As a Keynesian I love that Dogecoin is the first (that I know of) crypto currency that isn't deflationary. I do wish there was a way to make the things other than mining though. I hate "mining". Such a waste of resources.
"Mining" is really solving a block. This means that your computer has verified all the transactions in the block and signed them. As a reward for keeping the transaction record secure, you get some coins. At first, the reward has to be large, to entice people to a new cryptocurrency. But over time, a secure network becomes valuable for itself, and the reward isn't necessary anymore.
Mining is really thousands if not tens or hundreds of thousands of people competing to try to solve the same block. The one machine to solve it first gets the reward. (or if in a pool, it's given to the pool.) Over and over again- in the case of dogecoin, once every minute or so. The GP's statement about it being a massive waste of resources is unfortunately true - that's a lot of electricity for any popular coin.
> But over time, a secure network becomes valuable for itself, and the reward isn't necessary anymore.
Has this actually happened in any case? Logically if there is no value to be gained from maintaining the secure network (eg, 'mining' new transactions into blocks for confirmation), then many fewer people will do so. The fact that it's a secure network is great - but it doesn't seem enough to entice a critical mass of people to maintain it at a cost to themselves.
Even if you ignore the problem of getting a critical mass, this is an issue!
Imagine operating the network as a public good and agreeing to minimise the resources spent on it. That still doesn't prevent one of the players from secretly increasing their computing power then suddenly taking full control of the network and disrupting other countries' economies.
The incentives means you don't have to trust anyone else - you'll keep improving your CPU power because it makes economic sense to do so.
There is some monetary value, in transaction fees, that are collected even if there is no block reward. There will be fewer people, but hopefully it will still be above critical mass. It really doesn't take much, even a few hundred people running low-power ASICs will do just fine. We will see something similar with Doge soon. In 2015, the payout will be fixed at 5% of what it was last month. Maybe everyone will stop mining, and maybe they won't.
I'm aware of what mining is. And you're not just signing a block. No one would be making custom ASICs and putting server farms near hydro-electric plants if all you had to do was sign a block. You're paying people to do useless work and it's silly.
Because you lose far more with Bitcoin. Bitcoin is currently doing as many transactions as a small community credit union, but it's got server farms all over the world and thousands of individual computers and ASICs running 24/7 to "secure" it. It's totally out of control.
The primary function of mining is not creation of coins, but security of the network. Mining is the reward to make sure enough people do it that transactions don't become exploitable.
You definitely don't need to be a Keynesian to believe that a bit of monetary inflation is a positive thing. It's quite likely that Dogecoin will still be very deflationary if the velocity of cash flow, transaction volume increase faster than the Ð5 billion/a being added annually. Not to mention lost private keys which essentially destroy related coins forever.
You definitely don't need to be a Keynesian to believe that a bit of monetary inflation is a positive thing.
In fact, Dogecoin's model is a real world implementation of Milton Friedman's proposal:
“We don’t need a Fed,” Milton Friedman says, twirling a letter opener
as he speaks. “I have, for many years, been in favor of replacing the
Fed with a computer,” he adds. Each year, it “would print out a specified
number of paper dollars” to augment the money supply. “Same number, month
after month, week after week, year after year.”
One of the forms of wealth accumulation that's taken off in the Dogecoin community is tipping - it's been pretty successful on Reddit, 4Chan, and Twitter as a means of rewarding people who create useful / insightful things. The YouTube tipbot is starting to get some traction now too.
I hate mining too but you need a decentralized method to keep people from subverting the decision-making process and give them an incentive to participate. I would love a more environmentally friendly method than proof-of-work but I fear you would have to compromise the decentralization aspect to achieve it.
Proof of stake is more secure than proof of work, but the problem is that you have to give the new coins to the people with the coins, so it incentivizes hoarding just as much as deflation would.
I am very naive when it comes to the bitcoin and dogecoin protocols. However, my understanding was that mining is what keeps the currency running and you are actually validating transactions. For doing this work you are "rewarded" with coins. Not really a waste of resources if you are helping run something you support.
The one miner who solves the block gets the reward. All miners who tried to solve the same block (and that would be every other miner who didn't get a solution in first) have wasted their time and do not get a reward.
Of course, most mining is done by pools, where the reward is shared out to all those who contributed hash power. So saying "one" miner is not quite right.
Definitely true. I co-run a small dogecoin pool myself.
But I find the illusion that pools perpetuate very interesting.
In reality, only one miner does solve the block - it's just that the payout goes to the pool for redistribution.
This essentially means that pools reward wrong answers to the same degree that they reward correct answers (unless the pool is configure to give block-finder rewards).
Mining is designed to be a waste of resources. It is kept artificially hard to prevent someone from creating a billion sock puppets and overtaking the network for malicious reasons. To entice people to use their valuable computing power and electricity on an artificially hard problem there must be some incentive.
Dogecoin is only semi-inflationary by accident, so it's not exactly an example of sound economic thinking. There are several altcoins that are aiming to be explicitly inflationary but this also eliminates the incentive for early adopters to hype them to the moon.
Proof of stake has been proposed as an efficient alternative to mining but it's not clear whether it will work.