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Peercoin

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Peercoin
Peercoin (PPC) Logo
Unit
PluralPPC, Peercoins
SymbolⱣ, PPC‎
NicknamePeercoin, PPCoin, P2PCoin, PPC
Denominations
Subunit
 0.001mPPC (millicoin)
 0.000001μPPC (microcoin)
 0.00000001Smallest unit
Demographics
Date of introduction12 August 2012, 17:57:38 UTC
User(s)International
Issuance
Central bankNone. The Peercoin peer-to-peer network regulates and distributes through consensus in protocol.[1]
Valuation
InflationLimited release rate plus 1% decentralized inflation due to the proof-of-stake system.[1][2]

Peercoin (code: PPC), also known as PPCoin and Peer-to-Peer Coin is the first cryptocurrency based on an implementation of a combined proof-of-stake (PoS)/proof-of-work system (PoW).[1]

Peercoin was created by software developer Sunny King (who later developed the cryptocurrency Primecoin) in August 2012.[1] Peercoin was inspired by Bitcoin, and it shares much of the source code and technical implementation of Bitcoin.[3] The Peercoin source code is distributed under the MIT/X11 software license.[4]

As of 28 December 2013, Peercoin is the 5th largest cryptocurrency according to market capitalization estimates.[5] Unlike Bitcoin, Namecoin, and Litecoin, Peercoin does not have a hard limit on the number of possible coins, but is designed to eventually attain an annual inflation rate of 1 percent. This feature, along with increased energy efficiency, aim to allow for greater long-term scalability.

Transactions

A peer-to-peer network handles Peercoin's transactions, balances and issuance through SHA-256, the proof-of-work scheme (Peercoins are issued when a small enough hash value is found, at which point the block of transactions is added to the shared block chain. The process of finding these hashes and creating blocks is called mining).

Peercoins are currently traded for fiat currencies, bitcoins, and other cryptocurrencies, mostly on online exchanges. Reversible transactions (such as those with credit cards) are not normally used to buy Peercoins as Peercoin transactions are irreversible, so there is the danger of chargebacks. [6]

Addresses

Payments in the Peercoin network are made to addresses, which are based on digital signatures. They are strings of 34 numbers and letters which always begin with the letter P. One can create as many addresses as needed without spending any Peercoins. It is quite common to use one address for one purpose only which makes it easy to see who actually sent the Peercoins.

Confirmations

Transactions are recorded in the Peercoin blockchain (a ledger held by most clients), a new block is added to the blockchain roughly every 10 minutes (whenever a small enough hash value is found for the proof-of-work scheme), a transaction is usually considered complete after 6 blocks, or 60 minutes, though for smaller transactions, less than 6 blocks may be needed for adequate security.

Distinguishing features

Proof-of-stake

Peercoin's major distinguishing feature is that it uses proof-of-stake/proof-of-work hybrid system. The proof-of-stake system was designed to address vulnerabilities that could occur in a pure proof-of-work system. With Bitcoin, for example, there is a risk of attacks resulting from a monopoly on mining share. This is because rewards from mining are programmed to decline exponentially, which may decrease the incentive to mine.[1] As miners decline, the likelihood of a monopoly increases, which leaves the network vulnerable to a 51% attack (a 51% attack is when a single entity possesses over half the mining share, which would allow this entity to double-spend coins). With a proof-of-stake system, new coins are generated based on the holdings of individuals. In other words, someone holding 1% of the currency will generate 1% of all proof-of-stake coin blocks. This has the effect of making a monopoly more costly, and separates the risk of a monopoly from proof-of-work mining shares.[1][7]

The proof-of-stake system also has other effects (listed below).[1]

Proof-of-work

SHA-256. For each 16x increase in the network, the proof-of-work block reward is halved.

Energy efficiency

Peercoin's proof-of-stake system was developed to address the high energy consumption of Bitcoin.[1] For example, as of April 2013 the generation of Bitcoins was using approximately $150,000 USD per day in power consumption costs.[8] The proof-of-stake method of generating coins requires very minimal energy consumption; it only requires the energy to run the client software on a computer, as opposed to running resource-intensive cryptographic hashing functions.[1] During its early stages of growth, Peercoins will be generated by proof-of-work like Bitcoin, however over time proof-of-work will be phased out as proof-of-work difficulty increases and rewards decrease.[1] Proof-of-stake will then become the primary source of coin generation, which will lead to a decrease in energy consumption over time.[1]

Steady inflation

Peercoin is designed so that it will theoretically experience a steady 1% "decentralized" inflation per year, yielding an unlimited number of coins. This is a combined result of the proof-of-stake minting process, and scaling of mining difficulty with popularity.[1] Although Peercoin technically has a cap of 2 billion coins, it is only for consistency checking, and the cap is unlikely to be reached for the foreseeable future. If the cap were to be reached, it could easily be raised, hence for all practical purposes Peercoin can be considered to have inflation of 1% per year, with a limitless money supply.[1]

Deflationary aspect

The Peercoin transaction fee is fixed at 0.01 PPC for every transaction; however, the fee does not go to miner's income, but rather destroyed in order to offset the inflation caused by the proof-of-stake minting process. Therefore, if the network's economic activity and transaction volume grows, it follows that the deflationary aspect will also rise proportionally according to the "network effect". For every 1 unit of PPC created there can be about 100 transactions before it is completely deflated away, this is designed to ensure that there is no overall change in the money supply. The developers hope that if inflation increases, then transaction costs become cheaper which increases the urge to participate in transactions; however, if deflation increases, then transaction costs become more expensive which increases the urge to save more, which in turn produces more "decentralized" inflation.

Transaction fees

Peercoin designed so that variable and optional transaction fees are removed in favor of a protocol defined transaction fee (currently 0.01 PPC).[1] The transaction fee is fixed at the protocol level and does not go to miners but is destroyed instead. This is intended to offset inflation by deflating the money supply and serves to self-regulate transaction volume, and stop network spam. One issue with a protocol defined transaction fee is that it does not evolve with the value of currency units, and requires a hardfork of the protocol to adjust transaction fees.

Money supply

There are 20.7 million Peercoins in existence as of November 19, 2013 and the current inflation created by proof-of-work mining is at about 8%.

The change of Peercoin money supply is determined by:

  1. Proof-of-work mining (increases supply)
  2. Proof-of-work difficulty (higher difficulty decreases reward per block)
  3. Number of transactions (more transactions decrease supply because of the current 0.01 PPC transaction fee)
  4. Proof-of-stake system (increases supply at a rate of up to 1% per year)

Hence:

  1. The more people are mining, the smaller the block reward gets. This is intended to decrease energy consumption in the long term.
  2. The more people are using Peercoin as a currency and exchange them, the more Peercoins will be burned as transaction fees.
  3. The more people are saving Peercoin, the nearer the PoS inflation will be to 1% per year, (approximately compounding every 520 blocks, or about once per month).

If Peercoin grows rapidly, stake minting may temporarily decrease as coin days are lost when trading, this would cause Peercoin to become deflationary. The flat nature of the transaction fees is intended to counter this by decreasing total transaction volume. Proponents of Peercoin argue that this will decrease deflation.

The actual money supply curve is totally dependent on market interest, user adoption, and the Peercoin price. At the current adoption rate, the network is now producing less than 150k Peercoins by proof-of-work per month, and less per month as each month goes by; thus, the math proves it will likely take over 1,000 years to reach 2.1 billion coins, if ever.

Issues/controversies

Centralized check pointing

Peercoin is not truly a completely decentralized currency as it still requires centralized check pointing to avoid several issues.[1] The developer has announced however that this check pointing is only a temporary measure which will be removed once the currency grows sufficiently stable.[1] "As of our v0.2 centrally broadcast checkpointing is no longer a critical part of the protocol. Its main purpose now is to defend the network during the initial growth period and help ensure a smooth upgrade path if critical vulnerability is found. We are confident that central checkpointing can now be gradually weakened and eventually removed to achieve similar decentralization level of Bitcoin as the Peercoin network matures."[1] It is also important to distinguish that even though the checkpoints are centralized, this does not mean the whole network is centralized. Every major and essential aspect of the network such as coin ownership, mining, and minting is fully decentralized and distributed Peer-to-Peer and cannot be shut down.

It is planned to further decentralize Peercoin by gradually removing the checkpoint beginning with software version v.0.5. The current version is v.0.3 (19/11/2013).

The checkpoint system in Peercoin also builds in a consistency check to protect network if the checkpoint key is compromised. This means that the network cannot be arbitrarily shutdown either. The defence mechanism is claimed to be much more effective against a sustained 51% attack and a great asset to help smaller networks.[9]

See also

Wikimedia Commons has media related to PPCoin.

References

  1. ^ a b c d e f g h i j k l m n o p q King, S.; Nadal, S. (2012, August 12). "PPCoin: Peer-to-peer crypto-currency with proof-of-stake" (PDF). peercoin.net. Retrieved 2013-12-23. {{cite web}}: Check date values in: |date= (help)
  2. ^ "Wary of Bitcoin? A guide to some other cryptocurrencies". Wired.co.uk. 2013-05-12.
  3. ^ King, S. (2012). What is ppcoin? Retrieved from https://github.com/ppcoin/ppcoin#what-is-ppcoin
  4. ^ King, S. (2012). PPCoin 0.3.0 BETA. Retrieved from https://github.com/ppcoin/ppcoin/blob/master/doc/README
  5. ^ "Crypto-Currency Market Capitalizations". Retrieved 2013-11-30.
  6. ^ "Bitcoin Isn't the Only Cryptocurrency in Town". MIT Technology Review. 2013-04-15.
  7. ^ "Wary of Bitcoin? A guide to some other cryptocurrencies". Arstechnica. 2013-05-11.
  8. ^ "The Cost of a Bitcoin". TechCrunch. 2013-04-13.
  9. ^ https://bitcointalk.org/index.php?PHPSESSID=mbq67ehf261lp1u8mhggllns34&topic=114994.msg3338547#msg3338547
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