Introducing Proof of Confidence
As the cryptocurrency ecosystem grows more diverse, challenges arise, as do solutions. One challenge impeding greater cryptocurrency adoption is the reality that the most commonly accepted method of capital accumulation, Initial Coin Offering (ICO) is inherently flawed. In the ICO system, investors large and small must take a risk and trust their capital in the hands of developers who may or may not deliver on their promises. Proof of Confidence was explicitly developed as a solution to the challenge of decentralizing token generation events and mitigating risk.
For a brief introduction to cryptocurrency distribution, we will detail the four most common methods: airdrops, crowdsales, Proof-of-Work, and Proof-of-Stake. Airdrops are centralized in the sense that a single database of recipients of a token is maintained by the developer, and it is up to the developer to actually distribute the tokens to users. Crowdsales/ICO are by far the most popular method of distributing tokens in exchange for capital, but as a result are also heavily centralized and carry significant risk with minimal repercussion for developers. Proof-of-Work was the first method of securing consensus for cryptocurrency and is also used to distribute coins as a reward, but is not without its own centralization issues, primarily the need for capital and physical space. Proof-of-Stake is another interesting development in cryptocurrency consensus but suffers from the same inevitable centralization of capital as crowdsales and Proof-of-Work do.
Proof of Confidence solves the problem of centralization and required trust. This new distribution system represents the introduction of a new paradigm to the field of Token Generation Events. Rather than requiring investors to hand their capital over to developers as in an ICO, Proof of Confidence simply requires an investor to lock their ether up in a trustless smart contract, showing their confidence in the project. Similar to staking, this locked up investment provides the backed up worth of a token distributed via Proof of Confidence. If for at any reason an investor loses confidence in the project, they may withdraw their investment from the smart contract. Investors who remain confident for a declared amount of time will be rewarded with a quantity of project tokens in ratio to amount invested and time locked up. This distribution method creates an ecosystem where developers are held accountable to their investors and must deliver on their promises in order to profit. Only when the investors see returns do the developers see profit. The win-win incentive provided by Proof of Confidence means that we, as the developers of Liquidaeon, have much more of a reason to realize the milestones of our roadmap than developers who receive their crowdfunding up front do with their projects.
In summation, Proof of Confidence is superior to other token distribution methods for projects that do not need immediate capital because it reduces barrier to entry and shifts the risk from investors to the maintainers of the project. For a project such as Liquidaeon, Proof of Confidence was the only sensible distribution method that doesn’t hinder the scope of the project. Subscribe to the following social media channels for updates and more articles regarding Liquidaeon
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