How the Nervos CKByte Gets its Value
By: Nervos Network
Tags: Blockchain, Editorials And Comments, Cryptocurrency, Token, Tokenization

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What do we mean when we talk about a token’s value?

This is a core question for any decentralized project, and it’s one we’ve thought carefully about in designing the CKByte as the protocol token of the Nervos Network.

Ultimately, we believe a token’s value is derived from its core function or utility. Sometimes this function exists within a single dApp or service. Tokens matching this description can be thought of as single platform tokens, that allow — and are required — for users to perform certain actions within a dApp. Tokens can also function at a network level, integrated into a protocol. These are native or protocol tokens, like the CKByte. To determine how a protocol token like the CKByte derives its value, we need to first think about the goals of the Nervos Network. In a well designed network, there is one goal or a single set of consistent goals.

The foundational goal of Nervos Common Knowledge Base (CKB) is to store value over time.

This relies on different types of participants — holders of CKBytes, people storing data in CKBytes, miners of CKBytes — to perform their roles in order for the whole to function effectively and achieve this goal. Profitable actions on the part of any of these participants make the network better at storing value over time. If the native token is well designed, the more people that participate in the store of value, the better the network will become.

A network’s native token also needs to provide the correct incentives for all participants, encouraging them to act in a way that furthers the overall goal or goals of the network. An effective incentive structure is one where, if each participant acts in their own best interest, they are by definition also acting in the best interest of the network. Further, if someone acts in the best interest of the network, they benefit. This is the essence of good token design.

If the foundational goal of Nervos is to be a good store of value, the native asset — CKByte — must possess enough value to effectively store the assets that are on the network, even as the number and value of those assets grows over time. You might store toys in a cardboard box, but valuables like jewelry need something more secure, like a safe. In the same way, Nervos must be able to securely store assets of the highest value over time. So in a real sense, the CKByte token is a representation of the value of storage itself.

CKBytes as a medium of exchange

CKBytes also have value as a medium of exchange. People exchanging currency are not concerned with the value it stores per se — a shopkeeper isn’t directly concerned with the value of all the assets that are held in dollars or euros, for instance. What matters is that the currency be used reliably, in exchange for goods. As money, an asset can only really succeed if people are willing to accept it as having value. And to achieve this, the currency must have four characteristics: censorship resistance, decentralization, sustainability, and high security.

The CKByte possesses all four characteristics. As Nervos CKB gains adoption and hosts more user-defined tokens, its security will increase in tandem. It is censorship-resistant as a Proof-of-Work blockchain. It is decentralized as a public, permissionless chain that anyone can join or leave, and that anyone can mine. And it’s sustainable because it doesn’t rely exclusively on block rewards to compensate participants.

Custom tokens and token security

The native CKByte token must always have enough value to store all of the custom tokens on the network securely. This is achieved through an innovative token economics model, intended to solve problems, like state bloat, that threaten other blockchains. If a developer creates a new token on Nervos that people acquire, those people must store the token using CKBytes. So any time demand for a custom token arises, demand for the native CKByte token should increase as well as a result of this storage requirement. This in turn increases the security of all storage on the network, resulting in a self-sustaining cycle.

Value driven by adoption

CKBytes ultimately derive value from two sources: their essential function supporting the activity of the Nervos Network, and through the value people place in it as a trustworthy unit of exchange. While the first exists ab initio, the second must emerge from adoption on the part of developers and users. Because all aspects of the Nervos Network and CKB are designed to be mutually beneficial, well-aligned, and self-strengthening, the first value source drives the second.

Now that CKB mainnet is live, CKBytes can bring their value to bear in the decentralized economy.