Well I admit it's difficult to compete with the #pumpIsComing theory of capital flows as a basis for attracting new investors. Long may it outlast investor due diligence otherwise we're screwed as long as we stick with the current protocol

I already had feedback from DCG and its formal position is to categorically dismiss the role of mining in store of value, other than to secure a leadership position within the masternode sector.  ("We don't need all this hashrate"....."except where we do"). It's been made abundantly clear that that is the end of the story as far as it's concerned. Unfortunately the market doesn't seem to concur with that view which is why I've persisted with this analysis in studying why the recent vote to change the protocol didn't have a significant impact on valuation or ranking.

Also I'd appreciate if you'd stop referring to this as a "theory". It's an observation of capital flows and how masternode rewards are not recycled back into the chain, either as mining power or in service layer costs. Public domain knowledge and published Dash protocol. If you were a masternode holder at the height of the market and received $1400 dollars worth of Dash each WEEK for doing absolutely nothing, you'd know that intuitively without even having to understand the protocol.

You'd also know it if you'd ever had to file a tax return for masternode earnings since it's recorded as income followed by a capital acquisition, where you're taxed on the full value of the income. That's where your cost base comes from - not the scarcity value established by competitive mining.

A Litecoin miner who receives $1400 from the chain at least has to apply their rig to near the tune of that value to make the next block less accessible. (A legitimate and better use of their reward than paying tax authorities IMO). Therefore no blocks at all emerge from the Litecoin chain with a price-tag of zero. That's why store-of-value seekers invest in Litecoin over Dash.

(Consequently it's why Litecoin is now getting more traffic than Dash. Nothing to do with ease of use.)

That isn't who needs to be convinced. It's the community that needs to understand it. (The market already does).

qwizzie, the problem isn't one of price performance. It's much more fundamental and easy to observe if you consider at capital flows instead of anecdotal examples of trading history or trying to second guess the psychology of trading behaviour.

It's that the Dash chain suffers a continual capital loss by not recycling the value of the coins it generates back into the chain. The original idea was that the masternode reward would pay for an investment in a service layer of the protocol. So a small profit margin is justified - and can even lead to a large profit margin if its done efficiently.

But right now, that margin is just being paid for out of the capital value of the chain and that's what markets are pricing in.

Qwizzie, you're still living in 2014-land where marketcaps lived and died on bitcointalk hype and where an investor base was defined by tribal allegiances.

Things have moved on a bit. Markets are slightly more sophisticated and can work out what our capital flows are. If you tell them you can make a 90% margin from a finite capital asset without investing any of that profit back or generating any new economic activity, and despite that claim that your capital value will still accrue in multiples, the "negativity" you're seeing from me just now will look like worship by comparison to their reaction

2+2 has to equal 4. Not "innovation", "liveliness" or "pump-is-comingness".

I didn't "publicly attack" the system.

I argued that the reward ratio was set in the wrong direction for optimal capital valuation of the chain. I also said that masternodes would gain from this since the capital value of their holdings makes generally more difference to their asset valuation than the reward margin measured in Dash.

The problem is that this argument has been lost.

You are currently watching the coin that throttles the supply to miners more than any other - by 50% compared to its competitors - sink to the bottom of the pile in valuation.

Not only that, on utility (which that 50% mining deficit is supposed to be paying for) we are now out-used by 500% by the most utility-deficient coin in the list.

The reasons are explained above - that order book dynamics have very little to do with the valuation of the chain. Coins transferred out in an order book can transfer an equivalent value back to the chain or it can be asymmetric (as in the sale of masternode rewards) where no value is delivered back to the chain.

It's the net loss or gain of aggregate capital value from the network that matters.

First of all, it's a general given in commerce that if you give a market twice the goods for the same price, you'll instantly become more competitive.

1. Support the Price in the Primary Market

So it isn't a question of hashrate per se, it's about increasing the amount of competition there is for Dash's primary supply (the new mined supply). We have a massive reserve available there to attract back demand because we're currently at a 50% deficit over our mined neighbours so ANY restoration of mining reward between that and 100% will do it. I realise that masternode holders want holiday cruises, but f*k'm. They'll get their margins restored via capital gain anyway so lets put them to good use in arresting the decapitalisation of the chain.

As an example of how low margins can generate huge businesses, look at those mining operations in Iceland. They turnover millions. More than half of all of Iceland's electricity generating capacity goes into bitcoin mining , yet they operate on wafer thin margins. The capital value of bitcoin grows. Meanwhile masternodes operate on huge margins and their capital value is paltry and shrinking. That is because those margins are not being re-invested in raising the mining difficulty as they are with our competitors. They are supposed to be invested in service capacity but that cost is non-existent by comparison so meanwhile it needs to be going into applying scarcity to the half of our supply that's currently a free giveaway.

Ironically, they're also not working to attract new demand for masternodes either. Why is that ? Because with such a large collateral investment, capital gain or loss makes far more difference to ROI than the reward ratio. If the reward ratio isn't set right and acts to leech the capital value of the chain instead of nourish it, then masternodes are a loss maker at any protocol reward since the external market calculates ROI in dollars, not Dash.

2. Stop Masking that Value off from the Secondary Market

Now lets turn to the exchange of existing coins between one holder and the next (the so called "secondary market"). This is where the issue of capital flows comes in that I mentioned in an earlier post. The problem here is that if any holder in the chain of exchange is able to acquire a coin at zero cost then the store of value archetype is broken.

So lets say you mine 100 bars of gold out of the ground and it costs you $1000 to mine each one. You sell 50 of them for $1000 and you give the other 50 away for nothing. The cost of mining (scarcity value) of the 50 free bars then doesn't get transmitted through to the market because any loss that would have been incurred from selling below mining cost has already been taken for them. From an accounting perspective, they are holding a capital asset but also a huge capital gain, so it's in their interest to realise that gain as fast as possible because there will be competition for liquidity from others that are in the same position since 100% gains are rare and realised ones are even rarer. The asset will not hold its value because everyone got it for free and this acts as a corrosive force to the overall value of the chain.

Miners, however are not in the same boat. They incur a financial penalty for selling below cost which in their case is non-zero. They have to take the loss themselves. They're also always having to invest hashrate in the chain to get anything out of it. That hashrate isn't "wasted", because it increases the scarcity of the coin in proportion to demand. But it doesn't work if somewhere else coins are being released with a zero cost base. You then have a leaky boat in terms of capital value from the chain.

The cherry on top is that miner's low profit margin exposes them to negligible statutory selling pressure from tax authorities, unlike their masternode counterparts who instantly incurr a liability of between 30% to 70% of their reward as soon as they receive it (depending on what jurisdiction theyr'e in). This constitutes yet another source of massive and chronic sell pressure.

Conclusion: Large masternode margins are disastrous for business:

 • they give traders a reason to constantly go short because they know they're a capital bleeder
 • they make the primary supply depressingly uncompetitive compared with our neighbours
 • they don't work anyway (because the market simply adjusts the dollar reward ratio as it sees fit)
 • they give miners a reason to run masternodes to subsidise their mining costs, which deprives the primary supply of mining competition and instead crashes order books with their "free rewards"
 
..and worst of all...

 • they are bad for masternodes, since they have the most to lose from capital losses being the biggest capital holders

Because the principle is very powerful and there is a clear market for this - store of value coin that has a trustless on-chain service protocol decoupled from the mining one.

A corrosive reward ratio can break it though. That's the problem I see - like drowning a slice of bread in too much butter - the sandwich will become valueless to most. It's not difficult to address which is why I think it's worth arguing for.

There's nothing strange about it. I invested in a proof of work coin that inherited bitcoin's protocol and target market, but more versatile than bitcoin at the point of use.

The arguments I've been promoting on here are far more consistent with that principle than yours have been. There's therefore a reason to stay invested because this coin has a governance mechanism and I believe that the community will eventually have to face the fact that the appraisal made last year regarding the economics of the protocol was faulty and that the conclusion drawn was exactly the opposite of the correct one. i.e. it's the masternode margins we can afford to compromise and the hashrate we DO need. (Or at least its restoration to a majority of the coin supply). That is because masternode margins in dollar terms will restore themselves once the chain starts to recapitalise.

It was faulty IMO because it was based on optimising orderbook dynamics instead of aggregate capital flows. It isn't enough just to minimise traffic to orderbooks because it matters what the fiat being drawn from order books is being spent on. If it's being invested in raising the cost base of the primary supply, then coins hitting order books isn't a problem. If it's being wasted on uneconomic margins and drawdowns that leave emerging blocks undercapitalised then it IS a problem. (I don't blame DCG for this b.t.w., it's not their problem, it's the governing community's).

Apart from reasoned accounting, there is anecdotal evidence for this everywhere you look - not least that of the top ten mined coins, 9 of them send ALL of their supply to order books (if not, the miner's own bank account) and all nine, bar one, are capitalised to a greater extent than Dash, in most cases by multiples. This even has a knock-on effect on utility because we're being trounced by litecoin on transaction count now which proves that utility bells and whistles are worthless unless you have the basic mining model well balanced and competitive (with other coins).

So I'm not the contrarian here IMO. The points I've made are exactly the same ones I've made since 2014. Why are they not acceptable now ? Because a vote was taken ? This is a monetary asset, not a golf club. The same market economics apply regardless of what the "committee" says.

It wouldn't surprise me either which is why the insanity of firewalling half the supply off from that hashrate and giving it away for free is becoming apparent to all.

Yes you would. They just wouldn't be called "masternode rewards" but "mining rewards" instead and the fiat they attract on being sold would be directed straight into raising the cost of producing the next block. i.e. increasing its scarcity value which is what store-of-value markets are buying.


...in holiday cruises for masternodes, not in the mining & difficulty level of the blockchain.


<facepalm> Of course it didn't, because whatever our hashrate is, it's only directed at less than half of the coin supply anyway. And now the market is pricing in an even smaller exposure to mining. The rest of the blocks are generated for free (with a zero cost base. Ask my tax accountant who forces me to sell them to cover the tax for that reason because the liability is generated as soon as you receive the reward).


Please tell that to the store-of-value market, because it didn't realise it was actually investing in cheaply secured networks. It thought it was buying high scarcity coins emerging from expensive to mine blocks. It (specially the bitcoin market) could have saved itself a lot of time & money.

Again, very deceptive of you as always in deflecting the discussion away from where the problem is to where it isn't.

Firstly, my previous post is concerned with the masternode reward, not the collateral. It's those rewards that arrive with a zero cost base. That leaves the market at liberty to price it as such.

Secondly, the 1000 Dash is not "invested" in the chain. In fact it isn't invested anywhere - the owner continues to hold it and own it. An "investment" is where you swap one form of capital for another, for example when a miner "invests" $USD in raising the scarcity value of the next block and receives coin in return who's opening price is proportional to the hashrate they contributed to the cause.

Yes difference. Because the whales of other chains participated in a capital flow which started with an investment directly IN the chain to support the opening price of each block before it was traded. When a Dash masternode reward coin is sold on the other hand there is no such investment in the chain. It's an exchange between 1 holder who acquired their holding with a zero costbase, and a trader who's dollars go straight into that holder's pocket.

Whether it's how I see it or market sees it, it doesn't stop 5000 masternodes pocketing capital from the chain that should be going towards raising the scarcity value (and therefore opening price) of each new block. That's what other chains are doing and it's the single biggest difference between us and them.

It's also a phenomenon which markets are at liberty to price in as they see fit (and are currently doing so).

Unfortunately, "promising and lively" is not an adequate counterbalance for an uneconomic model that has so little buoyancy that it sinks like a deadweight in marketcap when compared to other types of protocol more optimised for store of value.

It may be enough for existing holders as comfort blanket value, but markets take a more systematic look at capital flows. Maybe it's time we did too.

How the market sees it:

**** Other Chains ****

We apply our hashrate to all of our blocks .
They therefore come onto the market with a high scarcity value which is monetarily quantifiable.

**** Our Chain ****

We don't need all this hashrate.
We are promising and lively.

B.S.

We now have 5000 masternodes with ridiculously uneconomic margins to support. They are eating the capital value of the chain like a starving animal that starts to consume its own flesh to survive.

Litecoin now has over 100,000 transactions per day. We were at parity with it only a few months ago. It also has plenty of emission schedule to go so your cake-slicing supply schedule excuses do not carry any weight either.

We're still floundering on 25k transactions. Arguments like "it's ok, pump is coming" and "we have innovation" are slightly pathetic if I may say so against the current background.

LoL ! Are you serious ?

What is it about the phrase "we don't need all this hashrate" you don't understand ?

The protocol itself only requires 40% of the chain to be mined. You can switch it around philosophically anyway you like and say (for example) that the entire chain is mined, but then you've got to accept that the cost is borne disproportionally by investors in the primary supply (who finance the mining).

There is no escape and you're going to have to address that disparity because the market sees it and we have our fingers in our ears.

How so ?

More than half of Dash's supply will be inflated on a purely numerical basis, without recourse to competitive mining. 6 blocks out of every 10.

Can you imagine how much bitcoin would be devalued if it did that ? Effectively counterfeit from many perspectives, in comparison to a fully mined chain. (At least that's how the "store-of-value" market sees it and it's how it values us currently).