The message is the medium

The Problem With Altcoins, Like Neucoin

An ad for Neucoin.

An ad from Neucoin.

Commentary. Lately an altcoin with the name Neucoin has been advertising its impending launch claiming to “solve Bitcoin’s problems” (whatever they may be). But there are no alternatives to Bitcoin (in providing the main chain value-transferring mechanism), as you’ll see after reading the text below. Neucoin is just an example of how misguided “founders” of copies of Bitcoin are.

In the “Executive Summary” on how Neucoin works and why it’s “needed” Neucoin’s proponents allude to some risks with government regulation around “centralized” mining. This is misleading as no single miner (large or small) can change the Bitcoin protocol however heavy any government body would exercise pressure. Your money is safe. Neucoin, on the contrary, hasn’t been tested yet. So let’s comment on a few of the statements made by the people behind Neucoin from a Bitcoin proponent’s point of view, and compare Neucoin to the “gold standard”, i.e. Bitcoin:

In the summary the founders of Neucoin claim there is a mismatch between miners and holders of bitcoins:

“The former are motivated by earning a return on their mining investments while the latter want to increase the value and utility of the currency.”

I’d say they have the same motivation: to uphold and/or increase the value of Bitcoin (the currency and the network). As miners make money from bitcoins, they naturally want the value to rise, just as holders do. This is evident in how the Bitcoin network has handled software upgrades since 2009 (voted democratically among the miners powering the network).

“What’s more, it is miners who have effective control over transaction fees and could set them higher than Bitcoin users would wish. Miners could also stop proposed changes to the Bitcoin protocol that would be in the best long-term interests of Bitcoin holders.”

Whatever could happen. But look at the Bitcoin network running for more than 5 years now; no stake-holder wants to hurt the network and transaction fees won’t be important to miners for years to come. Also; miners don’t “set” transaction fees, holders decide themselves on whether to include a fee and can set the size of that fee. And who better to decide what’s in the “best long-term interest” of Bitcoin than it’s network’s maintaining participants in the democratic way that Bitcoin already does?

“On the strength of its PoS innovation, Peercoin reached a $150 million market cap. But without a team, funding, or a plan to attract users and grow utility, it has fallen back to less than $8 million.”

Peercoin became an (unintentional) pump-and-dump. A quick hype. It has happened many times when new coins are introduced. Neucoin has actually just stated themselves (in that very quote above) that Peercoin’s PoS had no chance against Bitcoin’s PoW (as Peercoin did not replace Bitcoin).

Neucoins summary then goes on to make examples out of Ripple and Stellar; saying they’ve achieved a high value without relying on PoW. But both Ripple and Stellar are already involved in internal fighting, about the premines of course. Ripple’s giant value is largely artificial (the premine isn’t available on the market and can not be valued in any rational way). Some humans hold most of the premined coins already, and their individual and personal future actions determine its overall value (and they can be attacked by the government). Large premines results in an unpredictable future as nobody knows when large and sudden infusions (in practice inflation) of founder coins flooding the market may take place (when founders decide to sell coins) – and that’s not a very democratic process. Also; solutions like payments channels and/or the Lightning Network, or simple ideas like OtherCoin are superior to Ripple and Stellar, as they use the Bitcoin network.

Skärmavbild 2015-10-14 kl. 10.17.23

Another blatant lie from the creators of Neucoin on their web pages (typical of altcoin “founders”)… Bitcoins are never free, it requires spending resources on mining to create them.

The summary then goes on in detail on how they’ve distributed the premine and how they plan to continue give away the already mined coins. But it really does not matter HOW a premine is distributed. Bitcoin has value because it’s scarce and hard to come by (there is a cost involved in making or acquiring them). Neucoin’s premined coins cannot be valued in any sustainable way. Bitcoin’s PoW provides time + power as ever-running constants to tie them to the “real world”. Together with market demand that makes for a pretty solid base to value the ongoing mining rewards – which is important for the security of the network. Both Ripple and Stellar have several centralized features (including the groups of human beings who are to decide what to do with the massive coffers of premined coins).

Bitcoin is a decentralized protocol. Any colluding between the bigger actors could greatly harm the currency’s value (so it is extremely unlikely, and the same risk is inherent in any Bitcoin copy, i.e “altcoin”). Bitcoin’s network and software is safe and stable because it is only upgraded when that particular upgrade enhances Bitcoin’s value as a whole, as it is stake-holders, actual miners running the system, who vote on upgrades (read Daniel Krawisz’s take on that subject here).

Anyways, let’s look at a few more of the statements in the Neucoin summary:

“First, it needs a strong, experienced team with substantial financial backing”

No, look at Bitcoin. Worth billions even in its infancy (today). No “team”, no financial backing. Open-source works.

“it [a successful cryptocurrency] should focus on building utility for specific consumer use cases where cryptocurrencies have inherent advantages over traditional payment methods and where Bitcoin has not been successful – for instance, micropayments.”

Bitcoin is an amazing success, especially considering its opponents (≈ all other currencies and the entrenched establishment guarding their system). Many systems for decentralized micropayments are in development for the Bitcoin network (such as payments channels, Stroem, sidechains, the Lightning Network, OtherCoin etc). They’ll of course need to be tested before being deployed and the best solution will win. And what does Neucoin propose to solve the micropayments problem? There is nothing on that subject in the white paper, just an assurance that they are “focusing” on this (very difficult) area.

Continuing; here’s Neucoin on how to best bootstrap a new cryptocurrency:

“Ideally, it should sell some coins to fund utility development (like Ripple).”

Again, Ripple’s value is artificial, and very blown-up. It’ll crash, probably sooner than later. And no one should decide who gets the coins. It’s better having a simple process; the Bitcoin network and protocol turns time + power into value. Miners get the rewards and forward their gains as salaries to their employees. They pay for their electricity, pay taxes and are “helping” to advance the high-tech side of the computer industry. When buying hardware equipment from suppliers large miners effectively fund many other companies and their employees’ salaries. It’s a win-win. Some risk-takers will make money on bitcoin mining – just as some will loose. There will always be a large selection of capitalized entities willing to compete with miners, if the bitcoin value and/or exchange rate is healthy. Miners have the same incentives as users of bitcoins and other companies building on Satoshi Nakamoto’s ideas. That’s “more fair” than if some fund gets to decide who gets the money. For instance, Neucoin states they’ll give away some of their premined neucoins to current holders of bitcoins and ripples. Why would Ripple holders, for instance, get the “new world money” and not, say, a selection of rural indians in Peru who’ve never heard of Bitcoin or Neucoin? However you phrase it, it’s not more “fair”. Other ideas for distribution, like airdropping (for example Auroracoin) is another dead-end as a commodity-based currency should be scarce and hard to come by to increase in value.

But, next up in the summary Neucoin tries to explain why their coin should be the one:

“NeuCoin believes that a digital currency could achieve mainstream adoption if it were free to try out”.

This contradicts why Bitcoin has value. Why would a merchant accept a currency that’s “free to try out”? If it’s free it has no value. It’s free. Would you accept it in return for real goods? I wouldn’t. It’s free.

“NeuCoin will offer more utility and consumer-friendly services than most digital currencies: free NeuCoins through an engaging website, an easy online wallet, auctions, and a web-based mining service that lets consumers grow their coins without ever having to even see the word “mining” or any other tech jargon.”

Neucoin doesn’t solve the problem of value and seems to confuse users with miners. In Bitcoin people can use bitcoins without ever thinking about mining. All that stuff that Neucoin mentions in the above quote is already a reality with Bitcoin. And, if users can “grow” their coins – where is the value coming from?

The problem is actually one of incentive. Neucoin believes the incentive is to give neucoins away. But the solution is not in the giving, that’s easy to do. You need to convince everybody involved that those neucoins have value. Nowhere in Neucoins presentational material do they reveal how that is supposed to happen. Well, a part from saying that they’ll pay “large bounties” to other companies developing services and utilities for Neucoin. How are they going to pay those large bounties? With neucoins of course. Loads of them. Free neucoins. Neucoins that won’t have value until those services and utilities have been developed. That’s a circle argument.

To go back to the comparison with Ripple; If governments want Ripple as their new currency, then Ripple will be a government currency, because of network effects. But governments will never willingly give away their money-creating power to the founders of Ripple or any other “fiat type” digital currency. More likely they’ll shut it down. Also, it’s not possible to use a real cryptocurrency as a state/central bank-controlled currency. If there is a centralized body who can decide when to print money it’s a fiat (copy), not a true cryptocurrency, even if purely digital (read Datavetaren’s take on that subject here). Neucoin brings nothing new to the arena, just as copies (altcoins) of the Bitcoin proof-of-work consensus mechanism have no use when there is already one (more powerful) blockchain running in all its glory since 2009. It’s smarter to do merged-mining with Bitcoin’s blockchain to take advantage of the security of the superior processing power.

Also; industrial scale mining was foreseen and predicted by Satoshi Nakamoto himself, from the very beginning. It is not a weakness, it’s a strength, as it enhances security to stratospheric heights. Anyone involved in cryptocurrencies should read the writings of Satoshi Nakamoto to really understand why bitcoins have value.

Continuing reading the summary on Neucoin;

“After having a positive first experience some users will buy more, or find ways to earn more. This has been a critical success factor for growth and conversion for premium consumer services like Dropbox, Skype, Viber, Whatsapp, Spotify, Candy Crush Saga. “

Bitcoin and its copies aren’t apps. May I point you to the writings of Contravex? There is no Bitcoin “2.0”. This is Stage n.

“NeuCoin’s economic model uses very high PoS awards, starting at 100% per year in year one, 80% in year two and gradually declining to 6% by year ten, meaning that coin holdings will multiply by up to 50X over 10 years with non-stop PoS mining.”

Fair distribution? This scheme rewards the rich. And the inflation is even higher than with a QE-infused fiat currency.

“All foundations are ultimately controlled by NeuCoin holders (1 NeuCoin = 1 vote), who have the power to hire, fire and set compensation for the foundations’ Council Members, and have a right of approval on annual budgets, spending priorities and other matters. This structure makes NeuCoin more decentralized and accountable than Bitcoin, Ripple or Stellar, let alone most of the anonymous alt coins out there.”

No, it makes Neucoin more messy than its simple precursor, Bitcoin. And why strive to be “accountable”? Not being accountable is one of the strengths of the Bitcoin network, as it reduces the attack angle. And “Council Members” will be subject to corruption. Few, if anyone, can control money without getting somewhat corrupt, or greedy. I think Neucoin is still confused by the differences between a debt-based fiat currency and a commodity-based cryptocurrency, and is trying to look like something people recognize, for easier adoption. There’s no real point in that. You can’t compete with central bank’s fiat currencies without changing the game.

“By the time of launch, NeuCoin’s three non-profit foundations will be funded with 2.4 billion NeuCoins and at least $1.5 million (enough fiat currency to cover their first year cash expenditures). Each year, the foundations’ goal is to sell sufficient NeuCoins through private sales or exchanges to fund the following year’s cash needs. However, when NeuCoin prices rise, the foundations may sell additional coins, with the excess cash obtained kept as a “rainy day” reserve. When prices fall, fewer (or zero) coins will be sold. 

So they want cash as their “rainy day” reserve. Not neucoins? The word “cash” is also weird here, do they mean bitcoins, USD or actual paper bills? I guess BTC.

“Finally, social referral programs will reward free NeuCoin to people who help recruit other users; special programs and bounties will be available for people active in the crypto-coin community, influential bloggers and content creators, celebrity endorsers, etc.”

Giving away free neucoins won’t magically endow the coins value. And I really doubt a “celebrity endorser” would make any difference (look at Tidal…). Also, most celebrities are disliked by many. You gonna recruit Madonna?

Then, the White Paper:

http://www.neucoin.org/en/whitepaper/download

The Neucoin white paper DOES try to explain how Neucoin’s security works and how it’s supposed to achieve value. But, it’s based on flawed assumptions;

“Over time, the cryptocurrency community has generally become aware of several draw- backs of Bitcoin that spring from its proof-of-work design, including:

1. the prospect of higher transaction fees in the long run in order to maintain security

2. the increasing centralization and corporate control of mining

3. the divergence of interests between miners and Bitcoin holders”

1. Wrong. Fees are actually going down. I usually pay only around 11 bits generally nowadays, automatically using Breadwallet. And fees won’t be a problem in the future either as the network’s power will adjust to its earnings. Also, payment channels and The Lightning Network ARE coming, making most transactions free.

2. Wrong. The decentralisation is in the network, in the actual protocol, in the code. Satoshi predicted the specialized development, it’s part of the plan with Bitcoin (and any successful competitor would face the same increased “centralisation”). Anyone can do it (mine), but only the motivated, incentivized will take the risks and do the spending to provide the necessary hashpowered security. Just giving everybody coins and interest on those coins does not create security or value.

3. Wrong. They have the same goal: to uphold and/or increase the value of bitcoins.

Neucoin’s foundation then point to their own version of Satoshi’s “vision”, without referencing anything:

“These flaws are mounting as Bitcoin matures, and they go against Satoshi’s vision of an open, decentralized network maintained by its participants.”

Did the Neucoin “founders” even read Satoshi Nakamoto? The word “decentralized” occurs 0 times in the Bitcoin white paper. He uses the concept “peer-to-peer”. Satoshi is the visionary. We (miners and users) are the interpreters (and we use the word decentralized).

There is a widespread misunderstanding that cryptocurrencies run on idealism, but the Bitcoin network is actually designed to use raw processing power for security. This is clear to anyone who has actually read and understood the writings of Satoshi Nakamoto, the creator of Bitcoin. Satoshi Nakamoto himself (or “her”/”they”), wrote forum posts and emails on the subject early on in Bitcoin’s development.

“At first, most users would run network nodes, but as the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware.”

– Satoshi Nakamoto (2008).

The quote above is taken from Satoshi’s early correspondence. Satoshi returned to this statement several times, referring to the specialized server farms of Bitcoin’s future.

Nevertheless; Neucoin’s flawed logic continues:

“Proof-of-stake also has security advantages over proof-of-work when it comes to resisting 51% attacks from large hostile actors – those whose purpose would be to destroy the network as opposed to simply seeking financial gain. In proof-of-stake, an attacker would have to acquire 51% of the total coin supply (the value of which would be destroyed in an attack), versus deploying 51% of total computing power in proof-of-work (which computing power could be re-deployed elsewhere after the attack). Once a proof-of-stake coin achieves a material value, it would be extremely expensive for an attacker to buy up a large percentage of all coins.”

Not really, just 51% of the coins currently staking. And where would you “re-deploy” 51% of 300 PH/s of SHA^2 processing? That sort of processing can not be used for anything else than the Bitcoin network.

And it is already too expensive to launch a 51% attack against Bitcoin (it must be sustained, block after block, to be of any real use). If there was an entity with the power and incentive (money, that is, both of those) to overpower Bitcoin it would have happened already. Bitcoin’s hashrate cannot be challenged even if all the nation states come together with all of their supercomputers.

Also, with the Neucoin scheme you’d need to hold coins (stake) to earn “interest”, right? That’s an incentive to not spend, i.e to not grease merchants. So, are Neucoins interests really aligned with its users? Merchants (sellers overall) should be included in the “holders” category, or does Neucoin want to see them cash out to USD? To bitcoins? This whole idea of staking for interest is unproven, still Neucoin advertises it as if it was the answer.

The whitepaper also erroneously states: “If any entity did control a majority of the network’s hash power, it could alter transaction history”.

No, it couldn’t. That hypothetical entity could maybe double-spend and halt transactions for a little while, but not steal other people’s bitcoins. Any double-spend would be immediately noticed by the network and its open-source structure would fork around it. 

Funnily enough, there are actually well thought-out objections to the security of PoS – arguing that it is possible to alter the history of PoS coins. For a more technical dissertation read this paper, which elegantly concludes that: “We showed that by depending only on resources within the system, proof of stake cannot be used to form a distributed consensus, since it depends on the very history it is trying to form to enforce loss of value. “

Also in Neucoin’s white paper: 

“As discussed above, Bitcoin’s network security is based on the total hash rate of all the miners in the network. And the aggregate hash rate deployed by miners is strictly a function of financial payments made to miners. Hence, network security is directly determined by payments to miners. For security to stay high, payments to miners must stay high.”

Well, not really. The development of ASICs has given the Bitcoin network such a significant speed advantage that no other type of technology could leap ahead. The combined hashrate is several orders of magnitudes above what for example the 500 top supercomputers of the world could muster, put together. So, payments must only be higher than the ongoing costs for an attacker to amass and sustain 51% of the hashing power running the Bitcoin SHA256^2 algorithm – which would be never. Think about it. Even if bitcoins drop in value, resulting in less value from rewards/fees to miners and a large portion of miners turn off their equipment – even then the aggregate hashrate would still be several orders of magnitude above what an outside attacker could muster.

“Instead of providing security based on operating costs as in proof-of-work, proof-of-stake provides security based on the capital costs of investing in the currency.”

How does that rhyme with the free neucoins? And:

“In Peercoin, a miner’s chances of creating a block are based on his stake alone regardless of computing power. This is accomplished by limiting miners to the rate of one hash per second per stake.”

If a currency with a one-guess-per-second-limit would be valuable there’d be ASICs developed that minimize the power required for those one per second guesses – and so it would be “centralized” in the same way Neucoin states Bitcoin is (again, the decentralisation is actually built-in to the protocol). An industrial-sized Neucoin miner would also need VC to stake coins and deploy ASICs…

“As a consequence, all the stakes being mined at any one time use the same stake modifier. The stake modifier changes at every modifier interval, 10 minutes in the case of Blackcoin. Hence, every 10 minutes a new stake modifier is generated based on blocks from the preceding 5.87 hour window.”

Here they go on about certain staking parameters based on Peercoin’s “success” (which Neucoin admits has not “succeeded”).

Then, a little later in the summary, Neucoin compares itself using an argument from Bitcoin’s security, saying that Neucoin’s nodes wouldn’t collude for selfish gains and interests, because that would be short-sighted, while earlier alluding to the same being a security issue in Bitcoin.

They continue;

“A 1mb block has a 13% higher chance of getting orphaned than an empty one due to network lag issues[2]. To compensate, the block’s transaction fees should equal at least 25 × 13% 3.2BT C. In reality, the number is approximately 0.5BTC. Yet miners do not mine empty blocks because doing so would hurt the whole network and value of Bitcoin.

Neucoin contradicts the earlier statement and admits that Bitcoin miners do not want to hurt the whole network and value of Bitcoin – so why the recurring centralisation/51% rhetoric? 

Bitcoin is different from altcoins. It’s a real innovation/discovery, as important as the discovery of iron or the invention of steel, the printing press or the personal computer.

Bitcoin derives its value independently and from within

Bitcoin uses the concept of “proof-of-work” where computers “work” to solve a mathematical problem, proving they’ve “worked” in the process. The solution confirms the network’s transactions cryptographically and triggers the preset block reward inflation. In this way the network extracts security from incentivizing participators to run the world’s most powerful processing network, while creating intrinsic value from within through its own native token’s properties. The sheer number of computers participating in the network – its collective “hashrate” – ensures the system’s integrity.

This all happens simultaneously using the same mechanism (the proof-of-work mining). Energy must be spent to “mint” each bitcoin. Minting through proof-of-work-mining proves an amount of energy was spent at the particular time the bitcoin in question was “minted” (mined).

Finally, Neucoin is late to the game, with an unproven design.

Meanwhile, Bitcoin, with its very “simple” design, just plows on.

Hence; Neucoin will fail.

/Nanok Ƀie

You think I’m totally wrong? Please comment.

Ps – The team behind Neucoin looks like a great list of smart people. If I’m right in the above arguments one may conclude that Bitcoin’s growth will be slowed somewhat by all these misunderstood investments in time and money (even by smart people) that otherwise could’ve gone into Bitcoin development. Partly this is due to the fact that it’s pretty hard to grasp Bitcoin in the first place, so it’s easy to be fooled by something that sounds better.

Ps 2 – There are many other arguments in the Executive Summary and White Paper on Neucoin that appears as misunderstood to me, but I’ve gone on long enough. And why the focus specifically on Neucoin, you might wonder, with all those other copies out there? I just found its summary and white paper filled to the brim with the sorts of misconceptions, myths and outright false statements that usually accompany the launch of a Bitcoin copy; as such it was perfect to comment on while reading.

Ps 3 – So why do people misunderstand altcoins? Probably because they confuse their properties with those of a fiat currency and try to become the central bank when creating their copy.

13 Responses to “The Problem With Altcoins, Like Neucoin”

  1. scott walker

    This is really well thought out but has many flaws… Care to debate any of your comments?

    • Nanok Ƀie

      In your view, why don’t you start with pointing them out right here in a comment? I wouldn’t mind debating, but on what forum? Commenting here may be more thoughtful?

  2. scott walker

    Here is my response to point #1:

    In the summary the founders of Neucoin claim there is a mismatch between miners and holders of bitcoins:
    “The former are motivated by earning a return on their mining investments while the latter want to increase the value and utility of the currency.”

    I’d say they have the same motivation: to uphold and/or increase the value of Bitcoin (the currency and the network). As miners make money from bitcoins, they naturally want the value to rise, just as holders do. This is evident in how the Bitcoin network has handled software upgrades since 2009 (voted democratically among the miners powering the network).

    I disagree with your argument 100%
    I run a large scale BTC Mining operation currently, and have been actively since 2013. In the “early” mining days of 2013 our electricity costs were miniscule (almost meaningless) and so nearly every miner I know mined and held nearly 100% of his/her/their BTC. This creates “hoarding” which as we all know is VERY good for the value of an asset. People desire these BTC but the only people who have them are miners and the miners won’t sell! What does this do to the value? (Economics 101 teaches “supply and demand”) Today in 2015 electricity costs have become the majority of the cost of mining. This means that as a miner I have no choice other than to sell the BTC i have mined in order to pay my monthly electricity costs. This is a fact, I dare you or anyone to argue this point. So we have the same 3,600 BTC mined every day but now the majority of these coins are immediately sold for fiat. This lowers the value of BTC due to coins being “dumped” into the market in 2015 that were previously held since the day BTC was first created. To argue that Miners and Stakeholders (What is a stakeholder by the way? In 2009/2010 they were mainly tech nerds, programmers, etc… in todays market they are called investors) are not mismatched is flawed.
    Your argument that “Yes Investors and Miners both want BTC to increase in price” is true but miners (due to the ever increasing costs of electricity) have no choice but to immediately sell their coins and hope to pay their bills. this creates a conflict that unfortunately miners have no way to solve! If you have a solution to allow me to not immediately “dump” my BTC on exchanges each month in order to pay my electricity bills please help me right now… I will await your answer…

    • Mats Henricson

      Scott, you came into mining at an odd time, when the price of the ASIC miner was the major cost involved, i.e. capital cost. I did my first mining in late 2010, and at that time electricity was the main cost, either from a constantly running PC or a graphics card at full throttle. The price of electricity was actually the way the first miners deduced the price of Bitcoin from the very beginning, even before the famous pizza purchase:

      http://bit-post.com/education/bitcoin-price-history-2-4385

      Now we’re back at having the electricity being the major cost. The fact that miners now have to sell their minted coins to pay electricity bills is just natural, and does not in any way make their prime incentive different from anyone else holding beitcoins, it is in everyone best interest that the price is high.

      So, again, Nanok is right, you are wrong.

      • scott walker

        So to summarize. Both Nanok and Mats claim it is better for BTC “ecosystem” to have miners dumping millions of dollars in coins to exchanges every month rather than holding (as we all did) previously. Is this a pretty good summary of your argument?

      • Nanok Ƀie

        No, read it again. I said it’s not a problem that there is approx. about 1% (tops) “sell pressure” on exchanges coming from miners, I didn’t say it’s “better”. If this is how you’d like to debate this very long text it’s going to take a very long time. Better to move on to the next argument than trying to rephrase what I’ve stated and trying to put words in my mouth, as we obviously have different views on this one. Also, how do you know that ALL miners hoarded? I know for a fact that’s not true, I’m a miner myself and I work for a bigger miner and I know a lot of miners. Also, please don’t muddle what I say with what someone else says, thanx.

  3. Nanok Ƀie

    I argued that miners and holders have the same goal: to uphold or increase the value of bitcoins. Scott, you’re saying you think it’s better for the bitcoin price if miners would hoard as much as possible. But – the successful way to hoard as a miner is to invest in next-gen technology, and “win” over other miners (then you should not “need” to sell all your mined coins right away). It does not matter whether your particular mining business is healthy or not (the 3600 coins per day will be mined anyway, by someone else, if your outfit goes down).

    Still; you, as a miner, want to uphold the value of bitcoin, just as users do, whether you sell today or tomorrow (and that was the argument I was making). It doesn’t really relate to whether you or some other miner needs to sell their coins. The fact that some mining outfits need to sell their coins immediately can be seen as a way to provide a little liquidity as well as sell “pressure”. I do not agree when you say that the best for the value of Bitcoin as a whole would be if you, as a miner, would sit on your particular coins. If you sell them and someone else then sits on them, while you’re paying for electricity, why would bitcoins drop in value? The important thing is that not everybody holding wants to sell their coins at the same time. The 3600 coins of inflation per day is no problem in the bigger picture (it represents less than or approx. 1% of the daily sell “pressure” on exchanges – if ALL the miners sell ALL their coins immediately, which they don’t) and, as it is a known amount, it’s already factored into the price. You are too focused on miners. Most bitcoin holders are not miners.

    Exchanges are hungry for incomings bitcoins (well, market demand etc) and happily accept many thousands of “new”, incoming bitcoins per day, from whoever (doesn’t matter if they are from the last 24h of coinbase rewards or from some whale). You’ve offered no real proof of your counter-argument, but you mention you run a mining business and you need to sell. I guess you are not producing your own hardware? I happen to work for a large mining outfit, too, and understand the economics and incentives in the mining industry. But the mining industry is just one part of the much larger Bitcoin ecosystem, where each part adds value to the whole network (and the currency).

    So, the solution for you in this case would be to win on efficiency. These days, you can only do that by designing your own hardware. Are you?

  4. torrgeek

    I think it’s cute that you spent so much time in refuting something that you clearly think is worthless.

    • Nanok Ƀie

      Thanx ;). The reason is that I’m actually interested in how people that invest in altcoins think – so I’d be grateful for more comments from Neucoin-proponents. I think it’s a very interesting subject, as it relates to how difficult it is to “get” Bitcoin, in the first place.

  5. scott walker

    Nanok, I tried to reply directly below your last response but no option. So I will reply with one last pass at your final comments then we can move on to point #2 It looks like it may take a bit of time but that’s ok, this is a good dialog with a really smart guy so I don’t mind!

    Your reply: “No, read it again. I said it’s not a problem that there is approx. about 1% (tops) “sell pressure” on exchanges coming from miners, I didn’t say it’s “better”. ”

    Nanok, you can use terms like “1%” or any number you truly want but it does not change the fact that for previous years the vast majority of miners held their coins. Today the vast majority of miners instantly “dump” their coins. This $30m per month in constant “sell” pressure does not help the value. I know this as a miner I DO want to see the price higher but there is nothing I can do. THe electricity bills need to be paid or they shut us off… This fact alone proves our argument that miners like me who have invested in hardware and are trying to earn a profit mining would be more likely to increase transaction fees to pay for my losses if we could. Therefore the NeuCoin argument that miners and coin holders have divergent interests are 100% true. You can argue both want the prices to be higher (they do) but that does not change the fact that one group (miners) are paying money each month (often more than they are receiving back in BTC) to run their mining hardware. If you asked me as a miner if I would like to increase transaction fees my answer would be yes. I am losing money every month and I would prefer to not lose money. I have no idea how you can argue this is not a “divergence of interest” between the two groups…

    Your next point-
    “Also, how do you know that ALL miners hoarded? I know for a fact that’s not true, I’m a miner myself and I work for a bigger miner and I know a lot of miners. Also, please don’t muddle what I say with what someone else says, thanx.”

    You are right bad use of words by me. Lets change to “the VAST MAJORITY” of miners held their coins, clearly not “ALL” my mistake. Also sorry I thought you were friends/partners/related in someway to that other guy. I will not do that in the future.

    My last point on this which I did not see you respond to is this: In your article you state:

    “Whatever could happen. But look at the Bitcoin network running for more than 5 years now; no stake-holder wants to hurt the network and transaction fees won’t be important to miners for years to come. ”
    Your own response is telling… NeuCoin #1 point in its argument is:
    “1. the prospect of higher transaction fees in the long run in order to maintain security”

    Your answer to this is to say “fees won’t be important to miners for years to come.”

    I would like to continue on this. There are only 3 points Neu brings up here 1 fees, 2 mining centralization, 3 Divergence of interests.

    We have been debating Divergence nicely I think I won the debate you may think you won.. Now I would like to take you up on fees. If BTC prices go to to $10,000 per coin you and I would both agree that fees will not be meaningful for at least 8 more years (maybe as many as 12 years) but if the price stays at $200-$300 and we go from 25 to 12 and then to 6.5 BTC per block I can guarantee you mining will be all but impossible to produce profits unless fees are substantially increased. I am a miner. There are thousands more like me. We are losing money or breaking even and the # of BTC we mine are about to drop by 50% Miners are dead unless fees increase and this can happen much faster than “years to come” This could happen in a few months…

    Yours,

    • Nanok Ƀie

      OK, cool.

      Let me rephrase; there is no natural law and there is nothing in the Bitcoin protocol or in the writings of Satoshi stating that any particular miner must be able to continue to mine. It is only the most efficient miners that can continue to compete. And they want the value of the network and the currency to rise, just as holders do.

      You stated you’d say ‘yes’ to raised transactions fees. I would say that’s not good for Bitcoin holders. You seem to see it the other way around – that for some reason miners are entitled to make money from mining, even when running an inefficient farm (loosing money). Sorry, but I think that logic is flawed, and the Bitcoin network will be even more powerful going forward when miners move down to the 16 nm and 14 nm nodes. This is great for Bitcoin holders.

      About the “dumping”; it does not matter, it is already factored into the price. We all know that miners can choose to dump. I’m not going to go into how big a fraction holds vs dumps, as neither you or I know that. But; let’s say ALL miners dump their coins right away and we knew that (as you said previously) – that would be great. Then we’d know exactly how many new bitcoins would come into circulation each day. Still, this has nothing to do with the actual argument about diverging interests. Miners (those who do not have to turn off their hardware, of course) and holders have the same goal; to uphold and/or increase value.

      Money makes the world go around and without greed there would be no money, no dollars, no bitcoins, no neucoins. There is nothing inherently wrong with greed (!), it’s motivating, incentivizing. But I find that almost all altcoins are designed to enrich a certain subset of people and that greed (in this example) clouds people’s judgement, that they’re hoping to get rich on their “new” coin. Bitcoin wasn’t designed to make anyone in particular rich (IMHO). It’s designed to benefit us all and not any single miner using inefficient hardware.

      About fees not being “important” for years, I meant compared to the value of the coinbase reward. With 20 MB blocks there is room for a lot of transactions (and fees) but I still think the reward will be much more valuable than the fees, because fees will be kept low, to benefit all Bitcoin users – to increase the value of the overall network, the currency, and its utility.

      • scott walker

        1. You continue to use the straw man argument that “holders and miners” want the price to increase. I have already agreed this is the case. I think anyone who is “invested” in Bitcoin (or Apple stock) want to see the price increase. This does not mean there is not a conflict between miners and holders. Corporate Miners are driven by profit motive. Are you saying if the price of BTC drops these groups will NOT vote to increase fees? The argument the Neu team is making is if prices stay low there is a likelihood of increased fees. In fact if prices do not increase substantially the coin stake awards drop in half in a few short months… This is absolutely a conflict between the needs of the users and the needs of the miners.

        2. You say the “dumping” is factored into the price. Once again we both agree. Our argument is this additional $30m per month in coins being dumped into the markets is a huge reason why the price is lower! This is not in the best interest of the holders. If all miners tomorrow stopped selling their coins it would likely create an increase in price.

      • Nanok Ƀie

        1. We sort of agree now on the base premise (miners want the same thing as users), which is weird when this is supposed be a debate ;). This comes down to definitions, on which miners we are talking about. You’re talking about interests, and “needs” – I’m saying “wants”. I’ll try to think in “interests” going forward as that’s the word mentioned in the Neucoin white paper.

        What’s becoming more clear here is that there are different interests among different types of miners. I’m saying that the only miners that’ll be able to continue to mine (if the exchange rate doesn’t suddenly shoot up) are the ones that can keep their operations running efficiently with a healthy margin. Miners who are close to falling below break-even have other “needs” than those more healthy miners.

        So let’s say a miner has a significant margin between the exchange rate and the production cost. That miner would not vote for raised transactions fees, IMHO, as it could hurt the value of the whole network and the currency. Miners who are on the brink of bankruptcy would vote differently, do you agree on that point?

        Isn’t it better to take these realities into account when considering future options? I don’t understand how Bitcoin users would benefit from a scheme where transactions fees were raised to support ALL miners? That would create “economic waste” as mining would be more expensive than necessary.

        Also, there is no talk about raising transaction fees in general, so that’s not really the question. A higher fee is only necessary if people would have to compete to get their transaction into the next block, and with a higher max size on each block (which is in the works now, as you of course are aware of) the transaction fee is a non-question. They won’t be “raised” so it’s not an option for supporting mining going forward. These next few years mining will still have to be supported by the coinbase reward, not transactions fees.

        Added to that, most people will probably use another solution built on-top of Bitcoin for micro-payments, like the Lightning Network or Stroem, when it’s been tested properly, paying no or almost no fees at all. Settling on the Bitcoin blockchain will still cost, but can be done infrequently. Altcoins can’t solve that better than Bitcoin. There is actually nothing in the Neucoin white paper outlining any better mechanism for micro-payments, it’s just stating that Neucoin will be focusing on that area. And, as it is a fork of a fork of Bitcoin (a copy of a copy) Neucoin (and other altcoins) will have a hard time keeping up with the developments in Bitcoin (where there are considerable more efforts going into developing micropayments solutions than in any altcoin).

        I understand it’s easy to blame “corporate” miners being driven by profit motive (but corporate miners also fail from time to time, and then they are off the market, leaving room for someone else). And it’s the same for any successful miner – they grow, they become “corporate”. You either grow or shrink. Interests may shift while you’re growing or shrinking, but this has more to do with how the business is going, and it’s not the same as if interests among all miners in general are diverging from the interests of all users in general.

        2. This will change over time. Electricity will become cheaper in the future. Maybe companies like 21.co will succeed in permeating machines everywhere with bitcoin processors, who knows. I belong to the camp who believes there is nothing stopping Bitcoin, it’s just a matter of time, and I don’t think it should go “faster”. And security costs. You might as well see this as “investing” in building an amazing network, as well as “dumping”. Let’s say that in a few months all the inefficient miners will be out-competed. Then the dumping could decrease (because more healthy miners wouldn’t have to dump as much). That would benefit users (as that should make the price rise), right?

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