The Case for Miner Controlled Emissions

Problems with Deflation

Whether a hard cap, like Bitcoin, or soft cap, like Ethereum, these caped inflation rates turn coins into extremely deflationary asset where eventually more coin will be lost per year than are created thus shrinking the total supply and exacerbate all the intrinsic problems with deflation exponentially, this will eventually leave such coins essentially illiquid, or perpetually unable to meet market demands for liquidity. In addition to the basic liquidity issues caused, deflation leads to a host of other problems including; making the first-in the best-off , as well as the rich richer, and disincetivizing use, while some of these issues have not been massively detrimental thus far and may have even helped increase early adoption, they are not necessary to the protocols and will disincetivizes further adoption compared to identical inflationary coins.

Spiral of Insecurity

Disincentivizing transactions has alarming implication on the security of the coin’s network, since this security is paid for largely by these transactions, this can and I believe will lead to 51% attacks becoming increasingly common on ever larger networks.

Vulnerability to Attack

I intend to write a whole post on this subject soon.

Introducing Miner Controlled Emissions (MCEs)

Miner Controlled Emissions (MCEs) is a relatively simple solution. The idea is to have an initial emissions rate per block and to include a field in each blocks that adjusts the emissions rate future blocks. This field could and probably should be limited to a very narrow range, depending on the block propagation rate, with the range being further restricted if blocks are produced faster.

Economics of MCEs

Under the above proposed MCE structure, each miner could increase the inflation rate by a percentage and there would be no cap on the max inflation rate, rather inflation could increase exponentially. Alternatively the inflation rate could be reduced logarithmically towards the natural rate of deflation caused by lost or burnt coins.

  1. Increase returns on mining, vs other coins, thus more miners would mine the coin making the network more secure.
  2. Encourages miners to sell their coins, due to increased expected inflation, thus forcing coins to actually hit exchanges and allowing inflation to spread efficiently rather than in fits and spurts due to hording
  3. Create some level of price stability, by creating stable inflation
  4. Encourage people to use the coin rather than hold them
  5. Allow supply of the coin to meet demand such that Es (Price elasticity of supply) should tend towards 1 over the long term

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