Exclusive Interpretation | What impact will Filecoin’s latest economic model changes have on miners?

Recently, Filecoin has proposed some relatively important modifications to its economic model. This article will share and interpret the latest changes in Filecoin from four aspects: the disappearance of the initial mining effect, the increase in the threshold for miners to leave, the increase in order revenue, and the reduction in initial circulation.

First, let’s review what the head mine is. As we all know, in the Filecoin network, the miner’s income is positively correlated with the storage capacity, and all storage capacity is generated by calculation.

Now suppose there are two people, A and B, one is blue and the other is pink. At the beginning, their computing power is the same. As time goes by, their storage power growth and effective storage growth should be the same. As time goes by, the effective storage will gradually increase. But the blue A is on the first day of the mainnet launch, and his storage power has started to grow from the first day, while B is turned on after a period of time. For A, he has storage power on the first day, and the storage power of the entire network on the first day is just so much. For example, if a person has 1t of computing power on the day, and the entire network has only 100t, then he can get 1% of all mining rewards on the mainnet on the first day of the mainnet launch. B did not open his computing resources until a long time later, and it is less than 1%. So this is the meaning of a first mine.

Let's take a quick look at the long-term ROI (return on investment). We assume that the coin price is fixed, and the life, performance and price of the mining machine are fixed. In the original economic model, I think the long-term return on investment of the mining machine is presented in the form of a declining log curve. It can be seen that the first mining effect will lead to an extremely high ROI in the early stage, which is why the first mining is so important.

So what is the change this time? The first mine is gone. The official has directly modified the rules of block rewards, which means that in the early stage of network operation, the block reward is not a constant value. The initial block reward will gradually increase with the increase of storage power until it reaches a critical value, and then the block reward will remain constant.

The official has given everyone a period of time to increase storage capacity, and directly made the long-term ROI curve very flat before the critical point. Therefore, miners can join at any time, and their long-term investment return rate will not be much different.

Why was the first mine cancelled? There may be the following reasons:

• If the reward for the first mine is too high, it will lead to an excessive number of miners joining in to grab the first mine;

• As the impact of the head mine wears off over time, these miners will also leave;

• The departure of storage will have a negative impact on the system ecology.
  

In the previous economic model, the first mine was a competition among miners. In order to grab the first mine, miners had to prepare equipment before the main network was launched. Now there is enough time to prepare equipment after the main network is launched, and there will not be much loss of long-term ROI. The length of the preparation period depends on the official setting of this critical point.

The official has once again strengthened the miner pledge mechanism. We all know that you need to pledge when registering to become a miner, and now the mining reward pledge mechanism has been strengthened, which means that a part of the rewards mined by miners will be locked, and the proportion has not yet been determined.

Similarly, the corresponding penalty mechanism has also been changed. Currently, only when the file hosting task is completed can the mining reward be unlocked. The official uses economic means to ensure that miners will not leave.

Here are some of the official motives for doing this:

• Significantly increase the cost for miners to leave, which means that computing resources can be withdrawn, but storage must remain.

• If you want to leave the market completely, you have to give up a certain percentage of mining rewards, and the percentage has not yet been determined.

• Prevent miners from arbitrarily discarding stored files and leaving the site, which would have a serious negative impact on the project.

In order for miners to make a profit, they need strong computing power on the one hand, and long-term stable storage services on the other. The first storage can run independently of computing, and the second is to be equipped with long-term storage operation and maintenance. At the same time, the mining farm needs a good network configuration, and the mining farm cannot be disconnected from the network or power outages. At the same time, its hard disk cannot be too bad and cannot be damaged from time to time. Which of computing power and storage contributes more to mining depends on the official setting of the mining lock-up ratio. So on the whole, the official has raised the threshold for miners to leave.

The official hopes that everyone will store useful data. Users can apply to become a Verified Client. Receiving a storage order from a Verified Client can get additional mining rewards. Currently, the additional rewards are still unknown.

The storage power generated by miners while mining and accepting orders is definitely higher than the storage power generated by their own garbage data. Therefore, if miners want to get more rewards, they must accept more orders from others. It is worth noting that if miners act as Verified Clients themselves, their orders may be snatched away by others, thereby losing the file hosting fees for issuing orders.

The official has introduced a large number of lock-up mechanisms. 30% of the coins are released linearly. The liquidity brought by 1CO is very small, and the initial mining rewards are very low, and part of the rewards must be locked. Therefore, the circulation volume of the main network is very small and it is easy to be manipulated.

Okay, that’s all for today’s sharing, thank you!

Reference articles:

https://filecoin.io/blog/filecoin-cryptoeconomic-constructions/

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