Peercoin(PPC) is a peer-to-peer cryptocurrency that utilizes both proof-of-work and proof-of-stake systems. It is the first cryptocurrency to implement the hybrid system. The proof-of-work has been the security model adopted by most cryptocurrencies.
Peercoin uses the proof-of-stake to build the security model and as a part of the minting process. Proof-of-work facilitates only the initial part of the minting process.
Coin Age
Coin Age is defined as the currency amount multiplied by holding period. For example, John receives 100 coins from Yuri and he holds them for a period of 100 days, John accumulates 10,000 coin-days of Coin Age.
Proof-of-Work
The proof-of-work system uses hard-to-compute, but easy-to-verify functions to put a restraint on the cryptocurrency mining. This system rewards miners who solve complex mathematical problems to validate transactions and create new blocks. It makes the mining of cryptocurrency dependent on the energy consumption.
The proof-of-work adds a significant cost overhead which keeps on increasing with the growth of the network. The overhead is borne by the users with the combination of transaction fees and the proof of work.
Proof-of-Stake
The proof-of-stake means the proof of ownership of the cryptocurrency. This system uses a different way to validate transactions. Users holding the stake of the cryptocurrency create new blocks.
The Hybrid Model of PeerCoin
The PeerCoin blocks are separated into two different groups, proof-of-work, and proof-of-stake. The proof-of-stake transactions are called coinstake. In a coinstake transaction, the owner pays himself and consumes his coin age. He gains the privilege of generating a block for the network.
The first input of coinstake is called kernel. It requires meeting specific hash target protocols which makes the generation of proof-of-stake blocks a stochastic process. Unlike the proof-of-work, the hash operation works on a limited search space.
Main Chain Protocol
The consumed coin age determines which competing blockchain wins as the main chain. The blockchain with the highest total consumed coin age becomes the main chain.
It enhances the security as the cost of controlling a significant stake raises the cost of attacking. During the attack, the attacker consumes his coin age. It renders preventing the transactions from entering the main chain very difficult for the attackers.
To Sum Up
Peercoin(PPC) uses a hybrid system of proof-of-work and proof-of-stake. The proof of stake design eliminates the dependency on the energy consumption. It reduces the inflation and transaction fees significantly, yet offers a comparable security level.