The Economics of safecoin

Community Blog Posts
42

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 “Initially the costs will be hard coded (the wee lie), this will be algorithmically calculated as soon as possible though” I have this concern because if you want “2: Price of a resource unit decreases (exponentially)”, 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 “1: Price of safecoin will increase (we all hope)” 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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43

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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44

Stuart, I think you’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. It’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 it’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 it’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, it’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 don’t see an alternative to the supply/demand system, it’s the best way to discover the price of SafeCoin. SafeCoin can get it’s special status by being uniquely treated by the MaidSafe network.

45

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 don’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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46

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 what…

  1. As the network grows and at least until it’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 they’re considered dead by the protocol. Or, I may let the hopeless (say, 2 weeks without any GET’s) vaults die and get the new content hoping I’ll be lucky and score some interesting chunks.

I bet there will be many surprises here and IMHO “the economics engine” seems about 20% complete (and I would imagine it’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 don’t want nasty surprises on a beta or later network… :smile:

47

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 you’re back to square one - not being trusted until you’ve been a good node for a sufficient period of time.

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48

Of course some sort of mechanism will be present, but it’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 they’re thinking about days. But it doesn’t matter how long, the point is if I know it’s X seconds, then I can power it off for (X-120) seconds (assuming 120s is required to boot/attach/start service, but I’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!

49

@janitor Yes I agree. I’m saying that if you want to examine this and help improve the robustness, you’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 doesn’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 “magic numbers” in there. I imagine it will be harder than you envisage. Those bounties will be earned! :slight_smile:

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50

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

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51

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.
Let’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 “current” state of the Network.

I’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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54

Ugh, unlimited? That’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 it’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. It’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 it’s not possible to guess with high certainty when they come in play.

I’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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55

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

My “guess” 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 don’t know this for certain.

56

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, that’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 one’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 “out”). 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 “outgoing” 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 “earn” 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 one’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 there’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 “free for all” 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 aren’t really needed).

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57

I checked the docs to review the routing part.

There is a distinction made between the non-client and client modes of operation. I don’t know what determines the mode of operation when a user connects their node. Obviously, they want to be a non-client, contributing to the routing infrastructure.

This is over my head. I hope you’ll find this useful to help with your solution.

58

I read that about clients, but from it I couldn’t conclude. This is what clients can do (from that document), if anyone wants to comment on that here:

Send requests to any non-client nodes
Send requests to clients with same ID
Receive incoming requests only from connected non-client nodes

(The second point should probably be reworded. From the doc it seems node ID is unique, so if “same ID” means “itself” then it should say “itself”, If not, it should be clarified which nodes have same ID.)

In contrast to non-client nodes, a client node does not contribute to the routing network infrastructure.

This is the only part that that I think says clearly that a client node does not pass data packets around.

For us yes, we want them to, but for them, it depends whether they want to simply consume content or do something more (probably not). If all they want to do is to watch some videos, they most likely don’t want to be taxed by forwarding huge chunks of data around as it’d impact the quality of their experience. (Remember the early days of Skype when it really felt when the damn thing was on? :slight_smile: ).

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59

I’m just thinking that although I am really no longer sold on the various freemium models, it would lessen my concerns if there was only an initial period (whilst seeding network) that offered free storage etc. I mean the main point of the freemium model is to stimulate network adoption, so can it not be a limited offer - free storage up to a limit for 1 year say? Alternatively, the offer of a “forever” limited amount only that lasts for the first year? There could be an advisory notice to users that it would be best to run a vault to ensure continued storage, then it is more likely people/freeloaders will be contributing resources. (Do you need to run a vault in order to access storage though, therefore they are contributing anyway…I’m not sure but I don’t think so?)
A different, more sustainable model could then be introduced after, which targets the free space better - like the one I suggested…lol
ps this fits with:

“Crux of the MaidSafe system so far, make thieves valuable until they are not, then remove them. - DIrvine.
I’d probably describe the “thieves” as "passengers"in this instance though…

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60

I’m giving up on trying to figure the giveaways out. From now on I’ll just wait and see what happens.

The main reason is that the good intentions that some here have can be only realized by force (taking space which isn’t paid and redistributing it around).
The same can be achieved by donations in exchange for something or nothing (for example, someone could donate 100 TB to Mr. Lebowsky’s Little Achievers and have his name and URL featured on a MaidSafe page (yes, Warren, that’s advertising and you could choose to avoid that page).

As you notice this argument isn’t related to prior discussions about whether giveaways would work or not.

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61

I agree, I think I give up too, I suggested the foundation via donations would resolve the other issue you mention. I think I’ve covered everything I wanted to suggest anyway, so I’ll just wait and see now and leave this topic alone I think…too frustrating…lol.

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62

@dyamanaka I admire your ingenuity in trying to find a way to satisfy concerns and to create a truly autonomous self regulating system! This does though solve one problem and create another to my mind.

The point of offering free storage is:

  • people like free
  • people understand free and have expectations: that it stays free
  • it reduces the risk of adoption to the time spent setting the system up
  • it eliminates the difficult questions of cost (value for money, cheaper alternatives etc.)

All this is designed to make the decision to click “download” something people do in the moment, and avoid them putting it aside to think about, or investigate further. This can very dramatically increase adoption.

If we complicate this we’ll lose much of this effect, and even have people thinking it is freemium and getting upset when they find it is different. To be honest, this model is novel and new in ways that make it harder for people to assess and decide on than a familiar but more costly zero-free model.

So my first response is not in favour.

I’m quite concerned about mass adoption without free but think its right to drop the free/not free discussion. We can still approach this from the other direction: Who will use SAFE and why? as already suggested.

63

Thanks for your feedback.

I don’t see anything wrong with discussing ideas on this forum. This is how we innovate. Heated debates can lead to disharmony, which I am aware. Unless someone already knows the perfect answer, we keep throwing frogs at the wall to see which one sticks. I’m using an analogy from my old boss.

Unresolved problems is my addiction. It’s very hard for me to let it go without a workable solution. Maybe I’m going too fast with so many ideas. The Devs only have so much time to test each one and can’t be distracted with too many “what about this” alternative.

I’ll (try to) lay off until TestNet3 and let them work. :wink: