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The Peercoin Logo
|Date of introduction||12 August 2012, 17:57:38 UTC|
|Central bank||(Decentralized) None. Peercoin tokens are issued by stakeholders while the currency is regulated by a central authority through checkpointing.|
|Inflation||Limited release rate plus 1% inflation due to the proof-of-stake system.|
Peercoin is based on an August 2012 paper which listed the authors as Scott Nadal and Sunny King. Sunny King, who also created Primecoin, is a pseudonym. Nadal's involvement had diminished by November 2013, leaving King as Peercoin's sole core developer.
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%. There is a deflationary aspect to Peercoin as the transaction fee of 0.01 PPC/kb paid to the network is destroyed. This feature, along with increased energy efficiency, aim to allow for greater long-term scalability.
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.
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.
Transactions are recorded in the Peercoin blockchain (a ledger held by most clients), a new block is added to the blockchain with a targeted time of 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, fewer than 6 blocks may be needed for adequate security.
Creation of New Coins
New coins can be created in two different ways; mining and minting. Mining uses the SHA-256 algorithm to directly secure the network. Minting rewards users in proportion to the coins that they hold (targeted at 1% annually). There are long term plans to reduce gradually the amount of mining and to rely more on minting. This is to create a fair distribution and could lead to an increase in the reward from minting.
Peercoin's major distinguishing feature is that it uses a hybrid proof-of-stake/proof-of-work 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. 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 theoretically double-spend a transaction involving their 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.
The whole network uses the SHA-256 Algorithm. For each 16 times increase in the network, the proof-of-work block reward is halved.
Peercoin's proof-of-stake system was developed to address the high energy consumption of bitcoin. For example, as of April 2013 the generation of bitcoins was using approximately $150,000 USD per day in power consumption costs. 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. During its early stages of growth, most 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 block rewards decrease. As proof-of-stake becomes the primary source of coin generation, energy consumption (relative to market cap) decreases over time. As of January 2014, roughly 90% of new coins being generated are still from proof-of-work and the energy consumption of Peercoin uses roughly 30% of the energy consumption of bitcoin (scaling for market cap - in terms of value secured per GH/s).
Peercoin is designed so that it will theoretically experience a steady 1% 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. 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. This was partially designed to address the growing population.
Peercoin is designed so that variable and optional transaction fees are removed in favor of a protocol defined transaction fee (currently 0.01 PPC/kB). 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.
According to the original paper, Peercoin uses a centrally broadcast checkpoint mechanism. The paper cites Ben Laurie's argument that “Bitcoin has not completely solved the distributed consensus problem as the mechanism for checkpointing is not distributed.” King notes that he attempted to design a distributed alternative, but ultimately concluded that a centralized solution was acceptable until a distributed solution became available.
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Media related to PPCoin at Wikimedia Commons