Gridcoin Issue Breakdown: "Wealth" Disparity
In my second installment of Gridcoin Issue Breakdown, I want to talk about the issue of "wealth" disparity.
A major topic of conversation in Gridcoin recently deals with what we in the crypto world refer to as "whales," or investors who hold vast quantities of coin. In Gridcoin we have a handful of them, to the extent where the top five CPIDs on the Gridcoin blockchain hold about 136 million coins (approximately 35% of all circulating Gridcoin).
Are the rich really rich?
Before I say anything else, understand that I hate referring to Gridcoin whales as "rich." As recently as January of 2017, someone holding 1 million Gridcoins had a whopping $5,000 USD in value. It's not exactly yacht money. And to further complicate matters, trying to sell 1 million Gridcoins at one time back in January wouldn't have yielded you $5,000 anyway because the trading volume back then was generally less than $5,000 in any given 24-hour period. Realistically a sale of that magnitude in January would have likely halved the daily trading price and you'd have been lucky to get 2/3 of the $5,000 you hoped to get.
Those days are hopefully long behind us, with Gridcoin trading volume in the hundreds of thousands USD each day, liquidity is much better now. Even at today's prices, 1 million Gridcoin is not worth an amount ($25,000) that you're going to be out buying Lamborghinis with. So I think before we start adopting (United States) federal politics and calling for class warfare, it bears keeping in mind that most Gridcoin whales are probably in the same social class you're in.
Are the rich getting richer?
The answer to this question is a definitive "no," and I can prove it mathematically. Actually, it's already been done when @skcin wrote this this very good and well thought-out proposal for how to improve the Gridcoin rewards mechanism.
In that article, @skcin calculates the amount of coins minted through PoS (Proof of Stake -- essentially interest) versus the amount of coins minted through PoR (Proof of Research -- mining).
The current coin supply is 390,287,782 GRC and one can easily calculate the current yearly monetary inflation:
approx. monetary inflation through PoS: 0.015 x coin supply = 5,854,316.73 GRC
yearly paid PoR reward: 365 x 48000 GRC = 17,520,000 GRC
As you can see, the amount of annual coins minted through PoR is a full three times the amount of annual coins minted through PoS. Keep in mind that all Gridcoin miners earn PoS, but most of the largest wallets (the whales) do not earn PoR. Part of @skcin's article is pointing out that in approximately 30 years, the PoS interest will exceed the PoR rewards, so while that's perfectly relevant for his proposal (again, you should read it), it also helps me prove my point that even if nothing changes at all with regards to the rewards system, the wealth distribution is guaranteed in design for people who are only earning GRC through PoS to "lose ground" against people who are also mining Gridcoins.
Please do not take this to mean that I do not support changes being made to the rewards mechanism (specifically, I support fixed block rewards and some sort of increased/scaled increase of PoR rewards as more miners continue to join Gridcoin). I am merely pointing out that any concern of wealth disparity is literally, mathematically, improving by the day.
How does Gridcoin's wealth disparity compare to other coins?
Let me pick five coins at random and use the exact same metric (IE: top 5 holders of said coin hold X% of total supply)?
- Golem (GNT): Top 5 holders hold 54% of total supply
- DigiByte (DGB): Top 5 holders hold 34% of total supply
- BlackCoin (BLK): Top 5 holders hold 25% of total supply
- CureCoin (CURE) : Top 5 holders hold 51% of total supply
- PeerCoin (PPC): Top 5 holders hold 26% of total supply
You can browse around using sites like CryptoID to check out the wealth distribution of many coins. What you'll find is Gridcoin is indeed on the high end of the spectrum overall, but that coins with a smaller market cap like Gridcoin ($10 million currently) tend to have a handful of wallets that hold a lot of the coin.
What are the benefits of having whales?
There are a handful of benefits of having some good whales on your team, starting with the fact that they're holding a lot of the coin and thus contribute to the stability of the coin. Simply put: it's a portion of the supply of coin that's generally not for sale and while it counts as "circulating supply," it doesn't circulate nearly as often as the rest of the coins in the supply.
Large holders of coin also are often active in the development/governance of the coin due to their high stake in the coin's success. Gridcoin, in particular, has quite a few people who would fall under the "whale" category who put serious time and effort into helping new users, contributing to development, etc.
What are the risks of having too many whales?
The primary reason to be concerned with wealth disparity, particularly in a smaller coin, is because at any time a large holder could choose to liquidate millions of coins. As a result of that act, the value of the coin could be drastically reduced in a single day. This is of particular interest for a coin like Gridcoin that has a market cap of just about $10 million USD.
There are certainly also concerns with large holders of Gridcoin resulting in blockchain poll results that go against the will of the vast majority of individual Gridcoin holders because your voting weight is based on your magnitude and how many coins you hold. I personally believe this issue is overblown, considering these individuals have more stake in the success of Gridcoin than anybody, and thus they are not likely to cast votes that they believe are harmful to the coin.
But did you know this big secret?
I have also been approached by multiple people in hushed tones talking about the conversion from Gridcoin Classic to the current Gridcoin, which included Gridcoin Classic holders receiving 10 Gridcoins for every 1 Gridcoin Classic coins they held (better known as a 10:1 reverse split). Some people believe that the people who were around during this split received some sort of unfair advantage over people who are just joining Gridcoin today.
That's just a misrepresentation of what a reverse split does.
In a reverse split, the new shares (or coins, in this case) do not magically cause the stock (or market cap of coins, in this case) to become worth twice as much. There is occasionally a little benefit involved, and I understand those holders essentially experienced approximately a 10% boost in the USD/BTC value of their holdings when that split took place, which is peanuts in the crypto world. This is to say if I held 1 GRC during that time that was worth $0.10 USD, after the split I would have held 10 GRC worth about $0.011 each, or about $0.11 USD total.
Even people who joined Gridcoin in the six months after the reverse split took place were able to buy in at $0.006 (a little more than half a penny USD) per coin before Gridcoin received its first major boost in price beginning in July of 2015.
So was there a 10:1 reverse split that took place years ago? Yes. Does it contribute in any way whatsoever to wealth disparity of Gridcoin? It does not. Again, this is yet another thing that can be proven using mathematics and removing emotion from the equation.
How can Gridcoin improve the wealth disparity situation?
As I stated earlier, I am a fan of a fixed block reward for PoS. The short version of this proposal is that it would effectively eliminate the 1.5% interest that everyone earns on their GRC holdings and replace it with a fixed amount of GRC minted through PoS for each block staked. This would force the largest wallets to either stay online 24-7-365 to earn their PoS rewards (and thus contribute to the security of the Gridcoin blockchain) or they simply would earn little/no PoS rewards and all those would instead be redistributed to the people (largely miners) who are actively staking 24-7 and contributing to the blockchain.
The other issue that needs to be addressed is the PoR (mining) rewards. Even at 3x the PoS rewards, there is a growing belief that these need to be increased further. I am an avid proponent of a scaling system which increases the daily PoR distribution each month commensurate with how many active CPIDs are on the system. This would address the logical problem of "more miners = fewer GRC per miner." I would not recommend a 1:1 relationship between increased miners and increased PoR rewards because we need to rely on the price of Gridcoin to rise to solve part of this issue, but even some level of growth commensurate with a growing number of miners would help satisfy this issue.
What do you think? Feel free to comment below. I love hearing ideas from other Gridcoiners!
(Disclaimer: I'm a big fish with under 200K GRC, so I'm definitely self-interested, but I am not a whale.:) And this may be a little rambling...)
I'm definitely in favor of fixed-block PoS rewards.
To play devil's advocate slightly, I think people who feel that there was some unfairness during the migration from the classic coin to the current coin aren't upset about the "reverse split" generally. The complaint is that the max block reward for researching decreased fairly quickly from almost 500 GRC per block down to the current 50 GRC/block (and the proof-of-stake interest rate declined from 9% to the current 1.5%) over the course of roughly 1 year between the end of 2014 and the end of 2015.
So essentially, they're arguing that people who are starting to BOINC now are getting massively-decreased research rewards compared to those who were crunching at the end of 2014, and thus argue that it amounted to some sort of "premine" and we need to radically alter or redistribute wealth on that basis.
I think it's completely silly, since the coin ran for over a year before the algorithms were changed and the price was ludicrously low until very recently. You can still acquire a full percent (~1% - 4 million GRC) of the entire GRC supply for less than $300,000 USD as we speak, at current prices and liquidity on Poloniex . Good luck doing that with most other coins (and I feel that any suggestion that institutional investors aren't buying because they can't purchase a 20-30% stake of GRC to be laughable -- many other coins with larger supplies and higher prices have even less liquidity available than Gridcoin right now).
It does feel to me like most of the complaining is coming from people who are upset that they can't catch up with "whales" in a year or two simply by mining GRC. Personally, I think this is incredibly entitled and you shouldn't expect to have dozens of people acquiring whale-sized stakes without having to spend a penny on an exchange, especially on a nearly four-year-old coin.
That said...it's a complicated subject and people are pretty passionate about Gridcoin, which I consider a good thing even if it results in heated battles. I just think it's more important to focus on fixing the existing reward mechanisms so that it continues to attract new blood than to waste time trying to figure out how to "punish" the whales,who have supported this coin since its inception.
Without knowing the size of everyone's wallet in a conversation, I think the main argument many people are making about "whales" is not that new users want to equal the stake of early adoption whales, but that after two years, for example, of being the "worker (BOINCer)" of gridcoin, that worker will have just about the same weight as they did when they started: 0. Stake is currently a representation of an individual's total Gridcoin holding. Weight is currently a combination of mag+stake with an emphasis on stake.
This means that the mag-weight of all BOINCers can never compete with that of the stake-weight of a single whale, let alone a pod of whales. This means that for a poll to pass, it must convince only the whales.
One could argue ad nauseam about "economic majority" -- let the whales carry all the weight as they will never vote against the best interest of the economic value of the coin. Unfortunately, this leads to trouble, as we can see with the segwit fallout in the bitcoin community: contemporary economics is short term and what's good for the short term economy is not necessarily good for the long term endeavor.
Question: As early adopters will likely never face competition with regards to their stake-weights -- unless someone drops a large sum of money into the market -- at what point will stake-weight mean less and mag-weight mean more? Or at the very least, what can we do to ensure that mag-weight has more weight than it does right now when it comes to deciding the overall direction of Gridcoin?
I think that the, under its current definition, stake-weight of whales should be easily overpower should enough workers band together. If a whale has mag-weight as well, they will benefit from this sort of protocol as well.
I want to stress: From what I've heard of the conversation, no one is going after whales with pitchforks. No one doubts that there are whales that produce value for Gridcoin as a whole. However, people have legitimate concerns about whether these whales will put into place structures which consolidate their power, known as centralization, or structures which return power to groups of people, or decentralization. In other words, will they hold onto the power they have right now, power which they have earned and deserve, or as the community grows, will they help spread power to those who contribute to the project at large.
Edit: I also want to stress that right now Stake = Money = Power. There are other ways to define Stake. Production value, for example. So when I say "spread power" I do not necessarily mean "distribute gridcoin." I mean "power" as defined here:
When it comes to organization, power is the ability to make decisions, act on these decisions, allocate funds, prescribe priorities, and define the overall vision of an endeavor.
I have certainly seen arguments that people think the coin distribution is unfair, not merely the weight for voting. As for voting, I'm happy to concede that our voting system could use some work and I'm totally in agreement that we need an actual governance structure of some kind. I'm just not at all upset by the coin distribution itself, unlike some people.:)
when you say coin distribution, do you mean when the coin was initiated or do you mean the current stake of each individual?
@nateonthenet and I have spent a fair bit of time on Reddit recently debating with some former Gridcoiners who feel (and I'm oversimplifying this of course) that we should be distributing far more coin to miners than we currently do AND that we should continue to scale that upwards with the growth in miners . This individual has said he believes inflation is a non-factor. Now, I've learned and accepted over time that this individual is an astute guy so I'm not going to be too arrogant and say he's just absolutely wrong, but I have a lot of doubts that we could double or triple the PoR rewards with little/no impact to the value of the coin. It just goes against everything I know and believe.
As for the voting weight issue. Again I'm just not convinced that it needs wholesale changes. I think 1 GRC should always equal 1 vote. I could be convinced, I think, that it should be possible for the best cruncher, for example (@NeuralMiner I think, currently), to have a mag voting weight that is at least equal to that of the largest whale's stake voting weight. Kinda balance the power that way so that being "rich" in stake doesn't give someone any more power than having an especially high magnitude.
But others disagree with even that. I've seen erkan refer to people with high magnitude as "a different kind of rich" and they don't like those folks having high voting weights either.
The vote weight was recently (within the last year I think?) changed to give GRC balance higher weight vs mag. I think that was a mistake.
In my opinion, mag should be given equal vote weight to balance. In votes regarding the whitelist (which is probably the most common vote we have), which affect crunchers much more than bag holders, it doesn't seem right to have bag holders have greater weight than someone that crunchers the actual projects every day. It's like me telling you what groceries to buy for you to make your food out of.
Secondly, bag holders have no expense. They turn on their wallet, they stake; that's it. Crunchers, in order to keep their mag up (which means their vote weight), need to pay for electricity, hardware upgrades, etc. I turn off my machine for a month, my mag vote will mean nothing, but my balance will still have the same weight. Having a mag voting weight has an associated cost. Having an investor voting weight does not.
Just my opinion.
I'm with you 110% @neuralminer.
I tried to start up a whitelist poll using only Mag, and everyone got all upset because that's not normally the way it's done. People kept saying "you can't exclude the investors."
Well we're not excluding the investors. We're excluding the people who invest and do not mine at all. And that makes perfect sense for a whitelist poll.
And now we have a whitelist poll to include a project that's neck and neck between "Yes" and "No" and there's a No vote from an investor account with a 3-million weight. That project might not get added now, and unless something changes drastically, you could remove that one single vote (or both of the Investor-only votes in that poll) and it would reach a different conclusion when only looking at miner votes.
What I hope those people are proposing does not effect inflation. They are talking about the relation between POS reward and DPOR reward. The DPOR reward is set at 48000 per day divided among every single miner. This means that as GRC gains more miners, each miners payout decreases. POS, on the other hand rewards 1.5%/year. That never changes. This means that whales/stakers are consistently getting 1.5% no matter their number while the reward for miners is continually decreasing. There are a few solutions floating around that somewhat solve this issue, but I have not yet seen something that gets to the root disparity of reward.
If these people are in fact just proposing just minting more coins to give to miners, then yes, that's inflationary and counter-productive.
It's hard to talk about without a link or a quote = )
Well researched, and a good read.
I very strongly disagree with scaling the POR pool based on the number of active CPIDs, for several reasons:
It encourages people to cheat the POR pool by running many noob CPIDs with very low mag. I could earn more running 100 CPIDs on 100 machines than having them all fixed to one account.
It will prevent, or at least discourage or slow, the value of every coin. Price is proportional to mining cost and difficulty.
This effectively would undermine the people who have invested into the system so far, as they will have their investment thinned. Full disclosure, I have 'only' 9000 coins so do not count myself among said investors.
You're not wrong with anything you're saying here. I genuinely prefer the theory that "the price of Gridcoin will rise when we have more miners, thus offsetting the fact that each miner receives fewer coins." I've just been told that that theory doesn't always hold weight so I'm at least open to the idea that maybe there needs to be a way to balance things out at some point.
I bought my first Gridcoin in late 2014 and had to go through the coin conversion process to get it into the GRC we know today. I had no idea if my money would be entirely lost, think about that for a second, would you do that?
I ran a researching node since that time and I can tell you it wasn't all plain sailing, the process we have people saying is difficult today is child's play compared to back then, the coin is so much more secure and tamper proof due to years of experimentation and development.
The people who invested time and money back then, who left their respective BOINC teams to join Gridcoin while it was still a very small project, and have held their GRC through massive price rises helped to create Gridcoin as it exists today.
I'm not a 'whale', I do have a pretty significant coin holding though, but I'm invested in Gridcoin far more than money, my heart is in the project because I believe it can do great things. The idea that people think I treated them unfairly I find very distasteful, there are no secrets in Gridcoin history, it's all open book.
I like the post, bar one point:
It doesn't take much effort to create many boinc accounts which could lead to a manipulated POR supply :/
Yeah - we'd have to write the algorithm in a smarter way than I described it. But you're right, almost any way you slice it, if I am running 4 computers I would have an incentive to have 4 different CPIDs and wallets running. I suppose the PoR algorithm could be written to compensate for that fact, but I admit I don't have all the answers right now.
I think the answer is to leave it as it is. The day my mag drops to less than 1 will mean Gridcoin has achieved its primary objective in getting as many machines crunching for science as possible.
I would like to think the price would rise anyway because people would not be willing to sell their GRC for less than the cost of electricity and there would be more users needing to purchase to help them stake.
Interesting, thanks
loved the read.
what are your thoughts regarding how the wealth disparity equates into power disparity through the voting system?
Exactly my thoughts on the subject. Resteemed.
i wish i can swim . i need ask trumpman why the logo from digitalocean show us a whale. whats going on is this crypto world?
i have no idea what you are talking about
I think he means he doesn't have any GRC and thus is not even a minnow but some land animal instead.
Interesting. I've been researching wealth distribution in other coins a few years ago. Best data I found were on https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html although it seems at the moment they are not updated reliably on some coins. I will try to compare current data with those 3 or so years ago I still keep somewhere. No gridcoin data, though.