Ethereum Classic and Crypto Monetary Policy London Event

ETC Year One and Crypto Monetary Policy

Dr. Avtar Sehra@avtarsehra

London Event

13 December 2016

3rd Party Products and Services

“Do not go gentle into that good night..”- Dylan Thomas

Changing an Immutable Public Blockchain The DAO, a smart contract based fund raised ~$150million from more than 11,000 investors, and was hacked, with ~$70million** being “misappropriated”. The immutable Blockchain transactions were reversed to return funds to investors through a “hard fork” on July 20th 14.30 UTC

*Weakness in smart contracts was due to a reentrancy issue** Figures based on $20=1ETH market price at time of hack

●Immutable Infrastructure should be a truth machine that can not be changed no matter what the circumstances

●Neutral: Infrastructure should be neutral to transactions/ applications on it; endorsements by a central team leads to conflict of interest that skew future evolution

●Open: Infrastructure should be openly accessible by anyone to ensure scalability and minimize possibilities of risks linked to centralization

Principles of a Decentralised Infrastructure

All key aspects of the ecosystem require a certain level of decentralization

Decentralization of all aspects of ETC Ecosystem

Technology• Core Dev/Support• Operations• R&D

Community• Marketing • Education• Dapp Dev

Administration• Governance• Finance Management• Risk Control

Decentralized Infrastructure

Minimizing Points of Failure

● Core ETC dev team being established● Multiple clients ported● Execute removal of difficulty bomb● Strategy/fix for transaction replay

issue● Assess dev of ETC Mist-like client● Deploy independent blockchain

nodes● Grow core developer community

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● Collaborate with Ethereum developers to design, dev and test core protocol updates?

● Research/test PoW/PoS mechanisms● Research/test maximally efficient

monetary policy for consensus mechanism

● Dev ETC focused Mist-like client● Assess path to state Sharding ● Assess VM upgrades e.g. verified

compiler● Establishing communication channels

for global coordination and consistency

● Setup global meetups to begin deployment of decentralised community network

● Establish framework for Dapp developers

● Defining core social contract● Defining community-driven roadmap● Define governance models for

execution● Design/deploy funding mechanisms● Define monetary policy

● Execute PoW, PoS or Hybrid cons mech

● Execute appropriate monetary policy● Test/implement state sharding● Research/test VM improvements if

deemed fit for implementation

● Further outreach to miners● Extend meetups and conferences● Setup of overall Dev conference ● Deployment of structured Dapp dev

ecosystem and support framework e.g. hackathons and 3rd party funding

Ecosystem Roadmap

Focus Points to Ensure Sustainability

1. Define Monetary Policy

2. Expand Core Dev Team

3. Establish Funding/Governance

4. Establish Dapp Dev Community

Perception of Sustainability

ETC Price has Stabilized over last month as community has started to focus on monetary policy planning

Monetary Policy:Controlling the Supply of Money

Gold and silver mining in ancient Greece; where precious metal based monetary economy replaced barter trading in seventh century BC.

Store of Value

Functions of Money

Medium of Exchange

Unit of Account

Store of Value: Allows purchasing power to be saved, and used in the future

Unit of Account: Stable and easily divisible expression for the worth of any good or service

Medium of Exchange: Accepted by all as a means to transact goods and services

Example of Bitcoin Monetary Policy in Action

Started: Jan 3rd 2009, 18:15:05

0 coins at the start, and there is a cap of

21million coins

Through process of mining, validating and “recording” new transactions in the

blockchain, 50 coins were released every 10 minutes

to miners (along with transaction fees)

Reward of 50 coins is reduced by 50% every ~4

years. We are now on 12.5coins per mining

reward

By October 2140 the last Bitcoin will be mined, at

which point its is expected all rewards are replaced by

transaction fees

Store of Value

Factors to Manage Cryptocurrency Monetary Policy

Medium of Exchange

Unit of Account

Store of Value: The value of the native digital asset on the network could be managed by controlling perception of future value of the token through scarcity and supply control:

• How native digital tokens enter (and exit) the system

• Is there a capped or never ending supply (deflation/inflation)

Medium of Exchange: Number of retailers that are prepared to accept cryptocurrencies as payment is not within the direct control of the network, but it can be nurtured:

• Simple tools for interaction with network

• Perception of stable and secure means of transaction

Unit of Account: Parties agreeing and negotiating prices of goods and services in cryptocurrencies is challenging as it depends on the wider economic factors e.g. fiat system stability, legal and regulatory factors, but it again can be nurtured:

• Value of native token is stable over time

• Simple divisible and manageable units

Comparing BTC and ETC Monetary Policy

Currency Start+UTC

Starting Money Supply

Supply Cap

Average Block Time

Start Block

RewardSupply

ScheduleCurrent Block

Reward

Money Supply as of 5 Dec

2016

Monetary Base

Model

Bitcoin (BTC)

Jan 3rd 2009 18:15:05 0 BTC 21million

BTC 10 minutes 50 BTC

50% Reduction

every 210,000 blocks

(~4years)

12.5BTC 15,959,725 BTC Deflationary

Ethereum Classic (ETC) Jul 30th 2015

15:26:1360 million

ETCCurrently No

Cap 12 seconds

5ETC(4.375 ETC for max 2 Uncles

Perpetual Release

5ETC(4.375 ETC for max 2 Uncles

86,560,205 ETC Inflationary

3rd Party Products and Services

1. Technology Progress to Date and Next Steps by Igor Atramonov

2. Overview of Proposed ETC Monetary Policy by Matthew Mazur

3. Panel Discussion on Monetary Policy in Cryptocurrencies

4. Video Message by Carlos Graterol on ETC Twitter Sentiment

3rd Party Products and Services

Ethereum Classic

Technology Progress to Date and Next StepsDecember 2016Igor Artamonov

How it startedAt block 1,920,000 (at 20 July 2016) Ethereum Classic was born

In the early days people kept using the nodes without the hardfork

At the beginning there were only one person who was able to maintain the Ethereum Core code - Gravity

Then, a few more developers joined ETC GitHub To fork and fix Ethereum code

To start new projects

Ethereum Classic Progress1. ETC Community has focused on taking care of all core

aspects of the network: Nodes and Wallets

2. Successfully made first protocol upgrade (Hard Fork at block 2,500,000)

a. VM Operations reprice to mitigate DDoS attack

3. Implementation ready for the next fork planned for 15th of January

a. Difficulty Bomb delay

b. VM Operations price improvements

c. Replay Protection

Core Projects

Geth - official client implementation of the protocol

Parity - 3rd party client implementation, supports both ETC & ETH

Mist - official wallet for ETC

Additional Projects

ETC Block Explorer (hosted on etherhub.io)

Dapp UI SDK - Javascript components for building ETC applications

EtherJar - Java tools for Dapp developers

EtherKube - tools to deploy/manage ETC nodes in a cloud (Kubernetes & Docker based clouds)

CommunityThe Community is the main force

behind ETC decisions and development

All significant changes to the protocol are made through ECIP (Ethereum Classic Improvement Proposal) process

35 members at the moment who have rights to commit

Community makes code reviews for each commit into core projects

Other people can send Pull Requests

Core Projects Team

Dedicated team to work full time on Core Projects

To maintain, improve and implement next versions of core projects

Forming currently by Igor ArtamonovHiring Rust, Go and Javascript developers

Team funded by investors who are interested in Ethereum Classic’s future

ETC is also looking for additional and sustainable sources of funding

Core Projects Plan for Y17Do protocol upgrade on January 15th

Difficulty Bomb, Replay Protection, VM Operations Reprice

Implement and test new Monetary Policy

Classic Wallet (New Project)We aren’t happy with current Mist (ETH Wallet) code and we don’t think it’s worth the

effort to maintain existing code, so focus is to create a new wallet from the ground up

Research Hybrid Proof-of-Stake/Proof-of-Work consensus applicability to Ethereum Classic

Maintain Geth and Parity

Overview

Other Teams

Few other teams and commercial organizations are gathering around Ethereum Classic at the moment

Ethereum Classichttps://ethereumclassic.github.io/

2016

Igor Artamonovigor@artamonov.ru /

splix@ethereumclassic.orgTwitter @splix

3rd Party Products and Services

ECIP-1017Matt Mazur

(snaproll)

Current Network Hash Rate ≈ 700 GH/s

• Large scale, high risk, high profile applications will not use a chain with weak security

• Speculation demand drives the price until utility demand exceeds speculative demand• Especially important to new systems

• ETC is a new system• However, AMZN :)

• “Bootstrap” security of the network by rewarding early, high risk investment• Incentivize speculation / increase speculative demand

• A MP which sets out to achieve “optimal total investment” will perform better than a MP which sets out to achieve near term investment.

REASONING

GOALS & METRICS

• Simple, easy to understand, predictable• Complexity introduces risk to users, reducing trust in the policy

• Allows time for development, adoption, and awareness of implementation

• Rate resembles bitcoin model • Only generally accepted production model in crypto• Depreciating rate of production over time• Upper bound on total units• 50% distribution date• 3% inflation rate date

5M20 MODEL

• 20% reduction of all awards every 5M blocks

• Equalize uncle rewards at block 5M• More fairly distributes ETC to miners • Reduces incentive to “farm uncles”• Enables for more accurate forecasting of future upper bound• Still provides an incentive to remain on the network

MP ANALYSIS

CURRENT MP

(All Eras)5 ETC - 14.0625 ETC / block

in perpetuity

3% inflation Estimated in 2042

Almost 3x longer than bitcoin

ECIP-1017

Era 15 ETC - 14.0625 ETC / block

Blocks 1 - 5M

Era 220% reduction of rewards at block 5M

Uncle rewards equalized

20% reduction every 5M blocks thereafter

50% Distribution DateSept 2018

3% Inflation DateJuly 2025

BITCOIN MP

(Era 1) 50 BTC / Block

Halving roughly every 4 years

50% Distribution DateJuly 2019

3% Inflation DateJuly 2025

METRICS COMPARISON

ECIP-1017

Bitcoin Very Close Dates

ECIP-1017

BitcoinDates off by 10 months

But “risk” period began in Sept 2014,so add 11 months to ECIP-1017

= Dates are off by one month

METRICS COMPARISON

ECIP-1017 isn't a perfect mirror reflection of bitcoin’s model, but it provides the closest resemblance to it in key metrics while still retaining

simplicity and time for development, implementation and adoption.

Can’t occur due to time constraint

Lowest vote count

Equal acceptance rateand

sits in between 4M and 6M Block Eras

(ETCC Feedback provided by Roy Zhen aka pyds1977)

Too long, we need to start the Eras at block 4M, or sooner

Argument #1

Block 5M Block 6MBlock 4M

{Sweet Spot

{Potential

Development RiskPotential Loss of

Investor Confidence

{

Too many coins, needs to be in the 120M-150M range

Argument #2

72,002,454.77120,000,000 = 60%

72,002,454.77150,000,000 = 48%

Genesis block

86,796,809150,000,000 = 58%

Genesis block

Current≈ 18 months

Distribution of total coins occurs too soonRisk of centralization of token ownership

Optimal investment unlikely

ETC doesn’t need to resemble Bitcoin’s long, drawn out MP.That was only required because bitcoin was a new concept.

Argument #3

Any sufficiently disruptive crypto should not need to resort to changing from a known, working model (bitcoin)

Any sufficiently disruptive crypto will likely require a bitcoin length time period for the market to figure out the value proposition.

A crypto which chooses to part too far from bitcoin’s model, or at least from relevant bitcoin distribution metrics, is using MP as a crutch, a marketing gimmick, and/or as its main selling point.

Path to Implementation

Now 3M 4M3.5M3.25M

Discussion

Development

Testing

Implementation

3.75M

Adoption

Execute or

Null

13.12.16 15.01.17 26.06.1706.04.1724.02.17 16.05.17

250k blocks ≈ 40 days

Client ImplementationDrop Dead Date

Client Implementation Goal Date

Voting

Team Formation

While it is important to incentivize early, high risk investment,the monetary policy should not remain a focal point of the network.

There are enough unknowns and complexities when it comes to ETC, a monetary policy should not add to them.

3rd Party Products and Services

Monetary Policy in CryptocurrenciesJon Matonis | Alistair Milne | Edan Yago | Matt Herbert

Web: ethereumclassic.org Twitter: @eth_classic Slack: ethereumclassic.herokuapp.com