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

#21

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

#22

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

#23

The “mining rights” idea (very interesting) indeed has some similarities to the proof of burn approach, if I understand it right. But the “Proof-of-confidence” system is pretty different as you don’t lose coins when you “freeze” them.

I have thought a little bit more about the “Proof of Confidence” concept and even the trading of private keys may not be a problem at all, as selling the private key is only possible if both parts are completely trusting each other. When coins are locked and a seller passes the private key to the buyer, the private key enables each of both parties to unlock them only after the “freeze-period” is over, and so a fraudulent seller can try to unluck them himself. So this market would have very low liquidity.

#24

A dumb question, if someone can answer it:

Is “confidence” the right word for this concept? Or is “trust” better? (“Proof of trust”, or “Trust in coin” or something like this). My English is not so good, and I am trying to find a “catchy” phrase for this concept to present it in Bitcointalk and perhaps to write a white paper.

Looking forward to create an experimental altcoin based on it, too :wink: