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Proof-of-Snark

Dec 302013
 

A Proof-of-Snark (POS) protocol deters denial of service attacks and other service abuses such as spam on a network by requiring some original snark from the service requester, usually meaning a sardonic summary of the request, typically in the form of dry or biting understatement.

POS was developed by an individual or group of individuals using the pseudonym Frito Pendejo, who developed SnarkCoin, the premier, best-in-class, end-to-end proprietary, turnkey cryptocurrency solution.  Rather than lose first-mover advantage by taking time out to draft a white paper, Frito set up an invitation-only portal on the dark web, so that insightful and forward-thinking SnarkCoin early adopters could get in on the ground floor and access the distributed P2P parallel financial system that is used by high net worth Family Office hedge fund managers to finance high-yield, midterm debentures used to securitize sovereign debt.  (Those who have not received invitations can buy their way in with bitcoins, and those who cannot afford the initialization fee can pool their resources with others’.)

A key feature of POS schemes is their asymmetry; the snark must be appropriately difficult for the requester to formulate but easy for service providers to verify as original. This idea is also known as a Smartarse Comeback Function (SCF) and in academic research as a Non-Repeating Sardonic Rejoinder Protocol (NRSRP).

The benefit of a POS system over a Proof-of-Work (POW) system is twofold: i) the difficulty of POS validations becomes more difficult organically, and ii) POW is already integrated into the Bitcoin protocol, and developers of so-called altcoins are running low on buzzword-compliant distinguishing characteristics to differentiate technically clever, though commercially pointless or ethically dubious, alternatives.

Granted, Proof-of-Stake (PoS) fulfills the requirement of being different merely for the sake of being different from POW, as does the discovery of new prime numbers, but these are already taken, and promoters must refresh their channel so that their downstream can use innovative terminology with increasingly sophisticated investors.

As with a POW system, a POS system avoids the double-spending problem by collecting transactions into blocks and adding a reference to the current final block in the database (blockchain). The verification nodes (straightmen) then verify that each transaction is permissible against the current database and then generate a sardonic summary of the block of transactions (snark) with the caveat that the snark must be unique.

sidebar: It is imperative that the snark be sardonic and not sarcastic.

Sarcasm is any statement that is the exact opposite of what one means, e.g., “SnarkCoin and Proof-of-Snark are great ideas!” whereas sardonicism is a true statement that conveys irony, e.g., “It was only a matter of time, before someone came up with something like SnarkCoin.”

Also, understatement must be strictly enforced, as overstatement is inherently untrue, e.g., “SnarkCoin is the worst idea in all of human history!”  Much better would be, “SnarkCoin, eh? Probably from Florida.”

It is critical that the summaries be true, otherwise they do not summarize the blocks with which they are associated, placing the system at risk.

To accomplish this, the POS protocol has an additional layer—the snarkchain—that collects embedded hashes of the snark associated with each block, using the Supernumerary Meta-Hash Embedding Protocol (SMHEP) that calculates the SHA512 fingerprint of the original snark, then calculates the MD5 hash of the first hash, then the TIGER192,4 hash of the meta-hash, followed by HAVAL256,5, RIPEMD320, FNV164, GOST, and finally ROT13, for no point other than to satisfy Frito’s paranoia and desire to show off.

As snarkcoins are not mined like bitcoins, but instead manifested, a straightman can be rewarded for being the first to issue original snark, with transferable warrants that are redeemable for snarkcoins or can be exchanged OTC for altcoins or even bitcoins.  In this way, straightmen have an incentive to validate transactions and to invest in increasingly powerful AI hardware and software to issue snark that is not already memorialized in the snarkchain.

By issuing warrants, which convey the right but not the obligation to acquire snarkcoins, straightmen avoid the fate of Bitcoin miners, who receive actual bitcoins for their efforts and have been declared to be money transmitters in many jurisdictions.  SnarkCoin straightmen’s warrants represent unrealized conditional value, and thus are non-taxable off-balance-sheet transactions, notwithstanding the income tax is voluntary.

POS provides an incentive for early adopters to become straightmen, as the snarkchain will contain only the Genesis Snark initially: “I am my first transaction.”  From there, low-hanging fruit can be added, like “One would expect this kind of thing,” “I’ve never seen /this/ before,” or “This block is valid.”  However, over time, it will become very difficult to issue summaries that both are recognized as snark by the underlying protocol and do not repeat previous snark.

In this way POS is superior to POW, in that the difficulty adjusts organically, whereas with POW the difficulty of the computation must be adjusted by some arbitrary rule as the amount of computing power available grows.

Bitcoin Is NOT Deflationary

May 052013
 

Much ado has been made about how deflationary Bitcoin is. This is mildly comical, as it conflates three independent processes, as anyone who comments on monetary matters should know. As I have pointed out before:

In general, and all other things held constant (or, as we say in the business, ceteris paribus), prices can rise for three reasons: demand increases (e.g., an auction or a popular restaurant), supply decreases (e.g., lower efficiency, war, or natural disaster), or the number of units of currency increases faster than the rate of increase of goods and services (inflation).”

In the case of Bitcoin, the number of units in circulation is always increasing, albeit at a decelerating rate, thus Bitcoin is inflationary. Granted, Bitcoin can be lost, never to be recovered, and when that rate eventually exceeds the rate of Bitcoin creation, sometime before the hard cap of 21 million is reached, only then can we talk of deflation.

For now, what we are seeing with the general run-up in value of Bitcoin relative to fiat national currencies is a combination of demand increases for Bitcoin and the debasement of fiat currencies by central bankers at a rate that is significantly higher than the rate of Bitcoin creation.

Seen from the perspective of Bitcoin-qua-money, the general fall in prices is a function of users’ preference to hold money and to put off consumption into the future. While it is tempting to call this ‘deflation’, an increase in the demand for money is categorically different from a decrease in the supply of money.

With Bitcoin, we are seeing a radical reduction in time preference—i.e., putting consumption off into the future—which is associated with low discount rates (‘interest’), low risk, and a move away from scarcity toward plenty.

The bigger story here is that if Bitcoin users can find ways to dampen the fiat-price volatility—itself, a form of risk, which reduces present value—then Bitcoin’s value could rise even more dramatically. Think of it this way: people will pay more for a safe bet, like an apartment in Luxembourg, than for a risky bet, like an otherwise identical apartment in Syria. Today, the Bitcoin market is more like Syria than many like, and so they stay away; if Bitcoin’s value were more predictable, demand could increase even more as risk-averse individuals began to see it as a viable asset.

Were this to happen, it would not lead to deflation. Instead, it would show that Bitcoin currently is undervalued.

Invest accordingly.

Prof. Evans

South Florida: For Want of a Nobel…

Aug 022012
 

In April 2011 Edward Glaeser wrote, “Over the last decade, January temperature continues to predict growth throughout the entire United States.”

In May 2006, Paul Graham wrote that, in order for an area to be a ‘Silicon Valley’, it needs wealthy individuals, entertainment, a relatively lax attitude toward regulation, and a world-class university.

South Florida has all of those in abundance, except for the world-class university.

Connect the dots, and you get a business plan. The administrators — especially the fundraisers — of the University of Miami, Florida International University, Florida Atlantic University, and Nova Southeastern University should be tripping over each other in the quest to hire a couple of Nobel Prize winners in Chemistry, Economics, Medicine, or Physics.

They even could specialize, the one taking Medicine; the other, Economics; the next, Chemistry or Physics.

Granted, the region probably would become known as Silicon Beach or Silicon Swamp — neither of which captures the essence of what lies more than a half mile (1 km) west of the ocean — but there’s no point in fighting the public’s branding expectations.

Already, the headquarters of AutoNation, Burger King, Citrix, DHL USA, Office Depot, Ralph Lauren, Ryder, and a lot of other lesser-known companies are down here. There is a very healthy culture of entrepreneurship here, and I expect that young individuals in technical fields could do worse than to look in South Florida for prospective spouses.

South Florida has gone from being literally the end of the road to The Gateway of the Americas. It is time to take that next, logical step and invest in the region’s blossoming into a truly world-class hub.

Or, we can scratch our heads in wonder, as the geeks and nerds go to the middle of the desert.

Invest accordingly.

Prof. Evans

Peter Drucker’s Post-Capitalist Society: Quotations, part 1

Nov 182011
 

From Peter Drucker’s Post-Capitalist Society (1993) [page numbers are from the paperback edition]:

p.3

We are clearly still in the middle of this transformation; indeed, if history is any guide, it will not be completed until 2010 or 2020.”

In other words, that really is the light at the end of the tunnel, and not an oncoming train.

pp.4, 5 & 6

That the new society will be both a non-socialist and a post-capitalist society is practically certain… The market will surely remain the effective integrator of economic activity. But as a society, the developed countries have also already moved into post-capitalism. It is fast becoming a society of new “classes,” with a new central resource at its core… Instead of capitalists and proletarians, the classes of the post-capitalist society are knowledge workers and service workers.”

All you old-school Prius socialists and throwback anarchocapitalists, just… stop. You’re both right, and you’re both wrong.

p.8

Value is now created by ‘productivity’ and ‘innovation’, both applications of knowledge to work… The social challenge of the post-capitalist society will, however, be the dignity of the second class in post-capitalist society: the service workers.”

This is what all the ruckus is about, and not Marxists versus Objectivists, both of whom stare fixedly at the 19th Century in the rearview mirror.

The most radical thing you can do to help The People and to bring dignity to service workers, would be to start a service work firm, hire disenfranchised service workers, distribute the shares among them, and find clients to contract their service jobs to you. Then, let the service workers run the show and create opportunities for advancement among the ranks. In this way, your, e.g., janitorial workers will have seized the means of production, and they will have a chance of rising above their current stations within your firm, rather than wander the halls as Invisible People in someone else’s. Ditto clerical work. Ditto anything else that can be outsourced and does not require higher education.

p.10

Political theory and constitutional law still know only the sovereign state… [S]ince the end of World War II, the sovereign nation-state has steadily been losing its position as the sole organ of power.”

The solution to social discord is not political. Politicians, are by definition individuals who have chosen careers in the pursuit of power, rather than producing something of value. At best they are caretakers; at worst they are rulers who exempt themselves from the statutes and regulations that they impose on the rest of society.

The occasional bone that they throw to members of special interest groups is an attempt to buy votes, no matter how pretty the words, how forceful the scowl, or how many times the speaker repeats a phrase.

It is not within the framework of a nation-state that individuals create wealth. One does not vote wealth into existence. If one wants to create more wealth for the poor, one must look to where wealth is created.

p.14

I also consider it highly probable that within the next decade or two there will be new and startling ‘economic miracles’, in which poor, backward Third World countries transform themselves, virtually overnight, into fast-growth economics powers.”

viz. Hans Rosling’s TED presentations, the BRIC countries (Brazil, Russia, India, and China), and The Next 11 countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam).

Invest accordingly.

Prof. Evans

Welcome to the Pecuniology Blog

Sep 232011
 

Pecuniology.com is dedicated to the promotion of financial and economic literacy worldwide.  Here, we discuss current events, theoretical and philosophical issues, history and culture, and educational topics that are related to money in the widest and most general sense, and emphasize the investment opportunities implied by them.  Sometimes, the conversation might become heated, but we will endeavor to separate fact from opinion.

Recurrent themes here are:

  • There is a cost for every benefit, and a benefit hiding within every cost.
  • All value is subjective.
  • Profit from hypocrisy.

These themes are independent of political, religious, and philosophical preferences, so long each individual is willing to live by the precepts that he or she espouses.  In particular, this involves living by the rules that one promotes for others.

I look forward to interacting with individuals of all backgrounds.

Invest accordingly.

Prof. Evans