In this video, we’re going to talk about Peercoin’s mission, and particularly focus on the purpose of the Peercoin blockchain itself. Sunny King, the anonymous founder of Peercoin, said in 2013:
"… the cryptocurrency movement needs at least one ‘backbone’ currency, that maintains a high degree of decentralization, maintains a high level of security, but doesn’t necessarily provide a high volume of transactions”.
When Sunny talked about a backbone currency, he was actually introducing a concept that has now since become known in the crypto community as a settlement network. Before we delve further into this, we must first understand why decentralized blockchains are weak on scalability.
Specifically, it is difficult for a blockchain to remain decentralized while supporting an ever increasing number of users, transactions and functions. This is because additional strain is placed on the block producers who are processing these transactions. Many block producers are not equipped to handle the additional transaction load, resulting in a shrinking number of block producers and the eventual centralization of the blockchain itself.
Many blockchain projects have therefore had to transfer the scaling of transactions on the blockchain to scaling of transactions off the blockchain through the use of layered scaling solutions.
Layered scaling means the majority of transactions are conducted off the blockchain through separate, independent layers specifically built specifically for high volume or high speed transactions. This takes pressure off the blockchain, which need only be used to permanently record the final settlement. In this model, the blockchain is treated as the foundation upon which utilities are built so that the transaction capacity of the network can be expanded. An example of layer 2 is the Lightning Network, which was built to scale Bitcoin.
When Peercoin was launched in 2012, it was intended as just such a “settlement layer”. As Sunny King said in 2012, the mission of the Peercoin blockchain is to be thisfoundation, now known as a “settlement layer”. This shows incredible forethought by Sunny King as this was still several years before Bitcoin adopted this strategy as Bitcoin did not adopt this strategy until years later after it became obvious apparent the blockchain alone could not support mass global usage of a transactional cryptocurrency.
This means that From the outset, all of Peercoin’s design choices have been specially geared towards this single mission of being a foundational settlement or foundation layer, upon which second layers can be built, as opposed to, say, designing the blockchain to provide a high volume of on-chain transactions. We’ve discussed described these design choices in videos 1 to 4; to recap, they and some of the most important include: removing the conflict of interests between miners and coin-holders, by coin-holders doing their own minting; achieving an inexpensive security protocol based on scarcity of time, rather than electricity; allowing for 1% annual inflation to prevent deflation; and removing transaction fees as a means of paying block producers.
Peercoin’s These choices decentralise and secure Peercoin in the most efficient way, and make it mean that it actually acts a better settlement layer than Bitcoin than blockchains that do not have such characteristics. For example, blockchains that depend on transaction fees to pay block providers will likely find themselves in competition with 2nd layer operators who are also seeking fees. Peercoin’s security is maintained through a continuous block reward replaces transaction fees and so removes this source of conflict between the settlement layer and 2nd layer operators. This makes Peercoin more compatible with second layer scaling infrastructure than blockchains that rely on security through transaction fees, since it eliminates the conflict of interests inherent in both the settlement layer and the 2nd layer node operators chasing the same users for fees.
[Proposed new paragraph] “Let’s delve a little into how all this works a settlement layer and second layers interact” - is the secondary layer another blockchain? How does it talk to the base layer blockchain? How does the latter permanently record the actions of the secondary layer? I wonder if Perpera can be used as an illustration?
In conclusion, Peercoin benefits from a head start over all other blockchains in its mission of being a settlement layer for securely storing [is “storing” right? Recording? Managing?] all different types of utility. This can be anything from wealth being stored as peercoins, to data being stored on the chain in the form of tokens, records, or contracts [how does data on the change relate to second layers?]. Regardless of the type of value being stored, Peercoin was built with the fundamentals in mind to always ensure that your value remains safe and secure.