Updated: Proof-of-Stake interest is safe and does not act as inflation.

[colinistheman]

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:

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.

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.

Thank you to both of them.

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

"Peercoin is designed so that it will theoretically experience a steady 1% "decentralized" inflation per year (inflation for each user is proportional to the number of coins they have), yielding an unlimited number of coins. This is a combined result of the proof-of-stake minting process, and scaling of mining difficulty with popularity.[1] Although Peercoin technically has a cap of 2 billion coins, it is only for consistency checking, and the cap is unlikely to be reached for the foreseeable future. If the cap were to be reached, it could easily be raised, hence for all practical purposes Peercoin can be considered to have inflation of 1% per year, with a limitless money supply."

- Referenced Wikipedia article: 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:

"Myth: Bitcoin mining is a waste of energy and harmful for ecology. Answer: No more so than the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again. Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc. As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others."

Reference: https://en.bitcoin.it/wiki/Myths#Bitcoin_mining_is_a_waste_of_energy_and_harmful_for_ecology

[1715068716]

1715068716

[yogi]

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

[colinistheman]

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?

[yogi]

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

Are you sure that's all? 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.

[colinistheman]

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

What about this:

"Peercoin is designed so that it will theoretically experience a steady 1% "decentralized" inflation per year (inflation for each user is proportional to the number of coins they have), yielding an unlimited number of coins. This is a combined result of the proof-of-stake minting process, and scaling of mining difficulty with popularity.[1] Although Peercoin technically has a cap of 2 billion coins, it is only for consistency checking, and the cap is unlikely to be reached for the foreseeable future. If the cap were to be reached, it could easily be raised, hence for all practical purposes Peercoin can be considered to have inflation of 1% per year, with a limitless money supply."

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

[branefreez]

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]. 

[DoubleMyCoins!]

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

[grue]

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

What about this:

"Peercoin is designed so that it will theoretically experience a steady 1% "decentralized" inflation per year (inflation for each user is proportional to the number of coins they have), yielding an unlimited number of coins. This is a combined result of the proof-of-stake minting process, and scaling of mining difficulty with popularity.[1] Although Peercoin technically has a cap of 2 billion coins, it is only for consistency checking, and the cap is unlikely to be reached for the foreseeable future. If the cap were to be reached, it could easily be raised, hence for all practical purposes Peercoin can be considered to have inflation of 1% per year, with a limitless money supply."

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

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.

[yogi]

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

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

[colinistheman]

I'm interested in this topic as well. I never really understood 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!

[branefreez]

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

What about this:

"Peercoin is designed so that it will theoretically experience a steady 1% "decentralized" inflation per year (inflation for each user is proportional to the number of coins they have), yielding an unlimited number of coins. This is a combined result of the proof-of-stake minting process, and scaling of mining difficulty with popularity.[1] Although Peercoin technically has a cap of 2 billion coins, it is only for consistency checking, and the cap is unlikely to be reached for the foreseeable future. If the cap were to be reached, it could easily be raised, hence for all practical purposes Peercoin can be considered to have inflation of 1% per year, with a limitless money supply."

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

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.

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

[colinistheman]

What about this:

"Peercoin is designed so that it will theoretically experience a steady 1% "decentralized" inflation per year (inflation for each user is proportional to the number of coins they have), yielding an unlimited number of coins. This is a combined result of the proof-of-stake minting process, and scaling of mining difficulty with popularity.[1] Although Peercoin technically has a cap of 2 billion coins, it is only for consistency checking, and the cap is unlikely to be reached for the foreseeable future. If the cap were to be reached, it could easily be raised, hence for all practical purposes Peercoin can be considered to have inflation of 1% per year, with a limitless money supply."

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

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.

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.

[yogi]

I'd say a coin with proof-of-stake and proof-of-work, without 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?

[Lauda]

There is nothing wrong with 1% inflation.

[colinistheman]

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

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.

[colinistheman]

There is nothing wrong with 1% inflation.

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.

[branefreez]

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!

[taltamir]

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

[branefreez]

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

Inflation is bad, deflation isn't too hot either though.

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.

[taltamir]

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.

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