Slide 1. Hello, my name is *** and I’d like to spend a few minutes talking with you about Peercoin. I’ll give you an overview of how it works, what it does, and how it creatively addresses potential problems that Bitcoin may face in the not-so-distant future. I’ll also discuss a derivative concept of decentralized ownership called Peershares.
Slide 2. Peercoin is based on Bitcoin’s revolutionary technology. Like Bitcoin, Peercoin has an anonymous developer or team of developers going by the pseudonym of “Sunny King”. Sunny King developed Peercoin in 2012 in response to growing concerns being raised on the Bitcoin forums about its sustainability and long-term health. One of these concerns is how Bitcoin’s distributed network will be maintained. Bitcoin uses what’s called “Proof-of-Work”. Peercoin introduced the concept of “Proof-of-Stake” as a long-term replacement for Proof-of-Work. This will be explained in the next slide. The main advantages of Proof-of-Stake are its extraordinary resistance to centralization…the so-called 51% attack that you may have heard about. In addition, Proof-of-Stake greatly reduces the energy demands of the distributed network…the network of decentralized nodes that run the currency.
Slide 3. Bitcoin’s network nodes are racing against each other in an increasingly difficult competition to solve hashes. The winner gets a block of 25 Bitcoins every 10 minutes. Then the competition resumes. This game has the side-benefit of verifying Bitcoin transactions on the blockchain, which maintains the network. But it consumes a lot of computing power and electricity that add up and get very expensive. In addition, miners can combine their efforts and potentially gain control of a majority of the network. This could potentially expose Bitcoin to attack.
Peercoin takes a completely different approach. Instead of nodes fighting each other for coins, they quietly maintain the network by simply verifying transactions. So little computing power is required for this service that even hardware with minimal capability can participate. The nodes get paid periodically in direct proportion to how many Peercoins they own. This is called “minting” and produces a 1% annual return, which is a reward for their Proof-of-Stake.
Slide 4. Peercoin uses a hybrid or blend of Bitcoin’s Proof-of-Work and the Proof-of-Stake systems. Peercoin launched in 2012 as Proof-of-Work but has been gradually transitioning to Proof-of-Stake. It will become entirely Proof-of-Stake after a number of years. Why the combined approach? The reason is Proof-of-Stake doesn’t have a fair way of introducing coins into the community user base. It’s critical to prime the system with an initial distribution to get it going. One option is to generate all the coins immediately and sell them to the earliest adopters, but this isn’t very fair. Despite its shortcomings, Proof-of-Work is very good at jump-starting the system in a fair way. This slide shows how the generation of Peercoins has been transitioning from Proof-of-Work at its launch in 2012 (orange) to Proof-of-Stake (green).
Slide 5. Peercoin has a fixed fee of 0.01 PPC per transaction. This amounts to about 2 cents at current exchange rates, but could become significant if the value of Peercoin increases over time. It is important to note that the fee is immediately destroyed, which offsets new coin generation due to minting. In this way, Peercoin is neither inflationary or deflationary. It also makes the currency very stable by design and potentially a long-term store of value. Another advantage of the fee is to limit frivolous, micro-sized transactions that can result in an enormous blockchain. The importance of this discussed in the next slide.
Slide 6. Every transaction in the entire history of a crypto-currency is recorded in its blockchain. When transactions are nearly free of cost, the size of the blockchain file can grow very large – Bitcoin’s blockchain size is approaching 20 Gigabytes! Because a secure, verifiable transaction requires the presence of the complete blockchain, this places increasing demands on the hardware. Setting up the Bitcoin client is also a problem because downloading its blockchain can take DAYS! Other crypto-currencies based on Proof-of-Work are experiencing similar “blockchain bloat”. The Peercoin blockchain, in contrast, is only about 300 Megabytes even after almost two years of operation.
Slide 7. Some critics say that Peercoin is inflationary while Bitcoin is deflationary, but this slide shows this isn’t true. Peercoin’s transition to primarily Proof-of-Stake caused the rate of coin production to fall BELOW Bitcoin in October of 2013. The current growth rate of Peercoin is less than about 5% annually. Long-term, it is designed to have a negligible 1% inflation rate. The current market capitalization of Peercoin places it third on the list of over 100 decentralized currencies, behind Bitcoin and Litecoin.
It is important to state that Peercoin is not intended to be a replacement for Bitcoin or Litecoin. Each currency is good at some things and not-so-good at others. Peercoin was designed to be a store of value. A rough analogy is that Peercoin is a savings account while Bitcoin and Litecoin are more like checking or spending accounts.
Slide 8. It’s often stated that Bitcoin transactions are free or nearly-free. Although the user doesn’t see much of a fee, this slide shows that transactions are anything-but free! At current prices, the electricity consumption costs about $36 for each transaction. This cost is absorbed by the miners because it is offset by their Bitcoin block rewards. But such a system is unsustainable. As the hashing difficulty increases and mining hardware improves, costs will continue to go up. Economic reality will eventually force out all but the most well-equipped miners and push the network towards centralization. This is a very real possibility as the next slide shows.
Slide 9. In early 2014, the largest mining pool came dangerously close to attaining a majority of the hashing power of the Bitcoin network. The community became aware of this problem as shown in some Reddit posts from that time. In response, the miners voluntarily moved elsewhere, but this threat will always be present in a Proof-of-Work system. Because it’s Proof-of-Stake, Peercoin essentially eliminates such a possibility. To gain control of the network, an entity would have to acquire 51% or more of all Peercoins. Supply-and-demand economics would simply drive up the price to astronomical levels.
Slide 10. Peercoin’s Proof-of-Stake approach fits perfectly into the idea a decentralized ledger. This ledger or record resides on a blockchain and demonstrates ownership in a company or business, for example. The extension of Proof-of-Stake to distributed ownership is called Peershares.
Slide 11. Peershares is the next logical step in the evolution of Proof-of-Stake. A company would have its own Proof-of-Stake blockchain for issuing shares and even dividends. Dividends would be paid in Peercoins and shares would be traded for fiat or crypto-currency in the same way as Peercoins do today – on multiple exchanges. There is no central point of failure. Just as important, a startup could raise raise IPO funds without the need for expensive third-party underwriters. This revolutionary idea has caught some attention: half-a-million dollars of venture capital funding has been raised for the Peershares development team.
Slides 12 and 13. Peercoin and Peershares have an active and engaged community. There is a strong presence on the discussion forums and various social media outlets.
Edit: Fixed the 0.01 PPC fee typo and better defined the blockchain size.