Economics

Why anchoring to BTC helps our economics?

Our block reward function on shards is proportional to the aggregated hashrate on the network. If our network difficulty follows the one of Bitcoin, this implies that it is an exponential curve. Thus, ensuring the security of the network would be paid with inflation, rendering our JAX transactional coins useless for day-to-day payments in the long run. Technical aspects aside, anchoring to BTC helps us to put some control on coin issuance. Indeed, we make it costly for miners to print JAX since they have to choose between minting BTC and JAXNET or JAX by sending their BTC and JAXNET to an invalid address.

What is the k-coefficient, and how does it work?

Productivity gains in the chip manufacturing sector are substantial, much higher than the average gains in the economy. As you may know, our JAX coins are pegged to the hashrate of Bitcoin. If this cost decreases, that means that it is now cheaper to produce JAX coins. As miners now have an incentive to print more JAX, its market exchange rate might depreciate, thus breaking down our peg. To avoid such a scenario, we introduced a k-constant. This value ranges between 0 and 1 and is voted by miners during each epoch. The selected value at the protocol level is the median of the miner’s votes. K is then multiplied by the difficulty to determine the miners’ block reward on shards.

How can we have stable value without a peg or collateral?

JAX coins are only mined on demand. Their cost of production is tied to the cost of Bitcoin hashrate, putting a lower bound under which coins cannot be sold. We assume that miners are profit-motivated and would not sell JAX below its marginal cost of production. At the higher bound, miners’ economic incentives also play out. Indeed, if the market rate of JAX is increasing, they are better off printing JAX instead of JAXNET. JAX market rate will fluctuate within these lower and upper bounds, just like any fiat currencies. JAX coin issuance follows market dynamics, not some predefined and constraint algorithm.

Is JAX an inflationary or deflationary currency?

There are two coins in Jax.Network. The beacon chain coins which are more like an asset coin are called JAXNET and the shard chain coins which are used for transactions are called JAX. JAXNET has a fixed reward per block and JAX issuance only happens when miners forgo the Bitcoin and JAXNET block rewards. This is the only way to print more JAX coins, which hold only a transactional value directly pegged to Bitcoin hashrate.

Are we sure JAX is not inflationary?

The coins are printed by miners only when the expected profit of printing JAX coins is superior to the expected reward of Bitcoin and JAXNET blocks. The JAX coin is issued only when there is a transactional demand for it and hence supply follows demand.

What is the JAX coin’s value based on?

JAX value is derived from mining business efficiency, including the cost of mining equipment, the cost of electricity, and a bunch of other factors.