Recently, with the continuous popularity of the Bitcoin Layer2 sector and the continuous rise in the price of Nervos CKB, more and more friends have started paying attention to the "Bytecoin CKB" public account. Many new followers have left messages in the background asking: How much is the total supply of CKB? How much is issued each year? Can I still get on board? How much is it worth this year?
Regarding the economic model of CKB, Bytecoin has previously written two articles, "Talking about the most misunderstood CKB economic model and inflation rate" and "In-depth understanding of Nervos' token economics". Today, based on these articles, we will use more understandable language to introduce in detail the economic model of CKB and its clever design.
Detailed Explanation of CKB Economic Model#
As of February 28, 2024, according to ckbdapps.com statistics, the total supply of CKB is 44.318 billion (this number includes 9.718 billion locked in Nervos DAO):
These CKB mainly come from three sources:
- Genesis Block
- Primary Issuance (Base Issuance)
- Secondary Issuance
In the Genesis Block, a total of 33.6 billion CKB were issued. As a tribute to Satoshi Nakamoto, 8.4 billion CKB were sent to Satoshi Nakamoto's address at the beginning of issuance (this can be considered as a "black hole address" unless Satoshi Nakamoto "resurrects" and retrieves these CKB with the private key).
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The remaining 25.2 billion CKB in the Genesis Block were mainly allocated to institutional investors, ecological funds, development teams, and public investors. These CKB were time-locked but have now been unlocked.
After the birth of the Genesis Block, the issuance of CKB is divided into two parts: primary issuance (base issuance) and secondary issuance.
The total amount of primary issuance is also 33.6 billion CKB, mainly rewarded to miners. The issuance mechanism is similar to Bitcoin, with approximately halving every four years until all are issued. In November last year, CKB experienced its first mining output halving.
The secondary issuance is a fixed annual issuance of 1.344 billion CKB. This part is distributed proportionally to:
- Miners: Proportional to the on-chain state occupation.
- Nervos DAO: Proportional to the proportion of CKB locked in Nervos DAO to the total issuance.
- Treasury: Proportional to the proportion of circulating CKB to the total issuance. Currently, due to the incomplete governance mechanism, this part is directly destroyed.
For example, assuming that 60% of the issued CKB is used for on-chain state occupation and 20% is locked in Nervos DAO, miners will receive approximately 806.4 million CKB in secondary issuance rewards each year, and Nervos DAO depositors will evenly split approximately 268.8 million CKB. The remaining 20%, which is 268.8 million CKB, will be directly destroyed.
According to data from the CKB Explorer, in the current secondary issuance, the CKB rewarded to miners accounts for 11.5%, the CKB rewarded to Nervos DAO depositors accounts for 19.1%, and the destroyed CKB accounts for the majority at 69.5%. Over 4 billion CKB has been destroyed so far.
Clever Aspects of the CKB Economic Model#
In my opinion, the economic model design of CKB has four clever aspects:
1. Continuous protection of CKB by miners through secondary issuance
Many people may wonder: Why does CKB have secondary issuance in addition to primary issuance? Isn't it good to be like Bitcoin?
In Bitcoin, miners' income comes from two parts: block rewards (currently the majority) and transaction fees (miner fees). The block rewards roughly halve every four years until all bitcoins are mined by 2140. Transaction fees mainly depend on on-chain activity.
Let's imagine that after a dozen or decades, Bitcoin's block rewards have halved multiple times and become negligible. Miners can only rely on transaction fees, but Bitcoin's performance is limited, which means there is an upper limit to on-chain activity. Therefore, the price of BTC needs to rise very high to incentivize miners to continue investing in hash power to protect network security. However, a high price of BTC will also limit on-chain activity because high transaction fees will reduce transaction frequency or cause users to switch to Layer2 or other chains for transactions.
The secondary issuance of CKB ensures that even after multiple halvings of mining output, miners will be compensated for permanently protecting the network's security, regardless of the on-chain transaction volume.
2. Restraining the growth of global state and solving the state explosion problem
CKB binds data storage with its native token CKB, which restrains the growth of the global state. CKB tokens represent the right to occupy the global state, where one CKB token equals one byte of space on the blockchain. This means that the state of the blockchain is limited by the supply of CKB tokens, making it a scarce resource.
As of February 28, 2024, the total supply of CKB is approximately 44.3 billion, which means that the maximum storage capacity of the CKB blockchain is about 44.3 GB. After the first halving (November 2023), the inflation rate is approximately 3.444 billion CKB per year (actually lower because the CKB allocated to the treasury is directly destroyed), which means that the size of the CKB blockchain can only expand by about 3.444 GB per year. The halving events every four years in the future will further reduce the growth rate of the state, ultimately achieving an annual increase of 1.344 GB in storage capacity.
The state on CKB is directly owned and controlled by users, and it is essentially privatized. The state is stored in cells similar to Bitcoin's UTXO and is a first-class citizen on the chain. The storage space on CKB is like land, with a limited total size. Users must own and lock CKB to occupy it.
The secondary issuance of CKB is actually a "state rent" imposed on the holders of on-chain state because the secondary issuance continuously incentivizes miners based on the on-chain state occupation. Long-term holders of CKB (who do not store data on-chain) can lock their CKB in NervosDAO to receive a subsidy from the secondary issuance (to avoid dilution caused by the secondary issuance). When "state occupiers" no longer need to use scarce state space, they can destroy the cell occupying that space (state pruning), release the locked CKB, and deposit it into NervosDAO to stop paying state rent.
Therefore, CKB uses targeted inflation to collect rent for the state, solving the common economic mismatch problem of users paying once to permanently occupy on-chain state.
3. Value capture and achieving a flywheel effect
If Bitcoin can be compared to digital gold, then CKB is digital land, where one CKB equals one byte of space on the blockchain.
The land in a city is used for various purposes, such as building schools, parks, shopping malls, office buildings, etc. Once built, this land is temporarily "locked" and cannot be used for trading and circulation. Similarly, CKB is an asset storage network, and as more on-chain ecological projects and more on-chain assets are formed, more CKB will be locked because storing anything on the CKB chain (state, contract information, scripts, etc.) requires occupying on-chain space.
Here are a few examples:
- For a new CKB address, if you want to store CKB in it, you need to deploy relevant information, which requires a minimum of 61 bytes of on-chain space, which means locking 61 CKB on the chain. If it is NervosDAO, it needs to lock 102 CKB because NervosDAO requires more on-chain storage information and a larger cell capacity.
- .bit stores account information on the CKB chain, which also requires occupying a certain amount of on-chain storage space. Therefore, each .bit account will charge a storage deposit of 206 CKB and lock it.
- Assets issued on the CKB chain, whether fungible tokens or NFTs, require occupying on-chain space. For example, the first inscription project based on the Omiga Inscription Protocol, the token MEMES is essentially an xUDT (fungible token) issued on the CKB chain, which requires a cell capacity of 145 bytes, so it needs to lock 145 CKB.
In the foreseeable future, assets issued and contracts deployed based on the RGB++ protocol, NFT assets issued based on the Spore protocol, and other ecological applications on CKB will occupy a large amount of on-chain space and lock a large amount of CKB.
Therefore, the more prosperous the on-chain ecological projects on CKB, the more on-chain assets, the more CKB will be locked, the less CKB will be in circulation, further increasing the scarcity of CKB and achieving a flywheel effect.
4. Providing value support for assets
As mentioned earlier, one CKB equals one byte of space on the blockchain, and occupying space requires locking CKB, which brings value support to many on-chain assets on CKB.
Taking the Spore protocol as an example, it is an NFT protocol where all data is on-chain, providing support for various content types, not limited to offline links, but also supporting images, audio, video, text, and other content types. The amount of CKB that each Spore NFT occupies depends on how much on-chain space is occupied by the stored content (each Spore NFT is a cell, so it depends on the size of the cell).
Suppose we have a Spore NFT named Test that occupies 200 bytes of on-chain space, which locks 200 CKB. Its intrinsic value is 200 CKB, and its price is the intrinsic value plus the brand premium of the NFT. The rise in the price of CKB will also increase the value of the NFT. If the price of Test falls below 200 CKB, arbitrageurs or users can buy a large amount and then melt it down to retrieve the 200 CKB locked by each NFT.
Conclusion#
As a PoW public chain, CKB has a relatively high inflation rate in the first four years, but after the first halving event, the nominal inflation rate has dropped to below 6.2%, and the actual inflation rate (for Nervos DAO depositors) has dropped to below 3.8%.
In addition to primary issuance, CKB also has the original secondary issuance mechanism, which ensures that even after the primary issuance of CKB is completely mined, miners will be compensated for permanently protecting the network's security, regardless of the on-chain transaction volume. Furthermore, by binding data storage with its native token CKB, CKB restrains the growth of the global state and enables CKB to capture value, achieve a flywheel effect, and bring value support to many other on-chain assets on CKB.
If you want to delve deeper into the economic model of CKB, please read the "CKB Economic Model Whitepaper".