(script draft) Peercoin Primer #4: Economics

General
62

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.

+++++

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.

63

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.

64

Excellent, I have suggested some minor alterations below.

I’ve a couple of other ideas, will put that in a second post.

+++

65

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% inflation coin 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 echoes avoids centuries of good bad practice by financial institutions around the world and codifies it good practice into an incorruptible blockchain protocol.

66

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.

67

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.

1 Like
68

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.

69

I think “destroyed” is a bit heavy; can we change it to “extinguished”?

Also, I think “circulation” should be changed to “the blockchain”.

70

Robert, I need to finish this up. We are delaying this script too long. Video 3 will likely release today.

71

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 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 zero 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 to coinholders who help secure the network, which can be done from a home computer, or 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 Peercoin savings 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, 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. which reduces the total 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 small, but big enough to deter spam transactions which can 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 1% inflation from proof of stake stimulates circulation of coins and encourages spending. This allows the Peercoin supply to breathe, and so avoid the creation of an economy of stashers hoarders, which is the risk with the fixed-supply model of Bitcoin. The forethought that has gone into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world, while at the same time avoiding the abuses of centralization and by codifies codifying it into an a distributed and incorruptible blockchain protocol.

We have now seen that Peercoin is economically viable. But what is the overall purpose of this cryptocurrency blockchain? 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!

Comments

The use of a double negative here sounds wrong, so I’ve changed it back to zero.

I left in the word truly instead of removing it. This is a subtle jab at Bitcoin which often uses the “be your own bank” wording, although it doesn’t incorporate interest where Peercoin does.

I have just referred directly to 1% from PoS here instead of making it vague like inflation and coin increase. Now the viewer knows we are speaking specifically about PoS inflation here, excluding PoW inflation.

I don’t particularly like this word and have never heard it used before, so I’ve switched it back to hoarders. We also use the hoarding terminology toward the beginning of the script, so its use here is fine in my opinion.

We know what the purpose of a currency is already. I’ve changed the word to blockchain, since the next video needs to talk about the purpose of the blockchain itself (settlement layer).

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 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 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 coinholders who help secure the network, which can be done from a home computer, or 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 Peercoin savings 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, 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 reduces the total 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 small, but big enough to deter spam transactions which can 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 1% inflation from proof of stake stimulates circulation of coins and encourages spending. This allows the Peercoin supply to breathe, and so avoid the creation of an economy of hoarders, which is the risk with the fixed-supply model of Bitcoin. The forethought that has gone into Peercoin’s economic model echoes centuries of good practice by financial institutions around the world, while at the same time avoiding the abuses of centralization by codifying it into a distributed and incorruptible blockchain protocol.

We have now seen that Peercoin is economically viable. But what is the overall purpose of this blockchain? 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!

1 Like
72

I did not add anything about this yet. I just wanted to get it posted so Peerchemist could read the updated version.

73

I believe this is is not needed, as the point of Peercoin fee system is to prevent spam transactions and to avoid the fee market.

It’s actually among most expensive chains for the data storage, so I would not say “it is small”.

Irrelevant, that is just a cute consequence of the above.

74

Ok, so we need to work on this paragraph some more and somehow include the fee market stuff in there…

75

I don’t know. I’ve never thought this an important fact about Peercoin to spread around. I don’t think our fee system is about inflation at all, as I’ve said it’s just to get around having a fee market and prevent spam transactions. The “deflationary” aspect of it is just a consequence.

Burning fees also prevents actors from faking the on-chain transaction count like it’s done with Bitcoin-* where miner can just cycle his own coins through the blocks he’ll found anyway. In Peercoin that would not work as coins would be burned for good - thus no spam.

76

Just so everyone is aware, starting Friday I will be on vacation for about 8 or 9 days, so I’ll have a lot of time to contribute to finishing this project up. For the next couple days however, I will have limited time.

Just to confirm, you want us to eliminate this entire point from the text? It seems like an important thing to me (preventing chain bloating). I think it needs some more explanation why you think it’s not relevant.

77

Sane fee system prevents the blockchain bloat, and we have that. But blockchain “bloat” by itself is not a big deal, nobody would have any problems if Peercoin blockchain size would be 10 or even 20 times larger than now. Data storage is just too cheap these days.

78

If we implement Peerchemist’s comments, we have something like this:

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 total 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 small, but big enough to deters spam transactions that can 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.

The sentence regarding the fee market could then go on the end. However, have we not covered this, at least indirectly, in another video - the one where Chronos says PPC does not rely on miners’ fees, and is consequently unaffected by economic downturns? Perhaps we can “refresh” the viewer’s memory on this point, or is there perhaps another point we can make?

79

I think refreshing is good.

80

Peerchemist made some comments on the lack of a fee market in his interview under the question about small blocks and layer 2 scaling.

These are some points that I think were not covered in the previous videos.

81

There is also this:

In Peercoin, network maintenance is cheap because of proof-of-stake and the fact that block producers don’t compete for transaction fees. Instead, block producers are fairly and continually rewarded by a fixed block reward which will continue forever. Recently the same model was adopted by EOS. Because there is no competition for fees, there is no need to limit the block size artificially and make transactions scarce. Block size is only a technical question in Peercoin.