Intensive reading and analysis of V God's new book "Proof of Stake" (1)

Oak

特邀专栏作者

2022-10-05 09:30

This article is about 4971 words, reading the full article takes about 8 minutes

V God's new book is serialized.

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V God's new book is serialized.

Book chapter

The first part of the book - pre-mining

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abstract

abstract
In terms of stimulating production activities, in addition to market incentives and institutional incentives, cryptocurrency incentives are an emerging method with important supplementary value, which has the advantages of Internet support and decentralization.
Translator's point of view

Translator's point of view

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One of the core values of tokens is to motivate different groups of people to create public value together, especially in public benefit activities that are not promoted by institutions. The carbon emissions mentioned in the previous chapter may be a typical area.
Tokens are an essential part of the decentralized world. Although many tokens have no real value, they are even tools for fraudulent projects. But it cannot be generalized, and the value of the token cannot be ignored. In a series of production activities and spiritual activities, tokens are the objective quantification and statistics of the value contributed by people in different types of activities, at different times and in different regions, and are the direct basis for realizing fair and transparent incentives. Feedback, achieving goals according to plan, and fair distribution are of great significance. This is also where the game can attract players. In this digital world, people devote a lot of enthusiasm and energy to their goals. They can refer to and analyze World of Warcraft, which is also one of the sources of V God's inspiration.
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Brief translation of the content (the order has been adjusted, and the content has been deleted)

(BTC was born in 2009, and this paper was written in 2014)

There are two main categories of solutions for incentivizing productive activity: markets and institutions. Pure markets are completely decentralized and consist of an almost infinite number of agents, all participating in one-on-one interactions where each interaction benefits both participants. Institutions, on the other hand, are top-down in nature. An institution has a governance structure that decides what is the most useful activity at a given time and distributes rewards for those doing it.

Those two options were basically all we had for the past 10,000 years. However, with the rise of Bitcoin and its derivatives, this may all be about to change, and in fact, we may now be discovering the dawn of a third form of incentive: cryptocurrencies.

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the other side of the currency

In standard accounts, money has three basic functions for society. It acts as a medium of exchange, allowing people to buy and sell goods in exchange for currency without having to find and barter with someone who has both what you want and wants what you have, as a store of value, allowing People produce and consume at different times, and serve as a medium of accounting, or a measure, by which people can measure a constant "quantity of production".

What many people don't realize, however, is that money also plays a fourth role, the importance of which has been hidden for most of history: seigniorage. Seigniorage can be formally defined as the difference between a currency’s market value and its intrinsic value — that is, the value a currency would have if no one was using it as money. For ancient money like grain, seigniorage was essentially zero; however, as economies and money became more complex, the "phantom value" of money that appeared seemingly out of nowhere would grow, Eventually it reached the point of modern currencies like the US dollar and Bitcoin. Seigniorage represents the full value of the currency. But where did the seigniorage go? For currencies based on natural resources, such as gold, most of the value is simply lost. Every gram of gold is produced by miners; at first, some miners do make a profit, but in an efficient market, all readily available opportunities are quickly taken up, and the cost of production approaches returns. Of course there are also clever ways to extract seigniorage from gold.

In the US dollar example, we see a slight improvement: part of the seigniorage will go to the US government. It was a huge step forward in many ways, but it was also an incomplete revolution in other ways—money reaping the benefits of centralized seigniorage and also embedding at its core the largest center in human history. risk.

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bitcoin appeared

Like the U.S. dollar, Bitcoin is 100% of the value of the currency is seigniorage, that is, Bitcoin has no intrinsic value. But where did the seigniorage go? The answer is that some goes to the miners as profits, and the rest goes to pay the miners — the cost of securing the Bitcoin network. So, in this case, we have a currency whose seigniorage is directly used to fund a public good, namely the security of the Bitcoin network itself. The importance of this point has been greatly underestimated. Here we have an incentive process that is simultaneously decentralized, requires no authority or control, and produces a public good that all comes from people using Bitcoin in some way as a medium of exchange and store of value.

Primecoin XPM is the first currency that attempts to use its seigniorage for a useful purpose outside of itself: instead of asking miners to compute an ultimately useless SHA256 hash, it asks miners to find the prime number's Cunningham Chain (Cunningham), both supporting a very narrow category of scientific computing and providing an incentive for computer manufacturers to figure out how to better optimize circuits for arithmetic calculations. Its value rose rapidly and remains the 11th most popular currency today — though its main practical benefit per user, 60-second block times, is shared by many other currencies that are far more obscure.

Even more outlandish and surprising is the success of Dogecoin DOGE, a currency that is almost identical to Litecoin on a technical level; the only difference is that the maximum supply will be 100 billion instead of 84 million. But even so, the currency’s market capitalization peaked at over $14 million. What is so special about DOGE? Essentially just the internet meme effect (MEME).

Ven outside the cryptocurrency space, a more traditional centralized currency backed by a basket of commodities including commodities, currencies and futures. VEN recently added carbon futures to its basket, making it the first currency to be “pegged to the environment” in some way. The reason for this is a clever economic hack: carbon futures are actually contained in Ven, so the currency rises in value as society moves away from high-CO2 production methods and CO2 permits become less profitable.

As a result, Ven holders are now financially incentivized to support eco-friendly living, and people are interested in Ven at least in part because of this feature.

Ripple as a payment method, despite its technical advantages over Bitcoin for merchants (specifically, the 5-second confirmation time), has so far failed to gain much traction - it serves as a The nature of the semi-centralized protocol, backed by a company that issues 100% of the currency supply for itself, makes it unattractive to many cryptocurrency enthusiasts interested in fairness and decentralization. And right now, it’s the ideals of XPM, Doge — pro-science and pro-fun ideals respectively — that keep both currencies alive.

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Cryptocurrency as a Democratic Economy

These four examples, together with the concept of seigniorage value, constitute a blueprint for a new potential "democratic economy": a currency or issue could be established whose seigniorage could be used in commerce to distribute money to support these business people. If one is not conducting business, one can also engage in marketing efforts and lobby other businesses to accept the currency. People can create social tokens that give a thousand units a month to everyone in the world, and if enough people like the idea and start embracing it, the world now has a project for citizen dividends, and No pooling of funds is required.

We could also create currencies to incentivize medical research, space exploration, and even art; in fact, today there are artists, podcasters, and musicians who are considering creating their own currencies for just that.

For one particular public good, computational research, we can actually go a step further and let the distribution process happen automatically. Computational research can be incentivized by a mechanism that has yet to see substantial application in the real world, namely “proofs of excellence” theorized by Sunny King, the inventor of Peercoin and Primecoin. The idea behind Proof of Excellence is that the size of one's stake in a decentralized voting pool and one's reward is not based on the amount of computing power one has or the amount of coins one already owns, but rather benefits all of humanity In solution, a person's ability to solve complex mathematical or algorithmic challenges.

For example, if you want to incentivize number theory research, you can embed the RSA integer factorization challenge into the currency, and automatically provide 50,000 coins to the first person who provides a solution to the problem, and give him a block verification during the mining process. Ability to vote. In theory, this could even become a standard component in any money issuance model. Of course, the idea behind using money in this way is not new. "Social currencies" that operate in local communities have existed for more than a century.

In recent decades, however, the social currency movement has declined in activity from its peak in the early 20th century, largely because social currencies have not realized any value other than close proximity, and they have not Mature dollars, like, bring more efficiencies. With cryptocurrencies, however, these objections are suddenly dispelled – cryptocurrencies are global in nature and benefit from an extremely robust digital banking system embedded directly in their source code.

Thus, now may be the perfect time for the social currency movement to return with a strong technical force, perhaps even well beyond the role it played in the 19th and 20th centuries as a powerful mainstream force in the world economy.

background supplement

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What is Primecoin?

Primecoin (abbreviation: XPM; symbol: Ψ) is a cryptocurrency that implements a proof-of-work system for searching a chain of prime numbers, launched in 2013 by Sunny King, who also founded peercoin.

Shortly after Primecoin launched, several industry journals reported that more than 18,000 new users had flooded into Primecoin mining, overwhelming dedicated server providers.