Ethereum is planning to switch to Proof-of-Stake. This might already happen end of 2018.
How will Peercoin survive with this strong competition? Looking at the “Why Peercoin?” answers on https://peercoin.net/, Is the proven long-term stability (and having been the first POS coin) enough?
No it’s not. Ethereum and Peercoin are totally different and fill different niches.
They will have proof-of-stake, we’ll have smart contracts but none will be put out of the business.
Can you give a newbie like me some idea on how the niches might differ?
I can try.
First of all, Ethereum is not a coin. It’s a p2p application platform, ie. something to run those “dapps” on. In ethereum system “ether” token serves as fuel for execution of smart contracts. Basically you burn ether to run smart contracts. That is anti spam feature in it’s essence.
If and when they implement PoS - ether tokens will become sort of a “stake” and could be used to issue new blocks.
Now Peercoin is a coin, like Bitcoin or Litecoin. It’s primary purpose is to be a form of decentralized money which can be exchanged for goods and services or it can be used as decentralized store of value (digital gold). Unlike with Bitcoin, “peercoin” tokens are not simply coins used for transactions but also a stake in the Peercoin network - allowing you to issue new blocks.
Unlike Ethereum, Peercoin cares a lot about decentralization and censorship resistance. This is a must due to different use case. Peercoin blocks are issued every 10 minutes, while Ethereum blocks are issued every 12 seconds and this fact tells us a lot.
Ethereum needs fast blocks because it is application platform and it has to be fast, while Peercoin takes some time between the blocks to allow everyone on the network to synchronize and try to make new block or simply validate a block made by someone else. As result only people who own powerful computers with fast internet connection can run a Ethereum node while just about anyone on the planet can run a Peercoin node.
There is difference in proof-of-stake algorithm too, Peercoin’s PoS algo is made to be fair and give equal chances to everyone on the network. Ethereum takes more game theory focused approached with their complex behemoth PoS algo which will be gamed and exploited leading to centralization. Not a bad thing for Ethereum, they have different focus as I have stated above. They need something performant and they cant have blockchain reorganization.
Why would competition from Ethereum change once they switch from PoW to PoS?
That is like saying PoS is the only feature of Peercoin.
When talking about the PoS algorithm. The biggest difference is that on Peercoin every coin is one vote.
While on Ethereum, the system is designed so that there is competition between minters, minters can gain advantage by gaming the system. This means that the process of finding stake becomes more expensive and this cost should be paid by the network, which yields higher inflation rates.
You could argue Peercoin has PoW which increases inflation rate, which is true, but it provides us entropy to ensure our naive PoS algorithm is secure.
Compared to Ethereum, Peercoin uses two simple and proven algorithms, while ethereum uses one complex and unproven algorithm.
But like I said, there is much more to peercoin than just the algorithm.
Thank you for the detailed answer. What do you mean by “they can’t have blockchain reorganization”?
Well, PoS is certainly the central feature in my view. So these described deficiencies of Ethereum’s planned minting algorithm are interesting.
Ethereum’s Vitalik Buterin describes Ethereum’s inflation rate after the PoS with “~0.5-2% annual seems feasible”, while Peercoin is designed to eventually attain an annual inflation rate of 1%.
We will see how things work out and whether Ethereum will change to PoS at all.
Creation of coins is not really where the cost plays out. It really plays out in the marketcap, where there is a demand for the blockchain and cost for the security model. It ends up being very hard to say who has a cheaper security model because of all the fluctuation in demand for the blockchain, especially with the overwhelming noise caused by speculation.