Through an innovative minting algorithm, the Peercoin network consumes far less energy, maintains stronger security, and rewards users in more sustainable ways than other cryptocurrencies.
Peercoin's original innovation is the proof-of-stake/proof-of-work hybrid system. Like other cryptocurrencies, initial coins can be mined, but the core network is maintained by coin holders, rather than the fastest pool.
Maintaining the network through the hybrid proof-of-work/proof-of-stake algorithm reduces the risk of the Selfish-Miner Flaw, 51% attacks, and the block bloating that have been used to exploit other currencies.
Maintaining the network requires far less energy than generating hardware-intensive proof-of-work hashes. Proof-of-stake also does away with the ~$1 billion "tax" on the Bitcoin network through proof-of-work blocks.
Peercoin's original and noteworthy innovation is the proof-of-stake/proof-of-work hybrid system.
Like other cryptocurrencies, initial coins can be mined through the more commonly used proof-of-work hashing process. However unlike other coins, as the hashing difficulty increases over time, users continue to be rewarded with coins generated by the additional proof-of-stake algorithm. Anyone holding 1% of the currency will be compensated with 1% of all proof-of-stake coin blocks.
In addition to increased security and improved energy efficiency, the hybrid proof-of-work/proof-of-stake algorithm combats the deflationary tendencies that cryptocurrencies can suffer because of their hard mintage caps.
Generating blocks through the hybrid proof-of-work/proof-of-stake algorithm reduces the risk of the Selfish-Miner Cornell Flaw, ">50%" attacks, and the block bloating that have been used to exploit other currencies.
The proof-of-stake portion of the algorithm stands at the heart of this security because it drastically raises the cost of an attack. Acquiring 51% of all existing coins requires more effort and resources than acquiring 51% of all mining power. Further, in a ">50%" stake attack, the attacker's investment will be, by definition, at risk of great loss because the attacker will be holding a majority of the coins that they are attacking. This risk of loss reduces the incentive to attempt such an attack in the first place.
Peercoin also employs other advanced security features including enforcing transaction fees at protocol level to defend against block bloating attacks.
Generating proof-of-stake blocks requires far less energy than generating hardware-intensive proof-of-work hashes. This means that over time, the Peercoin network will consume less energy as proof-of-work blocks become less rewarding and blocks are generated instead by the proof-of-stake portion of the algorithm.
Proof-of-stake also does away with the ~$1 billion 'tax' on the Bitcoin network through proof-of-work blocks. You can read more about that here.
Peercoin is one of the truly unique coins that are not just a clone of the original Bitcoin code.
Peercoin is the first coin to introduce a proof-of-stake/proof-of-work combination along with other energy efficient mechanisms. In fact, many altcoins are now integrating Peercoin's proof-of-stake into their codebase.
Checkpoints are an additional security measure and were introduced to protect the Peercoin network from attacks when it was in its infancy. Sunny King explains:
"The risk of 51% denial-of-service attack on block chain is real, especially to a smaller network. In fact I wouldn’t exclude such a possibility to even bitcoin. Of course such an attack on bitcoin would likely not come from an individual due to the resource required. But it’s irresponsible to say that’s not possible. Just imagine what would happen if bitcoin stops processing transactions for a few days."
As Peercoin's network has grown substantially in the past year, checkpoints will be phased out in one of the next versions, probably in PPC 0.5.
Nope. If Peercoin grows rapidly, stake minting may temporarily decrease as coin days are lost when trading. This would cause Peercoin to become deflationary. The flat nature of the transaction fees is intended to counter this by decreasing total transaction volume. Proponents of Peercoin argue that this will decrease deflation.
Furthermore, Bitcoin currently experiences a ~10% inflation per year as it approaches its total supply of 21 million. It is hoped that when the total supply is reached that the transactions fees will be enough to sustain a secure network.
To maintain a secure network in the future, Peercoin has a 1% a year inflation (proof-of-stake reward) to make sure there will be a secure network, no matter the transaction fees. As stated before this may become deflationary, as Bitcoin aims to be, during high volumes of transactions.