Oh good, more pimping of PoS again. The solution in search of a problem which presents its own problems before finding a problem it could solve, we have seen many times before. This should be fun. Mostly the paper tries to address security concerns that PoS introduces. Fair enough, that is an interesting topic and all we can really discuss because in the end I don't think there is really a use for this. Bitcoin works fine thanks. But lets forge ahead with the paper:
Mining reward rates: NeuCoin dramatically increased coinstake rewards for mining in order to maximize the percentage of coins being mined at all times, which is the bedrock of security in any PoS cryptocurrency.
Notice that the "bedrock of PoS" claimed here is that you have to keep your coin online and staking just to stay up with inflation. As a maximum reward you get: the same percentage of the money supply you had before. This by itself doesn't sound so bad, at least we are used to it in the fiat world. Six percent annual inflation planned forever. So lets continue:
Duplicate stake punishment: NeuCoin uses a client version developed by Michael Witrant, aka “sigmike” (core developer of Peercoin and Technical Advisor to NeuCoin), that not only detects duplicate stakes so that honest nodes can reject them, but also punishes nodes that broadcast duplicate stakes by rejecting all blocks broadcast by the dishonest miner.
I'm not sure I follow this. If I were trying to do a reorg. attack (grinding, in the terminology of this paper) to rewrite some history, I am not going to broadcast anything until I have found a chain that works. Then, when I broadcast it, it will not have any duplicate stakes. It will follow all the rules.
To keep Bitcoin security from declining, total payments to miners must be maintained. As coinbase rewards decline, there are only three ways to make up the difference: Bitcoin’s price can increase, transaction volumes can increase, and/or fees per transaction can increase.
Well this is actually a good point, and does address a potential problem worthy of discussion. This is a problem of economics, not of PoW. For example, one could create a PoW currency that also gave a 6% annual inflation. The money supply curve is important.
NeuCoin's mining equation is simply:
hash(kernel)< target*balance of UTXO
OK, so now we see that the best way to mine NeuCoin is to form massive pools. This is not incentivised due to smaller more regular payouts like it is in bitcoin, but a directly higher return due to the formation of a larger UTXO balance. This looks completely broken to me. Am I missing something?
This stance neglects to acknowledge that PoS security does have a cost: the capital cost of acquiring and holding coins.
Exactly. PoS is just a PoW algorithm, where the work is a bit different. Now the work is aquiring coin, and (once again) doing some hashing. What's the difference? Nothing really. If you aren't substantially rewarding your miners (stakers), your security sucks. (cough, not mentioning names) Miners and stakers have a variety of tricks they can play to and a lot of motivation to behave efficiently. Bitcoin is incredibly efficient for this reason. Claims of inefficiency are typically made by outsiders who don't understand the business. Who do you think is best qualified to judge the efficiency of a mining operation?
Anyway, thanks for posting. This has been an interesting read, much better than I expected from the glossy page and Proof of Stake hype, and I commend all efforts to better understand coin economics.
Cheers -- funkenstein the dwarf