Obfuscated Summary of My Technological Innovation for Truly Decentralized, Scalable, Free-market Consensus Ledgers

Decentralized ledgers are posited to usher in a decentralized “Web 3.0”, with many benefits of which censorship-resistance and user driven features are two of the major posited benefits. Note Gab isn’t decentralized.

Some benefits of my technological innovation are illuminated by analyzing why Ethereum failed (other than as an ERC-20 ICO speculation FOMO engine) to displace the centralized Web 2.0, contrasted with Bitcoin successfully disintermediating traditional stores-of-value^† and permissionless payments.

^† _{Bitcoin is also an improvement on store-of-value, being outside the risks of (e.g. arbitrary seizure, clawbacks, capital controls, politicization of contracts such as the BoE refused to deliver Venezuela’s gold, etc. by) the fiat banking system.}

Ethereum is unfortunately not the 10x improvement anyone is looking for. If we’re polite, it’s a 10x worse experience. And if we’re honest, it’s several orders of magnitude worse still […] Web 2.0’s superpower was scalability and that was Ethereum’s weakness.

True but Web 2.0 lacks holistic decentralization because users can only abandon (i.e. switch from) a centrally controlled database. And economies-of-scale favor the centralized behemoths that aggregate more data, especially where the profit model is advertising-driven.

Ethereum failed to achieve the minimum acceptable scalability for any decentralization to be relevant. Transaction scaling isn’t possible for any conceivable variant of proof-of-work (PoW). And (other than my technological innovation described below) there’s no extant, decentralized, non-PoW consensus systems.

In this four-part blog series and elsewhere I’ve cited academic research and explained that PoW can’t remain decentralized as the block reward diminishes because of the game theory around transaction fees I deduced in 2013.

It’s an economic reality that the value of the transactions must at a minimum exceed the transaction fees paid.

Inability of:

• a decentralized, free-market protocol to scale transaction capacity, so as to prevent fees incessantly rising as transaction volume does
• while not simultaneously driving fees to 0, thus enabling transaction spam and depriving miners of sufficient revenue to adequately secure the ledger (such as against rented hashrate attacks)

Is the elephant-in-the-room stumbling block precluding decentralized transaction scaling, notwithstanding also the necessity of scalable throughput and acceptable transaction latency.

As early as 2013 (c.f. ^{_{my comment on ESR’s blog, Spiraling Transaction Fees, Will Bitcoin Suffer a Mining Tragedy of the Commons and How can market-based transaction fees scale?}‡}), I had alluded to lack of non-monopolized, free market-based transaction fees being the Achilles heel of all extant distributed (i.e. erroneously claimed to be decentralized) consensus ledger systems.

AFAICT, only my technological innovation can set transaction fees in a truly decentralized free market, so that fees are minimized.

So what happens when a low-value application [(e.g. dApp transactions)] is on the same platform as a high-value application [(e.g. power-law distributed wealth)]? Unless they both offer comparable economic value, the low-value application may be entirely priced out.

Correct. The controlling oligarchy (or miners or stakers) in extant (i.e. before my innovation) distributed consensus ledger systems (including PoW, proof-of-stake (PoS), and DAGs) must have a greater profit incentive to provide a secure ordering than could be obtained by (e.g. shorting the market and) attacking the security with for example double-spends and/or transaction-fee tragedy-of-the-commons outcomes. Extant systems thus maximize the extraction from token owners’ wealth that said users can be fooled into participating in. FOMO and greater fool speculation pumps being an example extraction paradigm.

My innovation employs a free-market WoT^†† so users independently+objectively swarm towards free-market, marginal-cost fees and route around any malfeasant validation/ordering nodes (aka “miners” or “stakers”). Importantly, the minority stake can objectively fork off from a 50+% (aka 51%) stake attack!

My novel protocol not only hypothetically achieves unbounded transaction throughput scalability, 100ms latency, and nano-dollar transaction fees, it’s also the first known Byzantine agreement protocol (^{_{without the non-viable option of penalizing payees with the risk of a chargeback by burning all double-spends}}) that transposes the liveness and quorum thresholds, so the quorum’s can be less than the quantity of faulty/malevolent nodes!

Thought to be preposterous and impossible in all prior art I’m aware of. Closest known prior art is “fork* consistency”, which doesn’t increase liveness. Mine can for example set the liveness to ⅔ and quorum to ⅓ of the live stakers (i.e. only ⅓ of live stakers are needed to confirm, so unresponsive or malevolent collusion of ⅔ of live stakers is required to stall confirmation). This is viable because my design integrates a fallback mechanism wherein the prior art liveness = 1 - quorum (e.g. 33/67% for liveness/quorum per the aforementioned choice) holds for transactions which are held captive (for at most the subsequently mentioned synchrony threshold delay) by the malfeasant faction of the live stakers. This motivates participants to accurately and objectively record (plus triangulate via a WoT) the reputation of live stakers so that said captivity is individually routed around— collectively resulting in a bottom-up, decentralized swarm effect. No top-down, centralized coordination needed. Any choice of system parameters is allowed, so the split could be instead 90/10% but on the downside the captive UTXO would be (but only temporarily) subject to 10/90%. The flexibility to dial-in an optimal level of balance is thus more secure than prior variants of Byzantine agreement.

There’s no blocks in my posited design. It’s a DAG but not in the unstructured manner of Byteball, Iota, and Hashgraph. Thus unlike extant distributed consensus ledger systems, my design also securely accommodates and heals from network splits up to some (bounded asynchrony) synchrony threshold, maximum duration. This delay threshold enables finality of minority fork offs to be deterministically achieved (per the foundational FLP theorem). Since a network split can’t be objectively distinguished from a quorum or liveness attack, my design cleverly has a free-market, decentralized penalty for those stake attacks which would otherwise defeat the incentives by stopping the attack just shy of the synchrony threshold!

A downside is reliance on WoT(s) and/or for online users to be reliably connected so as to achieve the said free-market mechanism. Unlike PoW, Byzantine agreement (including mine) which incorporate PoS in some form, are subject to the nothing-at-stake attack which can only be ameliorated with said reliance.

In Ethereum’s case, despite its intended use case being for decentralized applications, the most popular use of Ethereum is still just transferring wealth without the assistance of dapps. Ironically, what was surely considered to be a secondary use of Ethereum is now setting a transaction fee baseline that’s putting dapps out of business.

My design enables truly decentralized free-market driven transaction fees with objectively, meritorious competition, while also enabling unbounded sharding without suffering the §Transaction Fees Tragedy-of-the-Commons nor requiring all validation/ordering nodes, stakers, and participants to validate every transaction. Which keeps costs down and solves some game theory issues.

With that said, there have been a few categories of dapps which have provided enough economic value to survive. Most notably they are gambling, decentralized exchanges for on-chain tokens, prediction markets, ICOs, and collateral-backed loans. What they share is that people are willing to pay on par with baseline transaction fee for these workflows. (It is not a coincidence that they involve moving potentially large sums of money at once.) The problem, however, is that these are niche applications whose values are way out of line.

0x, one of the most popular dex protocols, has collected only $2000 in lifetime transaction fees despite having a market cap of $160M […] Augur, the most popular prediction market, has only $40k staked in predictions yet has a $170M market cap.

Indeed, the power-law distribution of wealth implies that only a small fraction of the tokens will transact. So transaction fees are a relatively smaller revenue stream (as compared to wealth-oriented return-on-investment, speculation, gambling, etc) even if dApps are eventually popular.

So extant PoS systems are doomed because the stakers have much more incentive to extract wealth from the participants than to promote transaction volume growth.

My design has a novel/clever stake delegation scheme that enables — those who lockup small stake for the privilege be a validating, ordering node — to leverage up to a larger effective stake so transaction fee revenue is an attractive relative ROI (relative to malfeasance). Stake hodlers have an incentive to delegate (without risk of loss nor lower ROI) which has the dual purpose of the “pump-amentals effect” (c.f. Richard’s video).

A flawed argument is there’s an incentive against malfeasance for all PoS systems because stakers should want growth of popular use-cases of the ledger. But given speculative demand trumped and so far exceeded non-speculative, non-wealth-based use-case demand, a greater incentive is to extract maximum wealth in the short-term, forsaking any long-term investment thesis (except for Bitcoin as a long-term HODL store-of-value wherein token price will rise enough to offset nominally but not faster than rise in transaction fees proportionally). My design (including the “pump-amentals” opportunity cost if not locking up funds long-term) shifts the balance towards long-term investment by thwarting malfeasance via more degrees-of-freedom (i.e. minority can fork off) in the objectivity, thus reducing profitability/viability of wealth extraction.

^†† _{The WoT design will be discussed in a future follow-up comment post.}

^‡ _{Note a deleted answer of mine that can only be seen on that page if you login:}

^{As I explained in the comments under HighlyIrregular's answer, variable (i.e. market-based) transaction fees can never scale.}

^{The correct logic requires invoking all the dependent variables in the economy of mining. Simpletons separate issues which are actually dependent.}

^{The key is that the only real defense against a 51% attack or control (one equivalent case of which is the same as monopolization by corporate interests that have an incentive to subsidize mining below cost) is the competition of 6 billion people to dilute the attack's Proof-of-Work. But profitability of mining (thus competition to dilute from the 6 billion) only occurs if the attacker can't drive the transaction fee to zero (in the absence of a continuing debasement reward).}

^{The logic in the prior paragraph is unarguable. If you downvote this, this question, or the linked answer, you are a certified moron. I deserve to be able to talk with this sharp tongue, because of all the moron's downvoting my correct logic all over this site.}

^{There is a side issue that variable tx fees makes the system more unpredictable in terms of rate of verification (which AFAICS is the antithesis of Amazon's One Click shopping), but IMO this is not as crucial as the above issue. You can read the comments under HighlyIrregular's answer for more on this side issue.}

^{I replied:}

^{He replied:}

^{I replied:}

^{marshal craft replied:}

^{[…] why so downvoted?}

^{I was thinking far ahead […] much experimental thinking at that time as I was learning about blockchains and decentralized consensus ledgers. I've been banned here, banned numerous times at Bitcointalk.org, etc..}

^{Oh yes […] the stack exchange currently implemented may not answer questions correctly […] It's a messy business.}

^{[…] I'm working on… […to] disrupt these centralized forums, Q&A sites, Reddit, Wikipedia, etc., to enable decentralized curation, wherein each of us separately automatically place reputation in the votes of those who most often agree with our votes. It’s otherwise messy when we try to have one size that fits all.}