"In summary, this looks like an excellent idea. Pre-launch NEX coins will be LV1 coins and new coins will be LV2 coins.
This proof of burn functionality is superior to the 'forging' feature of Nxt.
The best way to think about this is to make the analogy between banks and enterprises.
Actually, I should rename the LV1 and LV2 coin, "NEX Invest Coin" and "NEX Enterprise Coin" .
With the NEX Invest Coin you get 5% interest. You never lose your principal.
With NEX Enterprise Coin you consume NEX Bank Coin but in the process you stand to gain 25% of what you gain.
It is actually a quite excellent and simple system.
Here is a rephrase of the original description:
NEX Invest Coin (NIC) coins are the name of the currency that will be distributed initially. These are the coins that will be on exchanges and can be bought and sold. These coins will generate 1 additional NIC coin per week for every 1,000 NIC coins that you own (updates fractionally on the blockchain every 15 seconds and are rounded up to the nearest millionth). This means that in one year of holding 1,000 NIC coins, you will receive roughly 50 NIC coins, or 5% per annum.
NEX Enterprise Coin (NEC) coins can only be obtained by burning NIC coins. For every 1,000 NIC coins that are burned you will receive one NEC coin. These coins can not be exchanged, sold, or discarded by any means and will be attached to the wallet indefinitely. Each NEC coin will generate five NIC coins per week. In one year of holding one single NEC coin, you will receive roughly NIC LV1 coins. This equates to an increase of 25% per annum.
Note: The only coin that is tradeable is NIC... so NIC is synonymous with NEX (the NEX currency symbol)"
This seems all honkey dorey until you actually sit down and do the math.
This may seem like a "worst case" scenario, but we can assume it will be the real world scenario as it is based on the entire premise of this coins foundational function and nets the most gains for any given participant (even though the long term results are disasterous). To consider any other scenario would be to assume that no one takes advantage of the Lvl 1/Lvl 2/burn/inflation/deflation system, which self nulifies any argument attempting to do so as it renders the purpose of the feature and their basis moot. You have to throw either the NEX system or game theory out the window. I think we know what the result of that ends up being.
We can assume that everyone will burn immediately, forgoeing the 1 NIC/week *ANPI (5%) for the 5 NIC/week *NICS inflation (25%) right away. I realise that everyone may not burn at the exact same time, but it is in their best interest to burn immediately so it's a practical and safe assumption. Provided that doesn't insta-kill NEX as the money supply would meaningfuly deflate to nothing on its release, (albeit temporarily, as it technically reinflates over time), we can proceed with the excersize normally.
(*See below for meaning of ANPI and NICS acronyms)
So let's have a closer look, shall we.
Our Baseline is 1 Billion NIC and 0 NEC. But remember that we burn immediately.
Well use an arbitrary 1 year period as our time scale in this excersize for the sake of simplicity and organization.
NEC Inflation
-------------
1000 NIC Burn = 1 NEC
Total NIC supply (TNICS) / 1000 = NEC Supply (NECS)
NECS + Previous years NECS = Total NECS (TNECS)
NIC Supply (NICS)
-----------------
1 NEC creates 5 NIC/week. So,
Total NEC Supply (TNECS) x 260 (5x52 weeks) = NIC Supply (NICS)
Annual NIC Passive Inflation (ANPI)
-----------------------------------
1000 NIC = +1 NIC/week
(NIC Supply (NICS) / 1000) x 52 (weeks) / 2 = Annual NIC Passive Inflation (ANPI)
NICS + ANPI = Total NIC Supply (TNICS)
*Why do I divide by 2 to get ANPI? After the first "mass burn", the NIC supply shrinks to zero and slowely inflates, all the while generating NPI units at the +1/1000 NIC a week. To simplify, we will divide this calculation by half and consider that the average increase. I consider this an effectively safe calculation assuming that burns happened at random as well. I think that's being fair and generous in the favour of NEX.
All numbers have been rounded to the nearest thousand(th) for the sake of simplicity.
TNECS (Mil) NICS TNICS
--------------------------------------------------------
Y0 - Immediate burn of the NIC supply = 0 <--- Only real deflation of the money supply (but we can see already this is just a trick up NEX sleeve)
Y1 - 1.0 260,000,000 + ANPI = 266,760,000
Y2 - 1.267 329,420,000 + ANPI = 337,985,000
Y3 - 1.605 417,300,000 + ANPI = 428,150,000
Y4 - 2.033 528,580,000 + ANPI = 542,323,000
Y5 - 2.575 669,500,000 + ANPI = 686,907,000
Y6 - 3.262 848,120,000 + ANPI = 870,171,000
Y7 - 4.132 1,074,320,000 + ANPI = 1,102,252,000
Y8 - 5.234 1,360,840,000 + ANPI = 1,396,222,000
Y9 - 6.630 1,723,800,000 + ANPI = 1,768,619,000
Y10 - 8.399 2,183,740,000 + ANPI = 2,240,517,000
Y11 - 10.644 2,767,440,000 + ANPI = 2,839,393,000
Y12 - 13.483 3,505,580,000 + ANPI = 3,596,725,000
After evey mass burn, the money supply (NIC) will effectively go to zero and slowly inflate to its maximum amount when the next burn will happen. The volatility caused by massive shrinking and expanding of the total money supply is insane for obvious reasons. Even if this does not happen in a nice clean manner as described, it's an uphill argument to say there wouldn't be massive fluctuations in the money supply. Note that the first burn is the ONLY year that causes an actual meaningful deflation (but we see it's an illusion if we look at the proper time scale). Looking 7 years into the future a problem peaks its head out. Look at year 8, 9, 10 and its obvious where this is going. We can easily conclude that it gets exponentially worse from there, going further into hyperinflation with disasterous results. This system is a combination of disasters that would make bitcoins volatility look like a blip on the chart. This is the zimbabwe dollar of crypto.
Here's another potentially fatal consideration. If burning NIC to NEC nets 25% per annum, why would anyone ever hold NIC?! It's easy to see that everyone would likely burn any NIC they ever get straight to NEC to put it to work generating more NIC. This nulifies the NIC supply (the actual money) and hyperinflates the NEC supply (the static, wallet digit. AKA, useless except to generate more NIC which will be burned to generate more NEC, ad infinitum). The only time anyone will hold NIC will be to sell it. NEX would self destruct from either the currency (NIC) supply being perpetually burned to non-existence and/or becoming a game of hot potatoe until the value drove itself into the ground.
I'm better with logic than mathematics so forgive any crudeness in the latters organization/presentation.
Feel free to crack my reasoning/math apart. Maybe I have made a simple mistake, but it seems pretty solid to me. Even without the math, the second argument is pretty fatal to the concept.
Conclusion? NEX is bullshit. The only "feature" separating it from Nxt is VERY fataly flawed. Is fictioncoin knowingly pushing broken garbage to take 1 mil Nxt out of the pocket of Nxt investors and put it in his? Maybe, maybe not. Can you trust the person's thinking that brought you a system this flawed? That's for you to decide. My personal opinion is NO. This whole "IPO" is pretty stinky, along with the other "projects" I've seen him involved in. I'd be cautious, skeptical and highly suspicious.
Thank you for analysis.
The proof of burn feature will not be with the Nxt clone.
