Cryptoeconomics

Since the emergence of the Internet, people have been enabled to remain in contact, share and receive different information at any time, from anywhere in the world. Any digital material can be sent in just a few seconds. Imagine sending a book in pdf format. Simply put, you will attach a book to an email, enter an address, click send and a new copy of the book will soon be found on your friend’s email address. Your friend gets a copy of the book, and you keep your own copy. Globally, this transaction increased the number of copies of the given book by one.

This kind of communication is not disputable when it comes to sending a notice or some material, but it is an extremely large obstacle if money is being sent. This problem is known as the “double spending problem” because it assumes that someone who sends money once, could spend it again. Due to the nature of how the Internet to sends copies of information, intermediaries (banks, clearinghouses, etc.) have been included in the money transfer in a way so that they can verify transactions and ensure that money is withdrawn from one account and reaches another. Given their intermediary role, they decide whether the funds can be sent or received, or how many participants will have to pay for their services. Since they are centralized systems (data are stored on their servers), they are vulnerable to hacker attacks.

Communication via the Internet was given a new dimension in 2008. Cryptocurrencies appeared and sending money (value) over the Internet became possible. The unknown author of the Bitcoin protocol under the pseudonym Satoshi Nakamoto revolutionized the Internet as we know it and offered a solution for the double spending problem. He made it possible to transfer money directly from person A to person B in order to avoid mediators. Transaction verification is now performed by technology that has affected various improvements to the money transfer system. The costs of transferring money are minimized and measured in cents. For comparison, banks charge at least 5 to 10 dollars for wire transfer, but they also take a percentage of the total amount. Cryptocurrencies allow fast transactions, and the system works 24/7. The system does not know the differences between countries and does not classify individuals according to any characteristic. Anyone who can access the Internet can send and receive money, wherever they are.

A completely new system of communication had to be created in order to develop digital money. This technological innovation is called blockchain. It is a database that records all transactions from the beginning to the last, writing them in chronological order in so-called blocks. They further interconnect via cryptography that forms the chain. Therefore, this technology is called blockchain: block + chain. Its basic characteristic and comparative advantage is decentralization. An identical database is on all computers that are included in the blockchain. As it’s updating in real time, they all have the same data. In other words, the database is not on a single server, but on all computers that are connected to the network. As a result, the system is extremely difficult to hack. The blockchain strength is just about that, that everyone has an insight into the transactions that have occurred, and no one can change history or delete or change the transaction.

Computers that are on network are not just passive observers. Each participant collects transactions independently of the others, creating a block that then connects to the previous one. This block is a file in which transactions are recorded, that is, all the sums are transferred from one address to another. Then computers compete who will first put the block into a chain by solving complex mathematical equations. The first successful one gets a 12.5 bitcoins reward plus all fees for the transactions that the users assigned to verify their transaction. That’s how mining looks like. At this moment, 144 blocks are mining worldwide, which means that 1800 new bitcoins are given per day.

Sharing a certain number of bitcoins is not only an incentive to verify transactions and maintain a system, but also a way to distribute a cryptocurrency. The problem occurs because when cryptos where first introduced there were fewer miners and more bitcoins per block were divided, creating an unequal distribution. Today, only 100 bitcoin addresses contain almost 20% of all bitcoins in circulation. An additional problem with all cryptocurrencies, and not just bitcoin, is that they are usually used in trading to profit from it by the price difference, instead of using cryptocurrencies in a real economy to buy goods and services. In this way, their function is expressed as a value guardian, instead of the means of exchange

In order for the cryptos to survive and become money of the future, it is necessary for these problems to be appropriately resolved. That is why we started to develop a Safex platform where cryptocurrencies will be used to pay for goods and services. In addition, the distribution of our crypto will follow market development.  This means that coins will be distributed to as many users as present on the platform. This way, it will not be possible to unevenly distribute and acquire a currency at a lower price, then resell it later. We believe that in this way the cryptocurrencies will finally experience massive usage and forever change the way the world functions.

Ivana Todorovic
About Ivana Todorovic 1 Article
A theoretical economist focused on the development of innovations and their real business application. Ivana integrates economic theory (different schools of thought and methodologies) with managerial practice in order to solve everyday business challenges. Prior to the position of Operations Director of Balkaneum, Ivana developed a Safex cryptocurrency. Her model of money distribution is considered as one of the most innovative in crypto economics.

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