So we would need to talk about how Bitcoin artificially limits its block size in order to get users to outbid one another to get their transactions included in blocks. This helps make mining more profitable and sustainable. Then we say why Peercoin doesn’t have to worry about any of this, how there is no fee market, which lets users easily get their transactions included in a timely fashion. Also that the fixed fee makes it easier to calculate. Can that be done without taking up too much space?
This is important to state in the economics video IMO.
No we don’t need to talk about Bitcoin, ever.
Skip to the point right away. Predictable transaction fees are a major feature.
I don’t see how we can say there is no fee market without first explaining to the viewer what a fee market is. If they don’t understand what it is in the first place, then telling them we don’t have one won’t really have any impact. We can’t make the mistake of assuming people know this already.
Bitcoin is def not the only blockchain network which uses the fee market. We can explain in one sentence what is a fee market and state: “like in Bitcoin, Litecoin, Ethereum,…” and then continue to explain how it’s done in Peercoin.
Here is a draft text on fees:
The final component affecting the Peercoin supply is transaction fees. Unlike Bitcoin, where fees are paid to miners, fees in Peercoin are destroyed. The size of the fee in Peercoin is fixed at a rate of 0.01 peercoins per kilobyte of data usage, which means cost of transactions can always be calculated easily, and users do not have to outbid each other.
And because Peercoin’s block producers – minters - are rewarded by a fixed minting reward, there is no competition among them for transaction fees, and therefore is no reason to limit the block size [by whom, individual block producers or network designers?], the effect of which is to [insert explanation].
But why does Peercoin even have a fee, if fees are to be destroyed? Well, there’s no such thing as a free lunch, and fees are necessary to deter spam transactions that can otherwise bloat the blockchain.
I think this is an idea that has been “evolved” into. It’s the point Nagalim made earlier, that fee destruction is beneficial as it keeps value within the eco system, as opposed to paying it out to miners. “Tempering inflation” and “breathing” gets across the general point that there isn’t simply a compound 1% interest, but that it is nuanced and organic. Maybe it is a perception point more than an economic one, but it seems to grab the imagination.
Well it’s slippery slope as we may end up painting the wrong picture. My point is that fees are not destroyed to “ease the inflation” (though many of old Peercoiners would say this) but to avoid having a fee market.
We could change the first part of the final paragraph to this:
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 expenditureThe 1% inflation from proof of stake stimulates circulation of coins and encourages spendingThis allows the Peercoin supply to breathe, andand so avoids the creation of an economy of hoarders, which is the risk with the fixed-supply model of Bitcoin.
Maybe we can drop the “Bitcoin” from this paragraph, and just state “fixed supply model”.
I’ve had another go at the section on transaction fees, and the concluding paragraph:
The final component affecting the Peercoin
supplyeconomy is transaction fees. Unlike crypto-currencies where fees are paid to miners, fees in Peercoin aredestroyedburned, meaning that Peercoin has no market in fees. The benefit of having no fee market is three-fold: first, Peercoin’s transaction fees are fixed at a rate of 0.01 peercoins per kilobyte of data usage, so the cost of transactions is easy tocalculatepredict; second, users do not have to outbid each other for a timely inclusion in the next block; and thirdly, the absence of competition among miners for fees means is no reason to limit the block size [ by whom, individual block producers or network designers?], the effect of which is to [ insert explanation].But why does Peercoin even have a fee, if fees are to be destroyed? Well, there’s no such thing as a free lunch, and a transaction fee is necessary to deter spam transactions that would otherwise bloat the blockchain.
Although the burning of fees implies a reduction of Peercoin supply, Peercoin is
designednotto bedeflationary, as the 1% inflation from proof of stake minting provides a regulated and continuous stream of new coins into the system. This mild stimulation encourages the circulation of coins and spending, and so avoids the creation of an economy of hoarders, which is the risk with currency models based on a fixed-supply of coins. The forethought, etc.
I think the final “forethought” paragraph needs more work. This is how it stands:
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.
Crypto people are a cynical bunch, and they might ask, “What good practice by financial institutions?”. I’ve smoothed the paragraph out to the following, which is a little understated, but I think that’s a good thing:
The forethought that has gone into Peercoin’s economic model eliminates bad practice by financial institutions seen over centuries, and codifies sensible economic practice into a decentralised and incorruptible blockchain protocol.
I like that, good one. You are right, crypto people have been made to believe that “financial institutions” == bad. We better avoid that.
Updated script below. It incorporates Sentinel’s earlier changes (e.g. on zero inflation), except possibly in the final paragraphs, where there are wider changes.
Can someone please check the paragraph on fees, to make sure it is technically correct.
One particular point that might need more focus is that we say “users do not have to outbid each other for a timely inclusion in the next block” – but is this not also a disadvantage? If someone wants to pay in a hurry, is bidding not a useful option? How can ALL Peercoin users be assured of a timely inclusion?
We say that “Peercoin shares a mining algorithm with Bitcoin”. Nothing wrong with it, but do we need to? Peercoin does not have the abrupt halving.
In an ideal world, we would explain blocks, but I really don’t think it is necessary in this video.
The main problem has been reconciling inflation and deflation - I think this is resolved in the first sentence of the paragraph commencing “Although the burning” - which leads us nicely into reminding the viewer why a little inflation is a good thing.
+++
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 must seek 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 economy is transaction fees. Unlike crypto-currencies which pay fees to miners, fees in Peercoin are destroyed burned, meaning that Peercoin has no market in fees. The benefit of having no fee market is three-fold: first, Peercoin’s transaction fees are fixed at a rate of 0.01 peercoins per kilobyte of data usage, so the cost of transactions is always easy to calculate predict; second, users do not have to outbid each other for timely inclusion in the next block; and thirdly, the absence of a demand by miners for fees means there is no reason for them to limit the block size, the effect of which is to increase fees.
But why does Peercoin have a fee at all, if fees are to be destroyed? Well, nothing is free in this world, and the fixed transaction fee serves the important function of deterring spam transactions that can otherwise bloat the blockchain.
Although the burning of fees implies a reduction of the Peercoin supply, Peercoin is designed not to be deflationary, as the 1% inflation from proof of stake minting provides a regulated and continuous stream of new coins into the system. This mild stimulation encourages the circulation of coins and spending, and so avoids the creation of an economy of hoarders, which is the risk with currency models based on a fixed-supply of coins.
The forethought that has gone into Peercoin’s economic model eliminates the bad practice by financial institutions seen over centuries, and codifies sensible economic practice into a decentralised 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!
Yesterday I was studying Peerchemist’s interview quote a little closer than I had before when it first released. Sometime today I’ll be going through everything in this thread since the last time I posted on Wednesday. Unfortunately we have to switch vacation houses today, which will delay me a little bit. I’ll reply back though once I’ve gone through it all.
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I needed to get some clarifications on the fee market topic from Peerchemist, which he just gave me.
I should probably post about this so others know as well…
Spam transactions consist of the following…
- Tiny dust micro-transactions (Peerchemist believes a transaction can be legitimate, no matter how small is it, however Peercoin’s fixed fee per kb is not friendly toward these types of transactions and weeds them out).
- Transactions that are faked by miners in order to pump the on-chain transaction count. The transactions are created by miners and they are recycled because the fees are paid back to them.
I also needed greater clarification on exactly what he meant by saying that burning fees avoids the fee market. In my opinion, you could still get rid of the fee market by instituting a fixed fee per kb without implementing fee burning. The fixed fee per kb and fee burning are completely separate functions after all. So my point to him was that Peercoin could disable fee burning and still avoid having a fee market.
Here was something he said in response…
At this point I realized that we just had a slight difference of opinion of what was meant by the term “fee market.” I included my response below…
I bolded the main takeaway of this discussion.
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If someone says “fruit & vegetable market”, everyone knows what it means, but “fee market” is a little more unusual. When I did the above draft, I first said “market in fees”, before referring to “fee market”, to hopefully flesh it out.
Suggestion: instead of “fee market”, why don’t we call it “fee process”.
Edit: what we are talking about is the removal of fee politics, and the effect that has on the economics.
Fee market is widely established expression for this in the crypto world, just google it.
I’m currently working on an update of the text. I should have something posted by tomorrow.
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