Attention Nervos heads!
The CKB halving event is approaching quickly!
November is near!
In our previous thread, we touched upon Satoshi's reasons for introducing the halving mechanism in Bitcoin. In this one, we'll explain why it is used, and improved for CKB.
The halving is a brilliant mechanism to solve the initial token distribution problem in cryptocurrencies and create a sound incentive mechanism for miners to support the network during its bootstrapping phase.
Moreover, halving is also a great way to design a deflationary inflation schedule that contradicts that of fiat currencies and makes cryptocurrencies highly sought-after, scarce assets.
That being said, what happens to the network's security when the block rewards become too small remains a hotly debated question. "...when the reward gets too small, the transaction fee will become the main compensation for nodes," is Satoshi's desired outcome
However, whether that truly becomes the case remains to be seen. Many crypto pundits speculate that transaction fees alone won't provide adequate compensation for miners to guarantee sufficient security for Bitcoin.
That rings especially true when considering that in many ways, Bitcoin was not designed as a transactional platform but rather a preservational one, making it cheap for users to store value securely but increasingly expensive to transfer it.
To that point, users that occupy Bitcoin's state to store value long-term aren't (continually) paying the miners for their ongoing security provision. Instead, they're paying a one-time upfront transaction fee and then benefiting from Bitcoin's security, at the miner's expense.
Beyond this incentives misalignment, the transaction fee model introduces a dose of uncertainty for the miners, who-on the long-term-can't know upfront whether the transaction demand will be high enough to make mining worth the effort.
For this reason, CKB iterates on this monetary model, with two types of token emissions, instead of one:
- Base issuance: Where the block rewards go to miners and halve every four years until all CKB coins from the base issuance are mined. (Same as Bitcoin)
- Secondary issuance: This issuance is uncapped & follows a fixed emissions schedule of 1.344 billion CKB annually However, unlike base issuance (which goes entirely to miners) the secondary issuance is split between miners, NervosDAO depositors, and (in the future) a treasury
The precise ratio of the split depends on how the currently circulating CKB tokens are utilized within the network. Suppose 50% of all CKB are used to store state (more on this later), 30% are deposited into the NervosDAO, and 20% are kept liquid.
Then, 50% of the secondary issuance will go to miners, 30% will go to the NervosDAO depositors, and the remaining 20% will to the treasury. Today, treasury issuance is being burned, but this could change in the future via a community-initiated hard fork.
The point of the secondary issuance is to collect state rent and ensure that the miners are compensated for the security they provide the network in perpetuity, regardless of future transaction volume and data storage demands.
Equally important to understand here is that the inflation from the secondary emissions is narrowly targeted and affects only state occupiers.
This means that CKB can simultaneously act as a deflationary hard-capped token (like Bitcoin) for long-term CKB holders, and an inflationary token for the blockchain’s users.
This unique two-tiered token emissions model ensures the long-term sustainability of the Nervos Network by making the miner compensation independent of transaction fees and more closely tied to the utilization of the blockchain as a preservation or store-of-value platform.
For the long-term token holders, the upcoming halving event is one of the most important events to happen in CKB's history! Join us for the party!
Discord; https://t.co/ts5a7hO5JF
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