Ten years ago the arrival of Bitcoin changed how we view the global monetary system. With it, a new era was introduced that is reshaping how we connect and exchange value.
Cryptocurrencies are decentralized digital assets that use cryptography as an encryption mechanism for security purposes. Beginning with Bitcoin, at the time of the 2008 global financial crisis, the idea was to create a currency independent of any central authority that could be electronically transferred with low transaction fees. The idea behind Bitcoin was to give back monetary control to the people.
In order for them to function, they use what is known as blockchain technology. It is this which provides a permanent record of transactions between any given party that is confirmed and verified by a network of computers, or nodes. It is these nodes that are continually updating the blockchain when new blocks of transactions are added.
By using the blockchain, parties conducting transactions between each other don’t need to reveal their identities, and the transaction doesn’t need to be verified by a third party. At its inception, the aim of the blockchain is to deliver an immutable record of data that is transparent, secure, and reliable.
Today, there are thousands of altcoins that have a market cap, all of which provide various services. These include the likes of cryptocurrencies, utility tokens, security tokens, non-fungible tokens (NFTS), and stablecoins. Read on to understand what all those are.
Bitcoin: Where it all started
Bitcoin is a first generation cryptocurrency that is used for buying goods and services.
When its white paper was published in 2008 by the pseudonymous person (or persons) Satoshi Nakamoto, the aim of it was to deliver an alternative to the banking system for the global population. At publishing, it remains the number one cryptocurrency with a market cap valued at $62.7 billion, according to CoinMarketCap.
It is built on a concept called Proof-of-Work, which is created through the process of mining. In order to mine a Bitcoin, a node needs to solve a complicated algorithm. The node that solves the answer first is rewarded with newly minted Bitcoin. At the moment, 12.5 Bitcoins ($42,000) are rewarded. The third and next “ halving ” – the point at which the reward is halved – is to take place in 2020 when the number of Bitcoin rewarded falls to 6.25.
Non-Fungible Tokens (NFTs)
This is a type of cryptographic token that represents something unique. Unlike fungible tokens, NFTs are not interchangeable.
NFTs follow the ERC721 token standard on the Ethereum blockchain. The most popular form of NFT is the virtual cat game CryptoKitties. Even though there are thousands in existence, each one of them is unique, with its own fur color, eye color, special features, fur pattern, and facial expression.
NFTs can also be used in art, real estate, and memorabilia. Tickets, identity, and certification could also see NFTs playing a role.
Utility Tokens
These types of tokens are services or units of services that can be bought. The most common type of utility token is the ERC20 Ethereum standard. In 2017, an influx of blockchain startups who built their decentralized applications (dapps) on top of the Ethereum network were able to raise money through initial coin offerings (ICOs). By doing so, it required them to create their own tokens and sell them to the public in exchange for Ether, the cryptocurrency of the Ethereum blockchain.
Utility tokens are digital assets designed to be spent within a certain blockchain ecosystem. For instance, Sia, a decentralized, peer-to-peer cloud storage solution, pays people in Siacoin to those who rent out extra space on their computers on the Sia network. Similarly, those who want to use Sia’s storage must pay a host in Siacoins.
Another example of a utility token is Dentacoin. This is a DCN token solution for the global dental industry, which can be used as a means of payment. Developed by the Dentacoin Foundation, the token is backed by a number of dentists in Bulgaria, Canada, China, Germany, South Africa, the Netherlands, and the UK. As well as using the Dentacoin token to receive dental care, people can earn additional income from the token through the Dentacoin apps.
Security Tokens
These are tokens that are presented to investors in an ICO for the exchange of their money.
A security token is something that represents legal ownership of a digital or physical asset such as real estate or artwork that has been verified on the blockchain. They are directly related to the growth of the company.
As deemed by the US Securities and Exchange Commission (SEC), any token that can’t pass the Howey test should be considered a security. As such it should fall under the 1934 Security Exchange Act.
The Howey test consists of the following:
Examples of security tokens include Polymath, a network that aims to simplify the legal process of creating and selling security tokens, enabling trillions of dollars of securities to migrate to the blockchain.
It pitches itself as “the Ethereum Polymath equivalency,” adding that “what Ethereum did for tokens, Polymath will do for securities.” The network also has its own ST20 token standard, which is an extension of the ERC20 standard, but introduces the ability to restrict transfers of blockchain tokens. This ensures that security token issuers can maintain regulatory compliance.
Another example of a security token is tZero, a blockchain subsidiary of Overstock, an e-commerce retail giant. The platform is aiming to change capital markets by addressing “some of the inherent inefficiencies of Wall Street so that financial processes and investors are less beholden to traditional, institutional market structures,” according to its website. The tZero security token delivers its holders a preferred equity security, which also features a dividend based on the firm’s adjusted revenue.
Stablecoins
Stablecoins are the latest type of cryptocurrency to have entered the market. There are three types of stablecoins: fiat-collateralized, crypto-collateralized, and non-collateralized.
Fiat-collateralized stablecoins are those which are pegged to real-world assets such as the US dollar, the euro, the pound or the yen.
The most well-known stablecoin is Tether (USDT), which began in 2015. It is a (supposedly) fiat-collateralized stable currency, meaning it’s backed by the US dollar on a 1:1 ratio. However, over the past year, it has been mired in controversy , with some reports suggesting that Bitfinex, a Bitcoin exchange that is behind Tether, had been using it to manipulate the markets.
Another example of a stablecoin is the Gemini Dollar (GUSD), which is a regulated stablecoin. It is built on the Ethereum network and based on the ERC20 token standard, and backed by the US dollar on a 1:1 ratio. It is aiming to provide a stablecoin that “establishes trust through cryptographic proof and regulatory oversight,” according to its white paper .
Crypto-collateralized stablecoins are those which are linked to the reserves of other cryptocurrencies. They maintain their one-to-one ratio through over-collateralization.
For instance, Dai, created by blockchain company MakerDAO, is an example of a cryptocurrency that is backed up by another. It is pegged to the US dollar and is backed by Ethereum. BitUSD is another crypto-collateralized token, which is collateralized by Bitshares.
Non-collateralized tokens are those which are pegged to precious metals such as gold or even oil.
Digix is a stablecoin, but is one that is backed by gold. One DGX token is valued to the value of one gram of gold on the Ethereum blockchain. Considered a safe haven asset, Digix is backed by 99.99 percent gold cast bars from the London Bullion Market Association-approved refiners.
With this knowledge in hand, go forth and see the world of cryptocurrencies with a new understanding.
NASA to hire data scientist with blockchain and cryptocurrency skills
According to a job advertisement posted three days ago, NASA is looking for a candidate with a wide range of skills, but notes that “experience with cryptocurrency and blockchain is considered a plus.”
Responsibilities will include conceptualizing and developing innovative applications for cross-cutting areas including robotics, AI, cloud computing, and next-generation flight hardware.
The chosen individual will join NASA’s team of data scientists and other experts that make up Jet Propulsion Laboratory’s Innovation Experience Center (IEC) in California.
NASA and blockchain
This isn’t the first time NASA makes blockchain-related headlines.
Back in January, Hard Fork reported the agency was exploring potential use-cases for blockchain tech in hopes of safeguarding the privacy and security of aircraft flight data.
A research paper published at the time studied the potential viability of a blockchain network with smart contract functionality to overcome security issues.
In April 2018, NASA announced a new grant to support the development of an autonomous spacecraft, which could make decisions using blockchain technology and without the need for human intervention.
Want more Hard Fork? Join us in Amsterdam on October 15-17 to discuss blockchain and cryptocurrency with leading experts.
This blockchain-themed maths puzzle can earn you a share of $100,000
There’s a (supposed) problem with blockchain: it’s too resource-intensive, so Amazon Web Services (AWS) has backed a $100,000 maths competition to “forever change” the technology.
If it helps, the puzzle above relates specifically to Verifiable Delay Functions (VDFs), which AWS describes as “low-level building blocks” for cryptography.
Once properly developed, ADFs are thought to remove some of the trust problems associated with Proof-of-Stake (PoS) blockchains, particularly when working with pseudorandom numbers (which are neither trustless or truly random).
“The Ethereum ecosystem alone currently uses on the order of 850 megawatts to extend blocks. That’s about $460 million in running costs per year,” said Tim Boeckmann of AWS. “With VDFs in Ethereum, there is an opportunity to bring down that cost to less than $0.13 million for the 0.25 megawatts of energy to power the hardware random beacons.”
Anyone that completes the puzzle is promised a share of the $100,000 prize, but exactly how much will depend on how fast their algorithm computes it.
A maths competition to save Ethereum’s PoS plans?
Ethereum devs have been preparing to transition the blockchain from a consensus mechanism that leverages Proof-of-Work (like Bitcoin) to one that relies heavily on PoS.
So far, it’s been no easy feat. Critics have slammed the idea, and some analysts have previously warned the proposed incentive model simply won’t work .
With this in mind, it begins to make sense that AWS, along with startups like the Ethereum Foundation and Protocol Labs, would turn to outsourcing the solutions to some of the trust problems associated with PoS.
“It’s a new way of designing hardware, of open-sourcing it.” said Justin Drake of the Ethereum Foundation. “It’s something that has never been tried. Hopefully, it will not only push forward a culture of collaboration between all kinds of blockchain projects, but open up the hardware design industry as well.
One hundred thousand dollars to solve math puzzles is certainly cool, but one can’t help but suspect it’s an expensive cry for help from an overwhelmed Ethereum camp tasked with saving “trustlessness” in a (potentially) trustful system.
Either way, you can read more about the competition here .
