Decentralized blockchains rely on incentive systems to remain secure and reliable. In order to remain sustainable in both the short term and the long term, Nervos has designed an incentive system that uses two forms of issuance in addition to the funds that were created in the genesis block: Base (or primary) issuance, and secondary issuance.
The value of the CKByte will be low at the launch of the mainnet, which is common and expected in decentralized blockchains. This means that network security will be minimal at first since there are few assets of value on the platform. To make Nervos a safe and appealing platform for asset storage, the security must be temporarily subsidized through a process called Base Issuance.
Base Issuance is comparable to the Bitcoin mining process. Miners are compensated in CKBytes for providing computer resources to execute transactions and safeguard the network. Over time, the assets stored on the network will gain value, necessitating fewer subsidies.
The cost of base issuance is covered for employing a predetermined inflationary schedule. The subsidy amount is halved every four years, eventually terminating when the threshold of 33.6 billion CKBytes is reached. This results in a transparent and predictable monetary policy.
Once Base Issuance has run out, some have speculated that the incentive to miners will not provide adequate security if it is only paid with fees from transactions. Additionally, miners require long-term incentives that are directly aligned with ensuring the data in Nervos is preserved. Secondary Issuance is a process that addresses both of these problems.
Secondary Issuance is applied using a predetermined inflation rate of 1.344 billion CKBytes every year. This sum remains constant. Secondary Issuance, unlike Base Issuance, does not affect everyone on the network. These payments are distributed to miners based on L1 storage utilization, Nervos DAO depositors, and the treasury fund (which is currently being burned until the ecosystem fund in the genesis block is depleted).
Users of the Nervos DAO receive interest payments that are proportionally equal to the inflation of secondary issuance. This means that long-term holders effectively have the same monetary policy as Bitcoin, which is commonly described as a deflationary currency.