The place where we fall over is I and Ryan and the community are seeing this as cost to the network, but you see it as investment. Correct me if I am wrong.
Exactly.
If hashrate was really a "cost" to the network such that any reduction in this "cost" made the network more efficient in a way that fed through to value, don't you think we'd have seen that by now ? We should have skyrocketed above litecoin eons ago with such an advantage.
The reason we haven't is because that whole characterisation was extremely faulty.
Ryan characterised it as one would a business with costs of production. He said the "miners are our contractors and they're costing "us" too much". Notice the consistent use of the first person pronoun throughout those characterisations without any specific definition of who "we" is. It's a casual projection of a contracting entity from the corporate world onto a blockchain model which is completely un-instructive since they're nothing like each other. At best the analogue is philosophical. At worst, such an analogue is dangerous because if you use it you arrive at the opposite conclusion of what priorities should be ideally followed in configuring the blockchain protocol.
We are not a "coin producing factory" trying to produce coins as cheaply as possible and hashrate is not an "overhead".
To see why, lets go right back to the Satoshi mining model. Lets for a moment forget about secondary markets (where coins change hands AFTER they've been initially acquired) and focus on how the ongoing emission is bought. The Satoshi mining model is very clever because it's a trustless
market. No fiat needs to change hands, no trusted "Coinbase" counterparty is needed to broker the exchange. The market is trustless with its own price discovery mechanism where mining difficulty represents the current "price" of acquisition since it responds dynamically to competing bids for the new supply. If the primary market was trusted instead of trustless then we'd be using dollars instead of hashrate but the blockchain protocol doesn't understand dollars so it has to be converted into a medium that it "recognises" and that can vary according to demand like an exchange orderbook would.
TERMINOLOGY: COST vs PRICE
Let us now also clarify two important terms that are always getting conflated: PRICE and COST are effectively the same thing. Price is simply COST/PER UNIT. So if I contract 5 people to dig a 10 metre ditch and it cost me $1000, then the price per metre of digging that ditch was $100. The price per hire was $200. I can slice it any way I want to do determine a price but it all stems from dividing the cost by the number of units I want to price. If I buy a tube of toothpaste, someone can say "how much did it cost" ? I say $3. Because the price
is the cost in that case as there were no hidden extras. By comparison, the the price of acquisition at any given moment in the primary market for coin emission is given by (cost of mining/coins mined).
PRICE BY ASSOCIATION
Now Dash issues part of its supply at zero cost to the initial holder. It is distinct as a mined coin in this respect because only part of its supply is "bought" in the primary market and the rest is simply "issued". Note that it is not issued to pay for anything, it's simply a free gift to masternode holders for the most part which is why in capital flow models, a masternode can be characterised as a zero-difficulty miner. Instead of buying mining equipment, just buy a masternode and you get to mine at zero difficulty. The reward is the same - Dash for mining and Dash for running a masternode.
So the blockchain "issue price" for masternode rewards is zero. But then those rewards may be sold into secondary markets (where supply is bought form existing holders). Here the coin only has a price by association with the rest of the supply that was mined. The seller in this case paid zero for the supply so can afford to sell for any price above zero. There are 3 reasons why this is corrosive for the long term marketcap:
1. if a miner sells below price at acquisition, the miner takes the loss, not the network (because the miner had to purchase directly from the primary market and "invested" in that market to the extent of supporting the price at acquisition). On the other hand, if a masternode sells reward below price at acquisition, then the network takes the loss (as net reduction in marketcap). The masternode is still at a profit
2. a full half of the coin supply does not benefit from high difficulty. What this means that as price rises, an increasing tension is created between two halves of the coin supply where one half is at enormous profit and the other (the mined half) isn't. (This is why variable difficulty was invented in the first place. To keep profitability scaleable as price rises so the price doesn't collapse down to zero in a profit-take).
3. if we simply do a straight valuation of the primary market emission price then we have to take into account ALL the coin supply, not just half of it. So for, say the next 100 coins to be issued, roughly 50 will be mined at a cost of ~ $200 each and 50 "issued" at a cost of $0 each to the initial holder (the masternode rewards). So the evaluation comes out at $10,000 which is 50% below the projected valuation based on market price. Any realisation of that value causes loss of capital out of the chain since it manifests as pure profit for masternode holders instead of higher difficulty ("price") in the primary market which would be the case in a fully mined coin. (This is how that theoretical undervaluation slowly feeds through to real exchange prices IMO)
POINTS MADE ABOUT POS CHAINS
Some responders above seem to take the view that the blockchain's purpose is just to get the coins "out there". Who cares how they get there, what matters is the amount of hype and hand waving you do after that to pump the price. I'm afraid I most definitely do not subscribe to this point of view. These things are far more nuanced and subject (in the longer term) to fundamental capital flow characteristics than that IMO.
In particular, smart contract chains aren't comparable with the mining model because they're a service platform. That service platform hosts on-chain dapps that consum token supply as it "froths up" from the staking system. The "froth" as I tend to think of it is assigned to existing holders by the staking system and then the burning of supply by dapps completes the cycle. So work is done by the token which serves as "fuel" for the dapps.
A mined coin on the other hand is a scarcity analogue. The "work done" here is in enforcing scarcity to a measurable value (signalled by the cost of effort required to extract the next block from the chain). You can't say that because POS chains "give away tokens" then it's ok for Dash to do it. That's just lazy, un thought-through reasoning IMO. Even in a bank you don't get interest for just having a deposit there. The interest accrues from some economic activity that the deposit was invested in.
Masternodes are potentially an immensely powerful dimension to Dash because they allow us to maintain a highly competitive mining model WHILE making the coin much more useable than bitcoin. My contention is that this advantage is being wasted because we've reversed the logic of prioritising the reward ratio correctly and are therefore losing large amounts of budget that would otherwise be preserved in boosting capital gain and propelling us back to where we should be according to our feature set and market profile.
