Viewpoint | Nothing is cheaper than PoW, Part-1

The so-called workload proves "substitute", waste "workload" especially

Introduction: Wasted resources

I have written an article about Proof of Work (PoW) and Mining, and the first half of it has aroused great interest among readers, but obviously it is not very good to convince everyone. For example, CCRG (Ethereum Million Dollar Research Organization) is almost always an expert in researching PoS.

14

Let's talk about it here, hoping that people will no longer waste "work" on those outdated ideas (and hope that there will not be so many journalists and self-righteous investors continue to speculate on Bitcoin as something other than the value of Internet currency).

outline

1. Reintroducing the core principles ( marginal revenue equals marginal cost )

2. Applying core theory to explaining human behavior patterns by explaining economic rents

3. Explain why the economic rent of >0 cannot coexist with peer-to-peer currency

4. Focus on some special cases (Tendermint consensus, DPoS), assuming they can issue according to Bitcoin's timeline

5. Extend the theory to all (digital currency) issuance options

(Reaffirm) Auction for $100, any payment method

I pointed out before:

Proposition A: Each block generates 50 new bitcoins.

Equivalent to:

Proposition B: Auction the 50 bitcoins, the highest price.

In the actual economic entity, production activities will continue until the marginal cost equals the marginal benefit. In general, each hash calculation consumes cost and (at the margin) increases the likelihood that the miner will receive 50 bitcoin rewards. Any behavior (not just a hash calculation), as long as it increases the likelihood of acquiring bitcoin, people will repeat the behavior until the total cost of action paid by the society equals the value of 50 bitcoins.

Applying the above theory to a simple PoS means that PoS is vulnerable to "equal grinding" attacks. This (equal grinding) is actually a form of PoW ("continually try different forks until you find a fork that will send you money"), but obviously does not have additiveity. Since the workload in the PoS cannot be quantified (quantified by the difficulty factor in Bitcoin), it is not visible: the total amount of work paid = the expected block reward.

(Translator's Note: Stake Grinding, that is, users change the form of their own funds to influence randomness, get the right to block, and also try to try to block out on different chains. In the early PoS system (usually UTXO and less complex consensus algorithms are used) are more common)

In PoW, (different differences) is like deciding which one to issue tomorrow in the 1000 New York Times versions; in PoS, (disagreement) becomes a true New York Times in a 60,000 newspapers. .

Those abandoned forks (like the many versions of the New York Times) will be unknown, but their generation consumes a lot of work. Over time, desperate developers will only make this amount of work more difficult to see: all proposed PoW alternatives can ultimately be considered implicit PoWs .

We will see that using other algorithms to confuse the PoW algorithm's workload concept (ie, increasing the complexity of the algorithm) does not change the connection between "world (real) workload" and "blockchain impact". relationship. Ultimately, each individual “miner” (or whatever it is called) will: [1] calculate the expected return, [2] subtract the cost, and [3] continually pay the “workload” until the return equals the cost.

“Expected benefit” is the only changeable parameter in the entire system (not “expected cost”, and the cost follows the change in revenue).

“Rent” always makes the product cost (MC) equal to the product price (MR)

All transactions in the world follow the principle of “marginal cost” = “marginal benefit”, including future blockchain technology.

Measuring costs A person from the facts may immediately object, thinking that MC=MR can never be established in reality (for example: “ The convenience store in my neighborhood sells more expensive beer than anywhere else”; “When I do small business, Everything sold will increase by 3%, so as to protect business operations and household income , my profits, although not exactly calculated , will increase the price.")

MC = MR is always true because economists measure the “cost” (and the only correct way). In particular, when we introduce the concept of “rent”, the equation is further refined to: MC_rent + MC_nonrent = MR.

Proofreading Note: For readers familiar with price theory, this may be clearer: each unit of product requires a certain marginal cost to the producer, and in the case of sale, it will bring a certain marginal benefit, and two The difference is the product's marginal contribution to rent (or “marginal rent”).

It sounds like a lie (for those who don't understand economics), so before the debate, I will first introduce the concept of economic rent. For point-to-point currency, the formula is usually 0 on both sides (those that are controlled by the central bank or central checkpoint are different, and their rent may be forced to be non-zero).

What is the economic rent? Where did you come from?

The following is a description of the economics textbook

Suppose a seller owns a patent (only he can sell it). The seller will evaluate the value of the patent to the customer and give the “price ɛ”. If the selling price (marginal income MR) is higher than his cost (marginal cost MC), then the difference is “economic rent”. In this hypothetical sale, the value of MR-MC determines how the price of the patent “lease” (to someone) will be (corrected proof: vice versa, because the market is in equilibrium). Although the seller does not have to pay the rent for his own use, the highest price that others are willing to pay when not renting to others is the opportunity cost of the seller. Therefore, our new MC (the opportunity cost is the highest price available for rental when not renting) must be equal to MR.

Such a cost test method seems to be somewhat deliberate, but it is the only logical approach. Suppose you spend $10 million to develop a drug that costs $0.10 and sells for more than $200. In this case, is the “cost” of the drug at $0.10? Why is this cost different for you than for other honestly paying royalties or directly copying your research results?

Cold medicine

Let us explain it with an extreme example.

When I have a cold, my marginal benefit (the benefit I get) is much higher than the price of a cold medicine, and I might be willing to spend $50 for a night. I am very fortunate, but the amount of cold medicine in a week is less than $5. So, is MR > MC?

The economic rent still exists, but this time it was passed from the seller to me (the buyer). My condition is private (only I know), and I also know about nearby pharmacies and a variety of cold medicines (I know if the pharmacy information is private, only I know). If a pharmacy has a way to know when I am sick and ask for help, and can prevent others from buying drugs for me and preventing other pharmacies from selling drugs to me, then it can impose price discrimination on me (get all economic rents); Dealing with pharmacies' counter-measures (taking drugs in health, finding people to buy, and choosing other pharmacies) are the substantive options that I have. If the pharmacy knows that I am willing to pay $200 for a 72-hour effect, it will cost 200, but this information is only known to me , so I rented this information myself and I benefited from it without paying extra.

When it looks like MR > MC, the actual situation is this: I bought a unit of "drugs", a unit of "illness information", and got a new product "cold cure". I only get the product when I am hungry (the drug is not good for my health), no pharmacy can wait until I get sick and prevent me from getting the goods (by other means), but I know that the drug can cure me, and so on. So, there is still, MC = drug + sick information rent = MR.

Economic rents are private. Only MCs and MRs that are directly related to the choices will affect the behavior of economic agents. Therefore, the decision-making process of economic agents does not ignore externalities (which is why externalities bring so many problems).

Economic rents disintegrate over time . You may have to “rent” certain things from someone else. Over time, you will start looking for alternatives (unable to find other sellers will increase your costs and keep you from Do not use "lease" to get the "Where is a more cost-effective transaction" information). In fact, if you have an entrepreneurial spirit, you can do the opposite: provide discounts to those customers who need to get the rent. In this way, the entire economy will more rationally allocate scarce entrepreneurial capabilities and capital to where it is needed.

At last–

“Economic rent” means “exclusive”, contradicting P2P

If all nodes are equal, how do you choose the so-called secondary nodes?

The economic rent is caused by the seller’s monopoly on something, so that the counterparty has to “lease” the object . However, the concept of “exclusive” and “peer-to-peer” are fundamentally contradictory .

This problem is not limited to the running of the protocol under steady state, but also includes other aspects such as the protocol establishment process. A complete P2P protocol, from initialization to stable operation, is point-to-point. However, if an agreement is expected to receive rent, then the question is: What are the advanced nodes that we can lease to? Why are they and not other nodes? Why do we have to rent?

The only thing that can earn rent on coinmarketcap is Ripple because it's not P2P (it has privileged nodes and unparalleled banking relationships)

(Proofreading Note: It is more difficult to determine the actual meaning of the author here. The most consistent with economic theory means that since the blockchain is an open network, there is no barrier to entry, so market competition will continue to eliminate the main body (whether it is mine) The pool or the miners) can get the economic rent in the relevant business. The state of zero economic rent may never appear, but the market competition will make the whole industry move towards this point. But the author takes Ripple for comparison, it is very It’s confusing.)

I hope that the above is easy to understand. Now that you have the theoretical knowledge, let us return to the original theme.

Everything is PoW

When there is no economic rent, according to the release rate of “25 BTC / 10 minutes”, the entire system will waste 25 BTC every 10 minutes.

For the sake of simplicity, in this section, we assume that in all P2P systems, the currency is issued at the same rate (ie, 50 units are issued every 10 minutes, halved every 4 years).

Below we discuss what improvements to the currency issuance plan are meaningless.

Is a protocol unrelated to “workload” possible? If a virtual currency system periodically issues money without giving an incentive mechanism that allows the user to “was” the equivalent value of the newly issued currency (school note: there is no workload), the system must choose Another way of distributing these issued currencies is a completely unrelated way of human behavior. The distribution of rewards for this currency will be completely independent of the level of effort , and the distribution must be zero for the Spearman correlation coefficient of all things that may be subject to human influence.

This is not feasible. The decision to use the software itself is subject to human influence, and the agreement is meaningless to non-users. The above situation makes it impossible for money distribution to be related to the degree of effort. It also makes the so-called "waste" inevitable.

The time to confirm ownership and the time to pay the workload are inconsistent (not important) Consider the following design: [Design 1] Pre-randomly decide who the rewards for the 50 BTCs belong to; [Design 2] Reserve the decision, do not assign it first, and then say later; [Design 3] In fact, these 50 BTCs are allocated. In this case, when MR (marginal benefit) appears, we don't have any actual "work" to pay, is that true?

not like this.

It takes time.

Indeed, when [3] occurs, it is too late to pay the “workload” for the current MR, but at the same time, this is the right time to start paying “workload” for future MRs. It doesn't matter if MR and MC appear at different times, they are linked together via Bitcoin.

(Do you know that the bitcoin workload proves that the reward cannot be spent in the next 100 blocks? This is because if there is a lone block, these rewards will disappear completely; and the miners are most likely to Double flower attack. So it is wise to pay close attention to the ownership of these coins.)

There is also randomness.

Similarly, when [3] occurs, it is too late to “grind” random results (until you find a random number that gives you MR) in a short time; likewise, when [3] occurs, it is also the next time. The right time to grind the random results (until you find a random value that will give you the next MR). This is how Bitcoin currently works.

(Do you know that Bitcoin uses extremely strong randomness to choose the creator of the new block. Strong randomness avoids the collusion of the block creator and makes the double flower difficult to take effect, also makes prediction of the next block The creator and even the creation time is impossible.)

Make the “workload” more meaningful (not feasible) 1. “We will use PoW (heat generated) for heating”

First, reuse is always smart; second, humans do need heat; third, this arrangement is also in line with Bitcoin's goal (implementing a mechanism similar to bittorrent that can circumvent power manipulation)

However, how will this affect MC and MR? Every X times of hash calculations, we will want to get ($100 worth of bitcoin) + (valued at $5 in calories), not just ($100 worth of bitcoin). If the previous cost was $100 (to the limit of hardware efficiency), it will now climb to $105 (based on bitcoin's difficulty adjustment). Inefficient miners will be eliminated, but the final cost will still be $100 (corresponding to $95 in bitcoin + $5 in calories)

“Digging heating” is another way to increase hardware efficiency, which will lead to greater mining difficulty and increase energy consumption per block.

2. “Whether the workload proof algorithm can no longer be double-sha-256, but do something that makes sense to society, such as finding prime numbers”

This view sounds logical. Miners don't get extra pay for finding large prime numbers, so they don't increase MR, so MC won't increase. But our entire society has gained additional benefits without increasing the cost of “we”. This is the so-called argument of "externality".

First of all, this view is ridiculous, because Bitcoin itself is good for society (if not, mining is not profitable). Mining creates a network that we know and love; miners have no way to share my marginal benefits (when I use the Bitcoin network, access to privacy protection and cost savings), and there is no way to share the increase in social wealth (an extra use) The choice of bitcoin network).

Some people think that in addition to the benefits already achieved by Bitcoin, it should be changed to look for large prime numbers. Talking to them, you have to wonder if they are earth people.

Second, this view emphasizes the externalities of income that are public-facing and not part of the miners. Therefore, the miners also have no incentive to switch to and accept such a system. Therefore, the more you try to reduce waste, the more unrealistic it is.

(unfinished)

Original link: http://www.truthcoin.info/blog/pow-cheapest/

Author: Paul Sztorc

Translation & Proofreading: Wuwei, IAN LIU & Elisa, Ajian