Weekly Update #150

[Sunny_King]

Weekly Update #150

• With the recent transaction volume on bitcoin network, I would like to discuss the transaction fee policy of peercoin/primecoin. I have always felt that the transaction fee design of bitcoin is overly complex, so peercoin/primecoin simplified it quite a bit, so users could have easier understanding of the policy. However, the deeper issue with bitcoin's technology is that, due to the nature of the decentralization technology, it's inherently a rather expensive settlement network. This means it's more suitable to act as a backbone network for financial systems, rather than to compete with centralized payment networks on volume and cost. This isn't obvious when bitcoin userbase is still limited, but the situation will get more and more obvious as its popularity grows.
• Originally bitcoin's transaction fee was defaulted to 0.01BTC. In fact I think this original default value was quite good, it beats having an overly complicated system in my opinion. Think about it, at current valuation it's still only one tenth the cost of bank wire networks. To prematurely increase the scale of the network, to compete against networks such as paypal or credit cards, would cause a significant loss of decentralization which by the way is what bitcoin technology and philosophy is all about. It appears that bitcoin developers are not guarding the fundamental principles with enough vigilance.
• In such spirit both peercoin/primecoin set default transaction fee to a required 0.01 coin per KB of data, in a simplified and effective fee policy from old bitcoin. The situation in bitcoin is closedly watched, the current fee policy in peercoin/primecoin likely would remain in place when upgrading to latest bitcoin codebase in the future.

Have fun!

[sabreiib]

1) Blockchain tech is not suitable for high volume micropayment, I agree that PPC/XPM's backbone style is the ultimate on-chain solution, in future, more centralized solutions(eg, paypal accepts bitcoin) will come out for micropayment.

2) The transaction fee should be determined/voted by coin holders(for PoS) or Miners(for PoW).

[Fuzzybear]

I have always liked ppc and xpm's simple transaction fee over bitcoins adjusting / adjusted fee as the fee is to protect the blockchain from spamming but actually how bitcoin fees go to the miner as opposed to being destroyed as in peercoin gives a different incentive for the fee discussion. I see no problem keeping the fee part of peercoin simple (for now, can be changed if deemed the right decision) and different from bitcoin.

One point always raised is the cost of this fixed fee should peercoin value go to $10,000 per peercoin etc the argument in bitcoin has always been to lower fee accordingly, but today I have been looking at it from the argument that if you are dealing in millions of $ then yes use peercoin and the fee is still less than banks charges, if you are dealing in tens of $ then there will be a side chain worth fractions of peercoin and you would use that to conduct your business.

Fuzzybear

Sent from my HTC Desire using Tapatalk 2

[arbitrageur]

is there anyway to leave the fees to the market instead of fixing it at dev level? why having socialist price control? never works!

[wolfcrafts]

终于看到关于peercoin的消息了，整天就是nu和d&c，亏的养老钱都没有的我望穿秋水啊！
在车上意外遇到个早期挖PPC的玩家，说早就抛了，换BTS了，虽然知道BTS就李笑来，暴走恭亲王几个人搞的，但暴走明显很积极，比起SK来活跃多了，问我SK现在还在搞PPC么。
Many Chineses said the progress of peercoin was too slow and SK was fallow.

[CapR]

2) The transaction fee should be determined/voted by coin holders(for PoS) or Miners(for PoW).

I think they would probably just vote for the cheapest fee if it was up to them. Maybe a better pricing scheme would be to automatically use whatever price a decentralized exchange is asking for trading Peercoin and make the Peercoin transaction fee a certain percentage more expensive?

[Thireus]

Fees should be dynamically adjusted with the following factors:

• PoW average difficulty of the last few blocks (as it often reflects PPC's price)
• Number of transactions per block on average in kb for the last confirmed blocks

So that whenever PoW diff increases (which often means a PPC price increase) fees decrease, and vice versa. And when the number of transactions in kb for the last confirmed bocks increase fees increase, and vice versa.

These are the two factors I think we should highly consider for now. I don't see any others that would make sense to include in the calculations of a dynamic fee system.

Of course fees must be as low as possible, but still be a good incentive to avoid the blockchain from being spammed.

Also, something important to consider: fees help burning coins, and this is the only way we currently have to fight against PoW (and PoS) induced inflation. Our current inflation rate is between 3%-5% per year which is higher than most of FIAT currencies inflation rates (http://peerchain.net/charts.html)...

Maybe we should talk about dynamically adjusting PoW rewards, and make them tend to 0 over time with a convergent function... instead of this non-cense linear function that we are currently tight to.

[Sentinelrv]

I posted this in r/cryptocurrency to draw some more attention. Please post some supportive comments in there...

https://www.reddit.com/r/CryptoCurrency/comments/3ckdt3/sunny_king_it_appears_that_bitcoin_developers_are/

I also posted this comment in there...

To further expand on Sunny's thoughts in this weekly update, here is a quote of his from an interview in 2013...

"Both PPC and XPM are designed to last. PPC is designed with energy efficiency, XPM is designed with energy multiuse. Bitcoin has a long term uncertainty as to whether transaction fees can sustain good enough level of security. Before that the main concern is how to balance transaction volume and transaction fee levels. Currently I get the feeling that bitcoin developers favor very low transaction fees and very high transaction volume, to be competitive against centralized systems (paypal, visa, mastercard etc) in terms of transaction volume, to the point of sacrificing decentralization. This also brings major uncertainties to bitcoin's future.

From my point of view, I think the cryptocurrency movement needs at least one 'backbone' currency, or more, that maintains high degree of decentralization, maintains high level of security, but not necessarily providing high volume of transactions. Thinking of savings accounts and gold coins, you don't transact them at high velocity but they form the backbone of the monetary systems.

Pure proof-of-work systems such as bitcoin is not 100% suitable for this task. This is because transaction fee is not a reliable incentive to sustain network security. If the mining generation amount is kept constant (there have been several such attempts in altcoins) it would work better security-wise but then it would also significantly weaken the scarcity property of the currency. XPM's inflation model is designed in such a way that it could serve as backbone currency better than bitcoin if needed, because it could maintain high security reliably for longer, with reasonably good scarcity property as well. Of course that's only from architect's point of view, whether or not it would be chosen by the market is a whole different matter.

PPC is designed to serve even better as a backbone currency. The proof-of-stake technology in PPC is not only energy efficient; it also maintains high level of security without relying on transaction fee. Thus PPC could be safely designed with strong scarcity property yet serving well as backbone currency. Both PPC and XPM use protocol enforced transaction fees, which reflects my preference that high transaction volume is discouraged in favor of serving as backbone currencies.

Right now if we are talking about micropayments in the US$1 range, both PPC and XPM still handle them with much lower overhead than credit card network. In the long term micropayments should be provided by centralized providers, or a less decentralized network optimized for high capacity transaction processing.

On the other hand there is no promise that minimum transaction fee wouldn't be adjusted. If processing capacity of personal computers continues to advance at the current pace, both max block size and minimum transaction fee could very well be adjusted at some point. However I do take a very cautious approach to adjusting transaction fees, as opposed to bitcoin devs. The impact to the fitness of the currency as a backbone currency is of great concerns to me."

Sunny King had a lot of foresight into the future of Bitcoin and designed Peercoin accordingly. The 0.01 PPC/kb fee in Peercoin is intended to discourage transaction spam. This fee protects the decentralization of the network, but it also means that the Peercoin network itself will never be able to compete with centralized solutions like Visa and Mastercard on-chain.

In this quote, Sunny predicts the rise of off-chain networks that would allow the majority of Peercoin transactions to take place off-chain, while Peercoin itself is used more as a backbone settlement network, a mechanism for transacting larger sums of money and a secure, censorship resistant, decentralized store of value. As an example of Sunny's intended design, compared to other cryptos Peercoin's blockchain size is still extremely tiny even after almost 3 years of operation.

[willy]

Also, something important to consider: fees help burning coins, and this is the only way we currently have to fight against PoW (and PoS) induced inflation. Our current inflation rate is between 3%-5% per year which is higher than most of FIAT currencies inflation rates (http://peerchain.net/charts.html)...

Maybe we should talk about dynamically adjusting PoW rewards, and make them tend to 0 over time with a convergent function... instead of this non-cense linear function that we are currently tight to.

1) I don't think Peercoin competes with Fiat currencies. It's inflation rate is pretty low compared to other cryptos, especially bitcoin! Also, that inflation rate dropped very fast. We had around 8% PoW inflation alone in 2013.
2) For each 16 times increase in PoW difficulty, the proof-of-work block reward is halved. A sudden hash rate drop would surprise me, as Peercoin is still one of the most profitable PoW coins to mine. Why adjust PoW rewards even further?

[Fuzzybear]

Fees should be dynamically adjusted with the following factors:

- PoW average difficulty of the last few blocks (as it often reflects PPC's price)
- Number of transactions per block on average in kb for the last confirmed blocks

So that whenever PoW diff increases (which often means a PPC price increase) fees decrease, and vice versa. And when the number of transactions in kb for the last confirmed bocks increase fees increase, and vice versa.

These are the two factors I think we should highly consider for now. I don't see any others that would make sense to include in the calculations of a dynamic fee system.

Of course fees must be as low as possible, but still be a good incentive to avoid the blockchain from being spammed.

Also, something important to consider: fees help burning coins, and this is the only way we currently have to fight against PoW (and PoS) induced inflation. Our current inflation rate is between 3%-5% per year which is higher than most of FIAT currencies inflation rates (http://peerchain.net/charts.html)...

Maybe we should talk about dynamically adjusting PoW rewards, and make them tend to 0 over time with a convergent function... instead of this non-cense linear function that we are currently tight to.

I see what you are driving at using the difficulty to calculate the ppc fee and this is usually based on price of ppc. However I would not do this at all as does not account for technology improvements, new gen asic would cause a difficulty increase but not necessarily a price increase, also the harder the coin to mine the lower the fee... surely that encourages big miners to push the difficulty up to manipulate a lower fee for themselves.

I am still very much in favour of keeping fixed fee, as this will always aid in reducing the ppc inflation through burnt fees and this cost is what protects the blockchain and partly why after near 3 years still under 1gb blockchain. Reduce the fee, mote ppc in existence and more likely for someone to set up a business model like satoshi dice directly on blockchain and that just cripples the sync of blockchain.

Just how would you ever take the fee out of a dev decision and make it based off market value of ppc?? Code the fee to be calculated based off exchange api... ppc suddenly reliant on third party service. What when service down or ddos?? What to stop someone manipulating the price or api? Another security risk.

Also think about other merchants and services. Currently bittylicious charges the fixed 0.01 ppc fee, as do most exchanges pools businesses etc. Their code is programmed prob as a config value that they set and let the site run without having to monitor or adjust this value. If the fee is some over complex calculation I know I would be put off having to re code my site for ppc and would want to run series of through tests before setting live, just more work and for what benefit?

Present an argument for why the need to adjust the fee as I am failing to see one at the moment.

Fuzzybear

Sent from my HTC Desire using Tapatalk 2

[Thireus]

1) I don't think Peercoin competes with Fiat currencies. It's inflation rate is pretty low compared to other cryptos, especially bitcoin! Also, that inflation rate dropped very fast. We had around 8% PoW inflation alone in 2013.
2) For each 16 times increase in PoW difficulty, the proof-of-work block reward is halved. A sudden hash rate drop would surprise me, as Peercoin is still one of the most profitable PoW coins to mine. Why adjust PoW rewards even further?

1) What is the purpose of Peercoin then, if not to compete with FIAT currencies? Is the only purpose of Peercoin to be a lolcat crypto, or do we actually want Peercoin to succeed and be a real currency? Of course the inflation rate dropped, but it doesn't mean it will drop any lower now (we can clearly see it's now constant).
2) Peercoin's PoW supply has no boundary, the reward is directly proportional with the difficulty and doesn't drop over time. Which does not comply with Peercoin's ideology to be eco-friendly. At this rate miners will always receive the same reward no matter how much Peercoin's supply is, which means in 500 years, miners will still be rewarded 80 PPC if we assume the difficulty remains the same. What I would like to do, is to introduce an arbitrary limit to PoW's supply so that miners can extract less and less coins over time, which will hopefully increase the incentive to mint coins instead of mining, and thus give an incentive to secure the blockchain (as we know our main security comes from PoS). The only reason why PoW is still part of Peercoin is to drastically increase the supply, which is completely crazy now. If we do not slow down PoW's daily reward, in 25 years Peercoin will have doubled its supply. The implications will be: PPC's average price will be half what it is right now, PPC holders won't have any reason to hold their coins and mint a few PPC per year, the only people who will profit from this will be the miners who are dumping their coins on a daily basis on BTC-E for FIAT profit only.

[masterOfDisaster]

The simple fee model is appealing.
And the mandatory transaction fee could keep dust out very well by making it expensive.
But it can't prevent from heavy (ab)use of the blockchain which Bitcoin currently suffers.

Heavy utilization of the Peercoin network needs to be made expensive to protect the network from cheaply executed bloating attacks.
At the current Peercoin price you could double the blockchain size in less than three days for less than 2000 USD.
This is nothing comapred to the market capitalization.

One factor that helps keeping Peercoin's level of decentralization high is the small blockchain size.
We need to protect that.
Peercoin needs that if it wants to succeed as a backbone asset.

A variable mandatory transaction fee determined by the protocol based on the network utilization is required.

[teek]

The simple fee model is appealing.
And the mandatory transaction fee could keep dust out very well by making it expensive.
But it can't prevent from heavy (ab)use of the blockchain which Bitcoin currently suffers.

Heavy utilization of the Peercoin network needs to be made expensive to protect the network from cheaply executed bloating attacks.
At the current Peercoin price you could double the blockchain size in less than three days for less than 2000 USD.
This is nothing comapred to the market capitalization.

One factor that helps keeping Peercoin's level of decentralization high is the small blockchain size.
We need to protect that.
Peercoin needs that if it wants to succeed as a backbone asset.

A variable mandatory transaction fee determined by the protocol based on the network utilization is required.

Had to do the math on this one for anyone who is interested:

6 * 24 = 144MB per day max additional size

1024KB * .01PPC = 10.24PPC per block cost to max it out

10.24PPC * 6 * 24 = 1,474.56 PPC per day to fill all blocks and add 144MB to the blockchain..

1,474.56 * 365 = 538,214.4 PPC to do this for a year, which would ad 52.56GB to the blockchain..

So at current prices if someone wanted to, they could spend about $220k USD and obtain about 380,000 PPC to make the blockchain the same size as bitcoin's. Ignoring economic factors like how much the price would go up obtaining those coins or due to the offset of inflation due to all those fee's being burned..

[mably]

The simple fee model is appealing.
And the mandatory transaction fee could keep dust out very well by making it expensive.
But it can't prevent from heavy (ab)use of the blockchain which Bitcoin currently suffers.

Heavy utilization of the Peercoin network needs to be made expensive to protect the network from cheaply executed bloating attacks.
At the current Peercoin price you could double the blockchain size in less than three days for less than 2000 USD.
This is nothing comapred to the market capitalization.

One factor that helps keeping Peercoin's level of decentralization high is the small blockchain size.
We need to protect that.
Peercoin needs that if it wants to succeed as a backbone asset.

A variable mandatory transaction fee determined by the protocol based on the network utilization is required.

Had to do the math on this one for anyone who is interested:

6 * 24 = 144MB per day max additional size

1024KB * .01PPC = 10.24PPC per block cost to max it out

10.24PPC * 6 * 24 = 1,474.56 PPC per day to fill all blocks and add 144MB to the blockchain..

1,474.56 * 365 = 538,214.4 PPC to do this for a year, which would ad 52.56GB to the blockchain..

So at current prices if someone wanted to, they could spend about $220k USD and obtain about 380,000 PPC to make the blockchain the same size as bitcoin's. Ignoring economic factors like how much the price would go up obtaining those coins or due to the offset of inflation due to all those fee's being burned..

Remember that a few weeks ago PPC was almost 3 times cheaper and that 380,000 PPC is current day trade volume, so spread over a full year...

[teek]

Remember that a few weeks ago PPC was almost 3 times cheaper and that 380,000 PPC is current day trade volume, so spread over a full year...

Definitely, just playing with the numbers..

[Nagalim]

I used to think PPC should keep its POW because of the continuous decline in price. After seeing a constant increase over the last 5 weeks, an event that is unique in peercoin's history, as well as all the comments put forth here, I am of the opinion that we should:

1. Remove POW entirely. Discussion should be of the proper way to do this with grace but as soon as possible.
2. Make the TxFee = 0.01 + (KBinTx * 0.02). This results in the fee bounded by [0.01,0.03] PPC
3. Triple mint rates. We need to keep issuing new coins, and minters are the whole point.

https://www.peercointalk.org/index.php?topic=1539.0
Targetting a certain number of Tx/block is also interesting. Would the fee per block be based on the number of Tx in the previous block or based on what's happening in the current block? The issue with this style is exchange integration, as Fuzzy Bear said. We have to assume exchanges will want to charge the maximum fee.

[masterOfDisaster]

[ul]

[...]
[list type=decimal]

Remove POW entirely. Discussion should be of the proper way to do this with grace but as soon as possible.

Make the TxFee = 0.01 + (KBinTx * 0.02). This results in the fee bounded by [0.01,0.03] PPC

[/list]
[...][/ul]

I understand the desire to remove PoW and basically I'm in favor of that - just not now. I consider it too early. Peercoin needs more distribution; in my opinion...
PoW serves that purpose in two ways:

1. 
   by creating new PPC; all you need is a capable mining device and if you look at the hash rate in the Bitcoin network you see that there are plenty SHA256 ASICS
   
2. 
   by keeping the trade price of PPC lower than it would be without PoW - as long as there's distribution by PoW, the distribution of already available PPC by trading is cheaper for buyers
   

https://www.peercointalk.org/index.php?topic=1539.0
Targetting a certain number of Tx/block is also interesting. Would the fee per block be based on the number of Tx in the previous block or based on what's happening in the current block?

0.03 PPC/kB is not enough. I still think it's too early for talking about an algorithm, but my idea is more like this:
if the size of transactions broadcast to the network but not yet included into a block is over half the next block size, double the fee per kB.
Do the doubling of the fee each time the remaning block space is halved.
I don't know whether the fee increase or the thresholds are proper.
I just wanted to explain the idea

Just to make it clear:
I think it might be better to start increasing the fee at a much lower utilization than 50%.
Spamming half of the block size at the current price still is too cheap. If you look at the average use of the blocks so far, you might agree that starting a steep rise of the tx fee at 10% of a block size wouldn't be recognized most times.
And it might better be averaged over some blocks.

As the fee is destroyed and not paid to miners (or minters) I wonder how to incentivize them to include the transaction with the proper fee into the blocks.
How would you deal with patched clients that broadcast transactions at the standard fee in times of elevated fees waiting for them to clear in the future?
Could that be the standard procedure - pay the elevated fee to expedite the teansaction to get included as soon as possible?
Would an idea I once had help here: pay a part of the fee (maybe the part by which it's elevated) to the minters?

A savings account isn't expected to clear in minutes; if the utilization of the network is high, either wait or pay a high fee!

[fishb0ne]

I agree, I am not so sure we are at the point of disabling PoW. It may effectively kill the coin. Look at how much interest is still maintained and supported via miners.

[Hibero]

Weekly Update #150

• With the recent transaction volume on bitcoin network, I would like to discuss the transaction fee policy of peercoin/primecoin. I have always felt that the transaction fee design of bitcoin is overly complex, so peercoin/primecoin simplified it quite a bit, so users could have easier understanding of the policy. However, the deeper issue with bitcoin's technology is that, due to the nature of the decentralization technology, it's inherently a rather expensive settlement network. This means it's more suitable to act as a backbone network for financial systems, rather than to compete with centralized payment networks on volume and cost. This isn't obvious when bitcoin userbase is still limited, but the situation will get more and more obvious as its popularity grows.
• Originally bitcoin's transaction fee was defaulted to 0.01BTC. In fact I think this original default value was quite good, it beats having an overly complicated system in my opinion. Think about it, at current valuation it's still only one tenth the cost of bank wire networks. To prematurely increase the scale of the network, to compete against networks such as paypal or credit cards, would cause a significant loss of decentralization which by the way is what bitcoin technology and philosophy is all about. It appears that bitcoin developers are not guarding the fundamental principles with enough vigilance.
• In such spirit both peercoin/primecoin set default transaction fee to a required 0.01 coin per KB of data, in a simplified and effective fee policy from old bitcoin. The situation in bitcoin is closedly watched, the current fee policy in peercoin/primecoin likely would remain in place when upgrading to latest bitcoin codebase in the future.

Have fun!

Sunny, I'm glad to hear your thoughts on the recent attacks on Bitcoin.

On another subject, it would be nice to see some form of roll out plan for Cold Minting. I have no doubt that you are busy but it has been over six months since Sigmike made the commit.
Security of the network should always be highest priority but sometimes it's very easy to get into the state of development paralysis. A schedule would assure everyone that there is work being done and can make it easier for everyone to make the upgrade as smooth as possible. Nearly everyone is excited for Cold Minting and it would be quite the feature.

If you need any help, just ask! We all want this to succeed.

[seki]

i am also vefy font of cold mining. after trying the dash's masternodes, i see how useful and secure this can be for the coin!