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What is Peercoin?
Peercoin, also known as PPCoin or PPC, is a peer-to-peer cryptocurrency utilizing both proof-of-stake and proof-of-work systems.
Peercoin is based on an August 2012 paper which listed the authors as Scott Nadal and Sunny King. Sunny King, who also created Primecoin, is a pseudonym. Nadal’s involvement had diminished by November 2013, leaving King as PPC’s sole core developer.
PPC was inspired by bitcoin, and it shares much of the source code and technical implementation of bitcoin. The Peercoin source code is distributed under the MIT/X11 software license.
PPC is the fourth largest minable cryptocurrency by market capitalization. Peercoin has a market cap of $30 million USD as of Jul 20, 2014. Unlike bitcoin, Namecoin, and Litecoin, PPC does not have a hard limit on the number of possible coins, but is designed to eventually attain an annual inflation rate of 1%. There is a deflationary aspect to PPC as the transaction fee of 0.01 PPC/kb paid to the network is destroyed. This feature, along with increased energy efficiency, aim to allow for greater long-term scalability.
A peer-to-peer network handles PPC’s transactions, balances and issuance through SHA-256, the proof-of-work scheme (Peercoins are issued when a small enough hash value is found, at which point the block of transactions is added to the shared block chain. The process of finding these hashes and creating blocks is called ‘mining’).
Peercoins are currently traded for fiat currencies, bitcoins, and other cryptocurrencies, mostly on online exchanges. Reversible transactions (such as those with credit cards) are not normally used to buy Peercoins as PPC transactions are irreversible, so there is the danger of chargebacks.
Payments in the PPC network are made to addresses, which are based on digital signatures. They are strings of 34 numbers and letters which always begin with the letter P. One can create as many addresses as needed without spending any Peercoins. It is quite common to use one address for one purpose only which makes it easy to see who actually sent the Peercoins.
Transactions are recorded in the PPC blockchain (a ledger held by most clients), a new block is added to the blockchain with a targeted time of 10 minutes (whenever a small enough hash value is found for the proof-of-work scheme), a transaction is usually considered complete after 6 blocks, or 60 minutes, though for smaller transactions, less than 6 blocks may be needed for adequate security.
PPC’s major distinguishing feature is that it uses a hybrid proof-of-stake/proof-of-work system. The proof-of-stake system was designed to address vulnerabilities that could occur in a pure proof-of-work system. With bitcoin, for example, there is a risk of attacks resulting from a monopoly on mining share. This is because rewards from mining are programmed to decline exponentially, which may decrease the incentive to mine. As miners decline, the likelihood of a monopoly increases, which leaves the network vulnerable to a 51% attack (a 51% attack is when a single entity possesses over half the mining share, which would allow this entity to theoretically double-spend a transaction involving their coins). With a proof-of-stake system, new coins are generated based on the holdings of individuals. In other words, someone holding 1% of the currency will generate 1% of all proof-of-stake coin blocks. This has the effect of making a monopoly more costly, and separates the risk of a monopoly from proof-of-work mining shares.