Tag: trustless

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Crypto Guides

Understanding Social Scalability & the Tradeoffs in Cryptocurrency

Introduction

Introduction

Introduction

Taking time back to over 70,000 years ago, there were about 6-10 species of the genus Homo. In them, Homo sapiens prevailed over all other species. In fact, they overcame Homo neanderthalensis, who were supposedly physically stronger than humans. The vital difference was the ability of Homo sapiens to form groups and coordinate together in activities. Hence, a coordinated group of Homo sapiens could beat away a stronger individual either through directly fighting or by taking control of scarce resources indirectly.

This prevailing nature of Homo sapiens was explained by a researcher Nick Szabo who is called the ability to coordinate as social scalability. Increased size in the group leads to better coordination between increasingly large groups. The brain of Homo sapiens has been able to invert other external structures that increase social scalability.

 (Picture Credits)

Social Scalability & Its Impact

The evolution and advancements in technology have decreased the vulnerability to other participants and intermediaries. However, Language is that traditional technology which has increased the social scalability between people as it has allowed humans to communicate with each other.

The essential component of social scalability is trust minimization. The modern legal system has drastically increased the social scalability because it meant a scenario where any person could enter into contact with anyone else, and not having to develop any personal relationship with it.

One ideal example of the same would be matchmaking through online rating systems. Below are some instances which you could relate to:

Amazon: Matches manufacturers and consumers

Uber: Matches best drivers and riders

Airbnb: Match tourists and homeowners with spare rooms

The rating system significantly reduces trust in each transaction. After booking a Uber, I don’t need to do a background check of the driver because I trust them from the several reviews of the riders saying that the driver is safe and reliable.

Blockchain, too, has the potential to minimize trust and increase social scalability. This could be possible from the widespread application of capital and markets. As per history, the amalgam of money and markets have helped reduce transaction costs through the following ways:

Matchmaking – Bring buyers and sellers together

Trust minimization – trusting in self-interest instead of the unselfishness in strangers

Scalability via money – A wide acceptance and reusability medium for counter-performance.

Bitcoin and the Tradeoffs

In 2009, “Satoshi Nakamoto” created something which can be described as the most socially scalable money that had ever been created. It was called Bitcoin, powered by blockchain. Instead of having a so-called trusted intermediary, they created a currency that relies on a decentralized group of middlemen. Cryptocurrencies have the ability to substitute a mass number of computers for an army of financial intermediaries. As their features, they have a high level of security and reliability without the help of human intervention.

To scale up the social scalability via globalization, scaling human institutions was necessary. An increased number of accountants, lawyers, regulators are required. More human cognitive capacity is required to monitor the transactions. But, scaling up cognitive capacity is not possible by humans. Computers were the ones that could do this.

However, in computer science, there are tradeoffs between security and performance. For instance, the security needed to make cryptocurrency socially scalable requires a very high price as electricity is used for mining. Cryptocurrency sacrifices computational scalability to increase social scalability. The inefficiency in computations (electricity and high power usage) enable its social scalability (the ability of parties to make transaction across national borders).

As the cost of computational power is dropping, and the human capacity has remained static, the tradeoff is getting more beneficial.

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Crypto Guides

The Evolution & Properties Of Cryptocurrency!

Introduction
We could say that the type of currencies we use today is employed as a medium of exchange for goods and services. In the olden days, transactions used to

Introduction
We could say that the type of currencies we use today is employed as a medium of exchange for goods and services. In the olden days, transactions used to

Introduction

We could say that the type of currencies we use today is employed as a medium of exchange for goods and services. In the olden days, transactions used to happen in the barter system. Barter system implies that goods are exchanged for goods. With this system, it took time to trade products and services as it is challenging to find people to accept their goods for the goods they want. Hence came the era of coins in gold or some other metal with a denomination printed on it. As some standard is associated with it, the trading of goods and services has become easy. Then came the paper notes making it easy to carry large amounts of cash, which was not possible with coins. We are this point where these paper notes are known as currencies. Each country has its respective currency (The US Dollar, Japanese Yen, Indian Rupee, etc.)

Evolution Of Cryptocurrency

Even though the purpose of the money didn’t change much, the way we use it kept changing throughout history. Banks came into existence to ease out the financial transactions. They played a significant role in global trade in terms of transferring money across different countries, thus improving the economy of each country. Physically minted cash would be less than 10% of the entire currency in the world. Remaining exists in the form of virtual currency as electronic money in online accounts. Central banks in each country control these accounts. Since power is vested within these financial institutions, the entire banking process is centralized. Hence the necessity of an alternative currency has emerged. These are termed as cryptocurrencies, and the primary purpose of their invention is to create a decentralized currency system where the entire network is not controlled by anyone at all.

What Are Cryptocurrencies?

Cryptocurrencies are digital or virtual currencies where cryptographic techniques are used to generate the units of currency and monitor the transfer of funds without a central bank. Thus, making it a decentralized way of producing and using money.

Cryptocurrencies are generated by using a blockchain platform that uses distributed ledger technology. The first-ever cryptocurrency that has come into existence is The Bitcoin in 2009, though the white paper related to this concept was released in October of 2008. Thus, 2009 signals the beginning of the era of cryptocurrency. There has been no looking back since then.

Properties Of Cryptocurrency

The three fundamental features of cryptocurrencies are Trustlessness, Immutability, and Decentralization. Let us understand these properties using the example of Bitcoin.

Trustless

Though the word trustless creates confusion to the readers, it merely means there is no need not trust anyone or anything to send or accept a cryptocurrency. If we say an environment is trustless, that means there is no need for you to trust anyone in the network. The Bitcoin network is a trustless environment. There was no currency before Bitcoin that was not monitored by a central bank. Every node in the blockchain network has a copy of the ledger; thus, there is no need to trust any authority.

Immutability

Immutability means that it cannot be undone. It is highly improbable to rewrite the history of the transactions in Bitcoin blockchain. Since all the transactions are recorded in the blockchain, the cryptographic techniques make it highly impossible to change any transactions. If any fraudulent transactions happen in the case of our bank accounts, the banks have the authority to change the transaction. But in the case of cryptocurrency, it is not possible. Thus, removing the concept of centralization and trust from these digital currencies.

Decentralization

It is the keyword when it comes to cryptocurrencies. Decentralization offers different types of tolerances. Tolerance concerning the infrastructure, component failures, hacking, and collusions. In the Bitcoin network, the ledger where the transactions are recorded is distributed among every node in the network. Any component failures don’t cause any problem to the functioning of the network. Hacking the blockchain is extremely difficult and a costly process. When it comes to traditional banking, individual entities can collide with each other to make profits at the expense of loss to others. This plot is not possible in the case of a cryptocurrency network, thus offering tolerance to collusion. Apart from all of these, there are many more advantages of a decentralized system over a centralized banking network.

Bottom Line

Therefore, Cryptocurrencies offer plenty of opportunities in today’s digital world, which traditional currency couldn’t provide. We will be further discussing the purpose of cryptocurrency and more properties of cryptocurrency in our upcoming articles. Stay Tuned. Cheers!

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Cryptocurrencies

The Features and Uses of Cryptocurrencies

Unless you’ve been living under a rock, you must have heard or seen the buzzword “cryptocurrency” or at least “bitcoin” in financial headlines or somewhere else. The point is, cryptocurrency

Unless you’ve been living under a rock, you must have heard or seen the buzzword “cryptocurrency” or at least “bitcoin” in financial headlines or somewhere else. The point is, cryptocurrency

Unless you’ve been living under a rock, you must have heard or seen the buzzword “cryptocurrency” or at least “bitcoin” in financial headlines or somewhere else. The point is, cryptocurrency has captured people’s imagination with its intriguing technology and its potential to become a powerful global currency in the future.

Most people know about the existence of cryptocurrency, but its use remains elusive.  If you’ve been racking your brain with questions like: what’s the use of cryptocurrency? What characteristics define it? Why should I pay attention? We have the answers for you. 

Properties of Cryptocurrencies

In the digital currency space, cryptocurrencies have some inherent features that starkly differentiate them. Here’s what makes Bitcoin, Ethereum, Zcash, NEM, Stellar, and other cryptos special.

1. Free of permission

At the core of cryptocurrencies are open source software and consensus-driven technology. Anyone and everyone can access the software needed to mine, trade in, and to complete transactions using cryptocurrencies. Since it is not regulated by anyone, you do not need permission from any authority to use it. 

2. Immutable

In its simplest sense, immutable means “cannot be changed.” Once a transaction is done, it’s done. This means that it’s impossible for anyone in the entire world to move a cryptocurrency asset apart from the owner of the private key. Also, a transaction cannot be reversed once it’s on public record on the blockchain ledger. 

3. Highly secure 

Not only are cryptocurrencies encrypted with extremely complex algorithmic patterns, but they also have an extra layer of security in the form of blockchain technology. Blockchain’s decentralized and transparent nature is such that even if malicious parties manage to hack the system, there’s nothing of value to steal. 

Also, most cryptocurrencies have servers all over the world with thousands of nodes tracking all activity in the networks. This ensures that even if some servers and nodes fall prey to hackers, the rest of the nodes will continue running the system. 

4. Deflationary

Most cryptocurrencies have a capped market supply, rendering them scarce. For example, Bitcoin has a maximum issue of 21 million coins – and that is the total number that will exist, ever. This makes the currency a prized and attractive asset. As its demand increases, its supply remains the same. This increases its value over time, making it deflationary. Cryptocurrency owners never have to worry about their asset value decreasing. 

5. Anonymous and Pseudo-anonymous 

Since there’s no governing authority on cryptocurrency networks, users do not have to provide proof of identity while transacting on the networks. It’s anonymous in this sense. However, it’s pseudo-anonymous in the sense that when a transaction request is submitted, the decentralized system will verify it and record it on the public ledger. Any person who transacts is linked to a public address, though no one will know the actual name of the address.

6. Trustless 

The decentralized nature of cryptocurrencies is such that nobody has to trust anyone for transactions to occur. Users utilize a technique known as consensus to interact with each other without needing validation from anyone but the system. When a transaction is entered in the network, all nodes will receive it and verify if the digital signature is genuine or not. If it’s genuine, the nodes will record it on the blockchain. If it’s not, the nodes will flag the transaction and discard it.

Uses of Cryptocurrencies

Now that we’ve explored what makes cryptos unique, the curious part is whether they’re worth the hype. 

It turns out cryptocurrencies are very useful in the real world. At least in the areas below:

✅Low-Cost and Fast Money Transfer

Many cryptocurrency enthusiasts and users will acknowledge one of the finer purposes of cryptocurrency is their ability to send and receive money at incredibly fast speeds and impressively low costs. The speed of transactions is a very critical part of any financial system, and cryptocurrency excels at this.

When compared with the traditional payment systems which take several days, even the slowest cryptocurrency is lightning fast – with transactions of minutes, and others mere seconds. What makes this possible is: all that’s needed is for a miner to decipher an encryption, after which a transaction is confirmed.  

✅A Censorship-resistant Alternative to Wealth storage

The freezing of someone’s assets and cash is easier than most people think. This is especially true in jurisdictions with an unfair rule of the law. All it takes is to be accused of financial misconduct or to run afoul of powerful people. In such a scenario, it’s easy to find yourself with no access to cash, even if you are not guilty of any wrongdoing. 

With cryptocurrencies, this can never happen. This is because it’s only the holder of the bitcoin currency who has the key to access their bitcoin wallet.

✅Private Transactions 

Some cryptocurrencies such as ZCash and Monero are inherently privacy-centric – they enable users to make anonymous transactions on their network. This way, individuals do not have to be interrogated by a bank on where their money came from, why they are sending large amounts of funds and who the recipient of the money is.

This also makes them a welcome alternative to the usual labyrinthine process involved when you’re transferring a lot of money – an aspect that causes people on both ends to be stranded for days.

✅Cashless Remittances  

Non-cash remittances are more secure, more convenient, and easier to track. Cryptocurrencies are unparalleled in this regard – especially with their added characteristic of water-tight security courtesy of advanced encryption.  

For instance, Nigeria’s blockchain startup allows users to send money from anywhere in the world to a selection of African nations. Diaspora Africans can buy SureRemit’s tokens and use them within the mobile app version to purchase mobile airtime and pay utility bills for their loved ones in Africa.

Conclusion

Cryptocurrency has revolutionized the finance world with unique offerings which, going by current indications, will render it more dominant in our interactions with money. With its unique security system, cheap costs, and swift transaction speeds, it will continue to find more applications in the real world.