Yes, but keep in mind that Peercoin’s economic model is a combination of everything (PoS, PoW and fees), not just the PoS side. That is why in the final paragraph I removed the mention of 1% and included everything we had been talking about up to that point. All of it adds up to a certain rate of inflation, and currently it is more than just 1%
If we give POS centre-stage, with POW/fees as having their own distinct roles, this is easier to do - but it has the problem that, with enough mining and/or transactions fees, PPC inflation will not be exactly 1%. In periods of high fee destruction, PPC may even become deflationary – which cuts across the 1% message.
Alternatively, if we draw POS/POW/fees together into one organic “breathing” whole, this is more intricate and challenging, but keeps everything ultimately consistent. Sentinel’s draft has gone down this route, so let’s stick with it, and see how we get on.
EDIT: the reason why our script is oscillating back and forth is because of the three-way juggling act between Peercoin’s three components, and their relationship.
The odd one out here is POW mining. Its inflationary aspect was very important in the early years, and continues to be important for now, but it is destined to reduce and reduce. Sentinel’s draft explains how POW inflation is falling, but I think the script needs to go further and remove POW mining the economic model itself. We explain POW inflation, that it is temporary, and then isolate it.
That will leave only two dancing partners: POS 1%, and fee destruction, both of which are permanent features, one fixed, the other variable. That may allow us to simplify the video, enabling us to explain the flexible or “breathing” relationship, in a context of a constant 1% injection, etc.
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. Let’s start by asking an important question. Cryptocurrency broadly promises 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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply such that its core economic principle is deflation.
What is the core problem that cryptocurrency is trying to solve? (short pause) The printing of money at will by centralized institutions, such as governments and central banks. Bitcoin is sometimes referred to as “digital gold” because it is an asset whose supply cannot be controlled by centralized institutions. However, the production of new bitcoin is slowing and will eventually end once 21 million coins are produced. Because of this fixed-supply deflationary model, Bitcoin does not fully represent the asset it is always compared to. After all, even gold produces a little inflation from the small amount that is mined each year.
So let’s be specific here: the problem is not inflation. At the end of the day, the fundamental problem that cryptocurrency seeks to fix is not inflation. In fact, global economies have explicitly shown that a well regulated inflation rate of about 1-3% is critical to incentivizing the use of currency. The problem is inflation that is excessive and centrally controlled. Therefore, the solution is not zero inflation, but inflation that is limited and decentralized. This is the heart of Peercoin’s economic model.
Now, like we mentioned in Part 1 of this video series, new peercoins come from two different sources: proof of work distributes coins to miners, and proof of stake rewards coins to minters. Let’s take a closer look at each.
On the proof of stake side, Peercoin minting allows for a 1% annual inflation of the coin supply . There is no without a hard cap. Peercoin achieves this increase in supply by rewarding everyone who helps secure the network with freshly minted peercoins, proportionate to their level of participation. Because of this limited inflation, similar to a banking interest rate, those who do not participate in the minting process will feel economic pressure to act with their investment , either to mint with their coins or spend them.
On the proof of work side, Peercoin’s inflation rate initially started very high, because this is how the first peercoins came into existence. As we mentioned in Part 1 of this video series, Proof of Work will continue to trickle out new coins to give new opportunities for miners to enter the ecosystem. However, the rate of this trickle is designed to decrease as more mining power is directed at the network. After one year, in 2013, annual growth in the coin supply was down to about 8%, and whereas at the time of this recording, in 2019, it’s well below 3%. - not bad. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the Proof of Work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The reason why Peercoin’s inflation rate has been decreasing is because its block rewards are designed to fluctuate according to the hashrate, the level of mining power directed at the network. As the hashrate increases, the block reward shrinks. In other words, as better mining technology is invented, bringing more mining power to the network, the reward in new peercoins for each block gets smaller and smaller. Pegging the issuance rate of Peercoin to the hashrate therefore allows the block reward to dynamically adapt to the market. Eventually the hashrate will be high enough to decrease the block reward to a single peercoin or lower. This is similar to Bitcoin’s reduction of mining rewards, but whereas bitcoin’s block rewards are cut in half abruptly every four years, Peercoin’s reduction is gradual and smoothed out, which removes sudden shocks to the economy.
So far we’ve learned how the coin supply increases with mining and minting, but does anything decrease the supply? Here we come to transaction fees. The final component affecting the Peercoin supply are the transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which reduces the supply by permanently removing coins from circulation! The destruction of fees essentially means implies that all coin holders are rewarded for increased usage of the chain. The size of the fee in Peercoin is dependent on the size of the transaction, how much space the transaction requires to be recorded on the blockchain. The fee is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is tiny, but with enough transactions , that can really add up. The transaction fee actually also improves security and decentralization by deterring spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting. Peercoin’s transaction fees also counterbalance the supply of new coins produced by mining and minting, offsetting or moderating the inflation rate without the need for hard limits. Now that’s impressive!
In the end, the Peercoin supply is allowed to breath through promises a continuous and regulated stream of new coins that will enter the system through mining and minting, and a reduction through burned fees. This limited inflation helps circulate economic model stimulates circulation of coins by encouraging spending, helping to avoid the creation of an economy full of hoarders, which is the risk with the fixed-supply model of Bitcoin. The forethought that went into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world and codifies it into an incorruptible blockchain protocol. Peercoin truly is the best of both worlds!
So this is all great, but why is it important? We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? 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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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 broadly promises 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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply such that its core economic principle is deflation.
At the end of the day, the fundamental problem that cryptocurrency seeks to fix is not inflation. In fact, global economies have explicitly shown that a well regulated inflation rate of about 1-3% is critical to incentivizing the use of currency. The problem is inflation that is excessive and centrally controlled. Therefore, the solution is not zero inflation, but inflation that is limited and decentralized. This is the heart of Peercoin’s economic model.
Peercoin minting allows for a 1% annual inflation of the coin supply without a hard cap. Peercoin achieves this increase in supply by rewarding everyone who helps secure the network with freshly minted peercoins, proportionate to their level of participation. Because of this limited inflation, similar to a banking interest rate, those who do not participate in the minting process will feel economic pressure to act with their investment.
As we mentioned in Part 1 of this video series, Proof of Work will continue to trickle out new coins to give new opportunities for miners to enter the ecosystem. However, the rate of this trickle is designed to decrease as more mining power is directed at the network. After one year, in 2013, annual growth in the coin supply was down to about 8%, whereas at the time of this recording, in 2019, it’s well below 3%. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the Proof of Work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The final component affecting the Peercoin supply are the transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which reduces the supply by permanently removing coins from circulation! The destruction of fees implies that all coin holders are rewarded for increased usage of the chain. The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is tiny, but with enough transactions that can really add up. The transaction fee also improves security and decentralization by deterring spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting. Peercoin’s transaction fees counterbalance the supply of new coins produced by mining and minting, offsetting or moderating the inflation rate without the need for hard limits. Now that’s impressive!
In the end, the Peercoin supply is allowed to breath through a continuous and regulated stream of new coins that will enter the system through mining and minting, and a reduction through burned fees. This economic model stimulates circulation of coins by encouraging spending, helping to avoid the creation of an economy full of hoarders, which is the risk with the fixed-supply model of Bitcoin. The forethought that went into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world and codifies it into an incorruptible blockchain protocol. Peercoin truly is the best of both worlds!
We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? 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 like Nagalim’s changes. I’ll make some comments, and add one or two counter-suggestions, in due course.
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 broadly promises 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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, such that its and due to this hard limit, Bitcoin’s core economic principle is one of deflation.
At the end of the day, the fundamental problem that cryptocurrency seeks to fix is not inflation. In fact, global economies have explicitly shown that a well regulated inflation rate of about 1-3% is critical to incentivizing the use of currency. The problem is inflation that is excessive and centrally controlled. Therefore, the solution is not zero inflation, but inflation that is limited and decentralized. This is the heart of Peercoin’s economic model.
Peercoin Proof of stake minting in Peercoin allows for a 1% annual inflation of the coin supply without a hard cap. Peercoin achieves this increase in supply by rewarding everyone who helps secure the network with freshly minted peercoins, proportionate to their level of participation. Because of this limited inflation, similar to a banking interest rate, those who do not participate in the minting process will feel economic pressure to act with their investment.
As we mentioned in Part 1 of this video series, proof of work mining will continue to trickle out new coins to give new opportunities for miners to enter the ecosystem. However, the rate of this trickle is designed to decrease as more mining power is directed at the network. After one year, in 2013, annual growth in the coin supply was down to about 8%, whereas at the time of this recording, in 2019, it’s well below 3%. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the proof of work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The final component affecting the Peercoin supply are is the transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which reduces the supply by permanently removing coins from circulation! The destruction of fees implies that all coin holders are rewarded for increased usage of the chain. The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is tiny, but with enough transactions that can really add up. The transaction fee also improves security and decentralization by deterring spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting. Peercoin’s transaction fees counterbalance the supply of new coins produced by mining and minting, offsetting or moderating the inflation rate without the need for hard limits. Now that’s impressive!
In the end, the Peercoin supply is allowed to breath through a continuous and regulated stream of new coins that will enter the system through mining and minting, and a reduction through burned fees. This economic model stimulates circulation of coins by encouraging spending, helping to avoid the creation of an economy full of hoarders, which is the risk with the fixed-supply model of Bitcoin. The forethought that went into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world and codifies it into an incorruptible blockchain protocol. Peercoin truly is the best of both worlds!
We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? 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!
Just a couple edits. Overall I am pleased with Nagalim’s updated version. It was probably a good idea to simplify the language in the PoW section and lose some of the heavy details on how it works. That can be saved for University. I wanted to make sure we specifically mention 21 million coins in reference to the fixed-supply model, so we can make sure everyone knows what we are talking about. Most people have probably heard the 21 million hard cap number and this small edit helps them associate it with the term fixed-supply (for those who might be unfamiliar with economic terms).
Also for people who are watching this video as their first, I just wanted to make sure we connect proof of stake with the term minting and proof of work with the term mining. I’m more concerned about the former, since the overall crypto community usually calls it staking, rather than minting.
Yes, hopefully tomorrow …
Sentinel’s changes to Nagalim’s draft are minor, so I’m going to assume that, unless someone says otherwise, they are accepted – this enables me to comment on Sentinel’s most recent draft, rather than refer back to Nagalim’s draft. (having said that, I have reversed a couple of Sentinel’s changes, which hopefully Sentinel will see the reason for!).
Fundamentally, I have suggested changes to the first two paragraphs, which I want to explain. Our message is that moderate inflation is good, and that zero-inflation is bad, but I think the previous draft, referring to bitcoin being deflationary, etc. is going in a little too fast and hard. Also, we don’t have a smooth link from the first paragraph to the second, so I have moderated the message so that we can evolve the argument.
Also, I think the paragraph on fees, and the concluding paragraph, are stepping on each other’s toes, as they are both explaining the economic model. I have therefore moved two sentences on economics from the paragraph on fees, so that this paragraph now deals with fees alone (i.e. technical description and spam prevention). This allows the economic role of fees, and their interaction with minting, to be explained in a longer final paragraph. I also think we have under-explained the fee destruction in terms of the breathing, so I’ve added some text to explain this, and to avoid duplication from the merging of text.
Thus, we get something like this:
1st explanation of economic model (in general terms)
POS inflation - technical explanation
POW inflation - technical explanation (and isolation)
Fee destruction - technical explanation
2nd explanation of economic model (in specific terms of minting and fees)
A few other points:
I’ve taken out Chronos’ exclamations (e.g. “Now that’s impressive”) because the script has changed from the original. It will be better to let Chronos suggest any alterations after he’s read the final script, so they fit naturally.
When we say 1% inflation, we are talking about a 1% coin injection (as opposed to 1% net inflation). Hopefully, that comes across.
In the final paragraph, I’ve replaced “mining and minting” with just “minting”, since we’ve explained that mining’s implications are temporary, thereby allowing the paragraph to deal with just minting and fees.
I’ve taken out the very last sentence, regarding forethought, because I think this type of observation is best left for the final video – but I’m open to persuasion!
Anyway, see what you think. Comments welcome.
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In this video, we are going to talk about Peercoin’s economic model. Cryptocurrency broadly promises 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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, and so does not fully represent the asset it is always compared to. After all, even gold produces a little inflation from the small amount that is mined each year . This means Bitcoin’s economic principle effect is one of deflation . In fact, history shows a moderate inflation rate works to avoid hoarding, and to incentivise the use of currency .
At the end of the day The fundamental problem that cryptocurrency seeks to remove, therefore is not inflation, itself In fact, global economies have explicitly shown that a well regulated inflation rate of about 1-3% is critical to incentivizing the use of currency but inflation that is excessive, and centrally controlled, and open to manipulation. The solution is not no inflation at all, 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 through its proof of stake minting. There is no a hard cap . Peercoin achieves this increase by distributing freshly minted peercoins to everyone who helps secure the network, proportionate to their level of participation. The minting reward is not unlike a banking interest rate; it rewards those that save (that is to say, mint) while providing subtle economic pressure on those who do not participate in minting to act with their investment.
As we mentioned in Part 1 of this video series, proof of work mining will also trickle out produces new coins, to give new opportunities for miners to enter the ecosystem. However, the rate of this trickle flow is designed to decrease to a trickle as more mining power is directed at the network. After the first year of Peercoin, in 2013, annual growth in the coin supply was down to about 8%, whereas and now, at the time of this recording in 2019, it’s well below 3%. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the proof of work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The final component affecting the Peercoin supply are is the transaction fees . Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which reduces the supply by permanently removing coins from circulation [ remove exclamation mark ] The destruction of fees implies that all coin holders are rewarded for increased usage of the chain . The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is tiny, but with enough transactions that can really add up. The transaction fee also improves security and decentralization by deterring deters spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting. Peercoin’s transaction fees counterbalance the supply of new coins produced by mining and minting, offsetting or moderating the inflation rate without the need for hard limits. Now that’s impressive!
In the end In effect In essence, the Peercoin supply is determined through a continuous and regulated stream of new coins that will enter the system through mining and minting, and a reduction of coins through burned fees. In times of high economic activity, more transaction fees are burned, tempering the 1% inflation; in times of low expenditure, the 1% inflation This economic model stimulates circulation of coins and encourages spending. This allows the Peercoin supply to breathe, and so avoid the creation of an economy full of hoarders stashers, which is the risk with the fixed-supply model of Bitcoin. The forethought that went into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world and codifies it into an incorruptible blockchain protocol. Peercoin truly is the best of both worlds!
We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? In the next video, we’ll get into Peercoin’s mission.
With changes incorporated:
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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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, and so does not fully represent the asset it is always compared to. After all, even gold produces a little inflation from the small amount that is mined each year. In fact, history shows a moderate inflation rate works to avoid hoarding, and to incentivise the use of currency.
The fundamental problem that cryptocurrency seeks to remove, therefore is not inflation itself, but inflation that is excessive, centrally controlled, and open to manipulation. The solution is not no inflation at all, 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 through its proof of stake minting. There is no a hard cap. Peercoin achieves this increase by distributing freshly minted peercoins to everyone who helps secure the network, proportionate to their level of participation. The minting reward is not unlike a banking interest rate; it rewards those that save (that is to say, mint) while providing subtle economic pressure on those who do not participate in minting to act with their investment.
As we mentioned in Part 1 of this video series, proof of work mining also produces new coins, to give new opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more mining power is directed at the network. After the first year of Peercoin, in 2013, annual growth in the coin supply was down to about 8%, and now, at the time of this recording in 2019, it’s well below 3%. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the proof of work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The final component affecting the Peercoin supply is transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which reduces the supply by removing coins from circulation. The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is tiny, but with enough transactions that can add up. The transaction fee deters spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting.
In essence, the Peercoin supply is determined through a continuous and regulated stream of new coins that enter the system through minting, and a reduction of coins through burned fees. In times of high economic activity, more transaction fees are burned, tempering the 1% inflation; in times of low expenditure, the 1% inflation stimulates circulation of coins and encourages spending. This allows the Peercoin supply to breathe, and so avoid the creation of an economy of stashers, which is the risk with the fixed-supply model of Bitcoin.
We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? In the next video, we’ll get into Peercoin’s mission.
I have a wedding to go to on Sunday, so I’ll need to do my work on the scripts on Saturday. I’ll try to look at this before then if possible.
I will definitely not have space to include this in video 5. It will need to stay here where it is talking about economics. The problem is Sunny’s quote and the final conclusions take up some space that I will need to work around.
This is only true before RFC0011. The ambiguity here is intentional. The long-term ideal for Peercoin currently is that of ~1% net inflation. That said, I don’t think we should state 1% explicitly in the last paragraph there, as the PoW inflation currently dominates the inflation rate.
I’m fine with the efforts to remove this word. I think it is abused in Bitcoin culture anyway, in an attempt to make a bug (people losing access to their coins) into a feature.
I also would like this put back in. In addition, I think the statement that fees reward coin holders for increased chain usage is important, and part of the economic model in my opinion.
I also added a portion about using Raspberry Pis and being your own bank.
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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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, and so does not fully represent the asset it is always compared to. After all, even gold produces a little inflation from the small amount that is mined each year. In fact, history shows a moderate inflation rate works to avoid hoarding, and to incentivise the use of currency.
The fundamental problem that cryptocurrency seeks to remove, therefore is not inflation itself, but inflation that is excessive, centrally controlled, and open to manipulation. The solution is not no inflation at all, 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. There is no a hard cap. Peercoin achieves this increase by distributing Freshly minted Peercoins are given out every block as a reward for helping to to everyone who helps secure the network, which can be done from home on a machine as small as a Raspberry Piproportionate to their level of participation. The minting reward allows you to truly be your own bank, as it provides interest on your savings and is not unlike a banking interest rate; it rewards those that save (that is to say, mint) while providing subtle economic pressure on those who do not participate in minting to act with their investment.
As we mentioned in Part 1 of this video series, proof of work mining also produces new coins, to give new opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more mining power is directed at the network. In 2013, after the first year of Peercoin , in 2013, annual growth in the coin supply was down to about 8%., and now, At the time of this recording in 2019, it’s well below 3%. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the proof of work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The final component affecting the Peercoin supply is transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which benefits all coin holders for usage of the chain by reducing reduces the total supply with every transaction. The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is tiny small, but big enough to, but with enough transactions that can add up. The transaction fee deters spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting.
In essence, the Peercoin supply is determined through a continuous and regulated stream of new coins that enter the system through minting, and a reduction of coins through burned fees. In times of high economic activity, more transaction fees are burned, tempering the 1% inflation rate; in times of low expenditure, the 1% steady inflation stimulates circulation of coins and encourages spending. This allows the Peercoin supply to breathe, and so avoid the creation of an economy of stashers, which is the risk with the fixed-supply model of Bitcoin. The forethought that went into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world and codifies it into an incorruptible blockchain protocol. Peercoin truly is the best of both worlds!
We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? In the next video, we’ll get into Peercoin’s 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 incorruptible protocols. Bitcoin is sometimes referred to as “digital gold” because its total supply cannot be controlled by centralized institutions. However, in contrast to actual gold, Bitcoin has a predetermined fixed-supply of 21 million coins, and so does not fully represent the asset it is always compared to. After all, even gold produces a little inflation from the small amount that is mined each year. In fact, history shows a moderate inflation rate works to avoid hoarding, and to incentivise the use of currency.
The fundamental problem that cryptocurrency seeks to remove, therefore is not inflation itself, but inflation that is excessive, centrally controlled, and open to manipulation. The solution is not no inflation at all, 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 for helping to secure the network, which can be done from home on a machine as small as a Raspberry Pi. The minting reward allows you to truly be your own bank, as it provides interest on your savings and subtle economic pressure on those who do not participate in minting to act with their investment.
As we mentioned in Part 1 of this video series, proof of work mining also produces new coins, to give new opportunities for miners to enter the ecosystem. However, the rate of this flow is designed to decrease to a trickle as more mining power is directed at the network. In 2013, after the first year of Peercoin, annual growth in the coin supply was down to about 8%. At the time of this recording in 2019, it’s well below 3%. Peercoin shares a mining algorithm with Bitcoin, so as the mining industry progresses, the impact of the proof of work component of Peercoin on the inflation rate will gradually and smoothly diminish until it is negligible.
The final component affecting the Peercoin supply is transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed, which benefits all coin holders for usage of the chain by reducing the total supply with every transaction. The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which is small, but big enough to deter spam transactions which bloat the size of the blockchain. This helps keep the blockchain a healthy size, enabling coin holders to store the whole chain on their computer and participate in minting.
In essence, the Peercoin supply is determined through a continuous and regulated stream of new coins that enter the system through minting, and a reduction of coins through burned fees. In times of high economic activity, more transaction fees are burned, tempering the inflation rate; in times of low expenditure, the steady inflation stimulates circulation of coins and encourages spending. This allows the Peercoin supply to breathe, and so avoid the creation of an economy of stashers, which is the risk with the fixed-supply model of Bitcoin. The forethought that went into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world and codifies it into an incorruptible blockchain protocol. Peercoin truly is the best of both worlds!
We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency? In the next video, we’ll get into Peercoin’s mission.
Excellent, I have suggested some minor alterations below.
I’ve a couple of other ideas, will put that in a second post.
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A few further comments, that may require discussion:
Fees: Regarding the part Nagalim has reinserted: “which benefits all coin holders for usage of the chain by reducing the total supply with every transaction”.
My feeling is that this muddies the water. Our argument is that it is the dynamic interaction of fee destruction vs inflation that benefits users and economy, but here we are saying a mild form of deflation alone is beneficial. To me, we’re trying to “have our cake and eat it”. Plus, there are so many concepts in this video, this extra one, which is mentioned almost in passing, will distract/confuse people.
Final paragraph: I see the sense in not mentioning 1% inflation, but I still like the idea of retaining a reference to 1% - how about this?
In times of high economic activity, more transaction fees are burned, tempering the inflation rate; in times of low expenditure, the 1%
inflationcoin increase stimulates circulation of coins and encourages spending.
Forethought: above, I’ve suggested taking out “Peercoin truly is the best of both worlds” as it might sound a little “cheesy” - but I want to make a further suggestion: could we not reverse the emphasis of this sentence, so it reads:
The forethought that has gone into Peercoin’s economic model
echoesavoids centuries ofgoodbad practice by financial institutions around the world and codifiesitgood practice into an incorruptible blockchain protocol.
I’m fine with either way on each of these points. Let sentinel make the final decisions. I think we’re pretty much wrapping up here.
I just wanted to say that I finally went through all of this. It looks great. I just need to find a moment to make a wrap up post, hopefully after work today.
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Peerchemist agrees with you that we should remove this part of the sentence. If we’re talking about limited inflation, then we want to avoid sending mixed messages to the viewer.
He also said this though…
I’m trying to figure out if that is better included in this script or the next one.
I think “destroyed” is a bit heavy; can we change it to “extinguished”?
Also, I think “circulation” should be changed to “the blockchain”.