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From: Eric Voskuil <eric@voskuil.org>
In-Reply-To: <8D68DC86-1173-43AC-BC84-FE2834741C13@gmail.com>
Date: Sat, 6 Jul 2019 15:21:59 -0700
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To: Tamas Blummer <tamas.blummer@gmail.com>
Cc: Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] Generalized covenants with taproot enable
	riskless or risky lending,
	prevent credit inflation through fractional reserve
Precedence: list


> On Jul 6, 2019, at 06:34, Tamas Blummer <tamas.blummer@gmail.com> wrote:
>=20
> Hi Eric,
>=20
>> On Jul 6, 2019, at 03:28, Eric Voskuil <eric@voskuil.org> wrote:
>>=20
>>=20
>>=20
>>> On Jul 5, 2019, at 17:17, ZmnSCPxj <ZmnSCPxj@protonmail.com> wrote:
>>>=20
>>> Good morning Eric,
>>>=20
>>>> But it=E2=80=99s worth noting that early recovery of the UTXO entirely e=
liminates the value of the time lock cost to the ad market. The most obvious=
 example is one encumbering the coin to himself, then releasing it with his o=
wn two signatures whenever he wants. In other words, there is no encumbrance=
 at all, just a bunch of pointless obscurantion.
>>>=20
>>> You still do not understand.
>>> I strongly suggest actually reading the post instead of skimming it.
>>=20
>> I am responding to the cryptoeconomic principles, not the implementation d=
etails. Based on your comments here I am not misrepresenting those principle=
s.
>>=20
>> For example, I have shown that the multisig unlock implementation reduces=
 the presumably-encumbered UTXO to simply a UTXO. You have not disputed that=
. In fact below you have accepted it (more below).
>>=20
>>> The advertisement is broadcast to new nodes on the ad network if and onl=
y if its backing UTXO remains unspent.
>>> Once the UTXO is spent, then the advertisement is considered no longer v=
alid and will be outright deleted by existing nodes, and new nodes will not l=
earn of them (and would consider it spam if it is forced to them when the UT=
XO is already spent, possibly banning the node that pushes the advertisement=
 at them).
>>>=20
>>> Thus the locked-ness of the UTXO is the lifetime of the advertisement.
>>=20
>> The term =E2=80=9Clocked=E2=80=9D here is misused. A unspent output that c=
an be spent at any time is just an unspent output. The fact that you can =E2=
=80=9Cunencumber=E2=80=9D your own coins should make this exceedingly obviou=
s:
>>=20
>>> Once you disencumber the coins (whether your own, or rented) then your a=
dvertisement is gone; forever.
>>=20
>> As I have shown, there is no *actual* encumbrance.
>>=20
> If you have to forgo using your money while using a service that encumbers=
 you. You incur opportunity cost proportional to time you use the service an=
d the amount you waived to use elsewhere.
> No crypto is needed to understand this.

My use of =E2=80=9Cencumbrance=E2=80=9D in this thread has been consistently=
 a reference to a covenant. When the covenant can be released at any time it=
 serves no purpose whatsoever, being an encumbrance in name only.

I gave a detailed explanation of opportunity cost, and gave you a scenario w=
here that opportunity cost could actually be used - to purchase a tracking o=
utput (i.e., a fixed term asset tracked for that term). And I have discussed=
 at length the use of opportunity cost in the hash-cash-like anti-spam ad sc=
enario.

So it=E2=80=99s not clear to me why you continue to imply that the nature of=
 either covenants or opportunity cost is the point at issue, and by implying=
 I don=E2=80=99t understand them.

**The central issue in your proposal is that constrained coins can neither b=
e used as borrowed money nor the tracking of perpetual assets.** This conclu=
sion is not based on a failure to understand the nature of covenants or the c=
oncept of opportunity cost. It is the necessary consequence of attempting to=
 trade something today that will provably disappear tomorrow. The sole possi=
ble value of such an instrument is to scam the eventual bag-holders.

A secondary issue, in the valid fixed-term asset tracking scenario, is that t=
he cost of tracking is dust (and at least one transfer fee). The cost of suc=
h tracking is a function only of the market price of a satoshi. The financia=
l value of renting one dust output is also limited in time by economic  inte=
rest (i.e., at 10% it is cheaper to buy than rent if the fixed term exceeds 7=
.2 years). So while valid, is not likely to be demanded until one satoshi be=
comes worth the overhead of renting it.

The opportunity of interest represents opportunity cost when forgone. This c=
an be used to show proof-of-cost (ad scenario), and that level can float as a=
 price on the anti-spam market. This is a perfectly valid scenario, as I hav=
e said.

The issue with that specific proposal is that it uses covenants in an irrati=
onal manner. The ability to release the covenant at any time eliminates the c=
ost it would otherwise represent. One could either simply burn or spend coin=
 outright, or use an actual encumbrance (as you propose) to =E2=80=9Cburn=E2=
=80=9D (provably destroy) the opportunity, but a non-encumbrance adds nothin=
g except complexity.

>>> Your advertisement exists only as long as the UTXO is unspent.
>>=20
>> Exactly, which implies *any* UTXO is sufficient. All that the ad network r=
equires is proof of ownership of any UTXO.
>>=20
> Not any, but one with significant value, so a service with limited bandwit=
h can prioritize by that.

Not significant, which is arbitrary, but sufficient - a result of supply and=
 demand. Clearly my intent here is that no covenant on the UTXO is required i=
n the scenario. As the preceding discussions conclude, without disagreement,=
 all that is required is that the (sufficient) output remains unspent, not t=
hat it be encumbered.

>> Best,
>> Eric
>>=20
>>> Regards.
>>> ZmnSCPxj
>=20
> Best,
>=20
> Tamas Blummer