Transaction Rights: The Necessary Product of Block Chaining

Transaction rights as the sellable reward for chaining blocks:

This is an interesting theory but very difficult in practice. A transaction rights system would assume the transaction rights are worth having. I could see a coin phasing into this system, but a coin using this to start off wouldn’t stick around very long. You’d be forced to use a distribution method similar to NXT, which might garner some attention but in the end you now have all your initial investors vying for rights to transact with other initial investors, which is nonsensical.

You are entirely correct: transaction-right rewards are not a suitable incentive until the system has become widely used. Its coin must have already become a medium of exchange with a meaningful transaction volume. Likewise, the money supply must have already been created and distributed. Just like proof-of-stake, the sellable-transaction-right mechanism cannot bootstrap a currency.

However, sellable transaction rights and mining are not mutually exclusive. The two can coexist until enough people rely on the same coin as a medium of exchange.

For example, Bitcoin could replace current transaction fees by sellable transaction rights short before the mining reward fades away as the block-chaining incentive.

Alternatively, as already a hybrid system, Peercoin could adopt sellable transaction rights as a replacement only for its current proof-of-stake model. Then, it could decrease or increase the mining reward as transaction volume increased or decreased, respectively. This would be possible because transaction-right chaining makes gaming transaction volume an untenable strategy. Still, this would have to wait until transaction volume became large enough.

Here’s what I posted at reddit, but I want to post it here as well and not only cross link it (e.g. for convenience).
First I need to say that the auther does not appear well-informed.
For example it is not 0.01 PPC per tx that is destroyed, but 0.01 PPC per kB size of the tx.

But let’s get to the arguments:

"It amplifies wealth inequality..."

is nonsense. With the given numbers the inequality has nothing to do with Peercoin’s PoS, but with the fact that Alice has an income (expenses subtracted) that is 10 times as high as Bob’s. The inequality lies in the vastly differing income!
If Alice did receive fiat money, she would be able to buy 10 times the coins which Bob could afford.

"It makes the money supply unstable..."

Another nonsense. Money supply is not only provided by PoS, but in fact (currently) a lot more by PoW. Although the PoW block rewards are diminishing, they will play a significant role for money supply in the next years. Phasing out PoW is neither announced nor planned. The PoW will regulate itself, because of the block reward being a function of the PoW difficulty (which is a function of the PoW network hash rate).

"...implicit value transfer disguises the cost of participating in the system."

Being inactive creates effectively inflation, because all active minters receive 1% reward for securing the network. It is up to each individual to be active. That is not intrinsic in PoS, but the result of a decision of the individual.

"As coins increase in value, the (now 0.01 coins) transaction fee will eventually become too valuable..."

The author clearly is not aware of the design of Peercoin.
This is what keeps Peercoin’s block chain small.
This is what a concept that aims to be a backbone currency needs to be designed for.
That is why Peercoin is clearly not intended to be used for purchasing cheap goods regularly - at least not when using the Peercoin network directly. But using payment processors, who do transactions off the block chain, renders Peercoin able for that as well!

"System integrity depends on extrinsic incentives..."

Totally wrong. System integrity depends on intirinsic incentives. Not the 1% annual reward is what should motivate people to take part in the PoS process, but striving to protect what they own should be the reason. The more Peercoins are in the PoS process, the more secure it is.

Integrity depends on people’s understanding that they need to do something to maintain the value of their coins!

Maybe I have a detailed look at the rest of this article as well, but I wanted to comment those arguments against PoS. Now you know my point of view. Make your own mind…

You are a master of disaster, aren’t you? Let me answer to your points.

[quote=“masterOfDisaster, post:5, topic:2201”]Here’s what I posted at reddit, but I want to post it here as well and not only cross link it (e.g. for convenience).
First I need to say that the auther does not appear well-informed.
For example it is not 0.01 PPC per tx that is destroyed, but 0.01 PPC per kB size of the tx.[/quote]

Perhaps you were a little distracted as the paragraph starts with “In a simplified version of Peercoin’s proof-of-stake design”…

[quote=“masterOfDisaster, post:5, topic:2201”]But let’s get to the arguments:

"It amplifies wealth inequality..."

is nonsense. With the given numbers the inequality has nothing to do with Peercoin’s PoS, but with the fact that Alice has an income (expenses subtracted) that is 10 times as high as Bob’s. The inequality lies in the vastly differing income!
If Alice did receive fiat money, she would be able to buy 10 times the coins which Bob could afford.[/quote]

So what you propose? That we make illegal for Alice to have 4 times more coins than Bob? Given the fact that this happens, in my likely example Alice will be able to reserve 10 times more as block-chaining stake than Bob (we could rather make that illegal). Then, the proportion by which Alice’s reward is bigger than Bob’s (10 times) will be much bigger than the proportion by which Alice’s wealth was originally bigger than Bob’s (4 times). In other words, the monetary system itself will amplify the wealth inequality between Alice and Bob.

[quote=“masterOfDisaster, post:5, topic:2201”]

“It makes the money supply unstable…”

Another nonsense. Money supply is not only provided by PoS, but in fact (currently) a lot more by PoW. Although the PoW block rewards are diminishing, they will play a significant role for money supply in the next years. Phasing out PoW is neither announced nor planned. The PoW will regulate itself, because of the block reward being a function of the PoW difficulty (which is a function of the PoW network hash rate).[/quote]

In Peercoin, proof-of-work only creates additional inflation, so it can only offset the money-supply instability created by the proof-of-stake model when transaction fees exceed stake rewards by exactly the same amount of proof-of-work rewards. Additionally, I am concerned with Peercoin’s proof-of-stake model alone, independently of its additional use of proof-of-work.

[quote=“masterOfDisaster, post:5, topic:2201”]

"…implicit value transfer disguises the cost of participating in the system."

Being inactive creates effectively inflation, because all active minters receive 1% reward for securing the network. It is up to each individual to be active. That is not intrinsic in PoS, but the result of a decision of the individual.[/quote]

So the possibility of some Peercoin users not actively minting is not intrinsic in Peercoin?

[quote=“masterOfDisaster, post:5, topic:2201”]

“As coins increase in value, the (now 0.01 coins) transaction fee will eventually become too valuable…”

The author clearly is not aware of the design of Peercoin.
This is what keeps Peercoin’s block chain small.
This is what a concept that aims to be a backbone currency needs to be designed for.
That is why Peercoin is clearly not intended to be used for purchasing cheap goods regularly - at least not when using the Peercoin network directly. But using payment processors, who do transactions off the block chain, renders Peercoin able for that as well![/quote]

Usually, objections are not directed to the advantages of something, but rather to its disadvantages. Similarly, my objection is directed to the disadvantages of Peercoin’s fixed 0.01 transaction fee, regardless of any advantages it may have. As a matter of fact, I have already seen discussions about lowering that fee, so the problem has already surfaced. Bitcoin has a similar problem, which it is trying to solve with Gavin’s “smart fees” algorithm.

[quote=“masterOfDisaster, post:5, topic:2201”]

“System integrity depends on extrinsic incentives…”

Totally wrong. System integrity depends on intirinsic incentives. Not the 1% annual reward is what should motivate people to take part in the PoS process, but striving to protect what they own should be the reason. The more Peercoins are in the PoS process, the more secure it is.

Integrity depends on people’s understanding that they need to do something to maintain the value of their coins!

Maybe I have a detailed look at the rest of this article as well, but I wanted to comment those arguments against PoS. Now you know my point of view. Make your own mind…[/quote]

The word “intrinsic” usually means something without which something else cannot exist. So, by definition, people being able to participate in Peercoin without doing the necessary work to preserve its value makes preserving that value an extrinsic incentive to Peercoin. An intrinsic incentive for people to participate in something must be a requirement for that participation.