I finally got around to reading this. As other people have already mentioned, I am also concerned with the fact that you do not own the name but are only leasing it. This could lead to certain issues like a big, rich company bidding up the lease rate of a small start-up competitor's website to take it over before it has the chance to get big or even taking over an individual's website to censor the individual who may be writing bad things about the company on his popular blog. I think it is best to have both this model and the original .p2p model. This provides an option to those who really want to own their domain (even if the pool of available good names is smaller because of squatting). Also, it allows us to see what the squatting differences between the two models actually are in practice.
I also want to get some clarification on the lease length formula. Does it mean the maximum lease length can grow exponentially? At least that is how I understand the following:
After acquiring a lease, a domain holder may extend the lease at any time up to the max lease length. The max lease length is defined by the formula: initial_lease_length + time_domain_held = max_lease_length. Domains acquired from the auction process have an initial lease length of 1 year.
This means I can win the auction at time t = t0 for leasing a domain for 1 year, then six months later at t = t0 + 0.5 years extend the lease by 1.5 years (0.5 + 1) to a new expiration time at t= t0 + 2 years, then at t = t0 + 1.5 years extend it again by 2.5 years (1.5 + 1) to a new expiration time at t = t0 + 4 years, then at t = t0 + 3.5 years extend it again by 4.5 years (3.5 + 1) to a new expiration time at t = t0 + 8 years, and so and so forth. Did I understand that correctly? I assume that is what you mean when you say:
Domain name holders who establish long term ownership interest in their domain are rewarded with very long lease options to have the certainty of future ownership.
If so, I do like that property of the system. People and companies who are serious about owning their name can quickly get to the point where they can lease for very long periods without worrying about others outbidding them for a while. It is a gamble though. If you end up with a really long lease length at a certain lease rate, but the market rate is actually less than that, you are forced to pay the inflated rate for the rest of the very long lease until you finally get the chance to put it up for auction. What if instead of paying upfront for the full term of the lease, a lessee pays every year for one year chucks of their total lease length at their current lease price? That way if they thought the rate was too high they could stop paying and let the domain go up for auction. Would this break the economic disincentives for squatting? They would still be forced to readjust their lease rate at the end of their lease which would only be a long time in the future after they already owned the domain for a long time. And anytime the domain is sold to another party, the max lease length could be reset back to the initial lease length. The point is I would like to reward long-time domain holders with the ability to keep a lease price below market rate for a long time.
I also like Empirical1's suggestion. It makes it more like buying a home and paying a property tax than renting an apartment. So how about the following model. The initial auction for the domain would be to buy the domain not lease it. That would set the initial market price of the domain. Every 3 months (a quarter) after the initial sale of the domain a new renewal auction opens up. The auction starts at the beginning of every quarter and the current domain holder would keep control of the domain throughout that quarter. The auction parameters could be the same as the ones in your whitepaper (30 day minimum, ends after 24 hours of no bids, bids must be 10% above previous bid, upfront deposit of bid value needed, and being outbid returns your deposit). The deposit of the highest bidder determines the new market price of the domain. After the end of the auction (the auction automatically ends one week before the end of the quarter if 24 hour inactivity period hasn't ended the auction already), the domain owner has until the end of the quarter to pay a domain tax based on the new market price of the domain (say 0.25% of the market price) in order to keep the domain for another quarter. If the domain owner pays the tax, the highest bidder gets his deposit back. If the domain owner fails to pay this tax, the domain is transferred to the highest bidder and the highest bidder's deposit goes to the previous domain owner. This way there is still the carrying cost (the domain tax) that disincentivizes squatters who do not have a legitimate use for the domain. The tax does scale with the market value of the domain, but since it is only 1% per year, it is not too high. A domain owner who is willing to pay no more than X per year to renew a domain annually would force a buyer to pay the owner more than 100*X to take the domain away from the owner. But we can make things even better in order to strike an appropriate balance between disincentivizing squatters and not punishing legitimate domain holders too much. The tax rate could be a function of the length of time the domain holder has held onto the domain. Instead of the tax rate being fixed at 0.25% (0.0025) per quarter, it can be set to the following function of the number of quarters (n) that the owner held the domain:
f(n) = 0.0025 + 0.125/n (y-axis of plot is in annual percent of domain tax, x-axis of plot is in years). In the first 5 years of owning a domain, assuming the market price of the domain remains the same as the initial auction price during this period, the owner will have to pay
nearly 50% of the initial price in domain taxes. After 5 years, the annual tax rate is less than 3.5% (and decreasing). This makes it so that long time domain holders pay a low rate, and speculators won't find it profitable to squat on a domain if they believe they cannot make more than 50% return on investment from the initial auction price after 5 years.
By the way, great job on this section:
A major barrier to adoption of a system such as Namecoin is the lack of resources and financial incentives for those who are promoting and developing the system. All current systems of decentralized ownership tracking, often grouped under the term "crypto-currencies" (which includes Bitcoin) suffer from a problem of "group trap." Group trap can be defined by the observation that working as a group toward a common goal may dilute the incentive for individual effort. Essentially, these decentralized systems have no mechanism to effectively centralize the resources needed to incentivize developers and promoters of the system. While those with stake in a particular currency have some motivation to promote it, the value of the work performed is diluted across all shareholders. A developer or promoter working hard for such a system personally incurs the cost of that labor while other shareholders do not. The shareholders who do not incur these extra costs derive comparatively better returns from their investment.
Many such systems begin with large stakeholders who work hard to promote and develop the system. As they begin to sell stake to cover costs it becomes apparent that the work is not adequately rewarded. Many of these projects leave investors holding stake in abandoned and underdeveloped projects. Some projects raise initial capital from investors who are then granted stake. This money is used on the honor system to develop the project. This starting capital is inherently limited, it is not controlled and directed by shareholders proportional to stake, and it is not a sustainable funding method for long term project costs.
The solution to this "group trap" is shareholder directed reinvestment or distribution. Following the BitShares analogy of shares in a profitable company we can see that shareholders can be given voting rights to direct capital. These systems can be structured in a way that generates profit for shareholders. For instance, a domain holder can pay a certain amount of stake to the network to lease a domain. This stake is destroyed, increasing the percent ownership of all stakeholders. The stakeholders can then sell that additional stake back to customers who use it to pay to lease domains on the network and the stake is again destroyed. Destroyed stake is essentially "income" to the shareholders. While destroyed shares are income, shareholders can pay expenses via creation of new shares.
A method to accomplish this is the election by popular vote of "workers" who are paid via the issuance of new shares. Workers can be elected by a method called "approval voting." Approval voting allows any stakeholder to approve or not approve of any candidate worker. These approvals are weighted by ownership stake. Workers with over 50% approval by stake become active and are paid a salary in newly issued shares. This salary could be specified by the worker as part of their candidacy. It is also possible to allow shareholders additional control of salary by approving a percentage of the requested salary during voting. This percentage could be above or below the requested salary and a median can be taken to determine the actual paid salary. This system allows shareholders to hire executives, developers, and promoters and appropriately incentivize them to work in the interests of the system.
A domain registration system is the type of system that requires a large network effect. Utility of the system and adoption of the system are interdependent and each is reinforced by the other. Promoting the system to the point that a network effect is established may require a large initial investment. It is quite likely that expenses for development and promotion would outweigh income in the early stages of the system. For this reason the system may create more shares than it destroys in early stages. The system would grow in value by increasing adoption and attracting new investment capital to buy the newly created shares.
It clearly explains the profitable company analogy and why BitShares DACs have a better chance of future survival than other systems. The mechanisms of selecting the workers and their pay described in the penultimate paragraph of that section is something that I think still needs further debate and discussion. I agree that workers should be separate from delegates and that there should be more flexibility in deciding their pay rate than the current method. But this is something for further discussion in another topic.