Proof of Stake Interest Scaling: WYSINWYG!

So I've bagged on Proof of Stake "minting" before, and I've said numerous times that I don't expect much to happen. Blackcoin has 1% nominal annual interest, but other coins are promising much higher rates. What if I told you that the actual interest you'll receive may be far less than the stated PoS interest rate? You'd probably think, "That's terrible -- there's no reason to hold any PoS coin unless you're simply speculating!" Well, it appears after further review that this is exactly the case with some of the PoS coins out there! Case in point: Piggycoin 2.0 (PIGGY).

Let me give you an example of what I previously thought was happening, then some numbers that prove this is absolutely not the way it works. (I've been digging through the source code, and frankly it's tough to follow so I have not yet quite figured out where things "go wrong".) Let's start with something simple: 15% annual interest.

If you have $1000, at the end of the year if it's compounded yearly, you'll have $1150. With PoS I assumed things would function in a similar manner, but with more frequent compounding, and that seems to be the way most people expect it to work. So if you have 1000 coins and the PoS rate is 15% yearly, then if your coins hit a PoS block and their coin age is 1 day, you'd receive (1000 coins * 0.15 /365) coins from PoS daily on average, which would be ~0.411 coins. What happens if you don't hit a block for a day is that your coins continue to age, so if they don't hit a PoS block for 10 days then their coin age is 10, so you'd get 10X the PoS reward -- 4.11 coins every ten days. Thus, in theory at the end of a year you'll average out to the 15% figure -- and if you hit a block every day, you're effectively getting compounded daily interest, so slightly more than 15% yearly.

Here's the problem with PIGGY: that's not actually what's happening! I know this because I mined about 212K PIGGY, and I talked about the features of the wallet. PIGGY is basically yet another alt-coin, with the biggest claim to fame being that it has a somewhat more advanced/useful wallet. (It has things like an integrated block explorer, a Statistics page, and even a chat client.) My analysis is that, despite the improved wallet, I just don't see PIGGY going anywhere. Naturally, the staunchest PIGGY supporters think I'm an idiot/jerk/[insert derogatory name]. I posted my "review" in their ANN thread, which obviously doesn't help much, but here's where things take a turn for the worse.

One of the users said something to the effect of, "I just bought 500K PIGGY and I should be getting around 205 PIGGY every day from PoS, but I'm not. What's going on?" Someone tried to explain what was happening ("The difficulty of PoS blocks is higher now!"), but their explanation didn't make sense. Then I looked at my wallet, and what do you think I found? I mined PIGGY initially on IPOminer and then transferred 212,192.5036 PIGGY to my personal wallet at 2014-6-19 12:12:43 (feel free to look that up in the block explorer). On 2014-6-19 23:53:10 I hit my first PoS block, which means according to my previous understanding I should have seen a PoS block reward of 42.42033355. (The 212K coins had accrued precisely 0.486458 days of coin age, and with 15% annual interest that would be 0.019991% interest for the time elapsed.) My actual block reward from that first "minted" block after just under half a day: 2.06481019 PIGGY. The rewards are about 5% of what I was expecting to see, or off by a factor of 20X, just like the other user!

I dug through the source code at this point and still didn't come up with a clear understanding of what's going wrong, but since we have coins that have been doing PoS minting for a while, I figured I'd go check one of those. Enter Asiacoin. (Why Asiacoin? Well, it's 100% annual interest, and the block explorer shows the number of outstanding coins quite clearly.) Let's start first with the end of the PoW phase, at block 20160. The total number of AC mined in the PoW phase is 171370113.067912, and that was on 2014-05-01 06:47:30. Asiacoin was created by a complete scammer, but the PoS transition went more or less smoothly and so the first PoS block of 20161 came at 2014-05-01 07:53:44. The block reward from PoS? A whopping 3.562109 AC from 137.55704 AC that was mined/transferred in on 2014-04-17 04:44:56 -- so it had a coin age of around 14 days. 100% * 14 / 365 = 3.83%, so I would have expected 5.27616 for the PoS block reward. The returns get worse as time goes by, unfortunately.

Asiacoin launched at 2014-04-16 16:00, and the PoS phase has been going on for around 9.5 weeks now. During that time, the total number of AC has increased from 171,370,113 to 182,981,295 (at the time I write this we're on block 114262). That represents an increase in the total number of coins of just 6.77%, and 9.5 weeks (slightly more) represents 18.2% of the year. So, even if only half of coins are staking (which is possible) the returns from PoS minting are less than one half of the stated 100% nominal annual interest. That's actually not bad if we were dealing with fiat where the value is more or less static, but that's not the case with cryptocurrencies obviously. AC was still valued at over 500 satoshi after the scam was discovered, back on May 13. Today, AC is valued at roughly 150 satoshi (give or take 10 satoshi). So even if you were getting 100% returns annually, in just one month the value has dropped by by half, fully offsetting (and then some!) any returns from interest.

Let's do another example with AC, though. Here's an address with 1.945 million AC. The AC was added after being purchased from MintPal, it appears, in two large chunks of 1.25M and .45M. Since then, the wallet has mostly been offline, with only a couple online sessions to get some of the coins due from staking. On 5/30, the 1.25M AC staked and became 1.34M AC. The next time that chunk of coins staked was on 7/5 when the 1.34M AC became 1.43M AC. Looking at that second transaction, 35 days had passed so the interest should have been 9.59%; the actual interest was 7.14% -- it's not off by a massive amount, but again it's still not giving the expected 100% annual returns (plus compounding interest).

I strongly suspect if I were to take the time and check on the dozens of other PoS coins I'd find similar problems with many of them. After all, many of these coins are simply taking an existing coin, cloning the source, modifying a few parameters, setting up some seed nodes (and a premine), and calling it a day. If the original source has some bad logic, all of the clones inherit those flaws.

Bottom line on PoS coins: it's definitely not at all about the PoS interest -- that's basically worthless on most coins to begin with (hello 1% Blackcoin, 2% Whitecoin, etc!). What will make PoS coins profitable is if they somehow become useful. That's not really happening with any that I can really see -- BC is doing "okay" perhaps, but it's one of the best examples and it's not even really healthy in my book. NXT is pretty much a joke as far as I'm concerned, and everyone holding NXT hoping it will increase in value would be better off trading it and figuring out ways to get more places to accept NXT for goods/services. But wait...why would you want to accept NXT if you could just accept BTC, LTC, or any number of other cryptocurrencies instead? Hmmm.... What's really driving the price on all of these PoS coins seems to be pure speculation more than anything, not to mention market manipulation.

Again, I want to note that not all PoS coins have problems with the amount of interest they're generating. Blackcoin seems to be on target, and CAIx looks right as well. HBN scales the PoS rewards, but it's clearly visible in the code and it's part of the specifications. If someone wants to figure out precisely why the returns from PoS on AC and PIGGY are broken and drop me a note about where in the source code it's happening, I'll be happy to update this. Personally, I feel if a coin promises 15% interest yearly, that's what it needs to deliver -- let the market dictate the price, but the interest rate should be set in stone -- WYSIWYG (What You See Is What You Get). This business of scaling interest rates without publicly stating how the scaling happens is just one more shady practice that will result in people getting burned.

Goodbye CAI, Hello CAIx!

 

As I've mentioned, the current "short-term PoW stage transitioning into PoS" is all the rage. It started with Blackcoin, got cloned by Whitecoin, Asiacoin, Yellowcoin, Orangecoin, and probably a dozen or more others, and along the way several other coins that were formerly PoW-only decided to switch to PoS. One of the more interesting coins to do this is CAI, which is a Scrypt-N coin from the same team that helped to create Ultracoin.

The official change to PoS has already begun, and CAI (Caishencoin) has now officially become CAIx. Interestingly, if someone were really determined they could actually keep mining CAI and reject the wallet updates that halt mining and such, but I don't think there's enough impetus to make that happen. The reason I mention it however is that from the launch of CAI to the switch to CAIx, we've seen quite a few changes, so let's quickly cover them.

First, CAI launched with a maximum circulation of 28 million coins, to be distributed over a long period of time (similar to BTC, LTC, etc.). There was an IPO involved as well, with a premine of 2% used for the IPO as well as other bounties and marketing. (I think 1% went to the IPO, but I can't be sure as the original information has been deleted.) What that means is that the developers created a genesis block worth 560,000 CAI before releasing the coin to the general public. Now here's where things get interesting.

After about two weeks of mining, CAI was doing "okay" but not much was really happening. Then the developers announced their intention to transition CAI into a PoS coin, and the result was initially higher prices. The IPO price of CAI ended up being at most 0.0008 BTC per CAI (with earlier IPO investors paying less). Shortly after launch, CAI was trading at around 0.0003 BTC, then a week later it was 0.00055 BTC, and when they first announced their intention to take the coin PoS CAI was trading at 0.0007 BTC. It dropped from there back into the 0.0004-0.0005 BTC range over the coming weeks, and now that the move to CAIx is fully underway we have CAIx prices of...wait for it...0.00083 BTC (with short spikes to as much as 0.0011 BTC).

The results so far have been relatively minor in terms of price movement, but long-term any IPO investors basically went from holding around 1% of all CAI (28 million total) to potentially holding a much larger percentage of CAIx -- there's currently a 1-to-1 trade available at Coin-swap.net, so if you bought as an example 10% of the IPO coins and thus ended up with 0.1% of all potential CAI, you now have over 1% of all potential CAIx (depending on how long the PoS staking lasts) -- neat, isn't it? The developers are "still trying to determine the best way to use the remaining premine funds", so it will be interesting to see what they come up with. At least this is one case where the coin is clearly being actively developed, though, so they haven't simply taken the premine and disappeared, and I don't think they will.

Other initiatives to increase the value of CAI/CAIx include making games (e.g. Tiny Elementals is available for iOS and Android now), but I tried that game and frankly I can't see why anyone would spend money on it -- there are many better "free" games around. The developers are also involved with Ultracoin (UTC), so we might see a PoS transition there as well -- which might be for the best, as scrypt-jane seems to be going nowhere fast, and UTC in general is quickly fading into obscurity.

Lessons to be learned from this? I'm not really sure. Apparently pulling a "bait and switch" in the cryptocurrency world is simply par for the course. At least it's a step from an outright scam like the initial Asiacoin launch, and it's interesting to note that even Asiacoin is holding steady after the fixes were applied to nuke the 3.2 billion hidden AC premine. In the meantime, if you're holding CAI (like I was), you'll want to exchange that -- for free -- to CAIx sooner rather than later. I believe there's a two week window before the Coin-swap exchange goes away, and at that point I suspect that any remaining CAI will be largely worthless -- so unless you want to collect them as a souvenir, act now.

Sapphire: Trying to Deny My $20 Mail-In Rebate

Sapphire, for shame. Your rebate process is a joke, with documentation that doesn't make it clear what you're after. What's more, when someone provides the correct UPC, your rebate department rejects it thanks to your incompetence. This all started with me ordering a bunch of GPUs for Litecoin mining. Sapphire was offering $20 off via rebate, and since their cards were already the cheapest it was a free $20 per GPU discount, right? Wrong. But I'm getting ahead of myself. Let's start with the rebate email. This is what I received from their rebate company:

"Your Rebate was not approved for the following reason(s)
- Original UPC Barcode Label (#840777061794) (Not the shipping label barcode) is missing"

Okay, here's an image from a second card that I ordered, since I'm sure no one can get a rebate from it now. Let's just send this little box to the scrap heap (or recycle bin), shall we?

What's the problem? Well, it appears Sapphire is reusing boxes, so the original UPC on the box is hidden under the new UPC sticker (which they call the "shipping label barcode" in their email). So the UPC I cut out (from a different box, but it has a similar number) says "HD7950 3G DDR5 PCIE" but the rebate people want the code underneath that sticker where you can see the label, "HD7950 3D GDDR5 PCI-E HDMI/DVI-E/DUAL MINI DP WITH BOOST".

The good news is that I called the support number for the rebate, and when they tried to tell me I didn't have a Boost card I argued with them and said, "It most certainly does have Boost -- it's right there on my Newegg order, and the same Newegg page links to the Sapphire rebate form." He checked out the order apparently and then agreed I had the right card and made whatever "changes" were necessary to process my rebate. And it only took 35 days since the time I placed my order. How's that for fast? (/sarcasm)

I guess the real question is: who's to blame on this one? Newegg.com, perhaps -- did they reuse a box somehow, or slap on a new UPC code? Maybe Sapphire is the one slapping new UPC codes on boxes, which would make it rather difficult to actually get a rebate. My feeling is that this is more than just an accidental slip-up, and in fact when I called the support line I could hear a conversation going on in the background:

Support Guy: "Is this that same guy again?"
Support Gal: "No, this is someone different."
Support Guy: "And he's got the exact same problem?"
Support Gal: "It would appear so."
Support Guy: "Okay, let me talk to him...."

There's more to the story of course. I purchased more than one of these cards, on the assumption that I could get the $20 rebate on each card. Oops: it's only one rebate per household! So not only did they try to rip me off for $20, they did so after I purchased five of their cards (actually, eight counting those from a friend -- the Dual-X cards are definitely worth the extra $25 in my opinion). My advice, then, is something I've said many times to people:

Never buy a product because of the mail-in rebate. If you're not willing to pay the asking price, then don't buy it. If you want the product anyway and the rebate is simply a nice bonus, go ahead -- just don't have your heart set on getting that money, because there's a good chance the "paperwork got lost", or "you have the wrong UPC code", or even "sorry, the company the processed our rebates went out of business; we're not the ones that offered the rebate, that was a third party." I've heard all of the above over the years, and others besides. In some instances, there was no communication and the rebate simply never came; any attempts to find someone to call or write about the problem met with no success. The whole mail-in rebate thing feels like a red herring to me; I think I've received rebates about 50% of the time, and it's always about two or three months after the initial purchase.

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