Distribution as a source of Virality: Nimiq Coin
I want to analyze what I believe is a very important element in the adoption of virtual currencies. This element is viral growth. Virtual currencies being self-fulfilling prophecies require a catalyst in order to experience increased adoption.
It all started with bitcoin, initially everyone could mine with their computer and earn some free money (even if very little). Humans being social creatures the obvious answer is to share the goodies with your friends. Everyone was earning some free money and then told their friends. The funny part is that as the adoption grows and more and more people spread the message the price of the coin also increases fueling the process.
As the price increases more and more people notice and start buying or trying themselves to mine.
However at some point the system “breaks down” in the sense that mining become centralized. It means that all the revenue only ends up in the hands of a few big players. Why is this bad? The reason is that mining creates inflation as it increases the supply. If the rewards are well distributed amongst a large group of people then the increased traction and adoption will completely offset the extra inflation. On the other hand if just one guy earns like 50% of the rewards (that’s unfortunately the case with bitcoin) the system will experience inflation in a way that is destructive to the value of the currency without getting the benefit of the increased adoption.
Another example we can look at is ByteBall. It’s a fairly new coin which adopted a model of free distributions. Basically if you own Bitcoin all you have to do is sign a message proving it and inserting that signed message in the ByteBall client. At that point on specific days you will receive a certain number of coins for free. Most people that find out about this will do it and then tell their friends. It’s always good to tell your friends about how to earn free money. This process becomes viral, adoption grows, and the price starts going up.
The thing is for ByteBall there is a barrier of entry, someone must already have some bitcoins in order to receive the free distribution.
Let’s look however at something which could be significantly more viral, it’s called Nimiq.
The idea is that everyone can mine with their browser. You don’t even need to install a software in order to start mining. As we explained before most likely people will start mining it and then tell their friends about it. The difference is that unlike ByteBall there is no need to have any bitcoin. The barrier of entry is basically zero. You can imagine even kids at school telling their friends to mine it. The potential adoption is extremely high.
An important point is that they will use a mining algorithm which is memory bound, which means hash power will be defined mostly by RAM latency. This means that it’s going to be difficult to centralize as unlike other algorithms that have been used before economies of scale don’t really apply and the price paid for electricity is not a determining factor.
When it comes to centralization of mining the most important thing is to avoid economies of scale. Anything for example for which electricity is an important factor will lead to centralization in countries where electricity is cheap. Anything which can be optimized with ASIC will lead to production of custom chips and most likely centralization in large factories by the producers.
In this case by offering the ability to everyone to mine from their browser with an algorithm for which economies of scale are difficult to achieve the adoption of this coin could really be significant thanks to the potential viral effect.
