Welcome back and Happy Lunar New Year!
BurnKoin.com welcomes you again to our multi series of articles focusing on the Koinos mining ecosystem! This particular article will focus on the Virtual Hash Power (VHP) fungible token which is a critical component to the operation of the Koinos Blockchain.
When users first discover Koinos, we often find that they’re unsure how they use VHP and what purpose it serves. To help our fellow users out, we’re going to break this down with the 5 W’s. Who, What, When, Where and Why (in no particular order).
WHAT IS VHP?
VHP is a fungible token that is a fundamental component to the security and operation of the Koinos Blockchain. It is a token that simulates the effects of hash power of PoW in a Proof of Burn (PoB) consensus environment. VHP should not be confused with actual hash power you get from a physical component like a CPU or graphics card. There is no virtualization of hardware! What’s being virtualized is the relative nature of hash power among miners.
Note: If you want more information about how Proof of Burn works, follow us at @burnkoin on twitter to get more information in our future articles.
There is only 1 life cycle for VHP and it is as follows:
There is no other way to use $VHP other than to hold or speculate on it (more on this later).
WHO NEEDS VHP?
Since VHP simulates the effects of hash power, it is a token that is necessary to operate a mining node on Koinos. To simply state it, you cannot mine $KOIN without $VHP!
We expect that miners will be the primary holders of VHP but anyone can acquire this token for any reason, including speculation.
WHEN DO YOU NEED VHP?
A Koinos mining node requires the consumption of $VHP to produce blocks so miners will continuously need to feed their miner with $VHP making the relationship between block production and $VHP simple!
The more $VHP a user has, the higher probability they have of producing a block. Remember that block production under PoB is randomized so it is a game of probabilities and the only way to increase the odds is by having more $VHP.
Statistically, if a miner holds 1% of all VHP and runs a node with all of their VHP, then they will be able to produce 1% of all blocks in a year and this would scale linearly. Similarly, if a user holds 51% of all the VHP, then they can perform a 51% attack on the network much like PoW and PoS.
If a user does not wish to participate in PoB mining, then they will never need $VHP and we can go as far as saying that they do not need to understand the concept of $VHP other than looking at the market cap of Koinos’ virtual supply.
Note: Virtual supply is defined as the total number of $KOIN + $VHP that are circulating in the ecosystem.
WHERE CAN YOU GET VHP?
Koinos only provides 1 native entry point into $VHP and that is through the Proof of Burn system level smart contract. Eventually $VHP might be found on a DEX such as KoinDX (not yet released) but this is simply acquiring $VHP from another user who ultimately created $VHP by burning $KOIN.
When a user burns $KOIN for $VHP, it is always a 1:1 conversion however, when $VHP is consumed by a mining node, it produces more $KOIN than originally burned. This slightly higher than 1:1 ratio is considered the “extra” $KOIN created from inflating the $KOIN supply.
$VHP is not currently available (and unlikely to be traded) on any centralized exchange due to it’s specialized use case.
WHY DO I WANT $VHP?
Simple! You want to participate in securing the network and mining new $KOIN. Everyone else who wants $VHP is a speculator thats likely trying to make gains from the price fluctuations of $VHP in a trading pool.
COMMON QUESTIONS
If KOIN/VHP ends up on a DEX, what will happen?
When the price of $VHP drops below the price of $KOIN, then it is favorable for miners to buy $VHP with $KOIN rather than burn $KOIN to get $VHP.
How will the price of VHP on a DEX decrease?
While miners can convert $VHP back to $KOIN through mining, it is not an instantaneous process and requires a significant time commitment to produce blocks (up to 1 year).
$VHP holders may opt to sell $VHP for $KOIN when they see a $KOIN price spike and want to capture some of the gains. Similarly, the $VHP holder might find an attract yield for $KOIN on some future platform.
The result is that the $VHP holder will be selling their $VHP for $KOIN at a discount when compared to mining. We can’t account for the behaviors of all users, but these two are likely the largest motivating factors to push the price of $VHP relative to $KOIN down.
How will the price of VHP on a DEX increase?
Since the price of $VHP relative to $KOIN can only rise when someone buys $VHP, then its reasonable to say that $VHP has a ceiling of 1:1 with $KOIN since a miner can always burn $KOIN to get $VHP.
Can I speculate on $VHP?
Absolutely! But speculators should be aware that $VHP can always produce $KOIN giving it utility. For this reason, a VHP/KOIN pool may have low liquidity and that might make speculation difficult unless you are a miner.
What is the system smart contract address for $VHP?
You can find the contract address of $VHP along with several other important system level contracts at https://koinosblocks.com/contracts.
Can I deposit $VHP into BurnKoin.com?
Yes! $VHP is fungible and has no “lock” time like some staking protocols. If you are a solo miner and want to join the BurnKoin.com mining pool, you can directly deposit $VHP and earn rewards right away. We have zero restrictions on withdraws, so you can leave whenever you want.
For more information on how BurnKoin.com operates check out this guide: https://medium.com/@kuixihe/burnkoin-user-guide-and-faq-2e57e20d5cdc
What’s the marketcap of $VHP?
On coingecko or coinmarketcap, the MC shown is the MC of $KOIN only. Since $VHP is a separate token, CG and CMC don’t include them in the MC of $KOIN.
How much $VHP currently exist?
The best place to find the circulating supply of $VHP is here: https://koiner.app/tokens/1AdzuXSpC6K9qtXdCBgD5NUpDNwHjMgrc9
How much $KOIN currently exist?
The best place to find the circulating supply of $KOIN is here: https://koiner.app/tokens/15DJN4a8SgrbGhhGksSBASiSYjGnMU8dGL
CONCLUSION
That’s it! This should give you everything you need to know to begin understanding $VHP!
Stay tuned for the next educational article!
