Nano’s Zero-Inflation Policy: A Source of Stability

Monero fans will often point to Monero’s “tail emission” as a source of long-term stability for the network. It is argued that Bitcoin may become unstable as the block rewards shrink and start to become outweighed by transaction fees. At least one academinc paper has been written to this effect (https://economics.princeton.edu/working-papers/on-the-instability-of-bitcoin-without-the-block-reward/), arguing that Bitcoin’s mining economics may become unstable in the absence of a block reward (or when the block reward becomes sufficiently low).

The tail emission is Monero’s answer to this problem. It’s great as far as it goes, but it leaves me wondering, does it actually solve the problem permanently? Because the inflation rate asymptotically approaches zero, the relative value of the block reward still goes down over time. Another 20 or even 100 years in the future, will the 0.6 XMR block reward still be enough? Or will the Monero blockchain eventually be used so widely that fees are making the block reward relatively insignificant and leading to all the same issues forecast for Bitcoin mining? I don’t know the definite answer, but it’s certainly a possiblity.

While the Monero community likes to think of the tail emission as a “conservative” choice (hence presentations like Daniel Kim’s “Sound Money, Safe Mode”, https://www.youtube.com/watch?v=wq6w03E2DS4), there may be an even more conservative option. That would be Nano’s policy of zero inflation.

Nano has no ongoing inflation. The full distribution of coins has finished some time ago. This gives Nano one very clear strength: it’s consensus economics are not going to change. There’s no danger that the incentives of the Nano network will shift over time as the distribution of coins plays out. The distribution has already finished. The incentives Nano has today are the incentives it will have tomorrow, and next year, and next decade.

I’m not aware of any proof-of-work coin that is currently operating entirely on fees, with no block rewards. When such a system arrives, it will necessarily be experimental. For cautious investors, this is certainly a point worth considering in your allocations.