Proof of existence bitcoin wiki

Proof of Stake

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Proof of Stake is a proposed alternative to Proof of Work. Like proof of work, proof of stake attempts to provide consensus and doublespend prevention see "main" bitcointalk threadand a Bounty Thread. Because creating forks is costless when you aren't burning an external resource Proof of Stake alone proof of existence bitcoin wiki considered to an unworkable consensus mechanism. It was probably first proposed here by a member named QuantumMechanic.

With Proof of Work, the probability of mining a block depends on the work done by the miner e. Some argue that methods based on Proof of Work alone might lead to a low network security in a cryptocurrency with block incentives that decline over time like bitcoin due to Tragedy of the Commonsand Proof of Stake is one way of changing the miner's incentives in favor of higher network security. If a single entity hereafter a monopolist took control of the majority of txn verification resources, he could use these resources to impose conditions on the rest of the network.

Potentially, the monopolist could choose to do this in malicious ways, such as double spending or denying service. If the monopolist chose a malicious strategy and maintained his control for a long period, confidence in bitcoin would be undermined and bitcoin purchasing power would collapse. Alternatively, the monopolist could choose to act benevolently. A benevolent monopolist would exclude all other txn verifiers from fee collection and currency generation, but would not try to exploit currency holders in any way.

In order to maintain a good reputation, he would refrain from double spends and maintain service provision. In this case, confidence in Bitcoin could be maintained under monopoly since all of its basic functionality would not be affected. Both benevolent and malevolent monopoly are potentially profitable, so there are reasons to suspect that an entrepreneurial miner might attempt to become a monopolist at some point.

Due to proof of existence bitcoin wiki Tragedy of the Commons effect, attempts at monopoly become increasingly likely over time. Monopoly is still possible under proof-of-stake. However, proof-of-stake would be more secure against malicious attacks for two reasons. Firstly, proof-of-stake makes establishing a verification monopoly more difficult. At the time of writing, an entrepreneur could achieve monopoly over proof-of-work by investing at most 10 million USD in computing hardware.

The actual investment necessary might be less than this because other miners will exit as difficulty increases, but it is difficult to predict exactly how much exit will occur. If price remained constant in the face of extremely large purchases unlikelysuch an entrepreneur would need to invest at proof of existence bitcoin wiki 20 million USD to obtain monopoly under proof-of-stake. Since such a large purchase would dramatically increase bitcoin price, the entrepreneur would likely need to invest several times this amount.

Thus, even now proof-of-stake monopoly would be several-fold more costly to achieve than proof-of-work monopoly. Over time the comparison of monopoly costs will become more and more dramatic.

The ratio of bitcoin's mining rewards to market value is programmed to decline exponentially. As this happens, proof-of-work monopoly will become easier and easier to obtain, whereas obtaining proof-of-stake monopoly will become progressively more difficult as more of the total money supply is released into circulation.

Secondly, and perhaps more importantly, a proof-of-stake monopolist is more likely to behave benevolently exactly because of his stake in Bitcoin. In a benevolent monopoly, the currency txn continue as usual, but the monopolist earns all txn fees and coin generations. Other txn verifiers are shut out of the system, however. Since mining is not source of demand for bitcoin, bitcoin might retain most of its value in the event of a benevolent attack.

Earnings from a benevolent attack are similar regardless of whether the attack occurs under proof-of-stake or proof-of-work. In a malicious attack, the attacker has some outside opportunity which allows profit from bitcoin's destruction simple double-spends are proof of existence bitcoin wiki a plausible motivation; ownership of a competing payment platform is.

At the same time, the attacker faces costs related to losses on bitcoin-specific investments which are necessary for the attack. It can be assumed that a malicious attack causes the purchasing power of bitcoin to fall to zero. Under such an attack, the proof-of-stake monopolist will lose his entire investment. By contrast, a malicious proof-of-work monopolist will be able to recover much of their hardware investment through resale. Recall also, that the necessary proof-of-work investment is much smaller than the proof-of-stake investment.

Thus, the costs of a malicious attack are several-fold lower under proof-of-work. The low costs associated with malicious attack make a malicious attack more likely to occur.

In a competitive market equilibrium, the total volume of txn fees must be equal to opportunity cost of all resources used to verify txns. Under proof-of-work mining, opportunity cost can be calculated as the total sum spent on mining electricity, mining equipment depreciation, mining labor, and a market rate of return on mining capital. Electricity costs, returns proof of existence bitcoin wiki mining equipment, and equipment depreciation costs are likely to dominate here.

If these costs are not substantial, then it will be exceptionally easy to monopolize the mining network. Under pure proof-of-stake, opportunity cost can be calculated as the proof of existence bitcoin wiki sum spent on mining labor and the market interest rate for risk-free bitcoin lending hardware-related costs will be negligible.

Since bitcoins are designed to appreciate over time due to hard-coded supply limitations, interest rates on risk-free bitcoin-denominated loans are likely to be negligible. Therefore, the total volume of txn fees under pure proof-of-stake will just need to be just sufficient to compensate labor involved in proof of existence bitcoin wiki bandwidth and storage space.

The associated txn fees will be exceptionally low. Despite these exceptionally low fees, a proof-of-stake network will be many times more costly to exploit than the proof-of-work network.

Approximately, a proof-of-work network can be exploited using expenditure equal to about one years worth of currency generation and txn fees. By contrast, exploitation of a proof-of-stake network requires purchase of a majority or near majority of all extant coins. Proof of existence bitcoin wiki the page history for the older implementation.

I am replacing my description with a new system which I believe to be much more secure. The new system is a greatly improved version of Coblee's Proof of Activity proposal.

It provides extremely strong protection against PoW attacks, both double-spends and denials of service. It is not vulnerable even if PoW attackers also have substantial but non majority stake. It provides strong incentives to maintain full nodes.

The system is supported through taxes on coin owners who fail to maintain full nodes. Tax revenue is redistributed to coin owners who maintain full nodes. The maintenance of full nodes is the key element providing security in the system.

The discussion focuses on long-term maintenance of the system. Initial distribution of coins could occur through PoW mining, an IPO mechanism, or a more complex scheme that allows initial coins to be distributed to both PoW miners and businesses voted for by coin owners. The issue of initial distribution is separate from long-term maintenance and it is confusing to discuss the two together.

Voluntary Proof of existence bitcoin wiki - Voluntary signatures result from a random auditing processes. As blocks are mined, keys are selected for proof of existence bitcoin wiki based on random selection.

The signatures provide public evidence that a public key owner is running a full node. Passing the audit allows a private key to remain active.

Active Keys - By default, public keys that appear in the blockchain are active if they have a balance of at least one full coin. Public keys that provide voluntary signatures when randomly audited remain active. Active public keys are eligible to participate in lotteries to sign PoW blocks and mine PoS proof of existence bitcoin wiki. Public keys that fail to provide signatures become dead private keys. Dead Keys - Keys that have failed to provide signatures lose lottery eligibility.

Keys that have balances of less than 1 coin are considered dead by default. Dead keys can no longer mine PoS blocks. However, these dead keys can still proof of existence bitcoin wiki used to generate txns. Network maintenance is supported primarily through mandatory fees levied on coins sent by dead keys. After coins are sent using a dead key, the key becomes active provided that it retains a balance of proof of existence bitcoin wiki least 1 coin.

Mandatory Signature Sequence - In order for a PoW block to be valid and enter the blockchain, it must be signed by a sequence of 5 proof of existence bitcoin wiki selected active keys. The fifth signatory in the sequence mines a PoS block. This block is called a PoS block. Coin-age - Coin age refers to the age of txn inputs. Coin age is equal to the number of coins sent times the average proof of existence bitcoin wiki on these coins.

Age is measured in blocks. Age is reset proof of existence bitcoin wiki 1 block whenever a coin is sent AND whenever a coin provides a signature both mandatory and voluntary signatures count.

Coin-age is used to calculate mandatory fees. Demurrage Fee - Chain Security is supported primarily through a demurrage tax on sent inputs. Proof of existence bitcoin wiki tax proportional to average input age as measured in coin-years. Active keys can avoid demurrage fees simply by remaining active. Dead keys must pay demurrage. The opportunity to evade demurrage motivates activity.

Optional Fee - Fees are used to ration block space. Blocks select prioritize txns with high fees. If demurrage fees alone are insufficient to motivate txn inclusion, the user can add an optional fee to his txn. Fee Fund - Both optional fees and demurrage fees enter a fund, rather than being distributed directly to miners.

Fees are added to the fund immediately, so there is a weak incentive to include high fee txns in blocks. The PoW miner receives a distribution equal to 0. The first four mandatory signatories also receive 0. The PoS block miner receives 0. Use of a fund reduces volatility in mining reward. Root Private Key - The root private key has full spending and signing authority.

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In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. The monetary base is controlled by a central bank. In the United States, the Fed increases the monetary base by issuing currency, increasing the amount banks have on reserve or by a process called Quantitative Easing.

In a fully decentralized monetary system, there is no central authority that regulates the monetary base. Instead, currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate.

Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless.

Bitcoins are created each time a user discovers a new block. The rate of block creation is adjusted every blocks to aim for a constant two week adjustment period equivalent to 6 per hour. The result is that the number of bitcoins in existence will not exceed slightly less than 21 million.

Satoshi has never really justified or explained many of these constants. This decreasing-supply algorithm was chosen because it approximates the rate at which commodities like gold are mined. Users who use their computers to perform calculations to try and discover a block are thus called Miners. This chart shows the number of bitcoins that will exist in the near future.

The Year is a forecast and may be slightly off. This is one of two only known reductions in the total mined supply of Bitcoin. Therefore, from block onwards, all total supply estimates must technically be reduced by 1 Satoshi. Because the number of bitcoins created each time a user discovers a new block - the block reward - is halved based on a fixed interval of blocks, and the time it takes on average to discover a block can vary based on mining power and the network difficulty , the exact time when the block reward is halved can vary as well.

Consequently, the time the last Bitcoin will be created will also vary, and is subject to speculation based on assumptions. If the mining power had remained constant since the first Bitcoin was mined, the last Bitcoin would have been mined somewhere near October 8th, Due to the mining power having increased overall over time, as of block , - assuming mining power remained constant from that block forward - the last Bitcoin will be mined on May 7th, As it is very difficult to predict how mining power will evolve into the future - i.

The total number of bitcoins, as mentioned earlier, has an asymptote at 21 million, due to a side-effect of the data structure of the blockchain - specifically the integer storage type of the transaction output , this exact value would have been 20,, Should this technical limitation be adjusted by increasing the size of the field, the total number will still only approach a maximum of 21 million.

The number of bitcoins are presented in a floating point format. However, these values are based on the number of satoshi per block originally in integer format to prevent compounding error. Therefore, all calculations from this block onwards must now, to be accurate, include this underpay in total Bitcoins in existence. Then, in an act of sheer stupidity, a more recent miner who failed to implement RSK properly destroyed an entire block reward of The bitcoin inflation rate steadily trends downwards.

The block reward given to miners is made up of newly-created bitcoins plus transaction fees. As inflation goes to zero miners will obtain an income only from transaction fees which will provide an incentive to keep mining to make transactions irreversible.

Due to deep technical reasons, block space is a scarce commodity , getting a transaction mined can be seen as purchasing a portion of it. By analogy, on average every 10 minutes a fixed amount of land is created and no more, people wanting to make transactions bid for parcels of this land. The sale of this land is what supports the miners even in a zero-inflation regime. The price of this land is set by demand for transactions because the supply is fixed and known and the mining difficulty readjusts around this to keep the average interval at 10 minutes.

The theoretical total number of bitcoins, slightly less than 21 million, should not be confused with the total spendable supply. The total spendable supply is always lower than the theoretical total supply, and is subject to accidental loss, willful destruction, and technical peculiarities.

One way to see a part of the destruction of coin is by collecting a sum of all unspent transaction outputs, using a Bitcoin RPC command gettxoutsetinfo. Note however that this does not take into account outputs that are exceedingly unlikely to be spent as is the case in loss and destruction via constructed addresses, for example. The algorithm which decides whether a block is valid only checks to verify whether the total amount of the reward exceeds the reward plus available fees.

Therefore it is possible for a miner to deliberately choose to underpay himself by any value: This is a form of underpay which the reference implementation recognises as impossible to spend.

Some of the other types below are not recognised as officially destroying Bitcoins; it is possible for example to spend the 1BitcoinEaterAddressDontSendf59kuE if a corresponding private key is used although this would imply that Bitcoin has been broken.

Bitcoins may be lost if the conditions required to spend them are no longer known. For example, if you made a transaction to an address that requires a private key in order to spend those bitcoins further, had written that private key down on a piece of paper, but that piece of paper was lost. In this case, that bitcoin may also be considered lost, as the odds of randomly finding a matching private key are such that it is generally considered impossible.

Bitcoins may also be willfully 'destroyed' - for example by attaching conditions that make it impossible to spend them. A common method is to send bitcoin to an address that was constructed and only made to pass validity checks, but for which no private key is actually known. An example of such an address is "1BitcoinEaterAddressDontSendf59kuE", where the last "f59kuE" is text to make the preceding constructed text pass validation.

Finding a matching private key is, again, generally considered impossible. For an example of how difficult this would be, see Vanitygen. Another common method is to send bitcoin in a transaction where the conditions for spending are not just unfathomably unlikely, but literally impossible to meet. A lesser known method is to send bitcoin to an address based on private key that is outside the range of valid ECDSA private keys.

The first BTC 50, included in the genesis block , cannot be spent as its transaction is not in the global database. In older versions of the bitcoin reference code, a miner could make their coinbase transaction block reward have the exact same ID as used in a previous block [3]. This effectively caused the previous block reward to become unspendable. Two known such cases [4] [5] are left as special cases in the code [6] as part of BIP changes that fixed this issue.

These transactions were BTC 50 each. While the number of bitcoins in existence will never exceed slightly less than 21 million, the money supply of bitcoins can exceed 21 million due to Fractional-reserve banking. Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used.

Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs.

The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits.

Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term. A fixed money supply, or a supply altered only in accord with objective and calculable criteria, is a necessary condition to a meaningful just price of money. Retrieved from " https: Navigation menu Personal tools Create account Log in. Views Read View source View history.

Sister projects Essays Source. This page was last edited on 26 April , at Content is available under Creative Commons Attribution 3. Privacy policy About Bitcoin Wiki Disclaimers.

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