BTC: 1CxnFVKpFadhpnkj4MtuadzEXULnG7hPrW
Eth: 8e61bf5a2e46d15774172781cf100ed0962cbb63

Sunday, February 21, 2016

Getting the Most out of PoS Mining

Ethereum's switch to Proof of Stake (PoS) is causing concern with some due to the uncertain economic model that PoS will create and how PoS 'mining' will be conducted. While the first group of PoS miners may be randomly chosen, it may be more efficient for the network over the long term to switch to a auction type of approach, similar to how the US government auctions treasury securities. Details below.

US government issues some treasuries through a Reverse Dutch Auction process. The bond holders lend money to the government and the government asks them to do nothing and collect the bond plus some interest when it comes to term. The principal and interest is drawn from tax payers in the future. In the Ethereum network, the goals would be slightly different, but the auction structure could be the same. If you bid to be an Ether PoS miner, you are promising that you will stake for the network, or risk forfiture of your deposit. In exchange for this, you are allowed to apply a 'tax' to transactions.

In the treasury auction process, people bid on the minimum amount of return they would be willing to accept on their bonds. Ethereum would use this same mechanic and let people bid on the minimum transaction tax that they would be willing to charge. That value would then be fixed for the term of their contract. This system will drive the transaction fees down to a marginal cost over equipment and labor.  

PoS pools could function by soliciting bids from smaller stakers in a similar fashion, with only the most competitive offers chosen. Once the pool was fully subscribed, it could submit it's cumulative bid to the network. This would enable the stakers with small amounts of Ether to compete with large corporations, as long as the former were willing to accept a smaller return. Yay free market!

The network attack cost function is then described by Ether stake size, and the number of stakers. Network security and transaction fees increase by enlarging stake size and number of stakers. Block times increase by enlarging the number of stakers. Network centralization increases by decreasing the number of stakers. 

PoS miners will make money under this scheme, but not gobs and gobs of it and fewer people will think they can get a free lunch out of PoS mining.

Remaining Issues:
Breaks down if there is a block reward?
Assumes all stake sizes are the same (fixed, no min-max spread)
How to stagger bidding contracts so you have some short term and some long term? (Treasuries have 1 month to 30 year options)
Any way to ensure the staker's don't all end up in one country?
Backup staker's in case aforementioned country goes off line?
Two bids being equal, favor bids with more provable persons behind them?
Allow people to vote on the max staked Ether amount and number of stakers?

Saturday, February 20, 2016

Future Have and Have Nots

The is much talk these days about inequality and wealth distribution. Hearing about how much wealth to top 1% of people own and how the system is rigged to keep the little guy down is typical conversation. But what people don't realize is that this the tip of the iceberg. We haven't even begun to scratch the surface of societal stratification. The future will bring more inequality that you can imagine.

Future game changers include longevity treatments and aging cessation. When it is possible for a single person to accumulate enormous wealth and pay for medical treatment enabling them to live twice the normal human, that is seriously going to change society. Imagine entire generations of people laboring in corporations run by the same man. The way that we think about what human beings are will change. Looking down from the high-mountain at your fellow man with the ephemeral lifespan will change the people on top and those on bottom view each other.

Further stratification will happen as we take the first timid steps into making the human race extra-terrestrial. Barring some major technological leaps in science, it will always be expensive to lift mass out of Earth's gravity well, and thus only a limited number of people will get the opportunity to live beyond Earth and found the new colonies. Who will get to go is a function of two things: how much money you have and what skills you have.

For the poor, the only ticket out of the gravity well is becoming a specialist in one or more of the fields that a colony needs. Surgens, botenists, engineers, chemists, biologists, all these will have the opportunity to join the colony if you at the top of your class.

For the rich, they lend value to the colony by enabling the purchasing of ships, material, and equiptment before launch. Whilst on the colony, they must continue to contribute either by adopting a specialty, or continuing to enable the shipping of resources to the colony from Earth. For those first colonies when resources are slim, those that do not contribute should expect to bunk in the cold next to the airlock.

For those that are in the top of their class, opportunities will arise which enables them to leverage their expertise in the aforementioned technical specialties on the colony. Today we understand little about how to pass on mental aptitude from parent to child, thus, it is more reasonable to rely on children become better than average than to rely on them being the best in their field. However being a top performer will not be enough to secure a spot. What will sweeten the deal is if they have capital to invest in the venture. 

Investing for the future is therefore the most important thing that one can accomplish with your life. The energy you spend to invest now will magnify over time and hopefully leave your offspring with the capital they need for the voyage beyond Earth. It will ensure that your progeny is not left behind. Don't you want to give them the opportunity to explore the infinite horizon of space and marvel at the cold beauty of the universe?

I know I want to...

Monday, February 15, 2016

Geeks benefit long-term from cypto adoption

US, lawmakers are debating how to create backdoors into cell phones for law enforcement. This discussion will extend to crypto currency due to the ease of transferring assets without legal purview (ref p7). The geek class stands to benefit the most during the transition period from fiat to crypto, as new wealth-preservation options open up. This comes at the expense of shifting the debt burden to non-geek taxpayers.

Extracting Value:
Debt fueled democracies seek to grow short-term spending at the expense of future generations (ref pg579). They appear to grow to consume as much resources as possible, limited only by the following abilities: taxation, debt issuance, debt avoidance (haircut), and currency issuance (inflation). A decrease in any of these stats will shrink the government over the long-term. Crypto currencies are a direct threat to taxation and currency issuance abilities. Without a healthy tax base, debt issuance capabilities also decrease. While legislators may want to regulate and tax crypto, their ability to implement anything workable without international community consent is doubtful. This brings a new meaning to "...deriving their powers from the consent of the governed." 

Current Tax Implementation:
Taxation in the US is nominally progressive, because the rules say: 'as you make more, you are taxed at a higher percentage'. This differs from the actual implementation where the wealthy can afford tax experts that use complex rules in the tax code to squirrel money away and pass it down to heirs (ref). This leaves the middle class paying the highest percentage of tax and the poor receive more value than they paid in through subsidy programs.

Wealth Preservation:
Crypto will enable the geek class to effect similar tax avoidance strategies without paying for high-priced tax advisers. Some of these strategies such as 'buy crypto and hold' until bequest to heirs, may even be legal! The advent of smart contracts will enable smooth wealth transitions between generations. The prospect of being able to pass wealth down uninterrupted to heirs in the same manner as the 'one percent' will create a generation of little wealthy geeks.

Growing Inequities:
Sadly, this type of wealth preservation will initially only be accessible to the minority of citizens that makeup the geek class. And thus, like schemes that disproportionately help certain classes build wealth in yester years (ref), our society will be left with additional growing inequalities. This will be further exacerbated by the need to repay or discharge the government debt. The price of paying these loans will disproportionately fall on those that have kept their money within reach of the government by not divested into cyrpto.

Last Thoughts:
The geek class stands to benefit disproportionately through cyrpto-currency investments because such investments create facilities of long-term wealth preservation that are immune to government efforts to extract wealth, thus leaving a larger burden for the rest of society to eventually repay. 

Monday, February 1, 2016

Diversity vs. Consensus in the Primary Process

The US primaries are in full swing with Iowa and New Hampshire about to start voting. In this post we will examine the peculiar way that the primary process is conducted and how this process is optimized for consensus building as opposed to diversity.

Diversity has as many meanings are there are people in this world, so let's throw down a definition which will hold for this article: Diversity is including everyone's ideas. Lots of business justifications for diversity revolve around this concept. This theory is built off of the wisdom of crowds. Now a simple example of this is to ask 17,205 people how much a cow weighs. Ask allot of people, and you'll get really close to the true answer. You don't want to leave anyone out of the decision making process or bias them, because you'll eventually arrive at a suboptimal answer.

Now the primary process interestingly enough favors consensus over diversity. What do we mean by consensus? We mean people agreeing with each other on what candidate to vote for. In the cow example, this would be shown by everyone guessing very close to the same value (not necessarily the right value). How does the primary process favor consensus you ask? In a typical ideation session, where you're trying to come up with new ideas and select the best ones, you have people write down their votes before announcing them to the group. This prevents the first few voters from skewing the results through social norming.

Detailed Example: Everyone brainstorms ways to improve the company. At the end of an hour you've identified 30 different ways and you have to select the top 4. Now if everyone writes down their votes first, before telling the rest of the group (simultaneous voting), you'll have quite a different spread than if say Lisa, whom everyone likes goes first and tells you her top 4 (sequential voting). If you let Lisa go first before you've written down what you think your top 4 are, you'll social norm to some of Lisa's choices. This will cause Lisa's selections to be overly popular compared with the case that everyone wrote down their vote first. This is completely independent of how good Lisa's choices were overall.

Now why is sequential voting used in the primary election process? Because it's an effective means to leverage social norms and get people to vote for a popular candidate, even when they would have preferred a different candidate. And the most profound part of it all, is that you convince yourself that it was you're idea to vote for that candidate all along!