Bitcoin Wiki - User contributions [en]

Pooled mining

2017-09-08T18:11:13Z

Raize: /* External links */

'''Pooled mining''' is a [[Mining|mining]] approach where multiple generating clients contribute to the generation of a block, and then split the block reward according the contributed processing power. Pooled mining effectively reduces the granularity of the block generation reward, spreading it out more smoothly over time.

==Introduction==

With increasing generation difficulty, mining with lower-performance devices can take a very long time before block generation, on average. For example, with a mining speed of 1000 Khps, at a difficulty of 14484 (which was in effect at the end of December, 2010), the average time to generate a block is almost 2 years.

To provide a more smooth incentive to lower-performance miners, several pooled miners, using different approaches, have been created. With a mining pool, a lot of different people contribute to generating a block, and the reward is then split among them according to their processing contribution. This way, instead of waiting for years to generate 50btc{{Citation needed}} in a block, a smaller miner may get a fraction of a Bitcoin on a more regular basis.

A '''share''' is awarded by the mining pool to the clients who present a valid [[proof of work]] of the same type as the proof of work that is used for creating [[block|blocks]], but of lesser difficulty, so that it requires less time on average to generate.

==Pooled mining approaches==

The problem with pooled mining is that steps must be taken to prevent cheating by the clients and the server. Currently there are several different approaches used.

===The slush approach===

[[Bitcoin Pooled Mining]] (BPM), sometimes referred to as "slush's pool", follows a score-based method. Older shares (from beginning of the round) have lower weight than more recent shares, which reduces the motivation to cheat by switching between pools within a round.

===The Pay-per-Share approach===

The Pay-per-Share (PPS) approach, first described by [[BitPenny]], is to offer an instant flat payout for each share that is solved. The payout is offered from the pool's existing balance and can therefore be withdrawn immediately, without waiting for a block to be solved or confirmed. The possibility of cheating the miners by the pool operator and by timing attacks is thus completely eliminated.

This method results in the least possible variance for miners while transferring all risk to the pool operator. The resulting possibility of loss for the server is offset by setting a payout lower than the full expected value.

===The Full Pay-per-Share approach===

The Full Pay-per-Share (FPPS) approach, created by [[BTC.com]] team, aims to benefit miners from the high transaction fee. It will calculate a standard transaction fee within a certain period，add it into the block rewards (12.5 BTC every block for now) and then distribute the whole to miners according to PPS mode.

This method keeps advantages of PPS and pay more to miners by sharing some of the transaction fees.

===Luke-Jr's approach ("[[Eligius]]")===
[[User:Luke-Jr|Luke]] came up with a third approach borrowing strengths from the earlier two.
Like slush's approach, miners submit proofs-of-work to earn shares.
Like puddinpop's approach, the pool pays out immediately via block generation.
When distributing block rewards, it is divided equally among all shares since the last valid block.
Unlike any preexisting pool approach, this means that the shares contributed toward stale blocks are recycled into the next block's shares.
In order to spare participating miners from transaction fees, rewards are only paid out if a miner has earned at least 0.67108864 BTC (400 [[Tonal Bitcoin|TBC]]). If the amount owed is less, it will be added to the earnings of a later block (which may then total over the threshold amount).
If a miner does not submit a share for over a week, the pool sends any balance remaining, regardless of its size.

===P2Pool approach===

[[P2Pool]] mining nodes work on a chain of shares similar to Bitcoin’s blockchain. When a block is found, the reward is divided among the most recent shares in this share-blockchain. Like the puddinpop and Luke-Jr approaches, p2pool pays via generation.

===Comparison===

The cooperative mining approach (slush and Luke-Jr) uses a lot less resources on the pool server, since rather than continuously checking metahashes, all that has to be checked is the validity of submitted shares. The number of shares sent can be adjusted by adjusting the artificial difficulty level.

Further, the cooperative mining approach allows the clients to use existing miners without any modification, while the puddinpop approach requires the custom pool miner, which are as of now not as efficient on GPU mining as the existing GPU miners.
[[File:Smallgeneration.png|thumb|Puddinpop miners receive coins directly.]]

Additionally, the puddinpop and Luke-Jr approaches of distributing the earnings by way of including precise sub-cent amounts in the generation transaction for the participants, results in the presence of sub-cent bitcoin amounts in your wallet, which are liable to disappear (as unnecessary fees) later due to a bug in old (before 0.3.21) bitcoin nodes. (E.g., if you have a transaction with 0.052 in your wallet, and you later send .05 to someone, your .002 will disappear.).

Puddinpop and Luke-Jr miners receive coins directly, which eliminates the delay in receiving earnings that is required on slush-based mining servers. However, using some [[eWallet]] services for generated coin will cause those coins to be lost.

==See Also==

* [[:Category:Miners|Miners]]
* [[Poolservers]]
* [[Comparison of mining pools]]
* [[:Category:Pool Operators|Pool Operators]]
* [[Why a GPU mines faster than a CPU]]
* [[Why pooled mining]]
* [[Mining pool reward FAQ]]

==External links==

* [https://bitcointalk.org/index.php?topic=1458.0 puddinpop's mining pool thread]
* [http://blockexplorer.com/block/00000000000233334b157d901714baf59e5b9236227b2878844e52244da4195e example puddinpop block]

==References==
<references />

* [https://www.zpool.ca/ Bitcoin Multipool]
* [https://www.bitcoinmining.com/ Bitcoin Mining]
* [https://www.youtube.com/watch?v=GmOzih6I1zs Video: What is Bitcoin Mining]
* [http://bitcoinminer.com Bitcoin Miner]

[[ru:майнинг в пулах]]
[[Category:Mining]]
{{Pools}}

Myths

2012-09-19T06:08:48Z

Raize: /* Bitcoin is a pyramid scheme */

Let's clear up some common Bitcoin misconceptions.

== Bitcoin is just like all other digital currencies; nothing new ==

Nearly all other digital currencies are centrally controlled. This means that:
* they can be printed at the subjective whims of the controllers
* they can be destroyed by attacking the central point of control
* arbitrary rules can be imposed upon their users by the controllers

Being decentralized, Bitcoin solves all of these problems.

== Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve ==

Unlike gold, bitcoins are:
* easy to transfer
* easy to secure
* easy to verify
* easy to granulate

Unlike fiat currencies, bitcoins are:
* predictable and limited in [[Controlled_Currency_Supply|supply]]
* not controlled by a central authority (such as [http://en.wikipedia.org/wiki/Federal_Reserve The United States Federal Reserve])

Unlike electronic fiat currency systems, bitcoins are:
* potentially anonymous
* freeze-proof
* faster to transfer
* cheaper to transfer

== Bitcoin is backed by processing power ==

It is not correct to say that Bitcoin is "backed by" processing power. A currency being "backed" means that it is pegged to something else via a central party at a certain exchange rate yet you cannot exchange bitcoins for the computing power that was used to create them. Bitcoin is in this sense not backed by anything. It is a currency in its own right. Just as gold is not backed by anything, the same applies to Bitcoin.

The Bitcoin currency is ''created'' via processing power, and the integrity of the block chain is ''protected'' by the existence of a network of powerful computing nodes from certain [[Weaknesses#Attacker_has_a_lot_of_computing_power|attacks]].

== Bitcoins are worthless because they aren't backed by anything ==

Gold isn't backed by anything either. Bitcoins have properties resulting from the system's design that allows them to be subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the [http://en.wikipedia.org/wiki/Subjective_theory_of_value Subjective Theory of Value].

See also: the "[[#Bitcoin_is_backed_by_processing_power|Bitcoin is backed by processing power]]" myth.

== The value of bitcoins are based on how much electricity and computing power it takes to mine them ==

This statement is an attempt to apply to Bitcoin the [http://en.wikipedia.org/wiki/Labor_theory_of_value labor theory of value], which is generally accepted as false. Just because something takes X resources to create does not mean that the resulting product will be worth X. It can be worth more, or less, depending on the utility thereof to its users.

In fact the causality is the reverse of that (this applies to the labor theory of value in general). The cost to mine bitcoins is based on how much they are worth. If bitcoins go up in value, more people will mine (because [[Mining|mining]] is profitable), thus [[difficulty]] will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost an amount proportional to the value of bitcoins it produces.

== Bitcoins have no intrinsic value (unlike some other things) ==

It is true that bitcoins have no intrinsic value, in the [http://en.wikipedia.org/wiki/Intrinsic_value_%28numismatics%29 numismatic sense], in other words, value in any realm outside of being used as a medium of exchange.

However, while some tangible commodities do have intrinsic value, that value is generally much less than its trading price. Consider for example that gold, if it were not used as an inflation-proof store of value, but rather only for its industrial uses, would certainly not be worth what it is today, since the industrial requirements for gold are far smaller than the available supply thereof.

While historically intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins lack 'intrinsic value' in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than [http://en.wikipedia.org/wiki/Commodity_money commodity money].

Value is ultimately determined by what people are willing to trade for - by supply and demand.

== Bitcoins are illegal because they're not legal tender ==

Chickens aren't legal tender either, but bartering with chickens is not illegal.

There are a [http://en.wikipedia.org/wiki/Local_currency number of currencies] in existence that are not official government-backed currencies. A currency is, after all, nothing more than a convenient unit of account. While national laws may vary from country to country, and you should certainly check the laws of your jurisdiction, in general trading in any commodity, including digital currency like Bitcoin, [http://en.wikipedia.org/wiki/BerkShares BerkShares], game currencies like WoW gold, or Linden dollars, is not illegal.

== Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency ==

http://en.wikipedia.org/wiki/Definitions_of_terrorism#United_States according to this, you need to do violent activities to be considered a terrorist for legal purposes. Recent off-the-cuff remarks by politicians have no basis in law or fact.

Also, Bitcoin isn't domestic to the US or any other country. It's a worldwide community. See this map of Bitcoin nodes
https://bitcointalk.org/?topic=2346.0

== Bitcoin will only enable tax evaders which will lead to the eventual downfall of civilization ==

Cash transactions hold the same level of anonymity but are still taxed successfully. It is up to you to follow the applicable state laws in your home country, or face the consequences.

While it may be easy to transfer bitcoins anonymously, ''spending'' them anonymously on tangibles is just as hard as spending any other kind of money anonymously. Tax evaders are often caught because their lifestyle and assets are inconsistent with their reported income, and not necessarily because government is able to follow their money.

== Bitcoins can be printed/minted by anyone and are therefore worthless ==

Bitcoins are not printed/minted. Instead, [[Blocks]] are computed by miners and for their efforts they are awarded a specific amount of bitcoins and transaction fees paid by others. See [[Mining]] for more information on how this process works.

== Bitcoins are worthless because they're based on unproven cryptography ==

SHA256 and ECDSA which are used in Bitcoin are well-known industry standard algorithms. SHA256 is endorsed and used by the US Government and is standardized (FIPS180-3 Secure Hash Standard). If you believe that these algorithms are untrustworthy then you should not trust Bitcoin, credit card transactions or any type of electronic bank transfer. Bitcoin has a sound basis in well understood cryptography.

== Early adopters are unfairly rewarded ==

Early adopters are rewarded for taking the higher risk with their time and money. This argument is akin to saying that people who buy stock at a company IPO (Initial Public Offering) are unfairly rewarded. This argument also depends on bitcoin early adopters using bitcoins to store rather than transfer value. The daily trade on the exchanges (as of Jan 2012) indicates that smaller transactions are becoming the norm, indicating trade rather than investment.

In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.

The majority of the 21 million Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

== 21 million coins isn't enough; doesn't scale ==

One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.

As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller [[Units|units]], such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

== Bitcoins are stored in wallet files, just copy the wallet file to get more coins! ==

No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details (or bitcoin wallet) to someone else, that doesn't double the amount of money in your account. You can spend your money or they can spend your money, but not both.

== Lost coins can't be replaced and this is bad ==

Bitcoins are divisible to 0.00000001, so there being fewer bitcoins remaining is not a problem for the currency itself. If you lose your coins, all other coins will go up in value a little. Consider it a donation to all other bitcoin users.

A related question is: Why don't we have a mechanism to replace lost coins? The answer is that it is impossible to distinguish between a 'lost' coin and one that is simply sitting unused in someone's safe.

== It's a giant ponzi scheme ==
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. In a ponzi scheme, early adopters can only profit at the expense of late adopters, and the late adopters always lose. Bitcoin has an expected win-win outcome. Early and present adopters profit from the rise in value as Bitcoins become better understood and in turn demanded by the public at large. All adopters benefit from the usefulness of a reliable and widely-accepted decentralized peer-to-peer currency.

== Finite coins plus lost coins means deflationary spiral ==
As deflationary forces may apply, economic factors such as hoarding are offset by human factors that may lessen the chances that a [[Deflationary spiral]] will occur.

== Bitcoin can't work because there is no way to control inflation ==

Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.

Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.

The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.

Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.

== The Bitcoin community consists of anarchist/conspiracy theorist/gold standard 'weenies' ==

The members of the community vary in their ideological stances.

== Anyone with enough computing power can take over the network ==

CONFIRMED, see [[Weaknesses]].

That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is quite ahead of the world's fastest supercomputers, together.

What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker create counterfeit coins, fake transactions, or take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations. Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.

Furthermore, this attack scenario would only be feasible for as long as it was actively underway. As soon as the attack stopped, the network would resume normal operation.

== Bitcoin violates governmental regulations ==

There is no known governmental regulation which disallows the use of Bitcoin.

See also: the "[[#Bitcoins_are_illegal_because_they.27re_not_legal_tender|Bitcoins are illegal because they're not legal tender]]" myth.

== Fractional reserve banking is not possible ==

It is possible. See the main article, [[Fractional Reserve Banking and Bitcoin]]

== Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation ==

It is true that transactions [[FAQ#Why_do_I_have_to_wait_10_minutes_before_I_can_spend_money_I_received.3F|can]] sometimes take tens of minutes to become ''confirmed''. Despite this, retailers can accept unconfirmed transactions with very little risk by simply 'listening' on the network for a double-spend transaction, or partnering with a company that provides this service. After a head start of merely several seconds, the original transaction would reach so much of the Bitcoin network that a fraudulent double-spend transaction would almost certainly be fruitless. An attacker would have to commit easily-detectable fraud, in person, several hundred or several thousand times, before one of these low-value double-spend attempts would likely succeed.

An attacker could work around the necessity of sending out a second fraudulent transaction to the Bitcoin network by attempting to [[Mining|solo-mine]] an attack block containing the attack transaction himself - temporarily withholding the block with the rest of the network - and then execute the fraudulent purchase within seconds, or minutes at most, of mining the attack block, before broadcasting the attack block. However, the cost of such an activity would dramatically outweigh the value of anything typically offered without a confirmation wait for several reasons.

First, mining a block (attack or otherwise) entitles the miner to a valuable block reward, and because the attack involves temporarily withholding the block from the network, the attacker would put himself in the likely position of his block becoming [[Stale block|stale]], which would result in forfeiture of the entire reward. Most solo miners solve less than one block per month, so this would represent the loss of proceeds of potentially several weeks of mining.

Second, it is not possible for a solo miner to know exactly when his mining activity will yield a block, and because the attack must be carried out within seconds or minutes of successfully mining a block, the attacker will not be able to know or plan in advance the brief window when the attack would be likely to succeed. While it may be easy for a determined attacker to get low-value items that are sold and delivered online instantly without waiting for confirmations (such as downloads), this unpredictability and the briefness of the opportunity would make it extremely difficult to commit any kind of fraud where real-life interaction is required, such as visiting a merchant or taking possession of goods. Petty shoplifting would be far simpler. Even if an attacker went forward with this attack, the retailer would be notified of the fraud the moment the attack block is released seconds later.

In short, the 10-minute wait for confirmation is only practically necessary when delivering goods of value that significantly exceed the block reward an attacker would have to risk to perform an attack and where recourse after delivery is practically nonexistent, such as money transfers.

== After 21 million coins are mined, no one will generate new blocks ==

When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners will earn some profit from [[transaction fees]]. However unlike the block reward, there is [http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be/895#895 no coupling between transaction fees and the need for security], so there is less of a guarantee that the amount of [[Mining|mining]] being performed will be sufficient to maintain the network's security.

== Bitcoin has no built-in chargeback mechanism, and this isn't good ==

'''Why some people think this is bad''': Chargebacks are useful for limiting fraud. The person handling your money has a responsibility to prevent fraud. If you buy something on eBay and the seller never ships it, PayPal takes funds from the seller's account and gives you back the money. This strengthens the eBay economy, because people recognize that their risk is limited and are more willing to purchase items from risky sellers.

'''Why it's actually a good thing''': Bitcoin is designed such that your money is yours and yours alone. Allowing chargebacks implies that it is possible for another entity to take your money from you. You can have either total ownership rights of your money, or fraud protection, but not both. That said, nothing inherent in the dollar or euro or any other currency is necessary for chargebacks to be possible, and likewise, nothing prevents the creation of PayPal-like services denominated in Bitcoin that provide chargebacks or fraud protection.

The statement "The person handling your money has a responsibility to prevent fraud" is still true; the power has been shifted into your own hands. Fraud will always exist. It's up to you to only send bitcoins to trusted entities. It is possible to trust an online identity without ever knowing their physical identity; see the [http://wiki.bitcoin-otc.com/wiki/OTC_Rating_System OTC Web of Trust].

== Quantum computers would break Bitcoin's security ==

Yes, but quantum computers don't yet exist and probably won't for a while. Bitcoin's security can be [http://en.wikipedia.org/wiki/Post-quantum_cryptography upgraded] if this were considered an imminent threat.

See the implications of quantum computers on public key cryptography here http://en.wikipedia.org/wiki/Quantum_computer#Potential

The ''risk'' of quantum computers is also there for financial institutions, like banks, because they heavily rely on cryptography when doing transactions.

== [[Mining|Bitcoin mining]] is a waste of energy and harmful for ecology ==

No more so than the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again. Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc.

As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others.

'''Economic Argument 1'''

[[Mining|Bitcoin mining]] is a highly competitive, dynamic, almost [http://en.wikipedia.org/wiki/Perfect_market perfect], market. Mining rigs can be set up and dismantled almost anywhere in the world with relative ease. Thus, market forces are constantly pushing mining activity to ''places'' and ''times'' where the marginal price of electricity is low or zero. These electricity products are cheap for a reason. Often it’s because the electricity is difficult (and wasteful) to transport, difficult to store, or because there is low demand and high supply. Using electricity in this way is a lot less wasteful than simply plugging a mining rig into the mains indiscriminately.

For example, Iceland produces an excess of cheap electricity from renewable sources, but it has no way of exporting electricity because of its remote location. It is conceivable that at some point in future Bitcoin mining will only be profitable in places like Iceland, and unprofitable in places like central Europe, where electricity comes mostly from nuclear and fossil sources.

Market forces could even push mining into innovative solutions that have an effective electricity consumption of ''zero''. Mining always produces heat equivalent to the energy consumed - for example, 1000 watts of mining equipment produces the same amount of heat as a 1000 watt heating element used in an electric space heater, hot tub, water heater, or similar appliance. Someone already in a willing position to incur the cost of electricity for its heat value alone could run mining equipment specially designed to mine bitcoins while capturing and utilizing the heat produced, without incurring any energy costs beyond what they already intended to spend on heating.

'''Economic Argument 2'''

When the environmental costs of mining are considered, they need to be weighed up against the benefits. If you question Bitcoin on the grounds that it consumes electricity, then you should also ask questions like this: Will Bitcoin promote economic growth by freeing up trade? Will this speed up the rate of technological innovation? Will this lead to faster development of green technologies? Will Bitcoin enable new, border crossing [http://en.wikipedia.org/wiki/Smart_grid smart grid] technologies? …

Dismissal of Bitcoin because of its costs, while ignoring its benefits, is a dishonest argument. In fact, any environmental argument of this type is dishonest, not just pertaining to Bitcoin. Along similar lines, it could be argued that wind turbines are bad for the environment because making the steel structure consumes energy.

== Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate ==

Your assumption is that bitcoins must be sold immediately to cover operating expenses. If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the exchange rate would be irrelevant. Larger adoption of Bitcoin would make prices [http://en.wikipedia.org/wiki/Sticky_%28economics%29 sticky]. Future volatility is expected to decrease, as the size and depth of the market grows.

In the meantime, many merchants simply regularly pull the latest market rates from the exchanges and automatically update the prices on their websites. Also you might be able to buy a put option in order to sell at a fixed rate for a given amount of time. This would protect you from drops in price and simplify your operations for that time period.

== Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down ==

* Visa, MasterCard, PayPal, and cash all serve as opportunities for criminals as well, but society keeps them around due to their recognized net benefit.
* Hopefully Bitcoin will grow to the point where no single organization can disrupt the network, or would be better served by helping it.
* Terrorists fly aircraft into buildings, but the governments have not yet abolished consumer air travel. Obviously the public good outweighs the possible bad in their opinion.
* Criminal law differs between jurisdictions.

== Bitcoins will be shut down by the government just like Liberty Dollars were ==

Liberty Dollars started as a commercial venture to establish an alternative US currency, including physical banknotes and coins, backed by precious metals. This, in and of itself, is not illegal. They were prosecuted under counterfeiting laws because the silver coins allegedly resembled US currency.

Bitcoins do not resemble the currency of the US or of any other nation in any way, shape, or form. The word "dollar" is not attached to them in any way. The "$" symbol is not used in any way.

Bitcoins have no representational similarity whatsoever to US dollars.

Of course, actually 'shutting down' Liberty Dollars was as easy as arresting the head of the company and seizing the offices and the precious metals used as backing. The decentralized Bitcoin, with no leader, no servers, no office, and no tangible asset backing, does not have the same vulnerability.

== Bitcoin is not decentralized because the developers can dictate the software's behavior ==

The Bitcoin protocol was originally defined by Bitcoin's inventor, [[Satoshi Nakamoto]], and this protocol has now been widely accepted as the standard by the community of miners and users.

Though the developers of the original Bitcoin client still exert influence over the Bitcoin community, their power to arbitrarily modify the protocol is very limited. Since the release of Bitcoin v0.3, changes to the protocol have been minor and always in agreement with community consensus.

Protocol modifications, such as increasing the block award from 50 to 100 BTC, are not compatible with clients already running in the network. If the developers were to release a new client that the majority of miners perceives as corrupt, or in violation of the project’s aims, that client would simply not catch on, and the few users who do try to use it would find that their transactions get rejected by the network.

There are also other [[:Category:Clients|Bitcoin clients made by other developers]] that adhere to the Bitcoin protocol. As more developers create alternative clients, less power will lie with the developers of the original Bitcoin client.

== Bitcoin is a pyramid scheme ==

Bitcoin is nearly opposite of a pyramid scheme in a mathematical sense. Because Bitcoins are algorithmically made scarce, no exponential benefit is derived from introducing new users to use of it. There is a quantitative benefit in having additional interest or demand, but this is in no way exponential.

[[de:Mythen]]

Myths

2012-09-19T06:07:42Z

Raize:

Let's clear up some common Bitcoin misconceptions.

== Bitcoin is just like all other digital currencies; nothing new ==

Nearly all other digital currencies are centrally controlled. This means that:
* they can be printed at the subjective whims of the controllers
* they can be destroyed by attacking the central point of control
* arbitrary rules can be imposed upon their users by the controllers

Being decentralized, Bitcoin solves all of these problems.

== Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve ==

Unlike gold, bitcoins are:
* easy to transfer
* easy to secure
* easy to verify
* easy to granulate

Unlike fiat currencies, bitcoins are:
* predictable and limited in [[Controlled_Currency_Supply|supply]]
* not controlled by a central authority (such as [http://en.wikipedia.org/wiki/Federal_Reserve The United States Federal Reserve])

Unlike electronic fiat currency systems, bitcoins are:
* potentially anonymous
* freeze-proof
* faster to transfer
* cheaper to transfer

== Bitcoin is backed by processing power ==

It is not correct to say that Bitcoin is "backed by" processing power. A currency being "backed" means that it is pegged to something else via a central party at a certain exchange rate yet you cannot exchange bitcoins for the computing power that was used to create them. Bitcoin is in this sense not backed by anything. It is a currency in its own right. Just as gold is not backed by anything, the same applies to Bitcoin.

The Bitcoin currency is ''created'' via processing power, and the integrity of the block chain is ''protected'' by the existence of a network of powerful computing nodes from certain [[Weaknesses#Attacker_has_a_lot_of_computing_power|attacks]].

== Bitcoins are worthless because they aren't backed by anything ==

Gold isn't backed by anything either. Bitcoins have properties resulting from the system's design that allows them to be subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the [http://en.wikipedia.org/wiki/Subjective_theory_of_value Subjective Theory of Value].

See also: the "[[#Bitcoin_is_backed_by_processing_power|Bitcoin is backed by processing power]]" myth.

== The value of bitcoins are based on how much electricity and computing power it takes to mine them ==

This statement is an attempt to apply to Bitcoin the [http://en.wikipedia.org/wiki/Labor_theory_of_value labor theory of value], which is generally accepted as false. Just because something takes X resources to create does not mean that the resulting product will be worth X. It can be worth more, or less, depending on the utility thereof to its users.

In fact the causality is the reverse of that (this applies to the labor theory of value in general). The cost to mine bitcoins is based on how much they are worth. If bitcoins go up in value, more people will mine (because [[Mining|mining]] is profitable), thus [[difficulty]] will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost an amount proportional to the value of bitcoins it produces.

== Bitcoins have no intrinsic value (unlike some other things) ==

It is true that bitcoins have no intrinsic value, in the [http://en.wikipedia.org/wiki/Intrinsic_value_%28numismatics%29 numismatic sense], in other words, value in any realm outside of being used as a medium of exchange.

However, while some tangible commodities do have intrinsic value, that value is generally much less than its trading price. Consider for example that gold, if it were not used as an inflation-proof store of value, but rather only for its industrial uses, would certainly not be worth what it is today, since the industrial requirements for gold are far smaller than the available supply thereof.

While historically intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins lack 'intrinsic value' in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than [http://en.wikipedia.org/wiki/Commodity_money commodity money].

Value is ultimately determined by what people are willing to trade for - by supply and demand.

== Bitcoins are illegal because they're not legal tender ==

Chickens aren't legal tender either, but bartering with chickens is not illegal.

There are a [http://en.wikipedia.org/wiki/Local_currency number of currencies] in existence that are not official government-backed currencies. A currency is, after all, nothing more than a convenient unit of account. While national laws may vary from country to country, and you should certainly check the laws of your jurisdiction, in general trading in any commodity, including digital currency like Bitcoin, [http://en.wikipedia.org/wiki/BerkShares BerkShares], game currencies like WoW gold, or Linden dollars, is not illegal.

== Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency ==

http://en.wikipedia.org/wiki/Definitions_of_terrorism#United_States according to this, you need to do violent activities to be considered a terrorist for legal purposes. Recent off-the-cuff remarks by politicians have no basis in law or fact.

Also, Bitcoin isn't domestic to the US or any other country. It's a worldwide community. See this map of Bitcoin nodes
https://bitcointalk.org/?topic=2346.0

== Bitcoin will only enable tax evaders which will lead to the eventual downfall of civilization ==

Cash transactions hold the same level of anonymity but are still taxed successfully. It is up to you to follow the applicable state laws in your home country, or face the consequences.

While it may be easy to transfer bitcoins anonymously, ''spending'' them anonymously on tangibles is just as hard as spending any other kind of money anonymously. Tax evaders are often caught because their lifestyle and assets are inconsistent with their reported income, and not necessarily because government is able to follow their money.

== Bitcoins can be printed/minted by anyone and are therefore worthless ==

Bitcoins are not printed/minted. Instead, [[Blocks]] are computed by miners and for their efforts they are awarded a specific amount of bitcoins and transaction fees paid by others. See [[Mining]] for more information on how this process works.

== Bitcoins are worthless because they're based on unproven cryptography ==

SHA256 and ECDSA which are used in Bitcoin are well-known industry standard algorithms. SHA256 is endorsed and used by the US Government and is standardized (FIPS180-3 Secure Hash Standard). If you believe that these algorithms are untrustworthy then you should not trust Bitcoin, credit card transactions or any type of electronic bank transfer. Bitcoin has a sound basis in well understood cryptography.

== Early adopters are unfairly rewarded ==

Early adopters are rewarded for taking the higher risk with their time and money. This argument is akin to saying that people who buy stock at a company IPO (Initial Public Offering) are unfairly rewarded. This argument also depends on bitcoin early adopters using bitcoins to store rather than transfer value. The daily trade on the exchanges (as of Jan 2012) indicates that smaller transactions are becoming the norm, indicating trade rather than investment.

In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.

The majority of the 21 million Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

== 21 million coins isn't enough; doesn't scale ==

One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.

As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller [[Units|units]], such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

== Bitcoins are stored in wallet files, just copy the wallet file to get more coins! ==

No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details (or bitcoin wallet) to someone else, that doesn't double the amount of money in your account. You can spend your money or they can spend your money, but not both.

== Lost coins can't be replaced and this is bad ==

Bitcoins are divisible to 0.00000001, so there being fewer bitcoins remaining is not a problem for the currency itself. If you lose your coins, all other coins will go up in value a little. Consider it a donation to all other bitcoin users.

A related question is: Why don't we have a mechanism to replace lost coins? The answer is that it is impossible to distinguish between a 'lost' coin and one that is simply sitting unused in someone's safe.

== It's a giant ponzi scheme ==
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. In a ponzi scheme, early adopters can only profit at the expense of late adopters, and the late adopters always lose. Bitcoin has an expected win-win outcome. Early and present adopters profit from the rise in value as Bitcoins become better understood and in turn demanded by the public at large. All adopters benefit from the usefulness of a reliable and widely-accepted decentralized peer-to-peer currency.

== Finite coins plus lost coins means deflationary spiral ==
As deflationary forces may apply, economic factors such as hoarding are offset by human factors that may lessen the chances that a [[Deflationary spiral]] will occur.

== Bitcoin can't work because there is no way to control inflation ==

Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.

Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.

The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.

Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.

== The Bitcoin community consists of anarchist/conspiracy theorist/gold standard 'weenies' ==

The members of the community vary in their ideological stances.

== Anyone with enough computing power can take over the network ==

CONFIRMED, see [[Weaknesses]].

That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is quite ahead of the world's fastest supercomputers, together.

What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker create counterfeit coins, fake transactions, or take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations. Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.

Furthermore, this attack scenario would only be feasible for as long as it was actively underway. As soon as the attack stopped, the network would resume normal operation.

== Bitcoin violates governmental regulations ==

There is no known governmental regulation which disallows the use of Bitcoin.

See also: the "[[#Bitcoins_are_illegal_because_they.27re_not_legal_tender|Bitcoins are illegal because they're not legal tender]]" myth.

== Fractional reserve banking is not possible ==

It is possible. See the main article, [[Fractional Reserve Banking and Bitcoin]]

== Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation ==

It is true that transactions [[FAQ#Why_do_I_have_to_wait_10_minutes_before_I_can_spend_money_I_received.3F|can]] sometimes take tens of minutes to become ''confirmed''. Despite this, retailers can accept unconfirmed transactions with very little risk by simply 'listening' on the network for a double-spend transaction, or partnering with a company that provides this service. After a head start of merely several seconds, the original transaction would reach so much of the Bitcoin network that a fraudulent double-spend transaction would almost certainly be fruitless. An attacker would have to commit easily-detectable fraud, in person, several hundred or several thousand times, before one of these low-value double-spend attempts would likely succeed.

An attacker could work around the necessity of sending out a second fraudulent transaction to the Bitcoin network by attempting to [[Mining|solo-mine]] an attack block containing the attack transaction himself - temporarily withholding the block with the rest of the network - and then execute the fraudulent purchase within seconds, or minutes at most, of mining the attack block, before broadcasting the attack block. However, the cost of such an activity would dramatically outweigh the value of anything typically offered without a confirmation wait for several reasons.

First, mining a block (attack or otherwise) entitles the miner to a valuable block reward, and because the attack involves temporarily withholding the block from the network, the attacker would put himself in the likely position of his block becoming [[Stale block|stale]], which would result in forfeiture of the entire reward. Most solo miners solve less than one block per month, so this would represent the loss of proceeds of potentially several weeks of mining.

Second, it is not possible for a solo miner to know exactly when his mining activity will yield a block, and because the attack must be carried out within seconds or minutes of successfully mining a block, the attacker will not be able to know or plan in advance the brief window when the attack would be likely to succeed. While it may be easy for a determined attacker to get low-value items that are sold and delivered online instantly without waiting for confirmations (such as downloads), this unpredictability and the briefness of the opportunity would make it extremely difficult to commit any kind of fraud where real-life interaction is required, such as visiting a merchant or taking possession of goods. Petty shoplifting would be far simpler. Even if an attacker went forward with this attack, the retailer would be notified of the fraud the moment the attack block is released seconds later.

In short, the 10-minute wait for confirmation is only practically necessary when delivering goods of value that significantly exceed the block reward an attacker would have to risk to perform an attack and where recourse after delivery is practically nonexistent, such as money transfers.

== After 21 million coins are mined, no one will generate new blocks ==

When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners will earn some profit from [[transaction fees]]. However unlike the block reward, there is [http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be/895#895 no coupling between transaction fees and the need for security], so there is less of a guarantee that the amount of [[Mining|mining]] being performed will be sufficient to maintain the network's security.

== Bitcoin has no built-in chargeback mechanism, and this isn't good ==

'''Why some people think this is bad''': Chargebacks are useful for limiting fraud. The person handling your money has a responsibility to prevent fraud. If you buy something on eBay and the seller never ships it, PayPal takes funds from the seller's account and gives you back the money. This strengthens the eBay economy, because people recognize that their risk is limited and are more willing to purchase items from risky sellers.

'''Why it's actually a good thing''': Bitcoin is designed such that your money is yours and yours alone. Allowing chargebacks implies that it is possible for another entity to take your money from you. You can have either total ownership rights of your money, or fraud protection, but not both. That said, nothing inherent in the dollar or euro or any other currency is necessary for chargebacks to be possible, and likewise, nothing prevents the creation of PayPal-like services denominated in Bitcoin that provide chargebacks or fraud protection.

The statement "The person handling your money has a responsibility to prevent fraud" is still true; the power has been shifted into your own hands. Fraud will always exist. It's up to you to only send bitcoins to trusted entities. It is possible to trust an online identity without ever knowing their physical identity; see the [http://wiki.bitcoin-otc.com/wiki/OTC_Rating_System OTC Web of Trust].

== Quantum computers would break Bitcoin's security ==

Yes, but quantum computers don't yet exist and probably won't for a while. Bitcoin's security can be [http://en.wikipedia.org/wiki/Post-quantum_cryptography upgraded] if this were considered an imminent threat.

See the implications of quantum computers on public key cryptography here http://en.wikipedia.org/wiki/Quantum_computer#Potential

The ''risk'' of quantum computers is also there for financial institutions, like banks, because they heavily rely on cryptography when doing transactions.

== [[Mining|Bitcoin mining]] is a waste of energy and harmful for ecology ==

No more so than the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again. Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc.

As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others.

'''Economic Argument 1'''

[[Mining|Bitcoin mining]] is a highly competitive, dynamic, almost [http://en.wikipedia.org/wiki/Perfect_market perfect], market. Mining rigs can be set up and dismantled almost anywhere in the world with relative ease. Thus, market forces are constantly pushing mining activity to ''places'' and ''times'' where the marginal price of electricity is low or zero. These electricity products are cheap for a reason. Often it’s because the electricity is difficult (and wasteful) to transport, difficult to store, or because there is low demand and high supply. Using electricity in this way is a lot less wasteful than simply plugging a mining rig into the mains indiscriminately.

For example, Iceland produces an excess of cheap electricity from renewable sources, but it has no way of exporting electricity because of its remote location. It is conceivable that at some point in future Bitcoin mining will only be profitable in places like Iceland, and unprofitable in places like central Europe, where electricity comes mostly from nuclear and fossil sources.

Market forces could even push mining into innovative solutions that have an effective electricity consumption of ''zero''. Mining always produces heat equivalent to the energy consumed - for example, 1000 watts of mining equipment produces the same amount of heat as a 1000 watt heating element used in an electric space heater, hot tub, water heater, or similar appliance. Someone already in a willing position to incur the cost of electricity for its heat value alone could run mining equipment specially designed to mine bitcoins while capturing and utilizing the heat produced, without incurring any energy costs beyond what they already intended to spend on heating.

'''Economic Argument 2'''

When the environmental costs of mining are considered, they need to be weighed up against the benefits. If you question Bitcoin on the grounds that it consumes electricity, then you should also ask questions like this: Will Bitcoin promote economic growth by freeing up trade? Will this speed up the rate of technological innovation? Will this lead to faster development of green technologies? Will Bitcoin enable new, border crossing [http://en.wikipedia.org/wiki/Smart_grid smart grid] technologies? …

Dismissal of Bitcoin because of its costs, while ignoring its benefits, is a dishonest argument. In fact, any environmental argument of this type is dishonest, not just pertaining to Bitcoin. Along similar lines, it could be argued that wind turbines are bad for the environment because making the steel structure consumes energy.

== Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate ==

Your assumption is that bitcoins must be sold immediately to cover operating expenses. If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the exchange rate would be irrelevant. Larger adoption of Bitcoin would make prices [http://en.wikipedia.org/wiki/Sticky_%28economics%29 sticky]. Future volatility is expected to decrease, as the size and depth of the market grows.

In the meantime, many merchants simply regularly pull the latest market rates from the exchanges and automatically update the prices on their websites. Also you might be able to buy a put option in order to sell at a fixed rate for a given amount of time. This would protect you from drops in price and simplify your operations for that time period.

== Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down ==

* Visa, MasterCard, PayPal, and cash all serve as opportunities for criminals as well, but society keeps them around due to their recognized net benefit.
* Hopefully Bitcoin will grow to the point where no single organization can disrupt the network, or would be better served by helping it.
* Terrorists fly aircraft into buildings, but the governments have not yet abolished consumer air travel. Obviously the public good outweighs the possible bad in their opinion.
* Criminal law differs between jurisdictions.

== Bitcoins will be shut down by the government just like Liberty Dollars were ==

Liberty Dollars started as a commercial venture to establish an alternative US currency, including physical banknotes and coins, backed by precious metals. This, in and of itself, is not illegal. They were prosecuted under counterfeiting laws because the silver coins allegedly resembled US currency.

Bitcoins do not resemble the currency of the US or of any other nation in any way, shape, or form. The word "dollar" is not attached to them in any way. The "$" symbol is not used in any way.

Bitcoins have no representational similarity whatsoever to US dollars.

Of course, actually 'shutting down' Liberty Dollars was as easy as arresting the head of the company and seizing the offices and the precious metals used as backing. The decentralized Bitcoin, with no leader, no servers, no office, and no tangible asset backing, does not have the same vulnerability.

== Bitcoin is not decentralized because the developers can dictate the software's behavior ==

The Bitcoin protocol was originally defined by Bitcoin's inventor, [[Satoshi Nakamoto]], and this protocol has now been widely accepted as the standard by the community of miners and users.

Though the developers of the original Bitcoin client still exert influence over the Bitcoin community, their power to arbitrarily modify the protocol is very limited. Since the release of Bitcoin v0.3, changes to the protocol have been minor and always in agreement with community consensus.

Protocol modifications, such as increasing the block award from 50 to 100 BTC, are not compatible with clients already running in the network. If the developers were to release a new client that the majority of miners perceives as corrupt, or in violation of the project’s aims, that client would simply not catch on, and the few users who do try to use it would find that their transactions get rejected by the network.

There are also other [[:Category:Clients|Bitcoin clients made by other developers]] that adhere to the Bitcoin protocol. As more developers create alternative clients, less power will lie with the developers of the original Bitcoin client.

== Bitcoin is a pyramid scheme ==

Bitcoin is nearly opposite of a pyramid scheme in a mathematical sense. Because Bitcoins are algorithmically made scarce, no exponential benefit is derived from introducing new users to use of it. There is a qualitative benefit in having additional interest or demand, but this is in no way exponential.

[[de:Mythen]]

Talk:Tonal Bitcoin

2012-09-19T05:55:10Z

Raize:

The point of Bitcoin is that it is a decentralized peer to peer currency.
That is the novelty about Bitcoin; the novelty is NOT that it comes along with a funky new way of counting things.
So please stop using Bitcoin to promote your own agenda ; this is just going to confuse people.
If you want to introduce a new method for counting currency, I suggest you go talk to the FED and propose the Tonal Dollar, or whatever.
[[User:ThomasV|ThomasV]] 14:33, 20 February 2011 (GMT)
* If Bitcoin has only one purpose, then it will never succeed. There are about as many people that care about a "decentralized peer to peer currency" as there are that care about Tonal. If you want BitCoin to succeed, you should support as many (legal) reasons to use it as possible. Also, whether it's ever enforced or not, vandalism and trolling should be bannable offenses. --[[User:Luke-jr|Luke-jr]] 04:43, 21 February 2011 (GMT)

This page should be deleted.
Nothing against Tonal, if there was a Hexadecimal Bitcoin or an Octal Bitcoin I would suggest those get deleted, too.
* Seconded. Tonal is not a key part of bitcoin, and currently not used in any form. If there is a reasonable number of users using tonal, then I would have no objections against this page. [[User:Mqrius|Mqrius]] 05:11, 2 February 2012 (GMT)

This is silly. I thought you'd removed this already, but it's seeping across to other pages despite me never seeing it in the wild. It serves only to confuse [[User:Gigitrix|Gigitrix]] 01:41, 13 June 2011 (GMT)

I agree with Gavin that this page should be deleted. Regardless of my personal opinion or the technical merits of tonal v. decimal, it's fair to say that tonal attracts scorn and ridicule from the vast majority of the population if they hear about it. Bitcoin's reputation suffers from the association. [[User:ByteCoin|ByteCoin]] 24 June 2011 (GMT)
* It's not fair to say that, no. --[[User:Luke-jr|Luke-jr]] 00:45, 25 June 2011 (GMT)

I have no legitimate stake in the matter, I made a few edits that I hope remove POV and still embrace the idea of Tonal Bitcoin. This is Raize, I am sorry I am not familiar enough with wiki editing to provide my signature.

==Voting about deleting page==

I also think this page should be deleted. There are at least three people suggesting this now, so I will re-add the delete tag to the page. So far there seems to be only one objection to the delete. I will initiate voting on this talk page. --[[User:Rebroad|Rebroad]] 22:48, 20 March 2012 (GMT)
* '''Delete''' - I believe this tonal suggestion will only do harm to the bitcoin project, and so far the only person advocating it is luke-jr, who rarely gives any rational reasons that I nor anyone else AFAIK can understand. Sorry luke-jr, but I'm doing my best to get you to explain the benefits. --[[User:Rebroad|Rebroad]] 22:52, 20 March 2012 (GMT)
*'''Delete''' - I've been lurking for a while, but I registered after seeing this nonsense here. Clearly if luke-jr is simply (and rather immaturely) blanking the discussion rather than responding to the specific points he has few arguments to marshal in his favor. --[[User:Zyzygy|Zyzygy]] ([[User talk:Zyzygy|talk]]) 05:14, 26 August 2012 (GMT)
*'''Delete''' along with all other references to this bullshit one man show in history, firsts and maybe other places. It serves no other thing than to Luke's ego. Why should the wiki as a whole support this? Apparently he realized that he can't win with arguments as he just deleted this very discussion. --[[User:Giszmo|Giszmo]] ([[User talk:Giszmo|talk]]) 15:41, 27 August 2012 (GMT)
*'''Delete''' because:
# nobody knows it - it seems that all sources are from one person [[User:Luke-jr|Luke-jr]] and from 150 years old (!) book. There is no notability. Nobody after cares about it. There are no "tonal system community" or "people that are using tonal system" - tonal system uses just 1 person and he is trying to misappropriate Bitcoin for this
# Tonal system is not at any way related to Bitcoin. Tonal system is related to numbers representation, not to monetary system. Please keep this page in general Wikipedia or some numeric Wikipedia, not in Bitcoin Wikipedia
# Tonal units are very confusing - from technically point of view (font, writing it) and mainly there is very similar to decimal numbers - there are many cases in which is not clear which system is used. Also TBC is common typing error of BTC
:'''Also I propose remove all notation about tonal from other wiki pages''', for example [[Units]] (very confusing), [[History]], [[Wallet protocol]] or [[Vocabulary]], and prevent them from reverting back (as happened several times). At least until Luke-jr (or someone else) find notable cites to keeping it here. [[User:Aleš Janda|Aleš Janda]] ([[User talk:Aleš Janda|talk]]) 19:44, 27 August 2012 (GMT)

Luke-jr comment to voting: This is for discussion, not trolling. This is not an encyclopedia, and does not have any "notability" requirements. If you don't want to use Tonal, don't. Trolling is not acceptable.

Tonal Bitcoin

2012-09-19T05:52:08Z

Raize: "Drastically" would be considered to have a POV. I'm merely trying to offer a version of this page that doesn't provide an opinionated POV.

{{Delete}}

Tonal Bitcoin is a representation of the Bitcoin network aimed toward Bitcoin users who prefer to use the Tonal number system.
This is an alternative to the decimal and metric system, which improves usability by allowing for infinite binary division (note that Bitcoin protocol support is still finite).
For more information on the Tonal system in general, please see [http://www.lulu.com/product/file-download/tonal-system/10991091 the book].

Please note, that all numbers of TBC and its divisions/multipliers are written in [http://en.wikipedia.org/wiki/Tonal_System Tonal], not decimal.
This means that instead of counting 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10-- you count: 0, 1, 2, 3, 4, 5, 6, 7, 8, , 9, , , , , , 10. Some higher-value digits may require installing a [http://luke.dashjr.org/education/tonal/glyphs/fonts/ font].

{| border="1" style="text-align:right;font-family:Console, Luxi Mono, fixed"
|- style="background-color:silver"
! Abbreviation
! Pronunciation
! [[Tonal Bitcoin|Tonal (TBC)]]
! Decimal (BTC)
|-
|
| Tam-Bitcoin
| 1 0000 0000     
| 2 814 749.767 106 56
|-
| ᵇTBC
| Bong-Bitcoin
| 1 0000     
| 42.949 672 96
|-
| ᵐTBC
| Mill-Bitcoin
| 1000     
| 2.684 354 56
|-
| ˢTBC
| San-Bitcoin
| 100     
| 0.167 772 16
|-
| ᵗTBC
| Ton-Bitcoin
| 10     
| 0.010 485 76
|-
| TBC
| Bitcoin*
| 1     
| 0.000 655 36
|-
| TBCᵗ
| Bitcoin-ton
| 0.1   
| 0.000 040 96
|-
| TBCˢ
| Bitcoin-san
| 0.01  
| 0.000 002 56
|-
| TBCᵐ
| Bitcoin-mill
| 0.001 
| 0.000 000 16
|-
| TBCᵇ
| Bitcoin-bong
| 0.0001
| 0.000 000 01
|}

* Tonal Bitcoin and Decimal Bitcoin can be differentiated by the pronunciation of the numbers. "One bitcoin", "two bitcoin", etc is decimal, but "an bitcoin", "de bitcoin" is tonal.

The total number of Tonal Bitcoins ever (analogous to the 21mil BTC in decimal representation) is just over 7.75059 tam-bitcoin.

== Compatible Clients ==

While all Bitcoin clients will correctly approximate values in decimal bitcoin, actual Tonal compatibility is sparse.

* [[Spesmilo]], despite its name, can be configured to display TBC

== Guessing TBC or BTC ==

Given variable 'value' in base units (uBTCents/TBCᵇ), one can guess whether it is properly Decimal Bitcoin or Tonal Bitcoin with the following pseudo-code:

if ( ! ( this % 0x10000 ) )
Choose Tonal Bitcoin
if ( ! ( this % 1000000 ) )
Choose Decimal Bitcoin
if ( ! ( this % 0x100 ) )
Choose Tonal Bitcoin

=== Python ===

<pre>import math

def formatBTC(n, addSign = False):
s = "%0.2f BTC" % (math.ceil(n * 100) / 100.,)
if addSign and n >= 0:
s = "+" + s
return s

def Bitcoin2BTC(n):
return n / 100000000.

toTonalDict = dict(((57, u'\ue9d9'), (65, u'\ue9da'), (66, u'\ue9db'), (67, u'\ue9dc'), (68, u'\ue9dd'), (69, u'\ue9de'), (70, u'\ue9df'), (97, u'\ue9da'), (98, u'\ue9db'), (99, u'\ue9dc'), (100, u'\ue9dd'), (101, u'\ue9de'), (102, u'\ue9df')))

def formatTBC(n, addSign = False):
s = "%x" % n
n %= 1
if n:
s += '.'
while n:
n *= 16
s += "%x" % n
n %= 1
s = unicode(s).translate(toTonalDict)
s += " TBC"
if addSign and n >= 0:
s = "+" + s
return s

def Bitcoin2TBC(n):
return n / 65536.

def formatBitcoin(n, addSign = False):
if not n % 0x10000:
return formatTBC(Bitcoin2TBC(n), addSign);
if not n % 1000000:
return formatBTC(Bitcoin2BTC(n), addSign);
if not n % 0x100:
return formatTBC(Bitcoin2TBC(n), addSign);
s = "%d uBTCents" % (n,);
if addSign and n > 0:
s = "+" + s;
return s;</pre>

== Criticism ==

* [[User:Davout|Davout]] has to google this page each time someone mentions an amount in tonal bitcoin

=== Can be done without new fonts as characters ===

The tonal notation requires extra fonts. Within the programming community there is a widely accepted convention for hexadecimal notation: use A-F for the higher order digits. Thus, one counts 0,1,2,3, ... , 9,A,B,C,D,E,F,10,11 .... There are even two conventions, (which are lacking in tonal notation) for distinguishing a base-16 number from a decimal. The C convention prefixes 0x and the Motorola convention suffixes h. So, the number san, 256 (decimal) would be written 0x100 or 100h. In tonal notation, it would only be written 100, and thus potentially confused with decimal 100 which is 0x64.

Thus programming notation accomplishes the same goals as tonal notation with no requirement for changing fonts, thus is more suited to wider usage. Further the prefix and suffix conventions lead to less ambiguity within the tonal community.

Tonal Bitcoin

2012-09-19T05:49:56Z

Raize: /* Can be done without funny characters */

{{Delete}}

Tonal Bitcoin is a representation of the Bitcoin network aimed toward Bitcoin users who prefer to use the Tonal number system.
This is an alternative to the decimal and metric system, which improves usability drastically by allowing for infinite binary division (note that Bitcoin protocol support is still finite).
For more information on the Tonal system in general, please see [http://www.lulu.com/product/file-download/tonal-system/10991091 the book].

Please note, that all numbers of TBC and its divisions/multipliers are written in [http://en.wikipedia.org/wiki/Tonal_System Tonal], not decimal.
This means that instead of counting 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10-- you count: 0, 1, 2, 3, 4, 5, 6, 7, 8, , 9, , , , , , 10. Some higher-value digits may require installing a [http://luke.dashjr.org/education/tonal/glyphs/fonts/ font].

{| border="1" style="text-align:right;font-family:Console, Luxi Mono, fixed"
|- style="background-color:silver"
! Abbreviation
! Pronunciation
! [[Tonal Bitcoin|Tonal (TBC)]]
! Decimal (BTC)
|-
|
| Tam-Bitcoin
| 1 0000 0000     
| 2 814 749.767 106 56
|-
| ᵇTBC
| Bong-Bitcoin
| 1 0000     
| 42.949 672 96
|-
| ᵐTBC
| Mill-Bitcoin
| 1000     
| 2.684 354 56
|-
| ˢTBC
| San-Bitcoin
| 100     
| 0.167 772 16
|-
| ᵗTBC
| Ton-Bitcoin
| 10     
| 0.010 485 76
|-
| TBC
| Bitcoin*
| 1     
| 0.000 655 36
|-
| TBCᵗ
| Bitcoin-ton
| 0.1   
| 0.000 040 96
|-
| TBCˢ
| Bitcoin-san
| 0.01  
| 0.000 002 56
|-
| TBCᵐ
| Bitcoin-mill
| 0.001 
| 0.000 000 16
|-
| TBCᵇ
| Bitcoin-bong
| 0.0001
| 0.000 000 01
|}

* Tonal Bitcoin and Decimal Bitcoin can be differentiated by the pronunciation of the numbers. "One bitcoin", "two bitcoin", etc is decimal, but "an bitcoin", "de bitcoin" is tonal.

The total number of Tonal Bitcoins ever (analogous to the 21mil BTC in decimal representation) is just over 7.75059 tam-bitcoin.

== Compatible Clients ==

While all Bitcoin clients will correctly approximate values in decimal bitcoin, actual Tonal compatibility is sparse.

* [[Spesmilo]], despite its name, can be configured to display TBC

== Guessing TBC or BTC ==

Given variable 'value' in base units (uBTCents/TBCᵇ), one can guess whether it is properly Decimal Bitcoin or Tonal Bitcoin with the following pseudo-code:

if ( ! ( this % 0x10000 ) )
Choose Tonal Bitcoin
if ( ! ( this % 1000000 ) )
Choose Decimal Bitcoin
if ( ! ( this % 0x100 ) )
Choose Tonal Bitcoin

=== Python ===

<pre>import math

def formatBTC(n, addSign = False):
s = "%0.2f BTC" % (math.ceil(n * 100) / 100.,)
if addSign and n >= 0:
s = "+" + s
return s

def Bitcoin2BTC(n):
return n / 100000000.

toTonalDict = dict(((57, u'\ue9d9'), (65, u'\ue9da'), (66, u'\ue9db'), (67, u'\ue9dc'), (68, u'\ue9dd'), (69, u'\ue9de'), (70, u'\ue9df'), (97, u'\ue9da'), (98, u'\ue9db'), (99, u'\ue9dc'), (100, u'\ue9dd'), (101, u'\ue9de'), (102, u'\ue9df')))

def formatTBC(n, addSign = False):
s = "%x" % n
n %= 1
if n:
s += '.'
while n:
n *= 16
s += "%x" % n
n %= 1
s = unicode(s).translate(toTonalDict)
s += " TBC"
if addSign and n >= 0:
s = "+" + s
return s

def Bitcoin2TBC(n):
return n / 65536.

def formatBitcoin(n, addSign = False):
if not n % 0x10000:
return formatTBC(Bitcoin2TBC(n), addSign);
if not n % 1000000:
return formatBTC(Bitcoin2BTC(n), addSign);
if not n % 0x100:
return formatTBC(Bitcoin2TBC(n), addSign);
s = "%d uBTCents" % (n,);
if addSign and n > 0:
s = "+" + s;
return s;</pre>

== Criticism ==

* [[User:Davout|Davout]] has to google this page each time someone mentions an amount in tonal bitcoin

=== Can be done without new fonts as characters ===

The tonal notation requires extra fonts. Within the programming community there is a widely accepted convention for hexadecimal notation: use A-F for the higher order digits. Thus, one counts 0,1,2,3, ... , 9,A,B,C,D,E,F,10,11 .... There are even two conventions, (which are lacking in tonal notation) for distinguishing a base-16 number from a decimal. The C convention prefixes 0x and the Motorola convention suffixes h. So, the number san, 256 (decimal) would be written 0x100 or 100h. In tonal notation, it would only be written 100, and thus potentially confused with decimal 100 which is 0x64.

Thus programming notation accomplishes the same goals as tonal notation with no requirement for changing fonts, thus is more suited to wider usage. Further the prefix and suffix conventions lead to less ambiguity within the tonal community.

Tonal Bitcoin

2012-09-19T05:48:32Z

Raize: Just a few recommended minor edits. I do not have a stake in the removal of the page, itself, but would like to see alternative Bitcoin implementations and representations embraced for the sake of widespread usage.

{{Delete}}

Tonal Bitcoin is a representation of the Bitcoin network aimed toward Bitcoin users who prefer to use the Tonal number system.
This is an alternative to the decimal and metric system, which improves usability drastically by allowing for infinite binary division (note that Bitcoin protocol support is still finite).
For more information on the Tonal system in general, please see [http://www.lulu.com/product/file-download/tonal-system/10991091 the book].

Please note, that all numbers of TBC and its divisions/multipliers are written in [http://en.wikipedia.org/wiki/Tonal_System Tonal], not decimal.
This means that instead of counting 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10-- you count: 0, 1, 2, 3, 4, 5, 6, 7, 8, , 9, , , , , , 10. Some higher-value digits may require installing a [http://luke.dashjr.org/education/tonal/glyphs/fonts/ font].

{| border="1" style="text-align:right;font-family:Console, Luxi Mono, fixed"
|- style="background-color:silver"
! Abbreviation
! Pronunciation
! [[Tonal Bitcoin|Tonal (TBC)]]
! Decimal (BTC)
|-
|
| Tam-Bitcoin
| 1 0000 0000     
| 2 814 749.767 106 56
|-
| ᵇTBC
| Bong-Bitcoin
| 1 0000     
| 42.949 672 96
|-
| ᵐTBC
| Mill-Bitcoin
| 1000     
| 2.684 354 56
|-
| ˢTBC
| San-Bitcoin
| 100     
| 0.167 772 16
|-
| ᵗTBC
| Ton-Bitcoin
| 10     
| 0.010 485 76
|-
| TBC
| Bitcoin*
| 1     
| 0.000 655 36
|-
| TBCᵗ
| Bitcoin-ton
| 0.1   
| 0.000 040 96
|-
| TBCˢ
| Bitcoin-san
| 0.01  
| 0.000 002 56
|-
| TBCᵐ
| Bitcoin-mill
| 0.001 
| 0.000 000 16
|-
| TBCᵇ
| Bitcoin-bong
| 0.0001
| 0.000 000 01
|}

* Tonal Bitcoin and Decimal Bitcoin can be differentiated by the pronunciation of the numbers. "One bitcoin", "two bitcoin", etc is decimal, but "an bitcoin", "de bitcoin" is tonal.

The total number of Tonal Bitcoins ever (analogous to the 21mil BTC in decimal representation) is just over 7.75059 tam-bitcoin.

== Compatible Clients ==

While all Bitcoin clients will correctly approximate values in decimal bitcoin, actual Tonal compatibility is sparse.

* [[Spesmilo]], despite its name, can be configured to display TBC

== Guessing TBC or BTC ==

Given variable 'value' in base units (uBTCents/TBCᵇ), one can guess whether it is properly Decimal Bitcoin or Tonal Bitcoin with the following pseudo-code:

if ( ! ( this % 0x10000 ) )
Choose Tonal Bitcoin
if ( ! ( this % 1000000 ) )
Choose Decimal Bitcoin
if ( ! ( this % 0x100 ) )
Choose Tonal Bitcoin

=== Python ===

<pre>import math

def formatBTC(n, addSign = False):
s = "%0.2f BTC" % (math.ceil(n * 100) / 100.,)
if addSign and n >= 0:
s = "+" + s
return s

def Bitcoin2BTC(n):
return n / 100000000.

toTonalDict = dict(((57, u'\ue9d9'), (65, u'\ue9da'), (66, u'\ue9db'), (67, u'\ue9dc'), (68, u'\ue9dd'), (69, u'\ue9de'), (70, u'\ue9df'), (97, u'\ue9da'), (98, u'\ue9db'), (99, u'\ue9dc'), (100, u'\ue9dd'), (101, u'\ue9de'), (102, u'\ue9df')))

def formatTBC(n, addSign = False):
s = "%x" % n
n %= 1
if n:
s += '.'
while n:
n *= 16
s += "%x" % n
n %= 1
s = unicode(s).translate(toTonalDict)
s += " TBC"
if addSign and n >= 0:
s = "+" + s
return s

def Bitcoin2TBC(n):
return n / 65536.

def formatBitcoin(n, addSign = False):
if not n % 0x10000:
return formatTBC(Bitcoin2TBC(n), addSign);
if not n % 1000000:
return formatBTC(Bitcoin2BTC(n), addSign);
if not n % 0x100:
return formatTBC(Bitcoin2TBC(n), addSign);
s = "%d uBTCents" % (n,);
if addSign and n > 0:
s = "+" + s;
return s;</pre>

== Criticism ==

* [[User:Davout|Davout]] has to google this page each time someone mentions an amount in tonal bitcoin

=== Can be done without funny characters ===

The tonal notation requires extra fonts. Within the programming community there is a widely accepted convention for hexadecimal notation: use A-F for the higher order digits. Thus, one counts 0,1,2,3, ... , 9,A,B,C,D,E,F,10,11 .... There are even two conventions, (which are lacking in tonal) for distinguishing a base-16 number from a decimal. The C convention prefixes 0x and the Motorola convention suffixes h. So, the number san, 256 (decimal) would be written 0x100 or 100h. In tonal notation, it would only be written 100, and thus potentially confused with decimal 100 which is 0x64.

Thus programming notation accomplishes the same goals as tonal notation with no requirement for changing fonts, thus is more suited to wider usage. Further the prefix and suffix conventions lead to less ambiguity within the tonal community.

Proof of Stake

2012-04-10T19:03:53Z

Raize:

Proof of Stake is a proposed alternative to [[Proof of Work]]. Like proof of work, proof of stake provides a mechanism for determining who signs bitcoin transactions.

It was probablly first proposed [https://bitcointalk.org/index.php?topic=27787.0 here] by Quantum Mechanic. With Proof of Work, the probability of mining a block depends on the work done by the miner (e.g. CPU/GPU cycles spent checking hashes). With Proof of Stake, the resource that's compared is the amount of Bitcoin a miner holds - someone holding 1% of the Bitcoin can mine 1% of the "Proof of Stake blocks".

Some argue that methods based on Proof of Work alone might lead to a low network security due to [[Tragedy of the Commons]], and Proof of Stake is one way of changing the miner's incentives in favor of higher network security.

Here is [https://bitcointalk.org/index.php?topic=37194.msg456773#msg456773 one attempt] to describe an implementation of Proof of Stake.

= Motivation For Proof of Stake =

* A proof-of-stake system might provide increased protection from a malicious attack on the network. Additional protection comes from two sources:
1) Executing an attack would be much more expensive.
2) Reduced incentives for attack. The attacker would need to own a near majority of all bitcoin. Therefore, the attacker suffer severely from his own attack.

* When block rewards are produced through txn fees, a proof of stake system would result in lower equilibrium txn fees. Lower long-run fees would increase the competiveness of bitcoin relative to alternative payments systems. Intuitively reduced fees are do to vast reductions in the scale of wastage of resources.
== The Monopoly Problem ==

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 the [[Tragedy of the Commons]] effect, attempts at monopoly become increasingly likely over time.

== How Proof of Stake Addresses Monopoly Problems ==

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 (unlikely), such an entrepreneur would need to invest at least 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 not 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.

== Why Proof of Stake Would Likely Decrease Long-run Txn Fees Considerably ==
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 on 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. The fees necessary to prevent monopolization will be onerous, possibly in excess of the 3% fee currently charged for credit card purchases. Under pure proof-of-stake, opportunity cost can be calculated as the total 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 maintaining 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.

= Implementations =
There are currently at least two distinct proposals on how to implement PoS, by Cunicula and Meni.

== Cunicula's Implementation of Mixed Proof-of-Work and Proof-of-Stake ==

This suggestion is of a mixed Proof-of-Work / Proof-of-Stake system.

=== Definitions ===
'Coin-confirmations' are defined as the product of the number of coins in an account multiplied by the number of confirmations on this account.

'Confirmations' are defined as the number of blocks mined since this account's private key was last used to send coins or sign a newly mined block.

=== How the system works ===
Each block must be signed by its miner using a single bitcoin account. The account used to sign a block must also be the recipient of txn fees and generation from this block. Blocks are mined by proof-of-work hashing as before, but with modified difficulty criteria. The difficulty criterion for block validity is modified as follows:

Hash generates valid block if and only if

Hash Difficulty >= Difficulty Target / ( max(Coin-confirmations used to sign block, 100 satoshi-confirmations) )^( p / (1-p))

, where 0 <= p < 1. Stake becomes more and more important as p approaches 1. p=0.8 is suggested as an appropriate choice. p=0 is identical to the current proof-of-work system.

If the block is signed by a bitcoin account holding less than 100 satoshi-confirmations, this is treated as if the account held 100 satoshi-confirmations. Thus non-stakeholders are allowed to verify blocks, but relative to stakeholders they must meet extremely stringent difficulty criteria. Permitting non-stakeholders to verify blocks solves the initial distribution problem.

As before the Difficulty Target is a periodically adjusted constant which is set to maintain a target generation rate of 1 block every 10 minutes.

=== Does this system exhibit Constant-Returns-to-Scale ? ===

While the formal theory behind this has yet to be laid out in detail, simulations indicate that the system is fully described by a constant returns-to-scale Cobb-Douglas production function. Generation rate over a long time span is almost perfectly predicted by the following equation, where Q is generation per unit time, k is the number of coins invested in generation, h is hashing power, A is an arbitrary constant which is inversely proportional to difficulty, and p is the parameter described in the previous section.

Q = A*k^(p)*h^(1-p)

=== How could we see constant returns to scale here? ===

Returns-to-scale in this system are subtle. If you double hashing power at one point in time, then you double the probability that you will find a block in the current hashing round. Therefore, intuitively one might think that doubling hashing power would allow you to generate double the amount of bitcoin generated per unit time on average. However, this is not true. Outcomes in each round of hashing affect outcomes in subsequent rounds of hashing. In this system, failure to find a block in the current period leads to decreased expected waiting time in the next round (since if you fail in the current round you get the consolation prize that the next round will have an easier target). This decrease in future waiting time provides some compensation for not mining the block immediately. Thus, doubling your chance of mining the block immediately does not double your output over a longer period.

=== Stylized Example (You get an outcome that works like this when p is close to 1) ===

Consider a system where:
you have a 0% chance of mining coins at less than 6 coin confirmations,
a 50% chance of mining coins at 6 coin confirmations,
and a 100% chance of mining coins at 7 or more coin confirmations.

Half the time you will mine your coin after 6 confirmations. The other half you will mine your coin after 7. Therefore, it will take 6.5 rounds on average to mine a block.

Now what if you double hashing power. Remember that this doubles your chance of mining a block at any given stage. Now..
you have a 0% chance of mining coins at less than 6 coin confirmations,
a 100% chance of mining coins at 6 or more coin confirmations,

Therefore, it will take 6 rounds on average to mine a block.

Here you have doubled hashing power, but only increased average output per unit time by a small amount.
=== Infeasibility of Pure Proof of Stake Under this System ===
Note: in the limit when p -> 1 (that is p approaches pure proof of stake), you approach a situation where you have a 0% chance of mining coins at less than x coin confirmations, but a 100% chance at x+1 coin confirmations, where x depends soley on difficulty. Mining becomes completely deterministic and doubling hashing power has no effect on output at all. Essentially miners take turns to mine blocks. The frequency with which a miner's turn comes up is equal to his ownership share in the total volume of coins actively used for mining. This sounds really good, but a fatal problem arises if participation falls. A fall in participation would make it impossible for anyone to mine blocks. Particularly, worrisome is that if participation is at 100%, a loss of some coins would interrupt the blockchain forever with no possible remedy except location of the missing coins. Even without a loss of coins, simply transferring coins across wallets can disrupt turn-taking and freeze the blockchain forever. For these reasons, it is necessary for block mining to retain a random element and not follow a deterministic, pure proof of stake system, i.e. p can safely be 0.8 or 0.9 or even 0.99, but 0.9999999999999999 would make complete failure of the blockchain a certainty.

== Meni's implementation ==
This proposal is for a proof-of-work (PoW) skeleton on which occasional checkpoints set by stakeholders are placed. In one variant, double-spending is prevented by waiting for a transaction to be included in a checkpoint; the variant described here uses cementing to prevent double-spending, and checkpoints to resolve cementing conflicts.

=== Proof of work ===
Miners use their hashrate to find blocks and build the blockchain exactly as with the pure PoW system. They receive any new generated coins from the block; there will be two kinds of transaction fees, one of which is a mining fee given to the miner who finds the block, just like the PoW transaction fees.

=== Signatures ===
One block every 100 blocks (a different number can be used instead) is a signature block. When a signature block is found and confirmed with several subsequent blocks, stakeholders (people who have bitcoins) are expected to sign it by using a private key associated with their address which contains coins to sign the block hash. If there are several blocks of the same height, an address should not sign more than one of them. The signatures are broadcast on the network and included in a future block. For every candidate block, the total weight of all signatures is tallied (the weight of an address is determined mostly by the number of coins in it, as of the last signature block). Stakeholders will be able to collect signature fees when providing a signature, proportionally to their weight.

At the basic level, there are no rules to choosing which of several conflicting blocks to sign, stakeholders should just choose one.

=== Cementing ===
Cementing is a node's reluctance to do a blockchain reorganization. A node will reject any new block found if it contradicts a 6-block deep branch it is already aware of and currently considers valid. That is, once a node receives 6 confirmations for a block, it will not accept a competing block even if it is part of a longer branch.

In a pure PoW system this is problematic to do because a node could be stuck on "the wrong version" - if an attacker isolates the node and feeds him bogus data, it will not embrace the true, longer chain when he learns of it. However, using PoS to have the final say in such situations makes this possible.

=== Branch selection ===
When a node needs to select which of several branches is valid, it chooses one based on the following criteria in increasing importance (each one is overridden by the next):

#Branch length (total difficulty of all blocks), as in a PoW system.
#Cementing - an already cemented block will not be replaced by a longer branch.
#Signatures - even a cemented block will be overridden by a signature block with signature weight more than half the total possible weight by some margin.

If the conflict is so long that it contains more than one spot for a signature block, the conflicting signature blocks will be traversed earliest to latest, each time choosing the branch with the majority vote. After the newest uncontested signature block it proceeds to use cementing and branch length.

A signature block with no clear majority will be considered tied, and will not override the other criteria. Signature fees will not be given out but instead carried over to the next signature spot, to encourage stakeholders to participate then.

=== Double spending prevention ===
A good level of security can be achieved by waiting for a block to be cemented. By that time it is safe to assume that the network recognizes this block and will not easily switch to a different block, even if a longer branch is presented.

A more authoritative confirmation is enabled by waiting for a signature block. Once a block achieves a majority (and some more time is allowed for this majority to spread in the network), it is extremely unlikely that the network will ever switch away from this block.

=== Weights ===
The weight of every address starts at 0. When an address provides a signature, its weight increases so that after several signatures, the weight approaches the number of coins in the address as of the last signature block. For example,
New weight = 0.9 * Old weight + 0.1 * Balance
If a signature is not provided by the address in a signature block, its weight decreases:
New weight = 0.9 * Old weight
This way, addresses whose owners do not wish to participate in signing do not hamper the ability to reach a majority.

If an address signs two conflicting blocks, its weight is reset to 0. This is to limit the power of malicious stakeholders.

If coins move to a new address, weight is proportionally taken away from the addressed, but is not transferred to the new address. The new stakeholder will have to build up his weight.

=== Malicious stakeholders ===
The system is resilient against stakeholders who misuse their signature power, even if they have a majority of the bitcoins. Since their only obligation is to not sign conflicting blocks, the only way they could double-spend is if they first sign one block so it achieves a majority, then sign a different one so that it achieves a bigger majority. Generally this will not work. A short while after a majority is achieved, most of the network will be aware of the relevant signatures. If a different signature is broadcast, the conflict will be detected and both signatures will be ignored. This will cause the current majority block to become tied, but the network is already cemented on it and will vote for this branch in the next signature block. The weight of the attacker will by then reduce to 0 so he will be unable to create more disruption.

Another attack is refusing to sign blocks to keep them tied. Since this causes a decay of the weight, they can only stand in the way of a majority for a short time.

=== Denial of service ===
The method as described does not solve a denial of service scenario. A majority miner could create only blocks with no transactions (or with many transactions missing) and reject all other blocks.

This may be solvable by adding some measure of the transaction in a block to the selection criteria, such as Bitcoin days destroyed.

Also, proposals to replace the block chain with a directed acyclic graph have been made, and could be used to make it easier to include transactions.

== Key difference between the two proposals ==
In Cunicula's system, voting power is determined by combining (multiplicatively) your hashrate and stake. This would be problematic if small players could not compete effectively with large players. Though we are waiting on a formal mathematical proof, evidence to date suggests that small and large players would have an equal competitive footing. Simulations described in this thread [https://bitcointalk.org/index.php?topic=68213.msg801253#msg801253] indicate that small players are competitive with large players because the multiplicative combination of hashrate and stake exhibits constant returns. Evidence in the thread suggests that these simulation results are accepted by both Cunicula and Meni.)

In Meni's, there's a skeleton based purely on hashrate, and superimposed on it are occasional checkpoints set by stakeholders. You can contribute PoW without having stake, and you can contribute PoS without having work, and in both cases your voting power and reward is linearly proportional to the resources you have.

[[category:mining]]