Any investor in any asset needs to understand the demand, supply, stock/flow ratio, utility, and unit economics. Same applies to Crypto. You see frequent references to tokenomics.
I understand w/ Peercoin’s hybrid PoW/PoS system:
Security and consensus is provided by PoS; and
Distribution is governed by PoW*.
*is there another purpose?
Accordingly, I don’t get this design choice:
“Peercoin however utilizes a dynamic proof-of-work block reward which is inversely proportional to hashing power. Stated simply, as hashing power increases, the block reward decreases. The opposite is true as well. If hashing power decreases, the block reward increases.” - documentation
PoW miner distribution leads to sell pressure. Miners mine less when price is low and less attention is paid to Peercoin. So, this increases block rewards which increases sell pressure. It’s a downward cycle.
I saw RFC 22 was trying to cap the PoW block reward. My questions are: 1) are we not distributed enough? PoW conflates our ESG messaging - do we still need PoW?; and 2) as a mature crypto, doesn’t the dynamic PoW encourage supply increase at exactly the opposite times we want it - it may have worked initially but isn’t it upside down now?
thanks, and my interest w/ Peercoin lies in it becoming the Green Bitcoin (focusing on decentralization and security) and solving scalability via Lightning Network
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With the supply cap, the inflation we are talking about due to PoW is limited. While you can imagine a first order downward spiral, it really has finite capacity for harm. I encourage you to think of it in a different light, that PoW mining creates potential fresh minters. Crypto has a nasty history of deflationary thinking, which ultimately leads to stagnation and economic death. Indeed, if you look at any of the world leaders economic cycles, you will find that stimulous occurs at precisely those times. To cling to global deflation during a period of recession is to embrace economic death. As such, the hashrate-dependant PoW distribution is in line with most modern economic thinking with regards to periods of economoc downturn.
On top of this, the key long-term trend is that the PoW cap is a fixed number, while the PoS is a constant of proportionality. As such, the PoS inflation will forever be ~1-2% (depending on participation, it is around 0.91% now), whereas the PoW component will drift downwards in terms of percentage as supply increases (it’s ~1.4% now). This trend is intentionally slow, as economies require stability to succeed. These low single digit inflation rates are vital to economic growth, they play a fine line between deflation which encourages stagnation and extreme inflation which discourages long term investment. Money is to be used by both the holder and the spender, and therein lies a balance.
Fresh supply and predictable low levels of inflation are absolutely vital to preventing ponzi-like behavior that is ultimately antisocial. Don’t believe what the pro-deflationary community tells you, chances are their favorite coin also has an inflation rate >1% and they are blowing smoke up your ass.
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