Block Reward Modification Proposal
The current block reward of 400 HIRO every 60 seconds is set to produce 576,000 HIRO a day. My proposal is to stray from the fixed block reward scheme and have a dynamic block reward dependent on difficulty which would also lead to a dynamic coin supply.
The dynamic block reward scheme would be the inverse of what Darkcoin had implemented. They have a max block reward of 25 and minimum of 5. Their reward decreases with difficulty creating scarcity as the network hashrate increases. The proposal’s new scheme would have our reward increase as difficulty increased and decrease as it fell. This would create scarcity when the network hashrate and difficulty are low. We would do the opposite and have a max block reward of 400 (our original reward) and minimum of 80.
The benefits of a decreasing block reward when difficulty is decreasing is that the supply of HIRO falls when hashrate falls. Network hashrate is a good indicator of coin support and miner interest so we can prevent oversaturating the market with HIRO when overall support for the coin is low. This makes recovering from lows in overall support as we’d be producing at approximate 80 HIRO per block. This would result in 115,200 HIRO produced daily which at the time of writing this would require 0.144 BTC to purchase all HIRO produced daily. This is a tiny number compared to other cryptocurrencies and this gives us an advantage in the stabilization of our price.
The benefits of an increasing block reward as difficulty climbs is that we begin to produce more HIRO to accommodate for the new generated interest. Just like a supplier produces more products when there is more demand we will increase our supply to accommodate. This key point of this feature is to prevent a large cut in our total supply and to prevent market manipulation. As previously stated at 80 HIRO per block, it won’t take much to buy the current day’s production of HIRO. This means that someone could purchase several day’s worth of HIRO and wreak havoc on the market with swings or “pump and dumps”. The increase block reward allows for more HIRO to be produced to compensate for any large buys as naturally miners will move to the most profitable coin. If a large buy order went through and tripled HIRO’s value, miners would flock to mine HIRO and increase the network difficulty and bring more HIRO into the market. They would then sell their HIRO to bridge the supply and demand gap. In the case that they sell so much HIRO that we are back to our original price or below, they will most likely leave to mine another coin. This would drop our network difficulty and block reward and make it easy to prevent any further dumping. This would also make it easier to move to a higher price level as the HIRO entering the market would drop also.
In basic economic terms we would be cutting the supply when demand is low to maintain the same price and increasing the supply when demand is high to maintain the same price. This would give us an inherit defensive mechanism in price stabilization.
A more refined proposal will be written with graphs, game theory, figures and numerical examples.
In general I find the idea interesting and do believe it will have a positive effect on the price. There are a few things that need to be considered though and please excuse me if they have been already (I am an economist myself and not a developer). I will just point them out below:
1. This model can result in rapid swings in network hash-rate and an difficulty. I am not sure how Hiro is handling this at the moment but we need to be sure that this will not result in slower block times.
2. It will be very important what would be set as the lowest hashrate for the 80 reward and what would be set as the highest for 400, because if these are not pinned down precisely then we could easily have the network sitting on just 80 or just 400. Also it needs to be considered that with mining equipment and mining software developing, what is a high hash rate at the moment might not be a high hash rate in just a few months from now. So the absolute maximum block reward should be set to something extremely high given the current landscape.
3. A lot of people look at the maximum coin supply and the supply curve when evaluating a coin and with the proposed changes it will be very hard for the average person to make a good estimation of what supply is to be expected. This might have an effect on the price where the coin is still priced at the maximum possible supply while in reality it is going to be much harder to obtain.
All in all it's something that has not been done before and should generate a lot if interest in the coin, which can be used to further increase awareness and attract more people to the community. That said, we still need that one elusive feature that will grab people's imagination and will make them buy and hold Hiro like there is no tomorrow.
