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General Discussion / A Libertarian Alternative to Patents and Copyright (DAC)
« on: November 25, 2013, 09:31:30 pm »
A Libertarian Alternative to Patents and Copyright
I would like to introduce a new way for inventors, artists, musicians, writers, and scientists to become rich by sharing their ideas with the public without relying on government granted intellectual monopolies, trade secrets, non-disclosure agreements, or licensing fees. This new solution would end all legal battles over intellectual property, make all music, software, and books free to download and copy while reducing the cost of physical books to the cost to manufacture them (almost 0). The price of almost every good and service you consume on a daily basis would be dramatically reduced because there would be no licensing fees or artificial barriers to entry. Every product you use would automatically include the best technology rather than inferior alternatives that are only used to avoid licenses. But before I share this revolutionary solution, I would like to review some of the arguments for and against patents and intellectual property.
The challenge with being a libertarian, anarcho-capitalist, or voluntarist is that we are always asked to provide an alternative to all of the goods and services which people believe are necessary and can only be provided by governments. Simply stating the market will ‘invent’ the solutions in the absence of government is usually not an acceptable answer because it is viewed as a religious belief in the power of the market and critics lack the faith required to accept that answer.
Many people have already addressed how the market could provide alternatives to roads, schools, healthcare, retirement, and courts. But when it comes to intellectual property the only answer provided by the Libertarians and Austrian Economists is that intellectual property does not legitimately exist. Patents and copyrights are a government grant of Intellectual Monopoly that allows the use of force to exclude others from exercising their own physical property rights. In other words, intellectual property cannot exist without governments and this incompatibility simultaneously proves to libertarians that intellectual property is invalid and to statists that governments are necessary.
Without a legitimate free-market alternative to intellectual property, the statists can claim that without patents innovation would stop and new life-saving drugs would never be invented because the cost of research exceeds the cost to replicate the results. The argument that trade secrets, non-disclosure agreements, and first-mover advantage is enough to reward inventors for their effort is seen as insufficient. Unfortunately, there is little one can do to convince someone that this reward is sufficient and this leaves libertarians with the non-aggression principle pitted against the principle of utilitarianism and the greatest good for the most people.
The other argument used to defend patents is that big corporations can easily ‘steal’ ideas from the little guy and keep all of the profits. The claim is that the government is protecting the little guy (isn’t that always the claim?). This mindset means that new ideas and inventions are kept ‘secret’, as little information is shared as possible, and when patents are filed they are done so in a way that attempts to hide the secret in plain sight in such a way that most people are not able to replicate the patent.
In the end, patents are so expensive to acquire and enforce that they do little to protect the little guy from large corporations. In the mean time they create an environment that discourages the sharing of ideas and ultimately undermine the innovation they claim to enable.
There mere existence of patents introduces a whole new category of risk that entrepreneurs must face. Often times new inventions are not possible because they depend upon other inventions for which the license is either too expensive (due to monopolistic pricing) or not available for license at all. Almost every study ever performed that does a cost-benefit analysis of patents has shown they do more harm than good, but this is of little concern to the rent seeker who wants to make make money by getting a government granted monopoly on his idea.
Rewarding Inventors and Content Creators
Despite the flawed approach toward rewarding inventors via grants of government monopoly, patents do attempt to recognize the value of an idea and reward people for disclosing the idea publicly. These are goals that are worthy to pursue. So I would like to introduce an alternative to patents that would handsomely reward inventors, eliminate all intellectual property lawsuits, vastly reduce the price of manufactured goods, and allow inventors, artists, writers, and musicians to make money from their ideas without ever having to charge customers for the right to copy the song or operate a business that manufactures and sells their invention.
How much is an idea worth? This is the question that we must answer because if you cannot answer it then how can you justify using government force to grant someone a monopoly on it?
So the challenge is to provide a means for the ‘little guy’ to make big money on his idea simply for sharing it freely and teaching as many people how to use the idea as possible without any restrictions.
What is the ‘value’ of the idea for rectangular touch-screen cellphone with rounded corners? Should Apple have a monopoly on this and be able to exclude all competitors from creating rectangular touch-screen phones via threat of violence?
What about the ‘value’ of slight variations on Apple’s design? If you are rational you will recognize that there must exist some ‘price’ that would express the value these ideas have to society. The trick is to find a way to discover this price.
The other insight one must gather is that the value of an idea changes over time. The invention of the telegraph in the 1800’s was worth a lot more then than that same idea would be worth today. In other words, patents also suffer most of the defects of ‘price fixing’ to the extent that they provide a constant benefit (monopoly) to a few at a fixed cost (exclusion) to the many for a fixed period of time regardless of the idea. All ideas are effectively equal under the patent system.
Under the patent system there is some price discovery through monopolistic pricing of a single company or via fiat of a judge awarding damages for patent infringement. Most sane economists would recognize that both of these methods are very inaccurate and inefficient for price discovery. These methods are also ex post facto and is almost impossible to price prior to implementation and success of an idea.
The natural market response to such an environment is the phenomena of submarine patents who’s issuance and publication are intentionally delayed by the applicate for a long time, such as several years. These patent holders take no market risk, allow others to prove the idea and increase its value, and then attempt to use patent law to collect handsomely on the ideas that they played no part in implementing.
One last critique of the patent system is that it fails to recognize that many people can independently come up with an almost identical idea at about the same time. The existing system is not flexible enough to handle this scenario and ultimately a judge must pick a winner and looser.
A Decentralized Market for Ideas
I propose the creation of a decentralized prediction market to estimate the value of any invention, song or other work that is traditionally considered ‘intellectual property’. A prediction market (also known as predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are speculative markets created for the purpose of making predictions. Assets are created who’s value tracks market consensus on the answer to a question or probability of an outcome.
Prediction markets work by having two people take opposite sides of a ‘bet’ on a future event. This event could be the outcome of an election, or it could be the future price of a gallon of gasoline. Value is redistributed from the loser to the winner of every bet based upon the eventual outcome.
There are many kinds of prediction markets, but in this case it would be a continuous market with no trigger event. You enter and exit via voluntary trades with market participants who both invest equal capital into their position. The effectiveness of a prediction market depends upon many factors such as:
The depth of the market (amount of money and users)
The distribution of useful knowledge among market participants.
The clarity of the wording used to seed the market.
In our case we would like to structure the prediction market to tell us the value of an idea to society. How valuable is the idea for a Pet Rock vs the iPod vs a specific cure to cancer? By what standard could you hope to estimate the value of the idea? The best standard I have come up with so far is to estimate the amount of money that someone would pay to acquire an enforceable monopoly on a concept. In effect, the prediction market should estimate the value of the patent without actually granting said monopoly to anyone.
So I propose that a new prediction market be created for every invention that is phrased something similar to:
“How much would a savvy investor pay to buy a monopoly on the use of this idea or any derivation from it?”
This market could be created at any time and would allow speculators to bet on the future market consensus on the answer to the question. Early in the life of a new idea, the estimated value of owning a monopoly on the idea would be low because few people would understand it and no one will have taken the risk to try the idea in the market. Furthermore almost no one would be able to imagine all of the potential derivative ideas that others would generate. This means that the inventor has the opportunity to buy a position in the prediction market long before its full value is fully recognized by the masses.
Of course, every prediction market requires two parties taking opposite bets, therefore, before you can buy an idea, you must find someone who is willing to bet against an idea. Fortunately, every inventor encounters more nay-sayers than supporters early on. The greater the nay-saying the better deals the inventor can get because the idea is ‘non-obvious’ and thus ‘innovative’. If everyone immediately estimates that owning a monopoly on a given idea would be worth trillions, then they would probably conclude that people would pay a lot to own a monopoly on a given idea and your ‘obvious idea’ would start out at a very high price point. In a way, your rewards under this system are directly proportional to how innovative the idea is where innovative is measured by how few recognize the value of the idea early on.
A important nuance of this prediction market is that it must be a price someone would actually pay to acquire said monopoly. If asked how much you would pay to acquire a monopoly on flux-capacitors that make time travel possible, most rational people would not pay anything because the idea is infeasible and thus they could make no profit by owning a monopoly in a non-viable idea.
On the other hand, if you asked how much you would pay to acquire a monopoly on something as general as ‘flying cars‘ without any specific reference to how such a flying car is made, then many people would bid very high and be hesitant to bet against the valuation of this patent. The idea is just so obvious, clearly possible, and of such high value when it is possible that there would be little opportunity to profit from naysayers. The prediction market would make bets in the billions even with no cars on the market.
As you can see there is a natural selection of innovative ideas from non-innovative ideas that is directly proportional the how obvious the idea is to people upon hearing about it.
Implications for Venture Capital Firms
Most venture capital firms face a significant challenge of identifying the good ideas from the bad because they are not experts in every domain. As a result, venture capital firms tend to bet on people rather than ideas. Unfortunately, this approach does not work well when the success of the company depends more upon the validity of an idea than the people attempting to implement it. For example, investing in a company of great people who have an idea that violates a law of physics will fail regardless of how good the team is.
A given mid-sized VC firm is presented 10,000 ideas each year of which 1000 may be invited to an interview and 10 may be funded. The time available for evaluating these ideas is very small and many good ideas never get funding because the screeners at the VC firm never look close enough at the idea. However, if a VC firm was able to observe trends in the prediction markets they would be able to quickly identify which ideas appear to have merit with crowds of people betting on them. Instead of a team of 300 generalists reviewing proposals, the entire market of millions of specialists would be aggregating their knowledge via the prediction market.
VC firms also face another challenge, how can they hedge their bets? Suppose a particular theoretical energy device requires a $1 billion upfront investment and has a 5% chance of some unforeseen law of physics making the entire concept unfeasible. Well, if the idea was big enough, popular enough, and had enough people betting it would work then the VC firm could hedge their bets by taking out options or short positions in the prediction market that offset their investment into the idea.
The VC can then fund the idea while having their position hedged in the event that it doesn’t work out as expected. This has huge implications for the investing community and is something that patents are unable to provide.
Music, Movies, and Books
Copyright is the other form of intellectual monopoly that people simultaneously want and systematically violate the law every single day. We want artists to be rewarded for their work, but few actually want to pay for it if they can get a copy from a friend for free. Fortunately, prediction markets offer a far more useful tool for rewarding artists than copyright ever could.
Imagine an iTunes like music store where every song was ‘free to download’, but users could speculate on whether the song would become more or less popular. An artist releasing a new song would bet heavily on its eventually hitting the #1 spot. Their fans who hear the song and agree would also bet money on the rising popularity of the song. Meanwhile those who think the song is ‘no good’ would bet against it rising in popularity. This gives the fans financial incentive to share their music with their friends because they make money when the popularity goes up.
Observers of the market could then ‘discover’ new songs simply by watching the trends and seeing which songs are rising in value, downloading them, and see what they think!
Here the artist makes money, users can support the artist by sharing the song, and observers can discover new music in a far more accurate method than letting the music labels and radio shows filter it for them.
Conclusion
Decentralized idea markets can provide a non-violent alternative to reward inventors and creators for their ideas while simultaneously encouraging the ideas to be adopted and spread wide and far. They accomplish all of the claimed benefits of patents while creating an atmosphere of cooperation and openness and avoiding the use of force to shutdown innovation and production.
I would like to introduce a new way for inventors, artists, musicians, writers, and scientists to become rich by sharing their ideas with the public without relying on government granted intellectual monopolies, trade secrets, non-disclosure agreements, or licensing fees. This new solution would end all legal battles over intellectual property, make all music, software, and books free to download and copy while reducing the cost of physical books to the cost to manufacture them (almost 0). The price of almost every good and service you consume on a daily basis would be dramatically reduced because there would be no licensing fees or artificial barriers to entry. Every product you use would automatically include the best technology rather than inferior alternatives that are only used to avoid licenses. But before I share this revolutionary solution, I would like to review some of the arguments for and against patents and intellectual property.
The challenge with being a libertarian, anarcho-capitalist, or voluntarist is that we are always asked to provide an alternative to all of the goods and services which people believe are necessary and can only be provided by governments. Simply stating the market will ‘invent’ the solutions in the absence of government is usually not an acceptable answer because it is viewed as a religious belief in the power of the market and critics lack the faith required to accept that answer.
Many people have already addressed how the market could provide alternatives to roads, schools, healthcare, retirement, and courts. But when it comes to intellectual property the only answer provided by the Libertarians and Austrian Economists is that intellectual property does not legitimately exist. Patents and copyrights are a government grant of Intellectual Monopoly that allows the use of force to exclude others from exercising their own physical property rights. In other words, intellectual property cannot exist without governments and this incompatibility simultaneously proves to libertarians that intellectual property is invalid and to statists that governments are necessary.
Without a legitimate free-market alternative to intellectual property, the statists can claim that without patents innovation would stop and new life-saving drugs would never be invented because the cost of research exceeds the cost to replicate the results. The argument that trade secrets, non-disclosure agreements, and first-mover advantage is enough to reward inventors for their effort is seen as insufficient. Unfortunately, there is little one can do to convince someone that this reward is sufficient and this leaves libertarians with the non-aggression principle pitted against the principle of utilitarianism and the greatest good for the most people.
The other argument used to defend patents is that big corporations can easily ‘steal’ ideas from the little guy and keep all of the profits. The claim is that the government is protecting the little guy (isn’t that always the claim?). This mindset means that new ideas and inventions are kept ‘secret’, as little information is shared as possible, and when patents are filed they are done so in a way that attempts to hide the secret in plain sight in such a way that most people are not able to replicate the patent.
In the end, patents are so expensive to acquire and enforce that they do little to protect the little guy from large corporations. In the mean time they create an environment that discourages the sharing of ideas and ultimately undermine the innovation they claim to enable.
There mere existence of patents introduces a whole new category of risk that entrepreneurs must face. Often times new inventions are not possible because they depend upon other inventions for which the license is either too expensive (due to monopolistic pricing) or not available for license at all. Almost every study ever performed that does a cost-benefit analysis of patents has shown they do more harm than good, but this is of little concern to the rent seeker who wants to make make money by getting a government granted monopoly on his idea.
Rewarding Inventors and Content Creators
Despite the flawed approach toward rewarding inventors via grants of government monopoly, patents do attempt to recognize the value of an idea and reward people for disclosing the idea publicly. These are goals that are worthy to pursue. So I would like to introduce an alternative to patents that would handsomely reward inventors, eliminate all intellectual property lawsuits, vastly reduce the price of manufactured goods, and allow inventors, artists, writers, and musicians to make money from their ideas without ever having to charge customers for the right to copy the song or operate a business that manufactures and sells their invention.
How much is an idea worth? This is the question that we must answer because if you cannot answer it then how can you justify using government force to grant someone a monopoly on it?
Quote
“The value of an idea lies in the using of it." - Thomas A. EdisonIn other words, to maximize value to society an idea must be used to the maximum extent and any limitation on the use of an idea ultimately hurts society. Generating new ideas is easy, recognizing the good ideas and then implementing them is the hard part. In fact, an idea without recognition or implementation is effectively worthless.
So the challenge is to provide a means for the ‘little guy’ to make big money on his idea simply for sharing it freely and teaching as many people how to use the idea as possible without any restrictions.
What is the ‘value’ of the idea for rectangular touch-screen cellphone with rounded corners? Should Apple have a monopoly on this and be able to exclude all competitors from creating rectangular touch-screen phones via threat of violence?
What about the ‘value’ of slight variations on Apple’s design? If you are rational you will recognize that there must exist some ‘price’ that would express the value these ideas have to society. The trick is to find a way to discover this price.
The other insight one must gather is that the value of an idea changes over time. The invention of the telegraph in the 1800’s was worth a lot more then than that same idea would be worth today. In other words, patents also suffer most of the defects of ‘price fixing’ to the extent that they provide a constant benefit (monopoly) to a few at a fixed cost (exclusion) to the many for a fixed period of time regardless of the idea. All ideas are effectively equal under the patent system.
Under the patent system there is some price discovery through monopolistic pricing of a single company or via fiat of a judge awarding damages for patent infringement. Most sane economists would recognize that both of these methods are very inaccurate and inefficient for price discovery. These methods are also ex post facto and is almost impossible to price prior to implementation and success of an idea.
The natural market response to such an environment is the phenomena of submarine patents who’s issuance and publication are intentionally delayed by the applicate for a long time, such as several years. These patent holders take no market risk, allow others to prove the idea and increase its value, and then attempt to use patent law to collect handsomely on the ideas that they played no part in implementing.
One last critique of the patent system is that it fails to recognize that many people can independently come up with an almost identical idea at about the same time. The existing system is not flexible enough to handle this scenario and ultimately a judge must pick a winner and looser.
A Decentralized Market for Ideas
I propose the creation of a decentralized prediction market to estimate the value of any invention, song or other work that is traditionally considered ‘intellectual property’. A prediction market (also known as predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are speculative markets created for the purpose of making predictions. Assets are created who’s value tracks market consensus on the answer to a question or probability of an outcome.
Prediction markets work by having two people take opposite sides of a ‘bet’ on a future event. This event could be the outcome of an election, or it could be the future price of a gallon of gasoline. Value is redistributed from the loser to the winner of every bet based upon the eventual outcome.
There are many kinds of prediction markets, but in this case it would be a continuous market with no trigger event. You enter and exit via voluntary trades with market participants who both invest equal capital into their position. The effectiveness of a prediction market depends upon many factors such as:
The depth of the market (amount of money and users)
The distribution of useful knowledge among market participants.
The clarity of the wording used to seed the market.
In our case we would like to structure the prediction market to tell us the value of an idea to society. How valuable is the idea for a Pet Rock vs the iPod vs a specific cure to cancer? By what standard could you hope to estimate the value of the idea? The best standard I have come up with so far is to estimate the amount of money that someone would pay to acquire an enforceable monopoly on a concept. In effect, the prediction market should estimate the value of the patent without actually granting said monopoly to anyone.
So I propose that a new prediction market be created for every invention that is phrased something similar to:
“How much would a savvy investor pay to buy a monopoly on the use of this idea or any derivation from it?”
This market could be created at any time and would allow speculators to bet on the future market consensus on the answer to the question. Early in the life of a new idea, the estimated value of owning a monopoly on the idea would be low because few people would understand it and no one will have taken the risk to try the idea in the market. Furthermore almost no one would be able to imagine all of the potential derivative ideas that others would generate. This means that the inventor has the opportunity to buy a position in the prediction market long before its full value is fully recognized by the masses.
Of course, every prediction market requires two parties taking opposite bets, therefore, before you can buy an idea, you must find someone who is willing to bet against an idea. Fortunately, every inventor encounters more nay-sayers than supporters early on. The greater the nay-saying the better deals the inventor can get because the idea is ‘non-obvious’ and thus ‘innovative’. If everyone immediately estimates that owning a monopoly on a given idea would be worth trillions, then they would probably conclude that people would pay a lot to own a monopoly on a given idea and your ‘obvious idea’ would start out at a very high price point. In a way, your rewards under this system are directly proportional to how innovative the idea is where innovative is measured by how few recognize the value of the idea early on.
A important nuance of this prediction market is that it must be a price someone would actually pay to acquire said monopoly. If asked how much you would pay to acquire a monopoly on flux-capacitors that make time travel possible, most rational people would not pay anything because the idea is infeasible and thus they could make no profit by owning a monopoly in a non-viable idea.
On the other hand, if you asked how much you would pay to acquire a monopoly on something as general as ‘flying cars‘ without any specific reference to how such a flying car is made, then many people would bid very high and be hesitant to bet against the valuation of this patent. The idea is just so obvious, clearly possible, and of such high value when it is possible that there would be little opportunity to profit from naysayers. The prediction market would make bets in the billions even with no cars on the market.
As you can see there is a natural selection of innovative ideas from non-innovative ideas that is directly proportional the how obvious the idea is to people upon hearing about it.
Implications for Venture Capital Firms
Most venture capital firms face a significant challenge of identifying the good ideas from the bad because they are not experts in every domain. As a result, venture capital firms tend to bet on people rather than ideas. Unfortunately, this approach does not work well when the success of the company depends more upon the validity of an idea than the people attempting to implement it. For example, investing in a company of great people who have an idea that violates a law of physics will fail regardless of how good the team is.
A given mid-sized VC firm is presented 10,000 ideas each year of which 1000 may be invited to an interview and 10 may be funded. The time available for evaluating these ideas is very small and many good ideas never get funding because the screeners at the VC firm never look close enough at the idea. However, if a VC firm was able to observe trends in the prediction markets they would be able to quickly identify which ideas appear to have merit with crowds of people betting on them. Instead of a team of 300 generalists reviewing proposals, the entire market of millions of specialists would be aggregating their knowledge via the prediction market.
VC firms also face another challenge, how can they hedge their bets? Suppose a particular theoretical energy device requires a $1 billion upfront investment and has a 5% chance of some unforeseen law of physics making the entire concept unfeasible. Well, if the idea was big enough, popular enough, and had enough people betting it would work then the VC firm could hedge their bets by taking out options or short positions in the prediction market that offset their investment into the idea.
The VC can then fund the idea while having their position hedged in the event that it doesn’t work out as expected. This has huge implications for the investing community and is something that patents are unable to provide.
Music, Movies, and Books
Copyright is the other form of intellectual monopoly that people simultaneously want and systematically violate the law every single day. We want artists to be rewarded for their work, but few actually want to pay for it if they can get a copy from a friend for free. Fortunately, prediction markets offer a far more useful tool for rewarding artists than copyright ever could.
Imagine an iTunes like music store where every song was ‘free to download’, but users could speculate on whether the song would become more or less popular. An artist releasing a new song would bet heavily on its eventually hitting the #1 spot. Their fans who hear the song and agree would also bet money on the rising popularity of the song. Meanwhile those who think the song is ‘no good’ would bet against it rising in popularity. This gives the fans financial incentive to share their music with their friends because they make money when the popularity goes up.
Observers of the market could then ‘discover’ new songs simply by watching the trends and seeing which songs are rising in value, downloading them, and see what they think!
Here the artist makes money, users can support the artist by sharing the song, and observers can discover new music in a far more accurate method than letting the music labels and radio shows filter it for them.
Conclusion
Decentralized idea markets can provide a non-violent alternative to reward inventors and creators for their ideas while simultaneously encouraging the ideas to be adopted and spread wide and far. They accomplish all of the claimed benefits of patents while creating an atmosphere of cooperation and openness and avoiding the use of force to shutdown innovation and production.
559
General Discussion / BitShares Blockchain Test Output
« on: November 24, 2013, 08:42:53 pm »
http://the-iland.net/static/chain.html
For an idea of the structure of the blockchain, you can view an example blockchain there.
For an idea of the structure of the blockchain, you can view an example blockchain there.
560
General Discussion / DAC vs Mastercoin's Distributed Applications (DA)
« on: November 23, 2013, 08:40:07 pm »
The people behind Mastercoin have recently published a paper on Decentralized Applications: https://github.com/DavidJohnstonCEO/DecentralizedApplications/blob/master/README.md
My response is included below:
I have just read through your white paper and think I can agree with the usage of words as important and that your classification structure is also good.
I would like to try a metaphor to explain the value of using a DAC metaphor vs DAA metaphor as both fundamentally describe the same thing.
Imagine you just discovered electricity and all of the amazing things that it could do. There are electrons that flow around, wave forms, and other fundamental building blocks. People want to start using this amazing electricity concept to build useful and productive circuits, but they lack a mental framework that helps them intuitively understand and predict the outcome of a particular circuit structure and even advanced mathematics can only approximate it due to noise in the environment and imperfect measurements of the components. Relying on math alone to simulate the expected results is time consuming. To design systems you need intuition and abstraction.
So someone comes along and says, wow, electricity works just like plumbing! It flows like water, there is a 'pressure' the circuit. Resistors are like narrow pipes etc. If you think of an electrical circuit like plumbing then you can apply everything you intuitively know about what works in plumbing systems to help design and understand this new fancy electricity we just discovered without having to resort to math until after a high-level design is in place. You quickly discover that teaching students about electricity is an order of magnitude easier using this metaphor and as a result they quickly pick up the concept and are able to apply it in useful ways.
Now imagine that the plumbing industry is highly regulated and requires licenses. Any thing that is moving a fluid through a pipe, storing a fluid in a tank, or utilizing a pressurized system is subject to fees, regulations, and potentially illegal to operate. The plumbing industry hears of this new metaphor for describing electricity and wants to regulate electricity with the same laws the apply to water and plumbing.
From this it is clear that there exists a distinction between what something *is* and the metaphor used to teach how it operates. For those using electricity, they don't care about how it works or how it is classified they just want the lights to come on. For this group you simply call it 'power' and nothing else is required. But when you are trying to TEACH people how to USE power to do things now you need a metaphor.
In conclusion, DAC is the metaphor that holds the key to designing Distributed Applications. Bitcoin is a Distributed Application that is most easily understood using a currency metaphor. BitShares is a Distributed Application most easily understood via a Bank, Corporation, Exchange metaphor.
If we are afraid to use metaphors due to fear of regulators then we will harm the ability of users to understand how and why Distributed Applications work in an intuitive level and also hinder how they are designed.
I have seen many people come up with DAC ideas, but it is clear that the first principles behind creating Distributed Autonomous Applications are not yet well understood. In my opinion, the DAC metaphor is the key framework that helps to design and implement Distributed Autonomous Applications.
My response is included below:
I have just read through your white paper and think I can agree with the usage of words as important and that your classification structure is also good.
I would like to try a metaphor to explain the value of using a DAC metaphor vs DAA metaphor as both fundamentally describe the same thing.
Imagine you just discovered electricity and all of the amazing things that it could do. There are electrons that flow around, wave forms, and other fundamental building blocks. People want to start using this amazing electricity concept to build useful and productive circuits, but they lack a mental framework that helps them intuitively understand and predict the outcome of a particular circuit structure and even advanced mathematics can only approximate it due to noise in the environment and imperfect measurements of the components. Relying on math alone to simulate the expected results is time consuming. To design systems you need intuition and abstraction.
So someone comes along and says, wow, electricity works just like plumbing! It flows like water, there is a 'pressure' the circuit. Resistors are like narrow pipes etc. If you think of an electrical circuit like plumbing then you can apply everything you intuitively know about what works in plumbing systems to help design and understand this new fancy electricity we just discovered without having to resort to math until after a high-level design is in place. You quickly discover that teaching students about electricity is an order of magnitude easier using this metaphor and as a result they quickly pick up the concept and are able to apply it in useful ways.
Now imagine that the plumbing industry is highly regulated and requires licenses. Any thing that is moving a fluid through a pipe, storing a fluid in a tank, or utilizing a pressurized system is subject to fees, regulations, and potentially illegal to operate. The plumbing industry hears of this new metaphor for describing electricity and wants to regulate electricity with the same laws the apply to water and plumbing.
From this it is clear that there exists a distinction between what something *is* and the metaphor used to teach how it operates. For those using electricity, they don't care about how it works or how it is classified they just want the lights to come on. For this group you simply call it 'power' and nothing else is required. But when you are trying to TEACH people how to USE power to do things now you need a metaphor.
In conclusion, DAC is the metaphor that holds the key to designing Distributed Applications. Bitcoin is a Distributed Application that is most easily understood using a currency metaphor. BitShares is a Distributed Application most easily understood via a Bank, Corporation, Exchange metaphor.
If we are afraid to use metaphors due to fear of regulators then we will harm the ability of users to understand how and why Distributed Applications work in an intuitive level and also hinder how they are designed.
I have seen many people come up with DAC ideas, but it is clear that the first principles behind creating Distributed Autonomous Applications are not yet well understood. In my opinion, the DAC metaphor is the key framework that helps to design and implement Distributed Autonomous Applications.
561
BitShares PTS / DAC Angels - BitShares PTS Stakeholders Group
« on: November 22, 2013, 11:29:02 pm »
Now that PTS have largely been distributed, we would like to announce the formation of the PTS Stakeholders Group. This group will be restricted to those who have over 1000 PTS and would like to work with Invictus Innovations to increase the value of your shares. We have some major plans in the works and would like you all to be involved.
Please send me a PM or contact us via our website so we can add you to this mailing list. We are all partners now in the success of PTS and we can do more by working together.
Please send me a PM or contact us via our website so we can add you to this mailing list. We are all partners now in the success of PTS and we can do more by working together.
562
General Discussion / Encouraging Miners to Include Transactions
« on: November 22, 2013, 10:24:52 pm »
In Bitcoin land people pay transaction fees as the incentive for miners to include transactions; however, ProtoShares has shown that these fees are not always enough and that network latency advantage might be more important than the fees.
To solve this problem in future chains, I believe we can use the coinage consumed metric to dynamically reduce the difficulty of finding a block by as much as 50%. The more coinage days that are destroyed by the block, the easier it gets to mine.
The net effect is that mining is now proof-of-past-stake combined with proof-of-future-stake due to the vesting period. Spending a lot of old coins will therefore result in faster transactions because it will dramatically reduce the difficulty of finding the next block.
With this in play, the situation with y pool would be far less likely to occur because their miners would insist they include transactions.
To solve this problem in future chains, I believe we can use the coinage consumed metric to dynamically reduce the difficulty of finding a block by as much as 50%. The more coinage days that are destroyed by the block, the easier it gets to mine.
The net effect is that mining is now proof-of-past-stake combined with proof-of-future-stake due to the vesting period. Spending a lot of old coins will therefore result in faster transactions because it will dramatically reduce the difficulty of finding the next block.
With this in play, the situation with y pool would be far less likely to occur because their miners would insist they include transactions.
563
General Discussion / Lucky Mining Request for Proposals
« on: November 22, 2013, 09:56:45 pm »
Lucky Mining
Lucky Mining is a new mining incentive designed to encourage solo-mining by gamblers. With traditional mining there is a fixed average reward per hash that adjusts according to the difficulty to regulate the rate at which blocks are found. Under this model there is statistically equal expectation for rewards over time whether solo-mining or pool mining. As the difficulty increases to the point that the expected time for an individual to find a block approaches months, most users prefer to mine in pools at a slight fee rather than mine solo. For these users there is no meaningful difference between finding one block per year and finding one block per century. The rewards are small enough and infrequent enough that they might as well be the same.
Lucky Mining allows an individual to optionally mine at a much higher difficulty for a much higher reward. So a miner may chose to solo-mine at 1000x the default difficulty, if they win they get 900x the default block reward. If they find a block above the default difficulty but below the lottery difficulty get the 1/1000 the default reward for submitting the block.
If this were Bitcoin then a Lucky Miner would be playing the Loto in the hopes of hitting a $17 million dollar jackpot. This changes the economics of mining due to the irrational belief in luck and the intangible value placed on hope. If enough people decide to buy hope rather than predictable low-margin mining rewards, then their combined hash power will increase the difficulty beyond the point where centralized for-profit miners can make money. This will truly decentralize mining.
Implementation Details
Add a 16 bit field (odds) to the block header that represents the difficulty multiplier. Traditional mining this value should be set to 1.
For Lotto Mining this value can be set between 100 and 2^16
The value of the coinbase transaction depends upon the hash of the block:
if( calc_difficulty( hash(blockheader) ) > odds * current_target_difficuty )
output of coinbase is valued at BaseReward * odds * 0.9
if( calc_difficulty( hash(blockheader) ) > odds/2 * current_target_difficuty )
output of coinbase is valued at BaseReward * odds * 0.9^2
....
if( calc_difficulty( hash(blockheader) ) > odds/N * current_target_difficuty )
output of coinbase is valued at BaseReward * odds * 0.9^N
else
output of coinbase is valued at BaseReward / (2*odds)
This coinbase transaction will introduce an ‘external dependency’ on the block header to transactions that wish to spend this output.
The coinbase transaction may only have 2 outputs: 1 for block rewards and 1 for fees.
There should be a new Mining Tab added to the LuckyShares user interface that allows the user to select one of 3 mining options: Traditional 50 Shares, 50,000 Shares Lotto, and 500,000 Shares Lotto Mining. The underlying protocol will support any number, but the user interface will be kept simple.
I am looking for someone to submit bids on what it would cost to add this feature to ProtoShares. We intend to fund the development of this with who ever is most qualified. I am also looking for feedback on the system.
Lucky Mining is a new mining incentive designed to encourage solo-mining by gamblers. With traditional mining there is a fixed average reward per hash that adjusts according to the difficulty to regulate the rate at which blocks are found. Under this model there is statistically equal expectation for rewards over time whether solo-mining or pool mining. As the difficulty increases to the point that the expected time for an individual to find a block approaches months, most users prefer to mine in pools at a slight fee rather than mine solo. For these users there is no meaningful difference between finding one block per year and finding one block per century. The rewards are small enough and infrequent enough that they might as well be the same.
Lucky Mining allows an individual to optionally mine at a much higher difficulty for a much higher reward. So a miner may chose to solo-mine at 1000x the default difficulty, if they win they get 900x the default block reward. If they find a block above the default difficulty but below the lottery difficulty get the 1/1000 the default reward for submitting the block.
If this were Bitcoin then a Lucky Miner would be playing the Loto in the hopes of hitting a $17 million dollar jackpot. This changes the economics of mining due to the irrational belief in luck and the intangible value placed on hope. If enough people decide to buy hope rather than predictable low-margin mining rewards, then their combined hash power will increase the difficulty beyond the point where centralized for-profit miners can make money. This will truly decentralize mining.
Implementation Details
Add a 16 bit field (odds) to the block header that represents the difficulty multiplier. Traditional mining this value should be set to 1.
For Lotto Mining this value can be set between 100 and 2^16
The value of the coinbase transaction depends upon the hash of the block:
if( calc_difficulty( hash(blockheader) ) > odds * current_target_difficuty )
output of coinbase is valued at BaseReward * odds * 0.9
if( calc_difficulty( hash(blockheader) ) > odds/2 * current_target_difficuty )
output of coinbase is valued at BaseReward * odds * 0.9^2
....
if( calc_difficulty( hash(blockheader) ) > odds/N * current_target_difficuty )
output of coinbase is valued at BaseReward * odds * 0.9^N
else
output of coinbase is valued at BaseReward / (2*odds)
This coinbase transaction will introduce an ‘external dependency’ on the block header to transactions that wish to spend this output.
The coinbase transaction may only have 2 outputs: 1 for block rewards and 1 for fees.
There should be a new Mining Tab added to the LuckyShares user interface that allows the user to select one of 3 mining options: Traditional 50 Shares, 50,000 Shares Lotto, and 500,000 Shares Lotto Mining. The underlying protocol will support any number, but the user interface will be kept simple.
I am looking for someone to submit bids on what it would cost to add this feature to ProtoShares. We intend to fund the development of this with who ever is most qualified. I am also looking for feedback on the system.
564
BitShares PTS / GPU Miners are here... if rumors are to be believed!
« on: November 22, 2013, 04:47:22 pm »
My sources report that a GPU miner has been found in the wild and will soon make an appearance in a new pool. I thought I would start a thread to discuss the implications. According to my sources a mid-range GPU is able to crank out about 500 HPM which is in line with high end CPUs.
I find this result very encouraging because the midrange GPU is only 3 to 4x faster than the mid range CPU and about on par with the high-end CPU mining we have seen.
A new pool will be forming that will compete with y pool which will be good for the community. Now that you all know it is possible I suggest that someone move quickly to compete before this GPU miner takes over like y pool.
I find this result very encouraging because the midrange GPU is only 3 to 4x faster than the mid range CPU and about on par with the high-end CPU mining we have seen.
A new pool will be forming that will compete with y pool which will be good for the community. Now that you all know it is possible I suggest that someone move quickly to compete before this GPU miner takes over like y pool.
565
General Discussion / Momentum 2.0 Discussion
« on: November 22, 2013, 12:53:18 am »
I have been thinking about ways to restore Momentum to a memory-hard problem and have had an insight that I believe changes the game.
Lets define a Birthday to be 1 MB of 'random data' that is relatively expensive to calculate and seeded with a nonce
Lets define a Collision to be the number of bits in common between two random sequences.
The goal is to produce two nonces such that the number of bits in common between the two 1 MB sequences is above some threshold.
The cost of validation is populating 2 MB of memory, performing an XOR, and then a population count.
Now lets populate the memory with AES which has hardware acceleration on CPU but not GPU
The population of the memory is sequential which helps eliminate memory bus latency and allows the CPU to saturate the BUS. A GPU would have an advantage in the comparison step because it could compare all birthdays with the new birthday in parallel. That said, a GPU would be limited in parallelism because it could only store 1000 or 2000 birthdays at a time. Even so I am not convinced that a GPU implementation would be a bad thing given the other changes we are making.
This proof is slightly harder to validate, but most of the optimization techniques used to accelerate Momentum 1.0 would not scale as well with this system and an ASIC would still require a very large amount of memory.
What do you all have to say?
Lets define a Birthday to be 1 MB of 'random data' that is relatively expensive to calculate and seeded with a nonce
Lets define a Collision to be the number of bits in common between two random sequences.
The goal is to produce two nonces such that the number of bits in common between the two 1 MB sequences is above some threshold.
The cost of validation is populating 2 MB of memory, performing an XOR, and then a population count.
Now lets populate the memory with AES which has hardware acceleration on CPU but not GPU
The population of the memory is sequential which helps eliminate memory bus latency and allows the CPU to saturate the BUS. A GPU would have an advantage in the comparison step because it could compare all birthdays with the new birthday in parallel. That said, a GPU would be limited in parallelism because it could only store 1000 or 2000 birthdays at a time. Even so I am not convinced that a GPU implementation would be a bad thing given the other changes we are making.
This proof is slightly harder to validate, but most of the optimization techniques used to accelerate Momentum 1.0 would not scale as well with this system and an ASIC would still require a very large amount of memory.
What do you all have to say?
566
General Discussion / Ad Words, DAC
« on: November 21, 2013, 08:37:15 am »
Suppose there was a way to replace Google's AdWords with a DAC. This DAC would be responsible for deciding who owns a current word and what ads should be displayed when a user looks up a given phrase. At first glance this DAC would behave in a manner very similar to DomainShares.
1) Users would bid on names at an auction, but instead of owning the names forever, they would always expire after 1 day
2) Users could 'bump' the owner of a name at any time, provided they reimburse the current owner for lost time and paid more.
3) A user who owns a name could post URLs to one or more ads they would like displayed.
This system would work very well for assigning ads to words, but would be of little value if no one displayed the ads anywhere. This DAC would require motivated individuals to purchase shares in the DAC and then start honoring the ads in the database. If they do a good job, then the value of the DAC shares will increase and more people will bid on the names. Anyone could use this database, but their only avenue of profit is appreciation of the DAC shares as a result of their actions.
Unfortunately, this DAC has a fault that I have not been able to resolve. If I only own 1% of the DAC money supply, and invest $1 million dollars in honoring the DACs social contract by 'republishing' the Ads through various channels and as a result add $2 million dollars to the market cap of the DAC, I only see 1% of that gain and thus am operating at a loss. The rewards are SOCIALIZED while the effort, risks, and investment is privatized.
This may work for many small users each contributing insignificant free advertising (such as in forum sigs, or personal blogs) where the aggregate of all contributions and 'donations' of the users increases demand for the coin. I think such a system would gain some traction in certain corners of the internet.
What really needs to be found is a way to reward those who actually honor the social contract to display the Ads and invest in their propagation.
1) Users would bid on names at an auction, but instead of owning the names forever, they would always expire after 1 day
2) Users could 'bump' the owner of a name at any time, provided they reimburse the current owner for lost time and paid more.
3) A user who owns a name could post URLs to one or more ads they would like displayed.
This system would work very well for assigning ads to words, but would be of little value if no one displayed the ads anywhere. This DAC would require motivated individuals to purchase shares in the DAC and then start honoring the ads in the database. If they do a good job, then the value of the DAC shares will increase and more people will bid on the names. Anyone could use this database, but their only avenue of profit is appreciation of the DAC shares as a result of their actions.
Unfortunately, this DAC has a fault that I have not been able to resolve. If I only own 1% of the DAC money supply, and invest $1 million dollars in honoring the DACs social contract by 'republishing' the Ads through various channels and as a result add $2 million dollars to the market cap of the DAC, I only see 1% of that gain and thus am operating at a loss. The rewards are SOCIALIZED while the effort, risks, and investment is privatized.
This may work for many small users each contributing insignificant free advertising (such as in forum sigs, or personal blogs) where the aggregate of all contributions and 'donations' of the users increases demand for the coin. I think such a system would gain some traction in certain corners of the internet.
What really needs to be found is a way to reward those who actually honor the social contract to display the Ads and invest in their propagation.
567
General Discussion / PowerBall, DAC - Lottery Based Mining Experiment
« on: November 20, 2013, 09:09:50 am »
I have a theory that turning mining into a lottery ticket with a life-changing payout disproportional to the odds of winning would result in an increase in the number of solo-miners. These miners don't mine for the steady $30/month they could get from constant pool mining, but for the off chance that they could win the million dollar jackpot. The existence of the jackpot would not change those who traditionally mine in pools because they would have to divide the jackpot among everyone in the pool and thus not be life-changing. However, once the pot for the lottery grew large enough they would defect from pools in a bid to win big.
This will also change the trust relationship with pools. Suppose an normally honest pool operator suddenly wins big, do you trust him to divide it among his pool members?
So here is how you would modify ProtoShares to enable a lottery base mining reward:
1) the value of a coinbase transaction is not known until the block hash is found.
2) calculate ratio (R) of block_difficulty / target_difficulty which should be a number greater than 1
3) if R > 100 && < 1000 then R = 100
4) if R <= 100 then
COINBASE = MIN_BLOCK_REWARD * R
POT += 100 * MIN_BLOCK_REWARD - COINBASE
5) else R > 1000
COINBASE = 0.5 * POT
POT -= COINBASE
This system should result in a POT that constantly grows with a predictable maximum average inflation rate.
Now assuming this coin had other utility and thus a non-0 value, then this incentive structure would motivate gamblers to solo-mine... for the benefit of the large payout. The higher the value of the pot the more miners would solo-mine. If no-one solo-mines then the reward system is little different than current coins using large pools. By this theory I conclude the result is more decentralized.
Now to make this a free-standing DAC you must create a demand for the coins so that can be achieved by adjusting the payout of the POT proportional to the number of PowerBall shares are held at the coinbase address. 0 shares results in 0 payout and the more shares you own the larger the cut of the payout you get but never exceeding 50%.
As a free-standing system this coin will only be of interest to gamblers and the value of the POT will be proportional to the demand for the coin. You buy the coin so you can gamble on getting more coins by mining and selling your winnings to future gamblers!
If you don't solo-mine then your profits are limited to the appreciation of the coin and a small margin above electric costs. If you solo-mine however, then you could win big in a life-changing way
Thoughts?
This will also change the trust relationship with pools. Suppose an normally honest pool operator suddenly wins big, do you trust him to divide it among his pool members?
So here is how you would modify ProtoShares to enable a lottery base mining reward:
1) the value of a coinbase transaction is not known until the block hash is found.
2) calculate ratio (R) of block_difficulty / target_difficulty which should be a number greater than 1
3) if R > 100 && < 1000 then R = 100
4) if R <= 100 then
COINBASE = MIN_BLOCK_REWARD * R
POT += 100 * MIN_BLOCK_REWARD - COINBASE
5) else R > 1000
COINBASE = 0.5 * POT
POT -= COINBASE
This system should result in a POT that constantly grows with a predictable maximum average inflation rate.
Now assuming this coin had other utility and thus a non-0 value, then this incentive structure would motivate gamblers to solo-mine... for the benefit of the large payout. The higher the value of the pot the more miners would solo-mine. If no-one solo-mines then the reward system is little different than current coins using large pools. By this theory I conclude the result is more decentralized.
Now to make this a free-standing DAC you must create a demand for the coins so that can be achieved by adjusting the payout of the POT proportional to the number of PowerBall shares are held at the coinbase address. 0 shares results in 0 payout and the more shares you own the larger the cut of the payout you get but never exceeding 50%.
As a free-standing system this coin will only be of interest to gamblers and the value of the POT will be proportional to the demand for the coin. You buy the coin so you can gamble on getting more coins by mining and selling your winnings to future gamblers!
If you don't solo-mine then your profits are limited to the appreciation of the coin and a small margin above electric costs. If you solo-mine however, then you could win big in a life-changing way
Thoughts?
568
BitShares PTS / MOVED: Decentralizing Mining - The future of BitShares Mining
« on: November 19, 2013, 11:53:36 pm »569
General Discussion / Decentralizing Mining - The future of BitShares Mining
« on: November 19, 2013, 11:35:20 pm »
ProtoShares has proved to be a very educational experiment in the Crypto Currency realm. It is the first crypto-currency to start out with such a high valuation from the genesis block and as a result has experienced new outcomes that can serve as a learning experience. I would like to take an opportunity to address some of these very real lessons and get feedback on how things can be done in the future.
Most of this post will address the nature of mining. When the value of the mining reward is over 100 times the cost of mining we have learned that the network will be flooded with hash power and as a result block production will accelerate until network latency rather than hash performance determines which blocks get accepted. Network latency in turn masks the real hash power on the network and prevents the network from adjusting the difficulty fast enough to compensate. The ultimate result from this is that blocks will continue to be mined at a rate far faster than the target.
We also learned from this experience that it is critically important to optimize the proof of work as much as possible prior to launch. When we update momentum for BitShares we will spend much more time attempting to optimize the proof-of-work prior to launch rather than letting 3rd parties release optimized miners that fail to include transactions in the network. These optimized miners also contributed to the appearance of a 5x growth in hash power without the ability of the network to rapidly adjust to such a performance increase.
The Role of Mining
Mining is a very controversial subject because it invokes a desire for 'fairness' and 'equal distribution'. People see it as a way to 'fairly' distribute a currency when done properly, and yet no one can define what properly means. In the case of ProtoShares over $2,000,000 dollars has been spent by the community to purchase hash power from providers such as Amazon and Digital Ocean. In exchange for this they have earned almost $10,000,000 worth of ProtoShares. This means of distributing the initial currency highly favors those who are able to use Linux and have access to large data centers like Amazon. It does not help the developers of the currency or to achieve the supposed ideal of 'even distribution to all'.
Some individuals recognized that they couldn't compete with the mass-miners and so they wisely decided to purchase PTS in bulk early on. These bulk purchases benefited the mass-miners and not the creators of the crypto-currency. Many of those involved with mass-mining of ProtoShares were only in it for short-term gain because there were high profits to be made. As a result the financial motivation of mass-miners to defend the integrity of the network was lost and the network suffered from long transfer delays.
While some people may not like the effects of cloud mining, at least it was equal opportunity for anyone who can follow the instructions laid out in the forums. Unfortunately there is another class of attack, the botnet. Botnet operators steal computing power and electricity from other people so they can mine and as a result they can bring thousands of computers to mine for the network. Botnet operators are generally looking to make a profit and therefore have little incentive to see a currency destroyed, but they still manage to make it more difficult for honest individuals to 'fairly' mine shares. There are opportunity costs associated with running a botnet and so botnet operators generally dump the mined shares immediately.
So far I have only addressed mining from the perspective of issuing the currency and as you can see it is fraught with problems. The primary benefit that I can see to such a lottery system is that it encourages people to download the wallet and rapidly deploy a P2P network complete with a viral marketing campaign. This aspect of mining should not be underestimated because it helps the network achieve critical mass. The massive rise in the value of ProtoShares and the resulting gold rush has created a lot of buzz around the community and as a result a lot more people are aware of Invictus Innovations and our future plans for BitShares and Keyhotee.
Taken in the big picture, mining could be replaced with a true lottery and Invictus could have sold lottery tickets to raise capital. Under this model you would still have the buzz without the botnets, though we might have faced legal challenges associated with operating a lottery or illegal gambling operation.
In all the excitement over the issuance of the currency through mining, almost everyone forgets that mining is really just a side-effect of the need to reach a decentralized consensus on the next block. A 100% pre-mined currency still requires mining to get the proper block production rate and security. However, as I have stated before, the 51% attack is only possible for anonymous individuals in small amounts and the risk of getting caught is very high. You only need enough mining power securing the network to stop private criminals from making a profit as mining power will do nothing to stop governments from attacking the network. Governments will use a different approach than mining power because Ripple proves there are other means of reaching consensus that could be employed if someone attempted a 51% denial of service attack.
How to Decentralize Mining
If you want to decentralize transaction validation then mining should not be profitable in bulk. This means that mining rewards need to be enough to cover electricity, but not enough to cover cost of computer capital or profit significantly. People who already own computers could then mine at a slight profit, but anyone who has to rent or buy dedicated mining hardware should be out. Mining also needs to be decentralized and not based in large mining pools where a single bug can result in a large number of blocks not including transactions or a government shutdown could harm the network.
To this end we would like to propose that all wallets mine at 25% effort anytime your computer is plugged in and otherwise idle. It will be like a screen saver. In aggregate this large contingency of solo miners can provide a basic level of security to the network without users having to think about it. Sure some people may download a variation of the wallet that does not perform this service, but most people will recognize that the mining does not affect their overall computing experience. Randomly some people will 'win the lottery' and there will be many winners who are happy when then receive an entire block reward. People buy lottery tickets with much lower odds, and solo mining is no different. In fact, people buying lottery tickets do so at a loss given the odds because the lottery organization keeps 50% of every ticket as profit. If Bitcoin operated in this manner there would be someone winning a $12,000 lottery every 10 minutes and the rush of winning $12,000 all at once is more exciting than the prospect of earning $0.50 per day. All of the gamblers and people who like the idea of 'hope' would mine, but there would be no money for rational people to make from mining.
The challenge is that the value of mining rewards changes constantly and if the price of a currency doubles then all of a sudden something that was unprofitable becomes profitable again. It would be impossible to price-fix the mining reward below the point of profitability in a dynamic environment. So perhaps there is another way to decentralize mining and discourage pools.
The primary reason people join pools is 'instant gratification' and consistent payouts that allow them to cover mining expenses on a month to month basis by dumping some or all of their proceeds on the market. When I suggested switching my pool from 24 hour payouts to 48 hour payouts there was signifcant resistance. Some people didn't trust me, my server, or the price of ProtoShares to remain high enough long enough to profit from their ming. Others wanted the coins so they could sell them as soon as possible to cover Amazon's hosting costs.
Mining pools operate on the assumption that people want instant and consistent payouts and users of the pool rarely like to carry a large balance with the pool operator. Therefore, you can limit the profitability and attractiveness of mining pools by having all new currency that is created vest for a period of 6 months. Anyone who is mining for new currency would have to hold that currency for many months. Few people would want to trust a fly-by-night pool operator to hold their funds for 6 months. Momentary increases in price would not result in a rapid rise in mining power unless the long-term fundamentals changed. A mining pool operator would have to maintain a large balance of working cash to pay out miners in a timely manner and would be unable to support 'mine and dump' operations. Lastly, botnet operators with no faith in the currency wouldn't want to risk a 6-month delay in payout.
Given that the payouts for mining are not 'immediately transferrable' the little guy who wants to 'mine and hold' can solo mine with the same probability of finding a block in 6 months as the money they could get mining in a pool. Only pools with a solid reputation and a large 6 month investment in the currency proportional to their hash power could operate. This means that ypool would have to front almost 8 million dollars to fund their current operation and the result would be far greater decentralization of mining pools.
The 6 month delay would only apply to the issuance of NEW currency. Transaction fees would be available to the miner immediately to compensate them for their service. This would encourage rapid mining and inclusion of transactions and large pools could operate on the basis of including transactions, but not on the basis of issuing currency. New currency issued via dividends would not suffer this delay.
Ultimately this 6 month delay provides a new, simpler, version of proof-of-stake. Only miners with a 6 month time horizon and thus a stake in the future of the currency would mine and no miner could make short term profit by performing long-term harm to the network.
Implications for ProtoShares and BitShares
Because ProtoShares and BitShares are divisible, any supply is sufficient for the currency to operate. When BitShares launches we are considering a change to make it take 6 months until the mining reward for the first block matures and therefore the only way to acquire BitShares will be to purchase them from someone else or to purchase ProtoShares. Those who believe in the long-term viability of BitShares will mine and all of the mine and dump operators will be left on the sidelines. The money supply will be heavily restricted with no real inflation for the first 6 months. There will be stock splits in the form of dividends, but that is not the kind of inflation that transfers wealth from the current holders of BitShares to new holders.
This means that when BitShares is launched, only those with a long-term interest in the shares will mine and any pool operators offering immediate payouts would have to have significant capital invested in BitShares for at least 6 months. Pools will be far more decentralized and you will not have run-away block production.
Feedback Wanted
As you can tell we are working our best to encourage decentralization and correct the problems discovered from the launch of ProtoShares. The ideas proposed above are controversial, but if adopted will make ProtoShares more valuable. I welcome feedback from the community of ProtoShares holders about other benefits or problems that introducing a 6 month vesting period would do for a coin.
Most of this post will address the nature of mining. When the value of the mining reward is over 100 times the cost of mining we have learned that the network will be flooded with hash power and as a result block production will accelerate until network latency rather than hash performance determines which blocks get accepted. Network latency in turn masks the real hash power on the network and prevents the network from adjusting the difficulty fast enough to compensate. The ultimate result from this is that blocks will continue to be mined at a rate far faster than the target.
We also learned from this experience that it is critically important to optimize the proof of work as much as possible prior to launch. When we update momentum for BitShares we will spend much more time attempting to optimize the proof-of-work prior to launch rather than letting 3rd parties release optimized miners that fail to include transactions in the network. These optimized miners also contributed to the appearance of a 5x growth in hash power without the ability of the network to rapidly adjust to such a performance increase.
The Role of Mining
Mining is a very controversial subject because it invokes a desire for 'fairness' and 'equal distribution'. People see it as a way to 'fairly' distribute a currency when done properly, and yet no one can define what properly means. In the case of ProtoShares over $2,000,000 dollars has been spent by the community to purchase hash power from providers such as Amazon and Digital Ocean. In exchange for this they have earned almost $10,000,000 worth of ProtoShares. This means of distributing the initial currency highly favors those who are able to use Linux and have access to large data centers like Amazon. It does not help the developers of the currency or to achieve the supposed ideal of 'even distribution to all'.
Some individuals recognized that they couldn't compete with the mass-miners and so they wisely decided to purchase PTS in bulk early on. These bulk purchases benefited the mass-miners and not the creators of the crypto-currency. Many of those involved with mass-mining of ProtoShares were only in it for short-term gain because there were high profits to be made. As a result the financial motivation of mass-miners to defend the integrity of the network was lost and the network suffered from long transfer delays.
While some people may not like the effects of cloud mining, at least it was equal opportunity for anyone who can follow the instructions laid out in the forums. Unfortunately there is another class of attack, the botnet. Botnet operators steal computing power and electricity from other people so they can mine and as a result they can bring thousands of computers to mine for the network. Botnet operators are generally looking to make a profit and therefore have little incentive to see a currency destroyed, but they still manage to make it more difficult for honest individuals to 'fairly' mine shares. There are opportunity costs associated with running a botnet and so botnet operators generally dump the mined shares immediately.
So far I have only addressed mining from the perspective of issuing the currency and as you can see it is fraught with problems. The primary benefit that I can see to such a lottery system is that it encourages people to download the wallet and rapidly deploy a P2P network complete with a viral marketing campaign. This aspect of mining should not be underestimated because it helps the network achieve critical mass. The massive rise in the value of ProtoShares and the resulting gold rush has created a lot of buzz around the community and as a result a lot more people are aware of Invictus Innovations and our future plans for BitShares and Keyhotee.
Taken in the big picture, mining could be replaced with a true lottery and Invictus could have sold lottery tickets to raise capital. Under this model you would still have the buzz without the botnets, though we might have faced legal challenges associated with operating a lottery or illegal gambling operation.
In all the excitement over the issuance of the currency through mining, almost everyone forgets that mining is really just a side-effect of the need to reach a decentralized consensus on the next block. A 100% pre-mined currency still requires mining to get the proper block production rate and security. However, as I have stated before, the 51% attack is only possible for anonymous individuals in small amounts and the risk of getting caught is very high. You only need enough mining power securing the network to stop private criminals from making a profit as mining power will do nothing to stop governments from attacking the network. Governments will use a different approach than mining power because Ripple proves there are other means of reaching consensus that could be employed if someone attempted a 51% denial of service attack.
How to Decentralize Mining
If you want to decentralize transaction validation then mining should not be profitable in bulk. This means that mining rewards need to be enough to cover electricity, but not enough to cover cost of computer capital or profit significantly. People who already own computers could then mine at a slight profit, but anyone who has to rent or buy dedicated mining hardware should be out. Mining also needs to be decentralized and not based in large mining pools where a single bug can result in a large number of blocks not including transactions or a government shutdown could harm the network.
To this end we would like to propose that all wallets mine at 25% effort anytime your computer is plugged in and otherwise idle. It will be like a screen saver. In aggregate this large contingency of solo miners can provide a basic level of security to the network without users having to think about it. Sure some people may download a variation of the wallet that does not perform this service, but most people will recognize that the mining does not affect their overall computing experience. Randomly some people will 'win the lottery' and there will be many winners who are happy when then receive an entire block reward. People buy lottery tickets with much lower odds, and solo mining is no different. In fact, people buying lottery tickets do so at a loss given the odds because the lottery organization keeps 50% of every ticket as profit. If Bitcoin operated in this manner there would be someone winning a $12,000 lottery every 10 minutes and the rush of winning $12,000 all at once is more exciting than the prospect of earning $0.50 per day. All of the gamblers and people who like the idea of 'hope' would mine, but there would be no money for rational people to make from mining.
The challenge is that the value of mining rewards changes constantly and if the price of a currency doubles then all of a sudden something that was unprofitable becomes profitable again. It would be impossible to price-fix the mining reward below the point of profitability in a dynamic environment. So perhaps there is another way to decentralize mining and discourage pools.
The primary reason people join pools is 'instant gratification' and consistent payouts that allow them to cover mining expenses on a month to month basis by dumping some or all of their proceeds on the market. When I suggested switching my pool from 24 hour payouts to 48 hour payouts there was signifcant resistance. Some people didn't trust me, my server, or the price of ProtoShares to remain high enough long enough to profit from their ming. Others wanted the coins so they could sell them as soon as possible to cover Amazon's hosting costs.
Mining pools operate on the assumption that people want instant and consistent payouts and users of the pool rarely like to carry a large balance with the pool operator. Therefore, you can limit the profitability and attractiveness of mining pools by having all new currency that is created vest for a period of 6 months. Anyone who is mining for new currency would have to hold that currency for many months. Few people would want to trust a fly-by-night pool operator to hold their funds for 6 months. Momentary increases in price would not result in a rapid rise in mining power unless the long-term fundamentals changed. A mining pool operator would have to maintain a large balance of working cash to pay out miners in a timely manner and would be unable to support 'mine and dump' operations. Lastly, botnet operators with no faith in the currency wouldn't want to risk a 6-month delay in payout.
Given that the payouts for mining are not 'immediately transferrable' the little guy who wants to 'mine and hold' can solo mine with the same probability of finding a block in 6 months as the money they could get mining in a pool. Only pools with a solid reputation and a large 6 month investment in the currency proportional to their hash power could operate. This means that ypool would have to front almost 8 million dollars to fund their current operation and the result would be far greater decentralization of mining pools.
The 6 month delay would only apply to the issuance of NEW currency. Transaction fees would be available to the miner immediately to compensate them for their service. This would encourage rapid mining and inclusion of transactions and large pools could operate on the basis of including transactions, but not on the basis of issuing currency. New currency issued via dividends would not suffer this delay.
Ultimately this 6 month delay provides a new, simpler, version of proof-of-stake. Only miners with a 6 month time horizon and thus a stake in the future of the currency would mine and no miner could make short term profit by performing long-term harm to the network.
Implications for ProtoShares and BitShares
Because ProtoShares and BitShares are divisible, any supply is sufficient for the currency to operate. When BitShares launches we are considering a change to make it take 6 months until the mining reward for the first block matures and therefore the only way to acquire BitShares will be to purchase them from someone else or to purchase ProtoShares. Those who believe in the long-term viability of BitShares will mine and all of the mine and dump operators will be left on the sidelines. The money supply will be heavily restricted with no real inflation for the first 6 months. There will be stock splits in the form of dividends, but that is not the kind of inflation that transfers wealth from the current holders of BitShares to new holders.
This means that when BitShares is launched, only those with a long-term interest in the shares will mine and any pool operators offering immediate payouts would have to have significant capital invested in BitShares for at least 6 months. Pools will be far more decentralized and you will not have run-away block production.
Feedback Wanted
As you can tell we are working our best to encourage decentralization and correct the problems discovered from the launch of ProtoShares. The ideas proposed above are controversial, but if adopted will make ProtoShares more valuable. I welcome feedback from the community of ProtoShares holders about other benefits or problems that introducing a 6 month vesting period would do for a coin.
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General Discussion / Why BitShares is Immune to Regulation - SEC Chair, bitcoin may not be a security
« on: November 19, 2013, 06:19:53 am »Quote
SonicSpike wrote in with a link to another report in Bloomberg. The Federal Reserve has no plans to regulate Bitcoin (lacking regulatory authority), but the SEC chair wrote "Regardless of whether an underlying virtual currency is itself a security, interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to our regulation."
BitUSD and the instruments traded on the BitShares network are not a SECURITY based upon the SEC chair's suggestion that the underlying virtual currency may not itself be a security. If this line of thinking holds then BitShares will be in a very good positon.
