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.