There are a few things that I think are important to address:
A) Interest Rate Balancing:
While I appreciate the philosophical nature of 1 G/s forever, and while in the first few decades it looks like a feasible model we actually run into two problems with a non-adjusted rate:
The rate of new Grin produced will eventually be so minuscule that it will be insignificant against our market capitalization and therefore not worth mining ruining the reward mechanism of securing a network.
In any monetary system, you need “reprints”. For paper money that is replacing bills that are old, damaged, torn or lost. For crypto that is replacing coins that leave the system through corrupt harddrives, lost keys, sent to wrong wallets etc. The goal would be to eventually have your inflation rate in perfect balance with this loss/reprint rate. While it is impossible to know the exact number, we can know that it is some estimated percent of currently existing circulation. If we have 1 G/s, then eventually you run into the issue where because of the sheer size of circulation, the loss rate is far larger than the interest rate and so the free float supply ends up going down. Eventually this makes the currency more valuable as an investment/store of value than a monetary unit.
One economic argument that I’ve not seen covered in this debate is in the spendability of a coin.
Far to often when we discuss emission rates, we look at the distribution equity and participation motivators for what gets a user included to adopt mining or acquiring a coin. This is in part why so many cryptocurrencies are viewed as get rich quick schemes, they are optimized towards the adoption of the individual.
Spendability is a balance between the incentives of merchants to accept the coin as payments, and users to use it as their payment method.
Why do people not use Bitcoin to buy things? Beyond being a bulky payment method and complicated interface, why would I buy a coffee for 0.0000X BTC today if I thought that same amout of BTC could buy me two coffees tomorrow?
To that same end, why would a merchant accept 0.0000X BTC if they thought there was a chance that tomorrow that BTC could be worth only half of a coffee.
So there actually become a series of criteria:
We want adopters to get onboard because the early rewards are lucrative enough.
We want the price of a Grin to not deflate too much, otherwise it becomes useless to accept it as payment because it declines too rapidly and is too high risk.
We want the price or value of Grin to not inflate too much, otherwise it becomes too strong of an investment and it doesn’t make sense to spend it today if it will be worth more tomorrow.
We don’t want the early rewards of adopting or mining Grin to be too lucrative, otherwise it seems unfair to later players.
For example, consider right now that in the first year of Grin there will be 100% inflation in the supply (and therefore 50% deflation in the value relative), it doesn’t make sense to collect Grin because of the value rate it will drop at and it certainly doesn’t make sense for merchants to accept Grin, because Grin is losing value at around 0.27397% per day.
We know that, anything about a 5% interest rate in value is interesting to large scale institutional investors for long-term hold, and is better than idle money interest.
At the same time in these markets it is not enough to create wild speculation.
That same 5% on the deflation side would be harder, but still probably manageable spread out across a year in terms of risk stability as now we are talking about 0.0137% value loss per day, which is an order of a magnitude and a half smaller than the previous rates. This is still on the high end for a business to consider accepting as they will need to be diligent in their sales back to fiat cash, and the higher the inflation rate the higher the volatility as well.
However, we currently won’t hit that rate until around 18-20 years out https://i.imgur.com/Tkt1xr1.png
This is far too long for us to develop the ecosystem. Quite simply, in the first 5 years of its existence, Grin will lose too much value to be worth merchants accepting.
As I mentioned I think the philosophical idea of a 1 G/s to always be fair is admirable, but I don’t think it is feasible given the points raised in A) and B).
Whatever the rate is, it should however be something that is line line with the mantra of Grin.
Those are core criteria that I think are important and not fully vetted in our current model.
I’d love to hear from others:
- Do you think these are important core criteria?
- Do you think our current model addresses them?
- Do you think there are other core criteria I’ve overlooked that we should consider?
- Do you have any alternative emissions models that may meet these criteria?
TL;DR: The 1 G/s creates some economic challenges that make it unlikely a good choice for businesses or people to accept Grin as a payment since it will so rapidly decline in value. This means, it is hard for people to spend and use Grin. It’s going to be almost 20 years before its at an acceptable deflation rate and that seems too far out to be feasible.