Peercoin
A Digital Store of Value for a Sustainable Future
Peercoin is a peer-to-peer digital currency that uses both proof of work and proof of stake and is the original proof of stake blockchain network. This unique feature is a major factor in making Peercoin a more secure and energy efficient alternative to other cryptocurrencies, including Bitcoin.
Peercoin provides efficient, sustainable security and user governance, and it is considered a “green” alternative to Bitcoin, with code that is completely open-source. Sunny King, an anonymous legendary blockchain developer, created Peercoin to be a more efficient and sustainable version of Bitcoin.
The Peercoin Project
The origins of Peercoin began with the white paper authored by King and fellow software developer Scott Nadal in 2012. King invented the proof of stake consensus and continued to lead the project until 2017, while Nadal is no longer involved with the project.
Peercoin is maintained by a pool of developers and contributors that keep the project running. In 2017, the Project Lead role transitioned from King to Peerchemist; other notable Team members include Randy Vittorini (@Sentinelrv), Brand Manager, Backpacker, Lead Developer, Willy, Mobile and Web Developer, and Nagalim, Protocol Designer.
This Team has been integral in redesigning Peercoin’s economic system and bringing Peercoin’s outdated code back up to date with the upstream Bitcoin. King still contributes as a technical advisor and occasionally participates in development meetings.
The Peercoin Team performs daily tasks such as moderating the social media channels, implementing new open-source code, deploying network upgrades and monitoring the overall health of the Peercoin network.
Suggestions for protocol upgrades can be proposed by anyone, and are implemented through a request for comments process, where new ideas are publicly debated. The Peercoin Team then makes the decisions about whether the suggestions are implemented in the code, while the users have the final say when it comes time for them to upgrade their wallet.
The Peercoin project and community are supported by the Peercoin Foundation, a nonprofit entity which funds the development of the protocol but has no control over its direction or outcome. Peerchemist was a driving force behind the Foundation, which was established in 2018 to further help Peercoin become an established coin. Through the Foundation, Peercoin can accept donations and has the ability to hire full-time developers. These efforts have been a force in helping Peercoin evolve from an outdated altcoin, to a coin that is very close to Bitcoin’s development, in just a few years.
“We seek to empower future Peercoin team members by providing the tools necessary to perpetuate Peercoin’s long standing reputation for bringing world-first innovations to the Blockchain.”
Minting, Not Mining
Like other proof of work coins such as Bitcoin, Peercoins are mined through the hashing process. Proof of work requires a tremendous amount of processing power to have miners secure and verify the blockchain, making it extremely energy-intensive, an issue that has generated substantial scrutiny. Chinese government officials and Tesla CEO Elon Musk have both voiced concerns about the amount of energy needed to mine Bitcoin, and their statements have generated significant visibility.
While Peercoin is initially mined through proof of work, proof of stake is slowly taking over. Proof of stake is less resource-intensive than proof of work and was first introduced by Peercoin’s founders in 2012.
As the hashing difficulty increases, Peercoin aims to combat the energy issue that Bitcoin presents, allowing users to become block producers through proof of stake consensus. “Minting” rewards individuals who have coins and actively mint with them — in other words, the ownership of coins allows users to participate in Peercoin’s consensus process. As a user increases their Peercoin holdings, their importance in verifying the network also grows. Peercoin uses proof of work for coin distribution, but the coin is secured by proof of stake. Proof of work aids in the decentralization of the coin supply, which can lead to a more secure network.
The total block time can be difficult to approximate, since it depends on several factors, but it can be empirically estimated at roughly 8.5 minutes.
With a set maximum, or cap, of 21 million coins, Bitcoin’s supply is limited. Each halving — where the rate of new supply (the rate at which new units are created) is cut in half — occurs approximately every four years. Every time one of these events takes place, the mining incentive, the reward that miners get for confirming a new block, is reduced by half.
As a result, miners bring in less income per block, and older and less-efficient mining equipment may become unprofitable, as the income it generates fails to cover operating costs. Since Bitcoin and Peercoin both use proof of work, old mining equipment no longer being used by Bitcoin miners can be utilized by Peercoin miners.
Unlike Bitcoin, Peercoin has no cap on the supply of coins. The proof of work reward for Peercoin is dynamic, adjusting upward or downward with the difficulty, and its importance is decreasing over time. As more people mine Peercoin, the hash rate increases, and the proof of work block reward will decrease. Conversely, if the hash rate decreases, the proof of work block reward will automatically increase. The impact of proof of work on Peercoin’s inflation decreases; the current inflation rate is approximately 1.45% per year.
Peercoin Annual Inflation Rate
The Peercoin system is intended to incentivize users who save their coins, rather than spend them. And while some other cryptocurrencies require rather large computer setups to mine coins, Peercoins can be minted on a home computer at little cost.
The number of days each coin is held is referred to as “coin days.” When a transaction reaches a specific age (30 days), the associated coins can be used for minting. Once that threshold of 30 days is attained, every day past that gives the coins associated with a transaction a greater likelihood of being used for minting, something referred to as Minting Probability.
As a result, coins associated with older transactions are more likely to produce a new block. When a transaction reaches 90 days, its Minting Probability has peaked.
Security
Part of Peercoin’s enhanced security lies in the time-based rules and restrictions governing the production of new blocks. Peercoin’s proof of stake mechanism utilizes time as the scarce resource, rather than electricity. In order to mint additional Peercoins, an individual will need to hold coins with a minimum age of 30 days. Once a new block is minted, the age of the participating coins resets to zero, instituting a new 30-day wait time.
This security feature prevents an individual from repeatedly producing new blocks and encourages decentralized minting. Peercoins also reach maturity after 90 days, which prevents potential attackers from overpowering the network by building up their minting power over an extended period of time. By having a stake in the network, minters have an aligned interest with investors and users in the long-term future of Peercoin.
According to Peercoin Pulse:
When minting, they [minters] are awarded by 3%-5%/year* of their coins. From the perspective of a network where everyone mints, this is merely a nominal change because everyone is rewarded proportionally. In practice, the entire network does not mint, as coinage is burned in transactions or simply never consumed. The result is that a better paradigm for Peercoin than ‘rich get richer’ (RGR) is the paradigm ‘minters get richer’ (MGR).
Through the proof of stake process of minting new coins, attacks on the Peercoin system would be highly expensive and are therefore rather unlikely. In order to breach the network, an attacker would need to either purchase 51% of the staked coins, or bribe users who have 51% of the staked coins. Either action would devalue the coin while providing an immense cost for the attacker.
New Minters
How easy is it for new entrants into the Peercoin blockchain? Once a user has coins that are 30 days old, they can become eligible to mint new coins. This process allows new users to get involved, as well as maintaining network continuity and systemic sustainability through its long-term minters. The fair distribution of Peercoin continues to cultivate a community of caretakers that will maintain the security of the blockchain.
Transaction Costs
Peercoin’s transaction fee is fixed at 0.01 PPC per kilobyte of transaction size, providing predictability. By utilizing a deterministic fee, a great deal of uncertainty and user discomfort is eliminated. If a user wishes their transaction to have higher priority in the next block, they can simply overpay the fee.
King intended for Peercoin to be used as a “backbone” or “settlement layer,” with microtransactions being handled by second layer solutions like the Lightning Network. While Bitcoin miners rely on significant transaction volume for revenues, Peercoin is able to maintain its high level of security without charging excessive transaction fees.
According to King, Bitcoin’s transaction fee is not a reliable incentive to sustain the coin’s network security. Eventually, Bitcoin miners will need to rely on fees as they will no longer receive the mining incentive which could potentially endanger the network.
Inflation Hedge
Peercoin’s minting system deliberately incorporates limited inflation so that there is always an economic incentive for minters. According to King:
“The alternative design approach is to acknowledge the minimum inflation rate needed to secure the network but let transaction fees be destroyed to counter inflation. In my opinion, this is a better approach that can provide better and more stable security to the network while conditionally preserving the strong store-of-value properties.”
Peercoin Inflation Rate
Peercoin’s 1–3% inflation rate prevents deflation and allows for an economic incentive for minters to continue minting. By providing a manageable and predictable inflation rate, Peercoin remains scarce while allowing for growth determined by participation, providing a perpetual economic incentive for block producers.
Sustainability
By using proof of stake, Peercoin leads the fight against the energy consumption of public blockchains. Minting coins does not require hashing power — the minter who will receive the reward for completing a block is chosen randomly.
Proof of stake minting enables better security than proof of work mining. Since mining uses large amounts of electricity, there is a tendency for it to be concentrated in areas with lower electricity rates. This led to a large proportion of Bitcoin mining taking place in China and Russia.
According to a recent report from the University of Cambridge, China accounted for 65% of the world’s hash power. This makes Bitcoin more susceptible to attacks and conflicts resulting from governmental regulations.
Given Bitcoin’s high energy consumption, mining is focused in areas with low electricity costs, making the coin’s distribution of block producers and nodes subject to concentration risk. In comparison, Peercoin’s system ensures geographic diversity, as it can be minted anywhere. Peercoin’s blockchain (the entire record of its transactions) can fit on any personal computer. And in the event of a price crash, minters will not need to drop out because the electricity costs are negligible due to the efficiency of proof of stake.
Bitcoin energy usage (TWh/year) was 133.69 at the time of this writing, significantly higher than Peercoin at 0.0048796. Bitcoin’s annual carbon footprint is similar to that of Serbia, a nation of seven million people.
Decentralized
As Peercoin is decentralized, the users are responsible for determining any changes to its protocol. They can vote for any such revisions by installing the version they support, holding Peercoin in their wallet and taking part in minting.
Challenges
Peercoin is considered to be one of the pioneer cryptocoins. However, it has not kept up with Bitcoin in terms of popularity and market capitalization.
In fact, in 2013 and 2014, Peercoin was considered a top altcoin and a major competitor to Bitcoin. In December of that year, CoinDesk named it the third-largest altcoin by market value.
There doesn’t appear to be any single reason for Peercoin’s failure to thrive. One reason may be that the coin was released to solve a challenge that had not yet materialized. Recent media attention around energy use and Bitcoin is highly prevalent right now.
Had Peercoin’s initial launch occurred at this time, it would probably receive much greater attention. The members of the Peercoin Team are focused on reminding investors that their project offers a viable solution to Bitcoin’s energy problem and has been properly working for almost a decade.
A number of other coins came to market that also used the proof of stake model. In mid-2017, Algorand launched with its “pure proof of stake,” and in 2018, EOS was established, with its spin on delegated proof of stake. However, these coins revolve around creating smart contracts and other decentralized financial products, while Peercoin was designed as a digital store of value and settlement layer. So while other coins may use proof of stake, they fulfill completely different roles than Peercoin.
The Peercoin project did encounter some infrastructure issues around 2016, with little formal organization or support. At that time, Peerchemist came on board to organize the project, implement procedures for protocol changes and drive active development.
Peercoin Price Since Inception
Social Metrics
Google Trends data clearly shows the level of interest in Peercoin has dropped since 2014.
Historic Google Trends Searches
However, more recent data shows a renewed interest in the coin. The below chart shows spikes in interest, possibly correlating with concerns over Bitcoin’s energy usage.
Recent Google Trends Searches
Subreddit Stats
Conclusion
Peercoin has lagged behind Bitcoin and other altcoins in terms of both price and volume. However, the price is starting to see an upward trend since the beginning of the year. This coincides with a renewed emphasis on sustainability and Bitcoin’s environmental impact.
While Peercoin is no longer regarded as a “top altcoin,” it has been making headlines again. A recent partnership was announced with Indacoin, the London-based cryptocurrency exchange, giving users the ability to buy Peercoin with U.S. dollars using a credit or debit card. And as Bitcoin has fallen from its highs, an emphasis on lower-energy blockchain networks using proof of stake coins, such as Peercoin, is in the news again. From a recent article on Bitcoin.com:
In fact, the Peercoin project is the first PoS blockchain to pioneer distributed ledger systems without using massive energy. The token peercoin (PPC) was invoked in 2012 and the website calls it a “green cryptocurrency for a sustainable future.”
Peercoin was launched before the challenges it was designed to meet came to fruition. In a sea of altcoins — over 4,000 at the beginning of 2021 — what makes Peercoin stand out? In a world that is increasingly concerned about the environmental impact of Bitcoin, Peercoin offers an energy efficient, sustainable store of value. Further, Peercoin’s Team is exploring ideas to improve Peercoin itself and integrate the coin with DeFi and decentralized exchange infrastructures. In addition, unlike some digital currencies, Peercoin has not been deemed a security, and it is legal in all global jurisdictions.
Full Disclosure: This research was authored by Quantum Economics and was commissioned by the Peercoin Project, who requested an unbiased report. Some of the contributors may hold assets mentioned in this document.
Disclaimer: This content is for educational purposes only and should not be construed as investment advice. Past performance does not indicate future results. Do not invest more than you can reasonably afford to lose.
Credits
Author: Evamarie Augustine, QE FinTech Analyst
Fact Checking & Editing: Charles Bovaird, QE VP of Content
Contributor: Peerchemist, Peercoin Project Lead
Contributor: Randy Vittorini, Peercoin Brand Manager
Contributor: Mati Greenspan, QE Founder & CEO
Special thanks to Michael Orshansky for the introductions.
