Bitcoin & PIVX - The Question of Sustainable Economic Models

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2 years ago
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Bitcoin's deflationary Model

Bitcoin is breaking new all time highs week after week, the feeling of 2017 is upon us again. The days of people giving up hope, calling crypto dead, and walking away from the scene are over. It's interesting to see how quickly sentiments change when people can make money - but the irony is the same people would have made more money having the positive sentiment when Bitcoin dropped below $4000 only ten months ago.

The thing about Bitcoin that makes it so attractive right now is the fact that it's a truly deflationary economic model. This obviously is the polar opposite to what we are dealing with currently with fiat currencies which are purely inflationary - but is the polar opposite actually what we need, or is it just jumping from one extreme to another?

Bitcoin currently has a block reward of 6.25BTC per block, working out at approximately 900BTC per day. However, with this halving every four years, it's not now long until Bitcoin's block reward drops below 1BTC per block. The hard cap of 21,000,000BTC is something that was very important to Satoshi, and the logic makes sense in many aspects. There is however some shadows of doubt about what happens once the supply stops increasing.

The problem that some economists foresee is that once the hard cap is reached (and in reality it's more like 17m BTC assuming 4m coins are lost) that people will slowly stop trading them. There are no more to be had, so people are more likely to hoard and hold onto what they do have - and although this may not have a direct negative effect on the value of Bitcoin, it does stop the project as working as intended - as A Peer-to-Peer Electronic Cash System.

As a store of value, it's not the end of the world for this to happen - however as a currency, if people start hoarding and stop selling/spending, then there is an issue.

A Sustainable Economic Model

Now there are many projects using various economic models to try and predict the best inflationary/deflationary models for their cryptocurrency. PIVX had foreseen the potential issue with having a purely deflationary coin work as currency, and has come up with a inflationary/deflationary model that is adapts dependent on network usage.

There is 60 seconds between each block mined, and with each block mined 6 new PIV are minted. 3 of these are delegated to Masternodes, 2 of these are delegated to Stakers, and 1 of these is allocated for funding development - it does not go to a development team, it is locked in a superblock and distributed by a voting system dependent on how many 'yes' or 'no' votes were given to the proposal as part of the DAO.

The 6 PIV reward per block will always remain. There is however a deflationary policy in place on the PIVX chain. The transaction fee for sending PIV is low, but not completely free - all transaction fees spent are completely burned at the time the transaction is broadcast. This means that those PIV are completely removed from the supply.

Assuming that no PIV are burned (no transactions are made) then the current inflation rate is approximately 4%. This may seem high, but the tail emission of 6 PIV per block is not going to increase. In theory, it would take roughly 20 years for the total supply to double from today - but that assumes that no PIV are burned in transactions and the chain is dormant. Since it remains at 6 PIV per block, the yearly increase is a fixed supply - therefore inflation slowly reduces itself to 0% despite the tail emission.

As usage increases, inflation decreases - once the chain gets to the point that 3 PIV are being burned per minute in transactions, then the increase in supply is halves from 6 to 3 - this deflationary implementation balances the inflationary protocol in place. If the chain gets to the point in which more than 6 PIV are being burned per minute then it becomes deflationary since more coins are being burned than are being produced.

At this point we can revert back to Bitcoin's model. People may begin to hold there PIV, which would in turn reduce the transaction fees and potential lead to supply increase again. The other option is once the point is reached that since PIVX is a DAO and has no CEO as such, proposals may be made to ensure the sustainable economic model that was intended is sustained - this would be community voted as all decisions on the PIVX blockchain are.

PIVX is Proof-of-Stake Blockchain

Bitcoin currently uses the twice the amount of electricity than the entire country of the Netherlands to sustain the blockchain every year - and as more and more miners join in this will only increase. It may be true that a percentage, or even the majority of this electricity is from sustainable sources - but even if 1/3 of it isn't, and it's likely more than that, then Bitcoin proves to be extremely environmentally unfriendly.

PIVX moved to being 100% Proof-of-Stake. If you hold PIVX in your wallet and keep it online then you not only sustain the blockchain, you also get rewarded for it. 2 PIV per block are delegated to those who stake in their wallet. Cold staking is now an option too, you can keep you PIV safe on your ledger and delegate them to a staking address on your computer to receive staking rewards.

Masternodes are similar but require exactly 10,000 PIV to set up. Masternodes have the advantage of not only producing blocks, but securing the chain and having voting rights on the delegation of the 1 PIV per block allocated to community funding. There is also the 3 PIV per block delegated to Masternodes, so there is incentive in having passive income as well as voting rights.

The only energy PIVX uses is the computers that remain online to run the wallet - it can even be ran from a raspberry pi. The energy consumption of the PoS chain compared to Bitcoins PoW chain is incomparable. PIVX is environmentally friendly.

PIVX is Not Going to Replace Bitcoin!

Do not misinterpret this article. Bitcoin is not going to be removed from it's place as the number one cryptocurrency, at least non in the foreseeable future. With the high transaction fees and the purely deflationary model, the chance of Bitcoin becoming 'Digital Gold' is much more likely than it becoming Peer-to-Peer Electronic Cash. This leaves space for other technology, and not all currencies are competing - in fact many will work harmoniously side-by-side, and perhaps even cross chain in the future.

PIVX currently sits at the 303rd position in the cryptocurrency rankings with a market cap of $80m. It has the 6th most active development team on GitHub and it is the first blockchain to implement fully zk-snarks based technology allowing fully shielded transactions on chain. As an investment, it's a great time to jump in - as a project, it's a great one to stay in.

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Written by
2 years ago
Topics: PivX, BTC, Blockchain, Economics, Finance, ...