Crypto Economy: Where It All Started From
There’s been a lot said about the Crypto economy lately. Especially as it has presented itself as an opportunity to make trading gains never before seen by our generation. You could by DOGE and make 300% gains in 3 days or by CAKE and make 10x in under a year.
But the story of Crypto didn’t start with money-making not did it start with DOGE. It started from the beginning of human civilization. Yes, humanity follows an arrow of progress and it has been leading us up to this point.
However, I won’t start this from the beginning of civilization. We will assume this beginning to be a different time. A time that serves as the catalyst for everything that’s have been created in the last 11 years and more that will be created.
The year was 2008, financial crisis broke out in the US that affected the whole world. The effect was devastating and it wiped out a lot of wealth. To cushion the effect and ensure a quick part to recovery, the government had to bail out many of the failing institutions.
This bailout was seen in some quarters as the government meddling in the affairs of the “invisible hand” of the market. This category of people believes companies that will die should have been allowed to die and well-capitalized companies can remain. The argument is also premised on the fact that it was government over participation that led to this situation to start with.
Government overparticipate through the federal reserve bank who has the function of price stability, and employment. And to achieve this, they maintain a level of inflation in the economy.
Inflation is the increase in the money supply of an economy. What inflation does per time is to reduce the value of the money in your hand. How?
This article explains how – deflation is the natural order of the world.
But not a lot of people understand that. And some who do believes it’s the most efficient way in which economic activity can be coordinated.
While all this was ongoing, a man (Satoshi Nakamoto) made a breakthrough in the development of a technology that will later become the Blockchain.
See the history of Blockchain here – https://academy.binance.com/en/articles/history-of-blockchain
Here’s the problem the Blockchain technology solves:
On the internet, you can send the same thing 1 million times and there won’t be any regard for the original. With blockchain technology, that problem was solved. Now you can have a unique item on the internet. So unique that once you send it to someone else (pass ownership) it becomes the property of that person and never again yours. The only way it remains connected to you is that it will remain on an (immutable) record that you once owned it.
This technological breakthrough made it possible for Satoshi to create (scarce and sound) money on the internet. That money is what is now called Bitcoin.
Bitcoin is the internet’s money. The first unit of Bitcoin was created (mined) by Satoshi on January 9, 2009, with the note signalling Bitcoin’s fundamental disdain for inflation (bank bailouts).
In the beginning, Bitcoin has zero value in USD. But from Zero till today, Bitcoin now commands a net worth of above $1T. It became the best performing investment in the last decade.
Through thick and thin with much criticism and antagonism, Bitcoin emerged as a dominant store of value asset.
This interesting image will give you an idea of all Bitcoin had to go through.
In the process of Bitcoin evolution, a new innovation was given birth to called Ethereum. Before we talk about that, let’s explore something.
For the Bitcoin technology to work flawlessly, trade-offs had to be made. The trade-off means less flexibility to build on the Bitcoin blockchain. However, as innovators understood more about the blockchain technology, they realized that more can be done with the blockchain technology. Albeit not on that of Bitcoin in order not to compromise the integrity of Bitcoin from its primary use case (sound internet money).
So the new innovation was given birth to in 2013 when Vitalik Buterin proposed it in a paper he wrote. The innovation is simple as an idea but programmatically complex.
It’s called Smart Contract. The idea is that you write a computer program that can execute on its own once certain conditions are fulfilled. For example, a smart contract could be programmed to release funds for someone’s birthday each year. It could also be programmed to release payment once someone confirms receipt of delivered goods.
Read this for more – https://blockgeeks.com/guides/smart-contracts/
Vitalik pursued the idea and in 2015, Ethereum went mainstream to become the first blockchain on which one can build a smart contract.
Like I said earlier, the idea is simple but programmatically complex. So Ethereum happened to have a lot of inefficiencies as well, the major ones being gas fees and scalability.
Read this – https://zycrypto.com/scalability-and-high-gas-fees-behind-ethereums-failure-to-double-all-time-high-price-like-bitcoin/
These limitations have invited competition in the cryptoeconomy who are also building something similar to Ethereum but without the limitations of Ethereum. Among them are Polkadot, Binance Smart Chain, and Cardano.
This thread on Reddit is one interesting to look at on Ethereum competition: https://www.reddit.com/r/ethereum/comments/kjo6a4/what_are_strongest_competitors_to_eth/
What’s interesting though is that because of smart contracts and other innovations on the blockchain network, the combined market value of the cryptoeconomy is now north of $2T. That is, aside from Bitcoin, other things that innovators have been creating since Ethereum was launched in 2015 now command a combined value of > $1T. And Ethereum has more than $300B of that value.
That’s where it all started from up to where we are. In the coming threads, I will share with you the interesting journey that got us here and where we could probably head in the future.
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