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Friday, May 27, 2022

What Makes a Currency a Cryptocurrency?

What are the requirements for cryptocurrency to be considered a cryptocurrency? Is there a way of creating some sort of checklist to determine what a cryptocurrency is? There isn’t really a canonical definition of a cryptocurrency simply because cryptocurrency is a marketing term and it has become a marketing term, meaning that any currency that is based in some form on cryptography, some form of cryptography or uses cryptography in some way might be called by some people a cryptocurrency.

What does that tell you about how it works? It doesn’t tell you much. So the fact that somebody calls something a cryptocurrency doesn’t mean much unless you ask some followup questions. So the interesting things are the checklist that you said is a series of follow-up questions you can ask to see if this is an interesting kind of cryptocurrency.

And of course, that’s highly subjective, what is interesting to you, what is interesting to me. I can tell you what my list is and it’s a list that I’ve tried to popularize.

So what’s interesting to me is a cryptocurrency that is truly open and truly decentralized meaning that it differs from previous forms of currency that we have and various other closed and controlled blockchains and cryptocurrencies that have been built since by being open and decentralized so nobody has control of the system but it works on a basis of rules and everyone can participate.

So I have a series of questions as a checklist. The first question is, is it open? What does open mean? It means can anyone access it, can anyone participates in the network without authorization, without vetting? Pretty much can any computer on the open internet simply connect to the network and be part of it, then participate in the network.

There are new insists that of course, is it open to minors? If having a mining algorithm, can anyone participate as a minor without authorization and vetting? Can anyone do a transaction without authorization, inviting et cetera et cetera? So open.

Is it borderless? Does it operate across the entire world without concern about national borders, geographic borders and various artificial limits on its propagation? Can you access the system from anywhere in the world, anytime, anywhere by anyone?

So is it borderless? Is it to neutral? Neutral meaning that the system does not discriminate transactions based on source-destination value or purpose. A transaction is propagated on the system regardless of who sent it, who they sent it to which source and destination addresses are involved in the transaction, how much was sent and what the purpose which is outside of the system.

What the purpose of that transaction is. So a neutral system will transmit transactions regardless of source-destination value or purpose. It simply propagates transactions just like a neutral intranet for its packets regardless of the source IP destination IP or application that is being served by that particular IP packet. Is it immutable? When you record something on this blockchain or this cryptocurrency, can that transaction to be reversed. And of course, this is not a yes or no answer.

After a certain time, does it become immutable and how strong is that immutability? So for example, in the case of a Bitcoin, we can say with a fairly high degree of certainty after six confirmations, the data in that blockchain is immutable enough that you can put quite a significant amount of value into it.

And you can think of immutability increasing over time. The more confirmations you have, the harder it is to reverse a transaction. So after a 100 transactions, sorry, after a 100 blocks or a 100 confirmations, the Bitcoin blockchain is considered a beautiful enough that you can spend the Coinbase transaction which is the mining reward.

Maybe after a day, 144 blocks, it has a very high degree of immutability after a month, the amount of energy and money required to reverse the Bitcoin blockchain is just staggering.

So immutable, that’s another important criterion. So is it open, borderless, neutral, censorship resistance, is it immutable? And you can add to that also is it publicly verifiable? Meaning can anyone verify the transactions that are happening? Can you audit it basically as a transparent?

And you can keep adding other criteria depending on the importance you give to these criteria. But I think those are the most important for me in order to determine whether a cryptocurrency is interesting in that it is encompassing some of the characteristics that we see in Bitcoin that really made it different from everything that came before.

Now, that doesn’t mean that something that doesn’t fulfil these criteria isn’t a cryptocurrency, it just means that it’s not interesting to me because it doesn’t represent the principles and characteristics that made Bitcoin interesting by being different.

So for example, if it’s a controlled closed system that only operates within one country, I’m sure maybe that’s called the cryptocurrency by some people and maybe it’s interesting to them.

It just, to me, it’s incremental innovation, to me, it’s more like a database and not particularly interesting in its technology and certainly not very interesting in its political and social implications. – If you enjoyed this video, please subscribe, like and share. All my work is shared for free.

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