The very beginning of the Proof-of-Stake

Peercoin

We can spot Peercoin as the turning point from the proof-of-work to the proof-of-stake blockchain and might find it very interesting or even awkward based on the knowledge of current blockchain architecture because it is basically 90% bitcoin mixed with a pinch of coin staking.

It seems that PeerCoin’s architecture failed to be included in the mainstream but still, it is meaningful to have a look at its idea as a kind of symbolic project.

Peercoin blockchain has its unique hybrid architecture which implements both proof-of-work and proof-of-stake into a single UTXO blockchain. As a proof-of-stake implementation, Peercoin introduces a notion of “coin-age”, which is simply a “currency_amount * holding_period” and uses it to generate a proof-of-stake block. For example, Alice accumulates 900 coin-days if she has received 10 coins and held them for 90 days.

It is quite easy to be confused when grasping that the proof-of-work blocks and proof-of-stake blocks co-exist in the same blockchain, but it is the most important feature Peercoin has implemented. A proposer of the proof-of-stake block pays himself by consuming his coin-age in a special transaction called “coinstake” and by newly minting coins as a reward of his proof-of-stake.

Source: Peercoin Whitepaper (https://decred.org/research/king2012.pdf)
Source: Peercoin Whitepaper (https://decred.org/research/king2012.pdf)

The coinstake transaction includes “kernel input” as a hash target protocol similar to the mechanism of proof-of-work finding a nonce value smaller than the target. The most important difference is that the proposer just needs to search over the limited space, unlike proof-of-work protocol (e.g. bitcoin) which requires the proposer to find nonce out of much broader space. This is possible because the target of the stake kernel is proportional to the coin-age consumed in the coinstake transaction. In other words, the more the proposer accumulated his coin-age, the easier the proposer successfully mines the new proof-of-stake block. Peercoin is theoretically more energy-efficient (and thus eco-friendly) than bitcoin at this point although it still requires computational block mining.

The new way of block mining needs the new fork-choice rule, as it cannot reuse the traditional longest-chain rule because the overall hashpower decreases significantly thanks to the new mechanism, but at the same time became much easier to be attacked. So, the fork choice rule is replaced by the coin-age based rule, in which we calculate the score of the forks adding each transaction’s consumed coin-age, and choose the one that has consumed more coin-age (higher score) overall.

The new coins are minted also based on the consumed amount of coin-age, for example, 1 cent per 1 year coin-age. So as a whole, this process of mining a new proof-of-stake block resembles the recent blockchain implementation of coin lockup (staking) and proportional reward distribution as its result. A participant of the Peercoin network is incentivized to lock up his coin in the wallet to raise a probability of mining a new proof-of-stake block. Once it is done, he earns a newly minted coin reward proportional to his amount of stake.

Nxt

Then Nxt comes after the Peercoin as a successive proof-of-stake experiment. Nxt discards the notion of “coin-age” Peercoin has introduced and devised a new mechanism called “pure proof-of-stake”. Every block in Nxt is generated using proof-of-stake, unlike Peercoin’s hybrid architecture. This is possible with the mechanism that makes an account simply having more balance more likely propose the next block and earn the transaction fees as a reward.

Each account calculates its target as follows: ‘base target value’ * ‘time since the last block’ * ‘effective balance of the account’. Effective balance is the only account-specific field, meaning that the more the account has its balance unmoved at least 1 day (this is the definition of ‘effective balance’ according to the whitepaper), the higher the target and thus probability of generating a new block becomes. Now you can see we have gotten closer to the current blockchain!

The interesting part of the Nxt is the “balance leasing”. An account may “loan” his block generation power to another account without giving up his control to spend the coin. One can set up a timeout until which the receiver can leverage the sender’s effective balance to raise the block generation power.

Transaction fees collected by the receiver will not be redistributed to the sender by default, but with some additional code, we can easily implement the system similar to the bitcoin mining pool. We might find out this “loan” resembles “delegation” in DPoS based blockchain (e.g. Cosmos-family blockchains) although it is intended to imitate pseudo-mining pool in PoS system with more flexibility.

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