Tucked away on page 5 of the Creditcoin (CTC) whitepaper is a small, rather nondescript detail that is easy to miss. Yet, it would certainly be a mistake to do so.
In fact, it is one of Creditcoin’s unique features which sets it apart from other blockchain projects. The statement in question:
“Each announcement to the Creditcoin network has Creditcoin as a transaction fee. Fees are locked on the network for roughly a year and then get returned to the user.”
The first half of that sentence is hardly unique; yet the second, well that should really invite a second glance. Instead of CTC being a single-use utility token, in other words, something like Filecoin, Siacoin, or even the Ethereum you use to pay gas fees, any CTC you buy can be used by you for ever. Buying CTC represents buying a permanent right to use the network. It is like a one-time subscription fee for a service that renews every year.
Any company which wishes to use Ethereum is constrained by future volatility and uncertainty. The fact that gas prices can vary dramatically generates uncertainty and risk for businesses seeking to use Ethereum. What is economical for a business at a gas price of X, might fail to be if the price hits Y.
This is especially risky when highly variable transaction fees are involved. Even stockpiling a utility token at price X might not offset the cost of higher transaction fees at point Y anyway. Using the CTC model instead, companies simply need to know the price at X to make future investment decisions, thus simplifying the process and protecting them from unknown future market conditions.
Furthermore, the permanent network rights CTC provides can always be traded in future. That means, unlike Gas fees or other utility tokens, users may use the network, and then sell the tokens in future if their trading/market conditions change.
To use a fun analogy on how this works...
Imagine you could buy a ‘food license’ (CTC) to your favourite burger chain (CTC network) granting you one burger-milkshake-and-chips meal (a transaction on the network) every year forever. Indeed, you can buy any number of these food licenses. Say I love burgers, milkshakes and chips so much that I know I could eat one every week for the rest of the year, and for every year after that. Well I simply have to look at the current license price, then multiply that by 52 for every week of the year (or 365, who am I kidding?), and hey presto, I’ve worked out my costs for having essentially unlimited burgers for life (desired CTC transaction capacity).
If the future supply of burgers starts running out, and prices go up, well it won’t affect me, I’ve got my license already. Say I don’t even like burgers in five years, then I can just sell my license, potentially for a profit even. The only downside? Heart disease maybe.
Jokes aside, we feel this will solve some of the issues surrounding the commercial adoption of blockchain technologies. Gaining a permanent right of network access incentivises users to be invested in the platform and its success. As already noted, entities who wish to use the CTC network over several years can make investment decision regarding their costs and usage against CTC’s current pricing, rather than needing to speculate over its potential future cost.
If the company intends to tender around 5 million loans in a year, then based on the fixed rate of 0.01 CTC a transaction, it can purchase 50,000 CTC knowing the investment will secure them that number of transactions per year for ever. Entities making purchasing decisions are less dependent on future market conditions. Note this is only possible because the token is reusable, and because the transaction fee is currently fixed.
Yet no system is perfect. Whilst this model may reduce uncertainty, it also involves trade-offs, for example, short-term flexibility. These issues, and some of their potential solutions, will be discussed in the following article.