Topic: Proof of stake and spiralling demand (Read 1316 times)

By the time ETH changes to POS all my mining equipment will be paid off and I can either dump the gaming GPU's on Ebay (I am sure there will be a LARGE number of them there) or just change to other Alt Coins and pump-n-dump into either more ETH or BTC. 

Tim Drapers Tezos has no cap on inflation either. This will be very interesting precedents.

As I understand it will be a very gradual switch, probably that hardware can also be used for other coins.

So eth miners are ok with their investement in hardware being made useless and worthless?
Can't imagine that.

So when eth goes pos where do all the miners go?
Ah, wait, so etc will get an even higher hashrate then?
I think when eth goes pos the best you can do is buy etc as its hashrate should rise significantly.

Ofcourse ethereum is going to fork. This is how you update your protocol, by hardforking. It is going to play out like  the other forks, well.

Miners knew about POS since 2014 or so, so it is not a surprise. I am a small miner myself.

POS works. And it's just not "working" but the fundamentals beneath it will make it extremely hard to attack, compared to POW bitcoin  / ethereum which requires like 40-50mil to be attacked. In POS you ll need probably over 500mil usd at this curent eth price, assuming you don't have to buy more from the market.

So eth forks again?

Can't imagine the miners being too happy about such a fork. 
How is that going to play out? Will we get another classic chain?

Is pos even viable?

ETH will have about ~100mil token supply with an inflation of 1-2% /year. So, in about 6 years, with an inflation of 2% at worst, there's going to be 112mil ETH. 1-2% isn't that bad at all, it's really good for hodling actually.

It depends entirely on the block reward structure they would adopt. Do you have any numbers? I know they have very small blocks (14 seconds target).


One of the main incentives to participate in PoS minting if the reward is low (or non-existent, like in NXT or NEM where you only get transaction fees) is called "altruism-prime" by Vitalitik Buterin. It refers to the fact that if you mint, you contribute to the security and so also to the value of your holdings. If there is a small reward, there is also some coin supply inflation - and that means that you, if you are a long term holder and don't mint, will lose some money (or better: your holdings will represent a smaller share of the total supply).


6% may be still OK, but 10% in my opinion is already too much if the inflation is not limited. In this case, we could already see the "spiralling demand" problem semaforo describes, and in consequence, high volatility. Another problem with high block rewards is that high rewards increase the incentive for minting on multiple chain forks ("Nothing at Stake problem"), which is potentially dangerous for the system's stability.

You are too complicated.

Can somebody explain it simpler?



I have 1 ETH and Bill have 100 ETH , aslo JP have 50 ETH.

In PoS they will rule the world of Ethereum?


Why they need to make it unprofitable? Are Bill, JP and I stupid? What about China?

That is very well thought out.

A few things,  What will be the incentive for a POS worker if the return is only 1-4% a year. If there is ether volitilty you could easily lose money for the year, all while having it tied up to service ethereum. Also, you can guarantee there willl be hacks on the POS pools, so there is another risk . I would think the return would need to compete with the stock market and real estate return percentages, 6-10%.

Great analysis , just some things to review.

Force

What are the implications for ethereum converting completely from PoW to PoS?

I was somewhat active in the Peercoin forum and there we have discussed that topic.

The crucial number to know would be the block reward for the Proof of Stake block. In the case you describe that we have 1 PoS block per 99 PoW blocks, the typical block reward a "PoS miner" could mine per timeframe (day, month, year) must also be divided by 100.

In Peercoin's model the PoS reward is so low (1% of your staking holdings per year) that the incentive to buy in is relatively low because you can't call this 1%/year a real "profit". Volatility in this case is comparable to a PoW coin like Bitcoin.

If the PoS reward is very high, then - according to my limited economic and game theory knowledge - the incentive to buy in is higher, but the incentive to sell early to take profits is high too, because of the higher coin supply inflation that would drive down the price in the long term. That would lead to a high volatility and a high probability of "pump and dump" games. That's why I never was interested in "high-PoS-reward" altcoins.

My conclusion would be: the higher the PoS block reward, the higher the volatility. In the model you describe, because of the low number of PoS blocks, I would say that the incidence of PoS to volatility because of a "spiralling demand" is low.

So you're suggesting it is basically a pump and dump of unprecedented proportions with major financing from conventional mutual funds? Plausible, but this still doesn't address two issues

1) proof of stake seems to be a really good idea and could drive value up considerably, as well as demand resulting from the utility of the platform

2) there seems to be some pretty brilliant minds with hefty financial backing behind it.

True. Eth isnt a long term investment. Would you buy stocks when they are infinite? What is the value of infinite stocks? 0

Which is why it's useless! Oh, the dev just created 400billion more ethereum. Umm... hard fork it 5x and we'll be fine. Consensus? No need for that crap. The captain at the wheel knows all.

Still the original question was could proof of stake could cause demand and therefore price increases by combining mining and speculative bubbles.

"per year". Correct.

Many countries have inflation rates set per year and how has that turned out for the historical value of fiat currency's worldwide?

It says on the website they have a cap on how many token can be mined per year, but no ultimate cap. Theoretically this could be changed but would require another fork, right? It is still an improvement over a central bank type scenario.

Yes, unlike BTC and ETC - ETH has no set hard cap for monetary supply. Ethereum inflation could go on forever.

As far as I know there is not a limit on the supply currently.