Taking a closer look at coin age

Coin age is a central concept in Proof of Stake (PoS) algorithms. Both PoS and Proof of Stake Velocity (PoSV) are alternatives to the traditional Proof of Work (PoW) mining. Rather than mining blocks, blocks are minted. The general concept and its disadvantages were discussed earlier.

Coin age in Proof of Stake

To recap, in order to become eligible for PoS rewards, you need to hold a certain amount of the concerned cryptocurrency. After these coins have accumulated sufficient coin age, the coins will start earning rewards. Coin age refers to the amount of time coins have been inactive. PoS was first implemented in Peercoin, where the minimum coin age was set to 30 days. The higher the coin age, the higher the chances to mint a block. Although chances stop increasing after 90 days, there is no limit to the total coin age. The maximum difficulty modifier means that even the users with the highest coin age will still require some time to mint a block. Otherwise it would be possible to have coins aging in cold storage for years, resulting in the possibility to claim the accumulated award within minutes. This would not contribute to network security. It is still possible to build up years of coin age, but a contribution will have to be made to “consume” the accumulated coin days.

Accrued interest and minimum age

As coin age is consumed upon minting a block, it can be seen as a form of accrued interest which is paid randomly after 30 days. The minimum of 30 days is mainly set to create some room in the network. If everyone would be entitled to receiving interest at any time, it reduces one’s chances to mint a block and some might still have to hold on to their coins for a very long time. Users that successfully find a block have to wait for 30 days before their coins become eligible for rewards again. This increases the chances of the remaining users to mint a block and receive a more steady flow of interest. This minimum coin age also causes interest to behave as if it concerned a certificate of deposit rather than a savings account. Even though there is no predefined maturity date, there is a penalty for “withdrawing” coins early as is common for most time deposits. This has a bigger negative effect on the monetary velocity than just applying regular interest.