Cryptoeconomics is a way of developing or applying decentralized computing mechanisms, seeking to prevent “power” from remaining in the hands of a few. It basically aims to “democratize the issuance and control of money” through a fairer system. Basically, the cryptocurrency system is completely democratic and is not authorized by state institutions such as banks and “ministries of finance”. People are free to trade their cryptocurrencies and all crypto values are determined by the full market mechanism. That is why the value of cryptocurrencies is much more volatile than the value of traditional currencies. The ALGO price is certainly more volatile than the Yen price, for example. This is a direct consequence of the “democratization” of finance.
From this concept came the blockchain technology on which Bitcoin and the rest of cryptocurrencies are based. Therefore, intermediaries and financial entities are eliminated. Therefore, the process or mechanisms that are carried out to achieve the objective of decentralization is what is called cryptoeconomics. For example, since there is no bank that confirms how much money is in a bank account, a consensus system based on cryptocurrency mining is established. Through mining, it is the miners themselves who maintain the system in exchange for rewards.
What is the goal of cryptoeconomics?
As we mentioned before, what cryptoeconomics intends is to find a “fair” system to avoid the concentration of power in a few. Today, for example, the government could decide to unilaterally seize the money in your bank account based on fair criteria or more questionable in the worst case.
Hence the origin of Bitcoin, caused by the financial crisis of 2008. This crisis was caused by poor management of banks, the fall of the financial institution Lehman Brothers and its subsequent domino effect. In short, what is intended is that citizens have control over their own money and are not exposed to erroneous decisions by governments that could catapult a financial crisis.
How cryptoeconomics is applied in the blockchain
The blockchain works through a consensus algorithm in which all miners on a network must agree for a transaction to be executed. In exchange, the miners receive a reward in the form of cryptocurrency.
Therefore, for a transfer to be made from a cryptocurrency wallet to another user or address, the miners must approve that transaction. The user who makes the shipment has to pay a commission (in the form of cryptocurrency) that is what the miners receive.
Another interesting figure of the crypto economy is the smart contracts or smart contracts promoted at first by Ethereum.
Smart contracts are contracts that are programmed to be executed automatically based on the criteria that have been previously specified in it. In the same way, they are programmed within the blockchain and cannot be altered. These also eliminate intermediary figures such as notaries.
Are you interested in this concept? Or do you want to go further into crypto trading? There are many prices that can be “played”; BTC price, SHIB price, ETH price, and so on. Tell us!