The Future of Blockchain Technology – Qasim Shabbir
What makes Blockchain fascinating is cryptoeconomics; it is what makes it different from other systems. As a result of Satoshi’s white paper, we have discovered that we can build new kinds of systems through the clever combination of cryptography, network engineering, computer science, and economic incentives. Such modern cryptoeconomics structures could accomplish things they couldn’t do on their own. Bitcoin is just one product of this new practical science.
Cryptoeconomics brings economics and computer science fields together to study the decentralized marketplaces and applications that can be constructed by combining cryptography with economic incentives.
Worldwide, affluent communities are facing an increasing crisis of confidence in existing authorities. Stagnating markets, rising inequality, political corruption, and increasing technological monopolization to the benefit of insiders have sparked a populist backlash.¹
Finally, cryptocurrencies provide us with a way to control our own destiny. We have a way of generating and distributing money without a central power for the very first time in world history. Citizens will have control over the money that they have rightfully earned.
When asked about what is cryptoeconomics? Ethereum developer Vlad Zamfir says that cryptoeconomics is: “A formal discipline that studies protocols that govern the production, distribution, and consumption of goods and services in a decentralized digital economy. Cryptoeconomics is a practical science that focuses on the design and characterization of these protocols.”
The concept of cryptoeconomics is further explained by one of the most influential females in the tech world, Shermin Voshmgir, in her book Token Economy, she states that:
“Cryptoeconomics refers to the study of economic interaction in adversarial environments. The underlying challenge is that in decentralized P2P systems, that do not give control to any centralized party, one must assume that there will be bad actors looking to disrupt the system. Cryptoeconomics approaches combine cryptography and economics to create robust decentralized P2P networks that thrive over time despite adversaries attempting to disrupt them. The cryptography underlying these systems is what makes the P2P communication within the networks secure, and the economics is what incentivizes all actors to contribute to the network so that it continues to develop over time”.
In simple words, it focuses on individual decision-making and strategic interaction between various participants in a digital ecosystem (e.g. users, key resource providers, application developers, etc.) and uses economic methodologies — such as game theory, mechanism design, and causal inference — to understand how to fund, design, develop, facilitate operations, and encourage adoption.
The Blockchain Technology runs on the principles of cryptoeconomics.
If we divide cryptoeconomics on two main pillars, as its name suggests, we’ll get crypto and economics, so let’s understand that how these two lend the Blockchain its unique characteristics.
Understanding Cryptography and Economics can be whole different chapters, but let’s have a look at some of the main functions that can run Blockchain, according to Satoshi Nakamoto.
Cryptography
- Hashing
- Signature
- Proof of work
- Zero knowledge proofs
Economics
The place where Blockchain differs from other decentralized peer-to-peer system, as we mentioned in the beginning, is that it provides financial and economic incentives for its users to do some work. There should be incentives and rewards for people to get work done, like with any solid economic system, similarly there should be a system of punishment for miners who do not act ethically or do not do a good job.
As you can see, cryptography and economics combined to create the Blockchain technology in a very beautiful and intricate way. Over the past few years, the growth it has experienced is staggering and it will only get better and more widely used.
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Published at Wed, 20 Nov 2019 12:14:33 +0000
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