As a staunch advocate of the Austrian School, I have a long track record of denouncing inflation in all it’s various manifestations. I truly believe that when the money supply is inflated through mechanisms like fractional reserve banking, you ultimately get distortions in the structure of production; there’s just no way around it. Thus, it would be outrageous for me to support a currency that has built-in unlimited inflation, right?
Well… obviously I’m writing this article, so the answer to that question is probably going to surprise you. Before we get into Navcoin, I’m going to discuss a bit about the Austrian stance on inflation and propose some hypothetical situations.
Let’s say we have a system where every single bank account in existence inflates at the same arbitrary rate over time, like 5% a year. In such a situation, does inflation matter?
According to Austrian theory, I would argue that the answer to that question is NO. This is because Austrian theory only describes inflation as being bad when it distorts the structure of production. For a great primer on this, see this video by Prof. Rodger Garrison where he covers this subject in great detail.
If all accounts inflate equally, then there can be no distortion in the structure of production. In our scenario, money is not being pumped through credit markets, rather it’s being evenly added to all accounts. What makes fractional reserve banking so bad is that those who get the new money first get the most benefit. This principle is also why counterfeiting is so destructive.
Consider that if everyone was given 5% annual growth of their bank accounts and wages under a 100% reserve system, then all loans would automatically calculate that into the known future value of money. There would be no distortion in the structure of production because no one group of people would get access to the new money first, and everyone would know ahead of time what the growth of the money supply would be.
The supply curve of loanable funds would shift rightward, but this would be associated with a corresponding increase in global savings accounts, and a corresponding decrease in value that exactly offsets the rightward supply shift of the loanable funds market. It’s a net neutral effect. This situation is only possible with cryptocurrency accounts. It wasn’t even feasible to contemplate such a scenario prior to the invention of cryptocurrency.
Further, consider that under a 100% reserve gold standard, there is also no theoretical limit to inflation. As more gold is mined, more money is added to the system. Also consider that, under a gold standard, deflationary pressures will drive the price of gold up, which will further divert resources into needlessly mining ever more gold. We don’t need more gold, but that’s what we will get under a gold standard – ever more gold that will do nothing but sit as bricks in bank vaults for accounting purposes.
This same issue arises with all other “proof of work” cryptocurrencies, such as Bitcoin. As the value of bitcoin goes up, the incentive to “mine” the coins also goes up proportionately. At first glance this sounds like a good thing, but the problem is that this ultimately causes a mining arms race.
The resources necessary to mine bitcoins are nearly as outrageous as the resources required to mine real gold! To quote Futurism, “According to a research conducted by a U.K.-based energy comparison tariff service called PowerCompare, the average electricity used to mine bitcoin this year has surpassed the annual energy usage of some 159 countries.” In my opinion, this is an exorbitant and needless amount of power to run what ultimately amounts to a simple accounting system. There has got to be a better way.
Navcoin uses a proof of stake model that requires orders of magnitude less power to operate than a proof of work model. Under a proof of stake model, the more coins a person has, the more mining power they hold, but only if they hold the coins in a full node wallet. Thus, a suitable reward (4% annual on balance) must be offered to all holders of Navcoin that encourages them to hold their coins in a full node wallet client.
If they hold their coins in a web wallet or a lightweight wallet that doesn’t run a full node, they don’t get the benefit of the 4% inflation, and the network loses out on their transaction processing power. This fundamental reward system is what encourages all Navcoin holders to keep their currency in a full node client which further ensures the network’s integrity and speedy processing of transactions.
Since it can be assumed that the vast majority of people will want to keep their Navcoin in a full node wallet that offers the benefits of inflation, the inflation that’s hard coded into the system really doesn’t impact the structure of production much at all. In my opinion, the benefits of such an inflationary system outweigh the negatives. Further, anyone who advocates for a gold standard has no room to argue since a gold standard is just as inflationary and a thousand times more wasteful.
I’ve seen other coins that operate in almost exactly the same way Navcoin does, but using a proof of work model instead of proof of stake, claiming that proof of stake benefits people with large holdings more than those with small holdings. This claim is provably false with grade school math. It should be obvious that increasing a small holding by an equal percentage as a large holding yields exactly same disparity in purchasing power. I wouldn’t hold a coin where the developers promoting it are so stupid that they can’t even understand that concept *cough* Verge *cough*.
Besides using orders of magnitude less power to operate, Navcoin also offers built in private transactions that are encrypted with proven RSA cryptography. RSA cryptography has been around for decades and has proven itself to be effective against every known attack. Other privacy coins on the market are using much less proven methods of obfuscation. The cryptocurrency Monero actually suffered a critical attack because of its unproven cryptographic method that ended up exposing all transactions on the blockchain before a fix was implemented.
I believe that in 2018 people will begin migrating toward more privacy oriented coins. The more the state regulates and cracks down on cryptocurrencies, the more people will be incentivized to use privacy coins just out of a fear of making a general accounting error. Coins must be fungible for a currency to be of any value. Bitcoin is perhaps one of the least fungible of all the coins on the market right now.
Another advantage of the Navcoin proof of stake system is that transaction fees are extremely low and transaction confirmation times are extremely fast, which makes micropayments with Navcoin feasible. I believe this is also something necessary for a currency to be viable. Bitcoin has lost 50% of its market share recently almost entirely due to its outrageous transaction fees and processing times. Bitcoin, in its present state, cannot be used for micropayments.
Navcoin is built upon the latest branch of Bitcoin, so all the new sidechain improvements that are coming to the Bitcoin network will automatically be adopted by the Navcoin network. Further, the Navcoin network has been around for quite a while now and has proven itself to be resilient and effective. Projects that are in the works include Polymorph technology, cold staking and the possibility of Smart Contracts and Dapps.
The current privacy coin competitors are all running proof of work models and using cryptographic methods that haven’t been time tested. This leaves NAV with lower transaction fees, faster transaction times, no worries about block rewards running out causing a spike in fees or a decline in mining, and a more proven method of obfuscation. In my opinion, NAV is simply better than all of them. Based on the fundamental features of NAV, I think the coin is grossly undervalued at the present moment.
So let’s summarize the differences between NAV and Bitcoin:
- No special equipment is needed to mine NAV, all holders can earn 5% (soon to be 4%) simply by keeping their NAV in a full node wallet, rather than having to invest in mining hardware.
- NAV doesn’t have a max coin cap like BTC does; however, due to the way transactions are validated, it will never have a problem having to pay miners huge transaction fees to make up for the eventual lack of reward coins.
- The fixed growth of NAV is evenly distributed between all full node wallets, rather than hardware miners as in the BTC network, with the exception of 1% that will be diverted to a community development fund (this was voted on, due to no pre-mining taking place). This will not lead to distortions in NAV lending market rates or boom-bust cycles.
- The NAV network requires orders of magnitude less power to operate compared to all other proof of work coins.
- NAV is perfectly suited to handle micropayments right now, which is something Bitcoin cannot do, at least in its present incarnation.
- NAV can handle well over a thousand transactions per second right now, which again is orders of magnitude more than BTC can do.
- NAV has a built-in optional means of sending private payments, which BTC does not have.
- NAV payment systems will allow instant private anonymous payment exchange between all cryptocurrencies using NAV as a go-between.
- NAV will gain benefits from all the same sidechain improvements that are coming to BTC.
I’m not aware of any coin out there right now that can claim all of these features. Navcoin solves pretty much every complaint or concern I have about Bitcoin. I’m a firm believer that NAV will come to be a dominant player in the cryptomarkets as we progress into the future.
Navcoin’s Chief Engineer, Craig MacGregor, provides us with an interview here to learn more about the coin and their plans for the future:
Full disclosure: I hold Navcoin, so take my arguments worth a grain of salt. Do your own research and I bet you come to the same conclusions I did. This is not financial advice.