PIVX Review: Is PIVX the master of them all?

DAO, PoS, Masternodes, privacy, zDEX, and more

PIVX seems to be a compilation of all the best aspects of current platforms and currencies. The project touts freedom, decentralization, and privacy above all else. It has been a pioneer in multiple aspects of crypto currency networks. What is PIVX? Why is it not one of the top coins today? Will it ever be?

Overview

PIVX stands for Private Instant Verified Transactions. The project is mainly a cryptocurrency but is also linked to a zDEX (private decentralized exchange) platform. The goal of the project is to have a globally accepted decentralized online digital currency based on the principles outlined in the PIVX Manifesto. The manifesto is as follows:

“PRIVACY in non-negotiable,

FREEDOM is everything, TECHNOLOGY is advancing, GOVERNANCE must also, Privacy ALLOWS the freedom to share what you wish with EVERYONE, but also the freedom to RESTRICT who sees your information, We believe this is each person’s CHOICE, GOVERNANCE is used to further objectives and FUND development, The DAOs are untouchable. Join us WHEN you like, WHY you like, and, for AS LONG as you like. Let’s explore ALL the options TOGETHER. You are IMPORTANT to US, It’s TIME we harnessed your FULL potential.”

Origin Story

As it is with many crypto currencies, it all started with Bitcoin. PIVX took the core principles of Bitcoin, added the masternode system, InstaSend, and DAO governance from Dash, added the Zerocoin privacy protocol, and highly customized all these features for inclusion in the platform. PIVX created it’s own PoS consensus algorithm that even allows for private staking of zPIV. This was combined with a dynamically calibrated coin supply and and other PIVX exclusive features to create the PIVX cryptocurrency as we know it. The official chain of forks is as follows: PIVX is a fork of Dash which is a fork of Litecoin which is a fork of Bitcoin. There are also some loose connections to Zcash.

There were a few early occurrences of note that should be addressed as well and have brought us to where we are today. When the network started, 60,000 PIV were created to facilitate the creation of 6 Masternodes in order to allow the network to function properly. 60,000 PIV were later burned (permanently eliminated) in block #279917 thus negating the “arbitrary” initial coin creation. Another alteration is that there was a brief time period when a PoW system was in use temporarily. There was also a brief use of CoinJoin privacy mechanics as well before implementing the Zerocoin protocol. The final change of note was that originally, staking rewards were allocated through a “seesaw” mechanic that dynamically distributed rewards between stakers and masternodes. This has been phased out as well.

The Mission

The mission of PIVX is to create and sustain a competitive and well functioning digital currency. The non negotiables include heavy decentralization, fast transactions, low cost transactions, privacy, and long term planning. PIVX does this through a dynamically determined coin supply, a decentralized blockchain network, a custom Proof of Stake consensus algorithm, a masternode network, a Decentralized Autonomous Organization governance system, the Zerocoin privacy protocol, a private Decentralized EXchange, and community driven long term planning for the improvement and expansion of the project.

Coin Supply

The coin supply in PIVX is not a fixed amount. This is the first aspect that sticks out as a differentiator from Bitcoin and other fixed supply coins. This decision was not taken lightly. After much consideration, the team believed that a slightly inflationary model of sorts would be best for the long term success of the currency. The rough rate of inflation in theory is around 4% but we’ll soon see why this is not necessarily the way it works out in practice. The initial worry for many is that the inflationary nature of a currency lowers the purchasing power, and thus the value, of said currency over time. While this is true, the dynamic model of PIVX mitigates and controls this inflation in a way that should relieve these worries for holders and in fact increase confidence in the currency.

The way PIVX achieves this mitigation is by burning transaction fees and distributing inflation to users. Transaction fees are burned (permanently eliminated) which offsets the equivalent amount of inflation due to new coins. Obviously, when transaction volumes are high, the burn rate is also high therefore putting increasing deflationary pressure on PIVX as adoption and usage increase. This encourages usage, as the more it is transacted, the greater the deflationary pressure, and this increases liquidity through increased transaction volumes. Burning transaction fees also means that network participants are rewarded strictly through the issuance of new coins. This keeps fees minimal and separate from profits. Another aspect we’ll mention more on later is that unspent treasury funds are burned as well.

The distribution of new coins (the dreaded inflation) is actually implemented in a manner that negates the majority of the loss of value it causes. These new coins are sent out mostly to network participants who are staking on the network and so much of the new supply will be given to those affected most by the loss of value associated with the inflation. Some are sent to the treasury and some to masternodes as well so this isn’t a 100% value swap, but stakers receive about half of the new coins distributed.

For an overly simplified example, Bob is staking 100 PIV over a period of time when new coins are distributed for rewards. Technically, due to the increased supply through newly created PIV, his 100 PIV are now only worth what 97 PIV was worth when he began staking. This means that the currency decreased 3% in value, or had a 3% inflation rate. This isn’t horrible but isn’t ideal either. Over a long period of time, his PIV would become increasingly worthless at this rate. On the flip side, Bob has received 3 PIV as a staking reward for his participation in the network. This increases Bob’s total value by the same 3% he lost through inflation so although each PIV he owns has decreased in value by 3%, he now owns 3% more total PIV thus negating the loss.

The burn rate is such that at high volumes of transactions, PIV should have a neutral stance whereas at low volumes, it will typically be inflationary. This does not take into account other factors however such as the burning of unused treasury funds. Also, if adoption increases by a rate greater than that of inflation, this will have an additionally deflationary effect. Simply put, let’s say there are 100 PIV in existence with 100 individuals participating in the network. If the currency experienced an inflation rate of 5% but 500 more people also joined the network over this period, then the increased rarity from 600 people all wanting a piece of the 100 PIV supply would increase it’s value much more than the measly 5% inflation decreased the value.

All in all, the inflationary nature of PIVX is a prudent and practical one. Those most effected by inflation are those holding large amounts of PIV. These individuals make up the majority of stakers and therefore receive the majority of the newly created and distributed coins. Therefore, those affected most by inflation have the effects negated the most through distribution. Those who hold small amounts and transact frequently will not receive many of these new coins but will also not be very effected by small, long term inflation. Also, due to the deflationary pressures by burning and adoption, PIV could feasibly have a neutral status or even a deflationary status for periods of time.

PoS Economics

Proof of Stake vs Proof of Work is a contentious debate that will not be addressed here in detail. Nor will the intricacies of how a PoS system works. We will however take a broad look at the PIVX PoS model. The PIVX PoS consesus model is another major differentiator from many other competing cryptocurrencies. The ones who came before… Bitcoin, Litecoin, and Dash all have PoW models. Most of the top privacy coins use PoW as well such as Monero, Zcash, and Verge. The use of the PIVX PoS model allows for faster transactions, more efficient processing, and greater decentralization.

At it’s core, PoS allows for any individual with PIV or zPIV to “stake” their coins and participate in running the network. This staking locks up the staked funds within a digital wallet and in exchange allows the user to be eligible for processing transactions on the network. The more coins that are staked, the greater the chances of being selected to process transactions and thus receive the reward for doing so. Although this does involve leaving a computer running at all times while staking, the processes of competing for processing rights and the processing itself is relatively low on energy consumption and processing power, especially compared to the high cost of energy and hardware for PoW models.

To make up for the lack of the security that miners offer in PoW systems, the idea is that the coins staked can be used as collateral and if a staker is acting maliciously and trying to double spend coins or alter transactions or the blockchain itself, than these coins are subject to repercussions. The amount of staked coins required for having any chance of successfully cheating the system is an estimated 70.7% of total supply for a 50% chance of success. As you can imagine, this makes it not only infeasible for a decentralized supply such as PIVX has but also very stupid since this large number of coins staked will be greatly devalued if they are caught, which is very likely, and if they are successful, the value of PIVX coins in general will tank or disappear further as the faith in the project and demand for it’s coins disappears after the system has been compromised. In addition to these factors, the lower investment of hardware and energy expense involved with staking vs mining creates a much more decentralized network since the majority of network users can participate instead of mainly a separate class of professional miners.

The ability to privately stake coins was developed exclusively by PIVX and adds yet another aspect to set it apart. Since privacy is a huge goal for the project, the inclusion of private staking was a must. This gives users the ability to stake without exposing their identities or information to the network and thus the world. Stakers are actually incentavized to stake privately through PIVX’s reward distribution algorithm. If an individual stakes the transparent PIV, they receive 2 PIV as a reward for processing a block. If they were to stake the private zPIV, and thus use the zPoS system of private staking, then the reward they could receive is 3 zPIV. This incentive encourages not only private staking but also necessarily increases creation and use of the private zPIV denomination which further increases the effectiveness and security of the privacy model.

Masternodes

The masternode system is a feature from the Dash roots of PIVX. This system makes PIVX a two tiered network where stakers are still processing and publishing blocks but there are also Masternodes handling other functions. In order to host a Masternode, one must lock up 10,000 PIV, use a static IP, and have some technical competency. This high staking requirement ensures that these Masternodes are held by individuals putting up enough collateral to be unlikely to risk it through compromise attempts. Another security advantage is that in order to gain control of enough Masternodes to compromise the network, one would have to buy so much PIV as to drive the market price up so high as to make it financially unfeasible to continue the attempt. The added requirement of an unchanging static IP ensures dependability and stability for the network. The required technical ability is needed for the set up and maintenance of the Masternode being created. There is also the added benefit that not just anyone can jump in and out of the Masternode system, but only those willing and able to deal with all the requirements of initialization and continuation.

The Masternodes receive rewards similar to normal stakers. As the chart above shows, Masternodes receive 3 PIV for processing a PIV transaction and 2 for a zPIV transaction. This incentivises Masternodes to process the normal traffic of the network and keeps the incentive of stakers to hold zPIV, thus keeping privacy a viable and strong component of the network. Masternodes also have the exclusive privilege of voting on treasury proposals for the PIVX DAO governance system but they have voted to relinquish this exclusivity to the broader community… more on this later.

InstantSend

For near instant transactions, PIVX has the SwiftX function. This is the primary advantage of the Masternode network. Near instant transactions are a necessary component of any usable, common, and spendable currency in today’s economy. The SwiftX function allows for speeds comparable to Visa or Mastercard but with drastically lower fees and a decentralized network with privacy and direct ownership of funds at the core. While normal PIVX transaction still will generally take less than a minute to confirm, having the option to slightly raise the transaction fee and in exchange get near instant transactions is crucial.

The way SwiftX works is by going strictly through the Masternode network. A SwiftX transaction is broadcast to the Masternode network, one random Masternode will receive this and lock up all inputs and outputs associated with the desired transaction, this locked transaction gets sent out to the Masternode network as a whole and receives near instant consensus. This method avoids having to go through the network at large but rather allows the transaction to be handled by a randomly selected Masternode delegate and then is confirmed directly through the Masternode network. Speed is paramount for many Point of Sale transactions, and this method provides it without compromising security or allowing the possibility of double spending.

Privacy

Privacy is the most important feature for many in the PIVX community. No one wants all their financial information published to a public blockchain for all to see. There are also times when one would want to make an anonymous donation or purchase or sale. Even just staking PIVX may be something that one would want private so that they aren’t a target for theft, intimidation, or an attempted network attack. For more information on privacy in crypto and finance, see “A Little Privacy Please”.

The protocol used for privacy in PIVX is the Zerocoin protocol, specifically libZerocoin. The whitepaper originally describing the protocol, “Zerocoin: Anonymous Distributed E-cash from Bitcoin”, was released by John Hopkins University’s Department of Computer Science for theoretical implementation on the Bitcoin network. The concept is relatively simple. When a private transaction is desired, a separate private currency is created without a link to it’s origins and is used for the transaction then is converted back into the base currency by the receiving party without a link to the transaction or original sender. This new private currency is the “zerocoin” since it is a simple place holder with zero status itself on the chain outside of this role.

PIVX took this original Zerocoin protocol and heavily customized it to integrate into the PIVX system. The zerocoin placeholder in PIVX is called zPIV. This zPIV is not a new cryptocurrency but rather another form taken by PIV when allocated to zerocoin status. This means that the value of PIV and zPIV are always the same and can be swapped back and forth at will. There is a nominal fee of 0.01 PIV for this conversion in order to prevent spam or malicious attacks and this fee is burned by the network. zPIV are created in set denominations, currently with options of 1, 5, 10, 50, 100, 500, 1000, and 5000.

One key feature of this protocol is the use of Zero Knowledge Proofs. These are used to allow a transaction to be verified on the network without revealing specific data about the transaction itself. This cryptographic tool is described in the PIVX whitepaper through this example:

“Imagine your friend is colour-blind and you have two balls: one red and one green, but otherwise identical. To your friend they seem completely identical and he is skeptical that they are actually distinguishable. You want to prove to him they are in fact differently-coloured, but nothing else, thus you do not reveal which one is the red and which is the green. Here is the proof system. You give the two balls to your friend and he puts them behind his back. Next, he takes one of the balls and brings it out from behind his back and displays it. This ball is then placed behind his back again and then he chooses to reveal just one of the two balls, switching to the other ball with probability 50%.

He will ask you, “Did I switch the ball?” This whole procedure is then repeated as often as necessary. By looking at their colours, you can of course say with certainty whether or not he switched them. On the other hand, if they were the same colour and hence indistinguishable, there is no way you could guess correctly with probability higher than 50%. If you and your friend repeat this “proof” multiple times (e.g. 128), your friend should become convinced (“completeness”) that the balls are indeed differently coloured; otherwise, the probability that you would have randomly succeeded at identifying all the switch/non-switches is close to zero (“soundness”). The above proof is zero-knowledge because your friend never learns which ball is green and which is red; indeed, he gains no knowledge about how to distinguish the balls.”

Example time… Bob is privately sending Alice 18 zPIV on the PIVX network. Bob’s 18 PIV is first converted to newly minted zPIV (the PIVX privacy coin, or zerocoin) for a small fee. These new 18 zPIV have no history, are brand new, and are untraceable. They are also split into multiple denominations… likely one 10 value coin, one 5, and 3 1’s. These coins totaling to 18 zPIV are then pooled with many other zPIV coins from various sources but all without an attached history as well. Alice then receives the right, through a zero knowledge proof, to ownership of 18 zPIV while at the same time Bob’s right to ownership of 18 zPIV is revoked.

At this time, the transaction has been made and there are no links between the zPIV Alice now owns and the zPIV Bob created. The only traceable information seen on the blockchain is that Bob burned 18 PIV. If Alice would like, she can convert the zPIV to PIV or she can keep it in it’s private zPIV format. If she converts it to PIV, this act will be seen on-chain as well but still without any history or data attached.

DAO Governance

PIVX is governed by a Decentralized Autonomous Organization, or DAO. Although this is exactly what it sounds like, I’ll break it down slightly. There is no company or leader or group in charge of decision making for the PIVX project as a whole other than the DAO. Control and decision making is decentralized among the members of the PIVX network. Governance and action is performed autonomously by the network according to the decisions made by these members of the network. This is the framework and system for the “organization” that runs the PIVX project, or the DAO.

For a more solid example, lets follow Bob through the process of doing work for PIVX through the DAO… Bob is in marketing and thinks he has a great plan to gain further adoption of PIVX in Brazil and the greater South American region. Bob begins by communicating with the PIVX community in a broad sense through Discord. He pitches his idea and gets input from the community about tweaks, likes, and dislikes. Bob applies this input to his plan then goes to the PIVX forum and lays out his newly updated and revised plan on the “Budget and Governance Proposals- Pre-proposal Discussions” forum for some serious review. Bob’s proposal gets positive feedback and he decides to officially submit his proposal to the DAO. This proposal has all of his information, a detailed marketing plan he wants to implement, the required budget and timeline, and other pertinent information. This proposal costs Bob 50 PIV to submit and will be voted on by members of the PIVX network at the next “super block” which occurs every 30 days. Until then, Bob is reaching out again on all the platforms he can, Reddit, Discord, forums, etc, to gather support and remind users to vote for his proposed marketing strategy. When the time comes, Bob’s proposal is passed and the funds he requested are automatically sent to him so he can begin his project.

Other more common proposals include doing bug bounties, paying developers, funding new features to implement, buy advertising, and so on. The point is that the decision to pursue certain paths and strategies is made by the community and carried out automatically according to their wishes. If a developer or marketing agent aren’t holding up to what was expected of them, their proposals for more work and funds will likely be denied. On the contrary, if someone does a great job and has delivered many times in the past, they will likely be continuously funded for their diligence.

The treasury of the DAO is funded through the same distribution of coins that reward stakers and masternodes. There is a reward of 6 coins that get distributed at the creation of each block. 5 coins will always go to a mix of stakers and masternodes while 1 coin will always go to the treasury. If there are funds in the treasury that are not allocated to funding proposals when voting occurs, these left over funds will be burned. This helps decrease inflation as a whole and incentivizes the funding of proposals over the hoarding of funds. It actually eliminates the ability entirely for the treasury to build up a huge stockpile of funds. The incentive to fund proposals in turn promotes the growth and development of the project through continued building, developing, and promotion.

As was mentioned earlier in this writing, voting with the DAO is currently done strictly by masternode owners. This design was set up initially to make sure that only those with experience, knowledge, commitment, and “skin in the game” were brought in on the governance decisions. There was a vote by these masternode owners in 2017 to relinquish this exclusive right and change this method to a more inclusive system that brought in the whole community to be involved in the governance of the project. This new model has not been implemented yet and is currently in development. Many plans and ideas have been submitted for how to achieve this goal and these are being assessed and discussed now.

The goals for the next era of PIVX governance are as follows:

“ PIVX will work towards a ‘Community Designed Governance’ system that changes the distribution of votes, to include the entire PIVX community.”

and

“ PIVX will work towards a ‘Community Designed Governance’ system that dramatically expands the reach of voting power from simply Treasury Governance, to also include Manifesto Governance, and Protocol Governance.”

For the expansion of inclusion for voting, the goal is to allow for voting access to all PIVX stakers as well as masternode owners. This greatly increases decentralization and inclusion of the community. Getting the broader community involved will bring new perspectives, a sense of common enterprise, and increased loyalty to the PIVX network. It also allows the community to have a large and direct say in what direction the projection goes and how funds are spent. This is important for those invested in the project through coin ownership.

The split of the treasury into 3 categories is a practical decision. Treasury Governance will be the category for the standard treasury model where most proposals for funding will be submitted and processed. This isn’t much different than the current state of the treasury. The next category will be Manifesto Governance. This will rarely, if ever, be used and if it is, it will require extremely high levels of participation and support. Proposals here will be high level and very important, touching the core foundations of PIVX. The third category will be Protocol Governance and will involve changes to the code base of PIVX or changing the priorities of changes to the PIVX system. These will be zero cost proposals and will have the unique quality of being able to be vetoed by PIVX Core Developers if the proposals are deemed to be impossible, unrealistic, or impracticable.

The PIVX Wallet

PIVX has it’s own digital wallet called PIVX Core that is used for a variety of purposes. The most common purpose is the most obvious- that of storing funds. The wallet only supports PIV and zPIV coins and one can easily mint zPIV from PIV or convert from zPIV to PIV directly through the wallet interface. Staking is done directly through the wallet and is easy to set up and do. Payments can be requested, sent, and received easily as well. There is currently work being done to include the viewing of proposals and governance voting directly through the wallet. Light nodes and mobile wallets are in existence as well and different aspects of these are in different stages of development and release. The user interface is fairly simple but isn’t the most user friendly and doesn’t compare favorably to other wallets I have used. It’s not bad, but not great either.

zDEX

To facilitate the exchanging of PIV with other cryptocurrencies, a decentralized exchange has been built called zDEX. This exchange is built to be secure, private, and decentralized in order to promote the adoption of PIVX as well as the ability to exchange between coins anonymously without reliance on or submission to a centralized party. This is especially important today with the SEC in the U.S. attempting to shut down similar exchanges and sue participants. This zDEX was privately funded and builds from the Zerocoin protocol and zPoS to allow private transactions on all sides from the buyer to the seller to the validator or masternode. There are no middle men involved so the exchanges are peer to peer with transaction fees going directly to the masternodes who facilitate the running of the network. Trading pairs include Bitcoin and other Bitcoin based currencies such as Litecoin, Dash, Bitcoin Cash, Zcash, and Partcl.

In the works

There are many projects and features currently being worked on for the progress of the PIVX network and there likely always will be. Bulletproofs may be the next to be implemented and are a new cryptographic way to greatly diminish the size of the proofs needed for validating transactions. This increases privacy, scalability, and speed while decreasing fees. Elastic block sizes are being worked on so that the blocks can expand and contract according to the needs of the network at any given time. This increases scalability and speed for the network. As mentioned previously, distributing governance power to the broader PIVX community is in the works. I2P integration will increase network anonymity through a fully decentralized peer-to-peer model that is much superior to Tor and similar models in many ways. The Dandelion protocol was another feature designed for Bitcoin that PIVX is working to integrate and will make the identification and tracking of user’s IP addresses virtually impossible.

Opinion

PIVX is one of my personal favorite projects. It combines most of the top features of the blockchain world into one project and has proven to be secure, stable, and usable. The project is very decentralized with even further decentralization in the works. The level of privacy is one of the highest in the space. The teams, masternode owners, and developers working on the project have proven time and time again that they hold the future and progress of PIVX above their own personal gain and have made many sacrifices to show this. The coin has held its price fairly well, comparatively, during recent bear markets and has shown to be more stable than most coins in the bottom 100 market cap area.

The main con with PIVX is the overall lack of popularity. The PIVX name doesn’t really roll off the tongue and their marketing has not been up to par with the other top projects in crypto. Also, many of the decisions for the path the project are based on creating a sustainable currency for mass adoption, not for raising the market price or creating large amounts of new value. There haven’t been a large number of market pumps for PIVX nor will you see “When Lambo?” or “To the moon…” posts on their Reddit sub. PIVX is almost always listed as one of the top privacy projects, on par with or better than Monero, Zcash, and Dash. I recently did some research on privacy coins and judging by the coverage I found on PIVX in articles and posts, I would have thought PIVX was a top 25 coin if I didn’t know better. I definitely wouldn’t have thought it was valued bellow Zcash, Dash, Verge, and Bytecoin. The value of the project seems much higher than these and it’s potential seems greater as well but their isn’t the same level of market response with PIVX as there is with many other projects.

originally published on https://www.thedigitalassetguide.com/

TLDR; Conclusion

PIVX is a master cryptocurrency. The tech is top notch, privacy security is beyond reproach, decentralization is paramount, and it contains the features needed and desired for a widely used digital currency. The catch is that the market demand, marketing efforts, and overall promotion of PIVX leaves much to be desired which in turn makes an investment in or support of the project a tough decision for some.