Rich get richer and the poor get poorer


#1

The “rich get richer” (RGR) concept is applied to many scenarios and is used to describe the concentration of resources by entities who have an “unfair” advantage over those who lack the same resources. In every monetary system, an accumulation of resources can be observed, even in systems as simple as games of Monopoly. However, many frivolously describe the staking process of Peercoin as being a similar mechanic due to the roughly 1% annual returns that exist through the minting process. This is incorrect and must be represented honestly.

Start by defining the distinction between a “nominal” and “real” value. A “nominal” value as its name (Latin root “nom” means “name”) implies, exists due to a communicative label placed upon such object. For example, prior to the 1970’s a single dollar bill represented “one dollar’s worth” of gold. More importantly, the summation of the physical nature of the one dollar bill was not equivalent to the ounce of gold; solely the ascribed value. There was no physical difference between a one dollar bill and five dollar bill for all intents and purposes. Sparing the discussion of devaluation and inflation, the idea that a visible change in the ink on a piece of paper from a one to a five would inherently change the value must be understood and accepted for a correct understanding. “Real” value of an object comes from a value comparison between two or more objects. Let’s say you are a young child and your parents pay you a dollar a week for doing your chores (making your bed, cleaning your room, etc), and at the end of the week, you get to go to the local dollar store and buy a toy (valued at $1). Your week of work is equivalent to one toy a week and can be represented as $1 for a week’s worth of chores, or one week of chores for one toy, or $1 for a toy, and so on. This system of comparison ties the worth of each piece of the system together, communicating value about each participating piece and its “real” value.

Now, let’s say the local dollar store changes ownership and is rebranded to the two-dollar store. Now instead of one week of chores, you need two. Your parents graciously double your chore money so the system can be maintained. Now you make $2 a week for one week of chores and are still able to buy one toy. Your income has increased by double, while your purchasing power has remained the same. Put simply, although you are now making $2 instead of $1, which is a nominal increase, the amount of time you are working and what you can buy with that money in its triangular relationship has remained the same, maintaining the real value.

In most cases, people use this colloquialism to describe a disparity between rich and poor. The difference in the amount of money held by either side is staggering on many occasions, however, this is not a function of an unfair system. During a game of Monopoly, over a number of terms, money is exchanged between parties and eventually, one individual holds the majority of the money while other players each declare bankruptcy. In the real world, this same system appears as few individuals tend to hold a disproportionate amount of wealth, relative to the majority of individuals and is described through the Pareto distribution. However, this Pareto distribution does not solely exist in finance, but also in creative works, including writing, film, visual media, and music. The majority of great works produced in each domain were produced by an extreme minority of individuals. Individuals such as Elvis Presley and Garth Brooks have sold some hundreds of millions of albums while (assuming) the majority of individuals in our daily lives have sold none (Decluttr). This is not an unfair system, but rather the result of specialization and the exchange of Elvis’s time for a skill which was honed to an expert level. Every moment Elvis spent playing guitar was a moment not spent cooking or learning medicine. This opportunity cost presents itself in every situation and dedication to one domain generally leads to specialization and an increase in ability over time.

As such, those who spend a great deal of time learning a business and developing products in the market have an increased chance of having success. Repeatedly investing such money will lead to an increase in their overall net worth (not accounting for inflation). A 10% increase in net worth for a college student may only be $1000, but for a millionaire, this would be around $100,000. Note this, because it will be important in a moment. The millionaire may be able to open a restaurant which makes his returns $120,000 in the following year, while the college student unable to dedicate time to a job outside of school, will not be presented with the same opportunities. There is no moral corruption, or unfairness to this situation, rather just a difference of opportunities and choice of time being spent with the available resources.

For Peercoin’s proof-of-stake method, these concepts become important as many claim PoS leads to an increase in the resources of the wealthy when compared to those who hold less. Minting 1% of a wallet in an annual period means if Individual A holds 100 Peercoin, that at the end of the year, they will have roughly 101 Peercoin. If Individual B holds 10,000 Peercoin, at the end of the same year, they will have roughly 10,100 Peercoin. As of today, Peercoin is trading at roughly $1, which is convenient for this comparison. Individual A only gained the equivalent of $1, while B gained $100. However, these increases are only nominal. This cannot be stressed enough. The relative increase in both A and B’s resource capacity is exactly the same. If both got 5% annual returns, they would still be exactly the same as the other at the end of a 365 day period. Even though there is a difference in the annual returns, there is no increase in purchasing power. Both A and B’s resource pile remains equivalent to each other in “real” terms, even if “nominally” they have changed. The minting system is closed and does not offer advantages for in staking to increase production.

However, both individuals must participate in the staking process to avoid the roughly 1% annual inflation. If there were a third participant, Individual C, who chose not to stake, would be losing out to the other participants. In theory, if Individual C held 20,000 Peercoins, and never minted, would, in theory, eventually be caught by either individuals A or B. Therefore, to maintain purchasing power relative to all other participants, staking and minting is strongly advised as protects the security of the network, but also provides an economic incentive. You cannot generate more time to age your transactions faster. It simply cannot be done, making RGR irrelevant and a nonsensical application of theory. Those who attempt to apply such logic are doing so through fallacious methods, relying on the crowd to observe only the “nominal” changes and not the “real” changes.

If you are interested in how the Pareto distribution governs distribution, you can read more here: https://en.wikipedia.org/wiki/Pareto_distribution

References:

https://www.decluttr.com/blog/2018/07/31/which-artist-has-sold-the-most-albums.

I’m sure we have covered this topic multiple times, but this was my contribution for the time being. Gets old explaining the concept and I want something to refer to for future reference.


#2

Made some edits based on suggestions, primarily about incentive to maintain purchasing power relative to other participants


#3

In fact, we do have a big problem with our system right now: [Rich get richer and the poor get poorer]
Description: If 1 million people have 10 PPC per person and another 1 million people have 1 PPC per person, then they all wait 90 days to start mining according to the regulations. Our system stipulates that the maximum number of blocks per year is 144*365=52560, and 1 million people mining is 1 million blocks before they can complete their requests,and another 1 million people. Obviously, it is impossible to get a 1% return in a year. Many years later, the another million people will no longer dig because they have no income.This creates enormous problems.


#4

Pareto distribution would allow me to safely say that this distribution model is not realistic. 80% of the supply should be held by roughly 20% of the participants. On top of that, minting also includes a random variable which means you do mint faster sometimes, depending on how many participants are partaking. Next, Minting is not a profitable endeavor, rather entirely a defensive idea. The supply will increase by a few, currently ~2.5% or so. If you do not mint in any capacity, you will experience deflation. Inflation is not about getting richer, it is about maintaining your relative position in the supply. This works because not only are we asking participants to protect the network while also recieving a small reward that protects their investment for the annual period.


#5

People always want the system to treat everyone fairly, and the rights of the poor need to be respected as well.Fair treatment mechanism is the premise for us to attract more users.Otherwise, we’ll give our competitors a lot of power, and it’s hard for us to win the competition.


#6

Fair treatment is another word for communistic and anti-capitalisms mechanisms. Nobody is interested in a game that they cannot win, I agree, but “fair” stops you from winning as well. Everyone is on an equally level playing group in terms of minting probability and rate because the scarcity mechanism is time. Everybody has time. Can’t get more.


#7

My explanation will cover up the key issue that people with 100 PPCs may not be able to get a return within a year, which is a policy of deprivation of wealth.Anyone who buys encrypted currency is to protect their own assets. When he knows that the system has the problem of depriving users of their property, they will not believe such a system. Therefore, ultimately, our system can only be regarded as research, and can not have practical value. Because we are a system of exploitation.

Fair Distribution,Energy Efficient,Stable and Secure,these are our important characteristics, and if we are unfair, it will damage our public image.


#8

I don’t think that your point about the maximum number of blocks per year is something that should be ignored btw. I think that is something I haven’t considered and I would be interesed in trying to sketch out some curves to describe limits of the system.

In terms of a deprivation of wealth, it would appear that as more participants stake, this would also require a large number of individuals to have boughten into the currency, causing it to value beyond the 1% return. I don’t know that many would have a complaint or issue with an increase in coin value like that.


#9

This is a question worthy of our in-depth consideration. We need an open attitude towards this issue.


#10

I like the consideration of the maximum blocks, but I still maintain we have a fair distribution model at this time. Will be meditating on how to start studying this and post my thoughts and tag you in them when I have written something on it.


#11

ok,because one percent interest is our commitment to users, and we can’t break it.


#12

If PPC had a 25% stake rate, then large users, and those that can mint regularly, would certainly benefit at an excessive rate - but Peercoin’s 1% is modest and functional: it is a tip or gift to incentivise minters, and it offsets deflation caused by fees. It is not a means for the rich to get richer; otherwise, the rich would be waiting an awfully long time.

Having said that, I agree it would be undesirable for a small coin-holder not to have a similar chance at minting as a large coin-holder.


#13

My response to this in chat is that this is a valid scale-up concern, and a generic one for a chronological distributed computing processes. The question is: what is the maximum number of participants that can theoretically engage in the Peercoin minting process and still practically be heard. I think the 52,560 number sets a good mark for this. While I agree that we are nowhere near this level of participation currently, it is good to have a long-term solution for this that does not depend on increasing the frequency of blocks. Minting pools, or something akin to them, seem to be the best option. Perhaps a second layer network decision mechanism to pool together small outputs without centralization?

As a point of philosophy, the question of staking is not so much about the inflation or the reward, but more about the participation of individuals in the staking process i.e. having a say in the decentralized PoS mechanism. We should not lose sight of this.


#14

The question is: what is the maximum number of participants that can theoretically engage in the Peercoin minting process and still practically be heard. I think the 52,560 number sets a good mark for this.

This would be the thesis I would pursue. The alternative is maybe increase in block speed since that would increase the number of minting opportunities, although that would change inflation rate.


#15

Opened a new and on-topic thread


#16

This is extremely dangerous from a consensus perspective. For an extreme perspective, look to ETH (15s blocks) and the attempts to make Casper a convergent theorem. This simply cannot scale with the size of the human population.


#17

Why can’t anyone explain the problem clearly?


#18

Because that distribution is completely unrealistic.


#19

it will motivate to buy more peercoins :slight_smile: