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Author Topic: Nxt 2.0 child chain tokens pegged to fNXT  (Read 12129 times)

petko

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Nxt 2.0 child chain tokens pegged to fNXT
« on: February 12, 2016, 02:33:32 pm »

[Edit2]

After talking with durerus and James in chat, they made me realize I don't clearly explain this mechanism. So here is another way to look at it:

The proposed Nxt 2.0 design can be modified so that there is no new fNXT token introduced. The current NXT stays distributed as is and the user has 2 opportunities
  • Lock the NXT and use it for forging (and maybe to send it to another account)
  • Unlock the NXT and spend it for whatever it can be spent today

Locking and unlocking can be done any time. The lock/unlock transaction is persisted forever (its fee will be higher than the usual prunable transactions, but not higher than today's transactions or any other persisted transactions). After locking there is the standard 1440 blocks time until the stake can be used for forging.

Initially after the hardfork, either all NXT will be locked, or we can think for other distributions. The distribution is not that essential since anytime anyone can lock or unlock their NXT.

The original post below contains more details about how and why this works. I talk there about multiple child chains. It is actually possible the unlocked NXT to go to one chain or another (but not both in the same time). This might appear useful for a lightweight client which processes the root chain and only one child chain. But for now disregard the several child chains and consider there is only one child chain. (BTW for the lightweight client to work, we must introduce a new limitation that the locked NXT to not be transferred or unlocked again for next 1440 blocks)

[Edit2 ends]

In Nxt 2.0, I think we can peg the child chain tokens (NXT) to the root token (fNXT in JLP's design).

How does it work
 - A notion of locked tokens is introduced - maybe by a transfer to a special purpose account, or some other mechanism.
 - All child chains have 1B tokens (equal to the total fNXT amount). When a new child chain is created, all its tokens are locked.
 - At any time, owners of fNXT can issue a transaction that locks some of their fNXT and unlocks (transfers to the issuer's account) the same amount of child tokens in a child chain specified in the transaction.
 - Again at any time, owners of child chain tokens can issue a transaction to the fNXT chain (they need some fNXT for that) that locks the NXT and unlocks the same amount fNXT. Since all nodes process all chains, the nodes have the necessary information to validate this transaction. New node downloading the blockchain will assume the transaction must have been valid at the time it was processed similarly to the ChildchainBlock transactions.

Pretty naive, huh?

Why does it work
Intuitively this gives one more opportunity to the attacker in case of a successful long-range attack - they can steal the locked tokens and this way increase even further their forging power. I argue that this doesn't matter:
 - There are no full long-range attacks in NXT because nodes will not switch to forks with common block older than 720 blocks ago. If an attacker manage to generate a chain with length > 720 (at any moment in the past), that has better difficulty than the main chain, they can only fool the new nodes downloading the blockchain (this, of course, is in no way underestimated as a threat).
 - Forging balance becomes active 1440 blocks after it was received.
 - Nodes are greedily choosing the best chain they see - once trapped in the attacker's chain they will never step back to the true chain.

 => So the two-way peg presented here does not increase the opportunities for a new node to get trapped in a fork.

If a new node is trapped in an attacker's fork for more than 720 blocks, the attacker can
 - Fool the node that a payment was made, while it wasn't on the main chain (already possible in Nxt 1)
 - Change balances and everything in child chains (Nxt 2.0)
 - Increase his total fNXT with locked fNXT (Nxt 2.0 + peg). My point is that this doesn't matter - nodes must anyways not get trapped

Edit: I missed to explain what the two-way peg gives (in case it is not obvious):
Finally, in the described system, there are exactly 1B non-locked tokens. I.e. all chains share the same currency, while benefit from the pruning capabilities in Nxt 2.0
« Last Edit: February 24, 2016, 06:37:54 pm by petko »
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Cassius

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #1 on: February 12, 2016, 04:10:41 pm »

I started a new thread about the pegged tokens opportunity - https://nxtforum.org/core-development-discussion/nxt-2-0-child-chain-tokens-pegged-to-fnxt/

(Since I don't see anyone replaying to my post - not that I read all 14 pages since then)

I think it is worth to be discussed first instead of arguing about the fNXT/nNXT distribution

Yes, I've noticed a certain selectivity about engaging with comments.

I'm not fully understanding this. Are you implying that there could be any number of locked tokens across all chains, but only 1 billion active (unlocked) tokens?

I'm also interested to understand any overlap with the possibility of forging on a shadow NXT balance of people's regular NXT accounts.

https://nxtforum.org/core-development-discussion/nxt-2-0-design/msg209323/#msg209323
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Sebastien256

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #2 on: February 12, 2016, 04:25:26 pm »

The requirement of 1B coins for each child chain is not realistic. Is this mandatory in this proposition?
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Jean-Luc

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #3 on: February 12, 2016, 04:39:47 pm »

When an account locks some amount of fNXT, does it lose the ability to forge with it? If it does, the total forging power will change depending on how much fNXT is currently locked. Need to think through what consequences this may have. Somehow the forging power of the main chain will become related to the tokens unlocked in the child chain, so it is no longer true that security does not depend on what happens in a child chain.

It is better to place both lock and unlock transactions on the forging chain, so that all transactions that change fNXT effective balances are always verifiable and that "trust others that they have verified them" is not needed for those.

What you are suggesting is in a way equivalent to allowing exchange of fNXT to NXT to only occur at 1:1 rate. Since we don't want to peg all child chain tokens to have 1:1 value in fNXT, otherwise they will not really be independent tokens and the whole system of child chains has no purpose, we do need an exchange mechanism of child token to fNXT, similar to the current asset exchange, with bid and ask orders. If we need to implement such exchange anyway, can the peg of fNXT to NXT also be realized by only accepting ask or bid orders at price 1.0? This would be hardcoded for the NXT child chain, and we will not need a separate lock/unlock transaction mechanism.

But then, the problem is that an exchange of fNXT to NXT can be performed outside of the system, instead of going through the built-in AE, for example on a centralized exchange. If one of them is perceived as more valuable, its price will go up on such exchange, and nobody would be using the built-in exchange (there will be no ask or bid orders respectively). Does the lock mechanism have the same problem, or is it prevented by assuring there are always some locked tokens available for 1:1 exchange, because you start with all child tokens locked? But what happens when there are multiple child chains, some of them pegged, some not?
« Last Edit: February 12, 2016, 04:43:22 pm by Jean-Luc »
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Jean-Luc

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #4 on: February 12, 2016, 04:42:02 pm »

I'm also interested to understand any overlap with the possibility of forging on a shadow NXT balance of people's regular NXT accounts.
Verifying such shadow balance when downloading the blockchain depends on having the transactions in the regular NXT chain still available, it is not different than what we have now.
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Cassius

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #5 on: February 12, 2016, 04:44:08 pm »

I'm also interested to understand any overlap with the possibility of forging on a shadow NXT balance of people's regular NXT accounts.
Verifying such shadow balance when downloading the blockchain depends on having the transactions in the regular NXT chain still available, it is not different than what we have now.

So your point is that if our current NXT dies for some reason, sNXT is also dead, and therefore this cannot work?
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petko

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #6 on: February 12, 2016, 04:44:47 pm »


I'm not fully understanding this. Are you implying that there could be any number of locked tokens across all chains, but only 1 billion active (unlocked) tokens?
The number of locked tokens is always equal to number_of_created_side_chains * 1B

Consider the locked tokens as if they do not exist - they are not owned by anyone, cannot forge, etc.

Quote
I'm also interested to understand any overlap with the possibility of forging on a shadow NXT balance of people's regular NXT accounts.

https://nxtforum.org/core-development-discussion/nxt-2-0-design/msg209323/#msg209323
If sNXT reflects the state of NXT, then to verify that certain account has the right to forge certain block, one must have also processed the NXT chain. I don't understand the purpose of your idea.
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petko

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #7 on: February 12, 2016, 05:23:42 pm »

When an account locks some amount of fNXT, does it lose the ability to forge with it? If it does, the total forging power will change depending on how much fNXT is currently locked. Need to think through what consequences this may have. Somehow the forging power of the main chain will become related to the tokens unlocked in the child chain, so it is no longer true that security does not depend on what happens in a child chain.
Yes, it loses the ability to forge.

Quote
It is better to place both lock and unlock transactions on the forging chain, so that all transactions that change fNXT effective balances are always verifiable and that "trust others that they have verified them" is not needed for those.
Yes, both are on the fNXT chain, but a node downloading the blockchain anyways cannot validate that the respective account had the funds in the child chain at the time the unlock of fNXT happened.

Quote
What you are suggesting is in a way equivalent to allowing exchange of fNXT to NXT to only occur at 1:1 rate. Since we don't want to peg all child chain tokens to have 1:1 value in fNXT, otherwise they will not really be independent tokens and the whole system of child chains has no purpose
I disagree - the purpose is that any transactions occurring between the lock and the unlock of the fNXT are not included in the fNXT blockchain.

Quote
, we do need an exchange mechanism of child token to fNXT, similar to the current asset exchange, with bid and ask orders. If we need to implement such exchange anyway, can the peg of fNXT to NXT also be realized by only accepting ask or bid orders at price 1.0? This would be hardcoded for the NXT child chain, and we will not need a separate lock/unlock transaction mechanism.

But then, the problem is that an exchange of fNXT to NXT can be performed outside of the system, instead of going through the built-in AE, for example on a centralized exchange. If one of them is perceived as more valuable, its price will go up on such exchange, and nobody would be using the built-in exchange (there will be no ask or bid orders respectively). Does the lock mechanism have the same problem, or is it prevented by assuring there are always some locked tokens available for 1:1 exchange, because you start with all child tokens locked? But what happens when there are multiple child chains, some of them pegged, some not?
The lock/unlock mechanism is different from the decetralized exchange because the locker don't need a corresponing seller on the other side.

If non-pegged child chains are really so important, the pegged ones are not disallowing their existence - either exchange or peg.
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #8 on: February 12, 2016, 06:44:26 pm »

Just got a chance to read this thread. Petko's idea ties in very nicely with my semi-joke yesterday about halving the total of NXT and creating the equivalent half a billion fNXT.
Petkos lock/unlock mechanism will allow this to happen, and looks like an elegant solution.

Maybe we should start thinking about making the NXT child chain the 'favourite' child chain, giving it a closer relationship to the forging chain than other child chains. The ability to transfer NXT to fNXT is not something that we can apply to all child chains.

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Jean-Luc

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #9 on: February 12, 2016, 07:00:04 pm »

I am not convinced. The locking creates coupling between the two chains, with the locked supply of either fNXT or NXT being able to vary all the way between 0 and 1B, in order to maintain the peg, because there must always be some locked amount of the other currency available for unlocking. What are the consequences of total forging power being able to vary that wildly, and in response to forces external to the blockchain?
We are also weakening the security by making more assumptions about transaction validity. While probably correct, it is always preferable to have multiple layers of security. And we are adding code complexity, by adding lock and unlock transactions, and making the Nxt blockchain a special case, not quite like the other child chains.

I thought people have a problem with the 1:1 fNXT:NXT initial distribution, not with what happens afterwards. The peg approach doesn't seem to change this, we still have to start with fixed amounts of fNXT and NXT even if some of it is locked.

We already give preference to the NXT child chain by making it the default chain in the client, and by controlling, at least initially, who can create new child chains. But after that initial 1:1 start, I think it is better to let the market determine the relative price of fNXT to NXT.
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Cassius

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #10 on: February 12, 2016, 07:36:07 pm »


I'm not fully understanding this. Are you implying that there could be any number of locked tokens across all chains, but only 1 billion active (unlocked) tokens?
The number of locked tokens is always equal to number_of_created_side_chains * 1B

Consider the locked tokens as if they do not exist - they are not owned by anyone, cannot forge, etc.

Quote
I'm also interested to understand any overlap with the possibility of forging on a shadow NXT balance of people's regular NXT accounts.

https://nxtforum.org/core-development-discussion/nxt-2-0-design/msg209323/#msg209323
If sNXT reflects the state of NXT, then to verify that certain account has the right to forge certain block, one must have also processed the NXT chain. I don't understand the purpose of your idea.

Yes. I did not think it through or articulate it particularly well.
The general idea was to achieve something like the same ends as the idea you have suggested and that Dave hinted at: creating a closer relationship between NXT and fNXT, since this is the part of the whole discussion that is most controversial.
The peg does appear to address the 'split' problem, at least to a reasonable degree, because no one gets lots more fNXT without sacrificing the utility and value of their NXT. I see what J-L is saying, but this does seem like a fruitful line to pursue further.
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petko

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #11 on: February 12, 2016, 07:53:16 pm »

I am not convinced. The locking creates coupling between the two chains, with the locked supply of either fNXT or NXT being able to vary all the way between 0 and 1B, in order to maintain the peg, because there must always be some locked amount of the other currency available for unlocking.

Yes, this is how it works.

Quote
What are the consequences of total forging power being able to vary that wildly, and in response to forces external to the blockchain?
It's the active forging power that secures the network. The consequence of the total forging power being able to go below 1B fNXT is only that we can be sure the locked fNXT is not forging a hidden fork.

Quote
We are also weakening the security by making more assumptions about transaction validity. While probably correct, it is always preferable to have multiple layers of security.
Yes, if there was a bug in the calculation of the effective balance, today an attacker will have to do some sha256 hashing + transfers between accounts in order to generate a better chain, while with the peg he can directly acquire and use the locked fNXT. Are these the multiple layers of security you talk about?

Quote
And we are adding code complexity, by adding lock and unlock transactions, and making the Nxt blockchain a special case, not quite like the other child chains.
I don't think the NXT token will be the only one pegged to fNXT

Quote
I thought people have a problem with the 1:1 fNXT:NXT initial distribution, not with what happens afterwards. The peg approach doesn't seem to change this, we still have to start with fixed amounts of fNXT and NXT even if some of it is locked.
I myself don't have a problem with the 1:1 distribution. The peg is a mechanism that gives value to fNXT by allowing it to be used in cheap transactions. Locked tokens do not have any value for the economy, so with my design we start with 1:0 (since all NXT is locked).

Quote
We already give preference to the NXT child chain by making it the default chain in the client, and by controlling, at least initially, who can create new child chains. But after that initial 1:1 start, I think it is better to let the market determine the relative price of fNXT to NXT.
« Last Edit: February 12, 2016, 08:55:45 pm by petko »
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #12 on: February 12, 2016, 11:44:24 pm »

Are you inventing eMunie? ;D
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #13 on: February 13, 2016, 11:04:50 am »

I'm also interested to understand any overlap with the possibility of forging on a shadow NXT balance of people's regular NXT accounts.
Verifying such shadow balance when downloading the blockchain depends on having the transactions in the regular NXT chain still available, it is not different than what we have now.

So your point is that if our current NXT dies for some reason, sNXT is also dead, and therefore this cannot work?
I think his point is that forging with shadow-NXT makes the NXT child-chain unpruneable.

As I understand it, the entire system's security depends on the security of the fNXT mother chain. For the system to be trust-free, someone needs to be able to verify the current fNXT balances from scratch, or rather, starting from the (new) genesis block and applying all the fNXT transactions forward. This means fNXT transactions are not pruneable. By verifying the fNXT history, you also verify that each block is forged by someone who has the right to forge under the Proof of Stake system, and hence that the consensus is solid. If you include shadow NXT in forging stake, then you also need to verify the NXT balances from scratch, which makes the NXT child-chain unpruneable.

If you do that, then you might as well not split NXT and fNXT and just keep NXT as the mother chain. You could do that and still introduce child-chains, and then the new child-chains would be scalable and the NXT chain wouldn't be. That might work out. NXT would be no worse off then it is now, and the new child-chains could address new use cases like micro-transactions and third-world currencies (because I'm assuming the increased efficiency, and the possibility to sponsor child-chain blocks at a loss, will allow lower transaction fees on child-chains). Most likely NXT would become used less and less over time, with activity moving to one or other child-chain where it's cheaper. Probably we'd designate one particular child-chain as the NXT replacement. We might end up in a similar place to what Jean-Luc proposes, except more gradually, and with the mother chain permitting all transactions but making them prohibitively expensive. So to me it's an option worth considering, but it doesn't really achieve what you want.

That's just my understanding. The difference between shadow NXT and pegged NXT is really quite subtle and I might be getting it wrong. In both of them, NXT can effect forging. I think the difference is, with pegged NXT the forging power is always in fNXT, and when NXT are converted into fNXT it is done with a transaction on the fNXT mother chain that can be verified trust-free. And this counts even though the history of the NXT being converted cannot be verified directly. The NXT balance is verified essentially from being included in a snapshot on the fNXT chain. That works as long as we trust the fNXT chain up to that point, which is actually trust-free, because we can verify it back from the genesis block.

I hope someone will correct me if I've got any of this wrong. I certainly think it is worth exploring alternatives. The opportunity costs of spending a year/18 months building 2.0 are so great, we really want to make sure we are going in the right direction.
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #14 on: February 13, 2016, 11:56:47 am »

My original assumption was that the sNXT/NXT balances on each chain would reflect each other and both be independently verifiable, which is probably not possible. (I'm not 100% clear why the NXT chain would be unpruneable, since all the balance information would be stored on the sNXT chain, but I think you're probably right in your criticism.)
There is a strong advantage to securing everything on the one chain because unlimited scalability is so valuable. If we were starting from scratch it would be a different matter. But we're not :)
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #15 on: February 13, 2016, 06:04:37 pm »

Free market, price freedom
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #16 on: February 13, 2016, 06:30:49 pm »

My original assumption was that the sNXT/NXT balances on each chain would reflect each other and both be independently verifiable, which is probably not possible. (I'm not 100% clear why the NXT chain would be unpruneable, since all the balance information would be stored on the sNXT chain, but I think you're probably right in your criticism.)
There is a strong advantage to securing everything on the one chain because unlimited scalability is so valuable. If we were starting from scratch it would be a different matter. But we're not :)

its not unlimited scalability
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #17 on: February 13, 2016, 07:52:40 pm »

My original assumption was that the sNXT/NXT balances on each chain would reflect each other and both be independently verifiable, which is probably not possible. (I'm not 100% clear why the NXT chain would be unpruneable, since all the balance information would be stored on the sNXT chain, but I think you're probably right in your criticism.)
There is a strong advantage to securing everything on the one chain because unlimited scalability is so valuable. If we were starting from scratch it would be a different matter. But we're not :)

its not unlimited scalability

There is no need to be quite so literal.

"...because Quite A Lot of scalability, like a lot more than any other protocol out there, is so valuable..."
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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #18 on: February 14, 2016, 07:42:58 pm »

Are there advantages to burning NXT for fNXT instead of locking/unlocking? E.g.
  • It's permanent - no change in the quantity that can be used to forge (even if it isn't)
  • It's simpler - one-time operation, could be carried out manually/automatically before launching 2.0
  • You know the people who burned NXT really want fNXT, so they're a self-selecting group that is more likely to forge
  • No dilution, split, etc, which is much more palatable and understandable to the community and new investors/users
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Jean-Luc

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Re: Nxt 2.0 child chain tokens pegged to fNXT
« Reply #19 on: February 14, 2016, 08:17:03 pm »

Burning does not set a 1:1 peg of the value of fNXT to NXT. If burning is allowed after the snapshot, it would establish an upper limit for the price of fNXT, but this price could still drop lower, because you cannot forbid the free trade of fNXT to NXT on other exchanges even if not implemented on the blockchain. If you allow two way burning, it is same as a peg, but maintained at the cost of permanently diminishing supplies. Edit: actually no, because then you recover back the other token. So allowing two-way burning would be same as the locking based peg, unless I am missing something. But you still have to make the assumption that the account burning NXT indeed had them before that information was pruned, when downloading the blockchain from scratch, same as with the peg.

Whether a 1:1 peg is a good idea or not does not have to be decided now. Since child chains with market value tokens and fees should also be supported, a method of unpegged exchange of fNXT to native token and market value fee conversion must be implemented anyway, and the rest of the code is not affected much.
« Last Edit: February 14, 2016, 08:37:11 pm by Jean-Luc »
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elective-stereophonic
elective-stereophonic
assembly
assembly