Explaining The Musiconomy For Traders and Investors

MusiconomyIt’s fairly safe to assume the biggest concern for new entrants here is money supply. Let’s talk about the Musiconomy of Musicoin, and the usage of the coin so we can better understand the lack of a cap. The coin is called $MUSIC, because it is designed for music consumption. The consumption model is based on a logic called “Pay Per Play”, which means the minimum supply of the coin should be one to match how many songs could be played. Last year alone, over 5 trillion (5,000,000,000,000) songs were played online. This means that if we assume a rate of $.01 per $MUSIC, the market calls for 50 BILLION USD worth of $MUSIC in order to sustain itself for a year.

Of course, that number is unreasonable when you consider that the price of the coin is going to be constantly fluctuating in either direction, so we’ve given the control to the artists in regards to how they will price a play of a song. Artists will be able to set prices as low as eight decimals, meaning they could charge .00000001 $MUSIC per play if we had some apocalyptic explosion in value. Listeners will be helping to stabilize the value of the currency as well, because if a song is priced too high, they simply will not pay to listen to it. Forcing the musician to lower their price will drive deflation.

So, what does this all mean for you? Simple. We don’t have huge demand yet. The coin is listed on exchanges, sure, but the price you see now is inflation due to the interest of speculators, not any actual consumption. Not only do we not have demand, but we don’t have enough supply currently to match the potential demand when the platform does launch for final release. We’re WAY below target. It would take us literally 10,000 years to reach target if we really wanted to have 5,000,000,000,000 $MUSIC in circulation, which would then be roughly equal to $.01/$MUSIC, or 1 $MUSIC/play for an artist.

Musiconomy – Supply And Demand

Seriously, though, if you’re really an investor, then you should care A LOT more about demand, and figuring out how to predict what that will be. Supply is easy – we’ve hard-coded it for you. Sure, it’s increasing, but the rate of inflation is decreasing. In the short term, the inflation rate is high to match expected growing demand. In the long term, the rate of inflation will slow as demand levels off. That’s the plan.

What about after that, you ask? Sure, let’s look at the really long term. In 100 years, we will have 3,000 * 21M coins, which is 3,000 the number of Bitcoins. The price of Bitcoin is currently just over $1,000 US. Therefore (if you only care about supply) the price of Musicoin could be estimated as $1,000/3000 ~= $0.33, in today’s dollars. Is that analysis absolute nonsense? Yes! Why? Because it fails to consider the success (or failure) of the platform, changing habits, adoption rate, competition, and how Musicoin reacts to all of them.

A Few More Points From Musicoin co-founder Dan Phifer:

  • Dan Phifer

    Dan Phifer’s Visage

    The magnitude of the number of coins created per block is entirely irrelevant to anyone who invests in the coin. 5 coins per block or 5 million, it doesn’t matter. Not even a little. You can argue about the pros and cons of a constant block reward, but arguing that a constant reward of 5 coins is ok, whereas 5M is “too high” doesn’t make any sense. It’s only a question of units. 100 cents is not any bigger than 1 dollar, even though 100 is 100 times bigger than 1. This one is easy to remember; you can just think of it as the “size doesn’t matter” rule.

  • So, if size doesn’t matter, why would we choose a “high” block reward? Well, first of all, we had to pick something. But instead of going with the defaults, or using a random number generator, we considered the primary purpose of our blockchain (to support pay-per-play) and decided that the most reasonable choice would be to pick a number that might work out to be about 1MC per play, under the assumption that the value of a play is somewhere between 0.1 cents and 2 cents for a standard 3 min piece of music. No, we can’t control the value, nor would we want to. However, as is often the case — just because there is no “right” answer, doesn’t mean all answers are equally good.
  • A cap on total supply leads to a deflationary model unless demand is fixed or declining. There’s no wiggle room there. And, you would be hard pressed to find any economist that would prefer deflation over inflation. Seriously. Deflation is the kryptonite of the economic world. It encourages people to hold money under the assumption that it will be more valuable tomorrow than it is today, which causes prices to fall, which confirms beliefs that prices are falling, and causes people to hold money…it’s called a deflationary spiral.
  • Much of the crypto community has, in my opinion, ironically failed to grasp the real potential of digital currency. People are obsessed with the idea that the value of a coin must increase in order for it to be worthwhile. This is a counterproductive assumption and is detached from reality. If you want the digital economy to succeed and expand, think price stability. Betting on the increase or decrease in value of a new alt-coin is closer to gambling than investing.
  • The goal of the Musicoin blockchain is to create a stable and spendable currency to strengthen the Musiconomy. The blockchain and currency are the foundation upon which value creation can happen, not the source of it. I encourage everyone to “think big” about what a stable and spendable digital currency could do for music and for many other parts of the world economy in the future. Stop thinking about how many crypto-geeks will drool over some new alt-coin or how you could get rich quick if you just buy the right coin before the pump, and start thinking about how to get the other 99.999% of the world using digital currency. Find ways to invest in the projects and companies that are well-positioned to take advantage of this when digital currency becomes mainstream (it isn’t even close).

NOTE: We often implement changes based on community feedback, so grab a cheeseburger and come to our Slack Channel to be part of the conversation.

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