Grin Money Explained #3 — Supply and Monetary Properties of Grin
Note: this is part of Grin Money Explained series by CryptoProfG
We just witnessed an astounding bubble around “crypto” — cryptocurrency and token initial coin offerings (ICOs). 99%+ of those will disappear into oblivion. However, in 2019 we’ll see one of the most exciting, serious developments — that has been in development since 2016 (pre-bubble) — in the cryptographically secured distributed ledger technology space: the launch of the Grin privacy-focused cryptocurrency. Grin is the first implementation of the Mimblewimble technology and is a promising, highly scalable privacy-focused cryptocurrency, and possesses strong privacy features which make it digital cash-like with straightforward peer-to-peer transfers. Grin is unique in this space in particular owing to its design, who’s behind it, and how it was created. We have to look at Grin’s monetary model: what this model means for users, investors, traders, and developers. And before diving into Grin’s monetary model it is worth understanding what money is — check out Money: Origins, Purpose and Inflation to get a better understanding of it.
For purposes of this analysis of discussing a soon to be released cryptocurrency that at this moment has almost no impact on actual economic output, we must actually focus on monetary inflation, not price inflation. Monetary inflation is the sustained increase in the money supply of a country, which leads to price inflation. How monetary inflation transmits into price inflation depends heavily on expectations, and the structure and growth of the economy. For instance, how much faith markets and individuals place in a currency depends not only on the current or historical money supply, but also on wage/price pressures, growth, or the credibility of the central bank and government stability. Expectations, as I will discuss, matter greatly here. Grin is set for launch January 15th 2019.
Grin’s continuous emissions schedule and block reward not only incentivizes miners but complements Grin’s privacy properties, thus we want to highlight those. Grin’s design and technology promises to make transactions confidential, untraceable and secure on an efficiently secured decentralized mining network. It is lightweight, immutable, and fungible as a digital money. Here’s a link to our earlier post: Greater than Bitcoin? Myths around Mimblewimble and Grin Unlocked.
- Electronic transactions for all, without censorship or restrictions: Grin empowers anyone to transact or save digital money without the fear of external control or censorship, is designed for the decades to come and wants to be usable by everyone, regardless of borders, culture, skills or access.
- Private: Grin has no amounts and no addresses. Transactions can be trivially aggregated. To hide where a newly created transaction comes from, it gets relayed privately (a “random walk”) among peers before it is publicly announced. We could call it free speech money.
- Scalable: MimbleWimble leverages cryptography to allow most of the past transaction data to be removed. This guarantees Grin won’t crumble under its own weight in the long term.
- Open: Grin is developed openly, by developers distributed all over the world. It’s not controlled by any company, foundation or individual. The coin distribution is designed to be as fair (but not gratis) as is known to be possible.
It’s value stems above all from these properties and the founders wanted to design this cypherpunk protocol to be the best version of cash that provides a new privacy-enhanced alternative to bitcoin, which is much to the liking of many bitcoin and monero developers, maximalists, cypherpunks and those who care about data privacy. It is the first mimblewimble protocol project (the first to launch on mainnet was Beam recently, a project created by a private company — we’ll compare them in a future post). Grin’s long run goal is to become a practical, privacy-preserving and censorship-resistant digital currency that is actively used and spent.
The Grin project has been developed very thoughtfully as a grassroots community effort since 2016 and rests on the Mimblewimble design. Here is the original Mimblewimble paper published by anonymous Tom Elvis Jedusor (French name of a Harry Potter character). Unlike 99.99% of cryptocurrency/token projects Grin has:
- no pre-mine,
- no managing company or foundation,
- no pre-sale to investors,
- no ICO,
- the team behind it won’t pay for listing on exchanges,
- the launch will be done via Proof of Work (POW) mining on a new POW algorithm called Cuckoo,
- two of the founders are anonymous (Lord Voldemort aka Tom Elvis Jedusormade the first formulation of MimbleWimble, and Ignotus Peverell is a core contributor. Both are JK Rowling’s Harry Potter characters) in somewhat similar fashion to Satoshi Nakamoto,
- Grin’s development is financed through charitable donations to a developer community effort. This could be considered a sub-optimal way of funding an open source cryptocurrency project that it is, however, this method truly incentivizes the most passionate and committed developers to play fair and design this protocol as a decentralized, immutable, open source privacy-focused cryptocurrency for the global online commons, and do so with a fair launch and no skewed incentives for the founders and those investing in the success of this protocol,
The anonymity of some of the founders and the financing of Grin will most certainly help keep the open source project a decentralized effort without a leader and with significant goodwill and altruistic contribution from many new developers and entities. It is amazing that talented developers are taking on such a huge vision, attracting such huge capital into Grin, and raising donations to do. This is admirable.
The above is unique. The founders intentions are for the distribution of Grin to be fair vs other cryptocurrencies and to avoid extremely high early awards to those who were first to mine Grin. It still has much work ahead around infrastructure, services, adoption, on-ramping and off-ramping individual users, as well as onboarding merchants. This is a great organic grassroots development growth model. No one is criticizing the development path of the most successful cryptocurrency — Bitcoin — which is a grassroots cypherpunk project created even more mysteriously and covertly than Grin.
What significantly impacts the market’s belief in Grin (which is key from the demand-side) are:
- the credibility of the team building Grin prior to launch and then developing it
- the quality of protocol design
- the value proposition ie privacy, scalability and ease of use features
- the degree of decentralization and sheer mining power securing the network
- regulatory and censorship risk (not of the protocol, but points of weakness around it: on-boarding, off-boarding, services leveraging Grin and individual users themselves)
- a need for a privacy-focused digital cash
These seem to be top notch according to many community members. We have to assume that this is the case, for the sake of analysing the monetary model, so that we’re not evaluating the risks of any of the above failing (eg. core dev team disputes and forks, major technical issues/glitches, etc), although I will briefly discuss whether/how the emission schedule impacts mining and interest in the currency.
What will really matter for Grin’s actual adoption are the following:
- Infrastructure: wallets, exchanges, marketplaces, APIs, merchant solutions etc.
- Awareness: developer community, users, merchants etc.
- Use-cases: what will be the first uses of Grin & where (geography, sector/vertical), ‘killer apps’ etc.
- Community: developers, contributors, evangelists, investors, people passionate about the project etc.
- Capital: hype and speculation are needed to bring in not only people but most importantly capital to the project development and the development of infrastructure and services around Grin.
Grin’s utility (where, for instance, ETH has a smart contracting functionality, and other tokens are redeemable into assets discounts etc) is that it offers a very high degree of privacy, like physical cash in in-person transactions. All people value this to a differing extent and depending on the use case. For a deeper technical overview of Grin and Mimblewimble also check out these articles from TheBlock and CryptoBriefing.
Whether Grin becomes stable, adopted and used en masse depends above all on the utility of its properties and user experiences, as well as on whether it will meet the 3 properties of money (medium of exchange, store of value, unit of account), which are highly impacted by the supply function and mining/network security design.
Grin’s monetary characteristics
What matters for the soundness of Grin as a form of digital money is it’s money supply function. What is great beyond the privacy and tech design features is that Grin has a simple and predictable supply function.
Here is Grin’s monetary policy document. It’s straightforward:
- The supply of Grin is fixed at any point in time at 1 grin/sec, where each block takes 1 minute to mine, thus 60 grin will be produced as block coinbase reward per minute.
- Grin does not have a maximum supply as it provides a constant block reward of 60 grins / minute.
- Grin’s emission schedule is a stable, continuous arithmetic supply function: a linear emission rate. This provides certainty, predictability and transparency, and incentivizes miners and investors in a straightforward manner.
- Immediately upon launch there won’t be any Grin to trade: as mining starts and grins get mined, they will become available organically to the wider market. This incentivizes effort and participation, in contrast to pre-mined tokens that get sold by investors upon launch and after achieving profit sometimes disincentivizes teams (or actually incentivizes short-term pumping, manipulation, insider trading, and outright scams).
- Grin is highly divisible (1 grin = 1,000,000,000 nanogrins)
- Grin’s transaction fees are tiny only to act as spam prevention, are rewarded to miners, and are priced proportionately to the (data) cost incurred by the network when accepting and safekeeping the transaction
- A really interesting feature (an invention by early Mimblewimble contributor Andrew Poelstra who’s a developer at Blockstream and published the second Mimblewimble position paper), as I noticed it’s oft omitted, is that of Confidential Assets (alternative assets with differing cryptography, emission rates, etc.) to be soft forked into the Grin protocol in the future. Read more about it in the monetary policy document on github, or here. This feature means that in the long-run Grin may be able to more easily satisfy the store of value property. I won’t analyze this, but this feature makes Grin much more programmable as a form of digital money than I thought at the outset.
Since Grin’s emission rate is stable, we know that the high inflation of grins during the first 10 years after launch, and during later decades is going to disinflate to a low inflation level. The emission schedule results in a decreasing inflation rate for Grin by design — Grin’s team wants higher inflation at start, shrinking in a couple of decades close to 1% and lower down the road. This means that Grin could capture value over time to become sound money with a strong store of value function to it, besides being a medium of exchange.