Welcome, and thank you for being part of the MyZucoins community!
Note: This is part two in a series. If you haven’t already, we recommend reading part one first.
In part one we got through the initial aims of crypto, the problems it’s solving, and the nature of trust in systems. We’ll pick up on why decentralized systems avoid the negative effect plaguing centralized systems: Being easier for bad players to gain control of those systems and create their own dominating rules.
What’s more, decentralized systems allow for more forces, such as free market forces and non-government intervention forces to take charge. Bitcoin, Zucoins and many other cryptocurrencies represent a potential evolution of economic systems by enabling more forces such as:
- Free Market Dynamics: In a free market, prices are determined by supply and demand. Their limited supply is encoded into their software protocols. This makes them somewhat immune to traditional government or central bank monetary policies, including quantitative easing and artificially low-interest rates, which often have the effect of weakening the local fiat currency’s purchasing power. We covered our mission on this here.
- Global Market: Cryptocurrencies operate on a global scale, free from national borders. This can facilitate global trade, as cryptocurrencies can serve as a universal medium of exchange that doesn’t require currency conversions or rely on national economic stability.
- Innovation and Competition: Cryptocurrencies introduce competition to the monetary system. Different cryptocurrencies offer different features, incentives, and uses, fostering innovation and giving users a choice about what cryptocurrency best suits their needs.
- Non-Government Intervention: In theory, cryptocurrencies are immune to government intervention, since they are decentralized and typically operate on consensus mechanisms (except Splitchain, which doesn’t). However, it’s worth noting that governments can still heavily influence the crypto market through regulations, such as defining how cryptocurrencies are taxed or whether certain types of transactions are legal.
- Decentralization and Autonomy: At the heart of some cryptocurrencies is decentralization. They are not controlled by any central entity, like a bank or government. This allows for increased individual autonomy, as users can make transactions without the need for intermediaries or the oversight of a central authority.
- Freedom and Inclusion: For individuals in countries with unstable economies, strict government controls, or limited access to digital services, cryptocurrencies can offer a form of freedom and inclusion. Cryptocurrencies can be accessed and used anywhere there’s internet access, which can enable people to participate in the global economy, regardless of their local economic conditions.
Decentralization Is The Way
Now of course, as we touched on in part one, if a payment processor like Visa or Mastercard decided to, they could drop their prices and undercut any cryptocurrency’s transaction cost if they wanted to (provided their shareholders, board, etc, don’t block it due to loss of revenue or a regulator steps in for anti-competitive reasons). This is why most cryptocurrencies probably shouldn’t (and most can’t), compete on fees, without centralizing their efforts.
For example: By giving a payment processor some assumed trust to do their job and, hopefully, not block a valid transaction or account unexpectedly, we’re willing to get a cheaper fee price and more convenience by handing over control of the transaction.
Sidenote: To achieve this tricky balance on Splitchain’s network, it’s taken a ton of work getting Splitchain to run on commodity systems and shifting the network node incentives away from fees on the base layer 1 protocol. Instead, we’ve made the peers, such as Zucoin wallet app users, do most of the heavy lifting themselves by processing their transactions on their own devices. Splitchain does a lot of other clever things too, but that’s for another time. The end result is, there are no implied transaction fees on the Splitchain protocol itself.
Another way of thinking about crypto systems is as transaction processors, except anyone can join and participate in maintaining the accuracy and reliability of it.
Imagine if Visa or Mastercard created a system, with a set of shared rules (a protocol), and let anybody help them out processing transactions. In a way, this is how many crypto systems work. Commoditizing the transaction process by letting anyone participate.
It’s why some call crypto a new layer for the internet, where there are fewer silos and more grass-roots open coordination, resulting in stronger system-wide trust. As a result, everything must be more strictly proven, by many more parties, who can each join and leave at any time.
Here are some of the effects that cryptocurrencies aim to achieve:
- Decentralized Processing: Traditional payment processors, like banks or companies such as Visa or MasterCard, are centralized entities that oversee and authorize transactions. Bitcoin, on the other hand, enables anyone to participate in maintaining the network. Transactions are verified by a decentralized network of computers (nodes) across the world, following a set of rules established by the network’s protocol. In Splitchain, this occurs peer-to-peer on-device, with the network’s nodes holding a cached copy of the finished and computed transaction for discoverability.
- Open Participation: In Bitcoin network, anyone can become a “miner” to validate and add transactions to the blockchain. This is fundamentally democratic, as it doesn’t require permission from a central authority. Splitchain applies a similar principle to its network, where anyone can join, except there is no mining process of course.
- Layered Internet Structure: Cryptos can be thought of as a new layer of the internet. The internet as we know it is excellent at copying and distributing information, but it isn’t natively good at transferring value or digital assets without duplication (a problem known as the “double spend” problem). That is, information is cheap to copy and store on digital systems. Cryptos solve this problem, effectively providing a new, safer layer for the transfer and provability of unique digital assets.
- Coordination for Accuracy and Consistency: Bitcoin and Zucoins allow for widespread collaboration and coordination to maintain accuracy and consistency across the network. The underlying technology ensures that every participant can check their transactions, promoting transparency and making it difficult to manipulate or fake transactions.
- Trustless System: Trust in the Bitcoin network doesn’t rely on any single entity. Instead, trust is built on the cryptographic principles and decentralized nature of the system. This is why it’s often referred to as a “trustless” system — not because it’s not trustworthy or that there’s no trust, but because participants don’t need to trust any single party; they just need to trust the system’s underlying technology and principles. Splitchain, underpinning Zucoins, differs from Bitcoin here, as it’s not a consensus (51% voting) system. Splitchain is more of a truth-searching system where, so long as one truthful source can be found on the network, it’ll ignore the majority consensus (as “most popular” is not always equal to “most truthful”). The goal of this is to reduce the odds of systematic censorship, spam and corruption even more.
Programmable, Smart Assets
By doing the above, cryptocurrencies can potentially democratize assets, increase transparency, and reduce the control that single entities can exert over transaction systems. It should bring more freedom and portability for asset ownership.
What’s more, it turns the transaction itself into a kind of protocol infrastructure, that many other applications and uses can be built atop.
For example, consider all of the incredible things Visa or Mastercard could build, but can’t, due to regulations associating them with their central operations and tons of red tape. Things such as Smart Assets—programmable and dynamic assets, become easier to achieve.
We hope this series helped to answer why cryptocurrencies exist, what problems they solve and why we’re so excited about the potential of Zucoins’ own, ground-up layer 1 Splitchain network. As we mention regularly here, the Zucoins app and the Splitchain network have, combined, solved over a dozen hard problems the industry is grappling with, meanwhile the project is continuing to work on even more critical cornerstone pieces.
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All the best,
Peter & Rob
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with these potential benefits.