[RFC-0011] PoS inflation adjustment


#21

Nagalim,

you are assuming that there is a competiton for finding PoS blocks, like we are used from PoW. But that’s only true for individuals who hold only a small amount of peercoins. Once you have a 4-digit number of peercoins or more, the selfish way to act is to combine it in one output, go offline for at least 90 days and then go online and quickly find your stake block thanks to the large amount of coindays. This saves in electricity and maintenance costs, and as a side benefit, your output won’t be split into two smaller outputs.

So I can’t follow your argument that there would be any kind of outbalancing of incentives between the minters.


#22

Let’s ignore the scenario that I described where you try to take advantage of the single-block calculation time, as i dont think that is what you are concerned about. Instead, let’s imagine a scenario where 33% of the network is minting on a regular basis without you, making nInflationAdjustment=3, but with some random deviation. You have say 1% of the supply, and you are waiting to mint once or twice a year, and you try to time it for maximum profit. The effect your 1% will have on the nInflationAdjustment is somewhat negligible, as it is only 1/33 of the current participation, so you aren’t really concerned with your own participation affecting the system. Rather, you are aiming to speculate for moments when the network is at its lowest participation such that you get the highest reward. You analyze the yearly oscillations and find that, say, May and November are the times when you could make the most. Normally, you would mint in February and October, but you hold off till the mint difficulty is lower to participate.

My question is, what is wrong with this? You are now seeking out moments when the PoS difficulty is lowest in order to participate as a good actor. If anything, this makes the network over all more secure. You are not minting fewer times than you normally would, as you are absolutely convicted to only mint twice a year anyway.

In addition to all this, the compounding interest is increased by a significant amount as the % goes up from 1 to 5, which would discourage these tactics and cause people to mint more often.


#23

Yes, those seasonal oscillations are exactly what I am worried about.

This seeking out of moments when the PoS difficulty is lowest is itself the problem, because the coins are not minting during this time. This reduces the security of the network and leads to a decline of the PoS difficulty (self-fulfilling prophecy). And keep in mind that the standard assumption is that the vast majority of actors are selfish.

Yes, the compound interest will maybe safe the dynamic system that you want to introduce.
The problem with dynamic systems is that they can often be gamed. There could also be other attack vectors, which we didn’t think of yet.


#24

I remember that in the past, a constant stake reward was discussed to encourage minting participation, but the idea was dropped. I think it was because selfish actors would split their stakes into a huge number of tiny outputs, so that after each successful stake, only a small amount of coindays would be lost. Is that correct?

I am asking because I am thinking about a somewhat similar idea. It would increase the reward% like in Nagalim’s proposal, but as a constant, and with a maximum reward cap, so that the annual PoS inflation does not exceed 1%.
The difficulty lies in finding the right reward cap. A conservative way would be to calculate the reward cap as:

Number of coins in circulation x 0.01 / 52560*

*number of annual PoS blocks

This would result in a maximum reward of about 4.79 PPC per block, which would increase by a tiny bit with every block. Annual PoS inflation would reach 1% only if every PoS block would hit the maximum reward. In reality, many stakes would mint before hitting the reward cap, so it could be set to a higher number, something between 5 and 10 PPC. But there is probably no way to determine the “right” cap with a fixed formula.


#25

In the described scenario, this minter was already a seasonal minter. This scenario is one where the seasonal minter is damping seasonal oscillations that already exist, not amplifying then.

Again, the assumption in this scenario is that this actor will only mint twice a year, so they have not reduced the frequency of minting at all. Rather they are simply adjusting the timing of their minting to coincide with when the network has low difficulty. You seem to want to hold constant the frequency of minting, but then state that this decreases the frequency of minting, which is a contradiction.

This is mentioned in the proposal under the ‘alternatives’ section.

This is named the ‘stake grind’ in the ‘conventions’ section. It has more general implications for any proposal involving the reward.

This will result in a stake grind. The question will be what the optimal stake size is to get close to but not exceed the maximum reward cap, and everyone will break their stake into those chunk sizes. This will bloat the UTXO table and make staking less weildly.


#26

Nagalim,

Lets halt the discussion about RFC11 here. Ultimately, it’s about human behaviour, which neither of us can predict with certainty.

Since this RFC would be a hardfork and quite a hefty change of the peercoin protocol, I would like to see a broader discussion with more participants. The initial comments from November do read a bit meager.

So far, the Peercoin blockchain has never been been attacked by malicious minters, despite the low participation.

Ötzi