Interest rates, dividends, mining , investments

If you've heard about cryptocurrency you will have heard about Bitcoin and that new coins are generated by mining. There are, however, over 1000 cryptocurrencies registered on sites like coinmarketcap and these have different features. Some of these currencies still only use their newly mined coins to pay miners but others try to encourage investments or support projects through a variety of different means.

The new coins generated with mining are sometimes called the coinbase and sometimes they are referred to as the miners' fee but these two terms may not always mean the same thing.

The Smileycoin

The Smileycoin is one part of three in an educational project. The second part is the tutor-web which is a free on-line resource providing educational content and drills, where each student can earn SMLY by working towards high grades. Since the SMLY is not intended for immense short-term profits, but more for fun, replacing the usual smiley in a student's homework, it also deliberately has a non-serious logo. The third part is a non-profit project/organisation, Education in a Suitcase, which is devoted to bringing the first two to low-income regions in the world.

The Smileycoin started out like many other cryptocurrencies. It was based on Litecoin and developed primarily to work within the tutor-web with the coinbase just being used as mining rewards.

After Bitcoin prices soared in early 2017, mining for SMLY became quite profitable, which in turn led to large mining pools turning to and from SMLY, leading to huge fluctuations in difficulty. This state of affairs was unacceptable and led to several changes in the Smileycoin, the largest two being (1) the coinbase being used not solely for mining, but also for donations and dividends and (2) the mining algorithms being completely revamped.

The Smileycoin approach to dividends

A recent change to the Smileycoin (SMLY) was to make sure that each mined block also contains instructions to pay dividends to addresses containing at least 25 M SMLY. The way this is done is to maintain a list of the number of SMLY associated with each address. The "rich list" consists of those addresses containing at least 25 million SMLY. At the time of this writing, the list list consists of 107 addresses. This list is ordered according to when each address last got a deposit or a withdrawal. The oldest of such addresses gets the entire dividend payment for the next block.

Having received a dividend payment, the recipient address automatically becomes the newest or "most recently changed" address on the rich list, so it moves to the end of the list.

In conclusion, the Smileycoin is an example of an altcoin which has a purpose and is being redesigned both to reward investors with formal dividends and to contribute to two great projects, the tutor-web and Education in a Suitcase.

Some numbers

The coinbase is 10,000 SMLY, i.e. this is the number of new coins minted with each new block. Of these, 1000 go to the miner, 4500 for dividends and 4500 for donations. In each block, the donation goes to one of 10 addresses under the control of Education in a Suitcase.

Consider 96 holding addresses, to pick a number which rounds nicely. Block are intended to be generated one every 3 minutes or 480 every 24 hours. These holding addresses take turns in having the oldest UTXO, receiving the interest and becoming youngest. With these numbers, each would receive the interest of 4,500 SMLY 5 times daily or 22,500 SMLY/day, giving 8.2 M SMLY per year or a 32% interest rate if each address starts at 25 M SMLY. Naturally, doubling the number of addresses, to the maximum current potential, halves the interest rate.

Once all 50 bn SMLY have been mined or rewarded to students and this gives the upper bound on the potential number of rich addresses, namely 2,000. Under current strategies, this will not be achieved for decades.

It must be emphasised that these payments are not an ordinary interest rate: The amount to be paid to the next address is fixed, 4500 SMLY, and not a percentage of the amount associated with the address.

At the time of this writing, 25 M SMLY can be bought for about 8 LTC at novaexchange, or about 0.1 BTC. The price is quite volatile and a longer-term average price is 0.25 BTC for 25 M SMLY. It is seen, however, that within the current setup, a user can obtain roughly 30% interest in SMLY, for an investment of about $350.

As with all SMLY changes, the dividend payments were announced and discussed on the SMLY bitcointalk page, starting in March 2017. From the announcement, the number of rich addresses has gone up from 54 in March, 2017 to the current 107 in August, 2017.

Some additional comments

All investments are uncertain and all investments in cryptocoins are highly uncertain, particularly the volatile altcoins. However, through the tutor-web and Education in a Suitcase, the SMLY is a part of a many large research projects, whose development is supported by a large number of different research grants. The Smileycoin is therefore here to stay, volatility or not.

It is in the interest of the owners of the rich list to make sure that blocks get generated at the correct speed. The hope is that many of these holders will participate in mining, but a holder does not need to do so. Some of the implemented algorithms are well suited to CPU or GPU mining, whereas others are better suited for ASICS. Conversely, a miner may potentially considerably increase their income by also holding at least 25 M SMLY in an address, but a miner does not need to do so.

Usual caveat

Don't get me wrong: If you buy SMLY then you are taking a risk. You may lose your money in quite a few different ways. An exchange may go bust. The project may go bust. But if things go the way we want, your SMLY wallet will be paid dividends. And along the way you will have contributed to a really great project. Isn't that what life is all about?

Finally, regarding objectivity: I am heavily involved in the Smileycoin, the tutor-web and Education in a Suitcase.