Why Third Generation Cryptocurrencies Are Game-Changers for Venezuela
The majority of late consumer technology advancements have showcased that pros and cons come as a part of the package. Cell phones allow us to be available at all times, which can be lifesaving useful in times of need. However, they can be very distracting from more important events such as studying, doing homework, or even crossing the street. Studies have shown that children are more likely to get hit by a car if they are talking or texting on a cell phone while crossing the street. In addition, on the one hand, the internet made communication happen globally and in real time. We can now communicate cheaper and easier with one another without geographical boundaries. On the other hand, the amount of personal information being shared on the internet is so enormous that personal privacy is at risk. As can be seen, the road for emerging new technologies is everything but smooth.
Cryptocurrencies fall into the exact same category, especially since many of them are completely decentralized. Explaining in one sentence what a Cryptocurrency is, is impossible. A highly ambitious attempt for this would be to say that a Cryptocurrency is a means of transferring value between people in a secure and trust-less way over the internet. The aim of this article is to showcase just how beneficial these coins (especially “third generation” ones) can be for people living in emerging countries.
There are two sides to every coin
Although not new, the general population is vastly unaware of them as of yet, even with the growth of the industry in late 2017. Starting at 2009 with the creation of the Bitcoin, now over 1500+ Cryptocurrencies handle different real-life issues. Due to large misuse, today, a large group of people automatically associates Cryptocurrencies with excessive energy consumption and money laundering. This group of people label Bitcoin and other altcoins as a tool that hackers use in order evade the law when they get a hold of funds that are not theirs.
One cannot deny that Cryptocurrencies open a gate for misconduct opportunities. Nonetheless, they do offer innovative solutions that were not available in the past. The ability to store and transfer value efficiently without the need for centralized authorities such as banks or governments is a significant improvement for the citizens of countries struck by hyperinflation, such as Venezuela.
Cryptocurrency generations — A brief overview
First generation Cryptocurrencies were made to specifically store and transfer value. They use a Blockchain as a data structure and thus suffer from scalability issues due to its overly simple architecture. In turn, this development resulted in high confirmation times, high fees and low transaction throughput (measured in TPS, transactions per second). This renders most of the first generation Cryptocurrencies unusable as digital cash. The most famous examples are Bitcoin, Litecoin, Monero and Bitcoin Cash.
Second generation Cryptocurrencies are mostly platforms, dedicated for decentralized applications (dApps). Instead of only focusing on value transactions, second generation Cryptocurrencies offer new programming logic using Turing complete coding languages. Putting it simply, it means that a full application of the desired logic is quite possible. This logic is being handled by the use of smart contracts. Contracts are typically written in some high level language and then compiled into the platform’s virtual machine bytecode to be uploaded on the Blockchain.
Nevertheless, most second generation Cryptocurrencies suffer from the same scalability issues that derive from their Blockchain architecture. Some examples are Ethereum, Neo, QTUM, Lisk.
Why high fees, long confirmation times and low transaction throughput exist in a Blockchain?
When a transaction is created, it is sent to a pool of awaiting transactions. Groups of these are then picked by miners all over the world and stored inside of a block. Each miner competes with all the others regarding who will publish their own block. When a block is published, the miner that published his block gets rewarded and he and all the other miners start working on the next, limited size block.
Storing a constant amount of transactions in blocks creates a very limited bound for TPS. In Bitcoin, the transaction processing capacity maximum is estimated between 3.3 and 7 transactions per second. In comparison, VISA handles on average of around 2,000 transactions per second.
Another important aspect for consideration is miners fee. These costs come in as incentives for miners to add your specific transaction to the next block they will be working on. Therefore, A trade off between conformation time and the fee amount is created.
Different digital coins have different systems, and thus time needed for transfers to take place. For Bitcoin, it takes an average amount of 10 minutes until a block is confirmed. One confirmation is not enough for larger amounts, as it takes about six affirmatives until a transaction is approved, which may result in an hour of waiting time.
High fees, long conformation times and low transaction throughput hinder Cryptocurrency mass adoption as its main functionality — to be used as a currency is not optimized.
The lines at the supermarkets are too long as it is. I am not a fan of the idea of waiting minutes until my payment is approved so I could be excused. In addition, paying a fee for this transaction may be negligible to some, but to others, these fees may be worth more than a full month salary. We will come back to this issue real soon.
What are third generation Cryptocurrencies?
When pointing out the effects of Blockchains scalability issues, it is no wonder why a solution had to be found. Next-gen currencies are aiming to solve these exact problems. A formal definition for a third generation Cryptocurrency is not yet formed. There are numerous approaches and technologies that tackle these issues with neither one of them being a clear front-runner.
Some of these new entrants utilize a DAG (Direct Acyclic Graph) as the main data structure. While Blockchains use a sequential mechanism for storing transactions, Direct Acyclic Graphs use an asynchronous approach. By using a DAG, instant transactions are possible due to the technology asynchronous nature. Each transaction serves as a block for itself, which vastly reduces confirmation times.
This process eliminates miners from the equation, pushing the system out of the bounds PoW as a consensus protocol causes. Fees are also nonexistent since there is no correlation between miners incentives and the network being ran in secure manner. Third generation Cryptocurrencies that utilize a DAG data structure examples are Byteball Bytes,Iota, and NANO.
A peek into Venezuelan economy
There is much to be said about the Venezuelan economic situation, especially for the last decade. In 2001, Venezuela was the richest country in Latin America, mostly due to the existence of the largest known oil reserve in the world. The political establishment was based on democratic principles, envied by many around the globe. However, today, both Venezuela’s democratic institutions and economy are in shambles. The country has the highest inflation rate in the world, making food and medicine inaccessible to most citizens living in the country.
On June 28, 2018, Venezuela’s inflation rate hit more than 40,000% and this trend shows no signs of stopping. Some economists say the economy will continue to spiral as long as the current political system stays within its borders.
Venezuela’s currency, the Bolivar (BsF), experiences a decrease in actual value at an alarming rate. As mentioned before, the current inflation rate stands at above 40,000%. By comparison, in the U.S, inflation is running at 2.4%. The minimum wage in Venezuela is 5,196,000 Bolivars that, when expressed in USD (1 USD = 3,003,000 BsF at the moment), puts the lowest possible salary at 1.73$ dollars. Yes, only 1.73$ for an 8-hour work day, 30 days a month.
The financial system is tightly controlled by the governmental bodies, with Central Bank of Venezuela (BCV) having autonomy only on the paper. All policies, developments, as well as improvements to the market, need to pass by the political elite of the country before the implementation. Thus, the practice of tight control kills out innovation in the financial industry (and in all other sectors as well). Coupled with increasing issues general populace face, it is evident that, even with strict control, the current economic system has a hard time to achieve stability.
The collapse of oil price index brought in a new set of issues, which pushed the government to take even larger debt, from US$25 billion and US$35 billion of external financing, according to the World Bank data. Putting it in people’s perspective, this means higher tax rates, higher prices while salaries remain constant. The banking sector sees very little differentiation between the competitors and banking services are quite expensive for the purchasing power of Venezuelans.
The answer: NANO— Feeless and instant Cryptocurrency
NANO is a third generation Cryptocurrency that is implementing its own version of a DAG, known as block-lattice. The block-lattice provides each user with its very own Blockchain, known as an account-chain. This solution offers fee-less and almost instant transactions with a much higher transaction throughput. This means I can stand in the South Pole and transfer 10 NANO to my friend that is standing in the North Pole and he will receive exactly 10 (not even 9.9999) NANO in about 3 seconds.
HOW IS THIS RELATED TO VENEZUELA?
Hector, A Venezuelan resident and NANO user shared his recent story.
It all started as a “Thank you” thread at NANO’s subreddit aimed at a user that donated 0.5 NANO (around 1$) to him. Hector admitted it was more than what he earned last month. The thread became popular and more people were eager to donate to this cause. The second thread by Hector was posted a couple of days later, named “Venezuelan user: I bought +102 kg of food today”.
I feel extremely happy because today I was able to convince someone who I trust to accept NANO in exchange for food. He sold me 102 kilograms (224 lb) of food, including cornmeal, meat, rice, sugar, beans, sauces and avocados. This is wonderful because I’m hoping to send proper food to the people. This morning someone came to my house and asked me for food and of course I gave them some kgs. Her face was pure joy. This would be the same for others 10 families who will receive love and food tonight from you guys.
Hector stated that he bought 102 kg of food with 29 NANO or $80, which is immeasurably larger than any purchase he ever made before.
On July 12th, 2018, The third thread by Hector was posted, named ” UPDATE: Venezuelans are ready to work with you. More than 300 kgs (660 lbs) of food distributed today.”
Three days ago I exchanged 61 NANO for 300 kgs of food with a different merchant from the last time. Forty families were benefited from this donation. Several people were crying of happiness when they received the bag of food my family and I helped to pack in.
In total, we have been able to invest 90,1 NANO (equivalent to $230 at the time of the investment) in 402 kilograms (884,2 lbs) of food.
Hector shared some photos from his recent shopping spree:
Following these events, a new project named “Adopt a Family” kicked off. The goal of the project is to help families from Venezuela with NANO donations. You can find more information about the project in its official thread.
Hector’s story is a great example of how Cryptocurrencies can help people in Venezuela. However, he was not the first to receive assistance in the form of a low-latency payment platform. Unfortunately, stories like these pop up on a weekly basis. One can witness these kind of stories in the official chat platforms of another third generation Cryptocurrency. You will probably be surprised to know which one leads the pack.
Banano —Far from being just a meme coin
DISCLAIMER: I am involved in Banano.
Banano is the first official fork of NANO and was developed to offer fee-less, almost instant micro-transactions. Banano started as a joke between a devoted group of NANO contributors and resulted in a coin that puts a considerable amount of effort without taking itself too seriously.
Banano’s goal is not to replace Bitcoin as the leading form of digital cash. Instead, it thrives to be a gateway for people that do not know anything about Cryptocurrencies or think that the barrier for entry is too high, as it demands some technical skills. Banano solves these issues by distributing the coin freely and easily using a couple of different mediums.
The reason why Banano is a game-changer for Venezuela is that, unlike NANO, Banano is still in its distribution phase. Currently, less than 10% of the total supply of 3,402,853,669 Banano coins were distributed which means new users can get their hands on some without much effort.
On June 10, 2018, the first Banano airdrop (freely distributing coins to a specific coin holders) occurred. This NANO aimed airdrop was merely the first out of many that shall come in the future. Another distribution method is the use of tip-bots. It is very easy to get Banano just by being active in its community on Reddit and especially, the Discord server.
Nevertheless, Banano’s main distribution method is a 3D game. Banano is one of the first Cryptocurrencies in history that distributes its coins through a game. Entitled “Banano Runner”, the user controls a monkey that catches bananas while avoiding obstacles. These Bananas correspond to real Banano that is sent to the player after he is done playing.
Yes, participants earn real money by controlling a virtual monkey that catches virtual bananas.
How exactly can a meme coin help Venezuela?
Since launching its main net on 1st of April, Banano experienced a big growth in its Discord number of daily users, with many of them coming from Venezuela. With current USD price of Banano standing at 0.0022$, 1 Banano is worth 7000 BsF. That means 786 Banano accounts for a Venezuela’s minimum monthly wage.
Putting it into perspective, the first airdrop earned each user an average amount of 20,000 Banano. This is more than 25 months of full-time work in Venezuela. Playing the Banano runner games can earn you around 1,200 Banano an hour. By playing for one hour, a Venezuelan earns MORE than the country’s minimum monthly wage.
On the 25th of May, a Venezuelan user from the Banano community named Mayrapina was given 10,000 Banano and was told to buy food with it and document the process.
Mayrapina message from the following day:
“Hiiiii, This is the list of things I could buy with the 10,000 bananos:
1Kg Corn flour
1Kg Varied fish
1Kg Meat varied
2Kg Assorted Grains
1 Pack of cookies
1 Cereal flakes
1/2 Kg Margarine
1 tomato sauce
1 Cream of rice
2 Bath soaps
I got 15,000,000 BsF for the amount of 10,000 bananos.
You would not believe all the people who came to my house, family friends etc, I told them all about banano and everything they had done, they were very interested but even more so with the game.
Mayrapina even made a video describing the process of exchanging Bananos with groceries (open the subtitles):
Sadly, this occurred on May 25, when Venezuela’s inflation rate was around 25,000%. With Banano prices increasing and the Bolivar prices decreasing significantly, Mayrapina could have bought a lot more with her received sum.
As can be seen,the benefits coming from receiving digital coins and using them to acquire goods and services work wonders for individuals and businesses that are poverty-stricken.
Some final thoughts
Cryptocurrencies assistance in the previously discussed topics is not brand new. You will be able to find plenty of stories about merchants that are accepting Bitcoin Cash in Venezuela. However, when you are dealing with this type of hyperinflation and poverty, instant and fee-less transactions are the way to go. NANO and Banano are two instances of Cryptos that present a great opportunity to aid those in Venezuela and in other countries that are in a similar situation or soon to be, like Argentina.
People need next-gen technology in order to pass over obstacles they are currently unable to. In the future, when your family member/friend starts talking about how much energy Bitcoin takes up for mining, tell them that some currencies do not require mining and are environmentally-friendly. Third generation Cryptocurrencies have the ability to make the life of millions all over the world much better.