Faultcoin: A Stochastic Wealth Redistribution Cryptocurrency

I. Introduction

Decentralized cryptocurrencies have come to rely almost exclusively on game theory and computationally intensive cryptography to ensure the validity of their systems. This has proven reasonably successful.

While these methods work well enough for most transactions, the ecosystem overall still suffers from the inherent weaknesses of the consolidation of wealth to a few whales, i.e. early adopters of Bitcoin who manipulate altcoin networks for profit. The consolidation of crypto-wealth is bound to spiral into a “Cronus eating his babies” situation, and potentially groundbreaking innovations may be stifled before they get a chance to shine.

What is needed is an electronic payment system based on redistribution instead of consolidation, allowing spontaneous reversal of fortune to kneecap an attempted cartel before it takes control of the network.

Faultcoin is the world’s first cryptocurrency made to spontaneously redistribute wealth in accordance with natural disasters.

2. Problems with Existing Systems

Proof-of-Work

In the Bitcoin whitepaper, Satoshi Nakamoto outlines a key hurdle to overcome in any decentralized currency system: the 51% attack. Essentially, a bad actor could gain control of 51% of the network in order to mine an invalid block. This is a reality in today’s Bitcoin where a handful of mining pools account for a majority of computing power.

Proof-of-Stake

As Vlad Zamfir notes, it’s easier to construct a decentralized system using game theory when economic incentives and disincentives are directly integrated into the protocol. In Proof-of-Stake, the real-world cost of computing power and electricity gives way to economic penalties. Bonded validators stand to gain returns on their investment by validating the system, but they also stand to lose their investment in part or in whole should they promote a malicious block.

However, because there is no work required to mine a block, PoS is susceptible to the long-range attack: malicious validators can generate alternate blockchains without prohibitive computational effort.

3. Proof-of-Chaos is the answer we’ve been waiting for.

Faultcoin is modelled on Casper’s upcoming Proof-of-Stake, with an additional protocol layer. It’s a fat protocol. The block reward is distributed by an oracle that monitors seismographic information from the Global Seismographic Network (GSN), a non-profit organization funded by the US government. This is obviously vulnerable to a simple non-profit budget attack, in which a malicious actor simply donates 10–20 Bitcoin per year to the organization to fund their research efforts in exchanged for some fudged data. We also propose a decentralized seismography blockchain, but that is beyond the scope of the current whitepaper.

Proof-of-Chaos? Sounds scary. How’s it work?

All systems are subject to centralization. Even delegated Byzantine Fault Tolerance can be overcome through bribery and the establishment of cartels. However, when we examine the historical record, we notice that the largest turnovers of wealth are correlated with revolutions, large-scale societal change, and of course, natural disasters. All of these are verifiable in hindsight, and yet, very few can see them coming; certainly not well enough to reliably profit.

The Proof-of-Chaos model works this way:

1. Validators sign up by placing a bonded amount in a smart contract, along with location data via IP address. This bond is locked up for a period of 6 months, and the location data cannot be changed during this period.

3. Block creation. Utilizing a Stochastic Robin Hood (SRH) mechanism, the network rewards up to 50% of the block reward meant for validators to wallets with the lowest balances. The number of blocks retroactively affected is dependent on the level of seismic activity. Day-to-day rumblings will only affect the block at hand, while a 7 on the Richter scale could retroactively affect block rewards for the entire validation term of 6 months.

4. The remaining block reward will disproportionately be divided among validators based on their geographical proximity to seismic activity, based on IP address. [Further explanation to follow — visit our slack]. At the end of the bonded period, validators will receive their remaining balance (if any) with additional profit (if any).

Nota bene: Seismic activity is actually very evenly distributed across the world [citation needed]. Areas with more frequent activity often see a lower rumble, while less frequent occurrences can be far more powerful. This will make timing an attack, or spoofing IP difficult, as the optimum advantage is ultimately as unknowable as the next earthquake.

4. Next Steps

Faultcoin will be launching an uncapped ICO at the end of the week. Citations and the full algorithm will soon follow. Please subscribe to our Reddit and join our Slack.

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