(script draft) Peercoin Primer #4: Economics

Regarding “negligible” vs “completely negligible”, perhaps the paragraph would have a smoother end if we said:

Peercoin shares its mining algorithm with Bitcoin, so as the mining industry advances as a whole, the impact of Peercoin’s proof of work component on the inflation rate will gradually and smoothly diminish until it is no longer significant.

Previously, we had tried “insignificant”, but it seemed a bit abrupt, but “no longer significant” seems okay.

1 Like

With Formatting

Hi, I’m Chronos, and welcome to Part 4 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: Mission

In this video, we are going to talk about Peercoin’s economic model. Cryptocurrency seeks to revolutionize economics across the globe through distributed consensus of economic rules. In crypto, money is no longer printed at will by centralized institutions like governments and central banks, but instead according to codified protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. But in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, so it doesn’t fully represent the asset it is being compared to. Gold produces a little inflation from the small amount that is mined each year and history actually shows that a moderate inflation rate does works to discourage hoarding and incentivise the use of a currency.

The fundamental problem that cryptocurrency seeks to fix, therefore, is not inflation itself, but inflation that is excessive, centrally controlled, or open to manipulation. The Peercoin solution is not zero inflation, but inflation that is limited and decentralized. This is the principle at the heart of Peercoin’s economic model, which allows for a 1% annual inflation of the coin supply, with no hard cap, through its proof of stake minting. Freshly minted Peercoins are given out, every block, as a reward to coin holders who help secure the network blockchain, which can be done from a home any network connected computer. The minting reward allows you to truly be your own bank, as it provides interest on your Peercoin savings while the inflation provides providing subtle economic pressure to act for on those who do not participate mint blocks to participate.

Peercoin’s proof of work mining also produces new coins, to give opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more and more mining power is directed at the network. In 2013, after the first year of Peercoin, annual growth in the coin supply was about 8%. At the time of this recording in 2019, it’s well below 3%. Peercoin shares its mining algorithm with Bitcoin, so as the mining industry advances as a whole, the impact of Peercoin’s proof of work component on the inflation rate will gradually and smoothly diminish until it is completely negligible no longer significant.

The final component that affects the Peercoin economy is transaction fees. As we have seen in the second and third videos in this series, proof of work blockchains are secured by miners who spend vast sums of money on invest in mining equipment and electricity to compete for rewards. These rewards come in two types, a subsidy in the form of new coins from block rewards generated automatically by the network, and fees paid by users who want their transactions processed.

For cryptocurrencies that have a fixed number of coins such as Bitcoin and Litecoin, the first of these two revenue sources will eventually cease, meaning miners will have to transition away from block rewards and survive solely off transaction fees. As the block reward comes to an end, mining operations must be sustained by attracting high volumes of cheap transactions, or by making transactions more expensive for users.

The first option is difficult to achieve, because decentralized blockchains struggle to support high volumes of transactions, and fee income is impacted by swings in the transaction load. The Bitcoin network has chosen the second option to limit the transaction throughput and create by limiting transaction capacity through a smaller block size, creating competition among users to get transactions included in the next block.
This competition causes a fee market to form, in which users outbid one another to get their transactions confirmed within a reasonable time frame, which resulting in increases a higher fee income for miners.

With Peercoin, however, the network itself subsidizes block producers, completely eliminating the need for them to rely on transaction fees. In fact, the fees that users pay don’t go to anyone at all; they are burned, which returns their value back to the network. So, instead of receiving fees, minters are fairly and continually rewarded in proportion to their coin holdings by a fixed block reward that will never end is produced continuously. This is possible because the cost efficiency of proof of stake allows security to be sustained with less expense. And since there is no competition by minters for fees, no incentive exists to arbitrarily limit the block size to make transaction fees more expensive for users. The fee in Peercoin is used only to deter spam transactions, and is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which has the added benefit of making the cost of transactions predictable and easy to calculate.

In conclusion summary, Peercoin is designed to have a limited and decentralized inflation, as the 1% coin injection from proof of stake minting provides a regulated and continuous stream of new peercoins into the system. This mild inflow encourages the circulation of coins, and discourages the hoarding that plagues fixed-supply currency models. The forethought that has gone into Peercoin’s economic model avoids the bad practices seen from centralized financial institutions over the centuries, and codifies sensible economic practice into a decentralized and trustless a resilient blockchain protocol.

We have now seen that Peercoin is economically viable. In the next video, we’ll get into Peercoin’s mission. If you have any questions or comments, post below. I’m Chronos. Thanks for watching!


Without Formatting

Hi, I’m Chronos, and welcome to Part 4 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: Mission

In this video, we are going to talk about Peercoin’s economic model. Cryptocurrency seeks to revolutionize economics across the globe through distributed consensus of economic rules. In crypto, money is no longer printed at will by centralized institutions like governments and central banks, but instead according to codified protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. But in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, so it doesn’t fully represent the asset it is being compared to. Gold produces a little inflation from the small amount that is mined each year and history shows that a moderate inflation rate works to discourage hoarding and incentivise use of a currency.

The fundamental problem that cryptocurrency seeks to fix, therefore, is not inflation itself, but inflation that is excessive, centrally controlled, or open to manipulation. The solution is not zero inflation, but inflation that is limited and decentralized. This is the principle at the heart of Peercoin’s economic model, which allows for a 1% annual inflation of the coin supply, with no hard cap, through its proof of stake minting. Freshly minted Peercoins are given out, every block, as a reward to coin holders who help secure the blockchain, which can be done from any network connected computer. The minting reward allows you to truly be your own bank, as it provides interest on your Peercoin savings while the inflation provides subtle economic pressure on those who do not mint blocks to participate.

Peercoin’s proof of work mining also produces new coins, to give opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more and more mining power is directed at the network. In 2013, after the first year of Peercoin, annual growth in the coin supply was about 8%. At the time of this recording in 2019, it’s well below 3%. Peercoin shares its mining algorithm with Bitcoin, so as the mining industry advances as a whole, the impact of Peercoin’s proof of work component on the inflation rate will gradually and smoothly diminish until it is no longer significant.

The final component that affects the Peercoin economy is transaction fees. As we have seen in the second and third videos in this series, proof of work blockchains are secured by miners who spend vast sums of money on equipment and electricity to compete for rewards. These rewards come in two types, a subsidy in the form of new coins from block rewards generated automatically by the network, and fees paid by users who want their transactions processed.

For cryptocurrencies that have a fixed number of coins such as Bitcoin and Litecoin, the first of these two revenue sources will eventually cease, meaning miners will have to transition away from block rewards and survive solely off transaction fees. As the block reward comes to an end, mining operations must be sustained by attracting high volumes of cheap transactions, or by making transactions more expensive for users.

The first option is difficult to achieve, because decentralized blockchains struggle to support high volumes of transactions, and fee income is impacted by swings in the transaction load. The Bitcoin network has chosen the second option by limiting transaction capacity through a smaller block size, creating competition among users to get transactions included in the next block.
This competition causes a fee market to form, in which users outbid one another to get their transactions confirmed within a reasonable time frame, resulting in a higher fee income for miners.

With Peercoin, however, the network itself subsidizes block producers, completely eliminating the need for them to rely on transaction fees. In fact, the fees that users pay don’t go to anyone at all; they are burned, which returns their value back to the network. So, instead of receiving fees, minters are fairly and continually rewarded in proportion to their coin holdings by a fixed block reward that will never end. This is possible because the cost efficiency of proof of stake allows security to be sustained with less expense. And since there is no competition by minters for fees, no incentive exists to arbitrarily limit the block size to make transaction fees more expensive for users. The fee in Peercoin is used only to deter spam transactions, and is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which has the added benefit of making the cost of transactions predictable and easy to calculate.

In summary, Peercoin is designed to have a limited and decentralized inflation, as the 1% coin injection from proof of stake minting provides a regulated and continuous stream of new peercoins into the system. This mild inflow encourages the circulation of coins, and discourages the hoarding that plagues fixed-supply currency models. The forethought that has gone into Peercoin’s economic model avoids the bad practices seen from centralized financial institutions over the centuries, and codifies sensible economic practice into a decentralized and trustless blockchain protocol.

We have now seen that Peercoin is economically viable. In the next video, we’ll get into Peercoin’s mission. If you have any questions or comments, post below. I’m Chronos. Thanks for watching!

I want this here in case someone has not watched the previous videos and doesn’t know the costs involved.

I want this text to include the words block size in it, so I’ve rearranged the wording and also changed throughput to capacity as it sounds less technical.

I don’t want the wording here to change.

According to this article, the word continuously indicates duration without interruption, while continually means duration with some interruption, so we should change it to the following…

Thanks, Sentinel and Chronos.

In the following, can we give ourselves a little more “wiggle room”, by making the following change:

Gold produces a little inflation from the small amount that is mined each year and history shows that a moderate inflation rate works helps to discourage hoarding and incentivise use of a currency.

Can we change “no longer significant” to “no longer sizeable”, as I don’t want us to make a “value judgement” on POW’s decline. Thus:

gradually and smoothly diminish until it is no longer significant sizeable.

In the following, I think “their” is a bit ambiguous, as this word usually refers to people, so I would like to revert to the original:

In fact, the fees that users pay don’t go to anyone at all; they are burned, which returns their the value of the fees back to the network.

Next, I think “and” flows better than “or”, so again would like to revert to the original:

excessive, centrally controlled, or and open to manipulation.

A few tweaks:

With Peercoin, however, the network itself subsidizes block producers, completely eliminating the need for them to rely their reliance on transaction fees.

This is possible because the cost efficiency efficient nature of proof of stake allows security to be sustained with less expense.

The fee in Peercoin is used exists only to deter spam transactions,

In summary, To conclude, Peercoin is designed to have

I like all of Sentinel’s counter-suggestions, apart possibly from the following:

which can be done from any network connected computer

The above is not wrong, but this isn’t the point of the paragraph, and there’s a risk it will distract. All we are doing is reminding the viewer is that minting is easy and anyone can do it, so I would revert to:

which can be done from any network connected home computer.

Secondly:

and codifies sensible economic practice into a decentralized and trustless a resilient blockchain protocol.

“Trustless” is a whole concept in itself, and the word (like “hybrid” and “destroy”) has been knocking around the community for years, but I think any newcomer will be completely thrown by it - it sounds a bit like untrustworthy! Can we change this to:

and codifies sensible economic practice into a decentralized and resilient blockchain protocol.

Regarding Sentinel’s inclusion of “continuously”, I just wonder if it sounds “too good to be true”. How about “regularly”? thus:

>So, instead of receiving fees, minters are fairly and continually regularly rewarded in proportion to their coin holdings by a fixed block reward that will never end

Edit: “steadily” is another alternative.

On reflection, I think continuously is fine!

Why don’t you just drop the word “their” instead?

What is meant by resilient in relation to this sentence? It’s not usually something we use to describe a blockchain. Maybe it would be better to just stick with decentralized and drop the 2nd descriptive word.

Yes, let’s just stick with just “decentralised”.

and codifies sensible economic practice into a decentralized blockchain protocol.

Regarding dropping “their”, I still feel we need to refer to the fees - how about:

which returns the fees’ value back to the network.

With Formatting

Hi, I’m Chronos, and welcome to Part 4 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: Mission

In this video, we are going to talk about Peercoin’s economic model. Cryptocurrency seeks to revolutionize economics across the globe through distributed consensus of economic rules. In crypto, money is no longer printed at will by centralized institutions like governments and central banks, but instead according to codified protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. But in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, so it doesn’t fully represent the asset it is being compared to. Gold produces a little inflation from the small amount that is mined each year and history shows that a moderate inflation rate works helps to discourage hoarding and incentivise use of a currency.

The fundamental problem that cryptocurrency seeks to fix, therefore, is not inflation itself, but inflation that is excessive, centrally controlled, or and open to manipulation. The solution is not zero inflation, but inflation that is limited and decentralized. This is the principle at the heart of Peercoin’s economic model, which allows for a 1% annual inflation of the coin supply, with no hard cap, through its proof of stake minting. Freshly minted Peercoins are given out, every block, as a reward to coin holders who help secure the blockchain, which can be done from any network connected home computer. The minting reward allows you to truly be your own bank, as it provides interest on your Peercoin savings while the inflation provides subtle economic pressure on those who do not mint blocks to participate.

Peercoin’s proof of work mining also produces new coins, to give opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more and more mining power is directed at the network. In 2013, after the first year of Peercoin, annual growth in the coin supply was about 8%. At the time of this recording in 2019, it’s well below 3%. Peercoin shares its mining algorithm with Bitcoin, so as the mining industry advances as a whole, the impact of Peercoin’s proof of work component on the inflation rate will gradually and smoothly diminish until it is no longer significant sizeable.

The final component that affects the Peercoin economy is transaction fees. As we have seen in the second and third videos in this series, proof of work blockchains are secured by miners who spend vast sums of money on equipment and electricity to compete for rewards. These rewards come in two types, a subsidy in the form of new coins from block rewards generated automatically by the network, and fees paid by users who want their transactions processed.

For cryptocurrencies that have a fixed number of coins such as Bitcoin and Litecoin, the first of these two revenue sources will eventually cease, meaning miners will have to transition away from block rewards and survive solely off transaction fees. As the block reward comes to an end, mining operations must be sustained by attracting high volumes of cheap transactions, or by making transactions more expensive for users.

The first option is difficult to achieve, because decentralized blockchains struggle to support high volumes of transactions, and fee income is impacted by swings in the transaction load. The Bitcoin network has chosen the second option by limiting transaction capacity through a smaller block size, creating competition among users to get transactions included in the next block.
This competition causes a fee market to form, in which users outbid one another to get their transactions confirmed within a reasonable time frame, resulting in a higher fee income for miners.

With Peercoin, however, the network itself subsidizes block producers, completely eliminating the need for them to rely their reliance on transaction fees. In fact, the fees that users pay don’t go to anyone at all; they are burned, which returns their the fees’ value back to the network. So, instead of receiving fees, minters are fairly and continually continuously rewarded in proportion to their coin holdings by a fixed block reward that will never end. This is possible because the cost efficiency efficient nature of proof of stake allows security to be sustained with less expense. And since there is no competition by minters for fees, no incentive exists to arbitrarily limit the block size to make transaction fees more expensive for users. The fee in Peercoin is used exists only to deter spam transactions, and is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which has the added benefit of making the cost of transactions predictable and easy to calculate.

In summary To conclude, Peercoin is designed to have a limited and decentralized inflation, as the 1% coin injection from proof of stake minting provides a regulated and continuous stream of new peercoins into the system. This mild inflow encourages the circulation of coins, and discourages the hoarding that plagues fixed-supply currency models. The forethought that has gone into Peercoin’s economic model avoids the bad practices seen from centralized financial institutions over the centuries, and codifies sensible economic practice into a decentralized and trustless blockchain protocol.

We have now seen that Peercoin is economically viable. In the next video, we’ll get into Peercoin’s mission. If you have any questions or comments, post below. I’m Chronos. Thanks for watching!


Without Formatting

Hi, I’m Chronos, and welcome to Part 4 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: Mission

In this video, we are going to talk about Peercoin’s economic model. Cryptocurrency seeks to revolutionize economics across the globe through distributed consensus of economic rules. In crypto, money is no longer printed at will by centralized institutions like governments and central banks, but instead according to codified protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. But in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, so it doesn’t fully represent the asset it is being compared to. Gold produces a little inflation from the small amount that is mined each year and history shows that a moderate inflation rate helps to discourage hoarding and incentivise use of a currency.

The fundamental problem that cryptocurrency seeks to fix, therefore, is not inflation itself, but inflation that is excessive, centrally controlled, and open to manipulation. The solution is not zero inflation, but inflation that is limited and decentralized. This is the principle at the heart of Peercoin’s economic model, which allows for a 1% annual inflation of the coin supply, with no hard cap, through its proof of stake minting. Freshly minted Peercoins are given out, every block, as a reward to coin holders who help secure the blockchain, which can be done from any home computer. The minting reward allows you to truly be your own bank, as it provides interest on your Peercoin savings while the inflation provides subtle economic pressure on those who do not mint blocks to participate.

Peercoin’s proof of work mining also produces new coins, to give opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more and more mining power is directed at the network. In 2013, after the first year of Peercoin, annual growth in the coin supply was about 8%. At the time of this recording in 2019, it’s well below 3%. Peercoin shares its mining algorithm with Bitcoin, so as the mining industry advances as a whole, the impact of Peercoin’s proof of work component on the inflation rate will gradually and smoothly diminish until it is no longer sizeable.

The final component that affects the Peercoin economy is transaction fees. As we have seen in the second and third videos in this series, proof of work blockchains are secured by miners who spend vast sums of money on equipment and electricity to compete for rewards. These rewards come in two types, a subsidy in the form of new coins from block rewards generated automatically by the network, and fees paid by users who want their transactions processed.

For cryptocurrencies that have a fixed number of coins such as Bitcoin and Litecoin, the first of these two revenue sources will eventually cease, meaning miners will have to transition away from block rewards and survive solely off transaction fees. As the block reward comes to an end, mining operations must be sustained by attracting high volumes of cheap transactions, or by making transactions more expensive for users.

The first option is difficult to achieve, because decentralized blockchains struggle to support high volumes of transactions, and fee income is impacted by swings in the transaction load. The Bitcoin network has chosen the second option by limiting transaction capacity through a smaller block size, creating competition among users to get transactions included in the next block.
This competition causes a fee market to form, in which users outbid one another to get their transactions confirmed within a reasonable time frame, resulting in a higher fee income for miners.

With Peercoin, however, the network itself subsidizes block producers, completely eliminating their reliance on transaction fees. In fact, the fees that users pay don’t go to anyone at all; they are burned, which returns the fees’ value back to the network. So, instead of receiving fees, minters are fairly and continuously rewarded in proportion to their coin holdings by a fixed block reward that will never end. This is possible because the cost efficient nature of proof of stake allows security to be sustained with less expense. And since there is no competition by minters for fees, no incentive exists to arbitrarily limit the block size to make transaction fees more expensive for users. The fee in Peercoin exists only to deter spam transactions, and is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which has the added benefit of making the cost of transactions predictable and easy to calculate.

In summary, Peercoin is designed to have a limited and decentralized inflation, as the 1% coin injection from proof of stake minting provides a regulated and continuous stream of new peercoins into the system. This mild inflow encourages the circulation of coins, and discourages the hoarding that plagues fixed-supply currency models. The forethought that has gone into Peercoin’s economic model avoids the bad practices seen from centralized financial institutions over the centuries, and codifies sensible economic practice into a decentralized blockchain protocol.

We have now seen that Peercoin is economically viable. In the next video, we’ll get into Peercoin’s mission. If you have any questions or comments, post below. I’m Chronos. Thanks for watching!

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I like the word substantial better than sizable. Is there anything else? My weekend starts in about 20 minutes. I’d like to spend it working on script 5.

Substantial won’t work, as substantial is “big” - we would be saying that it’s no longer “big” - but what we want to say is that it has no size to speak of. So I think we should have “sizeable”.

Other than that, unless Chronos has anything to add, we’re all done!

Alright, changed. @Chronos are we done? Also, do you have any idea for the kind of visuals we could include in this video?

“Sizeable” also means “big” - and it is an ornery word. I suggest “until it no longer matters” or “until it is insignificant”. I’ll plan to move forward with “until it is insignificant” unless anyone objects.

I can accept these changes. Great work! Recording is next, then editing & visuals.

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No objection from me.

Chronos says he is still brainstorming on visualizations that can help convey the ideas being discussed in the video. Does anyone have any ideas for specific sections of the video?

Specifically, I would like to show the inflation rate graph for the “8% -> 3%” portion of the video. What site do you guys like best to source that data?

https://peercoinexplorer.net/charts/annualinflation/5/linear/default

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I’m seeing something strange at that link, @willy. Its chart starts in August 2013 with an inflation over 1000%, but that’s already a year after the 2012 launch. In fact, the inflation rate hits 8% in August 2014, a year after the script of this video indicates. Could that inflation graph be off by a year?

It’s anual inflation. The sample period has to start one year after launch. I don’t see anything odd with that. If you look at the supply curve for the first year, it’s also very steep.

Happy to hear second opinions though.

To fix this so it reads the way you want for the video, you would need some form of instantaneous inflation. The one here is averaged by the year because instantaneous inflation is guaranteed to be super noisy.

Hey guys, please make sure you comment on the draft video on Discord so I can get feedback back to Chronos and we can release this week.