Author Topic: Alternative DNS White Paper  (Read 10790 times)

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Offline GaltReport

I have only 1 question.  Is their anything in either approach to stop someone from using their greater wealth to silence someone or some opinion by outbidding them for their current well know website name and putting up some crap/contrary site?  That's my concern with the situation where you already have a .com site and want to have the same name in the new system.



Offline xman

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As a webmaster, I will hesitate to use a domain name that will be out of my control. that is, might be taken away by competiter, or a richer person.

Offline xfund

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Domain holder must choose one from  the 123?

Quote
At this point the current domain holder may:

1)   Extend their lease at the higher market rate (this relinquishes the deposit back to the bidder)
2)   Hold the lease until the expiration date.  At this point the domain is relinquished to the higher bidder and the bidder takes over the lease with an initial term equal to the lease they bought out.
3)   "Sublease" the domain to the higher bidder at any time before the lease expiration.  Subleasing gives a profit to the original domain holder by the formula (higher_rate - rate_paid) * time_remaining_on_original_lease.  The new holder always takes over the domain with a lease term equal to the length of the lease they bought out.
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Offline Method-X

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Quote from: gamey
Why won't companies just buy domains off-chain?  How often will auction system actually be used ?

This. Squatting is not a problem that needs solving. If I want a domain badly enough, I'll buy it off the squatter for market value.

Offline gamey

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So much about this I don't get.  I wrote up a long list of concerns and somehow (my fault) lost them.

Why won't companies just buy domains off-chain?  How often will auction system actually be used ? 

The domain tax system is strange, because when you build an online brand so much is tied around the domain itself.  Having to pay the value for it every year is not anything anyone would voluntarily want to do. 

For large existing companies, the only real business need I see is as a security system.  But the secure domain doesn't usually have the same need as the customer directed domain.  ICANN has a legal framework and every existing company has their own domain.  Last i checked it was accepted wisdom that is makes little sense to have multiple domains point to the new one.  What is the reasoning that existing companies will ever want to switch ?

Agent86's system protects property rights of established brands with capital at the expense of the under capitalized, the original way protects the under capitalized.  This is the opposite of how decentralization has been used before.  It is a neat idea, but seems very experimental and I question what real world use it will see since all the centralized systems protect these entities as it is.

As an experiment I find it quite interesting to see how it plays out, but it also concerns me that we are muddying up the project with confusion.   2 chains (1 chain, 2 tlds?) sounds great, but it'd be nice to see someone explain why people will ever use this model.  Squatting sucks, but squatters have their price and it is a one time fixed cost.  So it seems to me that people will just revert to the original model first and approach the squatters.  There is no guarantee that the owner in agent86's model is legitimate, so what are you really selling ?
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Offline arhag

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Your proposed additional function f(n) = 0.0025 + 0.125/n only complicates things and is not useful.  It exacerbates the squatting problem that is already present.

I think I might I agree. I have to think about it more, but it may just make things more complicated without really improving anything. Let me continue with the domain tax model assuming a fixed 1% annual tax on the market price of the domain.

How would this sound to you:  Beginning with the initial auction, everyone is forced to pay up front for a 100 year lease and maintain it.  They are forced to extend this lease every 3 months at the current market rate or else they lose their domain.

In case you missed it, this is equivalent to your core proposal.

Sure. They're equivalent as long as losing their domain to someone else means that they automatically get the 100 year lease deposit that the new owner paid. If someone has to deal with the threat of losing their brand name on a regular basis, at least they are compensated with a significant value transfer from the person taking their name away from them. This also acts as a barrier to prevent nefarious people from just outbidding a domain holder with a high lease paid only once for a short lease period, not for the purpose of holding the domain for long, but only to cause a disruption in previous holder's website access in order to damage their brand.

In your model, if a domain holder wants a short 1-year lease length to allow them the flexibility to readjust the lease rate if they think it is too high, then they need to worry about losing the name every year with no financial benefit to them if that happens. If they finally earn the privilege to get long multiple year lease length, they have to now deal with the risk that they may have overpaid if the market rate value of leasing the domain drops.

I think doing 100 year leases incentivizes squatting behavior too much. 

There is certainly a trade off between disincentivizing squatting and reducing the cost to domain holders to maintain their established name. The domain tax model chooses a different point of balancing these two concerns than your leasing model. In fact, I think of the domain tax model as a generalization of your leasing model (as long as you assume only fixed 3 month leases are allowed). If the tax were 100%, then the domain holder would essentially be leasing the domain at the fair market rate. If the tax were 0%, this would be nearly identical to the guaranteed-ownership model originally proposed for .p2p. My claim is that the sweet spot is somewhere in between these two extremes.

I also don't like that there is no flexibility for domain holders in lease length and they have to make payments every 3 months that might rise unexpectedly.  If they ever are priced out of their lease they have only 3 months to plan for it and move (Granted they get a big payment in doing so).  Under my plan they have the entire length of their lease to plan for a move or decide what they want to do.

Would setting the renewal period to 1 year help? Do they really need more than a year to make the transition?


Offline Agent86

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Arhag,
How would this sound to you:  Beginning with the initial auction, everyone is forced to pay up front for a 100 year lease and maintain it.  They are forced to extend this lease every 3 months at the current market rate or else they lose their domain.

In case you missed it, this is equivalent to your core proposal.

Your proposed additional function f(n) = 0.0025 + 0.125/n only complicates things and is not useful.  It exacerbates the squatting problem that is already present.

I think doing 100 year leases incentivizes squatting behavior too much.  I also don't like that there is no flexibility for domain holders in lease length and they have to make payments every 3 months that might rise unexpectedly.  If they ever are priced out of their lease they have only 3 months to plan for it and move (Granted they get a big payment in doing so).  Under my plan they have the entire length of their lease to plan for a move or decide what they want to do.

It's probably an improvement on Empirical's original idea or maybe it's just more specific, and I like that both of you are acknowledging the need for market based carrying cost.  But in the end I think it incentivizes squatting behavior too much and has other problems such as flexibility.  It would also be possible to use my idea with a longer initial lease or tweak it, but I don't currently see a reason to.

Offline arhag

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I finally got around to reading this. As other people have already mentioned, I am also concerned with the fact that you do not own the name but are only leasing it. This could lead to certain issues like a big, rich company bidding up the lease rate of a small start-up competitor's website to take it over before it has the chance to get big or even taking over an individual's website to censor the individual who may be writing bad things about the company on his popular blog. I think it is best to have both this model and the original .p2p model. This provides an option to those who really want to own their domain (even if the pool of available good names is smaller because of squatting). Also, it allows us to see what the squatting differences between the two models actually are in practice.

I also want to get some clarification on the lease length formula. Does it mean the maximum lease length can grow exponentially? At least that is how I understand the following:
After acquiring a lease, a domain holder may extend the lease at any time up to the max lease length.  The max lease length is defined by the formula: initial_lease_length +  time_domain_held = max_lease_length.  Domains acquired from the auction process have an initial lease length of 1 year.
This means I can win the auction at time t = t0 for leasing a domain for 1 year, then six months later at t = t0 + 0.5 years extend the lease by 1.5 years (0.5 + 1) to a new expiration time at t= t0 + 2 years, then at t = t0 + 1.5 years extend it again by 2.5 years (1.5 + 1) to a new expiration time at t = t0 + 4 years, then at t = t0 + 3.5 years extend it again by 4.5 years (3.5 + 1) to a new expiration time at t = t0 + 8 years, and so and so forth. Did I understand that correctly? I assume that is what you mean when you say:
Domain name holders who establish long term ownership interest in their domain are rewarded with very long lease options to have the certainty of future ownership.

If so, I do like that property of the system. People and companies who are serious about owning their name can quickly get to the point where they can lease for very long periods without worrying about others outbidding them for a while. It is a gamble though. If you end up with a really long lease length at a certain lease rate, but the market rate is actually less than that, you are forced to pay the inflated rate for the rest of the very long lease until you finally get the chance to put it up for auction. What if instead of paying upfront for the full term of the lease, a lessee pays every year for one year chucks of their total lease length at their current lease price? That way if they thought the rate was too high they could stop paying and let the domain go up for auction. Would this break the economic disincentives for squatting? They would still be forced to readjust their lease rate at the end of their lease which would only be a long time in the future after they already owned the domain for a long time.  And anytime the domain is sold to another party, the max lease length could be reset back to the initial lease length. The point is I would like to reward long-time domain holders with the ability to keep a lease price below market rate for a long time.

I also like Empirical1's suggestion. It makes it more like buying a home and paying a property tax than renting an apartment. So how about the following model. The initial auction for the domain would be to buy the domain not lease it. That would set the initial market price of the domain.  Every 3 months (a quarter) after the initial sale of the domain a new renewal auction opens up. The auction starts at the beginning of every quarter and the current domain holder would keep control of the domain throughout that quarter. The auction parameters could be the same as the ones in your whitepaper (30 day minimum, ends after 24 hours of no bids, bids must be 10% above previous bid, upfront deposit of bid value needed, and being outbid returns your deposit). The deposit of the highest bidder determines the new market price of the domain. After the end of the auction (the auction automatically ends one week before the end of the quarter if 24 hour inactivity period hasn't ended the auction already), the domain owner has until the end of the quarter to pay a domain tax based on the new market price of the domain (say 0.25% of the market price) in order to keep the domain for another quarter. If the domain owner pays the tax, the highest bidder gets his deposit back. If the domain owner fails to pay this tax, the domain is transferred to the highest bidder and the highest bidder's deposit goes to the previous domain owner. This way there is still the carrying cost (the domain tax) that disincentivizes squatters who do not have a legitimate use for the domain. The tax does scale with the market value of the domain, but since it is only 1% per year, it is not too high. A domain owner who is willing to pay no more than X per year to renew a domain annually would force a buyer to pay the owner more than 100*X to take the domain away from the owner. But we can make things even better in order to strike an appropriate balance between disincentivizing squatters and not punishing legitimate domain holders too much. The tax rate could be a function of the length of time the domain holder has held onto the domain. Instead of the tax rate being fixed at 0.25% (0.0025) per quarter, it can be set to the following function of the number of quarters (n) that the owner held the domain: f(n) = 0.0025 + 0.125/n (y-axis of plot is in annual percent of domain tax, x-axis of plot is in years). In the first 5 years of owning a domain, assuming the market price of the domain remains the same as the initial auction price during this period, the owner will have to pay nearly 50% of the initial price in domain taxes. After 5 years, the annual tax rate is less than 3.5% (and decreasing). This makes it so that long time domain holders pay a low rate, and speculators won't find it profitable to squat on a domain if they believe they cannot make more than 50% return on investment from the initial auction price after 5 years.


By the way, great job on this section:
A major barrier to adoption of a system such as Namecoin is the lack of resources and financial incentives for those who are promoting and developing the system.  All current systems of decentralized ownership tracking, often grouped under the term "crypto-currencies" (which includes Bitcoin) suffer from a problem of "group trap."  Group trap can be defined by the observation that working as a group toward a common goal may dilute the incentive for individual effort.  Essentially, these decentralized systems have no mechanism to effectively centralize the resources needed to incentivize developers and promoters of the system.  While those with stake in a particular currency have some motivation to promote it, the value of the work performed is diluted across all shareholders.  A developer or promoter working hard for such a system personally incurs the cost of that labor while other shareholders do not.  The shareholders who do not incur these extra costs derive comparatively better returns from their investment.

Many such systems begin with large stakeholders who work hard to promote and develop the system.  As they begin to sell stake to cover costs it becomes apparent that the work is not adequately rewarded.  Many of these projects leave investors holding stake in abandoned and underdeveloped projects.  Some projects raise initial capital from investors who are then granted stake.  This money is used on the honor system to develop the project.  This starting capital is inherently limited, it is not controlled and directed by shareholders proportional to stake, and it is not a sustainable funding method for long term project costs.

The solution to this "group trap" is shareholder directed reinvestment or distribution.  Following the BitShares analogy of shares in a profitable company we can see that shareholders can be given voting rights to direct capital.  These systems can be structured in a way that generates profit for shareholders.  For instance, a domain holder can pay a certain amount of stake to the network to lease a domain.  This stake is destroyed, increasing the percent ownership of all stakeholders.  The stakeholders can then sell that additional stake back to customers who use it to pay to lease domains on the network and the stake is again destroyed.  Destroyed stake is essentially "income" to the shareholders.  While destroyed shares are income, shareholders can pay expenses via creation of new shares.

A method to accomplish this is the election by popular vote of "workers" who are paid via the issuance of new shares.  Workers can be elected by a method called "approval voting."  Approval voting allows any stakeholder to approve or not approve of any candidate worker.  These approvals are weighted by ownership stake.  Workers with over 50% approval by stake become active and are paid a salary in newly issued shares.  This salary could be specified by the worker as part of their candidacy.  It is also possible to allow shareholders additional control of salary by approving a percentage of the requested salary during voting.  This percentage could be above or below the requested salary and a median can be taken to determine the actual paid salary.  This system allows shareholders to hire executives, developers, and promoters and appropriately incentivize them to work in the interests of the system.

A domain registration system is the type of system that requires a large network effect.  Utility of the system and adoption of the system are interdependent and each is reinforced by the other.  Promoting the system to the point that a network effect is established may require a large initial investment.  It is quite likely that expenses for development and promotion would outweigh income in the early stages of the system.  For this reason the system may create more shares than it destroys in early stages.  The system would grow in value by increasing adoption and attracting new investment capital to buy the newly created shares.
It clearly explains the profitable company analogy and why BitShares DACs have a better chance of future survival than other systems. The mechanisms of selecting the workers and their pay described in the penultimate paragraph of that section is something that I think still needs further debate and discussion. I agree that workers should be separate from delegates and that there should be more flexibility in deciding their pay rate than the current method. But this is something for further discussion in another topic.




Offline gamey

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I also wonder if it would be possible to blackmail (for lack of better word) someone.  Say I value a domain at $1k which is currently costing the owner $100.  I could try to bid for it, or I could send an email telling the person to pay me $X amount or have the domain bid up.   Now they say no and I bid at $1k, knowing I  can make my money back - or they pay me.  People learn to go the easy route.

I haven't looked at the underlying equations, but could a blackmail approach work ?  Why not ?

Shaking people down is a time honored business model....
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Offline Empirical1

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Edit - With the above being said, I don't care much since there is still the original approach.  As long as DNS has the option for both approaches then I have no concerns.  Just as Agent stated, no one is being forced to lease the domain to utilize this technology.

 +5%  (I still think the original approach doesn't solve the problem of getting some relative value from specific domains long term though but I'll look at the original one more now.)

Offline Empirical1

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Hi Agent86, yes I've since read that thread. https://bitsharestalk.org/index.php?topic=5357.0

For me, I see the fault more clearly now. You've undervalued a domain name. You've viewed it more as a business 'location' that has limited value as it can be moved. This is wrong, imo, with most online businesses you're not, for example,  just asking Hotels.com to move their hotel sales to another location, you're asking them to give up their brand name too.

Domain names are intimately tied with the brand itself & NO business in the real world would EVER 'rent' it's brand imo.

To have no ownership over your own online brand and to pay rent commiserate with the total value of the brand you built by competitors, shareholders and vultures is a fatal flaw still for me. (Even my model of charging them a small ground rent is pushing the boundaries.)

If BitShares shareholders didn't own the tlds that Toast is creating and were instead subject to your model of lease agreements from ICANN.... Would we want to build BitShares DNS?

(I disagree with your Ethereum response too, a competitor being able to (anonymously if they like) close/take control of your site/online brand for any length of time even with a notice period is hugely valuable. Your rent would be decided by competitors/vultures on a cold equation of how much the lost business would damage you and/or benefit them.)

 

Offline gamey

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This means you will be punished the more successful your domain is.
There's nothing wrong with shareholders getting a decent payment from someone making a ton of money using our domain service.  No one is forcing them to lease it from us.  Also, companies that perform a useful service or provide useful content for a website have success and value.  Domains are generally a convenient way of accessing that specific company or service.

These types of things were discussed to some degree in parts of this thread: https://bitsharestalk.org/index.php?topic=5357.0

It isn't just a matter of shareholders getting a decent payment from someone making a ton of money.  You have look at both sides, not just the one benefiting from the injustice.

It is analagous to the postal office allowing others to buy up addresses in order to receive future business from the previous owner.   And the only way to keep your address is to outbid them for what you have built up by your own labor.

Why do I want this unknown cost when I could just get a domain and know the annual cost going forward.  I do not see any rational reason why a startup would choose a domain off of Agent86's model.

Edit - With the above being said, I don't care much since there is still the original approach.  As long as DNS has the option for both approaches then I have no concerns.  Just as Agent stated, no one is being forced to lease the domain to utilize this technology. 
« Last Edit: August 05, 2014, 09:10:29 pm by gamey »
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Offline Agent86

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I want to add a tweak; I think using a "standardized rate tier pattern" for all domains could reduce transaction sizes and database bloat.

Offline Agent86

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Why will domains in your proposal find a fair market rate at the initial auction if bidders aren't incentivised to participate?
Getting the domain is all the incentive needed.  If no one else has tried to register the domain and no one else bid, perhaps that is the "market rate"

The model has a flat registration fee to start an auction but we already have an idea from existing domain systems which names may or are likely to be more popular or valuable so wouldn't it make sense to reference existing domain name valuation systems to derive a fee to register a TOAST domain and start an auction? (I.e. The registration fee for Nike.Tld should be more than Ilovelamp.Tld imo.)
No; this is a ton of unnecessary work.  If Nike.Tld really has value, we will soon find out because people will bid accordingly.

In your model you're really only 'renting' the domain for X period. Then there is a new auction and you have to pay rent for the next rental period at a new rate based on that auction, someone can even force you into a new rental contract at any time? 
Leases can be extended before they near expiration.  If it expires and a new auction happens it means the current holder decided they would rather risk giving up their domain than continue to pay the rate they were paying.  No one can "force you" to lease a domain.

Examples:

Say Bitshares.org is valued at $10 000, I should be able to put in a bid of $5000 knowing that BitShares will more than happily pay the $50 annual rental fee. ($25 to me and $25 to delegates.)

I could bid of $200 000 for a $1 million website 'Y', knowing 'Y' will be happy to pay $2000 rent for the year. (1k easy money to bidder and 1k to shareholders via delegates)
Why should you get paid for harassing people?

But in your model Ethereum can force BitShares to pay $5000-20 000 rent for the next rental period. BitShares will be forced to pay a ridiculous amount for that period & be unfairly punished or lose their site.
It would hurt Ethereum way more to pay bitshares some ridiculous amount to take over our domain name for some period of time.  It would be such a dumb thing to do on their part that they wouldn't do it.  We would take the big payday for a nice profit, redirect traffic for a while, and then end up getting our domain back once Ethereum realizes they can't pay an astronomical price to rent a domain forever that they don't use.  Also, everyone would wonder (including their investors) why they spend their funds this way to be be dumb A-holes who have to resort to such things.

This means you will be punished the more successful your domain is.
There's nothing wrong with shareholders getting a decent payment from someone making a ton of money using our domain service.  No one is forcing them to lease it from us.  Also, companies that perform a useful service or provide useful content for a website have success and value.  Domains are generally a convenient way of accessing that specific company or service.

These types of things were discussed to some degree in parts of this thread: https://bitsharestalk.org/index.php?topic=5357.0

Offline Empirical1

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Hi Agent86,

Why will domains in your proposal find a fair market rate at the initial auction if bidders aren't incentivised to participate?

Thoughts

1. Registration Fee

The model has a flat registration fee to start an auction but we already have an idea from existing domain systems which names may or are likely to be more popular or valuable so wouldn't it make sense to reference existing domain name valuation systems to derive a fee to register a TOAST domain and start an auction? (I.e. The registration fee for Nike.Tld should be more than Ilovelamp.Tld imo.)


FATAL FLAW IMO (At first glance, maybe I misunderstood.) 

In your model you're really only 'renting' the domain for X period. Then there is a new auction and you have to pay rent for the next rental period at a new rate based on that auction, someone can even force you into a new rental contract at any time? 

Problem: 

This means you will be punished the more successful your domain is. You could have to pay a huge new rental fee because of your success, (Someone will want the domain you have built) or  a competitor will want to force you to pay a lot to increase your running costs.
 
What kind of person wants to buy a piece of property on a vacant piece of land, build a fantastic house and furnish it.  Only to have to pay a rent the following year that reflects the improvements he has made to the property?

That's why renters don't upgrade properties because they don't own the results.

Your solution makes domain name holders renters.

Solution: IMO the solution is a form of leasing not this. Push people to pay a fair price at auction like the initial model and then have an annual ground rent that discourages squatters or at least extracts value from them for shareholders but doesn't punish people who have put in hard work to build successful sites too much. 

My kind of model the % and time can be tweaked but that achieve the result

Quote
Every year/two, each domain is automatically auctioned again. The current owner has 30 days in which he has the option to either sell the domain to the winning bidder or keep his domain for another year by paying 1% of the winning bids price. (1/2 of it may go to final bidder and 1/2 to the network, maybe even a bit to a maintenance and development fund. Thus ensuring BitsharesDNS has long term value and can extract a little bit of value from Domains that go on to be very succesful.)

Examples:

Say Bitshares.org is valued at $10 000, I should be able to put in a bid of $5000 knowing that BitShares will more than happily pay the $50 annual rental fee. ($25 to me and $25 to delegates.)

I could bid of $200 000 for a $1 million website 'Y', knowing 'Y' will be happy to pay $2000 rent for the year. (1k easy money to bidder and 1k to shareholders via delegates)

But in your model Ethereum can force BitShares to pay $5000-20 000 rent for the next rental period. BitShares will be forced to pay a ridiculous amount for that period & be unfairly punished or lose their site. Or a Coinmarketcap can build a good site, but have little cash flow and be forced to sell to some competitor with funds that just steals their hard work.
(But by only having to pay 1% of the bid on an annual auction of a site you already own competitors and shareholders can't punish you too much and just extract a small fair annual ground rent.) 
« Last Edit: August 05, 2014, 06:47:45 pm by Empirical1 »

Offline tonyk

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I want to give thumbs up to the white paper and not for the main topic in it – which is btw great proposal in itself.

I want to praise the proposal of the so called workers. ( I realize it is not the first time A86 is proposing this)

I think it is  superior proposal to the so called delegate subsidy currently making its way as the next big thing to be tested by Bitshares – the movement.

The delegate subsidy kind of forces dilution upon stakeholders and if they do not like it they have to fight it / vote it out.
The workers idea turns the table around. And  while it is a tool for the company to expand (the same goal that the delegate subsidy tries to achieve),  the ‘workers’ idea does it in more clear, open and fair way. It is also hard to be seen as inflation as each new share issuance is independently approved by voting.

Some point on the idea itself:
- We should really use approval voting for such votes  and not the current delegate voting system.
- To make it working voting system and not a roadblock to any decision, I suggest several points to be considered (with all the numbers  for example purposes only)

a) 50% + 1 needed for a decision   - should be % of the votes casted, not % of the total number of available shares.

b) There should be a vote window (possibly with 2 parameters) – Let say 3 week to vote on the suggestion with quorum (see c.) required of 50% of all votes, if quorum is not reached in those 3 weeks – one additional week of voting with quorum of 33%, then one additional week with 22% quorum and so on.

c)  quorum – the min number of ALL votes possible (generally all shares) for a vote to count and be considered legitimate.
c. The decision is considered final whenever 50% of the votes have voted ‘Yes’ or ‘No’ and the quorum is met. This in particular means that that if the quorum is reduced, every week by 1/3, decision will be reached one way or the other in relatively short time. This allows the decisions to be moved out of the way and not stay up to be decided forever.

Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Empirical1

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 +5%  +5%  It looks like this model adds in leasing which the previous model didn't have?

This is kind of what  I said was wrong with the first model...  https://bitsharestalk.org/index.php?topic=3635.msg45990#msg45990

BitsharesDNS seems to only solve 1/2 the problem.

Problem: Not all pieces of land are worth the same.
Solution: Auction the pieces of land so that they achieve closer to their current market value.

However another real problem is...

Problem: Pieces of land are worth vastly different prices at different times.
Example: If BItsharesDNS becomes popular then the network would have been vastly underpaid for the domains, if BitsharesDNS fails, then the network would have been vastly overpaid for those domains.

(Edit: Also once most of the valuable land has been sold off where is the future value for BitsharesDNS holders? Won't the current model decrease it's value over time, once most of the desirable land has been sold?)

Solution: Some form of leasing.

The Native Indians for example sold Manhatten for roughly $24. That was probably more than they got for other parcels of land but still vastly undervalued relative to Manhatten's future value. Currently BitsharesDNS seems to make shareholders Native Indians?

Contrast this for example to the third richest British man, he is the 6th Duke of Westminster, worth $8 billion. http://en.wikipedia.org/wiki/Gerald_Grosvenor,_6th_Duke_of_Westminster
How? He owns 300 acres of Mayfair and Belgravia (The priciest areas in London) People can still buy and sell properties, but he owns the freehold so they pay a small annual ground rent to him. (The next richest landowner in the London is the Royal family.)

So I think the key to maintianing the value of Bitshares DNS is to create a fair lease system of some sort. This may negatively impact the sale prices in the beginning as the market will adjust to the additional cost but it will ensure the long term success of BitsharesDNS holders (The Royals and Dukes etc. have maintained their wealth over 100's of years by owning the freehold of underlying lands.)

Possible solution:
Every two years for example, each domain is automatically auctioned again. The current owner has 30 days in which he has the option to either sell the domain to the winning bidder or keep his domain for another 2 years by paying 1% of the winning bids price. (1/2 of it may go to final bidder and 1/2 to the network, maybe even a bit to a maintenance and development fund. Thus ensuring BitsharesDNS has long term value and can extract a little bit of value from Domains that go on to be very succesful.)

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Offline Agent86

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To put it another way: what happens when the total required to extend all domains by another year at the current rate is greater than the token supply? This scenario is inevitable if the DAC operates profitably.
My opinion was that "bips" would work (payment is a percentage of whole rather than # of shares).  I feel like it is a reasonable argument to say if the value of the system increases 10x that the value of domains on the system is also increasing by a similar amount (due to increased exposure and adoption of the system).  I think we have to realize that no one should be paying a ton to lease a domain name on a system no one uses yet.  Also, if it is big and established the price of stake should be more stable and you're not likely to see 10x swings.

Offline toast

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To put it another way: what happens when the total required to extend all domains by another year at the current rate is greater than the token supply? This scenario is inevitable if the DAC operates profitably.
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline toast

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Also, the biggest problem I see with this is still the price instability.
I totally don't buy the argument that if the underlying token goes up in value by 10x that means the cost of the lease should be 10x as much. I think your proposal would be the best if you could price your leases in BitAssets.
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Offline toast

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Great work.

I think we ought to experiment with your domain sale model, and it could be done with a different TLD on the same blockchain as .p2p.  I actually wanted to use ".pub" like "public domain" for your model but it is already an ICANN TLD =[.  Any suggestions for the TLD?

For the sake of getting something "good enough" out there quickly, I won't be building it in at launch.

For .p2p, we actually changed the auction model so that 1) you are *punished* for getting outbid (only get, say, 90% back), and  2) your domain has to be in the top K auctions by value for at least 24 hours total, where K is set by delegates.
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

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Awesome manifest .. +5&

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The following white paper is a description of an alternative decentralized DNS system.  My opinion is that this proposal is far better and more useful than any current proposals.  I had hoped to get this out before DNS snapshots were announced.  I apologize for the length; there is a fair amount of background information included.  Many of the specifics are in the parameters section.

It is available in pdf format here: https://docs.google.com/file/d/0B44pzrE52xGjcTE5V05jeGZqUjA/edit


The Path to a Decentralized DNS,
Overcoming Adoption Challenges, Domain Squatting, and Group Trap in Decentralized Systems

Agent86.BTS@gmail.com
8-2-2014

Introduction:


Domain name registry has become a controversial topic in recent times.  The internet namespace is relied on by the public across the globe. Control over this critical infrastructure must be considered carefully.  Events such as Edward Snowden's revelations about NSA spying have increased calls to move the domain name system out of the hands of ICANN and out of the control and jurisdiction of any single government. There is significant demand for a decentralized DNS managed in an incorruptible, transparent, and publically auditable manner.  The current marketplace for domain ownership is also costly and inefficient.  Domain squatting and domain sales remain sources of added cost and profiteering.  Domain ownership disputes may be settled with costly litigation; a system not equally accessible to all market participants.  The fair allocation of domains and avoidance of cybersquatting also presents a significant challenge to any replacement system.  Despite demand, no new DNS system outside of ICANN has achieved broad use or adoption.  In this paper a system is proposed to meet this market demand and overcome challenges to adoption.


Learning from the Past:

The concept of a decentralized DNS is not new.  One prominent attempt is a project called "Namecoin." Namecoin is a DNS based heavily on the technology behind Bitcoin (1).  Bitcoin introduced a novel method for a decentralized network to come to consensus on a shared ledger.  A shared, publicly auditable ledger, beyond the control of any single institution or government, is a desirable system on which to implement a publically auditable DNS.

Despite creating such a transparent domain name registry, Namecoin has failed to gain traction with the public for a number of reasons.  Firstly, Namecoin suffers from a lack of resources and economic incentives needed for growth and promotion.  There is no mechanism to effectively direct sufficient resources to developers and promoters.  Charitable donations toward these expenses are not sufficient.  Secondly, a primary flaw in the Namecoin model is the lack of a system to address domain name squatting.  While cybersquatting is a problem in our current system, there are some tools in place to address it.  These tools include trademark disputes, litigation, and administrative actions.  The problem of squatting is greatly amplified in systems that provide no feasible mechanism to address the issue.  Finally, the consensus mechanism for the Namecoin ledger, adopted from Bitcoin, is not ideal and suffers from a tendency toward centralization over time.

Bitcoin demonstrated that a decentralized ledger can be used to track ownership rights.  This concept has applications that go beyond tracking "coin" ownership as a form of money.  Dan Larimer, who founded the BitShares project, made the observation that ownership stake tracked on a decentralized ledger is similar to "shares" of a decentralized company (2, 3).  With this analogy in mind, we can more easily analyze the economic incentives for a decentralized system that provides a service.  Typically, the ownership stake of the system acts as an internal currency for services provided and thus creates demand for shares.  Payments to all shareholders are accomplished via destruction of shares such that each shareholder's percentage ownership is increased.  In this case, the service provided is a domain name registry.

A DNS must be useful to website owners and the general public to be successfully adopted.  Memorable domain names are a limited and valuable resource.  Users expect a domain name system in which memorable domains have useful and appropriate content.  Website owners want the ability to secure memorable and appropriate domain names at fair and competitive prices.  Users and website owners both benefit from websites free from censorship, confiscation, and "man in the middle" attacks.  Decentralized DNS models have an added market advantage of providing increased privacy to domain holders.

The BitShares analogy allows us to design a shareholder owned decentralized DNS service that provides for these market demands while financially rewarding shareholders for developing, maintaining and promoting the system.  This system can be designed to solve the problems hindering Namecoin and other DNS alternatives.


Squatters:

The concept of domain name ownership should be explored carefully.  The shareholders of a decentralized DNS may claim ultimate ownership interest of their namespace as they are burdened with maintaining it and promoting its widespread adoption.  Shareholders are incentivized to maximize the utility and value of the namespace for all parties.

A simple system for domain name registration is a "first come first served" model with a fixed registration fee per domain and a nominal annual renewal fee.  This is the model proposed by Namecoin.  This model is grossly insufficient to prevent domain name squatting.  When a system allows domain names to be purchased and held indefinitely at little cost it incentivizes early adopters to purchase large numbers of domain names with the hope of reselling some names at a profit to later adopters.  This practice discourages real website developers from buying domains by driving up acquisition costs and creating a difficult, unpredictable, and frustrating purchasing process.  These barriers ensure the system will never be broadly adopted or useful.

Rather than a simple "first come first served" model, it is possible to use an auction to initially award domains. This can also be followed by nominal renewal fees.  While this may generate more value for shareholders, it does not solve the problem of squatting.  Domains will still be bid on in mass for speculative value.  This leaves the cost and aggravation for future buyers who must negotiate directly with domain squatters.

A recently proposed solution to domain name squatting has been documented within the BitShares community (4, 5).  This system uses a modified initial auction format.  The system rewards bidders who are outbid during an auction.  The intention is to incentivize otherwise disinterested parties to bid up auction prices to ensure a "market rate" is reached.  The author makes an unsupported assumption that speculators would bid above the long-term speculative value of the domain and that this will alter resale behavior as speculators are “incentivized to sell back bad bets at a loss” (4).   There are also auction incentives that are hoped to encourage bidders to initially bid at the price they are willing to pay.  This complex proposal offers very little improvement over a standard auction.  The proposed system also does not address the root cause of squatting behavior which is the low cost to hold domains over time.

These deficiencies in addressing squatting behavior destroy the utility of all currently proposed decentralized DNS systems.  Our current domain name system, while costly and inefficient, has tools to address squatting including litigation and administrative procedures.  Without a system to address these challenges it is not plausible for an alternative DNS to compete for adoption.  While it is conceivable that shareholders of a decentralized system could set up an analogous dispute resolution process such as voting on domain disputes, these processes tend to be costly, time consuming, and unpredictable.

Distribution of valuable and memorable domain names must be perceived as fair, broadly accessibly, transparent, and must promote utilization.  A key to avoid abusive squatting is to make holding unused domains costly.  Shareholders can retain ownership of the namespace while leasing domains at market determined prices.  This tends to make it more profitable for speculators to hold shares of the DNS rather than squat domain names.  Lease terms must be fair and respect the needs of website owners who are likely to make significant investments over time into their chosen domains.


Parameters:

The following system parameters are designed to maximize utility and fairness:

A new domain can be registered for an initial 30 day trial and used immediately.  This is a benefit to users who want quick access to a domain. Doing so initiates a 30 day auction for a 1 year lease of the domain. The original auction initiator has access to the domain for the period of the auction. Parameters for the initial auction should be fair, easy to understand, and reduce the need for complex bidding strategy. 

Suggested auction parameters:

1)   30 day auction - ensures visibility of the auction so interested parties are unlikely to miss it.
2)   Bids must be 10% above prior bid to be accepted - easy to remember and reduces back and forth.
3)   Auction stays open after 30 days until there is 24 hours of inactivity - reduces desire to place a bid in the last minutes of the auction deadline. Auction is unlikely to remain open long after 30 days because the selling price would double at least every week (1.1^7 = 1.95).

After acquiring a lease, a domain holder may extend the lease at any time up to the max lease length.  The max lease length is defined by the formula: initial_lease_length +  time_domain_held = max_lease_length.  Domains acquired from the auction process have an initial lease length of 1 year.

A domain name holder may post a sale offer for the remainder of their lease.  They may set a price and an optional time delay to allow for transition.  Selling at a price above their current lease rate sets a new higher market rate for the domain.  Selling at a loss will not lower the future lease rate for the domain.  The only way the shareholders will accept a lower lease rate on a domain is if the lease comes to the expiration date and a new 30 day auction is initiated.  The current lessee may initiate a new auction within the last 30 days of their lease and also bid in the auction if they choose.  They would retain control of the domain during the auction.  Keep in mind, a lease should not get close to expiration unless it is overpriced as it can be extended at any time up to the max lease length.

Whether or not a domain is posted for sale, a party interested in acquiring a currently leased domain may place an upfront deposit on that domain at a rate at least 10% above the current lease rate for the full length of the current lease. At this point the current domain holder may:

1)   Extend their lease at the higher market rate (this relinquishes the deposit back to the bidder)
2)   Hold the lease until the expiration date.  At this point the domain is relinquished to the higher bidder and the bidder takes over the lease with an initial term equal to the lease they bought out.
3)   "Sublease" the domain to the higher bidder at any time before the lease expiration.  Subleasing gives a profit to the original domain holder by the formula (higher_rate - rate_paid) * time_remaining_on_original_lease.  The new holder always takes over the domain with a lease term equal to the length of the lease they bought out.

When bidding on a currently leased domain, the funds of the high bidder are tied up and only released back to them in the event the current holder extends their lease at the higher market rate or if the bidder is outbid for the domain.  The high bidder may acquire control of the domain for the full amount of their deposit either through a sublease or the current lease expiration.

There may be times when a high bidder gets "buyer’s remorse" and would prefer to remove their offer to recover the deposit.  An advanced option can allow a bidder in this situation to offer a "buyout incentive."  This incentive is paid to anyone who takes action that releases them from their bid obligation.  It is either paid to the current domain holder if they extend their lease at the higher market rate or it is paid to anyone who outbids them for the domain.


Turning Squatters into Sales People:

The previously outlined parameters describe a system in which domains have a market based "carrying cost.”  Any individual who purchases a domain for the purpose of speculating on its future value must contend with this carrying cost.  Speculators cannot afford to pay the same costs to carry a domain as someone with a legitimate use for the domain.  Carrying costs motivate price speculators to promote names for a quicker sale; it turns squatters into sales people.  An apt analogy is "house flipping" where carrying costs, such as property taxes, motivate the flipper to promote the home and sell quickly.

Carrying costs also make it prohibitively expensive to lease domains desired by competitors or adversaries in order to deny use of the domain.  It is simply too expensive to maintain payments at high market rates for a multitude of unused domains.

Domain name holders who establish long term ownership interest in their domain are rewarded with very long lease options to have the certainty of future ownership.  They are also rewarded with a much greater profit opportunity in the event a buyer is interested in the domain.  As the system matures, long established leases may be available for purchase to those willing to pay the additional cost.


Group Trap:

A major barrier to adoption of a system such as Namecoin is the lack of resources and financial incentives for those who are promoting and developing the system.  All current systems of decentralized ownership tracking, often grouped under the term "crypto-currencies" (which includes Bitcoin) suffer from a problem of "group trap."  Group trap can be defined by the observation that working as a group toward a common goal may dilute the incentive for individual effort.  Essentially, these decentralized systems have no mechanism to effectively centralize the resources needed to incentivize developers and promoters of the system.  While those with stake in a particular currency have some motivation to promote it, the value of the work performed is diluted across all shareholders.  A developer or promoter working hard for such a system personally incurs the cost of that labor while other shareholders do not.  The shareholders who do not incur these extra costs derive comparatively better returns from their investment.

Many such systems begin with large stakeholders who work hard to promote and develop the system.  As they begin to sell stake to cover costs it becomes apparent that the work is not adequately rewarded.  Many of these projects leave investors holding stake in abandoned and underdeveloped projects.  Some projects raise initial capital from investors who are then granted stake.  This money is used on the honor system to develop the project.  This starting capital is inherently limited, it is not controlled and directed by shareholders proportional to stake, and it is not a sustainable funding method for long term project costs.

The solution to this "group trap" is shareholder directed reinvestment or distribution.  Following the BitShares analogy of shares in a profitable company we can see that shareholders can be given voting rights to direct capital.  These systems can be structured in a way that generates profit for shareholders.  For instance, a domain holder can pay a certain amount of stake to the network to lease a domain.  This stake is destroyed, increasing the percent ownership of all stakeholders.  The stakeholders can then sell that additional stake back to customers who use it to pay to lease domains on the network and the stake is again destroyed.  Destroyed stake is essentially "income" to the shareholders.  While destroyed shares are income, shareholders can pay expenses via creation of new shares.

A method to accomplish this is the election by popular vote of "workers" who are paid via the issuance of new shares.  Workers can be elected by a method called "approval voting."  Approval voting allows any stakeholder to approve or not approve of any candidate worker.  These approvals are weighted by ownership stake.  Workers with over 50% approval by stake become active and are paid a salary in newly issued shares.  This salary could be specified by the worker as part of their candidacy.  It is also possible to allow shareholders additional control of salary by approving a percentage of the requested salary during voting.  This percentage could be above or below the requested salary and a median can be taken to determine the actual paid salary.  This system allows shareholders to hire executives, developers, and promoters and appropriately incentivize them to work in the interests of the system.

A domain registration system is the type of system that requires a large network effect.  Utility of the system and adoption of the system are interdependent and each is reinforced by the other.  Promoting the system to the point that a network effect is established may require a large initial investment.  It is quite likely that expenses for development and promotion would outweigh income in the early stages of the system.  For this reason the system may create more shares than it destroys in early stages.  The system would grow in value by increasing adoption and attracting new investment capital to buy the newly created shares.


Consensus:

A final barrier to the long term success of Namecoin is the choice of consensus algorithm.  A detailed technical discussion of consensus algorithms is beyond the scope of this paper; however a useful overview can be given.

Namecoin uses a "proof of work" algorithm whereby adding a block of transactions to the shared ledger requires a solution to a difficult and computationally intensive problem.  This mathematical problem is difficult to solve but easy to check.  The network builds off and forms consensus on the ledger that represents the most verified "computational work."  The idea is that in order to control the ledger an entity must perform more computational work than the rest of the network combined.  This work is rewarded with the issuance of new shares or "coins."  Although Namecoin is secured via the same work and computers that secure the Bitcoin network (it does not require significant additional resources) this type of competitive computation inevitably leads to centralization.  Motivated by profit, specialized hardware is developed to reduce costs.  Due to economies of scale, only the largest and most efficient operations can profitably participate.  The computational energy required for proof of work is also unnecessarily wasteful when compared to other options for consensus.

A much improved algorithm for consensus is "proof of stake."  A specific form of proof of stake called "delegated proof of stake" (DPOS) has advantages over other implementations (6).  DPOS allows the election of representatives called “delegates” to validate transactions on the network.  This work is verifiable, and if not performed, delegates are removed.  Proof of stake rests power over the ledger ultimately in the hands of those with ownership stake.  Proof of work gives power over the ledger to those with access to the most computational resources.  Delegated proof of stake allows a more sustainable, cost efficient, and secure shared ledger than proof of work can provide.


Conclusion:

This paper has outlined a structure for a decentralized DNS which may overcome current barriers and create the right incentives for broad adoption.  A sustainable funding and economic incentive model has been proposed.  Market parameters have been outlined that promote utility and fairness and discourage domain squatting.  A decentralized DNS can provide transparency and accessibility.  It can reduce costs and reduce the opportunity for any single entity or government to exercise control over the public DNS system.


References:

1)   Double, Chris. May 2011. “Namecoin - A DNS alternative based on Bitcoin.” http://bluishcoder.co.nz/2011/05/12/namecoin-a-dns-alternative-based-on-bitcoin.html

2)   Larimer, Stan. September 2013. “Bitcoin & the Three Laws of Robotics.” http://bitshares.org/bitcoin-the-three-laws-of-robotics/

3)   Larimer, Dan. November 2013. “DAC Revisited.” http://bitshares.org/dac-revisited/

4)   Mushegian, Nikolai, June 2014. “DNS .p2p Auction Specification.” https://github.com/BitShares/bitshares_toolkit/wiki/DNS-.p2p-Auction-Specification

5)   Mushegian, Nikolai, April 2014. “Whitepaper Draft.” https://github.com/nmushegian/dns/blob/master/whitepaper-draft.md

6)   Larimer, Dan. April 2014. “Delegated Proof of Stake.” http://bitshares.org/delegated-proof-of-stake/