BLOCKCHAIN IS SOOO EASY
Explained Easily: Tokenomics of Bitcoin
NB: Blockchain, Strictly for Lazy Beginners
TABLE OF CONTENT
- WHAT ARE CRYPTOCURRENCIES?
- WHAT IS BITCOIN?
- TOKENOMICS OF BITCOIN
- LOOPHOLES IN BITCOIN TOKENOMICS
In our world today, almost all operate on a cashless policy. We do not require physical money to carry out daily transactions. The money we use in our day-to-day transactions is called FIAT CURRENCIES.
Fiat currencies are government-issued currencies while cryptocurrencies are people issued.
WHAT ARE CRYPTOCURRENCIES?
Cryptocurrencies operate on a decentralized system. This system distributes authority equally among peers and not a small group of individuals.
Cryptocurrencies are tagged as digital currencies. The first cryptocurrency was Bitcoin.
WHAT IS BITCOIN?
- Bitcoin is a virtual/digital currency that falls under the umbrella of cryptocurrency.
- Bitcoin was launched in 2009. It was created by an anonymous developer or group of developers under the pseudonym Satoshi Nakatoma.
- Bitcoin is used to buy goods and services directly and indirectly (exchange bitcoin to fiat).
- Bitcoin was created through the use of blockchain technology. The whole existence of bitcoin relies on this technology.
Bitcoin is created, transferred, and stored on the bitcoin blockchain.
How is bitcoin created?
Bitcoin blockchain comprises of network of various computers. Each computer is known as a node, validator, or miner.
For Example, Mr. A wants to transfer 1 bitcoin from his crypto wallet. When he initiates the transfer, a signal is sent to the validators. The job of a validator is to confirm if Mr. A truly has 1 Bitcoin to send.
Only one validator can approve this transfer. For every transaction a validator validates, he gets rewarded in BTC. It then begins a cat race among validators to be the first to validate this transfer of 1 Bitcoin for Mr. A.
The process of a validator confirming a transaction is known as mining. Only after a transaction is validated does a certain amount of new BTC become available as a form of reward to the validator.
As seen above, no central authority approves transactions on the blockchain. This feature is known as decentralization (the spread of power among everyone).
Let’s take a short break. Are you refreshed for the new step?
TOKENOMICS OF BITCOIN
Tokenomics are features a token exhibits that determine its success or failure in the crypto and blockchain space. These features of Bitcoin are:
Total Supply
The total supply of BTC is programmed at 21 million Bitcoins.
The law of demand and supply has worked in favor of BTC. An increase in demand coupled with lesser supplies would drive the price of an asset high, as seen in the case of BTC.
BTC was 1$ in 2009. BTC is currently trading at 17,000$ at the time of writing this article.
Incentive Mechanism
Bitcoin incentive is simple and rewarding to both miners and investors.
Investors do not require KYC (Know Your Customer) before they own bitcoins or bitcoin wallet addresses. The anonymity Bitcoin provides its users is one of its most attractive features.
Transactions of any volume are easy to process. Cross-border transactions take less than an hour to be completed. Failure is almost next to impossible.
Validators get rewarded in Bitcoins for every transaction they approve on the blockchain. This would attract more validators into the network leading to an increase in transaction speed.
Token distribution
Everybody is given a fair chance to mine or buy bitcoins. During the launch of Bitcoin, no amount of Bitcoin was given to any founder or developer. Every Bitcoin that exists in circulation today was earned through mining.
The token distribution of bitcoin shows decentralization in its true self. No one was given any preferential treatment. The people who hold massive amounts of Bitcoins are the ones who either were early miners of Bitcoin or individuals who invested very early in Bitcoin.
Community
Would anyone accept Bitcoin as a means of payment. These were the questions critics asked people who believed in the Bitcoin dream? The people who made BTC a success were the ones who earlier accepted it as a means of payment for products and services.
Without these people, BTC may not exist today.
The community behind BTC is massive. They believe that it could one day be accepted all over the world as new money. This is one of the driving forces behind the success of BTC.
Individuals are willing to bet their whole lives on BTC, ready to carry BTC as an identity.
When all other tokenomics fail, the community of a token can be all it needs to keep standing.
There is hardly a perfect proof system in the crypto or blockchain space. What are the loopholes plaguing BTC?
LOOPHOLE IN BITCOIN TOKENOMICS
Transaction Fees
When the bitcoin network is congested, the transaction fee required to transfer Bitcoin to another Bitcoin address skyrockets.
A user can spend more than $200 to complete a transfer worth $100. This is no fun for most users because the lure of BTC in the first place was the lesser transaction fees needed to complete a transfer.
Transaction Speed
As the number of users grows, slower transactions are recorded on the network. In rare cases, some transactions could take more than an hour to be successful due to network congestion.
Difficulty Level
Mining bitcoins during its beginning years was easy and complex, one just needed a system, and he could easily mine some BTC on his system.
As BTC has become more popular over the years, the difficulty level for mining has tripled. One now needs very complex, energy-consuming computers before he can validate transactions on the network. These stops interested newbies who are not financially buoyant from being validators.
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