During the chat with the community, Sunny King said that he is looking for a minting model with stronger incentive for minting while keeping the 1% inflation model. He mentioned minting with constant per-block reward. I consider this to be a major issue and in this discussion, I would like to provide as much feedback as possible and discuss about the consequences if such change should happen. Also, if there are alternatives that differ in details, we should try to find out which one is better.
Statistics of current minting
At first, I would present few statistics about the minting process as it works now. If we take 2000 POS blocks from the block 100,000, we find several numbers about the mint rewards:
“Effective securing mint” calculated from mean difficulty: 0.225
If we sort all mints and take the 5% quantiles, we get:
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
0.000 0.099 0.130 0.160 0.190 0.220 0.250 0.280 0.330 0.380 0.440
55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
0.510 0.600 0.710 0.820 0.990 1.184 1.673 2.262 3.775 137.120
If we do the same for last 50,000 blocks (much larger sample, but also with bigger fluctuations), we get:
Effective securing mint: 0.167
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
-0.07 0.06 0.09 0.12 0.15 0.17 0.20 0.22 0.25 0.28 0.31
55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 0.35 0.39 0.45 0.53 0.67 0.91 1.37 2.32 5.08 1285.40
If all wallets would be minting and they would mint evenly, one would expect one mint to be:
‘all wallets minting evenly’ mint = money supply / 52595 / 100 = 4.03 PPC
Here, 52595 is number of blocks in a year. What is very interesting fact from these statistics is, that more than 60 % of the rewards come from 5% of rare mints with large rewards. The network difficulty corresponds to reward below median, it is much closer to 1st quartile (25% from the table). I do not know why is it so. As a result, I would say: yes, we should do something about this - although POS security is better than POW, we could do (in principle) 4.03/0.167 = 24x better.
Constant reward, 90-days capped coinage
Here, I will try to specify the technical details - one possibility how could the constant per-block reward model look like. There are basically two things that need to be satisfied: time between blocks should be 10 minutes and inflation should be 1%. Let us assume that we do not change the way how probability of finding a blocks works, we only change the reward. This means that the coinage is still capped on 90 days for security reasons. How big should the reward be? It can be calculated from the 1% inflation:
block reward = money supply / 52595 / 100
Now, the block reward would be 4.03 PPC, with increasing money supply, it will slowly increase.
How does it help the incentive to mint? You need to stay online to take your share of the mints. This is a strong incentive, whenever you are offline, you are (statistically) losing profit at range 1% of your coins. Actually, you are losing even slightly higher profit, since whole 1% of money supply is divided among the actively minting wallets over the year, so the actively minting wallet typically gets “1% * money supply / actively minting PPC”, which could be around 3% or more. This is much better motivation compared to the state when you are just losing compound interest.
What is the position of small stake-holders? If you are holding 100 PPC now, you can expect to get a mint block approximately in 90 days. (60% at POS difficulty 13). With constant block reward, the difficulty will very probably rise as many people will want to keep their wallets online permanently to get the 1% profit. Since you should get reward 4 PPC in 4 years, you can expect to mint a block once in 1460 days. In such case, the POS difficulty would be 210. But since you are not competing with everybody, just with people who really do mint, you can probably expect successful mint once a year and a smaller POS difficulty. It is not that bad.
[ul][li]Increased incentive to mint increases incentive to pooled minting. For small stake-holders, there is quite strong incentive for pooled minting. Even without the cold-lock minting, the small stakeholders might be motivated to give their private key to some trustworthy-looking pool. With the cold-locked minting, this might be severe problem to decentralization, which makes the cold-locked minting a sensitive issue we need to discuss properly. [/li]
[li]Coinage-based mint probability no longer makes sense and leads to wrong incentives. The increase in probability of finding block from 30 days of coinage to 90 days of coinage no longer makes sense. In current model, you are directly trading coinage for reward. In the proposed model, you are not. It is possible to divide your 10,000 PPC into 10,000 stakes by 1 PPC or into 1000 separate wallets by 10 PPC that you run separately. (There shouldn’t really be incentive to do that, but with coinage-based probability, there is.) In such way, you always lose only small amount of coinage, while the rest of your money keep it. Since this cannot be prevented (you do not know whose are which money), all stakes should have probability of finding block proportional to their coins, not to their coinage. [/li]
[li]With bigger incentive to mint comes bigger incentive to mint on many forks of blockchain and allow propagation of such mints throught the network. From what I understand, it is unsolved and important issue, that could lead to serious security thread, unless there is some solution for it. Also look here: http://www.peercointalk.org/index.php?topic=1956.0[/li][/ul]