Note: This is only my opinion, but it is what I have come to understand over my time with Peercoin.
I have always had trouble understanding the underlying purpose behind Peercoin. My understanding of it has gone through several evolutions over the last 3 years. I used to think it was just a more decentralized and inexpensive way of securing the blockchain for payments, but it turns out there was a lot more to it than I expected. Even now I may not fully grasp Sunny King’s vision for Peercoin, but I’ve tried my best at figuring it out.
As I said, I originally believed Peercoin was about payments, similar to Bitcoin. Once learning more about the fixed 0.01 PPC/kb fee as a mechanism for preventing blockchain bloat and transaction spam, I started questioning how Peercoin could possibly be used for microtransactions, since the fixed fee would block them. I then reread one of Sunny King’s older quotes and realized that microtransactions could still be performed by off-chain networks to bypass the fee completely and avoid blockchain bloat. I got excited after understanding this and went on a spree of explaining to everyone that Peercoin could still be used for microtransactions by using off-chain networks to bypass the fee entirely.
[i]"Right now if we are talking about micropayments in the US$1 range, both PPC and XPM still handle them with much lower overhead than credit card network. In the long term micropayments should be provided by centralized providers, or a less decentralized network optimized for high capacity transaction processing."[/i]
Though once the price stable USD pegged crypto NuBits was released by Jordan Lee, I again started to question Peercoin’s underlying purpose. Peercoin behaved more like a commodity with its volatile price swings, so I asked myself why anyone would use either Bitcoin or Peercoin for everyday payments when they could use a solution like NuBits instead, which was similarly secured through PoS, except with the added price stability and increased transaction speed. I again reread the same quote from Sunny, but this time I focused more on his talk about Peercoin as a backbone currency…
[i]"Both PPC and XPM are designed to last. PPC is designed with energy efficiency, XPM is designed with energy multiuse. Bitcoin has a long term uncertainty as to whether transaction fees can sustain good enough level of security. Before that the main concern is how to balance transaction volume and transaction fee levels. Currently I get the feeling that bitcoin developers favor very low transaction fees and very high transaction volume, to be competitive against centralized systems (paypal, visa, mastercard etc) in terms of transaction volume, to the point of sacrificing decentralization. This also brings major uncertainties to bitcoin's future.From my point of view, I think the cryptocurrency movement needs at least one ‘backbone’ currency, or more, that maintains high degree of decentralization, maintains high level of security, but not necessarily providing high volume of transactions. Thinking of savings accounts and gold coins, you don’t transact them at high velocity but they form the backbone of the monetary systems.
Pure proof-of-work systems such as bitcoin is not 100% suitable for this task. This is because transaction fee is not a reliable incentive to sustain network security. If the mining generation amount is kept constant (there have been several such attempts in altcoins) it would work better security-wise but then it would also significantly weaken the scarcity property of the currency. XPM’s inflation model is designed in such a way that it could serve as backbone currency better than bitcoin if needed, because it could maintain high security reliably for longer, with reasonably good scarcity property as well. Of course that’s only from architect’s point of view, whether or not it would be chosen by the market is a whole different matter.
PPC is designed to serve even better as a backbone currency. The proof-of-stake technology in PPC is not only energy efficient; it also maintains high level of security without relying on transaction fee. Thus PPC could be safely designed with strong scarcity property yet serving well as backbone currency. Both PPC and XPM use protocol enforced transaction fees, which reflects my preference that high transaction volume is discouraged in favor of serving as backbone currencies."[/i]
It was another Peercoin community member (Pillow) who finally made me understand Sunny’s backbone argument. Peercoin is not designed for everyday payments at all. It’s not designed for paying your grocery bills, gambling online or anything that has to do with everyday payments. It’s also not designed for price stability. The Nu Network was designed to satisfy these needs. Peercoin on the other hand was designed for maximum decentralization and security. Peercoin’s underlying purpose is to replicate gold in digital form by providing the ability to store value in an inexpensive to maintain crypto network which prioritizes security, decentralization and scarcity over speed, low fees and transaction volume. This is the definition of a backbone crypto.
Bitcoin is not a suitable digital replacement for gold because of the amount of expended energy required to mint new coins and maintain network security, in addition to its unsustainability issues with proof-of-work consensus. Peercoin on the other hand requires enough energy through its proof-of-work process to bring newly minted coins into existence, but it behaves more similar to gold when it comes to the lower cost of maintaining its security through proof-of-stake. In comparison, it’s slow, difficult and hard work to extract gold, similar to proof-of-work. Security from theft is a concern, but in comparison with extraction, little effort is required to actually maintain gold and secure its value, similar to proof-of-stake. In contrast, there is a large cost to simply maintain Bitcoin’s security, which diverges from the small cost of maintaining gold. The low maintenance cost will mean Peercoin wins out in the end.
The US dollar is a currency while NuBits is a cryptocurrency. In the same way, gold is a commodity while Peercoin is a cryptocommodity. In the end, I believe Peercoin is destined to become the true digital gold rather than Bitcoin, as it was designed by Sunny King from the beginning for this very purpose. People may not recognize this yet, but they will eventually. The cracks in Bitcoin are already starting to form. We need Sunny to finally remove centralized checkpoints with v0.6 in order to fulfill Peercoin’s ultimate goal of maximum decentralization and wait for people to realize Bitcoin’s inevitable fate, where Bitcoin miners will switch their servers completely over to Peercoin, thus drastically lowering Peercoin’s proof-of-work inflation rate. While Bitcoin and other cryptos fall victim to blockchain bloat and centralization attempting in vain to become payment networks for microtransactions, Peercoin will continue to focus on creating the most decentralized and secure network possible for storing value.
Edit: Sunny King responded in the thread below…
[quote=“Sunny King”]The confusion regarding the terms ‘currency’ and ‘commodity’ as in ‘cryptocurrency’ and ‘cryptocommodity’ arises in relations to an understanding of the macro views of the monetary system.
In the past when gold was the absolute base money, I guess no one called gold ‘commodity’, but only ‘money’, ‘currency’ etc. Now that gold has been stripped off many of its monetary roles by governments force, it is now widely referred to as ‘commodity’. From user’s point of view it’s about price volatility, it’s understandable as one of the three major functions of money, unit of account, has been stripped from gold and given to fiats, this has made gold look volatile and commodity-esque. Still keep in mind, fiats are also volatile relative to each other, so even though gold lost most of its pricing power, it’s other monetary power still keeps it in competition to fiats, as the least volatile commodity in the world and having the highest stock to flow ratio of all.
So what’s the big deal with gold? Gold’s inflation property is determined by physical and social-economic laws, as in laws of the nature/universe, not laws made by man, nor was it voted on by a committee. This means one important arsenal missing in government finance, that is the power to control the issuance of currency and the access to a hidden ‘inflation tax’. This is the central battle that defines the monetary history of the previous century.
If we really have some convictions to a monetary future of freedom, it would be more proper to call bitcoin/peercoin/primecoin cryptocurrency and nubits cryptofiat, to make such distinctions. Though I have no problem with people wanting to call nubits cryptocurrency and bitcoin cryptocommodity, for practical purposes it is indeed true that nubits works better as unit of account in the fiat dominated world. Still one must remember the word ‘cryptocurrency’ has a strong philosophical underpinning born with bitcoin that nubits wouldn’t be able to represent.[/quote]
