Peercoin was the very first Bitcoin-based monetary system to make use of proof-of-stake as a mechanism to make certain a unique integrity. However, there are some objections to Peercoin's proof-of-stake model. This short article presents those objections plus a similar system redesigned to address them.Block Chain
In a simplified version of Peercoin's proof-of-stake design, each node can use element of its balance as a stake and can chain blocks. Greater 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 example, 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
Here are five objections to this proof-of-stake model:
It amplifies wealth inequality. Suppose Peercoin is the only real kind of money for both Bob and Alice. Bob's income is 200 coins each month, while his expenses are 80% of his income. Alice's income is 800 coins each month, while her expenses are 50% of her income. Assuming, for simplicity, that neither Bob nor Alice has any savings -- which Alice is more prone to have -- Bob and Alice will have the ability to reserve 40 and 400 coins as block-chaining stake, respectively. Then, Alice's block-chaining reward is likely to be 900% larger than Bob's, even though her income is 300% larger than his.Know more
It makes the cash 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 needs to have a stable money supply, as Bitcoin could have after year 2140.
Whenever total paid transaction fees are significantly 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 escalation in value, the (now 0.01 coins) transaction fee will eventually become too valuable, thus requiring Peercoin developers to lower it. However, choosing its new nominal value is definitely an economic decision -- rather than a technological one -- which creates a political problem. System integrity depends on extrinsic incentives: both block-chaining reward and its offsetting transaction fee need arbitrary adjustment, which again involves an economic decision, thus creating a political problem.