The Economics of safecoin

Iā€™m also interested in the answer to this, but, not being technically minded in coding its just interest.

I have an opinion on market fluctuation. Of cause there will be fluctuation because of speculators, however, i believe that it will quickly become a small fraction of the large jumps we see in alt coins. This is because safecoins value will be entangled with the cost of the resource it supplies.

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Agree.

I think we only need safecoin. And you will buy resources directly from the SAFE network (we still discuss exact math behind). Farmers and developers will be paid also by SAFE algorithm. SAFE is a middle man :smile:

They are going to be paid by the networkā€¦ In safecoin. No need to mess with any sort of fiat conversion, let people do that on their own if they so choose. Iā€™m not against fiat, but there are plenty who are. Thatā€™s just another added layer of, in my opinion, unneeded complexity.

Iā€™m not talking about any fiat conversion. Any reference to dollars is to give reference to some external meter of relative value.

Resources have relative value. Safecoin will be used to pay for these resources. Safecoin can also be used to for other things of value, including dollars, yen, cattle, computers, etc. All these things have different values per unit, and those values are determined by the individuals involved in each individual transaction.

Network resources are something that has a value which is tied to the network very directly. If there is no way to quantify those resources other than in safecoin, safecoin becomes the unit of value of a very specific resource with a rather fixed useage.

For instance, letā€™s say that an extra 100 gig of storage costs one safecoin and that that value is fixed permanently within the network. If you translate that into current dollar value, what would it be worth to purchase 100 gig for life? Letā€™s say that $10 for the sake of argument would be a helluva deal, though thatā€™s a market-determined value. That then values one safecoin at $10 (or an equivalent in whatever other meter you want to use) but that value is tied to 100 gig of storage.

Now letā€™s consider that happens if improvements in storage technology, software, etc., continue the sort of advances theyā€™ve made over the last few decades and the relative value of 100 gig of storage gets to 10 cents when valued in dollars. That becomes a forced devaluation of safecoin by 1000%.

Safecoin has incredible potential as a means of storing and transferring value. Itā€™ll be superfast transacting, anonymous, limited in quantity, etc. But if its value it tied directly to network resources its usefulness is severly handicapped.

Thatā€™s why I see a Proof of Resource token as being needed, to quantify the resource as a thing rather than a fixed price. That resource could then be paid for in safecoin at a market rate. Safecoin is then free to be a real unit of exchange for anything, including network resources.

Otherwise weā€™re likely to be confronted with the choice of using one safecoin to buy a car, or 100 gig of storage. That wouldnā€™t really incentivize providing resources to the network or be reachable by very many people. The result would be that safecoin, which could easily rise to that high value (or higher) would be hobbled to the low end of usage as a network resource token.

Maybe thatā€™s what itā€™s destined to be and have another currency built on top of it. But unless these factors are handled, Iā€™m pretty sure it will have to play out that way.

@nicklambert and @dirvine Iā€™d really love some input here. Am I completely off base on this?

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Sorry man trying like hell to get code done :wink: not easy.

There will never be a tie between network resource and safecoin at some pegged value over time (this is a little lie). The network will calculate all costs in as real time as possible. So i.e. like up to 2* NetworkAverage (or a proportion as @dyamanaka has outlined (great btw)). So safecoin will buy resources for sure, but not at any fixed price, it will alter through time.

This was part of the white paper, there are 3 main things in resources to consider.

1: Price of safecoin will increase (we all hope)
2: Price of a resource unit decreases (exponentially)
3: Quantity of resource increases (again exponentially)

So safecoin has to take these into consideration. The amount of resource will increase per person at a cheaper rate per unit of resource over time. So the network will calculate this based on a supply / demand of farmers. So if safecoin farming slows, farmers leave, if it increases farmers join. This should balance supply and demand, but I hope eventually that farmer nodes will be tiny and many devices can farm.

If you imagine this also from the perspective of resource requirements then the link between safecoin costs and resource requirements provide the same supply/demand balance.

Initially the costs will be hard coded (the wee lie), this will be algorithmically calculated as soon as possible though. Not to difficult, but too much for me at the moment :smiley: Itā€™s way simpler though when we get some network population results and resource requirements in place.

Then add in big data analysis and computation, these resources should also increase safecoin usage on the net.

So see safecoin as a currency perfect from buying anonymous reources on a private network, just like cash. I think this is the easy way to look at it.

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David,

Thanks so much for clarifying. this makes great sense.

Hate to take you away from the needed work of coding. Should have guess youā€™d figured most of this stuff out!

I donā€™t know if I have the technical background to fully grok the white papers, but I guess itā€™s time I dig in and get directly educated :blush:

John

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Hi David
not sure if you read my post? Ive put it below. My point is not that resources should be pegged to anything in an algorithm kind of way. Just that if farmers are paid in safecoin and users pay in safecoin then market forces will determine a correlation between the price of safecoin and resource.

My initial concern was that if farmers were paid in safecoin but consumers were either given resource for free or able to pay in an alt currency then safecoin would only have a speculative value. Nick put me straight on that, do you agree with his reply to my question?

I have no idea when it comes to coding but ive run some businesses and have qualifications in economics. I am a little concerned with your quote ā€œInitially the costs will be hard coded (the wee lie), this will be algorithmically calculated as soon as possible thoughā€ I have this concern because if you want ā€œ2: Price of a resource unit decreases (exponentially)ā€, then you have to let market forces decide the price, and i agree that in the end the price will be just under or around cost because the farmer with the most competitive price will not be the purpose built farming rig but a farmer with hardware already paid for and primarily with another use, he/she will set their price for resource at cost just to recoup the cost of some of their hardware or just to get some safecoin to spend on the network. If you try to fix the price, even with an algorithm then you will not find the true lowest (or market) price.

Again i have no idea about coding but could you use a system similar to the way crypto exchanges work to discover price? Farmer A offers up 100gb at X safecoin per day, farmer B offers 50gb at X+0.1 safecoin perday. User 1 wants to buy 50gb, he pays X, user 2 wants 75gb he pays X for the remaining 50 from farmer A and X+0.1 for the next 25gb from farmer B.

Farmer A is rewarded for having the lowest price by selling all of the 100gb he put up for rent. Where as Farmer B, who wanted to charge a little more only sold half of his storage available to rent.

This kind of price discovery would find rock bottom prices for any resource. Rock bottom prices will attract customers/users which will increase the demand for safecoin and therefore no need to hope for ā€œ1: Price of safecoin will increase (we all hope)ā€ It has to increase, its a limited resource with an increasing demand.

Hope you have time to comment on this.

Bellow is my initial question answered by Nick

Hi Im new here, i invested 20 bitcoins in the crowd fund because i love the idea, however, I am concerned that you are missing a trick with not making safecoins backed by computer resource, like the dollar used to be backed by gold. If you give away storage, bandwidth, cpu usage ect ect for free and pay the farmers in safecoin then safecoin only has a speculative value (its worth what someone else will give you for it) Bitcoin has stolen the march on this along with 100 plus other alts.

If farmers were paid in safecoin and users could use resources paying in safecoin then safecoin has instant real value. In order to get mass adoption i understand the idea of giving away Xgb of free storage, however, if you want the system to grow beyond a drop box then surely resources need to be paid for in safecoin. Then imagine some of the potential. All computer resources would become available at cost or less. This would happen because any big purpose built farm would soon be undercut by someone with a computer that they would have bought anyway and just want to recoup some of their cost. Now we have computer resources at cost or less, imagine the impact on the third world, laptops could be built for peanuts and people could just connect to the network and pay as they go.

Am i missing something? This has to be an opportunity to good to miss?

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I think we are in agreement. I also answered that post you made :smiley: saying this. safecoin is input and output in the network, its just not pegged.

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Stuart, I think youā€™re wrong that big purpose-built farms will be undercut by regular users because they already have a system anyway. Specialized builds can be made far more efficient in power usage. Itā€™s not a bad thing at all though, it will mean a dirt cheap, safe and private cloud system.

As for your comparison to the dollar being backed by gold, I think itā€™s off the mark. Gold is scarce, computing power is not. Hence it made sense to be able to exchange a dollar for a fixed amount of gold. The dollar was simply an IOU for gold. Computing power cost decreases exponentially and itā€™s supply increase exponentially, and thus a fixed exchange rate baked in the network would mean the value of SafeCoin would decrease exponentially and would exponentially inflate. P.O.R. as explained in the whitepaper is backed by computing resources directly, itā€™s even denominated in computer units of measurement.

I agree that the market itself has to figure out how much P.O.R. you can buy with SafeCoin. I donā€™t see an alternative to the supply/demand system, itā€™s the best way to discover the price of SafeCoin. SafeCoin can get itā€™s special status by being uniquely treated by the MaidSafe network.

Thanks for that David, I wish you and your team the best. I am inspired by the magnitude of the task you have set yourselves.

Seneca, you make a good point about the economies of scale and you are right which ever way it goes the price will always find a level at the absolute minimum.

You take my comparison to the dollar being backed by gold too literally. The point i was attempting to put across was that safecoin has an opportunity to have value beyond speculation, beyond just what the highest bidder is willing to pay.

I certainly donā€™t think any kind of fixed exchange rate is a good idea, i would like to see price discovery as market driven as possible. The value of safecoin will grow as long as the network attracts more users all requiring safecoin at a greater rate than more safecoins are issued. The price can also increase because the market believes that at some point in the future there will be more users requiring more safecoin. I do still believe that the price will be far more stable than other coins because of its entanglement with the cost of computer resource.

Obviously this only works if you sell and buy computer resource in safecoin. If you only sell then there is no entanglement.

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From the blog post:

Another feature of the network is that Farmers are only rewarded with safecoins as data is retrieved (get requests) from their vault, not when it is stored. The frequency of these requests define the mining speed. The more data stored the more likely a request will occur and it will not be possible for nodes to selectively store data, they either store it or lose it. Losing data reduces rank and mining speed. The nodes will mine at greater rates as they store more data.

I apologize in advance if this below was already raised in some comment here or elsewhere, there are literally hundreds of them and as I try to read them all I forget where I read whatā€¦

  1. As the network grows and at least until itā€™s possible to selectively prune data, the active/inactive ratio will drop, so the likelihood of scoring a popular chunk will continuously decrease. (This is another argument in favor of pooling, which was discussed elsewhere). So the more chunks you store the less likely your chunks will be GET-ed, I think.

  2. If 1) is correct, then it will be beneficial to power off nodes (or unmount vaults and shutdown HDDs) with no requests and reconnect them just before theyā€™re considered dead by the protocol. Or, I may let the hopeless (say, 2 weeks without any GETā€™s) vaults die and get the new content hoping Iā€™ll be lucky and score some interesting chunks.

I bet there will be many surprises here and IMHO ā€œthe economics engineā€ seems about 20% complete (and I would imagine itā€™d have to be about 50% complete to allow the normal use of the network).
The sooner community can start abusing one of forthcoming testnets the better because we donā€™t want nasty surprises on a beta or later networkā€¦ :smile:

These are valid concerns but I think the ranking mechanism is designed to cope with exactly this kind of shenanigans. For example, if you drop your data, your rank will plummet and youā€™re back to square one - not being trusted until youā€™ve been a good node for a sufficient period of time.

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Of course some sort of mechanism will be present, but itā€™s like open source antispam filters - you design a virus/malware by examining whether it works against the s/w and furthermore you can inspect its code too look for what it checks to save time required to design a virus or such.

In one of the topics (I think the one about disk migration) I asked about this time and I think @dirvine said theyā€™re thinking about days. But it doesnā€™t matter how long, the point is if I know itā€™s X seconds, then I can power it off for (X-120) seconds (assuming 120s is required to boot/attach/start service, but Iā€™ll slightly randomize this value in order to appear to the network like an impoverished African farmer with intermittent power failures) and I can see this X value from source code.

I hope there will be bounties for successful abusers!

@janitor Yes I agree. Iā€™m saying that if you want to examine this and help improve the robustness, youā€™ll need to look at how it is being handled and I think ranking is the place to start. Its fine for us to chit chat about these issues without getting into the detail, but it doesnā€™t help make the system more robust until we take the time to delve into it and see how it is currently designed. Bounties will help this, but for folk here, there is always the option to get our hands dirty. :slight_smile:

EDIT: I think if you were to look into the source code, MaidSafe have been a bit more fiendishly clever than to stick ā€œmagic numbersā€ in there. I imagine it will be harder than you envisage. Those bounties will be earned! :slight_smile:

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LOL!
Some may call that security thru obscurity, but one thing is sure: itā€™s going to be fun!

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I was scanning through this thread for some more ideas and got 2 crazy ideas.


Network Utilization (Hybrid)
The current utilization model adjusts the Safecoin price based on a threshold. Can we add 2 more parameters?

Greater than 75% space used = prices goes up.
Less than 75% space used = prices goes down.

Greater than 75% space used = free storage decreased.
Less than 75% space used = free storage increased.

The exact % is debatable but I think it could work?

Abusing the Network with multiple accounts becomes much more difficult. This hybrid utilization is based on what is actually put on the Network, not how many free accounts exist.

Example.
Letā€™s say you make an account today, which allows 10Gb of free storage. This should not reserve 10Gb of storage space for you. If you wait several days later, and decided to upload 10Gb, that free amount could have changed because the ā€œcurrentā€ state of the Network.

Iā€™m sure people will get confused so we should be careful how to display the free amount which changes on a daily basis.

The good part is, when new farmers join, adding more available storage space, it allows users to take advantage of the excess. At the same time, the Network also adjusts Safecoin payout.


Unlimited Free Storage (Circuit Breaker)

60% space used = unlimited free storage disabled.
Less than 60% space used = unlimited free storage enabled.

When the Network is greatly underutilized (< 60%) users are free to upload as much as they want. The Network does not micromanage free user PUT allocations. Once 60% space is used, the circuit breaker trips and stops the unlimited free storage function. Then it starts charging Safecoin to reserve blocks.

If possible, this should allow several benefits.

  • No need to make multiple accounts.
  • Maintains Safecoin utility/value to purchase storage space.
  • Network is self protecting (circuit breaker).
  • Network remains flexible to supply and demand.
  • Faster Network because it does not need to micro manage free storage uploads.
  • Faster Adoption while the Network is underutilized.
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Ugh, unlimited? Thatā€™s a little bit more than I expected!

As most of you know I am against significant (> 1 MB) freebies, but if they do get implemented I think the idea of these levels is an improvement over earlier approaches.
Circuit Breaker would allow one to spin couple of hundred VMs and create enough garbage to hit the limit (obviously itā€™d have to be close to the limit to begin with) so that the attacker can load up on Safecoins, spin the VMs to lock the storage and then sell Safecoins. Itā€™s going to be too expensive to do this later and even in the beginning it may not pay (users could simply go to Dropbox rather than buy Safecoins).
Because of things like this I think some level of randomization should be introduced in these levels so that itā€™s not possible to guess with high certainty when they come in play.

Iā€™m still not sure how freeloaders help the network. Do you know if clients also fetch and forward chunks of data from nodes running vaults?

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Iā€™m sorry youā€™re not able to see how free users contribute to an eco system. I have no intention of convincing you otherwise.

My ā€œguessā€ would be yes. The users node would have to become part of the XOR address network upon connection. This means they are part of the traffic routes (while connected) where data can pass through. But I donā€™t know this for certain.

In that case that would be one of their contributions to the network (finally!). I also expect they should contribute like that. If this is for sure, thatā€™s of some value in having more nodes on the network.

  1. How much value?

  2. What about other, paying users?

  3. Is there any relationship between oneā€™s usage of free space and contribution to the network?

  4. Amazon S3 charges 2 cents per GB of data transfer to transfer data in (they charge artificially more for ā€œoutā€). If that is compared to data storage prices, it appears that bandwidth is valuable. At 100 KB/s one could transfer around 120 GB / month or (at Amazon ā€œoutgoingā€ network charges) $2.5 which could buy you 83 GB of space for 1 month.
    If space on the SAFE network is significantly cheaper, one may ā€œearnā€ more space than that. Note that this assumes that the freeloader runs their client 24 x 7 @100 KB/s throughput (50 down, 50 up) which is by no means certain.

  5. The same conditions/rewards should be given to all users, including those who pay for their space.

  6. It seems there will be no direct relationship between oneā€™s utilization of the free space on the SAFE network and his contribution to the passing of chunks over the network. Of course, in order to upload he needs to stay online, but outside of that time thereā€™s no reason for him to make his online experience slower when he is not using the network (I can already see a response that because of the ā€œfree for allā€ strategy the SAFE network will be full of popular content so the freeloaders will be on SAFE all the time; to me that would only prove that giveaways arenā€™t really needed).

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