consensus method even cheaper than POW

[psztorc]

> How would you change bitcoin's reward schedule to allow for a faster growing market cap?

I wouldn't change it at all. Bitcoin is the e-gold, alternative to managed fiat currencies.

That being said, I've previously argued that this particular version of a fixed reward schedule might have some problems, and we should soft fork it to a different reward schedule.

[zack]

Oh, you think that bitcoin's reward schedule results in the largest market cap.

Could you explain why diluting the shares in exchange for investment at a higher valuation would lower the market cap?
Market cap = price of a share * number of shares.
If we increase the price of a share at the same time we increase the number of shares, it seems like the market cap would have to increase.

[psztorc]

> Could you explain why diluting the shares in exchange for investment at a higher valuation would lower the market cap?

Question contains a false premise. (The words "valuation" and "market cap" refer to the same thing.)

[zack]

Sorry for using the wrong words again. Since you are such a good word-ist, why don't you tell me which words are right?
I have explained it enough times that you know what concept I am getting at.
http://paulgraham.com/equity.html

The same way a startup is willing to increase the number of shares when a new investor gives investment that prices the startup at a higher valuation.

A blockchain should be willing to increase the number of coins when a miner gives enough POW to give the blockchain a higher valuation.

[psztorc]

Why don't you write down an example of what you are talking about? Put all BTC and share-units in percentage terms. Do not say "50 BTC" or "1000 shares", just say "4% of the BTC" or "before the dilution, X owns 2% of the company".

[zack]

Before dilution:
A owns 33% of the coins.
B owns 33% of the coins.
C owns 33% of the coins.
33% of the coins is worth about the same as 10,000 meals of food.

The investment that dilutes is:
D burns electricity worth about 10,000 meals of food in POW.

After dilution:
A owns 25%
B owns 25%
C owns 25%
D owns 25%
25% of the coins is worth the same as about 10,000 meals of food.


Maybe we should charge D a couple percentage higher or lower than that, I am not sure.

[psztorc]

It seems that no one is better or worse off. A B and C own 10,000 meals of food, before and after. D has 10,000 food meals, and switches them from one form to another.

How, exactly, is the new system worth 40,000 meals of food (10K more), when nothing of interest seems to have happened? Could the value have increased from 30,000 to 40,000 *without* D's contribution?

[zack]

How, exactly, is the new system worth 40,000 meals of food (10K more), when nothing of interest seems to have happened?

Its worth 40k because D used POW to invest 10k into it to get control of 25% of the coins.
If 25% is worth 10k, then 100% must be worth 40k.

Could the value have increased from 30,000 to 40,000 *without* D's contribution?

Advertising is another way to increase the value of a blockchain.

Quoting you from your essay "Nothing is Cheaper than Proof of Work":

So-called "alternatives" to Proof-of-Work "waste" just as much "work".

This "marginal cost" = "marginal revenue" concept actually applies to every transaction in the entire world, including all future blockchain tech.

[psztorc]

How, exactly, is the new system worth 40,000 meals of food (10K more), when nothing of interest seems to have happened?

Its worth 40k because D used POW to invest 10k into it to get control of 25% of the coins.
If 25% is worth 10k, then 100% must be worth 40k.

Yes, yes, obviously. But why did D invest 10k? He didn't seem to get anything out of doing so.

[zack]

Electricity is a terrible way to store your wealth. Batteries cost more than the energy they can hold.
Converting your value into cryptocurrency lets you store it for the future.

Bitcoin miners also operate on the threshhold of profitability. They burn as much electricity as they get paid in bitcoins.
So I could ask the same of bitcoin: /why/ does anyone mine bitcoin? They don't seem to get anything out of doing so.

If it is true that miners need to make a sliver of profit, we could charge slightly less to produce coins. So 999 meals worth of electricity turns into 1000 meals worth of cryptocurrency.
If a miner manages to double the value of the system as measure in meals, then paying him a mere 0.05% of everything is a small cost.
Because of network effects, the coins probably increased in value (as measured in meals of food) by more than 0.05%

There are also arguments for why we should charge 1001 meals of electricity to create 1000 coins. Like the stuff Paul Graham said in his essay http://paulgraham.com/equity.html
I summarize his advise: Only dilute the shares if they are willing to buy in at a high enough price that the part of the company you own afterwards is worth more than what you owned before.

Maybe we need to do experiments to find the best price for producing coins.
Or we could use a prediction market to adjust the price over time. The prediction market could be maximizing market cap measured in meals, or value of a coin measured in meals, or some combination of those 2.
Or we could let the validators vote on how the price should change. Under Flying Fox consensus the distribution of validators is almost the same as the distribution of coin holders, so their incentive would be to choose the price that maximizes the value of the current coins as measured in meals.

[zack]

A blockchain has a mechanism for distributing coins. All existing distribution mechanisms fail in one of two ways:

1) They grow too slowly. They don't dilute shares when new investment happens. For example, in NXT, the only way to get coins is if you buy them from someone who already has some. You can't do work to create new coins.
2) They grow too fast. Miners are able to create coins at too low of a price. The excessive selling pressure from miners continuously lowers the value of shares. It is the cryptocurrency version of hyperinflation.

All existing blockchains distribute coins poorly because they tie the coin creation mechanism to the consensus mechanism.

Flying Fox fixes this. The consensus mechanism is disconnected from coin creation mechanism. The rate of coin creation adjusts so that it is never too slow or too fast.

[psztorc]

All existing distribution mechanisms fail in one of two ways

Bitcoin's seems to be doing fine. To me, anyway.

[zack]

The mechanism I posted before I only capable of measuring when the price goes down.
We need a separate one to measure the price going up.

Mining should be split into 2 transactions. The first transaction is an auction, only a finite number of people can mine a finite amount of coins. The second transaction is where they provide the work they signed up to provide.

90% of the time we sell coins at the current price.
The last 10% we sell variable numbers of coins for very short periods of time at slightly below the current price.
We look at how much of a fee the miners are willing to pay for the privilege of mining these more affordable coins. Based on this fee, we can see how the price of the coin would change in response to changing the rate of production. It is the supply/demand curve.

Once the curve is measured, we can choose the next price to sell coins at. Optimizing for the two goals of increasing the market cap, and increasing the price per share.