Team Update #42: Upcoming Changes to Peercoin's PoS Reward Economics

Blocked Consensus on RFC-0011

For over a year now the Peercoin Team has been discussing whether to implement RFC-0011, which would incorporate a dynamic reward system in order to increase the level of participation in PoS minting.

RFC-0011 has gone through a number of different iterations, including a recent rewrite of the RFC to feature a static/dynamic reward split, with a Medium article accompanying it. After continued discussion by the development team however, consensus was ultimately blocked on RFC-0011.

Team Consensus Achieved for RFC-0018

Instead we will replace it with a simpler proposal, RFC-0018.

This proposal implements an increase to the coindays-based reward and adds an additional supply-based component to the reward. The result is similar in effect to RFC-0011, but without the dynamic adjustment. In the short term, we can expect nearly identical behavior from this proposal as RFC-0011, though in the long term the coindays-based component will remain at its fixed rate value even if participation increases. As a result, the total inflation due to PoS can exceed 1%.

RFC-0018 is objectively less complex than RFC-0011 and has 2 concrete protocol benefits over RFC-0011. The first is that all ‘timing attacks’ as spelled out in RFC-0011 are nullified, because there is nothing to time. The second is that the decrease in complexity makes it much easier to code, implement, and maintain. It should be noted that we can always upgrade from RFC-0018 to RFC-0011 in the future if consensus changes or a more elegant solution is found.

The parameter choices used in RFC-0018 are critical to what we can expect from it. The ‘3%+0.25’ option as written can result in PoS inflation at a maximum of 3.25% if 100% of the network participated in minting (a practical impossibility). In reality, this proposal will likely result in PoS inflation between approximately 1-2% (which is in line with most prominent economic policies of the 21st century). Other potential options are referenced in the ‘alternatives’ section of the proposal.

Other than the higher inflation, the other change of note is that RFC-0018 does not provide a dynamic pressure to minters to participate on a regular basis. The static portion of the reward will still provide incentive to minters to make as many blocks as possible, which should have a direct positive effect on the PoS difficulty and security of the chain. The dynamic system of RFC-0011 implies a decrease in incentive for large amounts of minters that participate only once in a while, which we may want to consider when revisiting RFC-0011 in the future.

All in all, you should expect a 3x increase in mint rewards, plus around 1.25 ppc (which will slowly increase with time). So if you minted 0.5 ppc in a block yesterday, in v0.9 you would have minted around 2.75 ppc instead, which is a 450% increase in reward. This is clearly substantial on an individual basis and we expect that it will drastically change the economics and security of the chain for the better.

Developer Chat Log

For those who wish to delve even further into our reasoning for the change, we have decided to make a chat log available consisting of the past month of team development discussion with Sunny King pertaining to the PoS reward adjustment. You can view the full chat log at the link below…

PoS Reward Adjustment Developer Chat Log.html (637.4 KB)

Feel free to ask any questions you may have!

RC8 Released for Testing

RC8 has been released! For those helping us test v0.9, please update and resync your client. This is to be used on testnet only!

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The following comment was posted to our Twitter. I wanted to post my response here in case there is any confusion…

At current participation rates, it is likely PoS inflation will still be below 1%. Over the longer term, it will likely be between 1-2%, which is still consistent with our goal of limited inflation. Also, if you read the included developer chat log, you will see that Sunny King himself favors this proposal over RFC-0011, which tracks 1% exactly. So the idea that Sunny would oppose it is off base.


If we’re gonna be picky about it, it’s actual more like 3x ‘free’ coins. But calling them free completely loses the spirit of what proof of stake is, a grassroots method of securing the chain against doublespend. Anyone has the ability to participate in the minting process, and the reward is an incentive to participate in the consensus rather than abstain and ignore the process. Indeed, Peercoin will still have a low reward compared to other coins. Sunny actually lobbied hard for the view that the 1% number is arbitrary, as you can see in the transcript.

“even the annual inflation rate is a chosen constant in other coins. For example, v systems has fixed reward currently at around 5% annual inflation. Is 1% more optimal than 5%? I don’t think one can make such an argument. There is pros and cons, that’s all.” -Sunny

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I changed the title of this update because I think it might have been confusing to people.

I think this a great move for minting, my concern is, does the mining reward change at all?

Are we going have a situation of close to 10% coin/PPC inflation going off the last 7 days, esitmated 7 day inflation of just under 7% and we could see 2% from POS?

It could be dangerous if we have low hash power on the network with the increased coins from staking.

PoW difficulty adjusts when hashpower grows like this. Even if we made no changes, that 7% number you are quoting is transitory due to the difficulty not catching yet up since the bitcoin halving. The PoW difficulty has just about doubled in the last 4 days.