The path to a Cryptoworld — IOTA
The full article was originally published by Gabriel Werneck Paiva on Medium. Read the full article here.
Our path to a Crypto World — IOTA
If the worldwide usage of cryptocurrency is truly our future, there are some things we have yet to consider. Today, around 3.9% of the world population own a crypto asset, for comparison, this is more than the entirety of the population of Russia and Mexico combined. Yet, currently, cryptocurrency hardly seems to have any real life usage, other than speculation or buying other currencies. In this article, we’re going to be looking at what are the major problems with cryptocurrency and how can we solve them.
Is Bitcoin really Peer-to-Peer?
One common misconception about Bitcoin is that it got rid of a middle-men by having a decentralized network. Yes, it is true that, you no longer need a centralized institution like PayPal or banks to send funds to another wallet, however you still need a middle-men. In order to issue a transaction on the blockchain, it must be validated by the so-called miners, who, just like anyone, won’t work for free. Bitcoin operates with a Proof-of-Work (PoW) consensus mechanism. In order to avoid fake transactions or double-spends from being validated, different miners will use computational power to ensure that a transaction is legitimate, those are rewarded with newly created coins and transaction fees. This also mean that if someone possesses 51% of the total computational power of a PoW blockchain, they have the power to create new coins by validating fake transactions, see 51% attack. This once happened in 2014, when the mining pool GHas.io gained the majority of bitcoin’s computational power. This raised many questions about Bitcoin’s security at the time, thankfully GHash.io voluntarily ensured that their mining pool didn’t exceed 50%.
Proof-of-Work uses A LOT of energy
“Cryptocurrency is a good idea on many levels and we believe it has promising future, but this cannot come at great cost to the environment.” ~ Elon Musk
Bitcoin consumes annually 121.36 TWh per year, this is more than the totality of annual energy spends in Argentina. There are other consensus mechanisms that use less energy than the previous such as Proof-of-Stake (PoS), instead of having different miners compete to create a block in the blockchain, an algorithm chooses a few validators based on their stake. If one validates an invalid transaction, they lose their stake (=their money). This is much more eco-friendly, since the blockchain is not “controlled” by those with the most computational power, rather by those who own the most of the currency. This also means that in order to make a 51% attack, the attacker has to own 51% of the currency. In Cardano, the biggest PoS cryptocurrency, such an attack would cost over 28.05 billion dollars, and if the attacker failed, they would lose all their money. Even if they succeed, they would lose money, as prices would fall.
The problem with fees