Hi, I’m Chronos, and welcome to Part 2 of the Peercoin Primer. Peercoin is one of the world’s most established cryptocurrencies, and each video in this series will explore a different aspect of it.
Show overview onscreen:
- Part 1: Launch
- Part 2: Security
- Part 3: Benefits
- Part 4: Economics
- Part 5: Legacy
These videos are designed to be watched in any order, so feel free to jump directly to what most interests you. Today, we’re going to take a deep dive into the security model of Peercoin: what is Proof of Stake, and how exactly does it work on the Peercoin blockchain?
First, we should define some terms. In a proof of work blockchain like Bitcoin, creating new blocks is called Mining, but in proof of stake, it’s called Minting. With mining, participants use processing power to create new coins, and electricity is the scarce resource that is used to secure the network. But in Peercoin’s proof of stake, that scarce resource is time, not electricity. Basically, the older the coins that you own are, the more time they’ve accumulated, which means the more power they have to participate in securing the network.
Let me explain. Let’s say you own 100 Peercoins, you’ve had them for 30 days, and you want to start minting. By the way, if you send them to another address, that timer starts over – they have to be holding still in order to start building up this “time”. So, after 30 days, your have 3000 “coin days”, because each of those 100 coins is 30 days old, so that’s 100 times 30, or 3000 days. Those coin days are the actual minting power of your coins. You can think of your coin days as kind of like your hash rate from traditional mining. More coin days means you’re more likely to produce a new block on the chain.
Now, 30 days is actually the minimum time you need to hold your Peercoins before they can start minting, so that’s good to keep in mind. After your wallet is about one month old, it can start minting, but before that, nothing is going to happen. And after 90 days, the coins hit their maximum minting power. That’s actually a security feature – it keeps an attacker from storing up for years, and then having an overwhelming amount of minting power to take over the network. If you keep waiting after 90 days, you aren’t becoming more likely to produce a block, but your reward for minting, in terms of number of Peercoins you get, does still grow. We’ll get into that in more detail in the Economics video in this series.
One thing I really like about Proof of Stake is that you have to be invested in the network in order to participate. Compare this to, say, Bitcoin Cash, which uses a mining algorithm called SHA 256. Anyone who has bitcoin mining equipment can use it to mine on Bitcoin Cash, or Bitcoin, or any other SHA 256 blockchain. But this means that the miners might not really care about securing Bitcoin Cash. They could choose to attack it at any time, and if it suffers, no problem, they can just switch to any other SHA 256 proof of work blockchain to keep making money with their equipment.
Not so with Peercoin. The only way to participate in securing Peercoin is by actually owning Peercoins, and that leaves you with a vested interest in the network. If anyone were to use their Peercoins to try to damage the network, they’d be hurting their own investment! This aligns the security of the network with its ownership, ensuring that those who keep the Peercoin blockchain secure have its best interests in mind.
Proof of Stake does have its critics, but there’s one more simple fact to consider: Peercoin is thriving. At the time of this recording, the Peercoin network has been going strong for almost seven years. That’s really old for a blockchain! There’s actually a name for this phenomenon: the Lindy Effect. It says that the longer something lasts, the longer it can be expected to last, because it has been proving itself just by surviving. For things that don’t wear out, like ideas, or governments, or blockchains, that really makes sense when you think about it.
Anyway, if you want to dig deeper into Proof of Stake, I definitely recommend you to take a look at the Peercoin University at university.peercoin.net. It has a lot of great articles with a ton more detail on the topic. In the meantime, let’s jump to the next video, the Benefits of Proof of Stake.
If you have any questions or comments, post below the video. I’m Chronos. Thanks for watching!