Understanding Inflation in Cryptoeconomics
Cryptoeconomics is a topic which deals with the economics of Cryptocurrencies. Economics plays a pivotal role in creating a successful company.
Now, let’s look at the history of cryptocurrency……
Ever since Bitcoin was launched, the new token generation has been based on a hardware-based mining technique called Proof-of-Work (PoW). In this, the token generation will continue until the year 2140. After this, the only transaction fees will be used to reward Miners or Block Producers (BPs).
NOTE: Currently, the miners are getting 12.5 BTC plus total transaction fees. Total reward ~ 12.5 + 1.5 BTC = 14 BTC approx.
And then in year 2016, Steemit got launched with a focus to revolutionize the social platform by incentivizing the content creators and curators.
So, where does the money come from?
Unlike other tokens, Steemit has a unique economic model of inflation as a reward.
The money comes from this inflation i.e. new tokens getting generated every year. And this money is distributed in a descending order —
Author >> Curator >> Token holder (locked ones)>> Block Producers or Steem witnesses
In steemit, it starts with 9.5% inflation rate and decreases by 0.5% every year until it reaches 0.95%. After this i.e. 20 years, it will remain at 0.95% per year for lifetime. And this 0.95% inflation will help the BPs with the rewards in Steem token.
However, in EOS the scenario is little different. The inflation model works in this token as well. But instead of ‘decreasing inflation’ in Steem, EOS is based on ‘constant inflation’ of 5% per year. Out of this 5%, 2% is given to the BPs as reward —
And this sustains for lifetime……
Also, in EOS, the excess tokens generated but not distributed shall be destroyed using a ‘destroy function’ (to be incorporated) in the protocol.
Disclaimer: This may get updated with newer documentation.
Conclusion
I would like to end the conclusion by answering a question.
Now, a vital question —
Which one is better?
In Bitcoin, there is a transaction fee for lifetime. And till then, the Bitcoin value reaches its height, the new tokens will be generated with reference to the work put in for the network by miners.
On the other hand, both Steem and EOS doesn’t have any (i.e. zero) transaction fee, but instead you have to own some network bandwidth (although tokens locked will be paid some interest rate when taken out).
In Economics, it is mentioned that “No inflation or deflation (the lowering of prices), is actually a much worse economic indicator”.
Personally, EOS is my favorite. Because there are lot of things (using multiple dApps) that I can do with having my tokens locked for accessing network bandwidth. And while having these, I can have the zero transaction fee as a perk.
Now, if a person wants to just use a particular feature on EOS and exit, then this economics (of locking tokens) may not seem good for him/her. In that case, just pay the transaction fee and exit like in Bitcoin and similar tokens.
That’s it.
DISCLAIMER: This is completely my thought. Any kind of suggestion is most welcome.
Thanks!
Have a nice day :)