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Author Topic: "With Peercoin the rich get richer"  (Read 9599 times)

Offline David

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"With Peercoin the rich get richer"
« on: November 17, 2013, 11:27:27 pm »
This statement isn't true, and here's why:

Let's pretend that the Peercoin universe consists of two people. In reality, many more people than that hold Peercoins, but for the purposes of this analogy it will be much simpler.

Let's also pretend there are only 1000 Peercoins in the world (we could do this exercise with the actual monetary supply of 20.752M, but would create much less pleasant numbers to work with.)

Person A holds 900 Peercoins.
Person B holds 100 Peercoins.

In this scenario, both Persons are rational supporters of the Peercoin network, and wish to maximize their coin supply, and choose to use Proof-of-Stake minting.

Over the course of one year, both will increase their holdings by 1%.

Person A now holds 909 Peercoins.
Person B holds 101 Peercoins.

At this point in the argument (as some other crypto supporters will mention), it is clear that Person A has been unreasonably rewarded. Person A has gained 9 Peercoins while Person B has only gained 1 Peercoin, and so the rich have become richer.

Right?

Well, it turns out that it's not at all true. In the first scenario Person A has exactly 90% of Peercoins in existence (900/1000) and Person B has 10% of Peercoins in existence (100/1000).

In the second scenario, Person A has exactly 90% of Peercoins in existence (909/1010), and Person B has exactly 10% of Peercoins in existence (101/1010).

The total share of their investment in Peercoin from an enterprise level has not changed.

If the market capitalization of Peercoin didn't change (let's say that the total market capitalization stayed at $10M), neither Person has gained more value than the other. Each Person gained 1% in coins, and had their coins de-valued by 1%. Person A would still have $9M worth of coins and Person B would have $1M worth of coins.

The other scenario that might have occurred is that Peercoin's market capitalization increased. Let's say that PPC did well and the market capitalization increased from $10M to $20M.

In this case, Person A made much more money. His coins went from being worth $9M to $18M, while Person B's coins went from being worth $1M to $2M.

Can anyone legitimately argue that Person B deserved to have the same real-world fiat gain as Person A, even though Person A took 9x the risk in investing in Peercoin?

And that is why "the rich get richer" is a basic error in understanding of Peercoin's Proof-of-Stake mechanism.
« Last Edit: January 14, 2014, 03:03:04 am by MeBeingAwesome »
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Offline mcgin

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Re: "With Peercoin the rich get richer"
« Reply #1 on: November 18, 2013, 02:13:39 pm »
As Peercoin is a hybrid PoS/PoW it's worth including the case where additional coins are minted through POW as well

So with the same scenario, one person with 100 and one with 900 we add in a third person who generates 100 coins through proof of work

After both the PoS transaction & the PoW transaction you end up in this scenario:

Rich Guy Total: 909 (82% of coins in circulation)
Poor Guy Total: 101 (9%)
PoW Guy Total: 100 (9%)

In terms of percentage ownership of total coins in circulation the rich guy gets his ass handed to him in comparison to the poor guy, he's much worse off. 
But in terms of how that percentage has changed, it is the same for the rich guy and the poor guy (Roughly 9.1%)
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Offline mhps

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Re: "With Peercoin the rich get richer"
« Reply #2 on: November 23, 2013, 07:35:20 am »

So there you go. Thoughts?

This has been rehashed many times such as in http://www.peercointalk.org/index.php?topic=152.msg5106#msg5106.

To illustrate it with your example, A and B have to spend their coins to buy stuff in real world. Say A spends 40 coins every month to buy food from B. B spends 40 coins to by fuel from A. These 80 coins will never generate POS because they keep getting spent. In the end of a year A gets 860*1%=8.6 PPC as POS reward and B gets 60*1%=0.6PPC.  A has 90.03%, a higher share, of the economy than a year ago than B has (9.97%). And this is getting worse every year.

Calculation shows that 50 years later A has 91.3% of the coins and B has 8.3% of the coins. You might say the difference is small. But if A initially owns 990 of the coins and B owns 10, and each have to keep 8 in circulation, at the end of 50 years, B would lose 30% of his wealth.
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Offline David

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Re: "With Peercoin the rich get richer"
« Reply #3 on: November 23, 2013, 08:50:44 am »

This has been rehashed many times such as in http://www.peercointalk.org/index.php?topic=152.msg5106#msg5106.

To illustrate it with your example, A and B have to spend their coins to buy stuff in real world. Say A spends 40 coins every month to buy food from B. B spends 40 coins to by fuel from A. These 80 coins will never generate POS because they keep getting spent. In the end of a year A gets 860*1%=8.6 PPC as POS reward and B gets 60*1%=0.6PPC.  A has 90.03%, a higher share, of the economy than a year ago than B has (9.97%). And this is getting worse every year.

Calculation shows that 50 years later A has 91.3% of the coins and B has 8.3% of the coins. You might say the difference is small. But if A initially owns 990 of the coins and B owns 10, and each have to keep 8 in circulation, at the end of 50 years, B would lose 30% of his wealth.

Interesting scenario, hadn't thought of it that way.

But, wouldn't you say that the person who has staked more coins as a percentage of his total holdings deserves slightly more reward from PoS mining? Person A in your scenario is staking over 95% of his coins (meaning he cannot spend them, which is a negative utility for him) while Person B is only staking 60% (less negative utility on a comparative basis). In my mind the marginally higher PoS reward (positive utility) occurs when a participant accepts the negative utility associated with staking coins for 520 blocks.  If they each staked 60% of their holdings I don't believe the imbalance would occur.
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Offline lumierre

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Re: "With Peercoin the rich get richer"
« Reply #4 on: November 23, 2013, 10:08:53 am »

This has been rehashed many times such as in http://www.peercointalk.org/index.php?topic=152.msg5106#msg5106.

To illustrate it with your example, A and B have to spend their coins to buy stuff in real world. Say A spends 40 coins every month to buy food from B. B spends 40 coins to by fuel from A. These 80 coins will never generate POS because they keep getting spent. In the end of a year A gets 860*1%=8.6 PPC as POS reward and B gets 60*1%=0.6PPC.  A has 90.03%, a higher share, of the economy than a year ago than B has (9.97%). And this is getting worse every year.

Calculation shows that 50 years later A has 91.3% of the coins and B has 8.3% of the coins. You might say the difference is small. But if A initially owns 990 of the coins and B owns 10, and each have to keep 8 in circulation, at the end of 50 years, B would lose 30% of his wealth.

Interesting scenario, hadn't thought of it that way.

But, wouldn't you say that the person who has staked more coins as a percentage of his total holdings deserves slightly more reward from PoS mining? Person A in your scenario is staking over 95% of his coins (meaning he cannot spend them, which is a negative utility for him) while Person B is only staking 60% (less negative utility on a comparative basis). In my mind the marginally higher PoS reward (positive utility) occurs when a participant accepts the negative utility associated with staking coins for 520 blocks.  If they each staked 60% of their holdings I don't believe the imbalance would occur.

This was exactly what I was thinking. Person A voluntarily loses his ability to spend most of his money than Person B.

Offline mcgin

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Re: "With Peercoin the rich get richer"
« Reply #5 on: November 23, 2013, 01:26:32 pm »

This has been rehashed many times such as in http://www.peercointalk.org/index.php?topic=152.msg5106#msg5106.

To illustrate it with your example, A and B have to spend their coins to buy stuff in real world. Say A spends 40 coins every month to buy food from B. B spends 40 coins to by fuel from A. These 80 coins will never generate POS because they keep getting spent. In the end of a year A gets 860*1%=8.6 PPC as POS reward and B gets 60*1%=0.6PPC.  A has 90.03%, a higher share, of the economy than a year ago than B has (9.97%). And this is getting worse every year.

Calculation shows that 50 years later A has 91.3% of the coins and B has 8.3% of the coins. You might say the difference is small. But if A initially owns 990 of the coins and B owns 10, and each have to keep 8 in circulation, at the end of 50 years, B would lose 30% of his wealth.

So this is not something that is specific to Peercoin, it is a facet of any currency where the action of using the currency for one purpose has an opportunity cost which affects people with different levels of wealth in different ways.  Peercoin simply highlights quite clearly this phenomenon because the effect of "doing nothing" is actually equivalent to securing the network a result of which means you receive 1% reward over time. So there is a very real and obvious opportunity cost with which to compare other actions you can take.

In other currencies you do not have this automatic reward for "doing nothing" so the opportunity cost is not as obvious but it is still present.  Take Bitcoin, lets say A and B have 1000 and 100 Bitcoins instead of Peercoins.  Now they exchange 40 coins each month which leaves them with 60 and 960 to do something with.  They can do nothing with them or invest them in securing the Blockchain as Peercoiners will do by default.  One way we can simulate this today would be to buy shares in Asic Miner with the surplus funds  which at the time of writing you can pick up shares for 0.00368 BTC and has an annual yield of 16.76% (obviously this is much higher and more variable than the standard 1% in Peercoin, but the same principle applies, you are securing the block chain in exchange for a reward).  After one year both sell their shares (if we assume the dividend and price remains constant, obviously not the case but largely irrelavnt whether that is the case for this example since A + B will receive the same rewards) A will have 1120.896 worth of coins and B will have 70.056 worth (we're also assuming they don't reinvest the dividends), or ~94% and 6% respectively which is exactly the same effect you see in Peercoin just amplified by the larger yield on offer.

* ASIC Miner numbers from https://www.havelockinvestments.com/fund.php?symbol=AM100
**Worth noting that doing nothing in Peercoin is not really true since you are generating PoS blocks which secure the network
« Last Edit: November 23, 2013, 01:30:00 pm by mcgin »
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Offline mhps

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Re: "With Peercoin the rich get richer"
« Reply #6 on: November 25, 2013, 01:06:06 am »
Whether Peercoin let the "rich get richer" is one thing, whether it is "fair" is another.
One way to alleviate the "rich get richer" effect is shorten the 30-day waiting period before POS generation starts, as I suggested in http://www.peercointalk.org/index.php?topic=152.msg5106#msg5106 .  Why not let all coins in the wallet start generating POS after, say, three days? However I am not sure what effect shorten the waiting period will have on the security of network.

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Online ppcman

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Re: "With Peercoin the rich get richer"
« Reply #7 on: November 25, 2013, 04:34:37 am »
How about every 3 hours?  Or 3 minutes?  Wait, every 3 seconds?

I think aging coins should be a deliberate action by someone. I agree with the 30 day waiting period to start PoS. Those that have waited that long get the benefits of the PoS minting.

I wouldn't go longer, but 30 days isn't a massive barrier to entry, it works fine.

We don't want to over inflate the currency. Nor do we want everyone minting coins super easily otherwise they won't hold their value.

Leave it at 30 days and be happy :)
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Offline mhps

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Re: "With Peercoin the rich get richer"
« Reply #8 on: January 20, 2014, 05:35:44 am »
Peercoin simply highlights quite clearly this phenomenon because the effect of "doing nothing" is actually equivalent to securing the network a result of which means you receive 1% reward over time. So there is a very real and obvious opportunity cost with which to compare other actions you can take.

A POS block has the same effect to secure the network  whether it is generated by 1PPC or using 1000PPC. The one who owns 1000PPC doesn't do 1000 times more work. In fact if all pieces of stakes generate POS blocks at the same frequency, instead of  a larger stake generates POS proportionally more often, it will encourage people to split fund and set up more minters, hence making a stronger network. Currently PPC is over-rewarding.

Quote
A will have 1120.896 worth of coins and B will have 70.056 worth (we're also assuming they don't reinvest the dividends), or ~94% and 6% respectively which is exactly the same effect you see in Peercoin just amplified by the larger yield on offer.

A support the network more than B, because A put in more fund and have more miners made. There is a real difference. So A should get more return.

Quote
How about every 3 hours?  Or 3 minutes?  Wait, every 3 seconds?

3 days is just as securt as 30 days. But 3 hours is not. Network can be taken down for 3 hours with resonablly prepared attack.
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Offline bitboy11

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Re: "With Peercoin the rich get richer"
« Reply #9 on: January 20, 2014, 06:16:51 am »
This is definitely the best reason anyone could have as to why they should invest in Peercoins.

 
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