You need to do the accounts to see it (profit and loss / balance sheet for each stakeholder). A miner only makes a small profit because most of the revenue they receive from the sale of their mined stock is passed on to the blockchain and serves to increase scarcity. The miner's balance sheet grows very slowly because, while the sale revenue is passed to the blockchain, the capital acquired (travelling in the other direction) is passed on to the secondary market buyer.

The spread between these bi-directional capital flows is what grows the miner's balance sheet and that may only be 5%-10% of the capital that passes through their hands if they're lucky. This "profit" is the capital lost to the ecosystem in brokering expenses effectively.

The accounts for the masternode however are different. The masternode's balance sheet will grow at a far faster rate since the revenue obtained from exchange sales goes straight onto the masternode's balance sheet and stops there. It does not get passed on to the blockchain and does not contribute to "scarcity" (by way of increasing difficulty). This "profit" is also capital lost to the ecosystem just as with the miner's profits, except it's far greater, in fact the full market value of the coin

So if you look at it from an outside investor's point of view in terms of what's "backing" the supply it looks like this:

In fully mined POW the whole supply is "backed" by the marginal cost of mining. In Dash only half of the supply is backed by the marginal cost of mining, the other half of the invested capital ends up on masternode balance sheets which ostensibly "back" that part of the supply. But of course that's useless to an investor since any realisation of that balance sheet capital (MN selling rewards) only serves to deplete the capital value of their own holdings. They're investing in the masternode's balance sheet, not blockchain difficulty.

We cannot get past this. No amount of philosophical web weaving and pretending "it doesn't matter - a coin's a coin, it's all just market". These are the numbers. They are real. Masternode revenues have to come from somewhere, something has to lose value for the masternode balance sheet to populate. In our case it's marketcap. We need to sort this IMHO and the first step to sorting it is acknowledging it.

You're arguing against a point that I'm not making. (commonly referred to as a "straw man").

I'm accounting for the capital flows in POW and Dash's hybrid version of it which delivers supply into the hands of holders at a zero price, thereby "shielding it" from the very market forces you cite and directing revenues from exchange sales into private hands instead of storing it as value in the chain. That is what is corroding the marketcap of the rest of the supply.

It's even measurable and is numerically equivalent to the total masternode "profits" realised every week - not to mention the strategic damage in loss of credibility as an investible asset. In a business that profit at least manifests itself on a balance sheet even if it isn't re-invested. In fully mined POW it manifests as increased scarcity. In Dash it simply leaves the network.

Page 2 status awaits us as long as we keep our head in the sand on that point.

Now don't be lazy 

Observing that half the supply is issued without a bidding process and that this might affect marketcap is not "overthinking". It's just stating the bleeding obvious. The elephant in the room.


It isn't actually. I already pointed out here that the alt market has been reflating against bitcoin and Dash is not being carried along with it. So there's good reason even for "overthinking" and re-appraising if our protocol priorities (which are now supposed to be targeting store of value) are working.


Then what's the point of the Dash protocol ? If I'm "overthinking it" then the protocol settings are even more guilty of redundant thought since they're having the opposite effect to what was intended. Your contention seems to be simply to ignore that fact and assert if we experience market success then that shows our priorities are right whereas if we tank in competitively that's just "general market trends". This b.s. thinking. You can't have competitive governance with that approach.


And how would you define scarcity ? It first manifests upstream of exchanges, at the very supply source itself. That's why the protocol is important. It isn't just a "distribution tweak", we're talking about half the supply here. The only way I know how to formally define scarcity in the primary market (which is where it matters) is by the marginal cost of extraction from the chain. In other words the more expensive it is to mine, the more scarce the coin is. In the long run that rule also reflects "scarcity" in the secondary markets and so can't be ignored.

It's not "ass backwards".

"Cost of production" is a total mis-characterisation of what's going on here. We are not "producing" anything. That's a manufacturing model where a producer profits according to the difference between cost of production and price at market. That model bears no relevance to the POW economics which is about storing value. The "cost" is not an expense, it's a transfer of capital into the chain.

If you use that flawed "manufacturing" model to design a blockchain protocol then you end up with priorities that generate a block as cheaply as possible. i.e, the block has a LOW PRICE. Ergo stores NO VALUE. Thats what's happening to Dash - we are tanking in marketcap. We are tanking in network participation (nodecount). We are tanking in competitively (ranking). We are tanking in dollar ROI. In other words in every single metric that your side of the debate, and in particular Ryan, claimed to be targeting with this flawed high masternode reward ratio strategy.

And all this with the LOWEST PORTION OF MINED SUPPLY of any POW coin on page 1 of CMC.

Your case is lost. The "production" model doesn't even apply. There is no "company" to benefit from that low production cost. The 100% profit on masternode rewards simply leaves the network forever upon realisation, in a chronic haemorrhaging of marketcap.

I don't know if you've realised this but you're not on winning territory here. If mining really was a "cost of production" like your ridiculous TV analogy we'd be at the top of the page 1 POW marketcap rankings and not the bottom.

I just explained why it isn't and my explanation is supported by what we see in the market so I suggest you rethink and go and read what I wrote above again. Then come back and try to argue why producing a blockchain token more "cheaply" with "less electricity" makes it more valuable.

See how many investors you get for that idea.

Dash is the live experiment that's already giving us the answer and if you want to sit on your hands while that experiment reaches its logical conclusion then prepare for page 2 status and probably rapidly page 3 once the reality sets in for investors.

Except it's not a "creation cost", it's a capitalisation volume. So only 40% of the supply is being "capitalised". The other 60% is capitalised in secondary (exchange) markets but that capital never reaches the chain. It goes to individuals instead (to pay for MN profits which are at near 100%).

You don't make the coin more valuable by reducing the "creation cost", you make it less valuable. The "averaging out" you refer to it is the marketcap depletion that I'm refering to.

This goes back to the second of Ryan's flawed appraisals - characterising POW as a "manufacturing process" where hashrate is an "overhead" instead of a capitalisation process where hashrate is the mediator of capital entering the coin. It's not difficult to see why the former characterisation is wrong and you'll always come to that conclusion as long as you swallow the mining metaphor in a literal sense - a picks and shovels operation - instead of what it really is: a trustless market.

Primary Market Dynamics

To see that, lets consider ONLY the primary market for the moment (because the secondary market is common to all coins so cancels out in the comparison). In this case we just imagine there's no secondary exchange of coins, the first holders of the coin keep it and never sell. In Dash, masternode holders are primary holders of the new coin just the same as miners.

In this case case the marketcap is defined exclusively by the marginal cost of mining. In other words the next block to emerge has a cost of production and that cost defines the coin price. (Note the only difference between "cost" and "price" is that price is just the unit cost. If I buy 10 toothbrushes and the "cost" was $20 then the "price" was $2 per brush).

It follows therefore that the marketcap in this case (and consequently the store of value performance) is DEFINED by the cost of mining the next block.

We know that difficulty rises with more miners, so the cost of mining the next block also will. That therefore represents (by definition of "marketcap") the mechanism by which the block is "capitalised". Seeing it as a "cost of production" or overhead would be like sticking cash in the bank and seeing that deposit operation as a "cost" or "overhead" to be minimised. It isn't a cost, you're just moving capital from one parking place to another.

Secondary Market Dynamics

Now lets re-introduce the secondary market into our appraisal. For analysis purposes, lets assume secondary market price equals primary market price (cost of mining) for a moment so we can observe the effect of asymmetric primary "price". We now have a bunch of sellers who's holdings are at heterogeneous unrealised gains. The mined supply is neutral - it's not at any realised gain or loss and there's no profit to be made by selling. There is also a disincentive (in the long run) to sell below cost because that incurs a loss for the miner.

On the other hand, the masternode holder doesn't care. They are at a profit at any price because they never had to capitalise their "coin" in the first place. The secondary buyer is going to do that for them. (Whereas the miner, is simply transferring a pre-capitalised coin to the secondary buyer). This leads to another source of downward pressure on marketcap - excessive profit realisation from uncapitalised holdings.

Even if you take the view that miners are "forced to sell" to cover electricity costs, it doesn't matter because those "electricity costs" went towards capitalising the coin. You can also argue that masternodes are "forced to sell" because the whole point of running a node is to operate an income stream and that income stream is only useable if it's constantly realised. Except that "income stream" does not go to capitalising the coin as with the miner. It leaves the network. So that argument cancels out on both sides.

Conclusion:

Using the discipline of Primary / Secondary market analysis and not falling into the trap of interpreting the mining metaphor literally, we see that excessive use of the protocol to distribute coins "for free" is corrosive in BOTH primary and secondary markets. (If you make 100% profit on the sale of a stock then you got it "for free", so nor is this term debatable in my opinion).

To get the marketcap buoyant again and retro-rocket reverse our descent towards page 2, we need to TIGHTEN monetary policy on masternodes and get those reward ratios wound RIGHT IN to 10% or 20% or something otherwise we're screwed. Masternodes will be pleased because while they like their rewards, they also like them to be worth something.

Otherwise it's just a massive leaky faucet that's all.

Caviat:

Remember once again, this is the "nodecount equilibrium" analysis. MN rewards provide an incentive which manifests itself at an aggregate level while the nodecount is growing. Thereafter the dynamics above take over in characterising the market.

The more demand there is for primary supply, the more the price rises.

So no. Exchanges are not the only place it's exposed to competitive bidding. The primary market (obtaining coin straight off the blockchain for a price based on how many other people are trying to do the same) is the first.

Mining is a market. Plain and simple. You know fine well there's no drills and spades involved - it's a metaphor. So give up on the metaphorical dynamics for a moment and see it for what it is in accounting and economic terms.

To obtain a coin in that "market" you need a currency. The market currency is energy (the mechanism that makes that market trustless, but it's still a market). That is the respect in which electricity companies are "mediating the bidding". I don't think this really needs explaining to anyone who understands accounting, it's obvious and it's also obvious (numerically) that if you release coin into that market without exposing it to competitive bidding, it will simply chronically erode the price, so that needs to be done extremely sparingly. Not like dumping half the supply into the ecosystem with a zero price tag like we're doing.

That's such a hypocritical argument.

You don't dismiss market demand when it manifests at exchanges do you ? Yet ALL of that money is just going into 3rd party pockets. It's just going from one person's savings account into another's. The only benefit to the network is that if there's more demand than supply, the price rises.

The primary market is just the same except the electric companies are simply mediating the bidding. How else would you do it and make it trustless ?

Not only that, unlike in the exchange markets they're not even receiving ALL of the money that enters the market because as the blockchain price rises the electric company also has more costs because they have to supply more product to us, ALL of which goes into raising the marginal price of the coin in the primary market. (Price of extracting the next coin off the chain). So once again that argument that Ryan made was 180 degrees wrongly reasoned.

Doesn't matter. You're not understanding a simple accounting equation and focusing instead on a lot of hand waving nonsense about running costs and mining dynamics that have no relevance to this in accounting terms. They're common to all mined coins.

To see this, ditch all your mining metaphors (because that's all they are). Get them right out of your head and consider the blockchain as a decentralised market where bidders bid for the new supply. That is the more informative and accurate economic metaphor because anyone who wants a coin straight off the blockchain has to pay for t. If you issue some of that supply with a zero price into the market, it's not going to do anything but corrode the viability of the rest of the market - obviously.

In that context, masternodes are no different from non-dash holders: they are part of the market for the new supply. You might as well give the reward to a non-masternode holder for all the good it's doing the network because the fact that it's issued at 100% profit for the node holder is disastrous for Dash as an investment asset because that profit HAS to come out of marketcap. There is no other source for it.

Remember I'm talking about the nodecount equilibrium condition. I realise that masternode rewards provide an incentive initially for people to invest in a node, but once the nodecount as a whole reaches a stable level and there's no net nodecount growth, we're no different from Bitcoin where most of the supply is also held in wallets.

The only difference is that half our supply is being released off the blockchain with a price tag of zero on it. The fact that we're actually even still in the top 100 is a testament to Dash's resilience given that we're paddling against such a huge self-inflicted tide.

Go back and look this diagram.

You're making the same mistake as Ryan did - pretending the primary market doesn't exist. That's why we're in this mess in the first place. The point is that the supply is NOT finding its way into markets. Masternode rewards BYPASS the primary market and go straight into holder pockets without them ever having to fork out a dime (remember I'm talking about the nodecount equilibrium case so you can't argue that masternodes are somehow more "deserving" of the reward having purchased their collateral. It's exactly the same thing in accounting terms as giving the reward away to any 3rd party, masternode holder or not. This remains the case as long as next to none of that reward gets invested in the network somehow).

So you're wrong. It does make a difference - a whole lot of a difference.

Let us do some simple accounting. A miner mines 1 Dash. They expend $50 of direct cost doing so. They sell that 1 Dash on an exchange for $55. So the accounts for that "stock" go as follows:

Revenue
============

Sale of 1 Dash: $55

Direct Costs of Sale
============

Electric bills: $50

Gross profit (Loss): $5

So when you account for any mining activity, you are indeed "anchored to something" at least in the sense that you can't take the cost of mining a Peercoin and use that to calculate the profit you made on a Dash. I'll restate what I said above maybe in a more specific way: the miner makes zero profit on any given mined stock "unless they mined that stock at a lower cost than the revenue they made from its sale".

Following from that we see that:

Mining sales are matched to a buy (plus or minus their gross profit)
Masternode sales are unmatched (because they incur near 100% profit on the sale)
DAO allocations could be considered matched to their contract costs (plus or minus the gross profit)

Conclusion:

The only source that exerts exclusively sell pressure on the market as a whole (at nodecount equilibrium) is...... masternode rewards.

Corollaries:

Increase the proportion of blockchain emission that goes to masternode rewards and you put more chronic downward pressure on price and therefore marketcap relative to fully mined competitors.
Decrease the proportion of blockchain emission that goes to masternode rewards and you'll relieve that downward pressure on price and allow marketcap to grow more competitively.

(And I always emphasise - at nodecount equilibrium because that's the long-run economic condition).

Just to clarify:

Mining sales (in the secondary market) are matched by mining buys (in the primary). Ergo mining profits are zero unless they can mine at a lower cost than exchange prices. It follows that the rest of the mining cost manifests as the primary "price" of the coin. (What the miner had to pay to acquire it).

Masternode sales are unmatched. They acquire the coins at zero cost.

DAO allocations (that get liquidated on exchanges) are unmatched. Again, the contractor receives the coin at zero cost, however if the contractor adds an equivalent value to the coin then it could be argued that the sale is "matched".

If we want to quantify this numerically then all we have to do is measure the profit each stakeholder makes on a sale at the exchange. Unmatched sales yield 100% profit and matched sales yield zero profit. That tells you all you need to know.

Sure. Remind me to add that to your list of nonsense quotes  

Miners have costs - they are the cost of acquisition of the coin so they therefore do not mint them out of "thin air".

The reason they have those costs is because they are required to bid for the coin against other "buyers" in an open, trustless market in order to acquire it. Their sells in the secondary (exchange) markets are therefore fully matched against their "purchases" in the primary.

This is of course not true for the DAO or for masternode rewards which is unearned income that only has a sell side. Masternodes have no acquisition cost for the reward (other than a hosting cost) and their sells in the secondary market are therefore unmatched which is why we've never been competitive against fully mined POW coins in terms of attracting investors.

We've always lost marketcap to them regardless of how much "development" and "feature" advantage we had over them.

"Developers" do not govern this coin (ostensibly). Masternodes do - or at least are supposed to. If masternodes make wrong decisions (as they did with the last big protocol change) it's they who suffer because they have most at stake. So the community has to be persuaded first before any developer pressure / forking nonsense is viable.

Not an easy thing to do I accept because tribal allegiance and "hopium" are generally much more powerful motivators than simple reading-of-numbers.

But the alternative is to watch their collateral shrivel up and die like many other hybrid POS assets did, and for similar reasons. Alt markets have been reflating against BTC for the last couple of years and Dash is not reflating with them because we're too busy making it attractive to inside investors instead of outside ones.

In particular, this asymmetry in Dash's market dynamics compared with fully mined POW has had a devastating impact on marketcap.

When Ryan was attempting to justify the last protocol change he was only analysing secondary markets and excluded primary. This meant he could only come to the wrong conclusion - in fact the complete reverse of reality. Masternodes and the DAO are the only entities in Dash that exert a net sell pressure on the markets so we have this huge hole in primary demand invoked by the core protocol which other POWs do not.

Fix this and set it to a more optimal non-mining reward level and we might have a chance to recover marketcap buoyancy, turn around sentiment, attract new talent and re-fuel the innovation aspects of the asset. (...and with it, investability). Any loss of Dash-denominated masternode reward would then be more than compensated for in collateral capital gain (i.e. the reverse of what's happening at the moment where capital loss wipes out MN rewards).

For those of you who are "scared" by that prospect, I'm sorry we have no choice. We are heading for page 2 status soon so you'd better start considering a bit of bullet-biting thoughts to make this coin attractive to outside investors for a change and that is the one thing they've always disliked and not without good reason. We must not be "scared".

It's just numbers - if Ryan was worth listening to the first time then his thesis is also worth listening to once corrected for lack of scope.

Descending smoothly into the top 90.

"Circulating supply" has increased by more than 23% since our little protocol change designed to "decrease circulating supply"  

ROI negative in $USD terms due to capital loss on collateral wiping out masternode rewards.

All predictable (and predicted), since having the protocol release supply with a zero price tag that bypasses competitive bidding does have the effect of all of the above. "Management" effects are secondary and a result of demoralisation due to lack of financial performance as a store of value and departing investors/talent.

Be my guest.

I won't hold my breath as he seems a little more capable of reasoned scientific argument than you do. All he's done is use standard physics to derive the atmospheric radiative equilibrium temperatures observed without recourse to any Co2 voodoo "heat trapping" effect.


...in trolling, evasion and disparagement  

I'm sorry but science is not a popularity contest and peer review "groupthink" does not trump basic physics that been accepted for a lot longer than some faux scientific clownery that tries to pretend that 4/100ths of 1 percent of the atmosphere can act as some kind of thermal "non-return valve". It doesn't require peer review because no claim is being made that runs contrary to long-accepted principles of physics (unlike the idea of Co2 heat "trapping").

By the way, if you think that oil & gas companies are the enemies of modern day environmental nonsense think again. They are pushing it more than anyone. Look into who was Secretary General of the U.N. Conference on Environment and Development (Rio "Earth Summit") which effectively founded highly politicised bodies like the IPCC. An oil tycoon. They like it amongst other things because it serves the basis for financialising scarce resources and re-hypothicating them in the form of derivitive markets that they can control such as carbon credits.

Read this. See in particular Page 14.

There is no "impact" on climate from crypto mining and not from Co2 either. Fill the whole damn atmosphere with Co2 and it won't make a degree of difference to the climate. The offending thermodynamic property that is supposed to "trap" heat (a nonsense concept) is ostensibly emissivity. But as this document demonstrates, emissivity is not a factor in the radiative equilibrium temperature for the atmosphere (See Page 14).

Kirchoff's law of thermal radiation: at thermal equilibrium emissivity = absorbtivity. So if it absorbs it faster it also emits it faster and sure doesn't absorb MORE heat. (That is a property called "specific heat capacity" and Co2 in fact holds less heat than nitrogen by that measure).

Mars (for example) atmosphere is 95% Co2. Yet it loses 100 degrees of surface temperature overnight without a sweat. Why ? Because its atmosphere is thinner. Earth atmospheric Co2 is a paultry four hundredths of 1 percent ! Yet it only loses 20 degrees diurnally. Why ? Because its atmosphere is thicker.

It's all described here - written by a lifelong gas turbine engine designer. i.e. someone who actually understands the science of thermodynamics as opposed to a geologist, oceanographer or other hand-waving clown drawing lines and arrows all over the place.