Quote from: colinistheman on December 17, 2013, 10:39:44 PM

Quote from: LaudaM on December 17, 2013, 10:25:39 PM

There is nothing wrong with 1% inflation.

Luckily it is only 1%, but why? The question is: why does there have to be any inflation?

Bitcoin has inflation, too. Every time new bitcoins get mined the bitcoin economy experiences a bit of inflation. Of course, that inflation ends when all bitcoins have been mined. Additionally, the inflation is offset a little by lost coins. In the balance of things bitcoin is deflationary.

A PoS system like peercoin contains inflation by design but not in a static 1% way. At first the inflation comes from both PoW coins and PoS coins coming into existence. As with bitcoin, the PoW inflation will end when all PoW coins are mined. However, unlike bitcoin, peercoin destroys coins with every transaction. They go poof and exit the system. This is done to offset the inflation caused by new PoS coins coming into existence. Interestingly, I believe if everyone spends there peercoins immediately the peercoin system can actually become deflationary because more coins will be destroyed during the transactions than are created by PoS work. Therefore, overall peercoin is not exactly 1% inflationary.

The peercoin designers did not design peercoin as a micro-transaction system. They want it to be more like a savings account that earns interest. Therefore they reward people for saving their coins by allowing savers to mint new PoS coins. PoS minting also has other benefits as described here:

https://en.bitcoin.it/wiki/Proof_of_Stake