The effect of 100% POS on the monthly inflation of Hobonickels
One of the reasons I like HBN is the fact that you can mint the coin without using mining rigs. Mining rigs consume a lot of energy, need a lot of attention, need to be bought and usually generate less coins every month where as minting hardly uses any energy and doesn't need much attention. Ok, you also need to invest but your investment generates more coins every month in stead of less.
But what about inflation? Granting 100% yearly interest on POS surely will sent the inflation through the roof, rendering your HBN-stash worthless over time. Or doesn't it?
Being almost a year into the HBN adventure I decided to do some math on the matter. To see what actually happens, what inflation is to be expected and how it's affected by the 100% POS rate.
First, I would like to know what inflation would be if there was no POS at all. Just the regular POW. Since the block chain tries to aim for a 30 second block interval, this isn't too hard to work out. 1 block every 30 seconds equals 2880 blocks a day. Since a POW block contains 5 HBN, the HBN money supply rises every day with 2880 * 5 = 14400 HBN. Let's put this together using excel:
Theoretical growth of supply without POS
block supply infl/mth
24-7-2013 0 0
1-8-2013 22646 113230
1-9-2013 111926 559630 394,2%
1-10-2013 198326 991630 77,2%
1-11-2013 287606 1438030 45,0%
1-12-2013 374006 1870030 30,0%
1-1-2014 463286 2316430 23,9%
1-2-2014 552566 2762830 19,3%
1-3-2014 633206 3166030 14,6%
1-4-2014 722486 3612430 14,1%
1-5-2014 808886 4044430 12,0%
1-6-2014 898166 4490830 11,0%
1-7-2014 984566 4922830 9,6%
So this is what we could expect without POS. 14400 HBN daily added to the supply. As you can see, the monthly inflation is decreasing. It makes sense when you think of it. For example in Oct. 2013 the supply goes in 31 days from 991630 to 1438030. An inflation (= increase of the supply) of 45%. A month later the same daily amount is added but since the supply is bigger than before, it's a smaller percentage. So in time the inflation will automatically decrease. Bear in mind: this is to be expected without POS!
Now it gets interesting. The theory is clear about inflation without POS but HBN has POS. a nice 100% of it. How did the supply evolve in reality? Did POS sent inflation through the roof? Let's see what happened. What's actually in the block chain. Check the above data to see the differences.
Observed growth of supply with POS
block supply infl/mth
24-7-2013 0 0
1-8-2013 24075 120372
1-9-2013 113060 541767 369,6%
1-10-2013 199014 960995 76,0%
1-11-2013 286219 1385908 43,8%
1-12-2013 372264 1849933 30,1%
1-1-2014 461136 2330766 23,9%
1-2-2014 550116 2778403 19,3%
1-3-2014 630790 3206341 14,7%
1-4-2014 719789 3671800 14,1%
1-5-2014 806508 4106540 12,0%
1-6-2014 898413 4629448 11,4%
1-7-2014 988559 5068546 10,0%
Indeed. What differences? In the first year of HBN, the 100% POS rate hasn't hardly changed the monthly inflation of HBN. On the first of July, the non-POS prediction of monthly inflation is 9,6%, the actual inflation with POS is only 0,4pp higher. That's hardly any effect at all! How is that possible?
I think the 30 second block time is key in understanding this. Whatever block is generated, the block chain will try to keep the block time at 30 sec, and thereby the amount of POS and POW blocks together as close as possible to 2880 a day.
So the possible difference in monthly inflation comes down to the difference in yield of POW and POS blocks. POW is fixed at 5 HBN. POS is not, so a high yield POS block (>5) raises inflation a bit but, and this is important, a low yield POS block (<5) lowers inflation as compared to POW only supply growth.
So if the mean POS yield is close to the fixed POW yield, POS adds no extra inflation. And this is the case with Hobonickels when considering the last year: 100% POS adds hardly any extra inflation. Funny isn't it? And the proposed max POS yield of 500 will drive it even further back.
Just let me know if you agree with my line of reasoning.