate transactions. Rather they are delegated Proof-of-Work tasks by the pool operator, who is the actual miner.

Look at the following pie chart from Blockchain.info . In the Unknown pie slice are private datacenters and ASIC manufacturers that are large enough to keep the 1% typical pool fee for themselves. Suppose there are four very large datacenters in there. Count the named pie slices and add say 4 for the private datacenters in Unknown and get 12.

Those 12 miners control Proof-of-Work Bitcoin mining.

I am not really alarmed at this situation. It is not one that Satoshi envisioned when considering how miners would operate, but pools flow naturally from the motivation of miners for steady income as opposed to luck. Hashers, those who actually operate ASIC rigs, are free to move from pool to pool as they see fit to balance this pie chart.

My point is that concentration of mining power by large holders in a Proof-of-Stake scheme could not conceivably be worse than this . . .

I would say that people who have a lot invested in mining activities may have a perspective that is subject to confirmation bias leading them to rationalize an inferior method because of their vested interest.

Why would you prefer having to have specialized equipment to produce new money? Squandering more and more electricity necessarily to secure a network is rent seeking exemplified, not productive behavior. Which is why that will only lead to centralization and cartelization as in the fiat world. This can be observed as mining is already controlled by two major cartels and most of the larger positions are held by financial institutions of one sort or another.

PoS is better all around.  It individualizes production of new coins which only helps fight the manipulation by mining and trading cartels that is the current situation. Not to mention the savings in overhead from power costs.  

Both are methods of achieving consensus so why use the expensive, difficult way unless it is because you already spent a lot on mining equipment and have a vested interest in that? I'd rather my position stake on an android tablet or something.

People all over the world have android phones and tablets, not everyone has a 10K mining rig or the means to ever get one.

Now which method of achieving consensus is more likely to be widely adopted? It's easy to see which way the wind is blowing.

I have thought about ways to limit hashing power but they do not seem to work. Others certainly have argued this before so my comment may turn out to be naive. I tried to apply rules from the economics of cap-and-trade for pollution permits.

How does the network measure hashing power contributed? I could supply twice the allowed hashing power and claim that I am simply lucky when my share of the block rewards is twice what averages predict.

Among miners, there is a protocol named VAR DIFF for variable difficulty in which the pool server measures your hashrate by giving you work-shares to hash with progressively increasing difficulty until a shares are solved by the client at say 4 - 10 per minute. This allows the mining pool to estimate and report your hashing rate. But this can be faked by the client to fool the server if the client wanted to cheat beyond the allowed maximum hashrate.

I have very little knowledge about how mining actually works but I am trying to conceive an abstract solution based on what little I do know. Even if this idea is theoretically sound, I have no idea whether or not it is possible to implement it in computer code.

Suppose that in order to solve blocks a miner would be required to have 1 BTC in a certain address per quantity of hashing power contributed. Suppose arbitrarily the requirement were 1 BTC per gigahash. For someone who has and intends to hold 10 BTC, it would make perfect sense to devote 10 gigahash to mining, but hashing power beyond that would not increase the chances of solving a block. There are about 12 million BTC that have been mined, so the maximum profitable hashing power of the network would be 12 million gigahash, which I believe is less than it is today, and is certainly less than it is projected to be in the next few years. Excessive energy waste becomes a negligible issue.

Another benefit is that Bitcoin mining would be more decentralized. It is estimated that there at least 10,000 people who have more than 100 BTC, but only a handful with more than 100,000. It makes economic sense for a holder of 100 BTC to devote 100 gigahash to mining and a holder of 100,000 BTC to devote 100,000 gigahash to mining. So the miner number 10,000 would earn approximately 1/1,000 as much BTC as the top few miners. What is the difference in earnings between the top few miners and the number 10,000 miner in Bitcoin today? I strongly suspect that the difference is much greater. So in the mining system I propose there would be more incentive for more people to mine.

Would a 51 percent attack be feasible in this system? Suppose a government or mega-bank wanted to destroy Bitcoin. Suppose there are 4 million BTC devoted to honest mining (not every holder/user will bother to mine) and total of 4 million gigahash mining power. The malicious entity could certainly acquire more than 4 million gigahash of processing power for a few hundred million dollars, but could it acquire more than 4 million BTC? The current market cap is ~7 billion dollars and there are fewer than 1 million BTC on all of the exchanges. If the malicious entity tried to buy all of the BTC available on exchanges, the market cap would probably rise two orders of magnitude, costing hundreds of billions of dollars to acquire less than a quarter of the coins necessary to execute a 51 percent attack. I believe it would be impossible for any entity to acquire the requisite number of BTC to execute a 51 percent attack.

In fact, I am a landlord and collect rents. But of course you mean economic rent-seeking of the sort that patent trolls employ to bedevil innovation. I believe that capital seeks its wisest custodian - optimal for the overall economy if opportunities for rent-seeking are minimized or mitigated.

How can rent-seeking behavior be prevented by Proof-Of-Stake? The critical aspect is the Bitcoin mining reward and its schedule for halving. When the mining reward is tiny compared to the transaction fees awarded for solving a block then I propose that rent-seeking behavior will be diminished as annual dividends drop to the point where the risk of exposing the stake to the network is not worth the gain.

Because Proof-of-Stake is many orders of magnitude more efficient than Proof-of-Work, I expect that Proof-of-Stake holders would accept much lower transaction fees to process a block than would Proof-of-Work miners who must pay for equipment, power and their own time.

In the meantime, I claim without proof, that Proof-of-Stake rent-seeking behavior is less harmful than the manifestly wasteful Proof-of-Work alternative.

It is difficult to explain, and that's why I agree with you that it appears that PoW is more wasteful (and that this could be used as a political weapon).  This is a half-baked explanation, but perhaps the essence of what I'm trying to communicate will still come across:


For me it comes down to the simple fact that PoS rewards those who already hold the most wealth--they no longer even need to work for it.  I think this creates more opportunities for rent-seeking and less impetus for innovation.  I believe an economy that favours rent-seeking over work + innovation leads to the misallocation of our natural resources.

With PoS, consensus is formed by those holding stake.  In other words, those who already have the most also get to make the rules.  Look at who accrues the new coins in your 10% dividend model: they accrue to the largest stake holders!  It's no longer a coin-distributoin mechanism--it is a way for those with first access to new money to benefit un-proportionately.  Sounds a bit like the Fed.

PoS supporters appeal to idea of the "greater good" (less electricity consumed).  This makes me highly suspicious:

1. For the greater good, we must stop this wasteful bitcoin mining and we will all be richer!

2. For the greater good, we must create more coins so that we can direct them towards important projects that the free-market neglects!

3. For the greater good, we must incentive spending to keep the people employed!

4. For the greater good, we must create more coins so that we can lend them to people to stimulate the economy!


I just can't see how the end-game of PoS is anything different than the current system.  How much pure waste do we currently have?  I bet a shift to bitcoin cuts the rate at which we exploit our natural resources at least by half, maybe more.  Bitcoin favours efficiency.  Our current system favours debt and consumption.  

I would like to know the answer to that too.

This is one of the best ideas I have heard.

Existing Miners Should Love Proof-of-Stake

Proof-of-Stake pays miners a 10% average annual dividend on their bitcoin exposed to the network in a Bitcoin Core wallet. Anyone can be a miner because Proof-of-Stake processes transactions, secures the network, and maintains the blockchain using the modest resources of an ordinary computer.

But why would existing Bitcoin miners love this new thing? Because it is common wisdom among miners that they would have been financially better off by simply buying and holding bitcoin, with the funds they spent buying designed-for-obsolescence ASIC mining devices and the power required to operate and cool them. Plus the time and effort of configuring, maintaining, monitoring, and ultimately disposing of them.

When 10% annual Proof-of-Stake dividends are added to the profit equation, the balance should clearly tip in favor of abandoning the current wasteful Proof-of-Work system.

I was recently invited to give a talk on this very idea at Trader Steve's online bitcoin conference in June (http://gobc.co) and I intend to do so.  It is an exciting idea.    

I'd like to see us build infrastructure to take "snap-shots" of the unspent outputs in the bitcoin blockchain, and to create awareness around how one can use their existing bitcoin private keys to claim their share of any pre-mine in a "spin-off" coin.  This would make it much easier to create spin-offs (such as your 10% dividend PoS idea) to experiment with new methods of achieving consensus, and it would provide a Plan B in the extremely unlikely event that the network comes under unrelenting 51% attacks.  

Why? I foresee that Proof-of-Work power requirements will continue at the 10x trend we both model. How could Proof-of-Stake exceed that?

I independently had a similar idea before I learned you were yet again ahead of me.

Here is the sort of similar idea. Clone all the Bitcoin source code to create XCoin. Cleanly add PoS as an option to PoW but turn off PoS. After sufficient testing, e.g. on a testnet, release XCoin clients in lock step with Bitcoind and Bitcoin Core clients. Operate on the existing blockchain where XCoin peers are otherwise indistinguishable from Bitcoin peers. I propose that XCoin clients inform users as to how much dividend they could receive if there were enough of them.

Spin-off the new PoS network by forking the blockchain given an overwhelming number of XCoin clients as compared to validating Bitcoin clients.

For readers, PoS = proof of stake and PoW = proof of work.  They are two different mechanisms that can be used for achieving consensus in peer-to-peer networks.  With PoS, consensus is formed by those holding stake; with PoW, consensus is formed by those doing work.  

I think it would be proper to call a PoS version of bitcoin, bitshares instead.  Dividends are awarded to share holders for holding stake, rather than to miners for doing work.  Arguments are settled based on how many shares one holds, rather than by how much work one performs.  

But I think the future is already foretold.  A strong PoS alt-coin will emerge to satisfy those that prefer this method of consensus.  Perhaps it will become strong by merging the blockchain ledgers of smaller like-minded communities, and perhaps it will eventually grow to challenge litecoin.  

Pretty sure there's an altcoin that already does that.  

I think he is just trying to argue a point why pos might be better than pow

I'm interested in at least discussing pos for security reasons.  I don't think thing energy use is an issue for the foreseeable future, although that seems to be slope's concern.

No, with a PoS network we will exploit our natural resources faster than with a PoW network.  That is my opinion and you may disagree; in the final analysis it really doesn't matter what either of us thinks.    

What matters is how does one actually force a change?

What you do is create a PoS "spin-off" from the bitcoin blockchain and try to legitimize it using your influence and economic power.  

The market will decide whether is succeeds or fails.  

The important part of your argument is the creation of money out of thin air - so to speak. Satoshi put rewards into the network to motivate miners. Proof-of-Stake is exactly like the current Bitcoin system except that you get your fair share of the block rewards as a 10% average annual dividend, instead of those same rewards getting wasted in someone else's datacenter. You are the miner. But the genius of Proof-of-Stake is that it can be performed on an ordinary computer as long as you help process transactions and maintain the blockchain.

Proof-of-Work is bizarre. It is sort of like a bank burning their notes in a moat to keep robbers out.

Yes, the main difference is that PoS doesn't waste a bunch of electricity in doing so. That is why government bureaucrats will force a change in a few years when more than $100 billion gets wasted.

(2018) You are a Chinese bureaucrat looking out your window at noon. On your desk is a staff regulation to prohibit SHA-256 and Scrypt ASIC manufacture, sale, installation and operation in China. The staff says that 5% of the coal-burning power plants under construction could be postponed if you sign the regulation . . .



credit: http://www.huffingtonpost.com/daniel-k-gardner/can-china-win-the-war-on-_b_5182132.html

Proof-of-Stake should increase bitcoin prices as more gets held in anticipation of earning 10% dividends. The Bitcoin Economy would actually speed up after dropping the wasteful overhead of the current wasteful mining.

No additional coins are generated by Proof-of-Stake. Satoshi's promise of fixed supply remains. You simply receive your fair share of the block reward rather than waste it in someone else's datacenter.

An ideal Proof-of-Stake wallet is very much like the Bitcoin wallet you download for Bitcoin Core.

There would be a generate option that you would enable with the amount of your bitcoin that you wish to risk exposing to the network in return for dividends. Over 12 months you would occasionally receive a bitcoin dividend that on average amounted to 10% of your risk-exposed bitcoin amount. When the block reward halves in 2017 your dividend rate drops to about 5%.

Wallet owners such as yourself could opt to join a mining pool offering daily dividends if you permit them to risk your bitcoins in aggregate with other owners on the network. Mining pool fees are very reasonable - on the order of 1% per payment to you.

If you take your coins off the network to be really safe, as in a paper wallet, then those coins do not get the dividend payments.

No, the main difference is that consensus is formed by those holding stake and not those willing to work.  To me it is the difference between rent seekers (PoS) and innovators (PoW).  

The miners' eternal vigilance is the price paid for freedom.