What Is Peercoin?

Peercoin is an alternative cryptocurrency launched in August 2012 and is based on the Bitcoin framework. Peercoin is sometimes also referred to as PPCoin, Peer-to-Peer Coin, and P2P Coin.

Key Takeaways

  • Peercoin was one of the first altcoins, first released in 2012.
  • At its height, it was the fourth-largest cryptocurrency by market cap behind Ripple, Litecoin, and Bitcoin.
  • Currently, Peercoin is still under development, though it is not considered to be in the top tier of altcoins.

Understanding Peercoin

Peercoin was created by software developers Sunny King (a pseudonym) and Scott Nadal and is the first digital currency that uses a combination of proof-of-stake and proof-of-work consensus algorithms.

The First Proof-of-Stake Consensus Algorithm

Most altcoins tend to address perceived shortcomings in Bitcoin; Peercoin was the first to target the issue of Bitcoin's high-energy consumption, and the founders aimed to provide increased security as well as energy efficiency.

The coins are initially mined through the commonly used proof-of-work hashing process, but as the hashing difficulty increases over time, users are rewarded with coins by the proof-of-stake algorithm.

Proof-of-stake block generation is based on the coins held by individuals; thus, someone holding 1% of the currency will be rewarded with 1% of all proof-of-stake coin blocks. This is also called "minting."

Block generation through proof-of-stake requires minimal energy as compared to generating hardware-intensive proof-of-work hashes. Thus as the proof-of-work blocks become less rewarding, there is a transition to using the proof-of-stake portion of the algorithm, which requires minimal energy for generating blocks.

This means that over time, the network of Peercoin will consume less energy. In addition, the hybrid system of block generation was also intended to help increase security by giving more power to nodes and less to miners. The use of a proof-of-stake system raises the cost of an attack since acquiring 51% of all existing coins is more difficult than acquiring 51% of all mining power.

Peercoin's Built-In Inflation

Founder Sunny King has said in an interview that there is a tradeoff between zero inflation in the value of a cryptocurrency and its security. For Bitcoin, for example, the miners will not be rewarded with new bitcoins eventually, and their entire revenue will be dependent on fees, decreasing the economic incentive to maintain the network's integrity.

Peercoin's minting system builds inflation into the system so that there is still an economic incentive for minters. According to Sunny King, "the alternative design approach is to acknowledge the minimum inflation rate needed to secure the network but let transaction fees be destroyed to counter inflation. In my opinion this is a better approach that can provide better and more stable security to the network while conditionally preserving the strong store-of-value properties."

The Real-World Evolution of Peercoin

Peercoin got an early start and was at first seen as a potential rival to Bitcoin. For example, Peercoin's market cap reached $163 million in November of 2013 and only hit that level again about four years later at the height of the crypto bubble in January 2018. At its 2013 peak, it was the fourth-largest crypto in terms of market cap behind Bitcoin, Litecoin, and Ripple (XRP).

As of the beginning of 2021, Peercoin's market cap peaked at only $15.8 million, and it isn't on any lists of top coins to watch or invest in. Peercoin does have an active foundation, however, and work continues to be done by the Peercoin community.

At the end of 2019, Peercoin launched VPool, a supernode that runs on the V Systems network and is intended to generate revenue for the Peercoin Foundation. It also announced that it aims to release v0.10 in March 2021.