Top 10 Use Cases of AI in Blockchain and Web3

Posted on by Werner

There has been lots of noise about artificial intelligence this year. We have heard that it will forever change every aspect of our lives. The same things were previously said about blockchain technology, which uses decentralized networks to offer cryptocurrency incentives to participants. 

The most prominent AI companies are still centralized Web2 behemoths like OpenAI, Microsoft, and Google, but there is increasing confluence between machine learning and blockchain as the world of business becomes more and more automated. 

Here are a few of the best use cases for a marriage between artificial intelligence and blockchain in 2024 and beyond.

10. Supply Chain Optimization

A 2023 study revealed that 29% of small and mid-sized businesses lost over 15% in revenue due to supply chain disruptions, with an additional 31% reporting losses of 7-15%. An integrated system of AI and blockchain could transform supply chain and logistics operations by making it more efficient and transparent, and helping better decision-making. 

Cutting-edge AI algorithms can predict demand, manage inventory, and automate specific logistics processes. This reduces costs and the risk of fraud and counterfeiting within the supply chain. For context, global companies lose $500 billion per year due to counterfeit products. 

AI and blockchain in supply chain processes can reduce errors and optimize resource allocation. This helps companies do what they love most: save time and money.

9. Market Analysis and Automated Trading

The crypto market is notorious for volatility and can move faster than traders can react. In August 2023, cryptocurrency traders lost $1 billion in liquidations due to a sudden sell-off.

Can traders or artificial intelligence counter these liquidations? Absolutely. By analyzing market data, social sentiment, and news in real time, AI can make predictions about future market trends and help traders with more efficient trading, improved risk management, and potentially higher profits. AI can detect pump-and-dump schemes (which are prevalent in the crypto space) to protect traders and investors.

AI can help traders identify crypto narratives in the early stages. For example, AI could have helped traders foresee the rise of AI cryptocurrencies or SocialFi and its importance to the creator economy. By picking the top 20 AI cryptocurrencies in early 2023, traders would have made sizable profits.

The rise of crypto trading bots on Telegram and Discord is a true reflection of AI’s growing influence in crypto trading. We hear that crypto builders are in it for the tech. But the traders are in it for the money, and bot trading when done right could be a viable way of getting that lambo one day, if you know what you’re doing and get lucky. 

8. Fraud Detection and Prevention

Blockchain is known for its robust security and transparency, but is not immune to acts of fraudulence such as market manipulation, fake trading volumes, and phishing scams. AI can help by detecting unusual patterns and behaviors within the blockchain to identify potential threats. By recognizing anomalies, AI can minimize fraud, whether it’s in unauthorized access to the blockchain network, identity theft, or financial transactions.

Of course, it’s not only crypto. The U.S. Federal Trade Commission (FTC) claims that consumers lost $8.8 billion to fraud in 2022, a worrying 44% increase from 2021. If AI and blockchain can reduce this figure, hopefully, some U.S. regulators hellbent on destroying crypto may start to see the potential it carries.

7. Personalized Recommendations

We have been using personalized recommendations for longer than we think. But through the power of Web3, AI, and blockchain, personalized recommendations can be taken to a whole new level. AI can be used on blockchain data to understand user preferences, and to provide users with tailored recommendations for new crypto, Web3, and NFT projects.

As the Web3 revolution accelerates, a decentralized web could help users own their data and achieve one of the leading promises of Web3: full privacy. 

Blockchain, a digital record, can be mined for insight into the provenance of the data that builds AI, addressing the challenge of ‘explainable AI’. This helps improve trust in data integrity and, by extension, in the recommendations that AI provides.

6. Data Analytics

Blockchains are immutable ledgers that provide rich data to analyze. AI can rapidly read, understand, and correlate data at incredible speed. This big-data processing brings a new level of intelligence to blockchain-based business networks, and centralized service providers will struggle to keep up.

By providing large volumes of data, blockchain helps AI provide more actionable insights, manage data usage and model-sharing. All these combine to make for a better and more trustworthy data economy. 

Credit: Tesfu Assefa

5. Smart Contract Auditing

It is estimated that the past decade has seen more than $4.75 billion in financial losses in Web3, caused by smart contract security flaws, with some estimates going as high as $12.3 billion.

AI can audit smart contracts, ensuring they function as intended, and are free from vulnerabilities and errors. This level of automation and assurance is crucial for the reliability and trustworthiness of smart contracts within the blockchain.

4. RWA Tokenization

Tokenization is a key concept in blockchain and Web3. A report by digital asset management firm 21.co claims that tokenized real world assets (RWAs) – crypto’s buzzword for bringing traditional financial products to various blockchain networks – could grow to $10 trillion by 2030.

AI can be used to create and manage tokens, ensuring that they are secure and compliant with regulations. This use case opens up new opportunities for businesses and individuals to tokenize assets, including real estate, art, fiat currency, and more. Stablecoins are so far the most successful application of tokenization of RWAs.

3. Healthcare Data Management

Healthcare providers must collect, transfer, and store sensitive data. This poses a big risk to the security and privacy of their users. In 2023, U.S. medical giant HCA Healthcare suffered a breach in which hackers stole data belonging to 11 million patients. How can healthcare facilities ensure data protection and privacy?

AI-driven blockchain systems can create and maintain secure, immutable patient records. This streamlines data access for healthcare providers, and also ensures the integrity and privacy of sensitive medical information.

The use of AI in healthcare can extend to clinical trials and research. Blockchain’s transparency and security, combined with AI, can optimize the management of clinical trial data. This can enable researchers to accelerate medical discoveries.

To go back to the realm of supply chain optimization, AI can aid in tracing the origins and journey of pharmaceuticals using blockchain technology to prevent counterfeit drugs from entering the market. It is estimated that nearly $83 billion of fake drugs are sold globally per year.

2. Energy Management

Arranging the clean energy transition is a key issue of our time. AI can optimize energy consumption, production, and distribution by studying usage patterns and predicting demand, while P2P blockchain trading can enable businesses and individuals to buy and sell excess energy directly from one another.

The two technologies of AI and blockchain can also speed up the development of smart grids that can efficiently distribute and manage energy resources. 

1. Gaming and Virtual Reality

As the gaming sector intertwines with blockchain, it is estimated that the market size of blockchain gaming will grow from $7.1 billion in 2022 to a projected value of $772.7 billion by 2032. 

Just like anything else in life, you can predict the future of blockchain gaming by following smart money, aka venture capital. Venture capital firms invested more than $2.3 billion in Web3 gaming in the first three quarters of 2023, showing the sector’s strength and resilience amid a brutal crypto winter.

What role does AI play in Web3 gaming and virtual reality? Generative AI can create immersive and responsive virtual worlds, enhance blockchain in-game experiences, and even optimize game development processes. 

From generating realistic non-player characters (NPCs) to predicting player actions, AI is revolutionizing the gaming and virtual reality industry within Web3.

Conclusion

It’s still early days for both blockchain and artificial intelligence, and both are rather unfairly misunderstood and maligned by the general public and media. Despite this, the evolving new economies around data, digital creators, and tokenized assets should solidify this alliance in the coming years, hopefully for the greater good. Blockchain establishes digital trust and proof, and AI can both benefit from it and boost its reach. 

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Crypto Bull Run 2024/2025: What Will Drive It?

Posted on by Werner

Some content on Mindplex may include forward-looking statements pertaining to future anticipated plans, performance and development of companies and industries. Any statements on this website that are not statements of fact should be considered forward-looking statements. Statements in this website that describe a company’s business strategy, outlook, objectives, plans, intentions or goals, or the future performance of an economic sector, are forward-looking statements, and all such forward–looking statements are subject to certain risks and uncertainties that could cause actual outcomes to differ materially from those in such forward-looking statements. Nothing in this article, or any other on Mindplex, should be considered financial advice. Cryptocurrency investing is a high-risk endeavor, and Mindplex accepts no responsibility for any risks taken by the reader.

Introduction

The 2021 Bull Run was incredible. Many first-time millionaires were created from the mix of innovation, economic stimulus, and – yes – a touch of speculation from investors stuck at home. The pandemic, which induced quantitative easing from the USA (aka money printing), and increased access to global trading platforms such as Coinbase and Binance, created a perfect storm for explosive crypto valuations.

Examining future crypto-narratives and pondering how they will influence the next cycle will best position you for the upcoming bull run. According to many experts, it is just beginning to form. Bitcoin has been off to a blistering start from the 1st of January 2023, then had a bit of a lull mid-year, before it breached $35,000 during October (‘Uptober’ in crypto parlance). This is consistent with the potential for a massive 2024. 

Bear market fatigue can make the days of up-only growth seem like a distant dream, and make you feel that crypto will never enter a bull market again. However, the global financial system is constantly shifting capital, attention, and manpower, and many factors are aligning that mark crypto as the center of the bullseye.

Let’s examine these fast-approaching events and understand how they are indicating now is the time to prepare for the next virtual asset bull cycle.

Bitcoin halving (April 2024)

You’ve undoubtedly heard of Bitcoin halving and how it reduces the Bitcoin mined from each block by half. This causes miners to receive half of the previous reward, simultaneously reducing the inflow and incentivizing them to HODL until Bitcoin prices increase. This event is programmed to occur every four years until 2140, when the final Bitcoin is mined.

Regardless of what any Ethereum expert or memecoin trader may tell you, the Bitcoin price is the leading indicator of any market shift. If your favorite Telegram group refuses to believe this, take a look at the graphs below tracking crypto’s total market cap and Bitcoin dominance.

Credit: CoinMarketCap

While the crypto market saw an increase of 25% in total market cap, Bitcoin dominance has increased by 5%, meaning Bitcoin has done some extremely heavy lifting. In an altcoin market, this trend would be reversed. Bitcoin trending up is a prerequisite for any bull market to begin, and observing price action as the halving next year gets closer will clue you into what we and the market are in store for.

Keep an eye out on Bitcoin’s price as we approach the next halving on 13 April 2024. 

AI’s role in the next cryptocurrency narratives 

The insane growth and interest in AI took a lot of shine and funding off crypto and poor old Web3. The blockchain industry responded, and has begun integrating the core features of artificial intelligence to enhance crypto-based platforms. Protocols already in the AI domain such as SingularityNET (AGIX), Render (RNDR) or Fetch AI (FET) are booming, with the correct assumption that crypto and AI are extremely complementary. 

The metaverse narrative in particular stands to greatly benefit from features such as generative AI, cloud AI solutions, and other tailor-made to take advantage of the blockchain industry. 

BlackRock Bitcoin Spot ETF

It’s easy to forget that just a few years ago, when everyone was in profit, mainstream adoption was considered inevitable. For this though, normies like grandma and grandpa would have to be able to own Bitcoin and crypto like a commodity stock without having to remember and safekeep their silly private key or recovery seed. This was thwarted by a variety of bad headlines coming from the crypto space, including the collapse of FTX, rampant scams, and yes, NFT ‘investing’.

BlackRock, one of the world’s largest asset managers with custody of over $9 trillion in assets, has been actively working to create a Bitcoin Spot ETF. Unlike many synthetic assets that simply mirror the price of Bitcoin, the BlackRock ETF would purchase and actively hold Bitcoin. This would offer direct exposure to BlackRock’s customers and likely mean millions of new digital asset investors.

The ETF, unfortunately, relies on approval from the Securities and Exchange Commission (SEC), which has an extensive record of being anti-crypto, but the BlackRock iShares Bitcoin Spot ETF’s chances of approval appears to be a shoo-in, according to most analysts, as are other ETFS from Fidelity, Ark and Grayscale. Its creation would act as a stamp of approval by the US government, and bring TradFi adoption to Bitcoin. 

Ethereum rolls out ProtoDanksharding with EIP-4844

Ethereum has been the clear winner for decentralized platforms to conduct fast and secure data transactions. Its massive user base and influence make it the platform for Web3 and decentralized transactions, but there’s still one issue: it’s expensive. 

Ethereum has been aware of this issue. In ProtoDanksharding (EIP-4844), on-chain data will be temporarily saved in so-called ‘data blobs’. 

Since these data blobs expire in 1-3 months, rather than remaining permanently saved on Ethereum, they cost a fraction as much. Instead of the user paying to maintain the cost of storing this data, that responsibility falls on those using it, such as protocols, exchanges, or indexing services. 

These data blobs are expected to be implemented in Q4 2023, followed by Danksharding to dramatically increase the transactions per second (TPS) of the network. 

Increased TPS and layer-2 throughput would cement Ethereum as the ideal platform to conduct DeFi transactions, host dApps, and trade ERC-20 tokens without taking out a second mortgage on the family farm. 

Improved macro conditions

Central bank interest rates have been steadily increasing since the end of the pandemic, causing investors rush to pile into safer investments, such as US Treasury Bonds, and driving down the value of risk-on assets, including cryptocurrencies. 

The poor macro-economic environment is a global consequence of the quantitative easing, or stimulus spending, that occurred during the pandemic, and was quickly followed by inflation. The reverse of easing, quantitative tightening, is currently being wielded to increase interest rates and ring out the excess capital still in the economy to bring inflation back down.

However, governments will eventually have to decide when enough anti-inflation measures have been deployed, or else a recession will begin and further damage the economy. Preston Caldwell, senior economist of the MorningStar Research Services LLC, estimates that rates will begin to be cut in early 2024, claiming that this will be when inflation appears to be returning to the target of 2%.

Honorable Mention: U.S. Elections

There’s been some speculation that Satoshi Nakamoto timed his Halving cycle to coincide with the U.S. election cycle. Politicians are notoriously apprehensive to try anything economically risky that might hurt their voters’ pockets during an election year. With a growing percentage of the population now owning crypto, especially the younger demographic, cryptocurrency regulation will become a very hot issue next year. With candidates such as Robert F. Kennedy, Tulsi Gabbard and Vivek Rawasamy all throwing their weight behind Bitcoin at May’s flagship Bitcoin 2023 Miami conference, expect a muted response from regulators in 2024. 

Conclusion

The previous cycle’s objectives were laser-focused on attaining mainstream adoption, onboarding newcomers to crypto and Web3, and demonstrating that digital assets offer substantial advantages to the global economy and traditional banking system. 

This time round, a more sophisticated crypto sector, buoyed by the growth of Web3, will show that it’s expanding its reach to TradFi, as well as integrating new technology like AI to offer users leveled-up DeFi and NFT applications for use across the growing digital economy. 

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

What is the price of human creativity?

Posted on by Zoran Spirkovski

In a world where LLMs are able to generate ideas for dime a dozen, can humans expect to retain their role in society?

Credit: Zoran Spirkovski

In an era of rapid technological advances, Large Language Models (LLMs), are seen as a frontier pushing the boundaries, especially in the realm of human creativity. LLMs like GPT-4, can generate text that is not only coherent but also creative. This has led some to speculate that such models could soon surpass human ingenuity in generating groundbreaking ideas. Research has found that the average person generates less creative ideas than LLMs, but the best ideas always come from the rare creative humans.

This leads us to one crucial question: “Can AI agents discern what makes an idea good?” Even though they are capable of generating ideas, they cannot (at this time) properly understand the quality of their ideas.

Before we get ahead of ourselves, let’s have a short dive into how AI agents work.

The Mechanics of AI and Language Models

Credit: Zoran Spirkovski

Nobody doubts that artificial intelligence is a game-changer. If you are reading this article, you are on the forefront of the explorers of the effects of this technology, and have probably played with it first-hand. 

AI has revolutionized many different industries since the 1950s, when machine learning was first conceptualized. But let’s narrow our focus a bit on the superstars of today, Large Language Models (LLMs) like GPT-4 and LLaMA. What is it about them that sets them apart?

Most people don’t have the time to learn how to properly work and prompt LLMs. ChatGPT, in particular, opened the floodgates by providing a pre-prompted model that is highly effective at understanding the context of requests and giving its best shot at producing the desired output. GPT was available before, through the OpenAI dashboard and API, but ChatGPT is what made it accessible and thus popular.

Certainly, it has its own issues and quirks, but fundamentally it does a good enough job that it can actually save you time in your work. Up to you if you consider it ethical or not.

So, how do they actually work?

Credit: Zoran Spirkovski (Enhanced by Tesfu Assefa)

Well, if you’ve been living under a rock, give it a spin at https://chat.openai.com. The free GPT 3.5 version is good enough to give you a demonstration of its capabilities. 

These models have been trained on vast sets of text data and they are able to combine, regurgitate, and generate outputs in response to instructions (prompts), sometimes in completely unique ways.

So they can churn out content that appears original, but the kicker is that they don’t understand the value or meaning of the longer forms they themselves generate. You need a human for that. They produce highly legible and contextual outputs, relying on their training analyzing large sets of text and identifying patterns among words. They then use this information to predict what comes next. Models use so-called ‘seeds’: random numbers that make each response unique and varied. This is why it sometimes feels like a hit or miss with prompts that worked one day, but not the next. 

The Bottom Line:

Are LLMs a valuable tool for the modern creative worker? 

Absolutely.

Are they a replacement for human creativity? 

Not by a long shot.

What Makes an Idea Good?

Credit: Zoran Spirkovski

AI models share some similarities with human brains. They both rely on prediction mechanisms to generate outputs. The difference is models predict the next word in a sentence, while humans are trying to predict future outcomes based on the entire flow of an idea. We don’t just blindly generate ideas for the sake of it, although that too happens when we are bored.

Most often, we already have some goal behind our ideas. Whether this is to make money, deal with a specific problem or situation, or decide what kind of outfit and perfume will present us in the best light. These are all goal-oriented endeavors.

Models, on the other hand, are prompt driven – prediction is their only goal. So they do their best to fulfill the criteria of the prompt as they understand it, and predict which words are most likely to be the correct answer. 

Fundamentally, defining what is a ‘good idea’ is incredibly difficult. At the moment, only humans decide on which ideas are good for which situation – and we’re not really great at doing that. We’ve all embraced an idea only to generate a terrible result, and vice versa, misjudged ideas that ended up having great outcomes. 

So it cannot be the outcome alone that decides the goodness of the idea. Other factors play a role, and are all context-dependent. If you are an artist, originality will dictate what is a good idea. If you are a mother, the safety and wellbeing of your children will play a major role.

Some good ideas are established. They have a brand reputation. For example these would be:

•  Going to the dentist regularly
•  Not spending all the money you have and investing some of the money you save
•  Have enough food to avoid constant trips to the supermarket (or to survive the winter)
•  Don’t go outside naked

The conclusion I draw here is that ideas are as good as the context in which they were made. Evaluating any one of them requires great understanding and awareness of the physical, emotional, and mental state of the person that made them, as well as their worldview, knowledge, and desires.

In other words, only you (and sometimes your psychiatrist) could know what a good idea is. 

In your experience, what has made an idea good or bad? Is it its impact, its uniqueness, or something else entirely? Share some stories in the comments.

So when we talk about AI generating ideas, it’s not enough to ask if those ideas are new or unique. We must also ask if those ideas are impactful, relevant, and emotionally resonant. Because that’s where AI currently falls short. It simply can’t evaluate these aspects; it just confabulates based on what it’s been trained to do.

AI and Human Creativity: A Symbiotic Relationship

Credit: Zoran Spirkovski

It would be shortsighted to dismiss AI and LLMs as mere tools with zero utility. This is precisely why we don’t see anybody argue that LLMs are useless. In fact, they are great and can do a better job than an average person in some tasks, but they still need at least an average person to be able to do the job. So collaboration is in order.

AI can act as a brainstorming partner, throwing out hundreds of ideas a minute. This ‘idea shotgun’ approach can be invaluable for overcoming creative blocks or for quickly generating multiple solutions to a problem.

Take the instance of the short film Sunspring, written by an AI but directed and performed by humans. The AI provided the raw narrative, but it was the human touch that turned it into something watchable, even if they didn’t edit it at all. This was created seven years ago. The LLMs we have today like ChatGPT would do a much better job. Yet somehow the crew managed to turn it into a compelling story.

Consider musicians who use AI to explore new scales, filmmakers who use it for script suggestions, or designers who employ AI to create myriad design prototypes. They’re not using AI to replace their own creativity, but to augment it.

Here’s the key: the human mind filters these AI-generated ideas, selects the most promising ones, refines them, and brings them to life. In other words, humans provide the ‘why’ and ‘how’ that AI currently lacks. Fundamentally, human creativity is simply priceless.

Why use AI in your creative work?

•  Speed: AI can rapidly generate ideas
•  Diversity: It can cover a broad spectrum of topics
•  Insight: But it lacks the depth of human intuition
•  Skill Enhancement: Write better or create unique art (even if you are not an ‘artist’)

Personally, I’m not worried. I see AI as an extension of my creativity. AI can be a powerful ally in our creative endeavors, serving not as a replacement but as an enhancement to human creativity.

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Bitcoin Whitepaper: Satoshi’s Halloween Monster Turns 15

Posted on by Werner

Introduction

A not-so-long time ago, a scary monster was delivered into the world on Halloween by a mysterious inventor, then quickly cast out and pursued by a pitchfork-wielding mob of regular folk that accused it of facilitating the most heinous crimes in a place where regular folk didn’t go: The Dark Web. 

I’m of course talking about Bitcoin, not Frankenstein’s deadhead. In both instances, these creatures have proven to be all but unkillable in the best of Halloween traditions. In Bitcoin’s case, the original cryptocurrency has been giving the traditional finance sector, governments, and regulators the heebie-jeebies ever since. 

Let’s journey back to explore the genius behind it, and the key concepts that have reshaped the world of finance and technology.

What is the Bitcoin Whitepaper?

The Bitcoin Whitepaper is a concise, nine-page masterpiece written by an enigmatic figure known as Satoshi Nakamoto. Its title, “Bitcoin: A Peer-to-Peer Electronic Cash System,” immediately hints at its revolutionary nature. Essentially, it proposes a system for conducting electronic transactions without the need for intermediaries like banks, using a digital currency named Bitcoin (BTC). 

Satoshi Nakamoto distributed the Bitcoin Whitepaper on October 31, 2008, to the metzdowd.com mailing list of pioneering cryptography and digital privacy enthusiasts known as cypherpunks. Remarkably, this was a mere 46 days after the collapse of Lehman Brothers, a major event in the global financial crisis. The timing was impeccable, sparking the beginning of a new financial era. 

Its ideas laid the foundation for cryptocurrency and blockchain technology and were transformed only 2 months later (3 January 2009’s Bitcoin Genesis Block) into arguably the greatest financial technology innovation that the world has seen. It provided its adopters with the ability to create a decentralized network with a digital currency that was open to all and devoid of intermediaries or geographical borders.

The whitepaper emerged during the global financial crisis of 2008, a time when the public’s trust in traditional financial institutions had been severely eroded, and was inspired by the failure of banks to protect normal investors. Nakamoto’s solution was a system that could operate without reliance on such institutions, providing a secure, trustless, and efficient way to exchange value. It contained revolutionary new concepts and solutions to a problem that has plagued humankind for millennia.

And interestingly enough, it almost sunk without a trace, receiving a very lukewarm response that forced Nakamoto to reprint it again on 3 November 2008. This time, their community noticed, and the rest is history. 

When Was the Bitcoin Whitepaper Published?

Who is Satoshi Nakamoto?

The identity of Satoshi Nakamoto remains one of the greatest mysteries in the crypto world. Whether it’s a single individual or a group working under this pseudonym, Nakamoto’s true identity remains unknown. 

Despite various claims and speculations, the creator of Bitcoin has chosen to remain in the shadows or is not alive anymore, allowing the cryptocurrency to thrive without a central figure and become a clear commodity instead of a hated security. 

The leading candidates range from (deceased/cryogenically frozen) engineer Hal Finney to British programmer Adam Back (according to this documentary) to controversial names like “Fake Satoshi” Craig Wright and incarcerated felon Paul LeRoux. And who can forget poor Dorian Nakamoto?

Significantly, Satoshi used the words “we” and “our” way before they became gender-bending personal pronouns, and this indicates that more than one member of the Cypherpunks was involved. In any case, the Bitcoin Whitepaper is built on ideas that were developed over decades. 

Here are a few of the biggest pre-Bitcoin block builders:

•  Adam Back’s Hashcash, developed in 1997, influenced Bitcoin’s proof-of-work system by introducing the idea of using computing power as a security measure.
•  Nick Szabo’s Bit Gold proposal in 1998, although never implemented, shared similarities with Bitcoin, including the use of proof-of-work and decentralized timestamped transactions.
•  Wei Dai’s b-money, also from 1998, contributed ideas like community verification and recording of transactions, a cornerstone of Bitcoin’s decentralized network.
•  Hal Finney’s Reusable Proof of Work (RPOW) in 2004 demonstrated the secure transfer and exchange of digital tokens without a central authority, aligning with Bitcoin’s core principles.

These pioneers contributed a Lego set of ideas and intellectual property that Satoshi deconstructed and remolded to create Bitcoin. Which was a perfect expression of the cypherpunk movement that uses open-source collaboration to continue to shape cryptocurrency innovation today in arenas as diverse as Web3, DeFi, Crypto AI, and Ethereum’s evolution.

Credit: Tesfu Assefa

Bitcoin Whitepaper: Core Concepts To Know

What is the double-spending problem?

At the heart of the Bitcoin Whitepaper lies the “double-spending problem.” This challenge arises in digital currency systems when someone attempts to spend the same digital token more than once. How could participants trust without a central intermediary who’s keeping tabs that counterparties did not act maliciously? We need to know that the previous owners did not sign any earlier transactions.

Nakamoto proposed a brilliantly simple but effective mechanism: the network had to be able to announce all transactions publicly and establish a consensus mechanism among network participants. In simple terms, only the first transaction with a specific digital coin is considered valid. This consensus is achieved by publicly broadcasting all transactions on the Bitcoin network, preventing double-spending. 

Satoshi’s P2P system for electronic payments requires a distributed network of honest nodes. As long as the honest nodes have more CPU power than bad actors, the system will stay secure and be able to reject fraud. The nodes “vote” with their computer power. A voting system can also be used to govern changes, rule changes and incentives. 

Solving the Byzantine Generals’ Dilemma

Though not explicitly mentioned in the whitepaper, the concept of the Byzantine Generals’ Dilemma is crucial to understanding Nakamoto’s blockchain design. It addresses the challenge of achieving consensus among distributed nodes that may be untrustworthy or malicious. Consensus mechanisms like proof-of-work (PoW) are employed to overcome this dilemma.

The Timestamp Server: Creating an Immutable Transaction History

The timestamp server is pivotal in maintaining the integrity of the Bitcoin network. It orders transactions and prevents double-spending by using cryptographic hashes. The use of SHA-256 hashing ensures security and authenticity.

SHA-256: Secure Hash Algorithm 256-bit

SHA-256 is a widely used hashing algorithm in Bitcoin. It transforms transaction data into a unique, fixed-length string of 256 bits, providing a digital fingerprint for verification and security.

How do miners timestamp transactions?

Miners play a vital role in the Bitcoin network by competing to solve cryptographic puzzles that are adjusted by an algorithm to become more difficult or easier every 2,016 blocks (about 2 weeks), depending on the number of mining participants. They timestamp blocks and strengthen the validity of previous timestamps, creating a blockchain of transaction data that can be viewed on a public ledger online. This ensures trust and agreement across the network.

Reclaiming Disk Space with Merkle Trees

As a blockchain grows, storage eventually becomes a concern. Nakamoto’s solution involves using Merkle trees to optimize data storage. These trees reduce the space required for historical transactions while maintaining security.

Single Payment Verification (SPV) Wallets

Nakamoto envisioned a decentralized payment network where everyone could store and transfer digital assets securely. Single Payment Verification (SPV) wallets offer a lightweight and efficient way to verify transactions without downloading the entire blockchain. They prioritize convenience and mobility while maintaining trustworthiness.

Conclusion

Whether you consider the crypto sector to be a Ponzi trick or a lucrative treat that will one day pay for your retirement if you can HODL onto it long enough, there’s no denying after reading Satoshi Nakamoto’s whitepaper that it is a work of genius that has irrevocably changed the world of finance and technology through the power of decentralization.

Bitcoin has provided the world population with the ability to create money for the people, by the people, that is immune to centralized intermediary ills like inflation and corruption. What we do with this gift, and who we choose to trust as leaders, is of course up to us. If you look at the plundering and damage done by the likes of North Korea’s Lazarus Group and false prophets like Sam Bankman-Fried and Do Kwon in recent years, there’s still a long way to go. 

The beauty of Bitcoin is that it doesn’t require you to trust people, only its code. In just nine pages, it offers elegant solutions to age-old monetary challenges, providing a decentralized, trustless, and secure system for exchanging value. 

With Bitcoin, the power shifts from centralized institutions to the people, marking a significant step toward a more equitable financial future. 

With 2024 ushering in another Bitcoin Halving and in all likelihood a Bitcoin Spot ETF, the holy grail of crypto milestones,Satoshi’s benevolent monster is only getting started. 

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Stablecoins Deliver Us From Fiat and CBDCs

Posted on by Werner

Introduction

Stablecoins are a core but often misunderstood component of the Web3 sector. They provide price stability and easy on-ramps and off-ramps for users who want to protect themselves against market price fluctuations. At the time of writing, the total stablecoin market cap sits at $125 billion. Tether USD (USDT) has ⅔ of this market, with $85 billion, and USDC contributes ⅕ at just over $25 billion. 

When the first generation of stablecoins came to market in 2014, they revolutionized the crypto industry, offering a stable value asset to help hedge market volatility. In the decade since, stablecoins like Tether (USDT), Circle USD (USDC), and Binance USD (BUSD) have forged ahead despite regulatory scrutiny and the occasional depegging, while early experiments like BitUSD and Nubits have failed and disappeared into obscurity. 

A new generation of stable cryptocurrencies is coming to market, such as Cardano’s Djed. With artificial intelligence the flavor of the year, SingularityNET’s Cogito Protocol and its AI-powered synthetic assets GCoin and XCoin are also drawing widespread interest. We’ll cover them briefly in this article and more in-depth in a follow-up piece.

Last year’s cataclysmic collapse of UST, the Terra Luna algorithmic stablecoin, saw confidence in crypto completely evaporate in days along with billions of dollars of retail investor funds. Regulators paid attention and sharpened their pitchforks for the crypto space – they basically want stablecoins to comply or die, and we really only have ourselves (and Do Kwon) to blame for it. 

There has since been a shift in public sentiment, with regulators beginning to understand that stablecoins don’t aim to replace fiat currency, but rather complement it with their unique advantages, which we’ll be discussing in this article. 

In the last couple of months, major positive developments have helped to further adoption on blockchains such as Ethereum, despite resistance from lawmakers and the rise of central bank digital currencies (CBDCs).

These include the US Fed clarifying rules for how banks should deal with stablecoins, PayPal’s launch of its own PYUSD stablecoin, and Circle’s partnership with Grab, making USDC available as a Web3 payment tool to the Southeast Asian super-app’s nearly 200 million users. 

So what makes stablecoins so much better than fiat currencies and those scary CBDCs? 

Credit: Tesfu Assefa

Fiat Currency vs Stablecoins

Fiat currency is a legal tender whose value is backed by the government that issued it. It’s not backed by a physical asset like gold or silver, but rather leverages society’s belief and trust in its government. The word ‘fiat’ is Latin and translates as ‘let it be done’. Basically, fiat currency is a binding IOU from your central bank that you can use to acquire and transfer value. 

Stablecoins are a type of digital asset inspired by fiat currency, but they aim to remove fiat currency’s cost, centralized control, and distribution. They are pegged in value to a real-world asset such as the US Dollar or Euro or even a commodity like gold. 

The stablecoin issuer usually has to maintain a reserve of collateralized assets which must be audited in order to comply with financial legislation. Failure to do so can result in huge fines, and for good reason, as we saw in the past. 

Here’s a table of comparison:

DifferenceStablecoinsFiat CurrencyAdvantage/Disadvantage
NetworkOperate on decentralized blockchain networks.Centralized, issued, and regulated by governments.Stablecoins cannot be controlled or manipulated by one entity.
BackingValue is pegged to a reference asset like fiat currency or commodities.Value is derived from public trust and the stability of the issuing country.Stablecoins are usually fully collateralized by real assets. 
Intrinsic ValueDerive value from the assets they are pegged to.Lack of intrinsic value as they are not backed by tangible assets.Stablecoins are usually fully collateralized by real assets.
VolatilityDesigned to be less volatile by being pegged to stable assets.Generally less volatile due to the stability of the issuing government.Stablecoins can de-peg when they’re targeted by regulators or rumors of mismanagement circulate. 
Digital NaturePurely digital and programmable, capable of interacting with smart contracts.Exist in both physical and digital forms.Stablecoins can be used by DeFi applications to borrow, lend, stake and transfer assets seamlessly.
RegulationSubject to some regulations but not directly controlled by central banks.Regulated by central banks and governments.The lack of global regulations undermines institutional trust in stablecoins and can lead to exploitation, as we saw with Luna Terra.
CostTransactions are faster, cheaper, and more transparent.Transactions can be slower and more expensive, especially for cross-border transfers.Stablecoins are simply superior in terms of effective transacting. 

The New Breed of Stablecoins

Despite the well-documented failure of Terra Luna and its UST stablecoin, new algorithmic coins like Djed and Cogito are continuing to innovate in their efforts to establish a truly decentralized stablecoin that’s impervious to regulatory intervention and uses the best of new technology such as AI cryptocurrency technology in its quest. 

Cardano’s Djed

Launched in January 2023 on the Cardano blockchain, Djed is an algorithmic stablecoin and joint venture between Input Output Global (IOG) and COTI. The project maintains its peg by over-collateralization, filling its reserves with a big chunk of ADA cryptocurrency, between 400-800% of Djed’s value. 

They also use a second token called SHEN. This helps keep the system stable and easy to trade. Djed has had some ups and downs in value, mainly because there hasn’t been enough trading activity or demand. Djed represents an ambitious attempt at a transparent, decentralized stablecoin after previous failures like UST, but still needs to prove it can reliably maintain its peg over the long term.

AI ‘tracer coins’: Cogito’s XCoin and GCoin

Cogito Protocol, part of the SingularityNET ecosystem, is creating a new type of digital money called ‘tracercoins’. Unlike regular stablecoins, which are tied to real-world currencies like the dollar, tracercoins ‘trace’ non-financial indices like sustainability and technological progress and use AI and algorithms to create stable pricing. Cogito is still in beta and plans to launch two types of coins: GCoin, which will track progress towards climate sustainability goals. and the even more experimental XCoin. These coins will be available for anyone to buy and sell on decentralized finance (DeFi) platforms, starting with networks like SingularityNET and Cardano.

Conclusion

Fiat currency issued by governments remains the dominant form of money today, but stablecoins offer a compelling alternative, thanks to their advantages of decentralization, transparency, speed, low cost, and global reach.

Despite regulatory headwinds, algorithmic stablecoin innovation isn’t stopping. The dream is still alive: create a stable dollar-pegged digital asset that cannot be shut down by governments or tanked through fraud or manipulation. 

While CBDCs will challenge their global growth, stablecoins like USDC, USDT, and BUSD and a new generation of algo-backed stablecoins like Cardano’s Djed will continue providing benefits that CBDCs simply cannot replicate, thanks to their decentralization and 24/7 availability that can be tapped into by anyone anywhere in the world. 

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