Why NuShares Minting is Better Than Investing in a Bitcoin Mining Fund

[cryptog]

I tend to agree with @rodchi here. There is too much momentum for bitcoin to be another myspace.
I believe it will last at least a decade but maybe this is what you have in mind @masterOfDisaster ?
Even if it gets centralized which is likely it won t matter that much.
Therefore I see it keep going a few decades.
The world needs a digital gold, whether it is centralized or decentralized.

However I think there is a lot of cognitive dissonance or fallacy on bitcoin
Bitcoin is mistaken with the notion of blockchain generally speaking among VCs.
Take a look at http://www.coindesk.com/blockchain-application-stack/
First of all it is wrong since you can create any blockchain you want independently from bitcoin but it is also not feasible to decentralize everything in one single blockcain…
It is pure megalomania.

[masterOfDisaster]

Right. I had “90 weeks” in my head, but wrote nonsense. I’ll fix my post. Thank you!
Here’s my assessment on Bitcoin’s future:

With halved PoW block rewards (from 25 BTC/block to 12.5 BTC/block) operating miners that are running on knives edge (in terms of economical aspects) might sooner or later need to be turned off. The only thing that can prevent that from happen, is sufficient income with mining by a higher BTC price or more income due to way more transaction fees. It will be a dangerous time for Bitcoin. At the last block reward halving there was not this type of economy in place with data centres full of miners etc.
But that does not mean a majority doubts the sustainability of Bitcoin.

If Bitcoin can handle the next halving (and that trick can be repeated!) it might survive for some time. In the end Proof-of-Stake (or their successors) coins will have an easier time, because their sustainability is not depending on the coin price level.

Peercoin is the real digital gold (in difference to Bitcoin): once you have made it your own (by purchase or mining), it can be kept for very little effort. You don’t need much to maintain its value.

[Ben]

is the amount of nushares infinite? like ppc?but at least in ppc we have a burn mechanism with every transaction. i like also the NXT mechanism regarding minting and burning

Presuming a static 40 NSR reward for each block solved, going forward, Nu’s NSR supply inflation rate will follow this table. This does not take into account NSR destroyed by the protocol during each transaction (1 NSR per 1kb). If the network can sustain ~40 transactions per minute the rate of inflation will drop to 0%. Anything over 40 tx/min will result in deflation.

Approximate NuShares Supply Inflation Rate (for the first 100 years)

I’ve also included a calculation that shows the rough number of blocks that someone could expect to solve per year with a hypothetical 1,000,000 NSR balance (and the increasing year over year gain from those blocks’ rewards if they had been held from the start of the Nu network). This presumes a 100% minting rate for all NSR (not realistic), so if someone has an equation that they would prefer, I can update the function and generate a new table taking into account only a portion of the NSR minting at any one time.

[Cybnate]

Those who put a lot of money into it will keep trying to revive it. As the difficulty starts to drop, they will buy more to try to prop it up. It will die only when all of the fat cats give up on it. However, for this to happen, merchants also have to give up on Bitcoin. If the Winvlevoss Bitcoin ETF is successfully launched, this will never happen. Once the Wall Street fat cats start investing in Bitcoin, it’s over. Bitcoin won’t be going anywhere.

The cost of running the Bitcoin network in its current form is too high and lower cost alternatives are already available. So either the Bitcoin protocol will change soon driven by the fat cats protecting their investment and sunk costs or Bitcoin will fade out slowly. Bitcoin will have to compete (read change) to survive or it will be send to the relics of history. No-one is building and selling T-Fords any more, we moved on to better products doing the same thing in essence for a better price. Let’s see if Bitcoin can change, if so it will be a strong competitor.

[crypto_coiner]

What are the ways it can change and what would be the consequences for its price, (read its economics)?

[mhps]

So either the Bitcoin protocol will change soon

Ha. Even talking about theoretical pro and cons in the bitcoin board is not tolerated.

[masterOfDisaster]

Bitcoin will have to compete (read change) to survive or it will be send to the relics of history.

Based on my experience so far I expect the latter to happen…

[cryptog]

NuShares will end up with a much bigger marketcap that NuBits.

@rodchi To me it sounds counter-intuitive. Does it require that much capital to maintain a peg?
If nsr market cap is 100m USD and nbt market cap is 10m USD, what does it mean?
Would that mean that maintaining a peg is expensive as bitcoin is expensive to mine?
Maybe this could be the weakness of nubits…Just a thought.

[masterOfDisaster]

NSR market cap can easily be way beyond the market cap of NBT.
You need to take into account that NBT is currently the only “product” in the Nu network, but it is likely that others will follow.
The only real revenue of NBT so far is from spread at the non-USD trading pairs (that is wider than +/- exchange fee) and the NBT destroyed by tx fees.
That is not much and needs to be extended by other means of making money.
And yet the market cap of NSR is rising; not mainly by more NSR that are distributed, but by a rising price per NSR!
If you ask me why people pay a lot (more than a few days ago) for NSR, although the business model for the Nu network is still in its infancy, I can’t tell you for sure, because I can’t read people’s minds.
But I can assume it has to do with the potential that can be seen for Nu.
People want to take part in the development and I mean that in terms of financial development as well as the chance to vote for technical development by minting and voting with NSR.
So the market cap of NSR can exceed the market cap of NBT by far, because the product that will gain value if it succeeds is NSR and not NBT.
Remember: NBT is always one Dollar and so you can only have a rising market cap if more NBT are in circulation

[cryptog]

I do not know what should be the right ratio for nsr/nbt but it seems natural to think that if the demand for nsr increases, that means that people think that nbt is useful and the more nbts there are in circilation the more useful it gets.
Of course there must be a speculative aspect to it…

[rodchi]

@cryptog I’m sorry that I did not answer your earlier question. I am swamped with a new class that I am taking is very time intensive. I was going to go into a long explanation of why I think that NuShares will have a much higher marketcap that NuBits. Just suffice it to say that I see NuShares as being the tool that backs NuBits, so it must be bigger, or else NuBits would be insolvent. This is somewhat counter intuitive. The US Dollar is backed by the GBP of the United States, so if the GDP drops to less than the total number of USD in circulation, then the US is, in my view, is technically insolvent. This means that if every person owning a US dollar tried to turn that dollar back in the the US government, the US government would not have enough goods are services to compensate each and every one of them. For example, if the Chinese government wanted to “cash in” 5 billion dollars in USD that they hold, they might accept one US aircraft carrier as payment. But if the US runs out of things that the Chinese government would accept, then what happens next?

I think of NuBits in exactly the same way. If every person holding NuBits tried to “cash them in” at the same time, how would we pay them? With the Bitcoin + NuShares + Peercoin that we have in reserve and maintaining the peg. Once we run out of compensatory funds, the remaining NuBits are worthless. So to back every NuBit in existence, the NuShares + Bitcoin + Peercoin MUST be higher in value than the market cap of NuBits. Since the values of Bitcoin and Peercoin that we hold are relatively small, this situation is guaranteed if the value of NuShares is higher than the value of NuBits, just as the total “market cap” of the goods and services generated by the US goverment SHOULD be greater than the total number of US dollars in circulation within the United States.

[cryptog]

@rodchi I see your point. The US GDP is around 17 trillions of USD.
The total amount of USD in circulation is around 1.3 trillions of USD according to http://www.federalreserve.gov/faqs/currency_12773.htm

So perhaps we could have market_cap of NSR ~ 10 * market_cap of NBT

[desrever]

While the current financial systems are worth investigating, we should try to build a different system that ideally works better .

[cryptog]

@desrever I agree but I tend to think that central banking has some at least one good aspect: the control of the supply.
This is something that the bitcoiners, the first generation of cryptocoins/assets enthusiasts has been totally discarding blindly.
What is bad about central banking is the lies and the corruption of the handful of people that control that supply: ( only 9 individuals for the central bank of Japan for example).
But if we can decentralize that centralization, meaning giving voting power to a lot of more individuals, that is a revolution and this is what I think Nu will achieve.

[buzzdave]

After stake mining for a while now, I’m wondering what amount of balance would be required to achieve a constant rate of stake mining.

From the client, I see that a mined stake is 10,000 NSR. That stake earned 40 NSR as a block reward. For the next 5020 blocks, that 10,000 NSR is held in stake and does not participate in minting. After the 5020 blocks, the 10,000 NSR is returned to the balance and again participates in mining.

So, to achieve a never-ending supply of shares with which to mine with, I need to hold 10,000NSR x 5020 blocks, or about 50M shares. Is this correct?

Even this would eventually leave me with only a small balance mining at any one time depending on difficulty, so my ability to help secure the network will greatly diminish after the initial run of mining the balance. Anybody not owning 50M shares will soon have no balance to mine with and their contribution will go away until their coin age returns.

This could create oscillations in stake mining power on the network and possibly present a security risk during one of the lows, when someone turns on a large holding of shares.

Comments?

[mhps]

After the 5020 blocks, the 10,000 NSR is returned to the balance and again participates in mining.

No after 5020 blocks your stake can be spent again. But it takes 7 days before a new unspent transaction output (utxo) can mint again. I think the 7 days include the 5020 blocks (Can someone confirm?) so your stake can mint again in 7 days.

So, to achieve a never-ending supply of shares with which to mine with, I need to hold 10,000NSR x 5020 blocks, or about 50M shares. Is this correct?

No. You are assuming you are the only minter so you get all the blocks. On average there is one block every minute, from all shares that are minting, which has a maximum of 1 billion. In fact the undistributed share don’t mint. The exchanges don’t mint. Many people don’t mint. Those shares doing the “7-day jail time” don’t mint…

So you could calculate this way: currently it takes about 1 month for a 10000 NSR stake to find a block. You need 30 such stakes to find a block every day on average. If you want to find one every hour, you need 30x24 = 7.2 millions shares

[cryptog]

The exchanges don’t mint.

@mhp if the exchange stores all the coins in one wallet and un-locks it for minting only it can mint, methinks .

[Ben]

They can mint, but most don’t expose their full balances in hot wallets.

[masterOfDisaster]

That’s right and the reason why it’s especially for NSR a bad idea to leave them at exchanges. All minting with NSR at exchanges is not necessarily in the interest of the NSR owners. The exchanges have little to lose (except reputation, but only if they are caught), but NSR to win.
And most likely exchanges wouldn’t configure votes and hence vote against all motions, custodians and park rates above 0%.
Don’t leave coins at exchanges unless you want to trade them - especially not NSR!

[cryptog]

@ben. right, in order to mint you need to be online…