Previously, I proposed new network parameters to enhance network security which included a change of the static reward from 0.25% to 0.75% and a reduction of the coinage reward from 3% to 1%.
These parameters were built to keep PoS inflation roughly the same as before. However, if the network parameters are going to be changed, there is an opportunity to pick parameters which enhance rewards and increase PoS inflation. This would dilute non-minting coins and incentivise continuous minting to a greater extent, promoting network security.
Would increased rewards and PoS inflation be desirable?
The effects of different parameters are shown in the following chart (Static / Coinage). The PoS inflation is calculated by assuming the same proportion of the coinage reward is taken. The gross reward is the continuous optimised minting reward at an assumed 10% security. The net reward is the increase in supply share after taking into account PoS inflation (There is additional PoW inflation not taken into account). The UTXO size is the optimal size at 10% security.
| Parameters | PoS Inflation | Max Inflation | Gross Reward | Net Reward | UTXO size |
|---|---|---|---|---|---|
| Current | 1.08% | 3.25% | 4.6% | 3.48% | 147 PPC |
| 0.75% / 1% | 1.03% | 1.75% | 7.81% | 6.71% | 29 PPC |
| 0.8% / 1% | 1.08% | 1.80% | 8.29% | 7.13% | 27 PPC |
| 1% / 1% | 1.28% | 2% | 10.22% | 8.83% | 22 PPC |
| 1.2% / 1.2% | 1.53% | 2.4% | 12.26% | 10.57% | 22 PPC |
| 1.5% / 1.5% | 1.92% | 3% | 15.33% | 13.16% | 22 PPC |
| 2% / 2% | 2.56% | 4% | 20.44% | 17.43% | 22 PPC |
| 2.5% / 2.5% | 3.19% | 5% | 25.56% | 21.68% | 22 PPC |
| 3% / 3% | 3.83% | 6% | 30.66% | 25.84% | 22 PPC |
The new parameters include a removal of the ramp-up, a reduction in the min-age to 21 days and a reduction of the block interval to 5 minutes. Since the current parameters provide more rewards to occasional minters, the reward for continuous minting is less than the 0.8% / 1% option, despite the same PoS inflation.
It can be seen that a modest increase in PoS inflation can increase rewards dramatically when a 10% security is assumed. These higher rewards would be a an incentive to increase participation. The optimal UTXO size grows with the security level, so the low 22 PPC amounts would increase if the security level increases.
Higher PoS inflation can cause old questionable coins to be diluted (in terms of supply share) at a faster rate. These include large old wallets that may or may not be gone forever and leave questions about if they may disturb the network if they re-emerge in the future. There is less risk of an attack if the overall security level is increased, or these old coins are diluted.
Higher net rewards may encourage people to hold onto Peercoin and may incentivise buying to capitalise on these rewards.
A criticism of increasing PoS inflation is that the amount of realistically active coins is less than the total supply, so the PoS inflation on the active coins is higher. However, how are active coins measured, and how is it known if coins are truly dead?
Certain individuals may not mint due to not having access to a desktop computer or the willingness to run the client continuously. Higher PoS inflation would penalise them greater. However, active minting is important for PoS security and should be encouraged. Higher rewards may provide incentive for people to set-up desktop wallets, or minting pools may be created to capitalise on the higher rewards. Options to mint on mobile may be helpful, though holding large balances on mobile shouldn’t be encouraged. If people do hold large balances, it is not much to ask for them to run some software in the background on a computer.
Some people argue that the rewards should not be changed as people buy Peercoin expecting things to remain the same. However there is precedent of minting rewards being increased in 2020 when the static reward was first introduced.
Peercoin is not a security or contract. It can be changed by the consensus of those who run the code. People can choose to run whatever code and fork they wish. There is also precedent of this occurring with Ethereum (see Ethereum Classic and the DAO rollback) and Bitcoin (see Bitcoin Cash and other forks). If a hard fork may be contentious, it is possible to make it easier to operate two forks by preventing network conflicts and signature replay across forks.
Choosing 1.5% for both the static and coinage reward would only increase PoS inflation by ~0.84%, all-else-equal, with the maximum PoS inflation reducing from 3.25% to 3%. It would increase the net reward by ~9.58%, all-else-equal, which would be a major boost to minting incentives. This may be a fair compromise.
- Yes
- No