wallet/docs/design/proof_of_share.md

---
title:
	proof of share
sidebar: true
notmine: false
abstract: >-
	Map a blockdag algorithm to the corporate form.
	The proof of share crypto currency will work like
	shares. Crypto wallets, or the humans controlling the wallets,
	correspond to shareholders.
...

# the problem to be solved

We need proof of share because our state regulated system of notaries,
bankers, accountants, and lawyers has gone off the rails, and because
proof of work means that a tiny handful of people who are [burning a
whole lot of computer power]
control your crypto money.  Apart from being wasteful, they don’t
necessarily have your best interests at heart, producing a bias towards
inflation as in Monero, and/or high transaction fees as in Bitcoin.

[burning a whole lot of computer power]: https://news.bitcoin.com/businessman-buys-two-electric-power-stations-to-do-bitcoin-mining-in-russia/

The entire bitcoin network
[currently consumes just over 46 terawatt hours of energy every year].
This is almost as much as the annual energy consumption of Portugal,
with its population of roughly 10 million. Simply settling a transaction
in the bitcoin network consumes around 427 kilowatt hours.  This amount
of energy is enough to supply an average German four-person household
with electricity for more than a month.

[currently consumes just over 46 terawatt hours of energy every year]: https://arstechnica.com/tech-policy/2018/02/european-bankers-scoff-at-bitcoin-for-its-risk-huge-energy-inefficiency/

Notaries, bankers, accountants and lawyers, are professionals whom
people hire because they don’t trust each other.  They are in the trust
business.  And then there is some failure of trust, some bad behavior,
as for example Enron’s accounting, and then they turn to the government
to make trust mandatory, whereupon due to regulatory capture and the
malincentives of the state, the untrustworthy behavior becomes standard
and compulsory.

[Sarbanes-Oxley] was the response to the misconduct of Enron’s
accountants, and was theoretically intended to make behavior similar to
that of Enron’s accountants forbidden, but the practical consequence was
that in substantial part, it made such behavior compulsory.  Which is
why Gab is now doing an Initial Coin Offering (ICO) instead of an
Initial Public Offering (IPO).

[Sarbanes-Oxley]:../manifesto/sox_accounting.html
"Sarbanes-Oxley accounting"
{target="_blank"}

Because current blockchains are proof of work, rather than proof of
shares, they give coin holders no power. Thus an initial coin offering
(ICO) is not a promise of general authority over the assets of the
proposed company, but a promise of future goods or services that will be
provided by the company. A proof of share ICO could function as a more
direct substitute for an initial public offering (IPO).  Thus we want it
to be easy to issue your own coins, and [to perform coin swaps between
chains without the need for an exchange] that would provide a potential
target for regulation.

[to perform coin swaps between chains without the need for an exchange]: ./contracts_on_blockchain.html#atomic-swaps-on-separate-blockchains

The block chain, an immutable append only data structure, is a
replacement for public notaries, and on that foundation of public
notarization, we can and should recreate banking, the corporate form,
accounting, and, eventually, lawyering, though the Ethereum attempt to
build lawyering is premature and wicked. We will not be able to build
lawyering until the crypto currency system is well established and has a
good reputation and record system linked to it, and attempting to build
lawyering into it prematurely will result in bad conduct.

The blockchain governed by proof work is failing.  We need a better
solution for notarizing, based on some form of Paxos, and on that better
system of notarizing, we should build banking.  And on that banking, the
corporate form, and on that corporate form, accounting.  We will worry
about lawyering and justice at some much later date, after crypto
currency values stabilize.

We build public notarization, then build money on top or that.  When
that is working and stable, we promptly build accounting and a
replacement of the joint stock corporation, which replacement for the
joint stock corporation will manifest as the “Initial coin offering”,
like Gab’s initial coin offering.

The business of Enron’s accountants failed because no one trusted them
any more.

Facing massive loss of trust in the wake of the Enron scandal,
accountants rushed to the government, and demanded the government
provide them with mandatory state supplied and state enforced trust, and
got [Sarbanes-Oxley], with the result that they failed upwards instead of
downwards.  This created a situation where it is impossible for a mid
sized company to go public.  So venture capitalists, instead of having
an initial public offering of a successful venture, attempt to sell the
successful venture to Google.  Hence Gab’s Initial Coin Offering.
Google will not buy them, for obvious reasons, and they cannot do an
initial public offering, because of [Sarbanes-Oxley], hence the initial
coin offering.

Actually existent governments and bankers are evil and untrustworthy,
and the burdens of using trust mediated by bankers and governments to do
business are rapidly becoming intolerable.  Accounting and HR have
become vast onerous bureaucracies, burdensome tentacles of the state in
every business, making businesses larger than a family and smaller than
giant multinational corporation with a skyscraper full of Harvard
lawyers each drawing \$300 per hour, increasingly impractical.

Proof of work is a terrible idea, and is failing disastrously, but we
need to replace it with something better than bankers and government.

Proof of stake, as implemented in practice, is merely a
central bank digital currency with the consensus determined by a small
secretive insider group (hello Ethereum).

The gig economy represents the collapse of the corporate form under the
burden of HR and accounting.

The initial coin offering (in place of the initial public offering)
represents an attempt to recreate the corporate form using crypto
currency, to which existing crypto currencies are not well adapted.

# How proof of share works

One way out of this is proof of share, plus evidence of good
connectivity, bandwidth, and disk speed. You have a crypto currency
that works like shares in a startup. Peers have a weight in
the consensus, a likelihood of their view of the past becoming the
consensus view, that is proportional to the amount of
crypto currency their client wallets possessed at a certain block height,
$\lfloor(h−1000)/4096\rfloor∗4096$, where $h$ is the current block height,
provided they maintain adequate data, disk access,
and connectivity. The trouble with this is that it reveals
what machines know where the whales are, and those machines
could be raided, and then the whales raided, so we have to have
a mechanism that can hide the ips of whales delegating weight
in the consensus to peers from the peers exercising that weight
in the consensus. And [in fact I intend to do that mechanism
before any crypto currency, because bitmessage is abandonware
and needs to be replaced](file:///C:/Users/john/src/reactionId/wallet/docs/manifesto/social_networking.html#monetization){target="_blank"}.

Plus the peers consense over time on a signature that
represents human board, which nominates another signature that represents
a human ceo, thus instead of informal secret centralisation with
the capability to do unknown and possibly illegitimate things
(hello Ethereum), you have a known formal centralisation with
the capability to do known and legitimate things.  Dictating
the consensus and thus rewriting the past not being one of those
legitimate things.

## consensus algorithm details

Each peer gets a weight at each block height that is a
deterministically random function of the block height,
its public key, the hash of the previous block that it is building its block
on top of, and the amount of crypto currency (shares)
that it represents, with the likelihood of it getting a high weight
proportional to the amount of crypto currency it represents, such
that the likelihood of a peer having a decisive vote is proportional
to the amount of share it represents.

Each peer sees the weight of a proposed block as
the median weight of the three highest weighted peers
that it knows know or knew of the block and its contents according to
their current weight at this block height and perceived it has highest
weighted at the time they synchronized on it, plus the weight of
the median weighted peer among up to three peers
that were recorded by the proposer
as knowing to the previous block that the proposed block
is being built on at the previous block height, plus the
weight of the chain of preceding blocks similarly.

When it synchronizes with another peer on a block, and the block is
at that time the highest weighted block proposed block known to both
of them,
both record the other's signature as knowing that block
as the highest weighted known at that time.  If one of them
knows of a higher weighted proposed block, then they
synchronize on whichever block will be the highest weighted block.
when both have synchronized on it.

if it has a record of less than three knowing that block,
or if the other has a higher weight than one of the three,
then they also synchronize their knowledge of the highest weighted three.

This algorithm favors peers that represent a lot of shares, and also
favors peers with good bandwidth and data access, and peers that
are responsive to other peers, since they have more and better connections
thus their proposed block is likely become widely known faster.

If only one peer, the proposer, knows of a block, then its weight is
the weight of the proposer, plus previous blocks but is lower than
the weight if any alternative block whose previous blocks have the
same weight, but two proposers.

This rule biases the consensus to peers with good connection and
good bandwidth to other good peers.

If comparing two proposed blocks, each of them known to two proposers, that
have chains of previous blocks that are the same weight, then the weight
is the lowest weighted of the two, but lower than any block known to
three.  If known to three, the median weight of the three. If known to
a hundred, only the top three matter and only the top three are shared
around.

It is thus inherently sybil proof, since if one machine is running
a thousand sybils, each sybil has one thousandth the share
representation, one thousandth the connectivity, one thousandth
the random disk access, and one thousandth the cpu.

# Collapse of the corporate form

The corporate form is collapsing in part because of [Sarbanes-Oxley],
which gives accountants far too much power, and those responsible for
deliverables and closing deals far too little, and in part because HR
provides a vector for social justice warriors to infect corporations.

When a corporation goes social justice it abandons its original
functions, and instead dedicates itself, its resources and the wealth of
its share holders full time to infecting other corporations with social
justice, like a zombie turning those still living into zombies.

I have been working on the problem of creating a crypto currency well
adapted for this purpose, and what I conclude always implies pre-mining,
that existing owners of a crypto currency shall be like shareholders in
an existing business, transferring shares between each other.

Which immediately leads us to the idea of a mass of competing
currencies, with share swaps – which automatically has scalability,
particularly if one some of these crypto corporations have as their
major asset shares in the main currency, and a system of enforcement
that makes it difficult for some shareholders to steal that dangerously
liquid asset from other shareholders, in which case they are sidechains,
rather than separate shares systems.

Western civilization is based on double entry accounting, the joint
stock corporation, and the scientific method, all of which have come
under massive attack.

Crypto currencies need to make accounting and corporations workable
again, and are needed for this purpose.

The joint stock corporation has always existed, and our earliest records
of them come from the time of the Roman Empire in the West, but before
Charles the Second they were grants of Kingly power to private
individuals for state purposes – they were socialism.

Under Charles the Second, they were still theoretically socialism, but
now it was expected and high status to get rich in the course of
pursuing state purposes, socialism similar to “Socialism with Chinese
characteristics” which is not very socialist at all, or “The party
decides what communism is”, which is not very communist at all.

Under Charles the second we first see the Randian Hero Engineer Chief
executive officer, using other people’s money and other people’s labour
to advance technology and apply technological advance to the creation of
value.  There was a sort of Silicon Valley under Charles the second, but
instead of laying down optical fibre they were laying down canals and
conquering the Indies.

During late Victorian times, we see the corporation become wholly
private.  Corporations are now people, a situation parodied by Gilbert
and Sullivan – but at the same time, we see the regulatory state
rendering them socialist again by the back door, a problem starting in
Victorian times, and now getting out of control.

Human Resources has long been an ever more burdensome branch of the
socialist state inserted parasitically into every business, and
[Sarbanes-Oxley] has now destroyed double entry accounting, which is
fundamental to the survival of western civilization.

Under [Sarbanes-Oxley], the tail wags the dog.  Instead of monitoring
actual reality, accounting decides on official reality.

Power in business has been taken out of the hands of those who provide
the capital, those responsible for closing deals, and those responsible
for deliverables, and into the hands of Accounting and Human Resources,
who have government granted power to obstruct, disrupt, delay, and
criminalize those responsible for providing capital, those responsible
for closing deals, and those responsible for deliverables.

We need to construct crypto currency around this function.  The original
intent was for buying drugs, buying guns, violating copyright, money
laundering, and capital flight.

These are all important and we need to support them all, especially
violating copyright, capital flight, and buying guns under repressive
regimes.  But we now see big demand for crypto currencies to support a
replacement for Charles the Second’s corporate form, which is being
destroyed by HR, and to restore double entry accounting, which is being
destroyed by [Sarbanes-Oxley].

[Sarbanes-Oxley] is more deeply immoral than forcing doctors to perform
abortions, forcing businesses to pay for abortions, and forcing males to
pay for abortions by single women with whom they have no relationship
through “free” medical care.

People lost their trust in accountants, so accountants went to the
government, and asked the government to force corporations to act as if
they trusted accountants – which undermines the cooperation and good
behavior on which our economy is based, by undermining the accounting
system that distinguishes positive sum behavior from negative sum
behavior, the accounting system that tracks the creation of value.  This
makes the entire crypto anarchy black market program legitimate and
necessary.  We are morally obligated to obey a government that supports
our civilization and holds it together, keeping peace and order,
defending the realm from enemies internal and external, protecting the
property of taxpayers, enforcing contracts, and honoring warriors. We
are not morally obligated to obey a hostile regime that seeks to destroy
western civilization.  If the state will not uphold trust, cooperation,
and positive sum behavior, we must find other ways.  Undermining
accounting undermines cooperation.

Used to be that the state church was the state church. Then Education
media complex was the State Church, Harvard seamlessly transitioning
from being the headquarters of the State Church of New England, to being
the headquarters of the American Empire running the entire Education
Media complex of most of the world.

Now the social media are the state church.

This is a problem because the unofficially official state belief system
is more and more out of touch with reality, resulting in an increasingly
oppressive social media, that continually censors and bans an ever
increasing number of people for an ever increasing number of crime
thoughts. Thus we need for an anarchic and chaotic social media system
to oppose and resist it. We need the chans, and things like the chans.

If we had a saner and more functional state belief system, one that did
not compel belief in so many egregious lies, and force so many
compelled affirmations of egregious point-deer-make-horse lies, then it
would be right to repress a chaotic, chan style, darknet style social
media system. If the state church was sane, then censorship to support
the state belief system would be morally justified, and resisting it
morally wrong, but because the quasi state social media are egregiously
untruthful and therefore egregiously repressive, anarchic and chaotic
social media is morally justified and necessary.

Our system of client wallets needs to support the minimum chat system
necessary to agree to transfer of value to value, and to support
lightning networks to prevent traceability, but we need to architect it
so that wallets are potentially capable of becoming a social media
platform. This capability is not part of the minimum viable product, and
will not be part of early releases, but the minimum viable product needs
to be able to support and prove conversations comprising a contract to
exchange value. Design of the minimum viable product needs to be done in
a way that supports the future capability of wallets supporting general
conversations similar to the chans. If the state church had stuck to
commanding people to believe that God is three and God is one, no one
can prove anything different, but when the state church commands us to
believe that blacks are being unfairly targeted by police, and therefore
quotas limiting arrests of minority groups are totally justified, and
simultaneously totally nonexistent, not only can we prove something
different, but if we were to believe the official truth and official
science that are social media requires us to believe, are likely to get
killed, thus today’s state church is necessarily more repressive than it
was back when it was openly a a state church. God being both three and
one is harder to falsify than arrest quotas being both morally
obligatory and nonexistent, thus higher levels of repression are
required to enforce official belief.

When the state religion was transliterated from the next world to this,
it became readily falsifiable, resulting in the necessity of disturbing
levels of repression, to which repression crypto anarchy is the morally
appropriate response. With a saner state religion, crypto anarchy would
be a morally objectionable attack on order and social cohesion, but the
current officially unofficial state religion is itself a morally
objectionable attack on order and social cohesion. Hence we need a
distributed system of wallet to wallet encrypted chat with no
monopolistic center. In the minimum viable product we will not attempt
to compete with chat and social media, but we need to have the ability
to discuss payments in wallets, with no monopolistic
center, and will set this up in a way compatible with future expansion
to a future challenge against current social media. In war, all things
are permitted, and the state is making war on society. A minimum system
that allows people to pay each other unsupervised
is not very different from a centreless system that allows people to
associate to discuss any hate fact, nor very different from a centerless
lightning network.

# General structure

The blockchain is managed by the peers.  Peers are fully accessible on
the internet, in that they have a port that one can receive UDP messages
from any peer or any client on the internet.  If they are behind a NAT,
the port is forwarded to them by port forwarding, a load balancer, or
failover redirection.  Each peer keeps a copy of the entire blockchain.
Clients only keep a copy of the data that is relevant to themselves, and
are commonly behind NATs, so that their communications with each other
must be mediated by peers. 

The blockchain contains data linked by hashes, so that any peer can
provide any client with a short proof that the data supplied is part of
the current global consensus, the current global consensus being
represented by a short hash, which is linked to every previous global
consensus.  This chain of hashes ensures that the record of past events
is immutable.  Data can be lost, or can become temporarily or permanently
inaccessible, but it cannot be changed.  The fundamental function of the
blockchain is to function as a public notary, to ensure that everyone
sees the same immutable story about past events.  The hash dag is
structured so that a peer can also produce a short proof to a client
that it has presented all events, or the all the most recent events,
that relate to a given human readable name or a given public key.  For
the hash dag to be capable of being analysed with reasonable efficiency,
the hash dag must correspond to a very small number of approximately
balanced Merkle trees

In order to produce short proofs that can be proven to contain all
transactions relevant to a given key or human readable name, there have
to be Merkle-patricia trees organized primarily by block number, but
also Merkle trees organized by key and by name, and the root hash of the
current consensus has to depend on the root hash of each of these three
trees, and all past versions of these trees, the root hashes of all past
consensuses.  The blockchain will contain a Merkle-patricia dag of all
unspent transaction outputs, and all spent transaction outputs, enabling
a short proof that a transaction output was spent in block it, and that
as of block n, a another transaction output was not yet spent.

In order to produce a short proof, the consensus of the block chain has to
be organized a collection of balanced binary Merkle trees, with the state of
the consensus at any one point in time being represented as the list of roots
of the Merkle trees.

This enables people with limited computing power and a quite small
amount of data to prove that the state of the consensus at any one time for
which they have that quite small amount of data, includes the consensus at
any earlier time for which they have that quite small amount of data.

We need this capability because at scale, full peers are enormous and have
and handle enormous amounts of data, so we wind up with few peers and
an enormous number of clients, and the clients need to be able to monitor
the peers to resist being scammed.

Clients need the capability to know that at any moment, the current
consensus of the peers includes that past in which value was committed to
public keys on the blockchain whose secrets he controls.

We build a system of payments and globally unique human readable names
mapping to [Zooko’s triangle] names (Zooko’s quadrangle) on top of this
public notary functionality.

[Zooko’s triangle]: names/zookos_triangle.html

All wallets shall be client wallets, and all transaction outputs shall
be controlled by private keys known only to client wallets, but most
transactions or transaction outputs shall be registered with one
specific peer.  The blockchain will record a peer’s uptime, its
provision of storage and bandwidth to the blockchain, and the amount of
shares registered with a peer.  To be a peer in good standing, a peer has
to have a certain amount of uptime, supply a certain amount of bandwidth
and storage to the blockchain, and have a certain amount of shares
registered to it.  Anything it signed as being in accordance with the
rules of the blockchain must have been in accordance with the rules of
the blockchain.  Thus client wallets that control large amounts of shares
vote which peers matter, peers vote which peer is primus inter pares,
and the primus inter pares settles double spending conflicts and
suchlike.

In the classic Byzantine Fault Resistant algorithms, the leader is decided
prospectively, and then decides the total order of all transactions.  In a
blockdag algorithm, the leader is determined retrospectively rather than
prospectively.  Each peer in each gossip event (each vertex of the dag)
makes a decision that implies a total order of all transactions, which
decisions are unlikely to agree, and then which vertex is the one that
actually does set the total order i decided retrospectively, equivalent to
continuous retrospective leader election in the classic Byzantine fault
resistant algorithms.

proof of share works like the corporate form, or can work like the
corporate form, with the crypto currency as shares, the wallets, or the
humans controlling the wallets, as shareholders, the peers in good
standing, or the humans controlling the peers in good standing as the
board, and the primus inter pares, or the human controlling the primus
inter pares, as the CEO.

Thus the crypto currency works, or can work, like shares in a
corporation.  proof of share means that the shareholders can less easily
be screwed over, since the shareholders elect the board from time to
time, and the board elects the CEO from time to time to time.

But we need many corporations, not just one.  OK, each crypto
corporation corresponds to a sidechain, with its primus inter pares as a
named peer on the mainchain.  Buying and selling shares corresponds to
swapping shares.  The mainchain, if all goes well, has the special
privilege of being the source of root names, and its shares are the most
liquid, the most readily exchangeable, and this is the primary thing
that makes it “main”.

# Implementation of proof of share

Good blockdag protocols with high consensus bandwidth rely on forming
a consensus about the total past of the blockchain during the gossip
protocol where they share transactions around.

During gossip, they also share opinions on the total past of the blockchain.

If each peer tries to support past consensus, tries to support the opinion of
what looks like it might be the majority of peers by shares that it sees in
past gossip events, then we get rapid convergence to a single view of the
less recent past, though each peer initially has its own view of the very
recent past.

Blockdag algorithms of this class of consensus algorithm, if correct and
correctly implemented, are equivalent to Practical Byzantine Fault
Tolerant Consensus with continuous leader election, with the important
differences being that the the leader is elected retrospectively rather than
prospectively, with later peers deciding whom the past leader was and
adopting his opinion of the total past, rather than whom the next leader
will be, and if consensus fails to happen, we get a fork, rather than the
algorithm stalling.  The one third limit is fork detection, which is not quite
the same thing as the one third limit in Practical Byzantine Fault Resistant
Consensus, though in a sense equivalent, or closely related.

Satoshi’s design for bitcoin was that every wallet should be a peer on the
mainchain, every peer should be a miner.

In Satoshi’s design every peer needs to be a miner, and every wallet a peer,
because that is where the power is. If you don’t have power over your money,
going to get ripped off and oppressed one way or the other way.

This design fell apart under scaling pressure, with there being two or perhaps
three mining pools that control the blockchain, a massively centralized
system, and people are increasingly reliant on client wallets and exchanges in
a system never designed to securely support client wallets or exchanges,
leading to notorious exchange failures and ripoffs. Getting miners to validate
your transactions is slow and expensive, and getting slower and more
expensive. The lightning network is likely to wind up with all transactions
going through two big exchanges, as credit card transactions do.

Wallets are by Satoshi’s design linked to output keys. And now every exchange
demands to see your face and evidence of your true name. What I am seeing now
is scaling failure and anonymity failure.

Bitcoin has failed due to scaling problems, resulting in high costs of
transactions, high delay, heavy use of client wallets in a system in which
client wallets are inherently unsafe, heavy use of exchanges in a system where
exchanges are inherently unsafe.

For scaling, we need to design a system with a limited number of peers, more
than a dozen, less than a thousand, and an enormous number of client wallets,
billions of client wallets.  And we need to give client wallets power and
prevent the peers from having too much power.

Power to the wallets means our system has to run on proof of share, rather
than proof of work. But since a wallet is not always on the internet, cannot
routinely exercise power moment to moment. So, we need a system where unspent
transaction outputs are hosted by particular blockchain peers, or large
transaction outputs are hosted by particular peers, but controlled by client
wallets, and the power of a peer depends on hosting sufficient value.

The architecture will be somewhat similar to email, where you run an email
client on your computer, whose server is an email agent somewhere out in the
internet. An email agent is a peer in relation to other email agents, and a
host and server in relation to your email client.

Wallets will rendezvous with other wallets through peers, but the peer will set
up a direct connection between wallets, where wallets send encrypted packets
directly to each other, and the peer cannot know what wallets are talking to
what wallets about what transactions.  By analogy with email agents, we will
call peers on the blockchain blockchain agents when they perform the role of
servicing wallets, but, following the tradition established by Satoshi, peers
when they perform the role of cooperating with each other to operate the
blockchain.

The blockchain will be a directed acyclic graph indexed by Merkle trees. Being
a directed acyclic graph, the peers will have to download and process the
entire blockchain. The Merkle trees will be approximately balanced, thus of
depth of order log N, hence a blockchain agent can provide a wallet a short
chain of hashes linking any fact about the blockchain to the current root of
the blockchain.

A wallet has a login relationship to a blockchain agent, which is a peer to
all the other blockchain hosts on that blockchain, just as an email client has
a login relationship with an email agent. A wallet is the client of its
blockchain agent. Your wallet client will be software and a user interface
that manages several wallets. Thus a wallet will be like an email account,
which has a single login relationship with a single host, and your wallet
client, which may manage several wallets, is like an email client, which is
the client of an email agent or a small number of email agents.

What then stops the blockchain agent from lying to the wallet about the root
and contents of the blockchain?.

Wallets perform transactions by interacting directly with other wallets
through an encrypted connection. [If both wallets are behind a firewall the
connection is set up by servers, but it does not pass through the servers]
(how_to_punch_holes_in_firewalls.html). For the interaction to succeed, for a
transaction to go through, both wallets must have the same Merkle root for the
blockchain, or one Merkle root must be a recent subsidiary of the other. The
wallet receives a short proof (log N hashes where N is the number of events on
the block chain in the last few months) that proves that the past that Bob’s
wallet received from its peer is part of the same past as the past that Ann’s
wallet received from her peer, that both wallets are on the same blockchain,
that the data about the past that one wallet has is consistent with the data
about the past that the other wallet has.

Sometimes a wallet name will be a Zooko name, consisting of a public key,
secret key, nickname, and petname. Sometimes it will also have a globally
unique human readable name controlled by a Zooko name. Peers will usually have
globally unique human readable names controlled by a Zooko name human.
However, wallets will most commonly have login names, `wallet_name@peer_name`.
All transaction outputs and inputs have an associated secret key, and the
hash of the transaction must be signed by Schnorr multisignature of all the
inputs.

Wallets should retain not the full block chain, but relevant transactions and
outputs, and for each transaction and output, log N hashes connecting that to
hashes close to the root.

Peers check the entire blockchain for validity, and construct short proofs
showing to wallets that they are seeing the same view of those facts that they
care about are the same for everyone, that the past does not get rewritten,
and every wallet on the same blockchain sees the same past.  Wallets only
download short and relevant parts of the blockchain.

Peers on the blockchain are not
behind NATS, or if they are they have port forwarding, or some similar NAT
penetration set up. One wallet sets up a connection to another wallet through
a peer, but once the connection is set up, information does not pass through
the peer, but rather information is sent directly from wallet to wallet. The
peer negotiates a port for two wallets that wish to communicate and informs
each of the other’s external IP address. It also negotiates a shared secret,
and informs each wallet of the id associated with the shared secret. Both
parties send off introduction UDP packets to the other’s IP address and port
number – thereby punching holes in their firewall for return packets. When
they get a return packet, an introduction acknowledgement, the connection is
assumed established.

Where a wallet has a login type name, `wallet_name@peer_name`, the peer could
potentially engage in a man in the middle attack against the wallet. However,
during transactions, it is necessary to prove control of the secret key of an
unspent transaction output, which the man in the middle cannot do, with the
result that the connection will break with an error message blaming the peer
that set up the connection.

When a group of wallets want to perform a transaction, they rendezvous on one
particular wallet, who constructs the transaction, and feeds it to his
blockchain agent.  A rendezvous on a particular wallet is a room on that
wallet. A wallet can have several rooms, and each room can have several other
wallets connected to it. One wallet connected to a room, and also connected to
another wallet by a separate connection, can invite that other wallet to that
room, without needing to go through a peer. This prevents peers from reliably
knowing who is party to a transaction.

## Byzantine failure.

Byzantine failure, if intentional and malicious, is lying, either explicitly - giving one party inconsistent with the information given to another party, the classic example being one Byzantine General telling one other general he is going to advance, and another general that he is going to retreat, so that the general expecting to be part of an advance finds himself alone and he is killed and his army destroyed.

In a blockdag, this always going to become visible eventually, but the problem is, it may become visible too late.

Mechanisms to protect against Byzantine failure look superficially like
proof of share shareholder democracy but they are subtly different.  They
protect against the ten percent attack, but assume that any one outcome
selected by any one correctly functioning peer is equally acceptable, that
the problem is selecting one of many equally possible and equally
acceptable outcomes, that the decision of any peer of the two thirds of
peers not engaged in byzantine failure is equally OK.

We need fifty one percent rule, shareholder authority, and we need to
protect against Byzantine failure, the ten percent attack, both.

We need computer algorithms that prevent the ten percent attack, one third
minus one, and we need social mechanisms that detect and penalize one third
plus one.

We need computer shareholder democracy and human shareholder democracy layered
on top of and underneath byzantine fault resistance.

Byzantine fault tolerance looks superficially like shareholder democracy, but
it is not.  We need all the mechanisms, each to address its own problem space.

If two thirds plus one voluntarily follow the
policy of half plus one, and one third plus one testify that one rather
arbitrarily selected outcome is consistent with the policy commanded by
half plus one, then that is the one verified outcome of the blockchain.

And, to make sure we have mostly honest participants, human level social
enforcement, which means that Byzantine faults need to have some probability
of being detected and Streisanded.

But, in the event of complete breakdown of a major connection of the
network, we need the one third plus one to reliably verify that there
is no other one third plus one, by sampling geographically distant
and network address distant groups of nodes.

So, we have fifty percent by weight of shares plus one determining policy,
and one third of active peers on the network that have been nominated by
fifty percent plus one of weight of shares to give effect to policy
selecting particular blocks, which become official when fifty percent plus
one of active peers the network that have been nominated by fifty percent
plus one of weight of shares have acked the outcome selected by one third
plus one of active peers.

In the rare case where half the active peers see timeouts from the other
half of the active peers, and vice versa, we could get two blocks, each
endorsed by one third of the active peers, which case would need to be
resolved by a fifty one percent vote of weight of shares voting for the
acceptable outcome that is endorsed by the largest group of active peers,
but the normal outcome is that half the weight of shares receives
notification (the host representing them receives notification) of one
final block selected by one third of the active peers on the network,
without receiving notification of a different final block.

# Funds need to be fully traceable, and fully untraceable

A crypto currency needs to be totally traceable and totally untraceable.
A common application is money lending in the third world. The money
lender needs to be able to prove he loaned the peasant such and such an
amount, on such and such terms, with such and such an agreement, and the
[peasant needs to be able to prove he repaid the money lender such and
such an amount]
in relation to that agreement and in fulfillment those terms.

[peasant needs to be able to prove he repaid the money lender such and
such an amount]: http://www.scmp.com/week-asia/business/article/2148658/how-bitcoin-and-cryptocurrencies-went-wall-street-high-streets,

The peasant’s daughter is working in Saudi Arabia. She buys some crypto
currency, perhaps for cash, and sends it to her mother. She trusts her
mother, her mother trusts her, she does not need any traceability, but
the government wants to tax transfers, and the financial system that has
a government monopoly wants to charge her and her mother a fee for getting in
her way.

The parties to a transaction can send proof of transaction, and proof
that the transaction is in accord with an agreement, and proof of what
the agreement was, to anyone, or make it public. But if they take no
action to make it public, no one can know who the transaction took place
between, nor what the transaction was about.

An unhappy customer can make his transaction public. A happy customer
can send a favorable acknowledgment to the supplier, that the supplier
will likely make public. But if neither of them does anything to make it
public, it remains untraceable by default, unless one of the parties
does something special to change the default.

A company has an initial coin offering instead of an initial share
offering. It goes bust. People who claim to be owed money by the company
want to find the people who bought the initial coins. They do not want
to be found.

# the corporate form

To better support the corporate form, the crypto currency maintains a
name system, of globally unique human readable names on top of [Zooko’s
triangle] names.

[Zooko’s triangle]: names/zookos_triangle.html

Transactions between [Zooko’s triangle] identities will be untraceable,
because amounts will be in fixed sized amounts, and transactions will
mingle many people paying many recipients.  Transactions with globally
unique human readable names will usually be highly traceable, since that
is what the name is for – but you don’t have to use the name in the
payment, and by default, do not.

A wallet name will typically look like an email address,
`human readable login name @ human readable peer name`, but the
transaction outputs it controls will be largely controlled by public
keys, which are not provably connected to the wallet, unless the wallet
operator chooses for it to be provable.

If someone makes a traceable and provable payment to a human readable
name, he can then associate an arbitrary URL with that payment, such as
a review of the service or product provided by the entity with the human
readable name, so that people can find out what people who paid that
entity are saying.

So if you make a provable payment to a recipient with a human readable
name, [you will have some assurance of getting what you paid
for](trust_and_privacy_on_the_blockchain.html).

Peers may have human readable names, and wallets may have names of the
form `LoginName@PeerName`.