I wanted to do some more exploration of the existing PUT price, so here it is
I’m going to bias this by saying my conclusion first - I have doubts the safecoin algorithm will work as intended with the current design.
There’s a lot of good design in the algorithm, and I’m not suggesting it be totally thrown away, but it’s hard to say whether it leads to a viable and sustainable economic model for the network.
Defining Store Cost
Store Cost is currently defined in RFC-0012 Safecoin Implementation as
StoreCost = FR * NC / GROUP_SIZE
which is a value measured in safecoins per chunk.
Farm Rate (FR) is between 0 and 1. A lower value means it’s harder to farm safecoin (ie the network has many spare resources).
Number of clients (NC) - presumably per section - let’s just leave it fixed for now at 1000 since over any short period of time this number will be pretty stable.
Group Size is 8
So the simplified formula for store cost in this explanatory post becomes
StoreCost = FR * 125 safecoins per chunk
There’s also a disclaimer in the rfc: “The calculation therefore becomes a simple one (for version 1.0)” - which indicates this is likely to change.
As more resources become available (FR goes down) the cost to store goes down. That sounds like a reasonable relationship. And vice versa - less resources available means the cost goes up.
What is a reasonable range of values for storecost?
The first ever PUT on the network will be FR=1 and NC=1 so that means a cost of 0.125 safecoin per chunk or 8 chunks per safecoin.
But let’s look at when the network is in use and NC = 1000.
One limit is where resources are scarce and farming has become so easy that every farm attempt is successful, ie FR = 1
In this case, store cost is 125 safecoin per chunk, which is quite expensive! Scarce resources = expensive storage. Nice.
Now consider when farming is popular there are many spare resources. The reward has become one million times more difficult to get, ie FR = 1 / 1,000,000.
In this case, store cost is 0.000125 safecoin per chunk or 8000 chunks per safecoin. That seems like pretty good value.
Consider if farming is extremely popular, a billion times more difficult to get, ie FR = 1 / 1,000,000,000
In this case, store cost works out to being 8M chunks per safecoin.
I think the general direction of safecoin is correct, but the magnitudes are hard to come to terms with. Will it result in an economically viable and sustainable system? It’s hard to say.
What’s the expected bound on farm rate? How difficult will farming become? Farmers naturally want it to be most profitable so they’ll aim to keep FR high (ie not much spare resources). But it’s balanced by not wanting to be punished for having too few resources. And it’s also balanced by users (who may be farmers) wanting cheap storage so they just provide a lot of spare resources to achieve that. There is a lot of work still to do to fully grasp the interplay of this mechanism.
Does it lead to problems with the storecost where users end up with ‘storage for life’ which then further leads to safecoin supply problems because very few are recycling any more?
How is farm rate actually going to be calculated? The section establishing farming rate is crucially dependant on Sacrifical Chunks which no longer exist in the network. This creates a big hole in the ability to reason about safecoin distribution. I’ve substituted Spare Resources as an equivalent idea to Sacrificial Chunks.
As it becomes harder to earn safecoin (ie too many spare resources) the least profitable resources will be removed. This increases the farm rate, which then also allows existing resources to earn more safecoin. So it’s rational for farmers to create scarcity.
As this happens storage costs go up. So more safecoin must be spent and supply increases.
These factors create a natural limit on how hard it is to farm safecoin, but I don’t know what that is likely to be.
This also means there’s a natural limit to the cheapness of storecost. It probably won’t ever get to ‘storage for life’ since farmers would remove resources and increase store cost before that happens.
Number Of Clients (NC)
I think storecost will be dominated by farmrate so I sorta gloss over NC. The reason I think this way is because farmrate is set by storage capacity which farmers are going to be aggressive about, but number of clients won’t be aggressive, it’ll just be normal people doing normal ‘webby’ stuff. Perhaps a naive perspective?!
The effect of NC is more clients = more expensive storage.
What is the expected range of NC?
Will farmers create many empty accounts just to make it more expensive and thus create more safecoin supply?
To my mind the NC parameter can be manipulated too easily and this could become a problem. It should not be part of this calculation. It creates an incentive for farmers to generate empty accounts so they can earn more by increasing costs and thus increase safecoin supply. Whether farmers end up seeing NC as the most effective lever to achieve that goal is not clear, but I’m wary of it.
The algorithm is very clever and elegant and has the right ‘direction’ about it, but I’m not convinced whether it will work as intended and create a viable and sustainable economic model for the network. There’s currently too many unknowns. Looking forward to tests and simulations but that’s a long way off so for now it’s all just thinking and talking.