Bitcoin Forum

UPDATE:

The 2 quotes below changed my viewpoint of proof-of-stake. I had originally thought that the interest provided by proof-of-work cryptocurrencies would act as inflation. If you wonder the same thing, then read these quotes to answer that question:


Thank you to both of them.

Previously, I had encountered this quote on PPC which caused my concern:

- Referenced Wikipedia article: http://en.wikipedia.org/wiki/Peercoin  (http://en.wikipedia.org/wiki/Peercoin)



And as a bonus side-note, for anyone who says that Bitcoin (or any cryptocurrency) is a waste of energy, here is a good quote:
Reference: https://en.bitcoin.it/wiki/Myths#Bitcoin_mining_is_a_waste_of_energy_and_harmful_for_ecology

Proof of stake has nothing to do with creating more coins, you use existing coins to sign the block.

From what I understand that is only part of proof-of-stake's function. Yes you sign the block with existing coins, but you also get a percentage of new coins based on the coin age. For example: isn't there a 1% return on aged coins with PPC? And how about Philosopherstone (PHS) with a 50% annual interest paid based on the proof-of-work system?

There maybe some specific implementations that operate the way you suggest. But, proof of stake itself does not need to be any different, inflation/deflation wise, from proof of work.

What about this:
- Referenced Wikipedia article: http://en.wikipedia.org/wiki/Peercoin  (http://en.wikipedia.org/wiki/Peercoin)

Lets' say the PoS is at 1%. If the TxFee of was destroyed, and the TxFee was calculated to be 1% of the overall amount of coins you'd be sending, wouldn't it just cancel it out, and create newer, unused coins? That would make it harder to track you down if you sent a LARGE bunch of (small) unused outputs [Coin Control], right?

It would destroy some of the coins, and make it so they would no longer be traceable, or something? [Sorry for any misconceptions, I'm a newbie to this stuff]. 

I'm interested in this topic as well. I never really understood proof-of-stake.

that's not proof of stake. the example you provided merely shows a proof of stake coin with inflation. proof of stake can be implemented without inflation.

https://en.bitcoin.it/wiki/Proof_of_Stake (https://en.bitcoin.it/wiki/Proof_of_Stake)

I never understood it either. It's always promoted as being "better". It just sounded like an energy-saving method or something (that is what is promoted as a good feature of it). So I decided to read as many articles on it as I could find to finally get a grasp of how it works. I highly suggest you do the same. Educate yourself.

Some of our future money supplies are being crippled by built-in inflation!

Kind of like I said earlier, right? It would be more anonymous, too? [don't know if that is true].

Can you name one coin that implements proof-of-stake without any form of inflation?

I'd say a coin with both proof-of-stake and proof-of-work and without the inflation, would be a very great coin indeed! I am not aware of one that exists.

So you want a cryptocoin network that never creates any coins?

There is nothing wrong with 1% inflation.

Where did you get that from? Perhaps you should read more of what has been written before replying.  Of course they have to get made. I want coins coming out of work done, not just minted for the fact that someone owns some.

Luckily it is only 1%, but why? The question is: why does there have to be any inflation? Who felt it was necessary to add that? Are we just so unable to think beyond the chains that have already been given to us that we can't free ourselves?

It's like the guy who is in prison for half his life and gets out. He creates a bedroom with bars on the windows and a prison-like setting because that's all he knew and it makes him comfortable to be in the same setting again.

As far as I know, there is no coin that supports PoS without inflation. It would be a cool concept, and I'd be happy to make it, if I knew how. Basically, you'd have to send 1% of the coins as a TxFee, and destroy the TxFee in each Transaction. Then, you put the PoS's 1% interest in play. You destroyed 1% of the coins, and are now getting it back, but without the previous history behind each one. It's a brand new unspent output in place of your previous coins! :)

Inflation is bad, deflation isn't too hot either though.
Ideally you want to tie money quantity to population, problem is that can only be done with fiat currencies and those love their inflation too much

Is NO ONE seeing MY posts? I'm trying to make it as clear as day that there doesn't have to be inflation OR deflation. You can just have new unspent outputs instead of your old coins! Gah! I give up trying to make people around me see my reasoning. :(

Edit: sorry for being rude, I just have had a bad day. I just didn't realize people WERE reading my posts about PoS not being bad.

I replied to the original post, not to you.
Also, all the currency at the moment has either inflation, deflation, or both. Bitcoin is (eventually) deflationary in nature in that there is a finite amount and once minted no more coins would be made, while population increases and old coins are lost.

I was saying that the only way to stop it is to have fiat currency that is tied to population count, eg, 1000$ per citizen. at census either print more OR "spend" some tax money to destroy money to keep the value at 1000$ per citizen.
The problem is that no government fiat money would ever do that since they use it as stealth tax and don't give a damn about the quality of their currency.

Although the effects of deflation on cryptocurrency is mitigated (unlike other forms) because being digital currency they can be infinitely divided as needed. And to begin with deflation is not a big deal anyways, unlike inflation which is horrible

why don't you make one?

NEXT is PoS coin without inflation.
https://bitcointalk.org/index.php?topic=345619.0
 (https://bitcointalk.org/index.php?topic=345619.0)

If one wants a non expending money supply with a PoS system it is a simple matter to combine the Demurrage feature in Freicoin with a PoS reward such that the two cancel out.  Effectively your demurrage is refunded when the user sighs a block.  The rate of positive 'interest' from a PoS reward system can be more then, less then or equal to the demurrage rate such that the net rate of interest can be any desired quantity including zero. 

Personally I do NOT think a fixed supply of coins is desirable, coin supplies should grow (or shrink) with the demand such that they maintain equal purchasing power over long periods of time.

I like your idea and think it's good if implemented and works just like you say. Then that would be great!

I would if I had the programming know-how

Awesome! How many coins max is there? (I hope not hundreds and hundreds of millions like some of these coins)

In PPC transaction fees (currently 0.01 per kB) are destroyed.
So, with high transaction volumes it's even likely to experience deflation in total money supply.
Even now sometimes blocks with a high number of tx's contribute negatively to money supply.

So it's a dynamic system, I'd never call it truly inflationary.
In fact, it might prove to be even more deflationary than capped-supply coins.

I see your point, but I disagree. I don't think it is a good idea to have the supply grow or shrink with "demand". If the entire supply is used up, a new one can be made. But this way it does not devalue (or increase the value of) the existing currency.

I do like your idea of equal demurrage and interest cancelling eachother out

Bitcoin has inflation, too.  Every time new bitcoins get mined the bitcoin economy experiences a bit of inflation.  Of course, that inflation ends when all bitcoins have been mined.  Additionally, the inflation is offset a little by lost coins.  In the balance of things bitcoin is deflationary.

A PoS system like peercoin contains inflation by design but not in a static 1% way.  At first the inflation comes from both PoW coins and PoS coins coming into existence.  As with bitcoin, the PoW inflation will end when all PoW coins are mined.  However, unlike bitcoin, peercoin destroys coins with every transaction. They go poof and exit the system.  This is done to offset the inflation caused by new PoS coins coming into existence.  Interestingly, I believe if everyone spends there peercoins immediately the peercoin system can actually become deflationary because more coins will be destroyed during the transactions than are created by PoS work.  Therefore, overall peercoin is not exactly 1% inflationary.

The peercoin designers did not design peercoin as a micro-transaction system.  They want it to be more like a savings account that earns interest. Therefore they reward people for saving their coins by allowing savers to mint new PoS coins.  PoS minting also has other benefits as described here:

https://en.bitcoin.it/wiki/Proof_of_Stake

I'd wait until we see their source code before jumping on board.  I certainly hope they have a solution though because a pure PoS system is something that would really help crypto-currency get out of the bubble-nature it is in now.

Good points and well said

Yeah I'm a little cautious too. It sounds good, but their software is written in java and could be dangerous potentially. Also, it seems like all their coins exist already and are in the hands of 73 rich individuals? I could have that wrong but sounds weird.

All peer-to-peer crypto currencies must have inflation by design. How else could you bootstrap it?

Absolutely no one would use a coin that had no mining and all coins existed before the first block.

Inflation =! an increase in money supply.
Inflation = a decrease in the value of a currency which is caused by an increase of its quantity divided by market size.
When the market size is fixed (eg, 100% penetration of a fiat currency that is legal tender and required by law to be accepted by everyone in a nation) then any printing of new money causes inflation.

But with bitcoin while new coins are being created, the market size & the number of people participating is increasing much faster than new coins are minted and as a result bitcoin is experiencing deflation (value of money rising) despite new mining (as can be seen by the rapid rise of its value)

It promises a lot but its currently closed source and doesn't explain how it intends to deliver on any of those promises.

"Printing money for no work done" is not what is happening, the network is being secured--that is work. It isn't motivated by greed. Who gains from it? Certainly not the early adopters. There is no debt that becomes easier to repay for the network by printing more money. The reality is a small amount of inflation mildly counteracts the free lunch hoarders get over spenders. Spenders pay for the network with transaction fees. Hoarders benefit for doing nothing. With mild inflation, the hoarders must pay some small share for protecting their wealth, rather than relying on others. Try to think a tad more critically.

PoS coins are and always will be of limited use. They are best served as local currency issued by a sovereign. They are more useful if they can be merge-mined and exchanged with Bitcoin. As a general use global payment system and reserve currency, Bitcoin's PoW is more trustworthy as there is no real danger of reversing a transaction. As a local currency, transaction reversal may be desirable if it is only possible by the authorities.

Reading through this thread it becomes stunningly apparent that most of you have not done any sort of in-depth research into the mechanics behind Peercoin, and rather are relying on the BTC-e trollbox for information. Please read the thoughts of PPC developer Sunny King into why PPC has been designed the way it has been.

As well, because it bothers me to continually read the same tired arguments, you should NOT be thinking of 1% PoS rewards in the same way as fiat inflation.

Let's say in society I'm holding $100. Let's also say that there is $1000 total in the country held by 10 people including yourself (the money supply). Everyone has $100 in this scenario.

Traditional 1% inflation is if the Government prints an extra $10. Now, I only have $100 out of $1010 total, meaning my relative purchasing power has decreased. This makes me unhappy as a holder of the currency, and is the lens that many of you are thinking of the mechanics of the coin.

With Peercoin, EVERYONE GETS the 1%, assuming you choose to secure the network with PoS minting. Your relative purchasing power has not changed. Everyone has the chance to hold $101 / $1010 (10% of the money supply) so to speak, which is no different than $10 / $1000.

The only difference is that this 1% PoS reward mechanism secures the network, and is offset by transaction fees. It is a useful form of work.

It's 1% inflation if everybody mints and nobody spends since coinage is required for minting. So in practice, pos inflation will be way way way lower than 1%. Another catch is that 0.01 tx fee is destroyed inflating the currency. I found the design is actually clever.

Peercoin's PoS is a decentralized increase in the money supply based on the amount of coins you own. It is not bad at all. It is possible to increase the money supply and sill not have inflation. It is exactly the same as if you were to add more decimal places onto the end of Bitcoin. You have more tradeable units but the value stays the same. With Peercoin, you mint more coins, so your value stays the same because you have received more coins.  It is decentralized inflation, which is different than traditional inflation. It is not a top down approach, it is a bottom up approach that is distributed fairly.

The 1% PoS minting is like a gradual stock split.

The .01 tx fee works like a super-mini reverse stock split.


Peercoin has both of these features.

Very good points. You actually shifted my viewpoint when I read this. I see how because everybody is getting the increase, then it is not actually acting as inflation. It's acting in the same manner that moving the decimal place over would have. (As the poster at the quote below stated)

I suppose paper wallets would be the only poor method of storage for these proof of stake coins then because then you would not be getting that 1% right? Which is ironic if PPC is supposed to be intended as a longterm store of value. I don't want to keep my coins on my computer for 5-10 years. Do I have this correct: You'd have to keep your coins online at least once a week or some such interval so that they get the percentage increase? They wouldn't just magically get an increase sitting offline somewhere right?

That one factor is unfortunate, but at least I understand the overall picture to be brighter now: Everyone has the choice (by keeping their coins connected up in a digital wallet) to allow their coins to receive the extra 1%. And no one is excluded from the 1% except by their own choice to keep their coins offline.



Well said and good analogy.

I think not many people (like myself) fully understand how proof of stake works. And if nothing else, I hope this thread can serve to help others realize how it works and bring an understanding to a larger group of people.

It seems that's what Bitcoin and this entire crypto-movement is all about: Raising peoples' understanding of a completely new technology.

Mass understanding will help to accomplish mass adoption.

You only have to connect to the Peercoin network roughly 4 times per year to mint the 1% per year on your coins. The mint amount is based on coin age and the max coin age is 90 days (so 4 times a year).

Yeah +1 for this post.... lot of misunderstanding here and bashing peercoin and POS with complete FUD and misconceptions.  May I add that Devcoin has no cap on the number of coins, there are different economic models and requirements and attractions.  Lot of information on

http://peercoin.net/
http://www.peercointalk.org/index.php
http://peercoinmyths.com/

We have a dedicated wiki for peercoin information and explanation on its way and we are working hard to educate people on POS and Peercoin in general... there is a LOT of wrong info flowing round.

I make a request to the OP of this thread to change the title of this thread to one that is more appropriate after they have read the entire of the feedback and formed a new opinion on POS.  

Fuzzybear

Yeah, suggestion taken. I have updated the title and first post to clear up this point. Maybe it will now help others become educated on it too.

Admittedly I haven't read the whole topic. Buy maybe I can help with some information about Proof of Stake (PoS) (https://en.bitcoin.it/wiki/Proof_of_Stake) in general or Peercoin in detail.
Forgive me if this is partly redundant. And please correct me if I'm wrong.

Peercoin has a blockchain which allows Proof of Work (PoW) (https://en.bitcoin.it/wiki/Proof_of_Work) blocks (that are just like Bitcoin's) and PoS (https://en.bitcoin.it/wiki/Proof_of_Stake) blocks.

The reward for the PoW blocks is not defined by block height (like it is at Bitcoin: starting with 50 BTC/block and being halved each 210,000 blocks), but by the difficulty of the PoW process.
At Peercoin the PoW reward is calulated as 9999/difficulty^1/4.
As you can derive from the formula, the PoW reward gets halved by a 16-folded difficulty. So the PoW reward decreases gradually if the hashing power of the PoW process grows.

The reward for the PoS blocks is calculated based on coin age. Peercoins that remain unspent in ones wallet gather coin age. Once they are "older" than 30 days they can mint PoS blocks.
Upon successful PoS minting the coins that have been used for PoS minting get rewarded. The reward is roughly 1% per coin year^{gloss 1}.

The PoW blocks are designed to have an average spacing between 10 minutes and 120 minutes.
The PoS blocks are designed to have an average spacing of 10 minutes.
As you can see, the majority of blocks is PoS: http://ppc.cryptocoinexplorer.com/chain/PPCoin?count=100&hi=86363 (http://ppc.cryptocoinexplorer.com/chain/PPCoin?count=100&hi=86363).

Although the PoW process is quite energy consuming, the PoS process is very low energy.
I have Peercoin running on a RaspberryPi causing 20% CPU load - and that RaPi is needing roughly 3 Watts (without load 2.5 Watts). So I take part in the PoS process with an extra of 0.5 Watts.

That is why it is often called energy efficient.

And regarding the "unlimited supply" I want to say that for sure there is a theoretically unlimited (in fact by code 2 billion) supply for Peercoins, but effectively it is limited.

• The reward for the PoW blocks gradually decreases.
• The reward for the PoS blocks is roughly 1% per year.
• The transaction fees are destroyed (in difference to e.g. Bitcoin)!

Currently there are more new Peercoins created than destroyed. So we have an inflation. I've calculated that based on a recent 2-week time frame as approximately 6.6% (I've calculated that some days ago; this is likely to decline as it did right from the beginning).

But Peercoin is quite young, and much less used for transactions than Bitcoin.
Where you have several hundred transactions (at average) per block at Bitcoin you have less than 10 (at average) per block at Peercoin. So there is not very much tx fee destroyed at the moment but will be once Peercoin is wider adopted.
The PoW difficulty is still low and thus the reward is still relatively high.
But even now the average block reward (PoW and PoS combined) for Peercoin is less than the reward at Bitcoin. I've calculated that recently as roughly 24 PPC per block (estimate for the blocks from 84046 to 86061 (http://ppc.cryptocoinexplorer.com/chain/PPCoin?count=2016&hi=86061))
And this is going to decline.
So we are far from "unlimited supply"!

Effectively there will be an equilibrium once the created (PoS, PoW) and destroyed (transactions) Peercoins are at more or less the same level. The increase of total supply will at least hugely decline.
The next year there will be roughly 1 million Peercoins created (depending on the PoW hash rate, the PoS minting, the transactions). With a total supply of close to 21 million Peercoins, this is less than 5% and assumably less than Bitcoin's inflation next year.

One last word about the PoS and the inflation that is caused by that.
You need to incentivize people to do any kind of appropriate minting to secure the block chain.
The PoS reward of 1% per year is that incentive for Peercoin's PoS.
For Bitcoin the incentive is (currently, mainly) the coinbase reward of 25 BTC per block.
This coinbase incentive will decline until the main incentive will be gathering the transaction fees. One can doubt that this will enough incentive to operate energy consuming mining devices (they need to pay off!). It will be interesting to see the network's reaction to the drop of the coinbase reward from 25 BTC to 12.25 BTC per block in approximately 2.5 years.
And a rising price of Bitcoin alone might not be sufficient as the maximum number of transactions is limited by maximum block size and the transaction fee is likely to be lowered if the Bitcoin price continues to rise (I remember tx fees of 0.01/kB for BTC!).
So there might be a total amount of tx fee for BTC per block. If this is not enough to incentivize the operation of mining devices, it will become risky...

PoS enables Peercoin to secure the block chain without those energy consuming devices. All you need is some low-energy device to do the PoS minting.
This is why Peercoin has a unique chance to sustain the network security independently from using lots of energy.

Please take this as a start. Gather information. Make up your own mind. Peercoin might be a bit more fascinating than it appears at first sight!


^{gloss 1}
Details can be found in the source code:

Here is the coin age that determines when you are eligible to mine a PoS block. This is (coin value) * (days since last tx, capped at 90 days, minus 30 days).
(code slightly simplified, see kernel.cpp)
STAKE_MAX_AGE = 60 * 60 * 24 * 90;
nStakeMinAge = 60 * 60 * 24 * 30;
int64 nTimeWeight = min(nTimeTx - txPrev.nTime, STAKE_MAX_AGE) - nStakeMinAge;
CBigNum bnCoinDayWeight = CBigNum(nValueIn) * nTimeWeight / COIN / (24 * 60 * 60);

The reward is then calculated based on the totally aggregated coin age since the last transaction:
(code simplified, see main.cpp)
nCoinAge = SUM( nValueIn * (nTime - txPrev.nTime) ) / COIN / (24 * 60 * 60);
int64 nSubsidy = nCoinAge * 33 / ( 365 * 33 + 8 ) * CENT;

Thank you for that post masterOfDisaster.

I am really quite interested in this system (PoS) now. It is quite ingenius in some regards, I'll admit that! I will keep reading on about it

I'm in the process of making a new revolutionary CryptoCurrency that uses Darknets to its advantage along with having a smaller blockchain size and being fair towards all miners, whether they come early or not. It also has PoS w/o inflation, and won't deflate.
I will keep you tuned on its progress.

That would be great. Try not to have too high of a total number of coins too. Then it will be the perfect coin. Fewer coins = higher value. 21 mil is good

This sounds interesting. But just out of curiosity:

How will you handle the distibution of the CrytcoCurreny?
How will you prevent inflation - just by not paying any rewards?
How will you incentivize miners to work on the blockchain - without paying some kind of reward (do you consider paying out the transaction fee)?

I'm really interested in the concept. I just need some help to understand how this shall work.