Peercoin — An Old Tardigrade

30.01.2019

TL;DR. Ecology:3. Technology:6. Decentralization:8. Valuation:9. Rating:7/10

Introduction

Peercoin, or PPCoin as it was called initially, is an old Bitcoin code-base cryptocurrency introduced on bitcointalk.org in 2012 by user Sunny King. Its novelty came from implementing a hybrid Proof of Work and Proof of Stake protocol that defined both coin distribution and consensus mechanism. Mining was compatible with Bitcoin, meaning it was based on SHA256 iterations, and facilitated distribution of PPC to miners. It was only the PoS minting/staking however, not PoW, that secured the network. Unlike Bitcoin, the protocol utilized dynamic so called checkpoints - a centralized solution to counter the threat of deep blockchain re-orgs.

Mainnet launched on the 19th of August 2012. In the beginning of that thread, some users were quick to point out the nothing-at-stake problem with the PoS algorithm as no stake was ever slashed/forfeited in case of chain reorg attacks. The centralized checkpoint solution was met with some skepticism despite plans to try to mitigate it later on. On the 21st of December 2012, a serious PoS vulnurability was disclosed on bitcointalk.org by user Jutarul. The vulnurability theoretically allowed an attacker to boost its PoS generating capability with computational resources, meaning that if all actors were to adopt this strategy the network would degrade to pure PoW. Due to the checkpointing, blockchain reorganization beyond 5 blocks was still prevented however.

On the 19th of February 2013, a major 0.3.0 release was published, introducing a new stake generation protocol to counter the above described vulnurability. A large part of that same year saw multiple discussions regarding the PPCoin name and its logo. Furthermore, in 2013 Sunny King partially shifted focus to his new cryptocurrency project Primecoin; the PoW in that network, as an attempt to introduce non-wasteful mining, helped map large prime numbers instead of iterating worthless SHA256 computations.

In March 2014, Peercoin 0.4.0. was released to the public. A couple of months later, Peerunity, a community developed wallet-client, was released. This wallet presented itself as an alternative to the Peercoin 0.4.0 reference wallet. As development on 0.5.0 continued, Sunny King mentioned a GUI opt-out feature with regards to the checkpointing. This feature seems to have been pushed to a later release, however, the checkpointing anyway occurred on the client-side of things, meaning anyone could modify existing wallets to make it optional. For 0.5.0, changes to the stake protocol were proposed that aimed to introduce a disincentive to staking on multiple blockchain forks, but it is unclear whether this got included or not.

Throughout 2015, Peercoin developers continued to develop the 0.5.0 version of the main client. In November that year a bug was exploited, resulting in an unplanned fork of the whole network (one on 0.4.0 Linux 64 bit, one on 0.4.0 Linux 32 bit and Windows). A 0.4.1 RC1 hotfix was quickly released. Peercoin 0.5 activated in April 2016 with a small fork incident for Peerunity users. Following this major release, yet another fork incident similar to the one in November 2015 occurred. That one was quickly patched as well.

2017 started off with a core developer team expansion from two to four developers. Work on 0.6.0 continued, with for example the adoption of Bitcoin 0.8.6 as a feature. Other features were for example the already discussed opt-out possibility from synchronized checkpoints. Around this time, it was also announced that the Peerunity wallet was discontinued altogether and that the concerned developers were shifting focus to the main Peercoin Core client. On the 1st of November 2017, 0.6.0 was finally released. As a soft-fork, 0.6.0 was set to actually activate once it had signalling support for at least 90% of the last 1000 PoS blocks.

After having earlier been reluctant to post any kind of roadmap, the Peercoin team posted such on the 1st of December 2017. Focus lay on multisig minting support, which would increase the security for stakers/minters. In January 2018, the network forked to 0.6.0. At around this time, Peercoin founder Sunny King left the project for a full time position on Project VEE (Virtual Economy Era).

In May 2018, the Peercoin Foundation was formed in the Netherlands. Many exchanges these days demand interaction with a legal entity before actually listing a token, and so a foundation makes things go a bit smoother in that regard. The Peercoin community had earlier been reluctant to a foundation, mainly due to centralization concerns. As a result of the first Foundation board meeting, two new developers were hired partly to rebase Peercoin to Bitcoin Core 0.16.3. Peercoin 0.7 was just recently released on 22nd of January, with a planned hardfork at 12th of March. The recent Fake Stake attack vector affecting many PoS coins has been acknowledged by the team and deemed not critical.

And that is a brief history on Peercoin. Much more happened during these 6 years, mainly with regards to the broader ecosystem. Some of it, when relevant, is discussed below under the sub-ratings. Peercoin was constructed to have a future low inflation, combining PoW and PoS for distribution and network security. As the PoW rewards are trending towards zero, total block rewards are at time of writing close to 2%. Additionally, a 0.01 PPC/kb burned transaction fee makes sure that annual supply increases even slower.

Ecology

On the Peercointalk forum, there is a somewhat higher activity than on the main Peercoin subreddit. At time of writing, only around 250 on-chain transactions were sent through the network during the last 24 hours. This number is extremely low, but the market in general now is relatively dead. A new webpage just recently launched, and so did extensive documentation efforts.

There have been attempts to broaden the utility of Peercoin with various projects. In 2014 for example, the NuBits project launched. NuBits was a stable coin based on Peershares, ICO/equity infrastructure also built on Peercoin. While NuBits were pegged to the dollar, the Nu network's other half, NuShares, were free floating in price and represented equity in the network. NuShareholders controlled the supply and demand of NuBits through decentralized voting mechanisms. The NuBits kept the peg for around two years before imploding. BD Ratings looks forward to similar experimenting with for example PeerAssets, a newer asset protocol.

When looking at marketing efforts, it is obvious that there for the most part aren't any, which is very refreshing. The developers and parts of the community seems to hold similar opinions on marketing that it serves mainly to artificially inflate price and increase volatility. In the long run, security and decentralization of the blockchain are essential, and as people come to understand this, an ecology ought to sooner or later form anyway. There were some attempts to ramp up marketing but the community did not like it and so the attempts stopped.

Peercoin has a very low liquidity on exchanges. As a Foundation now is established, it may be more likely to expand trading further.

Grade: 3

Reasons: Low on-chain and community activity. Active developer team. Long and 'clean' history.

Technology

The project is actively being developed by multiple developers. As of 2017, there seems to have been at least a handful of people involved and 2018 saw more developers hired. By basing the protocol on Bitcoin, sound and tested code is continuously adopted.

As far as BD Ratings understands, the nothing-at-stake problem is still an issue with Peercoin. There are multiple aspects to this. First, Peercoin developers have (maybe rightly) criticized certain mitigation attempts as being too complicated and gameable. If there is one thing that is certain for cryptocurrencies, it is that implementing game theory in practice is hard. In other words, implementing slashing conditions could very well open up for new attack surfaces on the network as a whole. Secondly, as of 2019, a successful nothing-at-stake reorg attack has to BD Ratings' knowledge not occurred on any blockchain the size of Peercoin. Only time will give more data on the issue.

One under-appreciated aspect of Peercoin is the stability of the protocol; value protocols need long term technical stability to function properly as a store of value. Storing value explicitly implies time relationships, in other words how value now relates to value later. A changing protocol risks damaging this relation in the sense that what an individual stored in the past has morphed to something else today, because of said changes. User u/slowmoon summarizes this point in a good way, and was also the one likening Peercoin to tardigrades.

Even in Peercoin's early years, the main theme iterated by Sunny King was that Peercoin ought to establish itself as a backbone currency, in other words a slow-changing gold-like value protocol. This kind of conservatism is quite rare in the space that generally focuses more on 1-layer innovation, which inherently leads to large protocol changes. A testimony to this backbone focus and not micro-payment focus is the fact that Peercoin transaction fees are relatively large as well as static. With fewer large changes comes increased chain security.

The permanent 1% issuance ought to be enough incentive to secure the network in the long run. Stakers will run full nodes to not see their savings diluted by the issuance. This issuance model will not be what possibly endangers the network in the future - that would be a hypothetical inherent weakness with PoS itself (like the discussed nothing-at-stake threat) and there are at time of writing no solid evidence of such weaknesses being exploited in practice.

Grade: 6

Reasons: Active developer team. Bitcoin Core codebase. Conservative and relatively narrow focus.

Decentralization

Peercoin had a centralized start with an incredibly high issuance rate. More than 2 million coins were mined during the first day, and millions more during the days and weeks that followed. These numbers should be compared to 25 million coins in existence 6 years later. Why was this high minting rate needed? It wasn't. PoW did not secure the network at all as the checkpointing mechanism was tied to PoS blocks. The high initial inflation instead ensured that there might be some really powerful individuals that could theoretically try to disrupt the decentralization property of the chain.

The PoW minting has of course been reduced continuously and is still churning out new coins. By applying this type of minting even today, the process partially makes up for the high initial minting. By having a long PoW period instead of quickly switching to pure PoS, Peercoin is probably decentralizing for every day that passes.

One clear indicator of a decentralization focus is the relatively high minimum transaction fee and the resulting low number of on-chain transactions. The entire Peercoin blockchain is less that 1GB large, which is remarkably small considering that the blockchain is so old. Having a focus on a slim network also resulted in an interesting partnership with StakeBox, a Raspberry Pi distributor. The access to secure, light weight staking boxes for Peercoin minting is a good addition to the network's decentralization arsenal.

Another clear show of decentralization ethos occurred in 2018 when a proposal to fund the Foundation through a mining tax floated around. This proposal was heavily discussed, with almost all Peercoin teem members coming out against it. BD Ratings is extremely impressed by the team here. Not many developer teams in this space would so firmly denounce such a lucrative idea.

The client-side possibility to opt-out of synchronized checkpoints was a step in the right direction with regards to centralization. Checkpointing is often heavily critiqued for creating dependencies to the core developers.

Grade: 8

Reasons: Too high initial issuance. Continued PoW mining. Decentralization ethos. Optional checkpointing.

Valuation

At time of writing, the issuance factors at play are PoS rewards which amount to less than 1% per year, as well as the diminishing PoW rewards that acts as a continuous, decentralized distribution vehicle. Total inflation is at time of writing estimated to around 2%. which is almost half of Bitcoin's before it's having in 2020. This is an attractive inflation number, lower than most cryptocurrencies. It is extra impressive considering the high decentralization of Peercoin (centralized coins with low inflation are still not hard money as defined by Bitcoin economist Saifedean Ammous). On top of this, PPC are burned for every on-chain transaction as well, lowering the total issuance rate somewhat.

The USD 12M market valuation, causing PPC to rank at #190 on coinmarketcap.com, is just ridiculous. Considering the strong technical and decentralization fundamentals of Peercoin, as well as its long history, the protocol is considerably undervalued.

Grade: 9

Reasons: Sound fundamentals, especially decentralization. Much lower valuation than many projects that ought to not even exist.