No free lunch – look at the public chain certification economic system design from EOS RAM price

Since the EOS main online line in June, its RAM price has been rising. On July 3, 2018, the price of 1 KB RAM reached nearly 0.9 EOS / KB, and on July 4 it plummeted to less than 0.5 EOS / KB. What is EOS RAM? Why is the price going up and down in the short term? We briefly analyze the mechanism behind the price curve by briefly introducing the principle of EOS RAM. It can be seen that the free is not necessarily the best. In addition, innovative applications such as Bancor algorithms in the field of digital assets may surprise us. The key is to design the entire pass economy model.

1.Event review

As long as you have recently participated in EOS-related investment or development, you must have heard about the high price of EOS RAM and complaints. We can see this change very intuitively from recent price movements. The price of RAM has risen from the price of around 0.017 EOS/KB on June 19 to a maximum of 0.9 EOS/KB. Even in the digital asset market, which is known for its high price volatility, the 50-fold increase is surprisingly impressive.

Creating an EOS account on EOS requires approximately 4KB of memory. At the current price (EOS price is 8.8 US dollars at 16:00 on July 4, 2018, RAM price is 0.5 EOS / KB), the cost of establishing an account is about 120 yuan. If you use CryptoKitties on the Ethereum to perform a rough conversion, it will cost about RMB 1.5 million if you run it at EOS.

2. What is the EOS memory and Bancor algorithm?

The purpose of EOS is to build a blockchain operating system, so EOS introduces many concepts in computer architecture during the design process.

EOS computing resources mainly include two categories: one is memory (RAM), and the other is CPU and network bandwidth. Among them: RAM is mainly for storing account information, smart contract execution information and other data in the blockchain platform; and CPU and network bandwidth are real-time computing resources. Therefore, the usage patterns of these two types of resources are also different. For RAM, EOS is required for purchase; for CPU and network bandwidth, the mortgage mode is adopted.

But in fact, before EOS Dawn 4.0, RAM and CPU bandwidth and other resources are obtained through the mortgage EOS, so the amount of EOS used in the RAM mortgage and exchange back is the same. In order to prevent the user from reluctant to exchange memory back to EOS after the RAM price rise, since the Dawn 4.0 version, EOS’s RAM has adopted a trading mechanism. The price at the time of sale is dynamically calculated according to the Bancor algorithm formula and adjusted by the market supply and demand relationship.

So what is the Bancor algorithm? Tracing back to the source, Bancor was a super-sovereign currency concept proposed by Keynes and Schumacher between 1940 and 1942. It can be used as an account unit in international trade and officially proposed by the United Kingdom after World War II. However, because the US strength was unique after World War II, the Bancor program was not adopted at the Bretton Woods conference. But the Bancor algorithm that applies this idea continues its vitality. The Bancor algorithm was proposed by the Bancor Network project to use formulas to set exchange rates between digital assets. Its co-founder Eyal Hertzog was recently invited by BM to discuss the application of the Bancor algorithm in EOS.

In EOS, the Bancor algorithm is used to guide the sale of RAM. It calculates the price of the RAM based on the total amount of current EOS and the amount of RAM available for purchase. That is, the less RAM remaining and the more EOS, the higher the price. And at the time of purchase, EOS will first convert to an intermediate pass RAMCORE; then through RAMCORE to the amount of RAM. Therefore, the algorithm in EOS is more complicated than the original Bancor algorithm.

3. Why does the price skyrocket?

Knowing the trading mechanism, let’s analyze why the price will fluctuate sharply in the near future. The direct reason may be the recent influx of various funds in the digital asset market. Due to the recent decline in the overall digital asset market, some funds have been withdrawn from the market for investment in digital assets and moved into other areas. EOS memory prices have also been raised accordingly due to speculative psychology or the hoarding of EOS eco-scarce resources.

In addition, BM’s attitude is also seen as a weather vane. Before July 3, BM took the idea of ​​letting the market and the community dominate, and did not want to artificially intervene in market operations. However, as prices continue to increase, according to IMEOS news, on July 4th BM also began to consider modifying the Bancor algorithm, and also included plans to use SSD to expand physical RAM. As a result, a certain panic selling has been caused, and the price of RAM has also fallen from a high point.

At the same time, it has also been pointed out that unlike the current 64GB case, the Bancor algorithm originally assumed a larger memory condition such as 1TB in Dawn 4.0; the originally envisioned RAM is also expanded according to the annual growth rate of 5%. It is more difficult to deal with market shocks in the short term. According to the Bancor algorithm, if the demand is constant, only the supply is increased, that is, the super node expands to solve the problem directly. The super node itself may also hold a large amount of RAM, so the process of reaching a consensus for the super node may not be too smooth for the sake of self-interest, when it is necessary to expand and expand. In addition, with the continuous development of the ecosystem, the same market is likely to be repeated. Therefore, simple expansion is more difficult to solve this problem fundamentally.

4. The deeper reasons behind

The deeper reasons behind the skyrocketing crash are also related to EOS’s own pass-through economy.

Unlike some public blockchain platforms such as Bitcoin and Ethereum, there is no commission for trading on EOS. The work of generating blocks is done by 21 super nodes. As a reward, EOS will allocate a certain amount of additional shares to the super node each year in return.

Since there is no concept of fees or “gas”, and in order to prevent a large number of meaningless transactions from occupying resources, the resources (RAM) required by EOS for transactions need to be “purchased” using EOS Pass and after Dawn 4.0 version. Adjustments are made using a market price mechanism. However, this mechanism has been challenged by the influx of a large number of speculators.

At a deeper level, the handling fee can be used as a reward for the node maintenance and maintenance personnel, that is, the mines, and avoids the waste of resources caused by excessive use of the users. Practice has proved that this mechanism has a very good effect. “Gas” itself is a very vivid name that illustrates the cost of consumption when trading, running contracts (especially Turing-complete contracts).

Therefore, the fee can be understood as a resource lending mode of “pay at use”; and the purchase of RAM can be understood as a “pre-use payment” resource purchase mode. Although the specific methods are different, there is a need for a resource adjustment mechanism throughout the entire economic system. Therefore, the answer to the question of whether the fee should be exempted from the resource adjustment may not be simple or not, but should consider how the resource usage mechanism in the business model is designed.

Most mainstream public chain projects now have the concept of a fee to maintain the integrity of the entire ecosystem. For example, a public chain platform such as Ethereum needs to pay a certain amount of gas for each transaction. At the same time, the existence of the fee has brought about a negative impact on the user experience and the increase in the threshold of use in the context of the rapid development of the DApp ecosystem.

5. Solution

Going back to the EOS memory problem itself, in addition to simple expansion, we can also find some solutions from the EOS mechanism and the Bancor algorithm.

The price mechanism of RAM can be understood as EOS creates a smart contract for RAM based on the Bancor protocol: use EOS to buy RAM; the RAM gets more EOS revenue after the price rises, and the transaction will generate a handling fee of 0.5%. When the market RAM has reached a certain proportion, scarcity will lead to accelerated price growth.

Therefore, for the growing DApp application on EOS, a separate DApp application can be run through a side chain or the like, and a balance between RAM supply and demand can be sought through a market competition between multiple sidechains.

6. Revelation

For blockchain users and blockchain developers, you should know that there is no free lunch in the world. For the blockchain, it is no exception. Therefore, it is necessary to carefully analyze whether there are “weak points” in all aspects of the blockchain project in the pass-through economic system, and consider whether to use the fee and other methods to analyze the blockchain projects. Whether the aspect is in line with business logic and business needs.

In order to solve the ERAM current RAM price problem, the supply can be directly expanded by expanding the capacity in the short term, but in the long run, innovative technologies such as sidechains should be adopted.

Original from:VipInvestor » No free lunch – look at the public chain certification economic system design from EOS RAM price

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