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INTRODUCTION

POS Implementation: Done Differently

After a period of time discussing with the Netcoin community, exchanges and sourcing
feedback from the general public, we decided that implementing POS was necessary.

Why?

1. The fact that POW is not truly profitable anymore. ASICS are making Scrypt POW mining actually unprofitable ­ look at coinwarz

2. POW requires a lot of energy (POS is more eco­friendly).

3. Netcoin wanted to continue to provide cutting edge features to the community. However, with the increase in number of “alt­coins”, copies, pump and dumps, etc ... Netcoin needed to do something special to demonstrate it is not a simple copy of the hundreds of other POS and POW cloned coins out there. We wanted to give the community a truly unique coin, and that required some truly unique coding and algorithms.

So, to explain what PIR (Or Personal Investment Rate) is, and why it’s different, we’ll need to explain “traditional” stake rewards:

“Traditional” POS stake rewards:

Step one: Obtain coins (that have stake rewards)

Step two: Place coins into wallet

Step three: Wait.

­ A lot of coins have fixed, static interest rates. ­ Some have minimum thresholds (you must posses X amount before you are eligible to earn rewards)

­ Some have sliding scales based on your amount of people staking

Netcoin POS Stake Reward Decision Process

A big decision on POS implementation is what interest rate to choose for staking rewards. We need to bear in mind that alt coins are now a very competitive area. We discussed for many weeks, what interest rate to choose while we developed the wallet.

Once you release it, you can not easily change it. On top of this, we were very aware that one of the biggest downfalls against POS (and POS reward) is this:

● The usual POS reward is reward_Per_Coin_Per_Day * number_of_coins_Staked
* number_of_days_held
● Nothing in that reward talks about securing the network while you hold the coins.

So you could

● obtain a large number of coins
● Put them in a paper wallet
● Forget about Netcoin for 5 years
● Import the private key into my wallet
● Start staking
● Receive 5 years worth of POS reward

That’s not very “fair” to those members who are actively staking and participating in the network. Why should anyone bother trying to compete and leave their wallet running if they’ll get the 5 years reward anyway? While POS might be technically capable of securing the network, it could do more to encourage the behaviour required of the wallet holders to secure the network effectively.

Thus, we wanted a system that would:

1) Reward EVERYONE who had NET

2) Provide an incentive to those who had Net to stake/help secure the network

3) Reward those who risked more (by holding more netcoin) by giving a higher %.

PIR: Personal Investment Rate is Born

We had an idea that a rate that was sliding....from 10% up to 100%, that increased for larger holders of the currency would surely incentivise users to obtain netcoin, but at the same time, would also allow those who held lesser amounts of Netcoins, to STILL earn rewards as well. But, the fact would remain that the more you get, the better the rewards. If its a sliding scale based on how much netcoin you have.....its always better to obtain more NET.

We called this idea 'Personal Investment Rate' or PIR.

Netcoin PIR Scale:

Netcoin Annual Rates. It is a sliding scale between the values displayed below.

The Timing of Years: is an estimate that depends on the speed of the blocks, which

should average roughly 1 per minute.

The number of Netcoins YOU stake determines the Annual interest rate that is applied to the transaction for that reward. This annual rate is then converted to a daily rate and applied to the coins based on their age. We at Netcoin invented this idea!

Another way of saying this is: When a Proof of Stake block is awarded, the annual interest rate is converted to a daily rate, and applied based on the age of the staked coins in days.

What is the reason for interest rates for such NET amounts owners?

Interest rate is really a measure of risk and reward. (In finance an Interest Rate is often called a 'Risk Rate'). The large holders are exposed to a lot more risk because the price of crypto currency rises and falls dramatically. Much more than normal fiat currency. This is one of the reasons they deserve to get a higher reward, to reflect the higher risk they are taking. The second reason your interest rate rises a little bit with every extra Netcoin you obtain is to creates a desire to obtain NET. This is a good thing for keeping the market active and encouraging users to 'stick' with Netcoin once they try it.

PIR: Maximizing your PIR

On top of this though, PIR is “not by itself” and what we mean by that is this: PIR also works in conjunction with Netcoin’s OWI (Open Wallet Incentive...you can read about that here), which together, both reward the Netcoin holder and further secure the NETwork. In order to get the Maximum PIR, you must open your wallet at least once a month (this is what OWI does).

Remember:

The number of Netcoins YOU stake determines the Annual interest rate (or APR) that is applied to the transaction for that reward. This annual rate is then converted to a daily rate and applied to the coins based on their age.

PIR + OWI

For POS to work at its very best, the reward function and how it behaves is crucial for encouraging the kind of user behaviour that secures the network better. The reward function (PIR) is the carrot that should incentivise the very users who want to be the guardians of the currency. In terms of security, what you really want is for people to keep staking coins, over and over again by keeping their wallets open. More wallets open and staking means more people are competing, and the harder it is for a single entity to control the blockchain.

So, with OWI, what we did was say:

'In order to claim the full reward stated on your 'Personal Investment Rate', you need to open your wallet regularly (which helps Netcoin). Netcoin needs you to try to achieve at least one proof of stake block in each and every month'.

FAQS:

I think biggest exchanges are probably the biggest owners of NET. Will they get 100% of annual interest rates? Will they dump new NETs to their clients buy orders?

We did speak to some exchanges, and as far as we can tell, exchanges do NOT generally enable stake mining. The reason is that it moves money around in the wallets (spends coins, generates coins and creates more transactions), and creates a big accounting problem for them.

What about people who just dump their rewards?

This was one of our biggest worries if we set the interest rates too high. We did not want to create a ridiculous uncontrollable increase, so we have designed into the protocol from the start that the interest rates will change after 1 year and 2 years to close the gap between high and low holders. This reflects that fact that by that time, the risks will be lower.

In the first year, we simply want to encourage lots of people to try Netcoin, to like it, and to want more while we get on and release services like shops and auctions and other things, to create a real secondary economy around Netcoin.