Continuing the discussion from Exchange price vs. resource price:
After reading through the Exchange price vs resource price thread I realized that I didn’t really understand completely how the Safecoin issuance is going to work.
I have to say that I really really really don’t like the part where the rate of issuance is decided by the SAFE network through an algorithm that measures network utilization.
Because farmers are going to have a financial incentive to game the network.
By providing farmers with incentives to flood the network with junk data en masse we are digging a grave for the SAFE network
For me the genius of Satoshi was in the game theory tactics he used to make everybodies incentives align.
Bitcoin uses an algo to adjust the difficulty of mining so that coin issuance is known in advance and so that there is certainty in the amount of Bitcoins arriving at the market. Satoshi had to make that algo because otherwise all bitcoin would be mined in year 2 of bitcoins existence due to more and more processing power joining the network.
SAFE network on the other hand is a different beast. We are using storage as a proof of resource and as such we don’t need an algo to determine the rate of Safecoin issuance we can just hardcode it in the protocol.
It’s the incentives of farmers vs miners that is the key.
Miners have an incentive to offer as much processing power as they can to the Bitcoin network.
Farmers have an incentive to offer as much storage as they can to the SAFE network but in the case that an algorithm determines the rate of issuance they also have an incentive to flood the SAFE network with data so that due to the overutilization of the network the algorithm decides to offer more Safecoin to the farmers in which case they would receive more Safecoin(Mind you this cannot happen with Bitcoin).
But if the rate of issuance is hard coded in the protocol the incentives of farmers to fake network overutilization doesn’t exist.
This isn’t the only reason why I think that the best course of action is to predetermine the rate of issuance, there is also the price stability aspect.
In the case that Safecoin issuance is dependent on an algorithm the number of Safecoins on the market will not be certain and markets really hate uncertainty which means that the price of Safecoin will vary even more than the price of Bitcoin(because Bitcoin’s rate of issuance is predetermined even though the algo decides the difficulty).
It also gives an unfair advantage to traders that understand how the algorithm works and effectively that means that ordinary users will pay a tax to traders that know when to buy and when to sell Safecoins (this is going to happen even if the rate of issuance is predetermined but to much lesser extent than if an algo does).
I hope I’m making any sense?