Introduction to Cryptoeconomics through Bitcoin

In the past few months, much has been discussed about blockchain-based projects, platforms, tokens, etc. Prices of tokens are going up and down, startup companies are raising millions in crowdsales just in minutes, and there are a numerous people talking about blockchain on many social media channels.

Blockchain, cryptocurrencies, ICOs, all of them are revolutionizing the world we live in. Technology is rapidly growing and changing, and we have to be up to date with it. That’s why it is important some terms to be properly explained, such as Cryptoeconomics. People often don’t understand what the term “cryptoeconomics” actually is and the whole concept behind it.

What is Cryptoeconomics?

“A formal discipline that studies protocols that govern the production, distribution, and consumption of goods and services in a decentralized digital economy. Cryptoeconomics is a practical science that focuses on the design and characterization of these protocols.” — Vlad Zamfir, Ethereum developer

Cryptoeconomics manages the blockchain technology. It is the study of economic interaction in adversarial environments. Actually, cryptoeconomics represents the use of cryptography to design new kinds of technology, such as networks, applications, etc. The blockchain technology is interesting and different from the others due to the cryptoeconomics. It uses cryptography in order to successfully operate.

Cryptoeconomics is composed of two words — cryptography and economics. It combines cryptography and economics in order to create huge decentralized peer-to-peer network. On the one side, the cryptography is what makes the peer-2-peer network secure, and on the other side, the economics is what motivates the people to participate in the network, because it gives the blockchain its unique characteristics.

The biggest product of cryptoeconomics is Bitcoin. When Satoshi Nakamoto founded Bitcoin in 2009, he founded cryptoeconomics as well. That’s why he is considered as the father, founder of cryptoeconomics. He put economic incentives in the peer-to-peer systems in 2009.

“Bitcoin’s design relies on economic incentives and penalties. Economic rewards are used to enlist miners to support the network. Miners contribute their hardware and electricity because if they produce new blocks, they are rewarded with amounts of bitcoin. Second, economic costs or penalties are part of bitcoin’s security model. The most obvious way to attack the bitcoin blockchain would be to gain control of a majority of the network’s hashing power — a so-called 51 percent attack — which would let an attacker reliably censor transactions and even change the past state of the blockchain.” — Josh Stark, member of Ledger Labs and Blockgeeks Lab, a blockchain co-creation company in Toronto, Canada.

Bitcoin, as a result of the cryptoeconomics, has many crpotoeconomic characteristics:

• it is based on blockchain technology;
• it allows only valid transactions;
• transactions can be quickly added to the blockchain if a high transaction fee is paid;
• blockchain must be downloadable and immutable;
• each block includes transactions.

As a result of Satoshi’s work, we have learned that we can build new technologies through cryptography, networking, economics, and computer science. The innovation of bitcoin has taught us that anything is possible. The blockchain is an amazing technology which allows many people who do not know each other to cooperate and reach consensus about bitcoin state. Bitcoin can do things that the computer science cannot do alone. This is accomplished thanks to the cryptoeconomics. Without cryptoeconomics, bitcoin wouldn’t work.

The energy industry is really benefiting from this new technology revolution. For that reason, we have developed Energy Premier — an advanced blockchain-based electricity trading platform. We are currently emitting an ICO followed by a strong team, live & working product, lead users (suppliers and consumers), and blockchain experts. Moreover, we have launched a Bounty Program that rewards all of the participants. Join our energy revolution!

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Introduction to Cryptoeconomics through Bitcoin was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.