43 - 12/July/2021
Tokenomics: eCash v. Safemoon
A lot of people have been asking what are the "tokenomics" of eCash? To answer that, first I must answer: What are tokenomics?
Tokenomics refers to the supply and demand characteristics of any given token, aka token economics. Now you might be asking yourself what's the difference between a token versus a coin, but for the purposes of this article let's just think of them both as different kinds of digital assets.
So back to tokenomics. When people ask about tokenomics, I assume most of the time they're asking about it in the Safemoon sense of the word. For example, upon launch Safemoon minted 1 quadrillion tokens, of which 230 trillion were sent to a burn address leaving 770 trillion in circulation. In addition, anytime someone sells Safemoon, they incur a 10% fee of which half is sent to the exchanges to provide additional liquidity, and the other half sent to all other Safemoon holders. And since nearly a quarter of the supply was already burned, a significant portion of the 5% redistributed to holders get burned as well. Over time, the amount of tokens in the burn address will only continue to grow, thereby increasing the scarcity of the token and theoretically raising the per unit price. That's tokenomics.
But what I'm afraid many Safemoon holders aren't asking themselves are questions like what is the initial token distribution? Or how much of the initial supply do the creators of the project still hold? Do they still hold hundreds of trillions of Safemoon they can dump on the market at any time? And if there's a 10% fee every time someone sells, and a portion of that fee is always burned, doesn't that mean eventually all the tokens will end up being burned? I won't even bother asking questions about the technological roadmap or the actual problem Safemoon is trying to solve.
To me tokenomics sounds more like a casino game. You can learn all the rules, and you might get lucky and make some money in the short run, but eventually, the house always wins.
So what about ecash?
eCash doesn't have tokenomics (it's a coin not a token) in the true sense of the word, but it does have rules, many of which are the same rules that govern Bitcoin.
To understand how eCash works you need to understand how Bitcoin works. When Satoshi Nakamoto released the first Bitcoin client, there was no instamine or premine, he didn't just print a million Bitcoins for himself before giving anyone else a fair chance to earn coins themselves. In order to be rewarded with Bitcoins he had to provide resources to the network in the form of electricity through proof of work mining. In return, he was rewarded with 50 BTC for every block he added to the chain by being the first to solve the cryptographic puzzle needed to produce each block.
Every ten minutes on average, someone powering the network through physical resources in the real world is awarded with what's known as the block reward, which includes the coinbase reward of 50 BTC as well as all the transaction fees related to those transactions confirmed in that given block. This way coins aren't just handed out to anyone, they are earned through proof of work.
The rules were set up so that every 210,000 blocks (~4 years), the coinbase reward is cut in half. This is what is known as the halving. November 28, 2012 was the first halving, at which point the coinbase reward was reduced from 50 BTC to 25 BTC. In 2016 the second halving cut that number in half again to 12.5, and last year we saw the coinbase reward for Bitcoin and all its forks (including eCash) halved to 6.25.
Another important consensus rule is that the total supply of Bitcoin is never to exceed 2.1 quadrillion satoshis (since 1 Bitcoin = 100 million satoshis, the limit can also be thought of as 21 million Bitcoins). Exactly half of all Bitcoins--10.5 million--were mined by that first halving. The next four years saw another 5.25 million distributed, and as of today, more than 18.7 million of the 21 million Bitcoins have already been mined. (For eCash, it would be more than 18.7 trillion of the 21 trillion eCash have already been mined.)
There is no burning of coins, at least not intentionally. Coins spent on transaction fees are awarded to miners and are recirculated through the system. With that said, it is likely that millions of coins have been lost over the years, including the believed 1 million coins mined by Satoshi in the early days of the network. While lost coins do increase Bitcoin's scarcity, that is not a feature of the network like it is for Safemoon. This is because Bitcoin didn't seek to increase the value of the coin by making it increasingly scarce, but by making it increasingly useful, and therefore, in higher demand.
Now what about eCash? Since eCash shares the same total supply and distribution model as Bitcoin, all those same rules apply to this project. I know there has been some confusion surrounding the redenomination that came with the rebrand, so allow me to explain.
When BCHA recently changed its name to eCash, Bitcoin ABC made the decision to simultaneously change the base unit from 100 million satoshis to 100 satoshis. The eCash network still has the same total supply cap of 2.1 quadrillion satoshis, but instead of those 2.1 quadrillion sats being divided by 100 million to give us 21 million Bitcoin (or Bitcoin Cash), it was divided by 100, giving us 21 trillion eCash.
Another way of looking at it is imagine if the US decided to denominate everything in cents instead of dollars. The total supply doesn't change, but now instead of something being priced as 100 dollars, it would be priced as 10,000 cents.
While some people don't seem to understand (or agree with) why Bitcoin ABC made this change, here's a question. Which is easier for you to compute: 0.0001423 or 142.30?
I understand that 142.30 eCash is currently worth a third of a penny, but it's about planning for success. You know how much 0.0001423 BTC is worth? About $5. Imagine having to count zeros every time you want to buy a coffee?
The goal of the eCash project is to one day become the most used currency in the world. If that were to happen, the total market cap of eCash would have to far exceed the current market cap of Bitcoin. Imagine if 1 BTC were to ever reach $1M. A $5 coffee would cost 0.000005 BTC. If eCash were to reach the same market cap, a $5 coffee would cost 5.00 eCash. Simple, clean, just like the name.
And since everyone keeps asking if eCash plans to burn any coins, it's relevant to mention that while the total supply of eCash and all other Bitcoin variants are the same, I'm confident that the number of lost coins on eCash far exceeds those for BTC, BCH, BSV, or BTG. This is because as the minority fork of a minority fork, the chances are many people never bothered properly splitting their XEC resulting in a significant number of coins being lost forever.
In conclusion, while eCash might not be backed by some gimmick that ultimately makes no sense, what it does have is a plan to make the project successful so holders will be rewarded for investing their capital in the work of talented developers trying to solve an important problem. It's not about tokenomics, it's just good old, plain economics.
In my next article I will try and explain the difference in economics between Bitcoin and eCash.