Why DPOS is better than other POS

[bytemaster]

I think the focus of this article isn't "short term", but more of the long-term.... in the short term they are all "equal" in the long term ours has the best chance of controlling centralization.

[bytemaster]

Blockchain-based Mining
We have not finalized the details of this, but Ethereum will likely use something similar to the following for its mining algorithm:

1. Let H = sha3(sha3(block header without nonce) ++ nonce ++ i) for i in [0 ...16]

2. Let N be the number of transactions in the block.

3. Let T be the (H mod N)th transaction in the block.

4. Let S be the parent block state.

5. Apply T[0] … T[15] to S, and let the resulting state be S’.

6. Let x = sha3(S’.root)

7. The block is valid if x * difficulty <= 2^256

This has the following properties:

1. This is extremely memory-hard, even more so than Dagger, since mining effectively requires access to the entire blockchain. However it is parallelizable with shared disk space, so it will likely be GPU-dominated, not CPU-dominated as Dagger originally hoped to be.

2. It is memory-easy to verify, since a proof of validity consists of only the relatively small subset of Patricia nodes that are used while processing T[0] … T[15]

3. All miners essentially have to be full nodes; asking the network for block data for every nonce is prohibitively slow. Thus there will be a larger number of full nodes in Ethereum than in Bitcoin.

4. As a result of (3), one of the major motivations to use centralized mining pools, the fact that they allow miners to operate without downloading the entire blockchain, is nullified. The other main reason to use mining pools, the fact that they even out the payout rate, can be assomplished just as easily with the decentralized p2pool (which we will likely end up supporting with development resources)

5. ASICs for this mining algorithm are simultaneously ASICs for transaction processing, so Ethereum ASICs will help solve the scalability problem.

From here, there is only really one optimization that can be made: figuring out some way to get past the obstacle that every full node must process every transaction. This is a hard problem; a truly scalable and effective solution will take a while to develop. However, this is a strong start, and may even end up as one of the key ingredients to a final solution.

In effect Ethereum is forcing all miners to bear the cost of a full node.... the number of full nodes will thus be proportional to expected fees / dilution.   

https://blog.ethereum.org/2014/02/18/ethereum-scalability-and-decentralization-updates/

5. ASICs for this mining algorithm are simultaneously ASICs for transaction processing, so Ethereum ASICs will help solve the scalability problem.

So in addition to using Ghost / Randomness in an attempt to get up to 12 second blocks (ie: processing a lot of orphaned blocks) only those able to run a full node can mine and thus negating the decentralization aspect of it.   

Economics really is the key to everything.

[Empirical1]

it feels lacking.

what points am I missing guys?

It's good. As you say people are short term focused until it becomes an issue. (Edit: So I mean most of the above isn't a huge selling point yet.)

What it could be missing -

Even now isn't DPOS able to offer meaningfully lower transaction fees than most other systems?

At the moment the chart here says variable* http://wiki.bitshares.org/index.php/Why_choose_Bitshares%3F
& links to an explanation of 'burn rate'. Unfortunately that gives me no way to make a $ comparison.

Originally my understanding was that we could already easily be 10x cheaper than the $0.05 or $0.06 you pay in NXT and mostly pay in Bitcoin.

If my understanding is correct then the financial advantage of our system will have a big impact in applications like tipping or content purchase from the outset. (If you tip someone $0.2 or want to read a publication/article for $0.2 paying a 25% fee of $0.05 via NXT/BTC is pretty steep, if we are 10x cheaper then DPOS could dominate the micropayments area from the outset.)

The cost of running nodes in our system:  $100 / month * 101 delegates =>  $10,100 / month in operating costs.   Delegates will need to earn that from transaction fees.  At 1 transaction per second that will require fees of $0.004.    At 0.25 trx per second (one trx every 4 seconds) it will require $0.02 per transaction to cover costs.

As the network grows the costs grow non-linearly as you go from commodity hardware to high-end hardware.     I suspect that at the end of the day we will likely have fees of about $0.05 like the other networks.    Unfortunately, for the other networks, their fees are expected to be shared with those leasing forging power (Nxt) or only those with greater than 1% of the stake (Peercoin). 

We will likely target fees high enough to prevent spam and abuse but allow legitimate use.   Starting out with a fee of $0.02 will probably be sufficient once the market cap grows the fee will grow with it to $0.05-$0.10 and make being a delegate profitable and thus pay for the OTHER THINGS delegates should be doing. 

I think the article is very good, but could probably use some examples that visually show that Peercoin will centralize to less than 100 people and that Nxt forgers will not be able to pay those that lease them forging power.

  Thanks for the explanation.

I might have misunderstood it, but this is where I'm at now, the article assumes that validation costs are fixed

Assuming a fixed validation cost per transaction and a fixed fee per transaction, there is a limit to the amount of decentralization that can take place. 

But in reality the validation costs per transaction are not fixed, they decrease as transactions increase -

The cost of running nodes in our system:  $100 / month * 101 delegates =>  $10,100 / month in operating costs.   Delegates will need to earn that from transaction fees.  At 1 transaction per second that will require fees of $0.004.    At 0.25 trx per second (one trx every 4 seconds) it will require $0.02 per transaction to cover costs.

So doesn't this mean that over time as the amount of transactions increase,  the transaction fee needed from each transaction for a delegate to BE will get lower and lower, getting to a point where the difference in transaction fee required between a 100 delegate system and a 1000 delegate system will become unnoticeable? ($0.0001 vs. $0.00001)

A 100 delegate system could charge the same fee but take the running costs and profits that would have gone to the 900 other delegates and return those to shareholders/benefit the business but again once the BE transaction fee gets really low &/CAP gets high, the interest rate this represents to shareholders will be negligible.

[merockstar]

this is tough subject matter to translate into noobspeak.

be back soon with another draft, keep the input coming if you got it.

[bytemaster]

But in reality the validation costs per transaction are not fixed, they decrease as transactions increase -

I actually think economies of scale work slightly differently in this case:

1) Does the cost per GB of ram increase as you add more ram to a system?   Eventually speed of light, mother board size, etc results in moving to higher-end, lower volume, components and thus a higher price due to their speciality / bleeding edge nature.    As the system hits the limits of network, CPU, and memory technology prices go up for each additional transaction.

2) Transaction Processing is sequential by nature

With this in mind I think it is fair to assume that a fixed validation cost is fair.

[bytemaster]

this is tough subject matter to translate into noobspeak.

be back soon with another draft, keep the input coming if you got it.

Be sure to point out how this applies to Proof of Work systems... especiall Proof-of-Chain like ethereum is doing.   We can then post a blog article and pump it on Reddit and draw a huge debate.

[Empirical1]

But in reality the validation costs per transaction are not fixed, they decrease as transactions increase -

I actually think economies of scale work slightly differently in this case:

1) Does the cost per GB of ram increase as you add more ram to a system?   Eventually speed of light, mother board size, etc results in moving to higher-end, lower volume, components and thus a higher price due to their speciality / bleeding edge nature.    As the system hits the limits of network, CPU, and memory technology prices go up for each additional transaction.

2) Transaction Processing is sequential by nature

With this in mind I think it is fair to assume that a fixed validation cost is fair.

  Thanks. I can't think of any advantage to having 1000 delegates vs. 100 besides the 'idea' of more decentralisation anyway, (But lots of other new disadvantages.)

[xeroc]

Subscribing to this awesome discussion ..

[merockstar]

I have definitely hit a writers block on this.

I'm staring at it, and reading people's input. so far I've ascertained three things that should be addressed:

- An example of how Peercoin and Nxt wouldn't be able to scale as currently implemented

- Explain how Ethereum's proof of chain (honestly, I don't even know what that is- is this relevant?) doesn't scale

- an example of what our costs will be and how they will scale (BM basically fed me that, so that one shouldn't be too hard but having trouble figuring out where to slide it in)



added this paragraph to try and cross out the last point:


This extra efficiency could be used to benefit the network as a whole. In DPOS, assuming an operating cost of about a hundred dollars a month, this works out to a need for $10,100 per month necessary to compensate delegates. Assuming one transaction per second this necessitates a fee of $0.004 per second, but as the number of transactions per second grows, this the amount that must be charged goes down until improved hardware becomes a factor. Setting the fees to a competitive $0.05 or $0.10 per transactions would provide extra income for delegates to promote or market the infrastructure as a whole, and profit shareholders. As more and more people pile onto the network it becomes more possible to continue lowering fees and give more back to shareholders.

[Empirical1]

Yeah I like that paragraph. The only thing I think that helped me a bit too is actually looking at the numbers NXT and say Bitcoin currently earn from transaction fees.

With NXT I think they earn less than $8 000 a month from fees in total. http://87.230.14.1/nxt/nxt.cgi?action=40

I realised that doesn't buy a lot of decentralisation or pay for a lot of forging. On a $50 million CAP that's only like 0.2% interest a year less however many nodes they have running multiplied by the cost of running a node. Looking at that, it became obvious NXT can't be much more or hope to be much more decentralised than a 101 delegate system anyway. 
If they did there's hardly any money left over for forgers and definitely nothing to put towards other areas.
(& obviously having elected trusted delegates with limited control is much better anyway.)

Then I looked at Bitcoin and they're only getting $200k from fees per month, which would work out at $2K per delegate less expenses so if we want any money left over to do marketing/extra development via delegates even at Bitcoin's size it would be wasteful to have more delegates & we may end up having a few less.

Anyway yeah when I looked at some of the current numbers, it made more sense that the $ aren't there from transaction fees for loads of decentralisation. (Not that there's much/any value to being more decentralised anyway.) 

[bytemaster]

Yeah I like that paragraph. The only thing I think that helped me a bit too is actually looking at the numbers NXT and say Bitcoin currently earn from transaction fees.

With NXT I think they earn less than $8 000 a month from fees in total. http://87.230.14.1/nxt/nxt.cgi?action=40

I realised that doesn't buy a lot of decentralisation or pay for a lot of forging. On a $50 million CAP that's only like 0.2% interest a year less however many nodes they have running multiplied by the cost of running a node. Looking at that, it became obvious NXT can't be much more or hope to be much more decentralised than a 101 delegate system anyway. 
If they did there's hardly any money left over for forgers and definitely nothing to put towards other areas.
(& obviously having elected trusted delegates with limited control is much better anyway.)

Then I looked at Bitcoin and they're only getting $200k from fees per month, which would work out at $2K per delegate less expenses so if we want any money left over to do marketing/extra development via delegates even at Bitcoin's size it would be wasteful to have more delegates & we may end up having a few less.

Anyway yeah when I looked at some of the current numbers, it made more sense that the $ aren't there from transaction fees for loads of decentralisation. (Not that there's much/any value to being more decentralised anyway.)

great research with real tangible numbers that people can appreciate and understand.

Assuming you run Nxt with 100 forgers, that yields $80/month per forger which is just enough to cover a reasonable VPS.   This assumes the stake has been leased evenly to 101 different people.   In reality, I bet there are far fewer than 101 people to whom people are leasing stake and that many of those who have stake leased to them have more than 1% of the stake.   

 

[merockstar]

Is this accurate?

At 2000 TPS validation costs equals the cost of running server which include 100 MB/sec network connection, a server with 256 GB of ram or more, high availability (redundant backups), DDOS protection, etc.   These kinds of systems can easily cost $5000 / month or more to operate at scale.   If you don't earn that much from block production then you will not do it.

Let's take a look at Nxt. Based on the number of transactions as of the time of this writing (thanks, Empirical1) the network is likely to bring in less than about $8000 worth of transaction fees a month. That's given their current number of transactions which is averaging about 0.8 transactions a minute, or 0.01 transactions a second. (cite:http://87.230.14.1/nxt/nxt.cgi?action=40) Increasing that rate to 10 transactions per second means 1000 times more transaction fees, or 80,000 a month from securing the network. Running a node for one person is going to cost on average about a hundred dollars a month for electricity costs. This means in a completely decentralized Nxt network that doesn't use leased forging, only those with 1/800 of all Nxt or more would be able to forge profitably at ten transactions per second. The costs for hardware go up even more as the number of transactions increase. As the number of transactions increase so does the cost of running the hardware needed to validate it.

At 2000 transactions a second this means the network (assuming the transaction fee isn't altered) would bring in about 16,000,000 a month. However to cost to secure a network with that many users is going to increase exponentially as well. At this point a server capable of handling that many transactions is going to cost along the lines of $5000 a month. The end result is that only those with balances more than 1/3,200 (at this level that will be many millions of dollars) of the network would be able to forge profitably given complete decentralization.

[bytemaster]

Is this accurate?

Let's take a look at Nxt. Based on the number of transactions as of the time of this writing (thanks, Empirical1) the network is likely bring in less than about $8000 worth of transaction fees a month. That's given their current number of transactions which is averaging about 0.8 transactions a minute, or 0.01 transactions a second. (cite:http://87.230.14.1/nxt/nxt.cgi?action=40) Increasing that rate to 10 transactions per second means 1000 times more transaction fees, or 80,000 a month from securing the network. Running a node for one person is going to cost on average about a hundred dollars a month for electricity costs. This means in a completely decentralized Nxt network that doesn't use leased forging, only the 800 richest would be able to forge profitably at ten transaction per second.

Edit: no it's not accurate

At 2000 TPS validation costs equals the cost of running server which include 100 MB/sec network connection, a server with 256 GB of ram or more, high availability (redundant backups), DDOS protection, etc.   These kinds of systems can easily cost $5000 / month or more to operate at scale.   If you don't earn that much from block production then you will not do it.

If Nxt is able to run on cheap nodes at that scale.    And not the 800 richest, but those with over 1/800 or  0.125% stake which amounts to $100,000 at todays prices, but if you scale it up by a factor 100 then the market cap would be higher than BTC which means you are talking people with over $1 million worth of Nxt.

[merockstar]

ok BM, altered the above post to reflect that. hows it look now?

okay. the only point I haven't addressed from that list above is Ethereum Proof of Chain scaling.

where can i learn about that? Is it basically just proof of work?

[bytemaster]

ok BM, altered the above post to reflect that. hows it look now?

okay. the only point I haven't addressed from that list above is Ethereum Proof of Chain scaling.

where can i learn about that? Is it basically just proof of work?

It is a proof of work algorithm  that requires the block chain to be present to perform the work

Effectively bitcoin can be thought of as delegated proof of work then ether prevents delegation. 




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