Block Chain

Block Chain

Peercoin was the first Bitcoin-based monetary system to utilize proof-of-stake as a mechanism to make certain its integrity. However, there are some objections to Peercoin's proof-of-stake model. This short article presents those objections and also a similar system redesigned to address them.Block Chain

In a simplified version of Peercoin's proof-of-stake design, each node may use element of its balance as a stake allowing it to chain blocks. The larger that stake, the more chances this node has of increasing the block chain. The reward for chaining blocks is 1% of the used stake as newly minted coins, annually. Conversely, making transactions requires paying a fee that destroys 0.01 coins per transaction. For instance, after having chained a block using one coin of stake, Bob makes one transaction. Then, the fee of 0.01 coins he pays for causeing the transaction destroys the 0.01 coins he minted in reward for chaining that block.Block Chain Software

Listed here are five objections to this proof-of-stake model:

It amplifies wealth inequality. Suppose Peercoin is the only real form of money for both Bob and Alice. Bob's income is 200 coins monthly, while his expenses are 80% of his income. Alice's income is 800 coins monthly, while her expenses are 50% of her income. Assuming, for simplicity, that neither Bob nor Alice has any savings -- which Alice is prone to have -- Bob and Alice will have a way to reserve 40 and 400 coins as block-chaining stake, respectively. Then, Alice's block-chaining reward will be 900% bigger than Bob's, although her income is 300% bigger than his.Know more

It creates the money supply unstable. Inflation becomes directly proportional to successful block-chaining rewards, yet inversely proportional to paid transaction fees. This variable inflation adds a pointless supply of price instability to the rather inevitable ones -- exchange value of merchandise and velocity of money circulation -- thus unnecessarily reducing price transparency and predictability. Peercoin should have a reliable money supply, as Bitcoin could have after year 2140.

Whenever total paid transaction fees are less than total successful block-chaining rewards, all inactive or unsuccessful block-chaining nodes can pay a fee to all successful ones through inflation. This implicit value transfer disguises the cost of participating in the system. As coins upsurge in value, the (now 0.01 coins) transaction fee could eventually become too valuable, thus requiring Peercoin developers to lower it. However, choosing its new nominal value can be an economic decision -- rather than a technological one -- which creates a political problem. System integrity depends upon extrinsic incentives: both block-chaining reward and its offsetting transaction fee need arbitrary adjustment, which again involves an economic decision, thus developing a political problem.