Understanding the SiaPrime Supply

Update – Q1/2020

The following blog describes the original SCP supply profile based on coin precision of 24 decimals. To address the concerns of traders and cryptocurrency valuation sites, the project changed the presentation of precision in all wallets and contract environments by moving the decimal 3 places. The effect of this change was to decrease the total/circulating coin supply by 1000x; with a long term “ceiling” of approximately 55m instead of 55b. Exchanges followed and the trading value of the coin changed at the same time to reflect the new precision display. Anyone owning the coin had the same percentage of the circulating supply after this supply adjustment and no value was created/lost by the change.

The rest of this blog addresses the notion of utility coin valuation and velocity sinks and is still very much a key factor to long term SCP coin value. Where the blog mentions specific coin numbers, simply reference the above.

Many cryptocurrency-based projects are several years along in development with business models still in the early adoption phase. Because of this, speculators use imperfect information and ideas to correctly value coins, with utility coins presenting the hardest challenge. At SiaPrime, a decentralized cloud storage project based on the Sia protocol, circulating and total supply are often questioned as they are higher than most projects. The SiaPrime total supply as of the date of this article is 16.2 billion, with a long term maximum supply approaching 55 billion coins by the year 2025.

According to Nik Patel, well respected author of the Altcoin Trader’s Handbook , projects with maximum coin supplies over 1 billion should be discarded by traders. One exception, “if a coin has a large market cap and strong fundamentals, such as Siacoin, then I am willing to compromise.” SiaPrime supply is based on the same original block reward as Sia (300,000) declining by the same 1 coin every block. So why are these projects an exception and why so many coins?

Locked Coins and Velocity Sinks

A key benefit in using the Sia protocol to build a cloud storage service is anyone can provide hard drive space without requiring trust or specific configuration. This is accomplished via smart contracts on a blockchain, erasure coding and a P2P network. Only 10 of 30 individual storage providers need to remain available to fully reconstruct stored data, giving the project unprecedented durability in cloud storage. Contrast this with traditional cloud storage where a single datacenter outage can cause data loss on a large scale.

The individual storage provider incentive is rent income from providing hard drive space. This can be anything from racks of server mounted storage to a single Mac with an extra terabyte of hard drive capacity. There is a cost for failing to store the data as providers put up Collateral coins in an amount roughly twice the cost of storage. This is locked in a smart contract and unavailable until contract end, when it is returned upon a final proof the data is still available. Customers buying storage also put up a deposit, called an Allowance. This represents the amount a customer budgets to spend over the contract period for cloud storage. A built-in market mechanism determines best pricing and locks the allowance in the same smart contracts. When a contract ends, this fee is paid to providers.

This is how the product works today, though SiaPrime will add sophisticated fiat billing options for businesses who need not be exposed to coin movements at all.

Big Data

We live in a time with significant forecast data storage growth. As better and less expensive networks arise, businesses and consumers will generate more data as items currently too expensive to store become cost effective. Amazon likely holds hundreds of exabytes (1 billion gigabytes) on millions of servers, with dozens of smaller cloud companies also reaching exabyte scale. It is not uncommon for a single enterprise to store hundreds of petabytes (1 million gigabytes).

Suppose the SiaPrime network reaches 500 petabytes of storage used in the near future. It is difficult to grasp numbers like these, but in 2019 petabytes of data are generated on projects like big budget motion pictures as well as millions of security cameras protecting property. As current big data producers grow, new technologies create new data storage opportunity and this trend shows no sign of slowing anytime soon.

On the SiaPrime early network, current average storage price is ~3300 SCP/TB/Mo. Multiply by three for redundancy and now we’re at 9900 SCP/TB/Mo (based on 1 SCP = 5 Satoshis at the time of this post, roughly $.80). Multiply the target 500PB by storage price (500,000TB x 9900 SCP = 4.95 billion SCP) to get the amount required per month in customer budget (Allowance fees). Typical contracts are 3 months, meaning close to 15 billion SCP locked up just from the customer side!

For Collateral, providers use an average 2x multiplier against their monthly storage price, so 500,000 TB x 6600 SCP = 3.3 billion SCP. Multiply that by a 3 month contract and you get another 10 billion coins locked away and not available for trading. Adding the two together, the amount removed from circulation with these two organic velocity sinks is nearly double the total coin supply at the end of 2018.

In practice, as speculators understand how supply is impacted by product use, coin value will rise and providers will drop SCP pricing in response, which will keep the supply from running out. It is this natural coin scarcity that demands a large number of coins to service a potentially global storage market. Most pure utility tokens do not have natural velocity sinks, making them fundamentally bad investments for anything but short term speculation. In the case of SiaPrime, fundamentals fully support the price discovery process.