Cryptoeconomics: changes in traditional approaches from Kostiantyn Kryvopust

The border between the digital and physical worlds continues to shrink, businesses adapt processes to the needs of the high-tech age, and people try to integrate them into their lives.

It is known that the rapid adaptation of technologies depends on the ease of interaction with them. Blockchain is the connecting link that will facilitate the transition to new standards. This is exactly the task facing the crypto-economy, which combines traditional economics, cryptography and computer technology.

It is important to understand that the adoption of blockchain only by the financial market limits opportunities for creating new approaches and breaking stereotypes. Decentralized ledger technology is capable of significantly changing most existing industries.

Economy of the future

Cryptoeconomy cannot be called a full-fledged replacement for the traditional one, because it is not based on the regulation of relations within the production or consumption system. This branch of science is mainly built on the principles of game theory and mathematics. Much attention is also paid to the design of mechanisms and cryptography.

At the same time, the main goal of cryptoeconomics is to establish the interaction of participants in the digital space with the help of cryptographic protection and economic incentives.

The result of the operation of the crypto-economy can be observed in decentralized peer-to-peer networks, where participants interact directly without trusting each other. It was the Bitcoin network that proved that this was possible, because previously such systems were prone to errors and fraud. The creator of the first cryptocurrency developed a system that is not profitable to hack, and to follow its rules is the opposite. Here we see game theory in action. It encourages participants to play fair.

Safety measures

In order to understand cryptoeconomics, it is important to know what mining is, because it is this process that is responsible for the clear rules for making changes to the network.

In a decentralized system, every action is recorded, and data is stored on all devices connected to it.

By solving complex mathematical problems, miners obtain new blocks in which information is entered. The system rewards them for this. Each subsequent block stores information about the previous one, which makes hacking the entire blockchain impossible.

In monetary transactions, information about the address of the owner of the coins is always publicly available, and its authenticity is guaranteed by a digital signature.

Thus, the cryptoeconomy protects the network and its users from possible fraud by a miner who wants to falsify calculation results or enter false data into the blockchain. Changes should affect all nodes of a large network. Such an action will also affect subsequent blocks and will not remain unnoticed.

Another obstacle to the development of peer-to-peer blockchain networks is the 51% attack, when participants, joining together in groups, can capture more than 50% of the total power and take control of the network. New blockchains are more vulnerable to such attacks. It is simply impossible to capture more than half of the network, for example, Bitcoin.

Cryptoeconomics model

The crypto-economic model of blockchain networks includes the following categories of participants: miners, investors and users. Everyone has a clear role. The interaction of all participants forms the “circulation of crypto-economics”.

The cycle of cryptoeconomics is a visualization of the cooperation of all participants in a peer-to-peer network. Cryptocurrencies are a means of interaction.

Consensus mechanisms regulate relations between miners and users according to the rule “code is law”. Thus, contributing to the development of the network, miners receive a reward, and users receive a coherent system. According to this model, investors are the main force behind the growth of the community. They attract new participants, which increases the liquidity of the token or coin.

Investors are interested in crypto-economic systems because it is profitable for them to conduct their activities in the blockchain industry. First, it is safe. Secondly, they can make an unlimited number of transactions for any amount in a short time.

The cycle continues to develop, meeting the requirements and economic interests of each party.

Tokenomics

Cryptoeconomy can also be considered as a set of all interacting token economies. At the heart of all crypto-economic systems is a digital asset. For example, the token economics of Bitcoin consists in the limited emission of coins. It helps to increase the price of the coin in the future. The demand for the coin will increase and the supply will decrease.

Of course, Bitcoin would not be able to develop in such a scenario if people did not see the need to use this coin. Each token that claims to be at the forefront must solve specific problems. This encourages investors to hold this asset, which can ensure stable development.

Tokenomics and robonomics
Globalization and technological progress are actively introduced into our everyday life. Nowadays, smart devices that interact within the same ecosystem are no surprise.

In turn, it is the crypto-economy that is able to establish M2M (Machine-to-Machine) communication, removing people and bureaucracy from this process. With the implementation of tokenomics in robonomics, the concept of smart cities becomes more relevant, as systems and devices can exchange information and settle with each other in cryptocurrency.

For example, you have a fleet of self-driving buses that require preventive maintenance once a week. At the appointed time, the bus is sent to the service station, where the inspection takes place. At the same time, the robot analyzes the bus systems. As soon as the service is provided, the amount of tokens specified in the smart contract will be transferred from the bus wallet to his cryptocurrency wallet.

Such systems are already at the testing stage and show excellent results.

Currently, we are witnessing the formation of completely new economic approaches. Clearly defined roles in crypto-economic models ensure smooth operation and benefit to all network participants, and decentralized systems extend far beyond the financial sector. We can confidently say that the crypto-economy has a huge potential and is able to change the traditional forms of both business and everyday life.

Expert in the field of international finance, lawyer Kostiantyn Kryvopust

Leave a reply

Please enter your comment!
Please enter your name here