Thanks for digging into how Koinos works.
- Miners produce blocks in exchange for inflation.
- Miners burn KOIN in exchange for VHP 1:1.
- How much they earn is based on how much VHP they have, but as they receive KOIN rewards, their VHP gets destroyed.
- So there are two components to the miner incentives:
a. The rate at which the VHP of a miner is diminished and
b. The KOIN earned from producing a valid block. - The rate at which VHP is reduced is based on the assumption that 50.1% of the KOIN supply is being burned per year.
- The block reward (which is KOIN) is based on the sum of the total supply of KOIN and VHP times (1+ 0.02). 0.02 is the inflation rate.
- The outcome of these incentives is that if the target burn rate is reached, the miner will receive an APR of 4%.
- However, if the amount of KOIN burned is below the target, miners will automatically earn greater than 4%. If it is above the target, they will earn less.
The actual mechanics of how VHP and the output of a verifiable random function are combined to mimic proof of work are better explained in the whitepaper.
Does that answer your question?