Idea: "Proof of Confidence" - PoS variant with locked coins for value stability

If price is increasing sharply because of panic buys, PoW mining profits and difficulty would also increase, so the “PoS interest rate” and the money supply would increase too. So this should stabilize the price mid-term.

But you are right panic buys can introduce short-term volatility with this concept. Will think a bit about it.

The “locking” is meant to prevent large panic sells, as a sharp downtrend is very hard to reverse by a stability mechanism. A slow downtrend can be stabilized by increasing and destroying transaction fees, for example, and an uptrend by increasing money supply.

Increasing price → increasing miner activity → increasing difficulty → dropping PoW mining profits

A holder who tends to panic sell will never lock his coins. Because this person do not believe in the coin. He better should sell them.

Yes, if we use the PPC model which is designed for energy-efficiency. But the mechamism which would stabilize the price would work with PoS minting and be independent from the PoW mechanism. PoS minting supply growth rate must outperform the shrinking PoW supply growth in this case.

A holder who tends to panic sell will never lock his coins. Because this person do not believe in the coin. He better should sell them.

If the incentive is high enough (high PoS interest rate) even a potential panic-seller could see potential profits in locking his coins. Perhaps some users would never lock them, but then they would never get "PoS interest". And the less people lock their coins, the higher is the interest rate, so this should reach an equilibrium at some point.

Yes, if we use the PPC model which is designed for energy-efficiency. But the mechamism which would stabilize the price would work with PoS minting and be independent from the PoW mechanism. PoS minting supply growth rate must outperform the shrinking PoW supply growth in this case.[/quote]
I think I do not understand you. Against what other asset do you want to stabilize?

[quote=“d5000, post:5, topic:516”]

A holder who tends to panic sell will never lock his coins. Because this person do not believe in the coin. He better should sell them.

If the incentive is high enough (high PoS interest rate) even a potential panic-seller could see potential profits in locking his coins. Perhaps some users would never lock them, but then they would never get “PoS interest”. And the less people lock their coins, the higher is the interest rate, so this should reach an equilibrium at some point.[/quote]
If the incentive gets too high, I would become a panic seller. Can’t you see that you describe the fiat system?

I also thought a little bit about the PoS money supply. I see a problem if this coin really gets used massively. Then we had little PoS generated coins, and a lot of destroyed fees.

If technically possible, the interest could rise the more, the less PoS minters are active.

[tt]100% active minters -> 1% interest a year
50% active minters -> 2% interest a year
20% active minters -> 5% interest a year
10% active minters -> 10% interest a year
…[/tt]

The only possible way this perhaps could be applied would be to distribute destroyed coinage to active minters.

[quote=“whifmoi, post:7, topic:516”]I also thought a little bit about the PoS money supply. I see a problem if this coin really gets used massively. Then we had little PoS generated coins, and a lot of destroyed fees.

If technically possible, the interest could rise the more, the less PoS minters are active.

[tt]100% active minters -> 1% interest a year
50% active minters -> 2% interest a year
20% active minters -> 5% interest a year
10% active minters -> 10% interest a year
…[/tt]

The only possible way this perhaps could be applied would be to distribute destroyed coinage to active minters.[/quote]
This idea is better than I thought first. Let the destroyed coinage of the processed transactions go to the PoS minter, who minted the block. This is a little bit like a lottery, because a PoS minter with a small pocket could mint a block for a large transaction, this getting large coinage incentive. For a large PoS minter this makes not much difference. This could lead to a much wider adoption of this coin.

Can any professional tell me, if this is technically possible?

Yes, if we use the PPC model which is designed for energy-efficiency. But the mechamism which would stabilize the price would work with PoS minting and be independent from the PoW mechanism. PoS minting supply growth rate must outperform the shrinking PoW supply growth in this case.[/quote]
I think I do not understand you. Against what other asset do you want to stabilize?[/quote]

Basically, I want a coin with a growing supply when demand is higher and a decreasing supply if demand dwindles. So it would be fairly stable against (stable) fiat currencies.

If the incentive gets too high, I would become a panic seller. Can't you see that you describe the fiat system?

You are right, the system has some things in common with the fiat system. But why would you panic sell if the interest gets too high? My guesses: Because of the higher 51%-attack risk or because you think many people could sell if few coins are locked?

I also thought a little bit about the PoS money supply. I see a problem if this coin really gets used massively. Then we had little PoS generated coins, and a lot of destroyed fees.

If technically possible, the interest could rise the more, the less PoS minters are active.

100% active minters → 1% interest a year
50% active minters → 2% interest a year
20% active minters → 5% interest a year
10% active minters → 10% interest a year

Exactly, that’s the idea. There could be an “interest factor” which changes according to the PoS difficulty: Low percentage of minters → Low PoS difficulty → high PoS “interest factor”. I don’t think that should be too hard to implement, as the PoS difficulty already exists (I think).

The only possible way this perhaps could be applied would be to distribute destroyed coinage to active minters.

This idea is better than I thought first. Let the destroyed coinage of the processed transactions go to the PoS minter, who minted the block. This is a little bit like a lottery, because a PoS minter with a small pocket could mint a block for a large transaction, this getting large coinage incentive. For a large PoS minter this makes not much difference. This could lead to a much wider adoption of this coin.

Here I don't understand you, I fear. Can you explain why this would be necessary?

Thanks for your feedback and opinions!

Here I don’t understand you, I fear. Can you explain why this would be necessary?[/quote]
My explanation was about a possible technical implementation.

The idea to relate it to the PoS difficulty may also work. I see an advantage if someone (perhaps an attacker) collects coinage. The lower the PoS difficulty, the higher the incentive. But we have to pay attention, that the inflation must stay reasonably low in total.

People will just sell the private keys or wallet of the locked funds. The transaction is not as easy to do as going through the blockchain – one may have to use escrow or a special trading platform that provides clearing service – but it can be done.

I don’t think that would be a problem. The “locked coins market” would be much less liquid than the main exchange market, so the prices to achieve there for locked coins would be significantly lower, more so in a bear market. So the incentive to sell locked coins there would be low - my guess is that most people would simply hold and hope that the earned interest compensates for the price losses.

Here I don’t understand you, I fear. Can you explain why this would be necessary?[/quote]
My explanation was about a possible technical implementation.

The idea to relate it to the PoS difficulty may also work. I see an advantage if someone (perhaps an attacker) collects coinage. The lower the PoS difficulty, the higher the incentive. But we have to pay attention, that the inflation must stay reasonably low in total.[/quote]

Now I got it Your proposal sounds really interesting. It would be interesting to compare the two methods, which one would be more secure against attacks? As the “coinage-to-minters” proposal is somewhat more randomly and it would be more difficult to plan an attack, it could be an advantage against the method to tie interest to difficulty.

You already answered you compare against fiat currencies. But is this a valuable asset? Not for me, hence every price dump makes me happy.

The drop in one asset is the gain of another asset. Volatility between valuable assets changes nothing for the asset holder, only the trade itself changes your wealth. See my lesson here:

Well, I know the “stability problem” is not trivial, as there are multiple ways of measuring stability as you correctly point out. For a final altcoin design, I would propose, for now, a combination of two concepts:

1. a stability mechanism, that roughly pegs the money supply to the electricity cost needed to mine it (PoW)
2. the proposed “Proof of Confidence” system, which should act as an incentive to avoid “cyclic trading” (buy and hoard when price is going up - sell when price is going down) as I described in the original post.

The “stability mechanism” I am thinking of would peg the money supply to PoW difficulty change (not to difficulty itself, but the percentual change in a range of time), as PoW difficulty changes are related to price changes. If PoW difficulty goes up -> money supply would go up too, and if PoW difficulty goes down -> money supply would decrease.

The “currency” or “asset” to measure “stability” would be the PoW mining cost. For now, this cost would probably be measured in a fiat currency like USD, EUR or CNY, but in the future it can be a cryptocurrency or even a basket of goods. But the value would closely follow the cost of hardware and electricity required to mine it (Because of this, I don’t think a pure PoS system would be possible for this design).

The hard problem would be the “technological factor”: In Bitcoin and in PPC too, we see now that as a result of the ASIC developments, the difficulty has risen way faster than the price. I think in an early design of the coin this factor should be adjusted periodically by the developer team.

If this problem is resolved, there are many ways to regulate supply. I’m actually thinking to apply a “difficulty factor” to PoS interest rate. So “PoS interest rate” would be determined by two factors:

• the percentage of users who mint actively, as we discussed here in this thread;
• the PoW difficulty: if difficulty goes up -> interest rate goes up too; and if difficulty goes down, interest rate goes down too, but never goes so low that there is no incentive to lock coins anymore.

There is a chance, however, that in short-term bear markets the incentive to lock the coins would be affected because of the lower interest rate and the system would not work as good as expected. So there are alternatives like a dynamic transaction costs, that rise if difficulty goes down (and are destroyed like in PPC to actively decrease the money supply) or even a dynamic demurrage rate like in Freicoin. For this part, I don’t have the “perfect concept” for now.

But this is another issue, here in this thread I wanted to discuss first the feasiblity of the “locked PoS” (“Proof of Confidence”) system only.

I liked your posts about contrarian trading. If the currency is designed to be stable with regulated supply and this system works, contrarian trading (buying when price is low compared to other assets and selling if it’s high) would be the main mechanism for traders to make profit, as if price goes up, mid-term it would fall again because of the adjusted money supply and if it goes down, it would go up mid-term. Contrarian traders would stabilize the price (measured in fiat or other commodities) even more.

I gotta say, the two thoughts that screamed in my head while reading this was that this would mimic either CDs or Treasury Bonds.

This would be a very interesting approach to PoS. Unsure about the implementation though (any possible security risks?).

Yes, something like CD’s (I don’t know the exact English words for finance products, but should be the same what in Spanish we call “plazo fijo”) I had in mind.

For security: The essential problem would be to give good incentives for people to lock the coins and so participate with PoS minting, so 51%-attacks can be avoided. For now, I see no other security risks other than those that are present in actual Proof of Stake.

Technically, we already have a “locking mechanism” in Peercoin: the “maturing” of the stake coins after a PoS block has been found. This mechanism could be modified for this PoS variant: Users would have to made a special transaction to lock the coins and then after 30 coin-days they could receive PoS rewards.

[quote=“whifmoi, post:8, topic:516”]This idea is better than I thought first. Let the destroyed coinage of the processed transactions go to the PoS minter, who minted the block. This is a little bit like a lottery, because a PoS minter with a small pocket could mint a block for a large transaction, this getting large coinage incentive. For a large PoS minter this makes not much difference. This could lead to a much wider adoption of this coin.

Can any professional tell me, if this is technically possible?[/quote]

I just wanted to call this out because it has a very interesting concept behind it. I’d have to think about the ramifications of this, and if it could be corrupted or gamed by someone with the technical know-how, but there’s something righteously egalitarian about this that appeals to me.

Now, back to your on-going discussion

[quote=“whifmoi, post:8, topic:516”][quote=“whifmoi, post:7, topic:516”]I also thought a little bit about the PoS money supply. I see a problem if this coin really gets used massively. Then we had little PoS generated coins, and a lot of destroyed fees.

If technically possible, the interest could rise the more, the less PoS minters are active.

[tt]100% active minters -> 1% interest a year
50% active minters -> 2% interest a year
20% active minters -> 5% interest a year
10% active minters -> 10% interest a year
…[/tt]

The only possible way this perhaps could be applied would be to distribute destroyed coinage to active minters.[/quote]
This idea is better than I thought first. Let the destroyed coinage of the processed transactions go to the PoS minter, who minted the block. This is a little bit like a lottery, because a PoS minter with a small pocket could mint a block for a large transaction, this getting large coinage incentive. For a large PoS minter this makes not much difference. This could lead to a much wider adoption of this coin.

Can any professional tell me, if this is technically possible?[/quote]

I like this idea- it creates a randomized distribution of reward blocks and further incentivizes people to hold long term.

[quote=“whifmoi, post:8, topic:516”][quote=“whifmoi, post:7, topic:516”]I also thought a little bit about the PoS money supply. I see a problem if this coin really gets used massively. Then we had little PoS generated coins, and a lot of destroyed fees.

If technically possible, the interest could rise the more, the less PoS minters are active.

[tt]100% active minters -> 1% interest a year
50% active minters -> 2% interest a year
20% active minters -> 5% interest a year
10% active minters -> 10% interest a year
…[/tt]

The only possible way this perhaps could be applied would be to distribute destroyed coinage to active minters.[/quote]
This idea is better than I thought first. Let the destroyed coinage of the processed transactions go to the PoS minter, who minted the block. This is a little bit like a lottery, because a PoS minter with a small pocket could mint a block for a large transaction, this getting large coinage incentive. For a large PoS minter this makes not much difference. This could lead to a much wider adoption of this coin.

Can any professional tell me, if this is technically possible?[/quote]

I’ve been thinking about this concept and how it could integrate with a similar fixed fee system…
Could transaction fees simply have an inverse relationship to the coin age? So coins with less age have a higher fee and coins with max maturity have zero? For example:

1 month -> 10% fee
2 months -> 5% fee
3 months -> 2% fee
6 months -> 1% fee
1 year -> 0% fee

The transaction fees could then be randomly distributed to the POS miner that processes the transaction. This could incentivize POS miners and help promote holding long term.

Hi,

I was having a rather similar idea, so will post here rather than start a new topic.

I would introduce “mining rights” , which would require a second ledger besides the one for coins.
These mining rights could be perpetual or expire after a set time (e.g. 1 year), and would be auctioned when enough coins have been mined by PoW. From then onwards most (or all) of the further mining would be done by PoS on the basis of the amount of mining rights owned, not on the coins owned.
Accounts with mining rights would also receive a certain portion of the transaction fees and/or demurrage fees that are charged on the coins.

Coins can be transferred between accounts, but mining rights cannot be transferred directly. Mining rights can be sold or bought for coins through some auction mechanism that will need to be created for it. This makes the mining rights valuable assets that earn income from mining (PoS) and a portion of fees, but less liquid than the coins.

The advantages would be:

1. a person or group who owns more than 51% of the mining rights would not have any interest in trying to double spend coins, as that would crash the value of the mining rights they own much more than the potential gains from double spending. The miners now have more skin in the game, because they have invested in mining rights.
2. the system becomes more energy efficient, as the amount of new coins a miner can generate within a given period of time no longer has to depend on the amount of computing power he controls but would depend completely on the amount of mining rights he owns.
3. the problem of hoarding is solved. The mining rights would be a better “storage of value” , while the coins themselves are now less attractive from the storage of value pov, but more attractive from the liquidity pov. This would make for a more stable system and a coin that gets circulated more fast (by Gresham’s law), because there is no point in hoarding the coins (especially when there is a little demurrage).

Based on the parameters set within the system, the mining rights will get priced by the market (auction), as they will have objective value based on the discounted cash flow model. The future stream of income (from PoS mining and fees) will make them significantly more valuable than the coins themselves. Their price would fluctuate on the market based on how the perceptions of that future income stream evolve.

This is different from the “deposit” model that d5000 propose, because in that system all coins may get locked (in order to earn more PoS mining coins), potentially leaving no coins to circulate. Then that cryptocurrency would “freeze”.
With “mining rights” there will not be locked coins and there will always be somebody owning the coins. If people are more interested in the mining rights (store of value) then they will probably use any coins they get to bid for more mining rights. But that doesn’t make the coins go away, because for every buyer there must be a seller (who receives the coins if he sells his mining rights).
Of course, some observers might wonder: why would anybody want to own the coins if these mining rights will be a better store of value?
But that’s the same like asking: why would anybody want cash in his pocket if there are also deposit accounts that pay interest?
People keep coins/cash because they are the most liquid and can be spent whenever the need or opportunity arises.

Within a 2 ledger crypto-system (coins + mining rights) other features can be designed to make the coins attractive as well. For example, half of the transaction fees / demurrage fees could go into a public system account. And that public account could occasionally pay out to the coin holders. E.g. concatenate every wallet address with the official closing price of the Dow Jones at the last day of every month and calculate a hash from it. Those wallet addresses that have the hash start with a zero win a portion of the public system account that month, directly proportional to the amount of coins held in the given wallet.
When the amount of coins in the system exceeds certain levels, you could also award new mining rights by the same approach. Coin holder can then win mining rights from time to time, which they can either sell or keep.
When the coins come with a regular chance for occasional windfall profits, then these coins will become more attractive for many people.
Not only that, this also helps to further stabilize the system. For example, if the price of mining rights would rise too high compared to coins, then at some point it would become attractive to sell the mining rights for coins, as these coins offer certain mathematical odds to win additional mining rights. So, the coin cannot go to zero and the mining rights cannot go up beyond a certain price. What you then have is a self-balancing system, with the coins and the mining rights having a different set of advantages and disadvantages. People will just chose to own the one over the other based on their personal needs and preferences. Some will like the steady income stream offered by the mining rights, while others will rather own coins they can spend whenever they want plus the chance to win some more when they get lucky.

The first to introduce that kind of system will probably beat the crap out of the current single ledger cryptocurrencies.
A single ledger cryptocurrency will never be stable, the pump-and-dump cycle will just continue.
A two ledger system can implement new features that cannot be matched by a single ledger system.

The stable value of a currency (or even stock) does not have to depend on it being backed by something tangible (like real assets). The stable value can also depend on a stable and real income stream baked into the system. The value of a share of Twitter is also not coming from the gold in their vaults. The value of a share of Twitter is in its expected future revenue stream, it is completely intangible.
By setting up two ledgers we can create an income stream within a given crypto-currency, and that can help to make it more stable. The intangible value of the cryptocurrency is then being tied to the expected future income streams within the system.

If anybody manages to put together something like this, then I would be happy to hear about it.

B

Doesn’t this is the same as https://en.bitcoin.it/wiki/Proof_of_burn ?