Great, another crypto currency! (heavy hint of sarcasm)
When the idea of incorporating a crypto currency onto the SAFE network was first formed, it did not take too long for it to be accepted as the way forward. Not only had David (our founder) invented a crypto currency (Perpetual Coin) as part of the original network design way back in 2006, but we could also see how it could serve to incentivise all stake holders across the network.
Farmers would be paid (by the network) for providing their computing resources (Proof of Resource) to the network. Third party app developers (called Builders in SAFE network speak) would code their safecoin wallet address into their apps and be paid by the network depending on how much their app is utilised by ends users, a gauge of the apps usefulness.
Safecoins would also be used to compensate developers working on the core code in return for making continual improvements to the underlying SAFE network. Initially this is likely to be predominantly core MaidSafe engineers and in time this work to will be taken up by third parties via the MaidSafe developer pods.
However, safecoin, now the chameleon currency, has roles to fulfil out with incentivising network behaviour, it must also act as a store of value with a payment mechanism while also functioning well as an investment. Safecoins were used to provide early funding to the MaidSafe Foundation from backers supporting the SAFE network who bought safecoins using other crypto currencies (bitcoin and mastercoin). Some safecoins will also be set aside for the initial equity investors in MaidSafe who took significant risk and believed in the project from a very early stage. These investors could swap some or all of their investment in return for safecoins at a later date should they choose to do so.
So, it is clear that safecoin has some difficult ground to cover.
What about free use?
One of the most important things for any new platform is that it requires early adopters and lots of them. While the MaidSafe Foundation will be using some of the funds raised from the crowd sale to seed the network, real users will provide the oxygen for a strong, healthy and robust network. It is therefore desirable to put as little as possible in the way of new users picking up the technology and using it.
‘Let them join and use the network, including storage, free of charge!’
At first glance this may seem like an illogical approach, it certainly did to me when I first heard it. I thought the long days and even longer nights were truly starting to take their toll on David when he first suggested it. If truth be told, I thought he was a few fries short of a Happy Meal! The community on our mailing list and in our forums also voiced and debated a number of concerns with the approach, including:
- Tragedy of the commons
- Devaluation of safecoin
Tragedy of the Commons is an interesting problem. From a SAFE network perspective the concern is that some users may choose to store huge amounts of data on the network, way beyond what they are able to provide. Should enough users try to take advantage of the system in this way, the network will essentially run out of resource. This social dilemma has been witnessed across all aspects of human endeavour including; population growth, pollution and even spam email!
There are however aspects to the network that lessen the impact of a Tragedy of the Commons. To save space, the system keeps only 4 live copies of any piece of data. It is able to do this by using the unique hash of each chunk to identify other identical pieces of the data on the network. So, if 10,000 copies of The Beatles ‘A Day in the Life’ are uploaded, the network will identify that they are identical and update the subscriber count to 10,000, but keep only 4 copies of each file. This process is called de duplication, and while it works more efficiently with very commonly used pieces of data, like songs or books, it is not as effective for media rich bespoke data, like family photo’s or home movies. That said, very efficient de duplication algorithms can expect savings of up to 95% across all types of data and rarely less than 50%.
Another feature of the network is that Farmers are only rewarded with safecoins as data is retrieved (get requests) from their vault, not when it is stored. The frequency of these requests define the mining speed. The more data stored the more likely a request will occur and it will not be possible for nodes to selectively store data, they either store it or lose it. Losing data reduces rank and mining speed. The nodes will mine at greater rates as they store more data.
If people were to try and game the system by providing farmers to store data and then switch them off, they will simply remove their ability to earn. At some time in the future it is envisaged the network will be able to detect such data and remove it from the network. In the meantime, this kind of attack is costly to the perpetrators as their earning potential is adversely affected by their actions.
Safecoin must have a purpose
So, tragedy of the commons may be less of an issue than first thought. However, a second and potentially more serious issue is: If access to the network is free, then what purpose does safecoin serve? Without a purpose it will be valueless, not only to the Farmers and Builders, but also to the crowd sale participants who parted with hard earned crypto currency to get involved. While the network doesn’t need safecoin to exist, a lack of purpose for safecoin would devalue the currency and seriously reduce the incentivisation aspect of the coin.
Lets charge a micro payment for basic access to the network!
The problem with this approach is only 10% of all safe coins have been generated at this point, with the rest being generated by the Farmers providing resource and the Builders providing applications. Safecoins will be scarce, relatively speaking. If everyone needed safecoin to access to the network it would limit the number of early users. It may put more demand pressure on exchanges opening up to facilitate new users acquiring the coin (this would likely to lead to an increase in the price of safecoin as an investment), however it will still limit access to the network.
Make access to the network free and users pay safecoin for other services
Now I think we are starting to get some where. With this approach we are starting to edge toward a freemium model, where users are able to access the network without safecoin and store a certain level of data, but will need the currency to access third party applications, or for extra storage space, such as storage space above the network average. Both bandwidth and storage are scarce resources after all. Using this method, users who only utilise the SAFE network as a large disk without using any of the other applications sitting on top of it will need safecoins to store a large volume of data. This method will also help to reduce the possibility of a Tragedy of the Commons situation.
In addition to safecoin payments for third party applications (it is possible to develop any of the services that exist on the current Internet and more on the SAFE network), organisations and businesses may also use the SAFE network for high performance computing, a super computer on demand, much like Amazon’s EC2 service, MapReduce or Hadoop clusters. So, for analysis of very large data sets, such as Genomics, health records, astronomic data or credit card fraud information, for example, organisations would be able to harness the power of the SAFE network. As there are no infrastructure costs it would be possible to provide these services, using safecoin of course, for way less than the competition. These businesses would need to buy safecoins for this purpose using one of the many online exchanges that are likely to open up (we are already speaking with one provider and expect more to follow suit).
Now that we have utility and are creating demand for a finite resource, it would seem reasonable to expect the safecoin price to rise. This will reward the crowd sale backers for their early support, Farmers for providing resource and motivating them to provide more and to Builders for making highly useable and useful applications. From this perspective safecoin can now potentially function as a good investment.
It is also worth noting at this point that safecoin will initially be the only currency on the SAFE network. It is currently only technically possible to have one, although it will be feasible to add others in the future. I think that not having multiple currencies on SAFE goes against the grain of what MaidSafe is all about, inclusion and freedom, and the competition of competing coins will ensure ongoing currency innovation. However, safecoin will have first mover advantage and will be the dominant currency initially.
Safecoin is like digital cash
Once safecoins value on the network is established, the value of the transaction mechanism within the network (the SAFE network’s version of the block chain) can be seen. Capable of processing millions of transactions per second and able to confirm transactions at network speed, the SAFE network utilises an unchained ledger. This means that only the previous and current owners of each coin are known and in this respect safecoin can be thought of as digital cash. Instantly redeemable, secure and with greater anonymity and because the safecoin transfer mechanism is also full distributed, like any other piece of data on the network, there are no scaling issues or block chain bloat. David wrote about this earlier:
So, what are we left with?
I think a crypto currency with real utility. One that incentivises each user group on the network, and oils the engine of exchange. I think it is also important to recognise that we are no longer paying for Internet services with our privacy, as we do today. We are paying with safecoin, which is a secure, anonymous and efficient mechanism that will run in the background of many network transactions. Not only will this lead to a more freedom, it will also provide a better user experience with no reason for adverts (unless the advertisers pay you safecoin!).
I also hope that we are left with a strong currency in it’s own right, one that can be used for buying products and services as varied as storage, big data computation and sand shoes! I also think we will have a currency that performs well as a flexible and accessible store of value, that also represents a good investment for it’s initial backers. However, like any currency its use as a method of exchange is what will really drive its usefulness and value.
The other important thing to recognise here is how we go about implementing safecoin. You will notice I used the word ‘we’, as in all of us. The recent crowd sale signified MaidSafe handing over the network to the people and the responsibility is on all of us to make this work. Feedback from the community have got the implementation this far and more feedback will be required as we discuss and debate the finer points of the technical implementation. So, if you have managed to make it to the end of this post I congratulate you, it was one of the longer ones. The fact that you did means that you are passionate about the SAFE network and if you have not already done so, jump into our community run forums (https://www.maidsafe.org/ and http://safecointalk.org/) and contribute your thoughts on the economics of safecoin.