mimblewimble team mailing list archive

[Philbert Wallace <philbertwallace4@xxxxxxxxx>]

TLDR: While bitcoin issues miner bonds (rewards) where the nominal value of
the bond is a function of network age (50 btc, then 25, now 12) but the
term length of the bond is fixed (100 blocks), I propose that we simply do
the reverse for MW: issue bonds where the nominal value is fixed but the
term length is a simple growing function of network age, thereby preserving
the feeling of finite-supply (due to natural time preference discounting by
economic/market participants).

Hi all,
For what it is worth, and on the topic of block rewards, I think it is
important to remember that these self-monetizing p2p networks actually
finance/perpetuate their existence, somewhat ironically, like a government
does -- namely by, in exchange for receiving something valuable in the
present (acceptable block), issuing an instrument (effectively, a bond)
that is backed by the "full faith and credit" of the network. The bond is
worthless if the issuing entity/network ceases to exist before the maturity
date (also known as a default), otherwise the bond is redeemed for cash (ie
made spendable) by the issuer.

Governments do this by issuing treasury bonds (a promise to pay in the
future) in exchange for something valuable in the present.  Bitcoin/MW and
others are no different in this respect. Taking Bitcoin as an example, the
network simply pays for acceptable blocks (the thing of value in the
present) by allowing the finder to embed in the block a bond issued by the
network which will only become spendable, in bitcoin's case, in 100 block's
time. Before that 100th confirmation the miner is effectively holding a
future-dated cheque written to her by the network with some stipulations as
to when (or if) it can be cashed.

So, while the US government essentially finances itself via issuance of a
variety of treasury bonds of various maturities and nominal values, bitcoin
finances itself via the issuance of (approximately) 17-hour bonds, the
nominal value of which depends on the network's age at the time of issuance.

Bitcoin, and presumably MW too, go a step further: by committing to, at
genesis, the issuance schedule of its bonds. Committing to an issuance
schedule removes a massive element of uncertainty for current/future
economic/market participants and is one of the reasons why (so far at
least) bitcoin and some others seem to be decent stores of value. One other
reason, however, is that, at least in bitcoin's case, there is a finite cap
on supply due to the "nominal/par value" of its 17-hour bonds dividing in
half every 4 years (first 50 btc, then 25, now 12.5). This latter reason is
the one I fear MW might be losing if we are not careful with how we do MW's
bond/block issuance. That being said, I understand and appreciate the
simplicity (and possible technical necessity?) of a fixed nominal value for
MW's block reward. Therefore, I would like to propose a slightly different
(and perhaps unique) way that we can recover the "feeling" of finite supply
without sacrificing the benefits of the simplicity of a fixed nominal
reward.

While bitcoin issues bonds where the nominal value of the bond is a
function of network age (ie block number) but the term length of the bond
is fixed (100 blocks), I propose that we simply do the reverse for MW:
issue bonds where the nominal value is fixed but the term length is a
function of network age at time of issuance.

Any simple monotonically increasing function of network age would do. For
example, maturity = height + max(k, ceiling(3*height/2)) where k is a
security parameter that sets the minimum maturity term.

Using this example, when the network is 10 years old, it would be funding
itself by issuing 15 year bonds. Now that is an amazing thing! Here's why:
there would almost surely be active markets/exchanges (or a decentralized
mechanism that achieves the same end) for these bonds. Since the supply
would be known in advance by all participants due to the issuance schedule,
then, unlike government treasury bonds (which lack the "known supply
schedule" quality), it's reasonable that the prices of our MW crypto bonds
would impute much more valuable information about the true state of affairs
with regard to this "lowest-risk" asset class. If you're contemplating some
capital-intensive project/investment that has a long time horizon (wind
farm, colonizing mars, etc) what you and your fellow investors really need
to know is "what's the lowest-risk opportunity that this investment I'm
contemplating must beat" (a hurdle rate of sorts). To be able to look at
the markets and see what "the 10-yr mimblewimbles are trading at" is
immensely valuable in informing decisions like that. Similarly, it is no
surprise that global finance right now uses the best approximation it can
find, which, sadly, for the moment at least, is long term US treasuries. We
can surely do better :-)

Therefore, I predict that the cryptocurrency network that proves to the
world that it is truly "thinking" on a timescale longer than governments by
moving towards funding itself via bonds of a maturity length longer than
most government bonds will not only find itself in high demand as a store
of value but will also be providing the world with a more true aggregated
measure of time preference, a valuable and much needed service.

Note: as far as I can tell, this doesn't really change miner incentives.
It's still in a miner's best interest to join as soon as possible and to
mine honestly. However, one benefit to the network is that, once the term
length of the issued bonds exceeds the duration of the cash flow cycle for
the miner, then the miner will likely unload it to a market participant
with a longer time horizon rather than hold it to maturity. The process of
unloading it would likely emit a valuable piece of time-preference data to
the world.

Sorry for the long email about this, perhaps, non-standard way of thinking
about network rewards. Regardless of whether it is adopted by MW, I am very
much looking forward to MW! However, I do hope it will at least be
considered :-)

P.S. another possible issuance schedule:
maturity = height + max(k, ceiling(c*log(height)) where c is a constant
chosen at genesis

On Sep 30, 2017 8:36 PM, "Casey Rodarmor" <casey@xxxxxxxxxxxx> wrote:

> The code that checks the block reward of the initial blocks will always
> need to be part of the grin codebase (and any other implementations of
> grin, should there ever be any).
>
> Because it will always have to be part of the codebase, it seems like
> extra complexity for limited benefit.
>
> Interested miners can already mine on testnet to make things are working.
>
> In order to make it easy to switch over, we could add a flag to the client
> which takes the genesis and starts mining it on mainnet. This way, miners
> can flip their miners over to mainnet once they get the hash of the genesis
> block just by adding a flag. This flag could be removed eventually, after a
> few releases, since it won't be needed in the long term.
>
> On Sat, Sep 30, 2017 at 7:29 PM Seamus Finnigan <
> seamus.finnigan@xxxxxxxxxxxxxx> wrote:
>
>> Hi John,
>>
>> In retrospect that seems overly complicated. The simplest
>> possible schedule, namely a fixed constant block reward,
>> probably works well enough. It"s also what Ethereum uses,
>> except they started out with about 7 years worth of rewards
>> sold in an ICO, judging from https://etherscan.io/chart/ethersupplygrowth
>>
>>
>> The 7 years of rewards, plus the many hints at eventually switching to
>> Proof of Stake and reducing rewards, make Ethereum an altogether bad point
>> of comparison. Around 72 million coins were distributed via the
>> crowdfunding sale and to the foundation/developers. Then another 12 million
>> or so per year in their flat emission. That meant in inflation rate for
>> that first year was less than 17%, and fell below 15% in the second year.
>>
>> If a flat block reward is being considered, a better analogy to consider
>> would be Bitcoin, Litecoin, or Zcash, each of which had/have flat emissions
>> for 4 years. Without Ethereum's premine, they would fit the same scenario.
>> Now imagine if after those 4 years (and again 4 years later) there had not
>> been block halvings (I will use #s for Bitcoin but the same could be done
>> for the others I mentioned). That would mean that today there would be
>> around 24.4 million coins available today with an additional 2.6 million or
>> so mined each year (10-11% inflation after nearly 9 years), rather than the
>> approximately 16.6 million coins and 660k or so new coins per year we
>> actually have (~4% inflation today).
>>
>> Perhaps at the 9-year mark, that's not so bad... 11 percent drops to
>> single digits in another year, drops below 5% in another 10 years. But
>> those first 9 years are brutal to anyone using the coin as a store of
>> value, **unless user and transaction growth match the emission growth**.
>> That is what needs to be considered here... the ramifications of a flat
>> reward on users of Grin during the nascent years of it's chain. If the
>> primary use is pegged confidential assets of other coins, than it's perhaps
>> not a big deal. If the primary use is as a currency itself, then it's
>> everything. It might be okay, but it deserves discussing.
>>
>> Of course, if a fee system is implemented that burns fees a la Peercoin
>> (as has been suggested by some), then the inflation in the system is
>> effectively decreased.
>>
>> The only deviation I"d like to make from that is a slow start, where
>> block rewards are initially zero. This allows everyone to setup and
>> test their miners and pools in a relaxed manner, no matter their
>> timezone, and offers a unique opportunity to advertise an already
>> up-and-running coin where people can still get ready to mine the first
>> reward.
>>
>>
>> Testing setups can be just as easily done via a testnet, and it is highly
>> unlikely any large miner will test for any prolonged period.
>>
>> The question is how long the slow start should last. To cover all
>> timezones, it should be at least one day. Preferably a few. A week is
>> probably more than enough. I propose two options:
>>
>> 1) At a fixed block height, [rest omitted for brevity...]
>>
>> 2) As soon as difficulty stabilizes [rest omitted for brevity...]
>>
>>
>> In either case I propose that we try to overestimate the initial
>> difficulty
>>
>>
>> A prolonged period of 0-reward blocks would be a mistake. First off,
>> there would literally be 0 coins. What do you do with a chain with 0 coins?
>> Second, no reasonable miner would spend any longer mining than she has to
>> in order to make sure she is set up correctly. Minutes, maybe hours at
>> most. If the worry is that she might not have time on day 1, but will on
>> day 2, then again - that's a reason for a test net before launch that
>> completely mimics the real chain.
>>
>> The problem here is that the first days or weeks would have basically no
>> work behind them, which basically means that come day 1 of the block
>> rewards, the chain is still basically 0% secure. But even more problematic,
>> any reasonable miner will just wait until the rewards start and then start
>> mining, which will accidentally turn the whole thing into a small instamine
>> because the difficulty will be too low.
>>
>> Setting the difficulty overly high is an interesting idea, but only under
>> scenario 1, and only if the difficulty adjustment algorithm would not allow
>> the difficulty to adjust down to lower-than-expected-demand levels.
>> Amending scenario 2, you would want to set the difficulty low, and then
>> have some threshold of "X blocks over Y difficulty" as your activation.
>> Going high-to-low (depending on the difficulty adjustment algorithm) would
>> just further play into the hands of anyone waiting on the sidelines, as not
>> mining is the best way to drop the difficulty.
>>
>> Realistically, if you want to have 0-reward blocks as a startup, the best
>> option is probably to set a constant difficulty for that period that is
>> based off a best-estimate of the expected hashrate on Day 0, and then a
>> target block height that will be the first block with rewards. As initial
>> demand is very difficult to estimate (would requiring looking at recent
>> launches of other coins), a mechanism could be put in place that will
>> adjust the initial difficulty up but not down during that 0-reward
>> period... as more miners ramp up to join, if it turns out there are more
>> than expected the difficulty can adjust before rewards happen, avoiding an
>> instamine.
>>
>> But I don't really think a 0-reward start is a good idea... there's too
>> much guesswork involved, and I'm not sure that it actually achieves any
>> tangible benefit. Something on the order of 1 day might be acceptable, but
>> any longer is just missing the point. The simplest model for avoiding an
>> instamine and allowing people to ramp up has already been played out in a
>> number of cryptocurrencies: slowly increase rewards over a 1-2 week period,
>> allowing block rewards to somewhat scale with mining demand, and have a
>> good testnet available before launch for miners to test out if they would
>> like.
>>
>> Besides, if block rewards are constant in perpetuity, whether a miner
>> joins in hour 1 or hour 18 is pretty much a moot point. We're talking well
>> under 1% of the first year's coin supply, and under 0.1% of the supply
>> after 3 years. Being a few hours late to a slowly and fairly launched coin
>> isn't an issue. If someone sees reason to be there from the start, then
>> they will make sure they are available and ready to go.
>>
>> Mischief Managed,
>> Seamus Finnigan
>>
>> Sent with ProtonMail <https://protonmail.com> Secure Email.
>>
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