The backbone of cryptocurrency?Much like how you’ll likely run into the term “network effect” with Bitcoin, the term “backbone” seems impossible to avoid. Sunny King, the anonymous developer behind peercoin, designed it to exist in conjunction with other digital currencies. As such, the term backbone makes a good bit of sense.
This differs from Bitcoin, which attempts to exist as the sole proprietor of the cryptocurrency technology. In fact, that seems to be the opinion of many Bitcoin advocates – that really only one coin is needed in the economy, and anything else is nothing more than technological redundancy.
It seems obvious by now that there will be far more than one single crytpocurrency around for quite some time. As the market matures, they’ll all mold to coexist with each other – This, of course, remains to be seen, but either way, Peercoin is designed to play a specific role in a developed future ecosystem of cryptocurrency, and if it succeeds in that role it could become better than Bitcoin at one important function – a long term store of value.
And this is where many confuse Peercoin’s future and potential, as it’s often cited that Peercoin doesn’t function well for day-to-day transactions – and therefore isn’t of much use a cryptocurrency. Or that’s how the narrative goes, assuming a “one crypto take all” scenario. While it’s true that purchasing a new laptop computer on Overstock.com isn’t what Peercoin is best suited for, and that’s intentional in the design, it’s because it is intended to be used in tandem with other coins that’s fee structure and transaction times are far better suited to smaller, more frequent transactions.
In designing Peercoin, SunnyKing assumes that the crypto landscape will indeed resemble current financial markets. In that multiple financial instrument will differentiate themselves enough through various mechanisms such as interest rates and fees, among other things, in order to provide enough value on their own merit to justify a place in the markets for themselves.
If this indeed turns out to be the case, then Sunny King’s foresight could prove ingenious and Peercoin could very well adapt to become the “backbone” of cryptocurrency. In effect, Peercoin or “PPC” looks to be the bonds and treasuries market of the crypto world.
The .01 PPC fixed transaction fee.The transaction fee is a fundamental function in a coin and significantly affects the position it takes in the market. Peercoin’s transaction fee is cited by many as the sole reason that the coin could fail. The assertion being that the fact that the .01 PPC fee acts as a deterrent from making transactions, and therefore, what’s the point?
One thing to point out is that the fee is actually fixed per kilobyte of transaction data, not per transaction. Which means that Peercoin’s transaction fees are actually steeper than most think. In other words, most PPC transactions will result in a transaction fee of .01 PPC, but a transaction that exceeds the 1 kb threshold would result in a fee double, triple, or even ten times as high that. Essentially .01 fee is a minimum, and this has absolutely profound implications for PPC as a useful financial instrument.
Especially as PPC presumably grows in value. Currently, as PPC currently sits at a value of around $5.00 – That would mean that a .01 PPC fee (5 cents) would be reasonable if you wanted make a smaller purchase with it. But what if PPC reaches a value of $1000 USD? A minimum fee of $10 would certainly make buying your groceries via your Android PPC app very inefficient, to say the least.
At this point, we’ll remind you that Peercoin’s poor suitability for frequent transactions was intentional, and could potentially provide some much needed stability to the cryptocurrency markets. It is truly intended for use as a long term store of value. Admittedly, it does seem somewhat puzzling at first that transaction fees are set to operate in the manner that they do.. but after seeing the bigger picture, and how the fee works in cooperation with interest that incurs simply for holding your Peercoins, it all starts to make a bit more sense.
For one, the fee mechanism could potentially calm much of the volatility seen in Bitcoin. This is huge, and one of the main reasons Bitcoin hasn’t been as widely accepted as should be at this point. Market volatility has been an ongoing trait of the crypto markets and Peercoin looks to be the solution that’s needed. The transaction fee combined with the slightly inflationary nature of PPC could simultaneously provide deterrent of transactions, and incentive for holding, providing the stable, less volatile currency that could actually serve as the “backbone” of the market.
In short, the transaction fees only seem out of place before you realize exactly what Peercoin is attempting to become. A mechanism that increases the currencies stability is rather desirable once you understand that PPC is meant to serve as a type of “buffer” for the entire crypto ecosystem – and that’s exactly what the “high” fee does.
It also means that if PPC ever soars to $10,000 (only exploring hypotheticals, here..) then buying $100 worth of PPC would do nothing more than cover your transaction fee. This creates an interesting dynamic and fairly high barrier to entry that even further demonstrates Peercoin’s intent to serve as a long-term store of value, rather than a transfer of value.
Earn 1% PPC just for holding/securing the network.One of the benefits of proof of stake, in regards to Peercoin, is that simply by holding your coins and verifying your stake in the network, your stake will grow by 1% annually. This is made possible because, as a stake holder, you become the “miner” and will rightfully be compensated for doing your part in securing the network.
So if you’re holding and minting (minting is basically mining in proof of stake) 100 peercoins for an entire year, you will automatically receive an additional one Peercoin in the form of interest. If you hold 1000 PPC, you will, of course, gain 10 additional PPC as interest for the year. At a current value of $6 per coin, we admit that hardly seems like incentive. But lets say PPC reached $1000 USD – that would mean that you would incur an extra thousand dollars a year simply for holding on to your 100 PPC, and allowing your “stake” to do it’s part in securing the network.
This puts Peercoin in an interesting new class of cryptocurrecies and shoudn’t be underestimated in significance. Much of the debate in Bitcoin value is that it currently has very little use other than speculation (although that’s changing fast), and such will remain the case until Bitcoin has proliferated the online economy to where the amount of transactions justify the price. Peercoin on other hand has already attained as much exposure as it will ever need to be valuable on it’s own accord, as it already does something inherently valuable: it grows.
Another effect of the 1% interest is seen in Peercoin being slightly inflationary by nature. We’ would be quick to point out that this can be somewhat misleading if you don’t take the entire mechanism into account. Most associate inflation of money supply with hyper inflation that has been seen in fiat currencies, and assume any inflation is bad inflation. Not necessarily. There are far more factors to take into account, when judging the viability, and valuations of an asset, digital or not. Not to mention that there are actually more than one inflationary mechanism that would need to be considered.
For example, compared to Bitcoin – Just because the Peercoin is inflationary by nature, and Bitcoin isn’t – says nothing about the current growth rate of the money supply, which has far more immediate effects on market valuations. So while Bitcoin may have a hard cap at 21 million coins, and while Peercoin will technically never reach a hard cap at all.. that says little of the current growth rate of the coin supply.
Here’s a chart comparing the growth rate of the coins supply for both BTC and PPC – as you can see, that while PPC is indeed the inherently inflationary coin, the supply of new coins coming into the market is dwindling far faster than Bitcoin’s. We can only assume this will eventually be reflected in the price. Assuming the crypto market was rational, which it certainly isn’t at this stage, so it’s difficult to extrapolate.
We’re not arguing that Peercoin’s slightly inflationary nature is either a positive or negative feature for a cryptocurrency. Only that inflation isn’t inherently a bad thing as many may assume. It’s centralization that enables the abuse and manipulation of inflation that is inherently a problem. The bottom line is PPC’s inflation rate is purely a function of the holder of the coins receiving that 1% interest for securing the network. This is good inflation, and one of Peercoin’s many strong suits. So while the money supply grows.. just like dollars, the main difference is the fact that your stake in said money supply grows, as well. So there is inflation in the money supply, but no purchasing power whatsoever is lost by the coin holders.
Neat trick… Maybe the fed will start giving me a large enough tax refund to offset the inflation incurred on the dollar throughout the year, as well.
For full article, please visit:
http://cointrader.org/peercoin-proof-of-stake-and-bitcoin/
