PARALLEL CURRENCY OF SKYCOIN
IntroductionDid you know that there is an incentive to hold Skycoin in your wallet instead of keeping it on an exchange? Each wallet address with a certain amount of Skycoin is automatically awarded with a parallel currency called Coin Hours. These Coin Hours are not only necessary to maintain the zero fee transaction costs of Skycoin, they will also have several other use cases in the future. What these use cases are and how Coin Hours are distributed among Skycoin holders, will be discussed in the following.
DistributionThe distribution of Coin Hours is actually very easy to describe: Each Skycoin in your wallet address provides you with one Coin Hour per hour, meaning one Skycoin produces 24 Coin Hours per day. As an example, if you have a wallet address with 10 Skycoin, this wallet address will receive 240 Coin Hours per day. To put this number into perspective, the current circulating supply of 7.7 million Skycoin produces about 185 million Coin Hours per day. This shows, that Coin Hours are highly inflationary. The circulating supply of Coin Hours as of the time writing this is about 36 billion. You can find the circulating supply of Coin Hours under this link in the section ‘current_coinhour_supply’. Let’s visualize all these numbers:
Fuel for Skycoin transactionsOkay, so everybody holding Skycoin earns a ton of Coin Hours per day, but what are their actual use cases? First and foremost, Coin Hours act as the fuel for transactions in the Skycoin network. Since Skycoin transfers do not require you to pay a percentage of your Skycoin holdings as a fee, you could theoretically execute a vast amount of transfers per second between addresses without paying anything. This would cause a huge backload of transactions in the network, which would increase the execution time of a transaction. Therefore, every time you transfer an amount of Skycoin to another address, a certain percentage of your Coin Hours is used as a transaction fee. As soon as you ran out of Coin Hours, you can’t execute any further transfers, which means that Coin Hours are an important mechanism to prevent spam in the network.
When you transfer Skycoin to another address, 25% of the Coin Hours in your wallet address are transferred with the sent amount of Skycoin to the receiving address. Additionally, 50% of the Coin Hours in your wallet address are burned, meaning neither the sender nor the recipient will receive these Coin Hours, they will be erased from the network instead. The burn ratio of 50% is documented in this file in Skycoin’s GitHub. In general, this means that only 25% of the Coin Hours remain in your wallet address after a transfer. However, if you transfer the whole amount of Skycoin in a wallet address to another address, all your Coin Hours will be gone and the recipient will receive 50% of your Coin Hours instead of 25%. To execute a transfer, you need to have at least 1 Coin Hour in your address.
Purchase bandwidth with Coin HoursAs of right now, Coin Hours can not be transferred independently without transferring Skycoin. However, once this is possible and Skycoin’s decentralized internet Skywire launches, Coin Hours will be used to purchase bandwidth in the network. Paying for bandwidth is important to grow the network, because the motivation to run a node will be much higher, if there is a monetary incentive to node providers. It might be also possible to purchase higher priority bandwidth, if you pay more Coin Hours for your connection than other users.
Buy items in apps with Coin HoursThe Skycoin project aims to launch several apps on top of their underlying technology. The first two apps that were announced and are currently in development are the games KittyCash and Skycoin Poker (name is yet to be determined). These games will probably have in-game items, that can only be purchased with Coin Hours. It is for example rumored, that you can buy food in KittyCash with Coin Hours.
Coin Hours as a currencyParallel to the items in the Skycoin network, that can be exclusively purchased with Coin Hours, it is also imaginable, that Coin Hours could be used as an actual currency to purchase goods. The constant rise of the price of cryptocurrencies compared to the U.S. Dollar is actually a big challenge for cryptocurrencies. Nobody wants to spend a cryptocurrency, if it might have doubled its value a few days later. However, as Coin Hours are highly inflationary, it makes a huge increase in price less probable compared to a currency with a fixed supply. In fact, the price might even decrease, which is a great incentive to spend Coin Hours instead of holding them.
Wrap-upWhat started out as a mechanism to prevent spam in a network with zero transaction fees is now aiming to become much more. As soon as Coin Hours will be transferable independently, a value for them will be determined by the market and they will have more use cases than just to serve as a transaction fee. While the purchase of bandwidth in the Skywire network will be a major use case for Coin Hours, with KittyCash there is already the first app in development, that aims to enable in-app purchases with Coin Hours. The inflationary nature of Coin Hours also tackles the problem, that the majority of crypto enthusiasts don’t want to use their cryptos as a currency to purchase goods, because they might rise in price compared to the U.S. dollar. If there is a high inflation of the currency, the price might decrease, and the incentive is higher to spend it. All in all, there are a lot of possible use cases for Coin Hours in the Skycoin ecosystem and it will be interesting to see, how they will develop in the future.