Token mining and Waves fees
If fees can be paid in tokens, is there still an incentive to hold WAVES? TL;DR yes, because 1) it brings many more users and 2) there’s demand from node operators, who will do whatever they want with their earnings anyway, regardless of currency.
Waves recently announced a new feature: the ability to pay transaction fees in tokens hosted on the Waves network, rather than in the native WAVES token itself. (In fact, this feature had been included on mainnet at the end of last year, but is only now being publicised and used.)
Staking nodes will be able to choose which transactions they process, based on the currency of the fee. For example, any node will want to accept a transaction that has a WAVES fee, but if a node operator deems an asset worthless or a scam token, they will probably want to blacklist it.
There has been some confusion about this. If transaction fees can be paid in tokens, such as Incent, WCT, Ripto Bux, and so on, what is the value of holding WAVES?
Flexibility is attractive
Firstly, the ability to pay fees in a specific token is highly attractive to businesses. Earlier platforms such as CounterParty and Nxt required that every token transfer entailed a fee in the native currency (BTC and NXT respectively). This introduced additional frictions. If you are a developer, creating a wallet for a particular token, you have to factor in acquiring that currency somehow and ensuring that the user always has enough to be able to make transactions. Any workaround is going to be suboptimal at best, and often downright clunky.
In the two years of discussions that led up to the launch of Incent, this was a significant factor in the decision to use Waves platform as an infrastructure partner. No existing platform offered the functionality that enabled the use of one currency alone, until Waves launched. It was decided that the frictions involved in distributing a secondary currency to pay for token transactions were too great. Subsequent blockchain platforms have recognised this and addressed it through features like sidechains or child chains (Ardor, Stratis and others). Thus the appeal to businesses of this token mining feature should not be underestimated.
Restricting users in their choices of what tokens to use for fees is counterproductive. There is a certain perverse logic at work in the decision to force network users to pay fees in a separate (native) token. If you require people to hold and use the native token, you will place demand on it, driving price upwards, goes the thinking.
But this is only true up to a point. What actually happens is that you alienate users when the frictions and therefore the costs of using the platform become too great. In the emerging marketplace of blockchain ideas and tech, there’s no place for a platform that imposes such arbitrary demands on its users. Experience has already shown that these platforms will be replaced by others better suited to business applications.
The bottom line is that if you want users, you need a user-friendly platform. Token mining, like a clean UX, is a part of that.
‘Open’ money has greater value
It may seem like token mining limits the demand for WAVES. Again, this is only true in the very short term.
Network nodes will process transactions that they deem have value. The default currency is WAVES — if you pay fees in WAVES, then just about every node will want to process your transaction. More broadly, nodes will whitelist tokens they are happy to accept as fees, or more likely blacklist those they consider worthless or scam assets. If no node wants to process a transaction that tries to pay a fee in SCAMTOKEN, then SCAMTOKEN users will have to pay fees in WAVES.
If you run a business based on Waves, you will almost certainly want to host a node and whitelist your own token. That way, whoever else believes your project and token have value, your transactions will be processed. You will also receive fees in your token, which of course you believe is valuable.
Across the network as a whole, dozens or hundreds of different tokens will be accepted as fees. The more transactions, the more valuable it will be to run a node. But in order to run a node, you will always need WAVES. (At present, 10,000 are required.)
What node operators do with their income from transactions fees is up to them, regardless of currency. They may sell it — whether it is WAVES or WCT or Ripto Bux — to pay server costs. They may hold it for the appreciation in value. As far as we know, nodes might be selling the WAVES that people are buying for tx fees anyway, cancelling out the artificial demand that such an arbitrary requirement placed on WAVES. Just as BTC miners have a choice, we don’t know what nodes will do with their earnings, and we don’t want to tell them how to use their own money. That’s up to them.
History and common sense suggest that if you try to restrict how people use their money, you’ll end up disenfranchising them — like the company money that mining bosses used to circulate in remote mining towns, that could only be spent in the on-site company store. Money is more valuable when it’s ‘open’ — when it can be used freely, like open-source software vs its closed-source counterpart. The WAVES token is the gateway to all of that value. Node operators will see value in WAVES because it earns them money. Traders will see value in WAVES because they know it has income potential and that there is demand from nodes. And arbitrarily forcing users to pay tx fees in WAVES will alienate many of them, without intrinsically increasing demand anyway.