The cryptocurrency market is currently dominated by speculative trends, due in large part to the entry of institutional investors into this asset class in late 2017. At this juncture the third generation EOS blockchain still remains the ideal network on which to build the PRIMARY dApp. The development team will keep in mind the need to combine the correct incentives with a cryptographically secure, decentralised network to create the PRIMARY marketplace. Following are examples of the biggest problems solved in the field of cryptoeconomics.
Cryptoeconomic strategies — The current situation of the market
The current situation of the cryptocurrency market has led to a lot of uncertainty on the part of most people. However, this situation will not persist. Over time it will be far easier to ascertain the value of a cryptocurrency by taking into account the cryptoeconomic strategies underlying each platform. In fact, cryptoeconomics has arisen due to the solutions it provides. Therefore let us take a look at the first use case of cryptoeconomics in the real world.
Digital gold — The genesis of cryptoeconomics
The original cryptocurrency, Bitcoin, is often referred to as ‘digital gold’. This is an apt description of the properties of bitcoins. It can be used as fungible and decentralised currency which can act as a store of value, just like gold itself. Further bitcoin is decentralised in the sense that anyone is free to go and mine tokens, just as they can go mine gold (the costs of mining both notwithstanding). Additionally, the value of a bitcoin is derived from its status as a finite resource, just like gold.
A key difference is that the record of an individuals’ history of bitcoin transfers is essentially tamper proof whereas it is not in the case of gold. It can be seen to solve the following two problems, among others:
- Byzantine General’s Problem
This problem considers the case of the Byzantine army besieging a city. There are several generals attacking the city from different sides, but can only succeed if all make a move at the same time. Any other action will lead to their loss. The issue concerns the possibility of an attack on the system by one or several rogue generals who purposefully send incorrect messages.
Cryptocurrencies overcome the issue of false communication by cryptographically hashing all prior transactions carried out on the blockchain.
This is a problem which cryptoeconomics solves via the use of cryptography, and shows how cryptography is used in the framework of cryptoeconomics to ensure that the historical record is not tampered with. It is the main way users of distributed networks can be sure of transactions which have taken place in the past.
- Principal agent dilemma
This is a long standing problem in many fields which involves the costs involved when one person, an agent, takes decisions for another person, the principal. Blockchain technology removes the need for trusting third parties to transactions and allows for what are called trustless transactions.
This is an example of a problem which has been solved via the use of economics, especially game theory. By taking economic considerations into mind, cryptoeconomics creates a system which leads to users to be sure. In general, the economic considerations present in cryptoeconomics help in
issues faced by initial cryptocurrencies.
In much the same way as Bitcoin’s similarities with gold have lead to its use as a store of value, they have hindered the mass adoption of cryptocurrencies by the public. It is simply not scalable in its current iteration. That is to say that it would not be feasible for consumers to engage in daily transactions using Bitcoin alone. After all, not many people would be comfortable with exchanging gold flakes for some bread and eggs at the corner store. Over the past few years we have seen a concerted effort to develop ‘digital cash’ rather than ‘digital gold’.
The future of the cryptocurrency market
Eventually it is expected that all blockchains will be able to benefit from a much higher number of transactions per second (tps) and better options for scalability, such as the creation of ‘side chains’ hosted on a public blockchain for the purpose of running a particular dApp. Proposed changes to first and second generation public blockchains such as Bitcoin and Ethereum will solve the problem of slow transaction speeds (not to mention the high energy usage!) which these networks suffer from. However, these changes still need to be resolved in the coming months and years.
PRIMARY and its future development
The third generation EOS blockchain will remain the ideal network on which to build the PRIMARY dApp. This is for a variety of reasons such as the high rate of transactions possible on the network, as well as the rapidly growing community of dApps in the EOS ecosystem. The key components of the PRIMARY marketplace will be a combination of the correct incentives with a cryptographically secure, decentralised network.
This article is the second in a series on the nascent field of cryptoeconomics, and how it will influence the development of the PRIMARY platform. These articles aim to show the links between our project and recent developments in the philosophical thinking applied to technology.
Stay in touch with PRIMARY
The private pre-sale of the PRY token started on the 1st of August, 2018. For further information regarding token distribution and the team behind the project visit PRIMARY. Or get the latest announcements by joining our email list.
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