PIVX Cryptocurrency Overview

Mar 12, 2019   |   by Aidan Coia   |   Tokens & Coins

Humble Beginnings

Originally a fork of Dash in February 2016, PIVX was initially known as Darknet up until January 2017. PIVX stands for Private Instant Verified Transaction, summing up the project's goals of network privacy, speed, security, and stability. As an open-source project, PIVX is maintained, and improved upon, by decentralized community input, with nearly 20 GitHub commits over the last 90 days. Although many features, such as InstantSend, are derived from previous protocols - Bitcoin, Litecoin, Dash, and aspects of ZCash - PIVX boasts its own original Proof of Stake (PoS) protocol, with two staking options and masternode governance. With the goal of becoming the dominant privacy-based currency, the project implements untraceable zPIV and a customized version of the Zerocoin protocol.

At its inception, PIVX began as a Proof of Work (PoW) protocol, with miners securing the blockchain in exchange for PIVX tokens. Since August 2016, PIVX has operated with a PoS protocol, while maintaining fundamentally decentralized, distributed, immutable ledger technology taken from the Bitcoin blockchain. While keeping certain components of the blockchains of its predecessors, the project moved on to PoS to avoid the centralization problem posed by mining pools. The PoW versus PoS argument is far more detailed than this one dilemma, but, simply put, the PIVX white paper claims that PoW consensus incentivizes miners to pool their computing power to compete with rising mining difficulty, creating centralized congregations of mining power. In PoW consensus, as mining difficulty increases, decentralized mining is threatened by rising costs towards hardware, electricity, and cooling, greatly diminishing the ability for individuals to effectively mine outside of a centralized mining pool. PIVX’s PoS maintains fairly distributed power across the network, avoiding any centralization.

The transition from PoW to PoS provides a major distinction between PIVX and its predecessors, Bitcoin and Litecoin, however, the project shares further similarities with its most previous forked implementation, Dash. The major quality taken from the Dash protocol is the masternode system. While Dash/PIVX miners still verify transaction blocks on the blockchain, masternodes - nodes locked with a predetermined amount of the token - provide near instantaneous transactions through SwiftX. This allows PIVX to compete with the top speed-focused altcoin projects on this front, while also implementing numerous other components focused on privacy, stability, and security. The network’s inception required the creation of 6 masternodes, each with 10,000 PIVX. Later, at block #279917, all 60,000 of those “artificial” PIVX were burned. Furthermore, there are zero PIVX locked away that could be used to manipulate the price.

Coin Economics

One unique feature of the PIVX protocol is its dynamic coin supply. While there will never be a coin-supply hard cap, transaction fees are burned in order to instigate liquidity and reward users for participation. The lack of a hard cap allows the minting of new PIVX in perpetuity - always providing rewards to those securing the blockchain. With a soft cap, a restriction on coin production under certain conditions, as the network experiences higher rates of transactions per second, the burned transaction fees come to equal the amount of minted PIV per block, creating a neutralizing effect on the currency. Through this burning and minting, the network alleviates any detrimental inflationary pressure, as any loss of value through the minting of new PIV is offset by staking rewards. At the time the white paper was last updated, about 5 PIV were minted every minute, which provides inflation at a rate of approximately 4%, just below the conventional currency threshold for triggering hyperinflation. But, as the network grows, with new users constantly incentivized to participate, the neutralizing effect of burning transaction fees will lower this percentage significantly.

Privacy

In its early stages, PIVX privacy relied upon CoinJoin, the foundation for Dash’s PrivateSend technology involving coin mixing. This feature allows for transactions to be mixed and divided in order to obscure the source. Further along in its development, the project shifted to utilize a customized implementation of the Zerocoin protocol - a product of the Johns Hopkins paper, Zerocoin: Anonymous Distributed E-cash From Bitcoin. Simply put, the protocol works by including a private second currency in transaction blocks, alongside the original currency. These essentially untraceable secondary coins are minted with an obscured origin, and can later be spent on the blockchain without revealing destination or amount. For PIVX, this secondary currency is zPIV - which is of equal value to PIV and carries no data concerning the coin’s history.

When one makes a transaction through this zero-knowledge protocol, an amount of zPIV equal to the transacted amount of PIV is minted. The PIV is sent to an accumulator, essentially burning the coins, which returns an IOU to the user that allows the minted amount of zPIV to be spent later. This IOU acts as a seed to unlock the minted zPIV that have been recorded privately on the blockchain. Before this zPIV can be spent, a period of time must pass in which at least an equivalent amount of zPIV is minted, serving as a preventative measure against tracing transactions based on comparative analysis of spends and mints, and maintaining a healthy supply pool of zPIV. After this time has passed, the user can spend the zPIV to a target destination which becomes newly generated PIV, with no possible trace back to the user. The user’s IOU corresponds to the amount of zPIV locked on the blockchain but remains anonymous. People can see that the user has an IOU that validly corresponds to some locked zPIV on the blockchain, but cannot determine which specific, locked zPIV that IOU corresponds to. This process is a function of Zero-Knowledge Proofs, which prevent any information from being sent between the sender and the receiver. Many find this concept difficult to grasp, but the PIVX white paper provides a clearer example as taken from the Wikipedia page for Zero-Knowledge Proofs:

“Imagine your friend is color-blind and you have two balls: one red and one green, but otherwise identical. To your friend, they seem completely identical and he is skeptical that they are actually distinguishable. You want to prove to him they are in fact differently-colored, but nothing else, thus you do not reveal which one is red and which is the green. Here is the proof system. You give the two balls to your friend and he puts them behind his back. Next, he takes one of the balls and brings it out from behind his back and displays it. This ball is then placed behind his back again and then he chooses to reveal just one of the two balls, switching to the other ball with probability 50%. He will ask you, "Did I switch the ball?" This whole procedure is then repeated as often as necessary. By looking at their colors, you can, of course, say with certainty whether or not he switched them. On the other hand, if they were the same color and hence indistinguishable, there is no way you could guess correctly with probability higher than 50%. If you and your friend repeat this "proof" multiple times (e.g. 128), your friend should become convinced ("completeness") that the balls are indeed differently colored; otherwise, the probability that you would have randomly succeeded at identifying all the switch/non-switches is close to zero ("soundness"). The above proof is zero-knowledge because your friend never learns which ball is green and which is red; indeed, he gains no knowledge about how to distinguish the balls.”

Proof of Stake

PIVX’s Proof of Stake consensus algorithm sets it apart from its predecessor's Bitcoin, Litecoin and Dash. To achieve this consensus, users lock their funds in a wallet, staking an amount of PIV in order to have a chance to validate a block of transactions and get rewarded for doing so. Staking wallets with higher amounts of PIV garner higher chances for winning blocks and receiving rewards. One may assume that this leads to the individual with the most PIV gaining centralized control over the network, however, an individual must gain 70.7% of PIV supply in order to achieve a 50% chance of double-spending or invalidating one block. Achieving 70.7% of PIV supply is not only inconceivable because of its raw value (at this point in time, approximately $31,000,000 worth of PIV), but is also made futile by the market’s reaction to such accumulation, as the price of PIV would only increase, providing even more difficulty.

Simply transitioning to PoS set PIVX apart from its predecessors, whereas the inception of the Zerocoin PoS protocol (zPoS) set the project apart from any existing PoS consensus. As previously described, the inclusion of the Zerocoin protocol provides privacy and anonymity to the network. Likewise, the fusion of Zerocoin with PoS consensus allows for private, anonymous staking. The project’s overall goal is for zPoS to overtake conventional PoS PIV staking. To incentivize this shift, zPoS stakes reap a 50% increase in block rewards compared to PIV stakes.

Masternodes

In addition to both conventional PoS and zPoS, the PIVX network retained Dash’s use of masternode Decentralized Autonomous Organization (DAO) governance. PIVX masternodes comprise an additional, more exclusive set of incentivized nodes for handling particular tasks. Masternode responsibilities are entirely separate from PIVX PoS, but are distributed across the masternode network, with no singular node holding any authority over another.

The major advantage of utilizing a network of masternodes is incomparable speed. With SwiftX, a technology unique to PIVX, near instantaneous transactions are achievable, with speeds as short as a single second. SwiftX transactions are independent of the PIVX network proper, achieving such high transaction speeds by communicating exclusively across the masternode network. When a node makes a SwiftX transaction, that transaction is sent to the masternode network, where one random masternode is chosen as the SwiftX delegate. This delegate then locks the transaction and broadcasts the locked transaction across the masternode network, invalidating any block discrepancies. With this process, masternode transactions reach efficiency comparative to major credit card companies.

Debatably, though near instantaneous transaction speeds provide an immense edge over other projects and traditional financial systems, the more important function of PIVX masternodes lays in community governance. No one node, individual, or organization can solely determine the direction of the project. Although proposing an advancement is not exclusive to masternodes, voting is. Each masternode has one vote on any proposal, and the majority decision is upheld. The inception of a proposal begins with community discussion, in the PIVX discord or forum, followed by a formal proposal post in the forum. To make the formal proposal, the user must pay a 50 PIV fee, which they can request to have reimbursed should the proposal pass. Should the community vote to pass the proposal, the proposer must pay an additional 5 PIV fee for its implementation, which they can also request to have reimbursed. After the majority of the masternode network votes to move forward with a given proposal, that change is implemented in the next superblock.

Operating a PIVX masternode provides passive PIV income with few additional requirements for running a standard PIV wallet. The first requirement is that masternode wallets must have a minimum of 10,000 PIV, locked and completely separate from a wallet meant for transacting. This relatively high cost of entrance helps to prevent short-term, unreliable service, as operators must reserve a significant amount of value to run the masternode. The second requirement for masternode operation is an unchanging, static IP address paired with reliable, constant internet access. Finally, running a PIVX masternode requires some sense of technical skill and coding ability, which is why the white paper authors suggest that those with an unreliable internet connection or no technical skill would be better suited towards staking.

The masternode reward system varies, depending on which type of stake is responsible for finding each block. Should the block be found by a PIV staker, 3 PIV go to masternodes, 2 PIV go to the staker, and 1 PIV goes to the PIV budget. Conversely, if the block is found by a zPIV staker, 2 PIV go to masternodes, 3 PIV go to the staker, and 1 PIV goes to the PIV budget. The payout discrepancy is a strategy to incentivize the use of zPoS over PoS, in order to uphold PIVX’s initial goals of utmost privacy and expediency as provided by Zerocoin protocol.

Future Projects

For future development, the PIVX project has plans to implement bulletproofs, a decentralized exchange (DEX), and integration with the dandelion protocol among numerous other goals. Bulletproofs is a zero-knowledge technology that allow Zerocoin proofs, and therefore transactions themselves, to become a fraction of their current size. The technology will both reduce transaction size, increasing efficiency, and provide a completely trustless foundation for such transactions to take place. While not a PIVX project specifically, the Zerocoin decentralized exchange (zDEX) concept is currently under development. The zDEX will provide a completely decentralized marketplace, facilitated by masternodes rewarded in transaction fees for their services. More pertinent to the PIVX project itself, integration of the dandelion protocol is still in its planning stages according to the PIVX roadmap, but will provide complete anonymity for the user’s IP address, rendering it untraceable.

Social Media/Activity

The PIVX Twitter account, @_pivx, boasts approximately 61,000 followers, with continuous and comprehensive updates and news. For Reddit, the PIVX subreddit is r/pivx, and has around 8,600 subscribers, with a decent amount of posting activity. According to onchainfx.com, PIVX currently ranks 73rd out of all cryptocurrencies in terms of GitHub commits, with around 25 in the last 90 days.

For a look at plans for an alternative DEX, or to learn about the Jumblr, another transaction anonymizer, check out Komodo, and find out what Delayed Proof of Work (dPoW) entails while you’re there! For a nearly opposite project in terms of anonymity, check out Civic to see how one project hopes to aid adoption through blockchain identification services. For a different look at a 2-currency ecosystem, check out Factom and their use of entry credits and factoids.

Infographics were taken from the PIVX website at https://pivx.org/.

Follow us on Twitter for more interesting cryptocurrency articles.

Aidan Coia