Table of Contents

Introduction Background Checkpointing Stake Grinding Nothing at Stake Intentional Forking PeerShares Nu/B&C Cold-Minting The Halvening PeerAssets Quite Good Money Conclusion Suggested Reading (by section)

1. Introduction

Sunny Kingdoms

Sunny King (SK) and Scott Nadal pioneered the Proof of Stake (PoS) protocol via Peercoin (PPC) in August 2012, building off the work previously done by Satoshi Nakamoto in creating Bitcoin and Proof of Work (PoW). The initial purpose of PoS was to greatly reduce the energy cost of maintaining a decentralized ledger by replacing the anti-sybil mechanism of energy consumption with that of stake in an established system. The philosophical consequences were deep as Peercoin united the interests of the coin users and the network validators, reducing the governance gap between those that transact in the currency and those that validate transactions (txns). The result has been a steady agreement over the txn fee of 0.01 PPC/KB, burned out of supply, that acts as both a cost to individuals and a reward to the entire network for filling and maintaining blockchain space.

2. Background

The Start of Something Good

When Peercoin was first released, it was revolutionary. The protocol was novel, the launch was fair, the entire project was fresh and new and brave. SK continued to keep up the network, keeping the code base intentionally close to Bitcoins to make keeping up with the times a low-maintenance task. However, after 4 years Peercoin almost seems old hat compared to the constantly evolving cryptosphere. There has never been any venture capital driving development on Peercoin, instead the philosophy of open source reigns. While the chain has been going strong, growing extremely modestly and experiencing very few hiccups in the distributed consensus, the community seems to have moved on to other projects. This saga is a tale of the loosely defined Peer community and where the developing energies have moved over the years since the conception of Peercoin.

Winner of the Peercoin Image Contest

3. Checkpointing

Check It Out

For the first month after the genesis block, Peercoin was pure PoW just like a fork of Bitcoin. Altcoins during this time were using alternative work algorithms to avoid being attacked by the Bitcoin miners. PPC, however, wanted to use Bitcoin miners to its advantage later in its life, so it used a different method to protect itself during that first month. That method was called ‘checkpointing’, wherein clients would refer to a central server controlled by SK for the long term history of the coin. Checkpointing was left on to protect the young network and was left active as a safety switch to this day. It can be useful during client upgrades, for example when the network accidentally forked in May 2016 due to a bug in the 32-bit version of Peerunity that did not appear in the core client. Checkpointing allowed people to follow the developer’s chain. This function has never been a core protocol function, but simply a tool to use common sense when there is a deep reorganization of the chain. The next protocol update will include a switch to easily turn checkpointing off when there is no imminent danger of forking due to unexpected reasons.

4. Stake Grinding

Bump and Grind

The chain switched over to hybrid PoS/PoW and continued along as designed. The protocol was critically analyzed and arguments against the security of PoS were formed. One of the arguments said that ‘PoS is obscured PoW’ because of a concept called ‘stake grinding’, in which an attacker tries to calculate potential histories to find one where they win many blocks with small amounts of stake. The main confusion with stake grinding is that the next minter is not determined by the hash of the current block. Instead, the Peercoin protocol looks back into the merkel root to find randomness, so sifting through current block headers cannot be used to increase future chances of minting. Efforts to use pure computation to increase the minting rate result in trying to build a large chain that will cause a deep reorg and replace the current chain, which is less about computation and more about access to old keys that once held an extremely large portion of the network at a particular point in time. Even then central checkpointing and other transaction finality mechanisms like rolling checkpoints can limit the influence of old keys.

Another entrant to the 2016 Image Contest

5. Nothing At Stake

Toil and Trouble

The biggest concern that is brought up with Peercoin these days is the ‘nothing at stake’ problem. The argument centers around the lack of cost for a failed double spend attempt. For comparison, a successful double spend on Bitcoin can be done with a small portion of the hashpower, and very reliably done with something like 10% hashpower on a 2-confirmation vendor. The attack is done by spending coin then attempting to create a chain reorganization greater than the confirmation length to undo the spend. In PoW the attacker loses potential block rewards for building a chain in private, however because they can always hash on another chain once Bitcoin has collapsed they risk no additional resources upon success. In PoS, the attacker loses no potential block rewards but must have a large stake (>5%) in the chain they are attacking to have any realistic chance of success. So while there is nothing at stake for a failed PoS double spend, there is indeed a lot at stake for the attacker upon a successful double spend and a good portion of that stake will be locked by protocol for 520 blocks (3–4 days) while the market responds to the attack.

6. Intentional Forking

I Like My Stakes to Moo

A consequence of the energy efficiency of PoS is that upkeep of the chain is extremely affordable for its validators, allowing anyone to participate in the process of block creation. A concern related to the nothing at stake argument is that the network may fragment because there is virtually no cost to minting on more than one fork at the same time. The standard client is configured not to do this, so splitting the chain this way would need to be intentional. In the case where a real philosophical difference splits the community, both chains will have value and there will be a large intersection of minters on both chains. In this way, a minority fork that gains market value does not have to fear attack like in PoW because it would require the majority to collude against a chain they all have stake in. It is well known that a fork can easily produce two chains of lesser total value than the original chain, so minority forks without real market value will not be minted on by an honest actor.

7. Peershares

Sharing Is Caring

Several forks of Peercoin were spawned that attempted to fix the perceived problems with the protocol, but the community moved on to discuss blockchain voting and decentralized organization. Exploiting the inexpensive nature of PoS security, a new project was started which aimed to copy the PoS system and apply it to feature-full custom blockchains, with the PoW distribution replaced by initial public offering (IPO). Voting power for creating new coins was given to minters directly in the client and a dividend system was implemented whereby the distributed autonomous company (DAC) could easily give Peercoin to its shareholders. A significant part of the community followed this project as the next iteration of Peercoin, thinking that custom blockchains spawned for each new company is what PoS was meant to deliver.

8. Nu/B&C

The Bigger They Are

Started in late 2014, Nu was the first DAC in history and was based on a heavily modified Peershares model. The company was based around making a stable coin and pegging its price to the US dollar. The organization grew and performed many firsts, including ratifying its own concepts of law and economics. The endeavor was expensive and ambitious. NuShare holders elected leaders to execute orders on exchanges and developed decentralized liquidity software to maintain the peg. It became clear that having an in-house exchange would be extremely useful, so funds were raised for a new Peershares project called Blocks and Chains Exchange. Unfortunately, the corporate expenses of Nu caught up with its profit mechanisms and the peg collapsed, causing great loss and revealing extreme centralization of the network due to the way the IPO was carried out. The collapse also revealed technical concerns with directly tying network security to voting power. The community went back to the drawing board, but with a powerful new understanding of what it is to run a decentralized company.

This logo, featuring the Peercoin ‘P’ emblazoned on a gold coin, was replaced as the official Peercoin logo in October 2016 with the one seen at the beginning of this article. The new design was chosen for its simplicity and modern look.

9. Cold-Minting

The Longest PoS We’ve Ever Had

The network simplicity in the face of protocol complexity and fair initial and continuous distribution have always been a draw for Peercoin, allowing the chain to continue on even as the community leaves it stagnant. As long as people value the chain it will remain secure because it is very inexpensive to run, as we explored in section 6. In fact, we can observe the security directly via the minting difficulty, which represents the portion of coins that are actively being used to mint. Improving the long-term security of the network is then a matter of encouraging people to connect their coins to the rest of the network and make sure they properly vet new client upgrades. The most important people to network security are those with large stakes, who are also the ones with the most to lose should that security be compromised. Their large stake makes them more likely to pay close attention to what is best for the network as compared to the third party miners that drop out the moment it is unprofitable. These large stake holders will also be paranoid about their horde, causing some to be wary of bringing their coins online. The solution to this problem would be what’s called ‘cold minting’ where one can mint with their coins entirely offline. There are technical challenges to achieving this ideal, though it has been discussed in detail within the community. If and when this protocol upgrade is achieved it will be a great boon for the security of the Peercoin chain.

10. The Halvening

The Glass is Half-Full

There has often been discussion of reducing or removing the PoW component of Peercoin. The mandatory context for this discussion is that the block reward for PoW blocks is tied to the PoW difficulty and that Peercoin shares hashing algorithms with Bitcoin. As Moore’s law continues and faster and faster miners drop out of the Bitcoin network, they hop onto the Peercoin network, causing the PoW portion of the Peercoin inflation rate to drop with time. A prime example of this was the Halvening of 2016, where the Bitcoin block reward cut in half and Peercoin PoW difficulty shot up, dropping the inflation rate and resulting in a price spike. Whether to reduce or remove PoW or not is still a hotly debated topic, but it is important to realize that even if no protocol fork is performed PoW will eventually be phased out of the inflation rate by advancements in the modern computer.

11. PeerAssets

Agnostics: Spineless Cowards for Satan

The Peercoin development team has never been well defined other than SK as the core developer. The community kept up the nodes, the testnet, the forum, the PR accounts, and the wiki page, but that was pretty much it for several years as most of the innovation explored DACs and blockchain voting. More recently, Peerchemist, Hrobeers, and Saeveritt have come forward to develop on top of the Peercoin chain. Confident in the long-term stability of the chain but recognizing the advantages of being independent of core development, they began developing an efficient voting and tokenization protocol called PeerAssets that is blockchain agnostic but designed and only supported for Peercoin. The PeerAssets protocol aims to deliver a sane token protocol on top of the blockchain, but it also tackles the issues found with Peershare and Nu projects and will allow creation and organization of a new generation of DACs once released.

PARS is a small group of minters that run an alternate client that provides additional functionality but is easier to DDoS

12. Quite Good Money

I Can’t Believe It’s Not Money

The community has been through a lot, and we have come out the other side imbued with knowledge of running a decentralized organization and designs for a protocol that is more cost effective than any attempts at such to date. There is a multitude of potential projects that could harness these benefits, however there seems to be demand for a concept of ‘quite good money’ (QGM) which attempts to peg a token to a basket(s) of other cryptocurrencies, such as Bitcoin, Litecoin, and even Peercoin. This simple trading token hopes to be less volatile than Bitcoin while still retaining its deflationary properties and allowing for a 100% reserve held by the issuers of the token. Liquidity for this token can then be provided by a profitable trading strategy while development and marketing funds can be raised by auctioning off shares that are used for voting and dividends (once the trading strategy has proven profitable).

13. Conclusion

Sunset Over Towering Skyscrapers

QGM is just the beginning of potential asset applications. Once the protocol has been explored more in depth and its features are exposed to the public, PeerAssets could be picked up by the general public as The way to issue tokens without a central server. Because the protocol only requires a light client, common consumable token applications such as event tickets can be achieved in PeerAssets in addition to the standard application of voting DAC shares. As the only cost for running a PeerAsset is the underlying static Peercoin fee, using this system is far superior to setting up and running your own central validation server. As PeerAssets obeys the Peercoin protocol and properly burns its transaction fees, every PeerAsset implementation is a golden star for the Peercoin network. With the persistent and driven community backing it, Peercoin is reinventing itself to become the number one choice for decentralized blockchain based development. It is once again a leader in decentralized economics while still retaining its most desirable features of security, sustainability, simplicity and low cost of operation.

14. Suggested Reading (by section)

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