3 Major Paradigm Shifts in Crypto Space: Bitcoin, Smart Contracts, Social Layer

  • Rajarshi Mitra
    ⭐ Features

    What is Shift Three in crypto space and who are the main players

3 Major Paradigm Shifts in Crypto Space: Bitcoin, Smart Contracts, Social Layer
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Blockchain technology and cryptocurrencies are all the rage these days. What was once discussed only among dark-web dwellers and financial anarchists has now become a hot topic of discussion for billion-dollar conglomerates.

Over the last five years, cryptocurrencies have gone through a major evolution which is characterized by three specific paradigm shifts. Let’s go through these shifts one-by-one and see how these have and will change the crypto space for better or for worse.

3 Paradigm Shifts in Crypto Space

Fiat to Bitcoin

The first shift was definitely the birth of Bitcoin. People still don’t realize how important this event was. For years, people have been trying to develop a digital currency which was not owned by a single central entity. However, in order to achieve decentralization, developers were forever falling to the “double spending” trap. Basically, they were finding it hard to make each and every transaction unique.

Along came an unknown programmer by the pseudonym of Satoshi Nakamoto. He published the whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System.” We finally had a digital currency which was truly decentralized and solved the double spending problem! The way Nakamoto achieved this was by leveraging Blockchain technology. Blockchain technology has two truly amazing features (among many others):

  • Immutability
  • Transparency

Immutability means that all the data inside the Blockchain is tamperproof. So once you have put some data inside the chain, you can’t change it. You can imagine how desirable this property is for a payment system since this will prevent any type of financial fraud.

Transparency basically means that anyone who is part of the Bitcoin network can look into the Blockchain and see all the past transactions. This property keeps everyone accountable for their actions.

Bitcoin gave people a currency which they completely own. They can send it to anyone without getting the bank involved in it. Every person is their own bank. As of writing, Bitcoin has a market cap of $111 bln.

Blockchain technology, which is the backbone of Bitcoin, became a subject of interest for many people. They soon realized that Blockchain technology had far more use cases than just being a means of powering a payment system. This was when a 19-year-old Russian-Canadian prodigy helped the crypto space evolve from Shift 1 to Shit 2.

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Cryptocurrency to Blockchain infrastructure

In 2013, Vitalik Buterin (the afore-mentioned prodigy) published the Ethereum whitepaper which transitioned the world from the first generation of Blockchain technology (i.e. Bitcoin) to the second generation. While Ethereum can be used as a cryptocurrency, its greatest use is as a smart contract platform.

Smart contracts are self-executing agreements between two parties. It gives users a lot more control and flexibility over their transactions than what Bitcoin allowed. Ethereum enabled developers to use its environment to execute smart contracts. Think of it as a global supercomputer which could rent out its computational powers for developers around the world to create their own decentralized applications aka dApps.

This property is directly responsible for the sudden growth of the ICO industry which has raised billions of dollars. The fact that developers had an environment where they can make their projects and raise millions of dollars in a crowdsale with relative ease saw adoption go through the roof.

However, for all its good, second-generation Blockchains have their own issues. For a long time, the crypto-space has been plagued by scalability and general interoperability issues.

To make this as short and succinct as possible, lack of scalability means that as the number of users increases in the network, the network performance gets worse. For a Blockchain-based platform to become truly mainstream, it is critical that it addresses this issue.

Interoperability, on the other hand, is a network’s ability to interact and communicate with other networks. In the future, multiple dApps could be up and running on multiple Blockchains. How do we make sure that they can seamlessly communicate with each other without any point of weakness?

To address these issues, a whole new generation of Blockchains are being developed as we speak. These third generation Blockchains include projects like Cardano and EOS which uses specialized consensus mechanisms to achieve faster transaction speeds and hence higher scalability. They have also worked extensively on improving interoperability. While they do promise quite a lot, we will need to wait and watch how their implementation pans out in the future.

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From machine-maintained Blockchain to people layer

Martti “Sirius” Malmi is well-known in the crypto community as the only active developer to have worked with Bitcoin founder Satoshi Nakamoto. His project “Identifi” along with some other projects are spearheading Shift 3. The idea of this shift is to move on from a purely machine-based Blockchain infrastructure to a social one.  

So, why is this shift needed?

One of the most fundamental components of a successful cryptocurrency is a strong community. Ethereum is a perfect example of this. However, most of the newer cryptocurrencies simply don’t maintain a good community. They mostly use messaging applications like Telegram where the members are not really incentivized into contributing anything of their own.

Because of this reason, members are not really that invested into the projects and they don’t stay loyal and have a high tendency to speculate about the token’s value instead of actually learning about the project and have a more realistic expectation.

This is why, every single time the market fluctuates and the token loses value, the users immediately leave the project. This is the biggest reason why, some truly incredible Blockchain projects have lost steam simply because of the user loss rate. In fact, this is so bad that according to a Deloitte Insights report published in November 2017, Blockchain projects’ failure rate is as high as 92 percent, mostly due to “the lack of actual application scenarios and the quick loss of community members.”

The idea of this shift is to establish a strong user growth scheme which is integrated within the Blockchain itself. These projects utilize a reputation system, wherein each and every community member is incentivized to act in the best interest of a project.

Think of how Uber operates. The star ratings of the drivers and the passengers incentivize both the participants to be on their best behavior.

Along with Malmi’s Identifi, the other projects who are spearheading this shift are DREP by the founders of Google X and U°Community.

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Final thoughts

There you have it, the three shifts that have defined and are going to define the evolution of the crypto space.

So, are these all the phase shifts that we are going to have? The crypto space is constantly evolving after all and we invariably going to see more shifts. However, as of right now let’s focus on the data we have instead of speculating. We hope that you have gained immense value from this article.

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Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?

  • Yuri Molchan
    ⭐ Features

    Stablecoins show hardly any volatility compared to Bitcoin and altcoins, many are hoping that they will be able to bridge new crypto economy and regular fiat money

Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?
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Bitcoin, the father cryptocurrency, emerged in hope that it will remove all intermediaries in electronic commerce that cut off their share of payments. BTC was perceived as a P2P way to replace fiat cash in an electronic format, which would enable one party to pay another without any financial institution or payment platform which would demand its share of a transaction as a reward for its services.

What is wrong with Bitcoin

For quite a while Bitcoin was performing the way the crypto community expected. But the situation changed later – BTC rate became weaker, thus bringing down its financial and economic reliability, when it gets to be used as a regular means of payment.

You cannot have a currency that would cost like a British castle today, a gram of gold – tomorrow and a pack of French fries the day after.

At that point practical fintech minds came up with an idea of creating something which would become a breakthrough in the universe of crypto – a so-called stablecoin.

Will stablecoins solve the volatility problem?

Technically, stablecoins are protected from the volatility roller-coaster that Bitcoin and other cryptos love to ride. They are programmed to keep their prices stable and investors now are largely attracted to this new type of digital assets.

Stablecoin does not show any volatility in its monetary value, since it has a fixed connection to an asset it is pegged to. The major goal of using stablecoins is taking the best from decentralized crypto coins and combining it with a constant value. Thanks to it, stablecoins can be used as a reliable means of trade.

Asset-pegged stablecoins

Asset-backed ones get their value from an asset as can be understood from the name. An asset provides the necessary value to a coin, as well as the necessary legitimacy.

A great example of an asset-pegged stablecoin is Tether (USDT). In spite of a series of scandals at the end of last year, it remains the most popular stablecoin in the crypto market.

Recently, it has partnered with the Tron Foundation to launch a Tron-based stablecoin.

Other examples are TrueUSD (TUSD), USD Coin (USDC), the Gemini Dollar (GUSD), and the Paxos Standard (PAX). They are all pegged to the USD.

Crypto-backed stablecoins

Some digital coins work in a similar way to fiat-backed ones, however, they are pegged to collateral crypto. That means that crypto assets that ensure the value of such stablecoins are stored in a wallet similar to escrow.

A good example of a crypto-pegged token is Maker, which is ranked 16 on CMC.

Algorithmic stablecoins

Even though, stablecoin can be interesting at first thought but the way they are built goes against the principle of decentralization that crypto coins have as a foundation. Thus, many crypto fans and evangelists are positive that stablecoins must be linked towards not a centralized asset but a computer algorithm which takes value from a balance between supply and demand.

Basis is now considered the most promising algorithmic stablecoin of all.

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Can stablecoin ensure smooth future for the crypto industry?

The primary goal of all crypto assets was and remains to come up with virtual asset that would be liquid enough and not vulnerable to market volatility. From this point of view, stablecoins are a dream of all crypto fans and evangelists of a decentralized economy.

Apart from the potential to conduct crypto transactions smoothly, experts believe it can bridge the two worlds – fiat and crypto, bringing them a mutually beneficial coexistence. However, that may take time.

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