PARETO STUDIES CASE

A double spend allows someone to inflate the supply of the cryptocurrency and create money out of nothing, with no consequence socially or legally. Confidence in cryptocurrencies comes from the ability to prevent that, and smaller cryptocurrencies are not as secure as bigger ones for a variety of reasons.

In April 2017, the Monero team discovered vulnerability in the underlying Cryptonote protocol which affected Monero, Boolberry, Bytecoin DigitalNote, AEON and a handful of other cryptocurrencies. The Monero team disclosed it to perhaps a dozen software engineers so that they could fix the vulnerability in private, before an inevitable scheduled public disclosure a month later. By the time of the public disclosures, it would be expected that the problem would have already been fixed. After the public disclosure it was shown that the exploit was executed on Bytecoin. Over $1.6 million worth of Bytecoin was created and sold during the time of the private disclosure. This required already owning a lot of Bytecoin (capital), understanding how to execute the vulnerability (deeply technical knowledge), and having the knowledge during a short time frame.

Having all three of those advantages is difficult and unlikely. The Pareto Network makes it easy to monetize this kind of information. The engineer would input the details into the Pareto Network and the best positioned users of Pareto could act on this information and encourage the engineer for continued disclosures. The action of payment allows the Pareto token user to be privy to more information faster, as it improves their ranking in the Pareto Network’s leaderboard. Pareto token users who are higher in the leaderboard will receive information before people lower in the leaderboard.

Details of a central bank policy decision can be worth several billion dollars.

George Soros is infamous for “breaking the Bank of England”, as he predicted that the central bank artificially kept the exchange rate of pounds at a price that nobody was willing to pay. The British government only had £ 27 billion worth of property (metals, foreign currencies) that it could use to buy pounds on the open market in a massive bid to prop up the exchange rate. George Soros went short on the pound with $15 billion, and the rest of the market followed his lead as they caught onto what was going on. That day, the British government tried to raise interest rates twice, hoping that rich foreigners seeking yield would also buy more pounds, since the government only had £ 27 billion to buy with to support the price and the global market was selling much more into it.

Unfortunately, this was during the middle of a recession, raising interest rates did not increase interest in the pound, and it was career suicide for politicians to raise interest rates in a struggling economy, so the government had to abandon its taxpayer funded bid as it was a horrible speculative trade of their own currency and mismanagement of the state trading fund (British Treasury). George Soros’ fund made $7 billion in a highly leveraged trade, as the British Pound plummeted 25% over a few days. All British taxpayers lost as they transferred their wealth out of the Treasury to George Soros’ hedge fund, and had to deal with higher prices of food, services and imports afterwards.

To have received information and made a similar trade with similar results would have required the necessary information in a timely fashion. There may have been those that could have provided this information, but they would have required a number of resources to accomplish the dissemination of this information. The biggest and most difficult resource needed is the capital required to get the information out to the masses. In this scenario, many people could have done the math, but not have had any way to monetize the information or the trade. In the Pareto Network, the information about this trade could have come from anyone with a passive interest in economics including:

• A student studying in University who has limited income or possibly massive debts
• A journalist for Bloomberg who has limited income or limited trading capital and may have difficulty collaborating with the right funds
• An analyst at an investment bank more focused on career highlights and growth than immediate profits
• A government employee at the Central Bank or Treasury that is otherwise powerless to end a nonsensical policy, but faces extreme disincentives (legal, continued employment, any other income stream) to disclose information.

With the advent of the Pareto Network, these people can disclose information through the Network regardless of resource limitations. Users of Pareto tokens would receive the details of the information at a time delay proportionate to their ranking on the Pareto Network leaderboard, and take short positions. In the Bank of England use case, the market efficiency would have come from predicting that there would be limited buying pressure at this point in time, because the disclosurewould show exactly how big the buying pressure was:£ 27 billion pounds. As the bearish positions increased, the people that went short first would have profited the most. With the real-time information provided by the contributors mentioned above, the PXT users would have been able to act quickly, well before anybody outside of the Pareto Network would have known what information was being acted upon.

Pareto token users can spend a fixed amount of their Pareto tokens on a payment/reward to the contributor of the information, and this action increases the Pareto token user’s ranking on the leaderboard, according to the ranking algorithm. The contributor of the information is now compensated by everyone in the Pareto Network that has an interest in moving up the Pareto Network ranking, and the contributor can sell the received Pareto tokens on the secondary markets.

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