What Are Coin Hours?
Simply put, Coin Hours are the “fuel” for Skycoin.
Holding Skycoin in a Skycoin wallet automatically generates Coin Hours at a rate of 1 Coin Hour per Skycoin per hour. They are earned passively and for free on the blockchain itself by parking your Skycoin in a Skycoin wallet. The most prominent feature of Coin Hours is that they keep the Skywire network free of transaction fees. This means no fee-jacking by miners for profit, as commonly seen with Bitcoin. Users will never have to pay in Skycoin or fiat currency to access and use the network. Coin Hours will take care of that for you.
Coin Hours are similarly an effective anti-spam mechanism, preventing people from spamming the blockchain with micro-transactions, since each transaction requires burning some amount of Coin Hours to execute.
Coin Hours aren’t merely for maintaining zero transaction fees on the network, they are additionally a full cryptocurrency in their own right. They may be used to purchase services, buy bandwidth on Skywire, play games, and more. Because they will be transactable in various use cases, Coin Hours will also have a monetary value that is set by the market.
Whether one uses Coin Hours to access a VPN service, to purchase expedited packet forwarding, to play online games built on the network, or using them as “movie tickets” to stream video, Skycoin and the Skywire network support these services and more.
In addition to accessing resources and features of the network, Coin Hours hold a monetary value which is decided by the market, which allows Coin Hour holders to trade their Coin Hours for other cryptocurrencies or even more Skycoin. The launch of Skycoin’s decentralized exchange, the SkyDEX, will make this even easier.
Keeping It Fair
Unlike Bitcoin or Ethereum, Skycoin users do not need to give away part of their balance as incentive for miners to process their transaction.
Instead, Coin Hours are used in lieu of fees. A transaction requires a minimum percent of an address’s UTXO’s Coin Hours to be destroyed, or “burned”, though this rate is variable and may be lowered in the future. Currently, the Coin Hour burn rate is fixed at 10%.
The maximum number of Skycoin which can exist is 100 million. Therefore, the theoretical maximum number of Coin Hours which can be produced is 100 million per hour. This number will not be reached for decades due to Skycoin’s staggered distribution plan, and even if no transactions ever took place on the network, the number of Coin Hours would not exceed a UInt64 for centuries. To clarify, “UInt64” refers to ‘unsigned integers’ in programming, of which the largest possible number is just under 18.5 quintillion.
Each time Skycoin is spent, a default 25% of the Coin Hours in your wallet from any unspent outputs (UTXOs) are transferred with them to the wallet of the recipient, unless otherwise specified using the Advanced Send features. In addition to this, 10% of the accumulated Coin Hours from the unspent outputs that are used are then burned when transferring Skycoin around. This calculation is based on “unspent transaction outputs”, and is therefore challenging to calculate and predict. Thankfully, the wallet automatically figures out which outputs are optimal and required to make the payment.
Note that using the Advanced Send feature on a Skycoin wallet will allow greater control over Coin Hour distribution and even allows users to preview transactions before executing them.
Coin Hour Burn Ratios, Transfer Allocations, and Unspent Outputs… Oh My!
The concept of ‘unspent transaction outputs’ (UTXOs) can be a bit tricky, so let’s break it down:
If Mr. Sky owns 100 Skycoin and stores them in a Skywallet, he will generate 100 Coin Hours per hour, so that means 2,400 per day and 876,000 per year. That part is pretty clear.
Now, let’s imagine Mr. Sky buys 100 Skycoin at once, puts them in his wallet, and then waits one hour. After an hour has passed, Mr. Sky now has 100 Coin Hours which were generated by the 100 Skycoin. Because he purchased all of his Skycoin in one batch, he now has one potential UTXO in his wallet. He then decides that he wants to play Kittycash, so he buys a kitty which costs 1 Skycoin. When Mr. Sky sends that 1 Skycoin to purchase his virtual kitty, a Coin Hour burn is initiated. In order to facilitate this transaction, 10 of the Coin Hours in his wallet (10% of the total) are burned when Mr. Sky sends one Skycoin over for the kitty, leaving him with 90 Coin Hours. In a basic send, 25 of these remaining Coin Hours (25% of his original total) are sent over along with the transferred Skycoin. (Using the “Advanced Send” features of the wallet will allow Mr. Sky to determine how many Coin Hours he wants to send.) After this transaction, Mr. Sky now has 99 Skycoin, 70 Coin Hours, and a new virtual kitty. He will continue to accrue Coin Hours at the rate of 99 Coin Hours per hour, since he now has 99 Skycoin in his wallet.
However, if Mr. Sky had purchased those Skycoin in 2 batches of 50 SKY each, he would have 2 potential unspent outputs in his wallet. If he held those Skycoin for 1 hour, each group of 50 Skycoin would have generated 50 Coin Hours. To purchase his kitty for 1 Skycoin, the node would calculate that only one of those potential outputs needed to be spent so therefore only 5 Coin Hours (10%) would be burned, 12 Coin Hours (25%) would be sent with the Skycoin (since there are no fractional Coin Hours and they are rounded down), and 43 would remain in his wallet from that output. This would leave Mr. Sky with a total of 99 Skycoin, 83 Coin Hours, and a new virtual kitty.
Clearly, as Skycoin are received and transferred in and out of wallets and potential unspent outputs build up, this calculation will become increasingly complex to calculate. Therefore, the node will handle it all for the user and will calculate the optimal way to complete the transaction automatically.
These mechanisms work together to ensure that Coin Hours are kept scarce and valuable which allows the market to find an equilibrium in price. For further information on this, see the Coin Hour Dev documents on Skycoin.com.
Where Can I Spend Coin Hours?
Coin Hours will be used in many different ways, and many new use cases are being tested and experimented with right now to encourage spending and ensure they remain valuable and useful.
Coin Hours are used to purchase bandwidth on Skywire, thus incentivizing people to support the mesh network. Coin Hours can be used to purchase items in games like Kittycash. Coin Hours will be used to pay for services on dapps built on the network. Coin Hours can also be used as currency and will be tradable on other cryptocurrencies or more Skycoin on exchanges like XBTS. Once the Skycoin Project’s hardened version of the CoinJoin protocol is implemented, Coin Hours will be used as collateral during the merging and mixing process in order to discourage users from backing out or slowing down an ongoing CoinJoin operation. Other use cases are being tested and will be announced after they are fully developed.
Sounds Great! How Do I Get Coin Hours?
Accruing Coin Hours is simple! To get Coin Hours all you have to do is:
- Purchase Skycoin from one of the many exchanges where it is available (or purchase them through the Skycoin team’s limited OTC).
- Download the Skycoin wallet for the OS of your choice.
- Transfer the Skycoin into your new Sky wallet.
- Sit back and relax as the Coin Hours start accumulating automatically!
Putting It All Together
Every SKY investor can become an integral part in the growth and development of this exciting new technology.
Soon, having a wallet full of Coin Hours will become the norm, as we use them to build plus fuel the Skywire network and its use across the globe together. As we continue to aggressively develop new products as well as launch new projects and partnerships on our platform, you can expect to hear more about the exciting ways to earn and use your Skycoin and Coin Hours!
We’re constantly looking for new and exciting ways to evolve our platform, so join the Skyfleet community and be the spark of a revolution.
