[Lightning-dev] A proposal for up-front payments.

[Orfeas Stefanos Thyfronitis Litos]

Hi ZmnSCPxj,

>>> requiring a fee is equivalent to requiring proof-of-work, incentive-wise.
>>
>> Not necessarily, given that
>> 1) there is a finite bitcoin supply but an eventually infinite PoW
>> supply (relevant in the unlikely case fees are burned)
>> 2) sats are transferrable, whereas PoW isn't (relevant in the case fees
>> are paid)
> 
> Not actually.
> Again, let me point out that PoW can be *bought*, that is precisely what Bitcoin blockchain layer does.
> And the blockchain layer PoW is bought with two things: fees and subsidies (inflation).
> Thus PoW, being purchaseable, is incentive-wise equivalent to paying somebody to spend electricity (possibly with efficiencies at scale).
> Just cut the middleman.

I wasn't clear enough, sorry for that. I agree that in general PoW can
be bought. However if I understand this particular PoW proposal
correctly, a brand-new PoW has to be created for each intermediary.
These PoWs cannot be reused by the intermediary for later payments (or
for anything else).

I will now show that there exist spam-prevention schemes that differ
only on whether the payer gives sats or PoWs to intermediaries, such
that economically rational agents are incentivized to cheat in the case
of sats but not so in the case of PoWs. This proves that fees are *not*
equivalent to PoWs incentive-wise.

In our model, an intermediary can follow one of three possible
strategies (we make the assumption that other strategies are strictly
dominated by one of the three). Each strategy results in different
resource utilization and proceeds from fees.
  (A) do nothing. This results in resources_A = 0 and sats_A = 0
  (B) play honestly. resources_B < 0 (negative because they constitute
an operating cost) and sats_B = anti_spam_fee + routing_fee
  (C) mount a plausibly deniable attack. Here resources_C < 0 and sats_C
= anti_spam_fee.
We assume that resources_C > resources_B + routing_fee (1).

In case intermediaries receive PoWs as an anti-spam measure, it is
anti_spam_fee = 0 which means that resources_C + sats_C < 0 =
resources_A + sats_A, therefore strategy C is strictly dominated by A.
(The fact that A also strictly dominates B is an interesting
observation, but beside the point for the argument made.)

OTOH, in the case of anti-spam sats, it is anti_spam_fee > 0. Therefore
we have resources_C + sats_C > resources_B + sats_B (using (1)) and for
a big enough anti_spam_fee, it is resources_C + sats_C > 0, therefore
strategy C strictly dominates both A and B.

In other words, by just changing whether we use anti-spam PoWs or fees,
we change the economically rational behavior.

I apologize for the previous ambiguity and I hope this has made my
argument clearer.

Best,
Orfeas

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