Monday, May 29, 2017

USAF debate exposes a deficiency in cryptocurrency philosophizing

Summary
Someone recently argued that since USAF is not POW, it can't determine the truth of a consensus. This is a response to that argument. I'll describe how USAF attempts to address a core problem in cryptocoins that alts handle in many in different ways. The core problem is that the protocols can change, resulting in political environments subject dispute and to negative sum activity. I'll explain why a vote that is NOT based on POW or POS is required, and propose that "votes" weighted by transaction fees paid is the best method, and that USAF is a first-step approximation to this ideal. The ultimate goal is for the mere desire of low fees to automatically result in a protocol that minimizes the fees per BTC in transactions, but maximizes the fees paid per day (larger and larger use of the coin to support a larger network). A side-effect will be a coin with constant value in time and space, the ultimate and only goal of an ideal currency.

Preemptive Conclusion
I propose transaction-fee-weighted voting should dictate all protocol changes, including coin release schedule and quantity so that the users (i.e. the fee-based supporters of the network) who want to see the coin succeed will have the opportunity to make the protocol decisions. Their logical decision, to the dismay of miners and hoarders, will be to let the coin inflate to keep the value constant. This will result in contracts (including prices and wages) remaining valid in terms of the stable-value coin, new entrants will not be penalized for being late to the party, and the 1% wealthy class that inevitably results from a non-inflating coin can be prevented, all while minimizing the fees per transaction. In other words, this will result in minimal good-governing regulation (the coin's protocol) with the least taxes, stopping harmful changes to the protocol and the lobbies that try to push them. A key problem I have not worked out is how to get a cost signal from the network to the transaction-fee protocol. That is, what can you objectively measure in the network to dictate the base fee, percent fee, and maybe some other feedback-loop control variable? The obvious "per day" measures are total coins transacted, total fees, total transactions, and their rates of change. But what are the measures of network health and success and how will those measures be affected by the fees? My thesis is that there must be a way to minimize fees paid per BTC in transactions while maximizing total fees paid (because that would mean its marketplace is growing on an absolute basis) through an automatic feedback loop where the "voters" are the fees themselves, not people having to think about something more than minimizing their costs. But those people need to demand a solid (i.e. rarely-if-ever changing) protocol that blocks miners (POW) and hoarders (POS) out of the decision making process in protocol changes. By definition, miners (POW) and hoarders (POS) are the enemy to all currencies because a currency needs above all to be a CONSTANT value. The other characteristics of an ideal currency are derived from this need (a little thought will bear this out). POW inflates via mining but the mining is capped. The arbitrary cap and arbitrary release schedule are a blind solution to what needs to be an intelligence and dynamic market-place response from node fees. POS is equally bad because it deflates by rewarding hoarders and therefore penalizes new entrants. The economic pie is only so big and hoarding stifles the marketplace.


How USAF is similar to a democratic vote, fighting against the entrenched 1%
In a democracy, the greed of free-market capitalism is softened towards socialism by a vote that changes the protocol (government) to redistribute political and economic wealth (infrastructure expenditures like defense, roads and education that benefit everyone but cost the wealthiest taxpayers more is difficult for me to distinguish from welfare). Votes are specifically not supposed to be based on POW or POS, but based on "proof of desire for the system to succeed" instead of what helps the selfish individual. There's a book that talks about people voting based on what they think is right for society instead of what is best for their personal self. If what is right will help society more than it helps them individually, they sacrifice a small economic risk for the pride of doing what's best for everyone. This may be the basis of religious beliefs. At the protocol level, societies are more powerful when personal profit is not dictating the goals of the society as a whole. Rationally selfish people can't design a protocol that maximally benefits society because they will always bias decisions towards what is best for self at the expense of the system. So the most successful systems will have a culture of putting everyone above yourself in certain specific ways (for the system-wide beneift) while aggressively pursuing self-interest and competition in the marketplace, determining winners on a local level, weeding out the weak, again for the benefit of the system. The protocol should enable maximum competitive selfishness in a way that does not allow the participants to compete against or profit from the system as a whole.

If you base protocol decisions on the desires of the most powerful economic players (miners accepting transaction fees or big miners wanting to maintain a monopoly position such as a secret ASICBoost mining cheat), then economic wealth will be concentrated in fewer and fewer hands. There does not even need to be a 51% attack if a mining consortium with over 51% of hashrate gets to choose their favorite the protocol. They can just vote to raise mining fees. This is an inadequate proof-by-example of why miners should not influence the protocol. All they need to enslave everyone married to the coin is to keep more of the BTC fees than they sell and it will drive up the price of the BTC until it is so expensive, no new entrants will want to accept it. If you say this means miners will therefore look ahead and not be brutal to users and ignore their future best interests, then it is like saying a fox in a hen house will not eat all the chickens because someday he'll need some of them to breed more chickens. Miners would just move to a new coin that has few problems then again gain control for rational profit and again unconsciously destroy it. Saying competition will smartly end up selecting a better coin is an evolutionary fix that will take evolutionary time instead of just smartly fixing the coin we have.

I do not think a node is costless to implement. They can't really be run on a smart phone (yet). Therefore it might work something like POW. Requiring 80% instead of 51% might be a way of over-coming a lack of costliness. It does not matter if they could run on smart phones because it still would be like mining where competitive "might is right" is what determines the truth (where truth=consensus for this USAF case). Those supporting it and those against it would still have to compete in creating nodes.

Finally getting back to the parallel between USAF & democracy
But nodes are really different. They are a charity that has some cost, not a profit-seeking adventure, unless you include wanting to profit by dictating your own consensus on the protocol that rewards you more than others in some way. So with USAF it is like mining to gain control of the protocol without making any money directly. This is like voting for the government to do things: you can make that vote to do what's best for society, but it will cost you more in taxes if you're not smart in making government smart. So voting comes at a cost so there is a parallel with the cost of running a node. Companies (miners) try to influence the protocol of government without incurring that cost via lobbies. So thinking that fake nodes can be like a "lobby" to compete against the "charitable" and "noble" voters/taxpayers in designing government is a valid argument. But if the taxpayers have no interest in supporting the government in an intelligent way (running a node AND supporting USAF in my opinion), then they "deserve" to be cheated is a common perspective. The 80% factor helps assure that the vote is a clear majority of the presumably charitable entities (taxpayers) and only by that large percentage can the "constitution" of the protocol be changed. Good developers would be more like a supreme court with a certain ability to override marketplace and voter decisions.

But I don't agree with the perspective "unconscious taxpayers deserve what they get". Technology can and should solve the problem, allowing the marketplace participants to concentrate on efficient production in a virtuous feedback loop with the long term physics goal (or direction) of reducing the entropy of the economic mass on Earth as I've discussed in previous posts. I think instead of voting with node power, transaction fees paid should be proportional to the voting power so that transaction fees are kept as low as possible. The transaction fees would support nodes, so it's an important tying of marketplace incentives to desired results. Again the result is increased efficiency in the rate at which we are lowering the entropy of the economic mass. (Side note: We will soon not be able to comprehend what's going on except to notice Earth's surface mass is congealing to a harder form (buildings, motors, solar cells, CPUs are harder and therefore lower specific entropy (per mole) versions of bone, muscle, photosynthesis, and brains with a correspondingly higher efficiency). End note. )

Refer back to my preemptive conclusion above that could be inserted here. Basically my point is that democracy and votes could be replace with a fees-based market incentive. The effect and goal would be divorced from human desires and conceptions about right and wrong, placing increasing efficiency above all else, where "efficiency" is defined as the rate at which the mass under economic control is increasing. The degree of control and strength is relevant so I think the real measure might be the rate at which the entropy of the mass on Earth is decreasing is the real measure of economic success. "Economizing" = efficiency increases.

If it forks then 2 societies will have been created: one that favors free-market 1% capitalism and one that favors using democracy to bias unconstrained capitalism towards socialism. My money will be on the democracy.

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