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Understanding Breakout Chain’s Money Supply and Coin BurningJames Stroud
In recent months, cryptocurrencies have realized a dramatic increase in interest and community growth. As new users become involved, they have questions related to coin money supplies. After understanding the cryptographic security mechanisms that allow decentralized currencies to actually work, money supply questions are probably the most relevant. Here I answer a few basic recurring questions asked by new users.
The BRX Money Supply
How many BRX exist and how many more will be created?
BRX has a deflationary money supply, which means that all the BRX that will ever exist has already been minted. This mint happened as a pre-mine in Block 1, producing 12,500,000 BRX. However, the BRX money supply as of writing this post (January 31, 2018) is actually 6,268,082 BRX.
What happened to the other 6,231,918 BRX?
These BRX were unsold and burned in Block 6472 after the final BRX coin sale. Notice that after 1.5 years, no new BRX have been produced. BRX is considered to have a deflationary money supply because, presumably, BRX is continuously removed from the circulating money supply by loss. Loss events include individuals’ unintentionally deleting wallet files or forgetting pass phrases.
The BRK Money Supply
How many BRK exist and how many more will be created?
Unlike BRX, BRK has an inflationary supply and grows at a nominal annual rate of 5%. We call this the “BRK instantaneous inflation rate”. The actual annual inflation is a little higher because of compounding every block. Most BRK in existence was produced in Block 2, which yielded 19,500,000 BRK. The BRK money supply as of writing this post is 18,142,083.
Why is the BRK money supply less than the Block 2 mint of 19,500,000 BRK?
As you might have guessed, much of the difference between the original BRK mint in Block 2 and the current BRK money supply was eliminated by burning. This burn happened in Block 4140, which eliminated 2,269,671 BRK. This burn left about 17,230,329 BRK. Since that burn on July 9, 2016, about 911,754 BRK have been minted through proof-of-stake.
Does the current BRK money supply accurately reflect a 5% inflation rate?
Breakout Chain is about 19 months old, which is about 1.6 years. Without compounding, this represents an expected 5% * 1.6 = 8.0%. This means we expect the current money supply to be 1.08⨉ the money supply immediately after the burn of Block 4140. This calculation is:
1.08 ⨉ 17,230,329 BRK = 18,608,755 BRK
The prediction of 18.60M BRK is slightly more than the observed 18.14M BRK, most likely because block times have been slightly longer than stipulated by the protocol, due to unavoidable random variance.
When will the last BRK be created?
The answer is that BRK will be created at a 5% instantaneous inflation rate indefinitely. This unlimited cap is built into the Breakout Chain for two reasons.
The first reason is that the ability to mint BRK underlies the main value for BRX, which was sold in our coin sales. In Breakout Chain, BRX mints BRK through proof-of-stake. As noted in the Breakout Chain Whitepaper, Breakout Chain represents the first cryptocurrency system where the principal (BRK) is distinct from its interest earning potential (BRX).
The second reason that the BRK money supply is unlimited is to indefinitely provide incentive for BRX holders to secure the network through proof-of-stake. Although the money supply is unlimited, the 5% interest rate is fairly small, and results in a doubling of the BRK money supply about every 14.5 years.
The Breakout Chain Burn Protocol
What does it really mean to “burn” coins?
Above, I mentioned that the money supplies of BRX and BRK were reduced in events I described as “burning”. Burning is the act of rendering specific coins such that no one will be able to spend them, permanently removing these coins from the circulating money supply. Such coins are said to be “unspendable”, and are treated as if they are destroyed.
Just as creating coins is useful, either to seed money supplies or to provide incentives for specific activities like securing the network, destroying coins through burning has also found many uses.
Probably the earliest example was the so-called “proof-of-burn” that underpinned the initial distribution of the Counterparty token (XCP). While representing a major innovation in methods of cryptocurrency distribution, the XCP proof-of-burn has a cardinal theoretical flaw in that the burned coins were not strictly rendered unspendable. To burn coins for XCP, users sent Bitcoin (BTC) to the burn address 1CounterpartyXXXXXXXXXXXXXXXUWLpVr. All coins sent to this address still exist and can theoretically be spent in the highly unlikely event that anyone ever discovers the private key to this burn address.
The Breakout Chain burn protocol takes no such chances on the potential for burned coins to be spent. Instead of sending coins to an address for which the private key is theoretically difficult (though not strictly impossible) to find, the Breakout Chain burn protocol does not send coins to any address but to what can be thought of as an empty destination. This empty destination is known as “an OP_RETURN output”. Any transaction that tries to spend an OP_RETURN output is considered invalid, meaning that coins sent to an OP_RETURN output can never be spent.
An OP_RETURN output can be seen by inspecting the BRX burn transaction in Block 6472, an image of which follows:
This image shows that the burned 6,231,917 BRX were sent to an OP_RETURN output.
The Breakout Chain burn protocol goes further to formalize coin destruction in that the money supply tracked by each client in the network is reduced by the amount of the burn. This allows all block explorers and third party trackers, such as coinmarketcap.com, to have consistent reporting of Breakout Chain money supplies and market capitalizations. Compare this situation to BTC, where the money supply reported by different services may be in disagreement. For example, some services might account for events like the XCP proof-of-burn, and others may not.
Breakout Chain is the first cryptocurrency platform to formalize coin burning such that it has specific support in the client and is reflected in money supply tracking.
Breakout Chain Coin Burning for Power Users
How were BRK and BRX actually burned after the coin sales?
The Breakout Chain burn protocol provides a convenient burn command available to power users. This command is called burncoins and takes the format
burncoins <amount> <ticker> <burnkey>
In the burncoins command, the amount argument is the amount of coins to be burned, ticker is the ticker symbol of the currency to be burned (e.g. BRK, BRX), and the burnkey is any phrase specified by the power user as an initialization option, usually specified in the breakout.conf configuration file. The burnkey is required to help ensure that anyone issuing the burncoins command does not burn valuable coins by accident, as might happen when experimenting with the client.