> They would certainly not be cheap, because they are relatively more expensive due to the extra depreciation cost.

This depends on how long you expect to keep money on a side chain and how many transactions you plan on doing. Inflation is a great way of paying PoS / PoB miners - that cannot introduce issues with consolidation. If you design the inflation schedule correctly, it should be balance transaction costs *precisely*. Indeed, you can calculate the exact amount of inflation needed to guarantee that a side chain is always exactly 10 times cheaper than bitcoin.

>As I posted to bitcoin-discuss last week, I support UTXO commitments for sidechains.

Indeed, I think side chain nodes should always be fast-synced from 6 month old commitments and thus be ephemeral, cheap, and never appropriate for long term storage. This would provide the best possible incentive structure to keep the main chain secure, paid for with high clearing fees, etc.

> I don't think that blind merged mining messes with the main chain's incentive structure

The critical issue is that we cannot introduce protocol changes that further incentivize geographical and institutional consolidation. Miners who are able to deal with the bandwidth caused by drivechain coffee transactions will profit from these transactions, whereas smaller and more geographically distributed miners will not. Those miners will, in turn, build faster ASICs and buy more electricity and drive out smaller players. I think this is abundantly clear, and is the primary motivation behind preserving block size limits.

If this premise is false (which it may be), or is skewed so as to damage bitcoin as a whole (could be as well), then that needs to be demonstrated first.

The lightning model does the opposite of this. Miners watch fees increase and coming from an *orthoganal* protocol that cannot cause further centralization.

One problem is that the main chain also *must* grow in response to bandwidth, or the disadvantages of using the main chain will weaken financial support and hashrate securing it. I believe this is also true, and that a "balancing act" will be Bitcoin's norm until we adopt something like BIP103 - which provides a steady and appropriate growth.

On Thu, Jun 22, 2017 at 4:30 PM, Paul Sztorc <truthcoin@gmail.com> wrote:

Responses inline.

On 6/22/2017 9:45 AM, Erik Aronesty wrote:

Users would tolerate depreciation because the intention is to have a cheap way of transacting using a two-way pegged chain that isn't controlled by miners. Who cares about some minor depreciation when the purpose of the chain is to do cheap secure transactions forever?

Thus far you've claimed that these transactions would be "cheap", "[not] controlled by miners", and "secure".

They would certainly not be cheap, because they are relatively more expensive due to the extra depreciation cost.

I also doubt that they would be free of control by miners. 51% hashrate can always filter out any message they want from anywhere.

For the same reason, I don't understand why they would be any more or less secure.

So I think your way is just a more expensive way of accomplishing basically the same result.

Add in UTXO commitments and you've got a system that is cheap and secure-enough for transfer. storage and accumulation of a ledger... before moving in to the main chain.

As I posted to bitcoin-discuss last week, I support UTXO commitments for sidechains.

Seems better to me than messing with the main chain's incentive structure via merged mining.

I don't think that blind merged mining messes with the main chain's incentive structure. Miners are free to ignore the sidechain (and yet still get paid the same as other miners), as are all mainchain users.

Paul

On Thu, Jun 22, 2017 at 9:27 AM, Paul Sztorc <truthcoin@gmail.com> wrote:

Hi Erik,

I don't think that your design is competitive. Why would users tolerate a depreciation of X% per year, when there are alternatives which do not require such depreciation? It seems to me that none would.

Paul

On 6/20/2017 9:38 AM, Erik Aronesty wrote:

- a proof-of-burn sidechain is the ultimate two-way peg. you have to burn bitcoin *or* side-chain tokens to mine the side chain. the size of the burn is the degree of security. i actually wrote code to do randomized blind burns where you have a poisson distribution (non-deterministic selected burn). there is no way to game it... it's very similar to algorand - but it uses burns instead of staking

- you can then have a secure sidechain that issues a mining reward in sidechain tokens, which can be aggrregated and redeemed for bitcoins. the result of this is that any bitcoins held in the sidechain depreciate in value at a rate of X% per year. this deflation rate pays for increased security

- logically this functions like an alt coin, with high inflation and cheap transactions. but the altcoin is pegged to bitcoin's price because of the pool of unredeemed bitcoins held within the side chain.

On Tue, Jun 20, 2017 at 7:54 AM, Paul Sztorc <truthcoin@gmail.com> wrote:

Hi Erik,

As you know:

1. If a sidechain is merged mined it basically grows out of the existing Bitcoin mining network. If it has a different PoW algorithm it is a new mining network.
2. The security (ie, hashrate) of any mining network would be determined by the total economic value of the block. In Bitcoin this is (subsidy+tx_fees)*price, but since a sidechain cannot issue new tokens it would only be (tx_fees)*price.

Unfortunately the two have a nasty correlation which can lead to a disastrous self-fulfilling prophecy: users will avoid a network that is too insecure; and if users avoid using a network, they will stop paying txn fees and so the quantity (tx_fees)*price falls toward zero, erasing the network's security. So it is quite problematic and I recommend just biting the bullet and going with merged mining instead.

And, the point may be moot. Bitcoin miners may decide that, given their expertise in seeking out cheap sources of power/cooling, they might as well mine both/all chains. So your suggestion may not achieve your desired result (and would, meanwhile, consume more of the economy's resources -- some of these would not contribute even to a higher hashrate).

Paul

On 6/19/2017 1:11 PM, Erik Aronesty wrote:

It would be nice to be able to enforce that a drivechain *not* have the same POW as bitcoin.

I suspect this is the only way to be sure that a drivechain doesn't destabilize the main chain and push more power to miners that already have too much power.