AltcoinBitcoin CoreNews Bitcoin, cryptanalysis decentralised assets and applications: really understand these innovations written by btcgpu October 26, 2017 It is fashionable to believe that the Bitcoin has no intrinsic value, or that governments will smash it to destroy it. Presidents of banks, such as the head of the Central Bank of Brazil, are speaking this repeatedly in the media. On the other hand, it is also true that the crasy of the Bitcoin technology believe that digital currency will end with the banks, with governments and even with large companies. None of these two extreme thoughts is true. The reality is much more complex than these two antagonistic visions. And it is on this that I would like to discuss with you in this article. The global market of cryptcurrency is obviously overheated and irrationally higher than it should be in this current stage of development of technologies. On one hand, we have several people, driven by media projection, creating digital coins or tokens, being that many of them are scammers. There are many conflicts of interest, selfishness and shady business. Few people in the media (even less in Brazil), in the sectors of finance, technology, universities, governments understand what really is happening. The truth is that few people who are buying Bitcoin or other digital assets understand what is happening. In addition, it is important to make clear that banks and governments will not disappear because of the technology of Bitcoin. Nor will cease to exist computer programs (software). In short: there is much enthusiasm at the moment. But there are also important signs that tell us a lot. To find them and understand them, we need to begin by defining what is a cryptcurrency. Definition: cryptcurrency are a new asset class that enable decentralized applications. And as this discussion should not be carried out as a dispute between cryptcurrency and the traditional fiduciary currencies, we need to stop calling the Bitcoin of currency. This is a fake. We cannot compare the Bitcoin to the dollar, euro or any other currency state. This comparison is not going to help you to understand what is really happening. In fact, this comparison is a stone on the path to understanding. Therefore, I would like to draw the cryptcurrency of cryptanalysis assets. Therefore, by definition, cryptanalysis assets are a new class of asset that enables decentralized applications. And like any other asset class, the CRYPTANALYSIS assets exist as a mechanism to allocate resources for a specific form of organization. They do not exist, as many think, only to be traded on brokers. To understand what I say, let’s think in other asset classes and which form of organization they serve. For example, actions of a company to serve a company, government bonds are the nations, states and municipalities, mortgages are the owners of the land and, following this reasoning, the CRYPTANALYSIS assets serve decentralized applications. Decentralised applications are a new form of organization and a new form of software. They represent a new model to build, finance and operate software services in a decentralised way, from top to bottom. All this does not make them better or worse than the current software models or companies that create. But, after all, what is a decentralised application? It is a way to create a service that no entity, company or whatever, can operate it. The first decentralised application of history appeared in 2008 and was an application created with the focus on electronic payments. If you thought the Bitcoin, hit. How it works? How is it possible to send an electronic payment without the need of a counterparty that will track the payment and update the balance of each of the parties involved? Digital information is not a bearer instrument. Digital information needs of intermediation and validation to be entrusted. The technical article of Satoshi Nakamoto who created Bitcoin solves this issue by forming a network of computers point-to-point (peer-to-peer), which is public, and that announces to all participants in the whole network and any transaction carried out. Cryptographically, these transactions are signed with the same key that is connected to the source of the transaction funds so that we have the certainty that the funds belong to whom is in fact doing that transaction. But that alone is not enough. It was necessary to create a way to ensure that nobody would be able to spend the same balance twice. A solution to this could have been designate a counterparty for stamping these transactions and only accept the first of them. However, we would be back to square one, since we would be relying on an intermediary. The great revolutionary solution was to create a competition for digital that counterparties disputassem this task to be the verifier of the transaction. But for which there is competition between the testers of transactions, it is necessary that there should be an incentive, an asset. Here comes the Bitcoin, which is nothing more than a prize paid for verifiers to ensure the integrity of the decentralized application of payments. The testers of the transactions were called miners. It is worth remembering that anyone can take part in this competition, because the network is open, as well as your code. And how does this competition between the miners? Basically, these miners (read it if computers) are participating in a race whose goal is to find a random number generated by the network. However, find this number is very, very difficult. Therefore, it is necessary to use a colossal amount of processing power and burn a lot of energy supply to participate in this competition. Bitcoin Mining Why create a competition elaborate and expensive (because we need computers with much processing power and high amount of electrical energy) to simply check transactions to a network? Because so there is the certainty that competitors incurred a financial cost to participate. In this way, if they win the race to find the random number and become the verifier assigned to a block of transactions, they will not use that power for evil (as censor transactions, for example). That is, the network is programd to reward with new Bitcoins those who follow the rules, and also reward with rates of transactions, also received in the Bitcoin, which will be paid to the miners by those who send transactions. In other words: the miners follow the rules because doing the right thing is part of their economic self-interest. And as these miners have bills to pay arising from their work for verification of transaction, they generally sell Bitcoins you receive as a reward in exchange for fiat currency that they need to get to cope with its commitments. Anything left over is profit. And so it is that the Bitcoins come into circulation. The people who need can buy it, so as you can buy them who just want to speculate on the price of the asset. So, with only one stone, killing two birds: the financial reward to miners eliminates the need to rely on a third party centered and such reward enters the market as a digital instrument to the carrier that operates in a network of electronic payments that does not have a controller. This is how it works the Bitcoin, the first decentralised application created by mankind. I.e. a decentralised application allows us to do something that we already do today (electronic payments, in this case), but without the need for a central authority. After the Bitcoin, other decentralised applications began to emerge. Who knows, soon we will have a ride sharing application of decentralised (BitUber?) or a sharing application of decentralised Accommodation (Bitbnb?)… a new form of organization which does not require the existence of a company behind. Let’s recap: In recent years, the world has invented a way to create software services that do not have a centralized operator. These services are called decentralized applications that are enabled with crypto assets that encourage entities on the internet to contribute resources (processing, storage, computing) to allow the service to function. There are a lot of people who think that this model will be the future of all software. But I don’t think so, because we have a problem. Is not completely clear yet if decentralised applications are really useful for the majority of people in relation to traditional software. We cannot say that the Bitcoin is better than PayPal for all people. In fact, in almost all dimensions, decentralised services are worse than their peers centered, because they are slower, more expensive and less scalable, more difficult to be used by consumers, as well as governance is uncertain and volatile. And this has nothing to do with the fact that this technology is in its infancy. This will not fundamentally change with technological advances in these decentralized applications. Know that elaborate and expensive competition that described above? Well, it comes with a cost of performance. Remember how users need to CRYPTOGRAPHICALLY sign the transactions? Therefore, these private keys need to be stored in a much more secure than a simple password that can be recovered. Remember the fact that no central entity operates a network? The other side of the coin is that there is an easy way to arrive at a consensus on any change in the governance of the network. Therefore, we cannot describe the Bitcoin as a decentralized “PayPal”. It would be more honest to say that the Bitcoin is a network of electronic payments extremely inefficient, but that on the other hand is decentralized. In summary: centralized applications are much more efficient than decentralised applications in virtually all dimensions. Except for one dimension: resistance to censorship. This means that decentralised applications are open and without restrictions. The transactions in these decentralised services are unstoppable. Nothing can stop me to send Bitcoin to any person that I want, since I have an internet connection and pay the transaction fees from the network, I am free to do what i want. Therefore, while we cannot say that for the whole world the Bitcoin is better than Visa, it is possible that for some group of users the Bitcoin is really the only way to make a payment. Those who prefer a payment system resistant to censorship in detriment to the speed, cost, scalability and usability benefits of centralized services? Although there is plenty of statistics on this, the true users of decentralised applications seem to fall under two categories: 1. People who are in countries where access to centralized services is limited, but that there is access to the Internet. 2. People who do not want to use centralized services for any reason, i.e., they do not want their transactions be censored or known. By now, most of the existing decentralised applications has little use in relation to the traditional services. If we think of the Bitcoin, currently, fewer companies around the world accept the asset as a means of payment that compared to the year 2014, for example. At the same time, it is evident the use of Bitcoin in the dark web and for payments of redemptions resulting from sequestration of data (ransomware). But then, someone will ask: people are not using the Bitcoin as a store of value? Yes, but this is just a way of saying that people are investing in Bitcoin with a long-term vision. But keep in mind that I am not talking about investing in a crypto active or speculate on its price. I am talking about if there are people who see usefulness in a decentralised application for payments. And here comes the question: Will people will actually use decentralised applications? Will they become an important part of the economy? It is difficult to predict, because this depends in part on the evolution of technology, but it depends much more on the reaction of society in relation to them. And this is basically the argument that market operators are in relation to traditional cryptanalysis assets, it is too early to say anything, which is a profound paradigm shift and that if any of these decentralized applications that have emerged to become an integral part of the world, the CRYPTANALYSIS asset that is associated with it will be extremely valuable. In the long term, the value of an active crypto is derived from the use of decentralised application that it makes. Although it is still early, the high market value of cryptanalysis assets are justified because even if the likelihood of mass adoption is small, the impact will be very large, so many bets and pay to see what will really happen. So, how do you explain the recent mania in relation to CRYPTANALYSIS assets? The price of Bitcoin, for example, Rose 5 times in 2017. The price of the Ethereum climbed 30 times. As in all mania, currently it is rational to be irrational. If you have invested in the Bitcoin or Ethereum in the beginning, you are now under a mountain of money and sometimes gives the impression that you are playing with money that game banco real estate. You feel smarter and more prone to take risk in comparison if it were your money coins that you earned working. You until diversificaria a bit and try to buy the next big crypto active. If you do not invested, the fear of losing the chance, FOMO (fear of missing out) will grow until you buy and arrive at the moment of “me ferrei”, if the crypto active start to fall. The big problem is that people are buying cryptanalysis assets without understanding them. People are investing only in things that cannot understand and it usually comes occurring when the price of a crypto active hits your record. These vendors of cryptanalysis assets to which I refer are not people who have assets in cryptanalysis and that for some reason decide to sell it. I mean the people who create a crypto active, usually by means of an initial offer of CRYPTANALYSIS MIG. The model that is becoming classic is pre-sell a percentage of the asset that the proposed network will generate as a way to finance the development of decentralised application even before it is launched. The founders of the project tend to stay as a percentage of these assets, which means that raising capital for a project like this involves money that cannot be diluted, because it is an action, and also does not imply the creation of debt, because the founder never need to pay it back. The idea propagated by those who cast ICOs is to sell the assets to users even before the network will be launched helps create a legion of “evangelists” that will be initial users and promoters of the application that would not exist if there is a financial incentive for them to participate in the community. The problem with this line of thought is that it confuses initial investors with initial users. The total market of cryptanalysis assets has grown significantly in recent years. What will be the size of it in a few years? Certainly, many or most of the Crypto assets that is being launched today will not survive. Nor has survived the most active crypto launched in 2013 and 2014, when they were called “altcoins”. So, in summary, the conclusion is that the crypto assets are a new class of assets that allow decentralized applications. These, in turn, allow services which are currently provided by centralized entities may exist in a decentralized way, without the control of any government or company. This type of software is useful for people who need resistance to censure, which are usually people deprived of traditional system or people who want to be outside of the traditional system. The majority of people outside these two groups is best served by centralized applications that are often best in practically all dimensions, at least for a while. The social acceptance or rejection in relation to a new technology is difficult to be provided. In the long term, the value of an active crypto will rise and fall in proportion to the use made by the decentralized application. In the short term, there will be extreme volatility, because most of the people who purchase cryptanalysis assets do not understand what they are buying. The majority of the proponents of ICOs is not building applications decentralized and, yes, they are capitalizing on the confusion created by the mania of the market. Do not bet on the collapse of the market of cryptanalysis decentralised assets and applications. We approach the first decade of existence of the Bitcoin and it is clear that it will not disappear and that some decentralised applications can find your place in the sun, or better saying, its social utility. Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Google+ (Opens in new window)Like this:Like Loading... 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