SINOVATE solving Cryptocurrency Inflation with Proof-of-Burn
You have probably tried in discussions with your parents or seniors to compare the price of your recently purchased house with theirs. Quickly, parties conclude that if seniors had the same amount of money, their life would have been easier. However, it reflects a particular effect of our modern economy called inflation.
Money inflation is the consequence of political and economic decisions to sustain the growth of our nations. As central banks and authorities can print money, it results in more money in circulation. As there is more money in circulation, people can theoretically buy more while the extracted resources do not increase proportionally. Hence, the demand is higher than the offer, and the price increases where 1 USD is not worth 1 USD later.
The emergence of Bitcoin…
Bitcoin is a pioneer in tackling inflation and proposes an alternative economy that recently made a surge beyond 60k USD. Its economic model is straightforward: Bitcoin is a blockchain where blocks require to be validated by the so-called miners.
The network accepts the new block consensually from miners, and the miners receive rewards for their efforts. The reward comes from the mined block. It is how the money is generated with Bitcoin.
The reward is distributed in BTC coins every 10 minutes and respects a specific model of distribution. In Bitcoin, the first block started with a 50 BTC reward in 2008, and every four years, a halving is applied to the block reward. In 2021, the block reward is around 6.5 BTC and will structurally tend to 0. This means the final circulating supply of BTC coins is 21 million, and it is why Bitcoin is considered a refuge investment.
This economic model ensures that 1 BTC will always be 1 BTC. The USD value of the BTC coin cannot change because of its emission but because of its adoption for different use cases such as payments. However, this emission is set at the genesis block and cannot be changed without corrupting the fundamentals of the generated Bitcoin blockchain. Some projects decide not to set a specific complex market capitalization or a big one, but these projects suffer from heavy coin supply inflation.
Break the wheel of circulating supply inflation
The world of cryptography applied to currency applications allows processes that do not apply to traditional currencies. Coins are digitally registered and traceable. It is possible to publicly delete units using a simple mechanism to reduce the circulating supply that burns coins which is equivalent to sending coins to an unspendable address (no one has the private key of this address). This mechanism is called Proof-of-Burn (PoB).
The Prophecy project sets monetary policies to regulate the circulating supply according to various data sources, such as the staking rate, open market interest, available liquidity, and volume of its network. Another project called BOMB decided to systematically burn the transaction fees while there is no coin generation from the block reward. The initial supply is the hand of the creators, which is a governance problem of the solution.
However, the circulating supply is guaranteed to reduce over time until there is no supply left. Whereas BOMB is funny but not reliable for a massively adopted and sustainable ecosystem, Prophecy tried to offer a self-regulated monetary policy.
SINOVATE, in June 2019, decided to introduce the PoB mechanism based on the offers and demands for its ultra self-regulated circulating supply. Contrary to Prophecy, the offers/demands balance is not based on market rules but is applied only to the network protocols such as the transaction, data transfer, and governance vote fees, and the creation of the so-called Infinity Nodes.
The regulation process ensures to indefinitely have less than 800M SIN circulating supply since the introduction of Infinity nodes is illustrated in the graph below, reflecting the evolution of the SIN supply since the genesis block.
Why does SINOVATE use a Proof-of-Burn (PoB) mechanism?
SINOVATE is a peer-to-peer network with a decentralized ledger where it is possible to perform transactions of assets and interconnect blockchain with the InfiniteChain system. SINOVATE aims to build a multi-chain decentralized Cloud (dCloud) ecosystem and is required to use the PoB mechanism for many reasons.
The PoB mechanism is first applied to the transaction fees. Whereas these fees are used to have privileged access to the next validated block, it forces the centralization of the mining power into the hands of few validators who want to grab these fees. SINOVATE does not want the fees to be beneficial to anyone by burning them, and then, only the block reward is the income of validators.
The second application of the PoB mechanism is for data storage nodes. Today, masternodes such as Dash suffer from the hyperinflation of their economic model. Furthermore, a masternode collateral can be sold off at any time.
This can severely damage the investors that can decide to abandon the network. Another drawback of this is the stability of the masternode for data storage that can decide to leave at any time and then leave with the data. Other projects prefer to have on-blockchain-related nodes to store the data with the same problems and require complex algorithms to ensure the nodes securely store the data.
This leads to network performance drops such as low data transfer speed and lack of decentralization. SINOVATE invents the Infinity Nodes where the collateral is burnt, which signs a 12-month contract commitment with the network. The Infinity Node must then fulfill its contract to retrieve back the burnt collateral from block rewards of their Proof-of-Services. The services are instant payments and data storage and the possibility to participate in the blockchain governance where the vote fees are also burnt.
Finally, the data transfer fees are also burnt in the network. As the Infinity Node receives rewards from the PoSe layer and data storage payments, the data transfer fees can be burnt without disturbing the quality of services.
SINOVATE Crytonomics and Self-Regulated Circulating Supply
SINOVATE has innovatively designed, tested, and implemented various products and services in its decentralized network protocol. In addition to helping streamline processes for other third-party entities, the SINOVATE project works to become one of the most reliable, adaptable, secure, transparent, efficient, and effective decentralized networks in the Blockchain technology space.
The project also has a solid and constantly evolving business model to differentiate SINOVATE from other Blockchain-based projects in the market.
Hence, all transaction costs are irreversibly burned, including governance voting, decentralized cloud storage, and Infinity Nodes collateral. The PoB mechanism is compensated by the rewards from the block validation consensus algorithms. The cryptonomics can be resumed with the following figure.
The PoB mechanism increases the deflationary aspect of the SIN coin ecosystem. The more users join the network, the fewer SIN coins will be available, which will lead to inevitable scarcity. In other words, there is deflation of the circulating supply if the network usage is high enough, which means high market demands, burned coins flow can be identified as the network wealth, by being in some way his income from services.
However, if the rewards of blocks are higher than burnt coins which mean high market offers, the inflation of the circulating supply is actual. The following figure resumes the situation:
Established in 2019, the PoB mechanism allows the project to have a modular and market-based circulating supply that impacts its value and usage. SINOVATE already had seasons, as presented in the figure above.
SINOVATE truly believes its self-regulated circulating supply will create a highly stimulating market that deserves its visibility and scalability as a dCloud multi-chain network.
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