Inflation for Nimiq 2.0

The team is engaging economic experts regarding a possible change of emission rate and the switch to proof of stake in Nimiq 2.0. Let’s discuss and share ideas and opinions from the Nimiq community.

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I think that a reduction of the emission rate with the beginning of Nimiq 2.0 makes sense in order to keep the staking rewards and therefore intentions high for longer. It also decreases the sell pressure which could further increasing holding and staking incentives.

I’m very looking forward to what the economic experts suggest and how this will be handled :slight_smile:

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Likewise, it will be interesting to see what they come up with. I imagine it is challenging even for experts to create an economic model for a currency/payment network that is completely new and untested, as Nimiq will be after the switch to proof-of-stake.

One advantage of the current emission rate is that it is familiar to people vis-a-vis the Bitcoin network, but you’re right it does create a lot of downward pressure on the price of NIM this early in the emission curve. Also it will make a few early adopters very powerful while people who come later will only have crumbs.

There’s a lot of questions to consider… Such as how do you incentivize people to spend/transact NIM rather than just hold/stake it? If most of the future staking rewards go to the few thousand people that currently hold NIM, how will that affect adoption? Will people even want to take part in a network that benefits a small number of people? But then you could also consider that POS will allow holders to earn ‘interest’ like a bank account, which is beneficial to the unbanked people in the world. How does something like removing the 21B cap or flattening the staking rewards affect those things? It’s hard to know what the right answer is… it makes my head spin!! Not only do economics need to be considered, but to a large degree psychology does as well.

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Bitcoin emission scheme has never been explained (and so justified) by Satoshi as far as I know and was merely a guess, people seem to copy it solely because well… it worked (price-wise at least).

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Eventually NIM will have to add more divisibility too, since taking the whole 2100 trillion Luna divided by 7 billion people results in 300000 Luna (3 NIM) per person, which seems too little if we consider that the world’s population grows exponentially.

Edit: Or maybe use some floating point data type :thinking:

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You’re right. I just had a quick discussion with Marvin and Pascal about it. There is no definite answer, but I can give some points:

  • It’s indeed about ~2.3 NIM per person, if we divide the total supply by 9 billion owners.
  • Although it would be definitely great to reach every person on the planet, we can do this in steps :wink: Hard forks take time, but we’ll have quite some time until we reach the point where this needs to change.
  • 233333 Luna per person would be equivalent to 2333.33 $ in terms of divisibility. So it’s not a very big amount, but not very small either. 2000 $ is quite some money for most people on this planet right now.
  • We can actually represent balances much larger than the max supply. This is because the number of decimals was reduced form 8 to 5 before the mainnet release. So 3 digits would be in there from the range of what the integers could represent right now.
  • Currently the integers used are 53 bit, because of how numbers work in Javascript. Since Nimiq 2.0 is being written in Rust, we can use a full 64 bit integer. This means we could add 6 decimals (to the 5 we have right now) and it would still fit.
  • I think the max supply is not likely to be increased. Obviously if you increase the max supply by a factor of 10, you can have one less decimal place.

It’s good that you brought this up, so we can think about it. We’re not considering it too much right now, since we have enough other features until Nimiq 2.0 that keep us busy. But we might discuss it during diner now and then. And since we are also consulting for the economics, we could bring that up there too. All those values have to fit together very well to make sense in economic terms. And to be honest, we are programmers, not economists, so keep that in mind. But yeah, that’s why we’re reaching out to experts.

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Pretty cool! Thanks for your prompt reply :+1:

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It a great reply considering many aspects, thank you!

I agree that the toal supply doesn’t have to be fixed - it could go well above it. Then again I would rather like to see a lower inflation rate as Redexe has pointed out - too much sell pressure is keeping from new people buying in. A steady small inflation % with no fixed cap could give more value to current holders and more incentive to hold long-term as well as give more opprotunity for future newcomers.

Also, I would opt out of playing with factors - quite a lot of uncerntainty around it. Will everyone receive x10 of coins? In this case excnhages are winners since a number of people hold there their coins.

As a reality check, currently the price floats around 6 satoshis per NIM. If we were to increase the supply x10 fold, then the price should be 0.6 satoshis… and not all exhanges support that - which likely would mean a price of 1 satoshi for a very long time with low liquidity.

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To be clear: I was listing the possible options. Although I can (and did) give technical opinions on those options, I can’t give an economic analysis of those - as I’m not an expert on this at all.

But your points are very good. I personally would also avoid changing the supply at all cost, as it introduces too much uncertainty. But again I’m not an expert on this, so I’d prefer to just look at the technical possibilities and consult economists for the economic aspects.

The inflation rate is definitely something we’re keeping an eye on. I think the team shares a similar opinion to you. But our team also consists mostly of people with background in computer science and not economics. So in my opinion the right path to take here is to consult people who actually know this stuff - like real experts in that field :wink:

Besides the point that it totally makes sense to do this, I think it’s also a great way to show our dedication. We’re dedicated to make this right, and if it’s not our field of expertise we’re going to listen to people whose field of expertise it is. I’m not sure how many crypto projects do this, but I don’t hear too often about this issue. Which quite weird, now that I think about it.

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100% agreed on this point. A team which knows their field and consults experts for other fields is so much more likeable than one that thinks they know everything and botch it until everything falls apart. I liked the idea to consult economics experts on this from the beginning, and I’m very much looking forward to the ideas and results of it :+1:

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I can only support the approach to consult with the economic experts :smiley:
They surely can make the most desirable scheme for distribution. It’s up to the team to draw their vision for these experts though. So far the team has done great by recording the vision and milestones. Hopefully we will see more details from the team/experts. :+1:

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