TAO Token Economy Explained
In January 2021, the first Bittensor protocol miners and validators were turned on, and the network came to life. Bittensor’s currency (TAO) is a utility token designed to incentivize the production of machine intelligence. Thus, the team elected to have a fair launch — that is, no pre-mined tokens or ICOs, ensuring each TAO reflected real machine learning work. Just as Bitcoin introduced a decentralized currency free from centralized control, Bittensor promises a future of unbiased, anti-corporate intelligence.
How are TAO tokens created?
New TAO tokens are produced through mining and validating. Bittensor rewards miners, who offer intelligence with specific hardware and/or novel neural networks, and validators, who ensure miners follow consensus rules. Each block grants a 1 TAO reward, shared equally between miners and validators.
The Bittensor protocol is designed in such a way that new tokens are created at a fixed rate. Currently, 7,200 TAO are created on a daily basis (at the first halving, this will decrease to 3,600 TAO per day). This makes Bittensor mining a very competitive process. When more miners join the network, it becomes increasingly difficult to profit and miners must seek ways to reduce their operating costs.
TAO tokens are created at a decreasing and predictable rate. The number of new TAO created each year is automatically halved over time until issuance halts completely with a total of 21 million TAO in existence. At this point, miners will likely be supported exclusively by direct payments for specific tasks.
Why does TAO have value?
Each TAO token can be tied directly to a piece of intelligence that was contributed to the network by a miner, and verified by a validator. As the Bittensor network continues to grow and expand, the work contributed by miners will become increasingly complex. This work will take the shape of numerous decentralized commodity markets, all situated under a unified token system. By holding TAO, individuals and institutions will have access to an inter-connected web of digital resources, ultimately culminating in the production of intelligence.
What determines the price of TAO?
The price of TAO is determined by supply and demand. When demand for TAO increases, the price increases, and when demand falls, the price falls. Demand can come in many forms — to be a validator, one must first acquire TAO, miners must pay registration fees in TAO, any individuals who want a vote on the way intelligence is aligned, etc. There is only a limited number of TAO in circulation and new TAO are created at a predictable and decreasing rate, which means that demand must follow this level of inflation to keep the price stable. Because Bittensor is still a relatively small market compared to what it could be, it does not take significant amounts of money to move the market price up or down, and thus the price of TAO is still very volatile.
Why should I delegate my TAO?
By delegating your TAO to a validator, you can earn staking rewards. Validators distribute 82% of their rewards to delegates in the form of TAO. By staking to a validator, you are supporting an entity building on the network (i.e., TAO Stats). Since validators earn rewards as a percentage of the stake attached to them, the more stake they attract, the more they are able to fund their activities through the network.
Why are Bittensor’s tokenomics so simple?
Bittensor has not allocated any tokens to anyone except those who have earned TAO through participation the network. No VC, insider, advisor, etc. has ever been allocated tokens that were not earned on the network. If a VC wants to build a position in Bittensor, they must either purchase tokens on the market, or learn how to mine / validate.
This will never change. Satoshi understood that the centralization of power over money inevitably creates corruption — this is the reason Bitcoin aims to decentralize finance. We share the same ethos, and believe AI must not be owned by the few for the same, and exponentially more dangerous, threat.
