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A Summary of

An introduction to crypto

by
Linda Xie
Andreessen Horowitz
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What problem does crypto solve?

  1. The inefficient and expensive banking system.
  2. Funds are inaccessible when banks are closed.
  3. Expensive transfer fees.
  4. Long processing times.
  5. Limited worldwide accessibility.
  6. Hyperinflation - government-regulated currency cannot always be trusted.

The Quest for Digital Money

  • The concept was introduced by Davide Chaum in 1990, who later created DigiCash.
  • E-Gold started in 1996 but was suspended because of legal issues
  • These attempts failed because a central point of control was required to monitor for double-spending.

The Bitcoin Breakthrough

  • Introduced the "blockchain" - a distributed public ledger.
  • Introduced "crypto" - using cryptography, math, and computer science to make sure currency can't be faked, records are real and immutable, and the owner is uniquely identified.
  • Proof of Work - output that is difficult to produce but easy for others to verify; enables trustless consensus.
  • Miners are key to the network as they validate network transactions and contribute computational resources.

Ethereum - Smart Contracts Platform

  • Smart Contracts - Programs that are executed by a network of computers; enable transactions that don't require a middle man.
  • Similar to a real contract with "if, then" statements but written in code.
  • Founders are known and active, unlike Bitcoin.
  • Created Proof of Stake (like Bitcoin's Proof of Work) - aligns incentives of coin holders to the network and allows for the punishment of bad behavior; reduces energy costs.
  • Tokens are digital assets built on top of Ethereum.

Ethereum Allows for Completely New Applications

  • Augur - decentralized prediction markets platform.
  • Prediction market - allows participants to bet on the likelihood of an event occurring.
  • Oracle - a trusted source of information.
  • Decentralized oracles can be used for dapps, insurance, hedging, and futarchy.
  • Futarchy - elected officials use the outcome of prediction markets to form policy decisions.
  • Not all applications are built on Ethereum (e.g. Filecoin).

ICOs Have Raised Billions of Dollars

  • Public way to fundraise - allows teams to raise money for their projects by selling their tokens.

Forks

  • Copies code of open source projects to create new versions; anyone can do this.
  • E.g. Litecoin is a fork of Bitcoin and has faster transaction confirmation times, increased total supply, and changed mining algorithms.

Crypto May Create Major Technological Innovations

  • Decentralized Autonomous Organizations - Orgs. run through rules encoded in smart contracts.
  • Enables people to own their own identity and reputation data.
  • Experiment with new governance and economic systems.
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