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Why Worry About Economic Modeling and Production Rates?
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Basic premise is to assist in "bootstrapping" the network's security by awarding speculation
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Speculation is the main economic deiver of any new system
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ETC is a new system
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Intil the utility value of ETC exceeds the speculative value of ETC, speculation will drive the value of the ETC token
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Minimum time until utility value of the network surpasses its speculative value: 5 years (my estimate)
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Its possible for utility value to never exceed speculative value: See AMZN
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Rewarding speculation helps to secure and nuture the network
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Large scale / high risk / high profile applications will not use a chain that has weak security
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Speculation is a demand function
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Increasing demand increases the price of ETC
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An increased price of ETC incentivizes mining
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Additional mining further secures the network
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Increased security of the network builds trust in the system
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Large scale / high risk / high profile applications will be more inclined to use ETC
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Thus, rewarding speculation helps to secure the netowork
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A declining rate of production overtime further incentivizes early, higher risk speculation
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All other things being equal, a system with an upper bound on the number of tokens issues will prevail over one without an upper bound
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This is an especially important consideration for early stage crypto
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So why not place an upper bound at a very low number, like 90M or 100M (in the case of ETC)?
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Going too low, or having an upper bound occur too soon, will inhibit optimal speculative demand due to future speculative users feeling they "missed the train"
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Usage of the network will be degraded early in the network life due to high gas cost, if dynamic gas pricing is not in place
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This exercise is an aim to strike the balance between rewarding early speculation, securing the network, driving away future speculative interest, and enabling the continued utility function of the network
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Major question is how to transition a production/supply/economic policy model through a concensus mechanism change
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Current POW through a potential POW/POS Hybrid or through a POS
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Another good metric to measure a production rate against is the time it takes for the network to achieve a 3% inflation rate
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3% is a common discount/risk free rate investors measure against (think 30 year US Treasury)
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This has changed a bit fairly recently due to Fed funny business :)
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Still a good metric though
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My personal Order of Importance for supply/production rate aka economic policy:
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Easy to understand
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Includes production rate degredation over time
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Having an upper bound on supply
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Complex models introduce risk, reducing trust
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Production rate degredation is the best method for rewarding early speculation
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Having an upper bound on supply assists in price discovery of token value
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Token value is important in network efficiency, where users and developers can measure cost/benefit of various smart contract implementations
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Remember
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Scarcity x Utility = Value
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* The smallest current unit is a "wei"
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