5 ms·

Proof of stake incentivizes low velocity of money - you have to stake to not have your funds diluted. This seems like the opposite of what the digital aspect of

by beaner 9y ago

Proof of stake incentivizes low velocity of money - you have to stake to not have your funds diluted. This seems like the opposite of what the digital aspect of cryptocurrency should be bringing to the table.

dahdum 9y ago
The goal is ~1% inflation, which is less than cash, and better than Bitcoin for many years (until ~2025 it's above 1%). So with lower fees, lower inflation, and higher throughput the velocity is more likely to grow significantly than decrease.
- brighton36 9y ago
  Bitcoin inflation changes constantly, and by a lot more than 1%. Inflation is a measure of purchasing power. Not the issuance rates.
  - rothbardrand 9y ago
    Inflation is a measure of the growth in supply of money. Using purchasing power (or more specifically an artificially constructed and highly manipulated bag of goods measure called the CPI in the USA) is a switch to obscure the rate of inflation, as if it couldn't be measured directly. But Inflation always has been issuance, not purchasing power. Pretending otherwise isa tactic used by people who engage in inflation to try and obscure its effects (because purchasing power is affected by things like growth in productivity.)
- beaner 9y ago
  Then there isn't very much incentive to stake.
  - drcode 9y ago
    The reward is targeted based on participation- If too few or too many people stake, the reward adjusts to return the chain to the targeted participation rate. Economic models so far, however, suggest the reward needs to only be a tenth of POW reward.
- Analemma_ 9y ago
  This post makes no sense. "Inflation" is an increase in the price of goods; this definition is both prescreptive and how inflation is actually measured. Since all the goods you can buy with cryptocurrency peg their prices to fiat, it's meaningless to talk about BTC/ETH inflation as a thing distinct from their exchange rates with the dollar, and that will continue to be true until a cryptocurrency economy develops that is not pegged to the dollar.
  - rothbardrand 9y ago
    False. Inflation is as an economic term, the issuance of currency. Pretending like it's a measure of the price of goods is a political (not economics) tactic used by governments to obscure it-- because the price of goods are affected by other things--like increases in productivity, lower cost goods from overseas and the like.
    - bpicolo 9y ago
      > In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. Currency issuance is related. Is not the same thing
wmf 9y ago
Under proof of work you essentially end up "staking" money by buying ASICs/GPUs that take 9-12 months to break even. In general, miners are going to spend almost as much as the block reward, whether that's in hardware and electricity or in opportunity cost. http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ And many people are "hodling" cryptocurrency as a long-term store of value anyway so presumably they aren't concerned with the velocity of money.
- Taek 9y ago
  Long term hodlers who haven't locked their coins into staking can respond quickly to network events such as Bitcoin-cash. People who are running mining businesses can at least sell the business if they suddenly need access to a lot of capital. With proof of stake, it really is locked up for whatever period of time. If your staking period is just a couple of weeks, this is probably less significant than owning a mining farm. But if your staking period is several months, the opportunity cost probably is greater than mining or hodling, because you sacrifice a lot in terms of flexibility.
  - wmf 9y ago
    When you put it that way, I expect to see a secondary market for stake. This could be implemented by selling the private key or by delegation similar to a mining pool.
    - DennisP 9y ago
      Selling the private key would be a bad idea since you can't guarantee the seller destroys it. But you could have the staker address be a contract, with an ownership that can be transfered.
      - Taek 9y ago
        You could use an HSM to hold the private key and then sell the HSM. Overall it's still a bad idea to buy an HSM because you don't know what other transactions have been signed, but maybe the HSM keeps a history of everything it has signed as well. Which, if you can still sell your staked coins, what is the point of locking them up in the first place?
narush 9y ago
I would argue that Ethereum isn't building a monetary system - it's building a platform for decentralized applications. If doing so decreases the native assets velocity (for the sake security, finality, ease of sharding, etc), so be it.
fiatjaf 9y ago
So that's what you think cryptocurrencies are doing the better? Improving the VELOCITY OF MONEY?
unlmtd1 9y ago
ETH is not money.
lambdadmitry 9y ago
The whole "shielding from the inflation" thing incentivizes low velocity of money, too, so that is baked into most cryptocurrencies right from the start.

by beaner 9y ago

dahdum 9y ago

The goal is ~1% inflation, which is less than cash, and better than Bitcoin for many years (until ~2025 it's above 1%). So with lower fees, lower inflation, and higher throughput the velocity is more likely to grow significantly than decrease.

brighton36 9y ago
Bitcoin inflation changes constantly, and by a lot more than 1%. Inflation is a measure of purchasing power. Not the issuance rates.
- rothbardrand 9y ago
  Inflation is a measure of the growth in supply of money. Using purchasing power (or more specifically an artificially constructed and highly manipulated bag of goods measure called the CPI in the USA) is a switch to obscure the rate of inflation, as if it couldn't be measured directly. But Inflation always has been issuance, not purchasing power. Pretending otherwise isa tactic used by people who engage in inflation to try and obscure its effects (because purchasing power is affected by things like growth in productivity.)
beaner 9y ago
Then there isn't very much incentive to stake.
- drcode 9y ago
  The reward is targeted based on participation- If too few or too many people stake, the reward adjusts to return the chain to the targeted participation rate. Economic models so far, however, suggest the reward needs to only be a tenth of POW reward.
Analemma_ 9y ago
This post makes no sense. "Inflation" is an increase in the price of goods; this definition is both prescreptive and how inflation is actually measured. Since all the goods you can buy with cryptocurrency peg their prices to fiat, it's meaningless to talk about BTC/ETH inflation as a thing distinct from their exchange rates with the dollar, and that will continue to be true until a cryptocurrency economy develops that is not pegged to the dollar.
- rothbardrand 9y ago
  False. Inflation is as an economic term, the issuance of currency. Pretending like it's a measure of the price of goods is a political (not economics) tactic used by governments to obscure it-- because the price of goods are affected by other things--like increases in productivity, lower cost goods from overseas and the like.
  - bpicolo 9y ago
    > In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. Currency issuance is related. Is not the same thing

wmf 9y ago

Under proof of work you essentially end up "staking" money by buying ASICs/GPUs that take 9-12 months to break even. In general, miners are going to spend almost as much as the block reward, whether that's in hardware and electricity or in opportunity cost. http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ And many people are "hodling" cryptocurrency as a long-term store of value anyway so presumably they aren't concerned with the velocity of money.

Taek 9y ago
Long term hodlers who haven't locked their coins into staking can respond quickly to network events such as Bitcoin-cash. People who are running mining businesses can at least sell the business if they suddenly need access to a lot of capital. With proof of stake, it really is locked up for whatever period of time. If your staking period is just a couple of weeks, this is probably less significant than owning a mining farm. But if your staking period is several months, the opportunity cost probably is greater than mining or hodling, because you sacrifice a lot in terms of flexibility.
- wmf 9y ago
  When you put it that way, I expect to see a secondary market for stake. This could be implemented by selling the private key or by delegation similar to a mining pool.
  - DennisP 9y ago
    Selling the private key would be a bad idea since you can't guarantee the seller destroys it. But you could have the staker address be a contract, with an ownership that can be transfered.
    - Taek 9y ago
      You could use an HSM to hold the private key and then sell the HSM. Overall it's still a bad idea to buy an HSM because you don't know what other transactions have been signed, but maybe the HSM keeps a history of everything it has signed as well. Which, if you can still sell your staked coins, what is the point of locking them up in the first place?

narush 9y ago

I would argue that Ethereum isn't building a monetary system - it's building a platform for decentralized applications. If doing so decreases the native assets velocity (for the sake security, finality, ease of sharding, etc), so be it.

fiatjaf 9y ago

So that's what you think cryptocurrencies are doing the better? Improving the VELOCITY OF MONEY?

unlmtd1 9y ago

ETH is not money.

lambdadmitry 9y ago

The whole "shielding from the inflation" thing incentivizes low velocity of money, too, so that is baked into most cryptocurrencies right from the start.