Crypto+Evolution

Crypto Evolution

• Altcoins, ICOs, L1s

Altcoin - Definition

• Definition: Any cryptocurrency launched since Bitcoin is referred to as an altcoin.

Reasons for Launching Altcoin

• Altcoins may alter built-in parameters of Bitcoin, which includes:

  • Average time between blocks: Network latency (10 min for Bitcoin).

  • Block size limit: Example - 4 SEGWIT.

  • Reward schedule: Varies with each altcoin.

  • Inflation rate: Adjusted according to the altcoin's design.

  • Scripting language: Bitcoin uses SCRIPT, which is limited for complex transactions.

How to Launch an Altcoin

• Creation of a new reference client: Involves forking existing codebase (e.g., Bitcoin or another established altcoin).

• Stakeholders: Essential to attract developers, miners, investors, merchants, customers, and payment services to create a sustainable economy.

Initial Allocation of Altcoins

• Mining in Bitcoin: Unique to Bitcoin where currency is allocated solely through mining.

• Pre-mining: Developers may reserve part of the money supply for themselves or entities (like foundations).

• Pre-sale: Selling pre-mined units to speculators in exchange for bitcoins or fiat, similar to startup investing.

Overview of Altcoins

• Over 9,136 altcoins: A majority are simply clones or brands of Bitcoin, altering certain parameters.

• Common modifications include:

  • Total coin supply

  • Hashing functions (SHA256, SCRYPT, X11, etc.)

  • Block emit time targets

  • Proof of work or proof of stake variations.

• Notable Altcoins:

  • Ripple

  • Litecoin

  • Dogecoin

• Market Statistics:

  • Total cryptocurrencies: 9,136

  • Market Cap: $1.98T

  • 24h Volume: $213.01B

  • BTC Dominance: 55.0%, ETH: 12.4%

ASIC-Resistant Puzzles

• Efficiency of ASICs: They surpass general-purpose equipment, causing mining with ordinary computers to become less viable.

• Impact: Fewer individuals are involved in mining, concentrating power among professional miners; regarded as a potential risk.

• Puzzle Design: To disincentivize custom-built hardware by using memory-hard puzzles requiring significant memory.

Litecoin

• Launch year: 2011, following Namecoin.

• Position: Leading altcoin in terms of popularity and user base; forks more frequently than Bitcoin.

• Main Differences from Bitcoin: Uses a memory-hard mining puzzle, blocks created every 2.5 minutes compared to Bitcoin's 10.

Alternate Forms of Stake

• Proof-of-Stake: Simplifies mining for those controlling significant currency amounts; risks creating an unequal power dynamic.

Bitcoin Forks

• Each new cryptocurrency can be derived from Bitcoin through software (code) or blockchain (hard fork).

What Is DLT?

• Definition: Distributed ledger technology (DLT) enables systems without a central authority in adversarial environments.

• Blockchain: A subset of DLT characterized by chains of cryptographic data blocks.

Properties of DLT

• Key Properties:

  • Shared recordkeeping

  • Multi-party consensus

  • Independent validation

  • Tamper evidence and resistance

Few Players in DLT

• Hyperledger: Open-source hub for industrial blockchain development.

• Corda: Enables management of legal contracts and shared data.

Characteristic Overview of Platforms**

Ethereum

• Generic Blockchain Platform: Protocol governed by developers.

• Operation: Permissionless, supports smart contracts, mining based on proof-of-work.

• Currency: Ether and tokens.

Hyperledger Fabric

• Modular Blockchain Platform: Governed by the Linux Foundation.

• Operation: Permissioned, private with a broad consensus understanding.

R3 Corda

• Distributed Ledger Platform: Aimed specifically at the financial industry, developed and governed by R3.

• Operation: Permissioned and focused on specific consensus paradigms (notary nodes).

Ethereum Smart Contracts

• Definition: Self-executing contracts living in the Ethereum network, initiated through transactions.

• Functionality: Can store data, send transactions, and interact with other smart contracts.

Paying for Transactions in Ethereum

• Gas fees: Users must pay a fee for transactions and contract executions to prevent wasteful resource use.

• Gas limit: Defines the maximum transaction fee the sender is willing to pay.

Use Cases of Smart Contracts**

• Insurance, trade, finance, housing, legal, and supply chain management are some potential areas for implementation of smart contracts.

Crowdfunding via ICOs**

• ICOs provide a method of unregulated fundraising, offering tokens for established cryptocurrencies like Bitcoin or Ether.

Decentralized Apps (Dapps)**

• Dapps differ from smart contracts by not necessarily being financial and supporting multiple participants.

Advantages of ICOs and Token Creation**

• Simplicity and lower costs than traditional financing methods (e.g., angel investors, IPO).

Token Characteristics and Types**

• Tokens are categorized by their use cases and the underlying agreements among users.

Legal and Regulatory Considerations for ICOs**

• ICOs face risks around unregistered securities and the need for compliance with varying jurisdictions.

The Decentralized Economy Stack**

• Breakdown of Layer 1 and Layer 2 solutions with examples of various blockchains and their features, assets, and governance models.

Concluding Insights on Financial Practices**

• Traditional systems face obstacles such as inefficiencies and limited access, prompting interest in decentralized finance (DeFi) as a solution.

Evolution of Financial Systems**

• From barter systems to complex financial instruments supported by technological advances, the narrative illustrates issues like asymmetric information and economic inequality.