There’s a common yet problematic misconception about the mechanisms of different blockchains. It is made worse when crypto/blockchain publications put out information without having done the proper research, or for the sole purpose of misleading readers. In a space like ours, due to the complexities of this technology, people often find it difficult to comprehend how it all works, and reading different sites with conflicting information has the consequence of causing more confusion. When the aim should be to make things easier to understand for new users because that’s how blockchain technology will quickly reach mass adoption. Ideally, blockchain technology will reach a maturity level where users no longer have to know how it works in order to use it. That’s much more realistic than waiting on the average crypto investor to mature.
Just the other day, world-renowned author, J.K. Rowling, took to Twitter to ask about what Bitcoin was and how it worked. A great opportunity for blockchain enthusiasts to convince her and her 14.5 million followers! Instead, the conversation quickly became about Bitcoin’s limitations, and people competing to promote the blockchains their invested in. More on this brutal competition later on. Anyway, that whole fiasco highlighted just how easy it is for valuable information to get drowned out by irrelevant noise on social platforms like Twitter, which is another great point for the Voice social platform.
Fake news is a huge problem that’s baffling even the big corporations, governments, and mainstream media, and in the blockchain world, it is a tool used mostly to promote FUD (fear, uncertainty, and doubt). Stakeholders in the real world and those in the blockchain world have a lot of similarities, but perhaps the biggest of those is their vested interest in the ecosystems in which they operate. In the real world, fiat currency is the order of the day. In the blockchain world, although we like to pretend it isn’t, cryptocurrency is the main focus for most people, with the technology being a secondary concern.
Traditional versus Blockchain systems
In traditional and blockchain systems, both fiat currency and cryptocurrency are representative of money and wealth for its holders. In both worlds, they afford its holders access to resources and services. Billions of people around the world wake up and go to work every day in hopes of acquiring these resources and afford the services. Like with any other service that’s in demand, it creates competition within the environment, and consequently, it creates more demand for the resource with which the in-demand services can be obtained. This competition is even more brutal on the blockchain because of the early stage the technology is in and because of how its ecosystems operate.
The business, or rather, the economic environment of the real world operates as a hierarchy system, where one entity controls the flow of money into the economy. This fiat system is controlled and maintained by governments and they get to decide how much money enters or exits the system. There’s virtually no limit to how much money governments can print into the real world economy and that has inevitably led to many currency devaluations around the world throughout fiat’s history. The system is far from perfect and it is highly corrupted by the top 1% who have controlling positions.
Blockchain on the other hand is unique in that all its stakeholders share control over its systems and are compensated for keeping them operational and secure. Blockchains such as Bitcoin or Ethereum employ a consensus mechanism called Proof of Work (POW), where individuals mine (work) to earn cryptocurrency. By doing so, they verify all transactions on the blockchain to ensure the security and operation of its system. Other blockchains such as EOS or Lisk employ a consensus mechanism called Delegated Proof of Stake (DPoS), where a select group of people are democratically elected by all stakeholders to secure and maintain the system, and in turn, get rewarded in cryptocurrency for their work.
There are other different types of systems employed by different blockchains, but the fact remains that each one of them is dependent on the work done by its stakeholders in order to remain viable for operation. It is likely that in the future both fiat and blockchain systems will be automated through AI with very minimal assistance from people.
Control and ownership over blockchains
Control is a word that’s often shunned upon in the blockchain world, and for good reasons. One of the bigger reasons why blockchain was created was to level the playing field among all its stakeholders; thus, breaking away from the conventional model of governments. Control over a blockchain by a single entity is pointless because as soon as people realize that the blockchain is being controlled, they create their own identical chain in what is known as a hard fork. Something people can’t do in the real world.
Another important attribute few people have in the real world is ownership and proof of ownership. On the blockchain, everything from your transactions and payments, to your ownership of an asset, is verifiable. No one owns a decentralized blockchain but at the same time, we all own it. Confusing? Well, it’s just like how no one owns the planet we’re on yet it could still be said that the planet is owned by all of us. That statement is more true with blockchains than it is with the real world, again, because of the corrupt system that governs the real world.
Control of a blockchain is when you have direct influence over its operations and as I’ve stated earlier, this is nearly impossible for any one person or entity to do in a globally decentralized blockchain. On centralized blockchains, single entities can have all the control they want because that’s precisely how they were designed to operate. Decentralized blockchains, however, have stakeholders who are spread all over the world and with no knowledge of each other’s identities nor locations. Thus, the more evenly distributed the nodes and tokens of a blockchain are, the more decentralized it is.
Control and Ownership of tokens
Now, since people can’t control the operation of decentralized blockchains, the corrupt among us seek that control elsewhere. The moment one buys a cryptocurrency they gain piece ownership over its blockchain network. How big a piece they own is dependent on the number of native tokens they have for that particular blockchain. This is where the confusion between controlling and owning starts to arise.
Each one of us should have control over our tokens, if they’re in an exchange, then the exchange has control over your tokens. Having a large number of total tokens in circulation doesn’t necessarily mean you have a large “controlling” stake in the blockchain, but it does mean you have significant ownership over its network. Let me explain; the more tokens you have on a blockchain, the more you can interact with its network before running out of resource, with resources being fees on POW chains and CPU on EOS.
Since you have part ownership over a blockchain network, you’re naturally inclined to want to see your tokens rise in value and the next best thing to do is try and influence other people to either; buy more tokens or to not sell their tokens. This is a difficult thing to do in a global and decentralized network, but it doesn’t stop people from trying. This can be done in one of two ways; ethically, or unethically. Ethically, is when people influence others through an honest exchange of information. Unethically, is when people FUD blockchains they consider to be threats to their token holdings. Let’s explorer the latter since it is the detrimental of the two to blockchain’s progress.
Misuse of influence for personal gain
After a while, those with large amounts of tokens on a single blockchain start to become impatient not seeing their tokens rise in value, so they try to protect their investments by swinging their big holdings at other competing blockchains in an attempt to prevent them from gaining market share. Corrupt token holders “protect” their investments in many ways such as using price manipulation techniques through exchanges.
Other ways they “protect” their investments is by buying or paying publishers to spread fake and negative news about their targeted blockchains. They can also buy many tokens of the competing blockchain, usually much cheaper, and hope to create pressure on its price by introducing an increased token supply into the market, more than there is a demand for. This high supply – low demand situation creates a price decline of the token as some people are desperate to sell for cash, so they create ‘sell orders’ at a lower price which then becomes a race to the bottom.
Sometimes such strategies work, but they are never a sustainable strategy and are very financially costly in the long-run, and people would’ve been taking note of such corrupt methods for future reference. In a space that’s extremely sensitive to corruption such as blockchain, those who behave unethically will soon find themselves cast out into the back alleys of blockchain ecosystems. An unfortunate consequence considering the scope blockchain is going to represent in the future.
How a blockchain protects itself from this
The simplest answer is – it doesn’t! A blockchain is still a blockchain whether its token price is $10,000 or $0.01. The best way for a blockchain to protect itself from manipulation is to let the technology speak for itself. Bitcoin is valued at $10k because, for more than ten years, it has proved its features for strong security and as a store of value, which is something of considerable appeal to institutional investors. Bitcoin has been tried and tested, and it’s become highly trusted for its security. That is something that can’t be said about the $0.01 priced token that’s contending with thousands of other tokens claiming to be a better technology. Also, Bitcoin’s first-mover advantage should not be undermined as it played an important role in its strong adoption.
Another caution about newer blockchains is that they aren’t as decentralized as those that have been around for years and that’s because newer blockchains have fewer token holders who own large amounts of the total tokens in circulation. And if the’ve become targets of the big token holders who feel threatened about the existence of other blockchains, then they’ll be dealing with a lot of pump and dump’s designed to dissuade potential investors from buying this “highly unstable” token. It seems unfair for a startup with genuine intentions to be dealing with market manipulation before its project could even take off, but such comes with the competitive world of business.
Again, this is exacerbated by the fact that token holders of competing blockchains are deeply invested in their blockchains, in a way that even the shareholders of a traditional company aren’t. Every token holder of a particular blockchain practically becomes its CEO as ownership of a token innately relates to ownership of its multimillion/billion dollar network, with potential to reach trillions in market cap.
Look forward to a follow up to this article where I’ll be addressing the ways in which the EOS blockchain, and its token, has managed to avoid the pitfalls faced by many of the newer blockchains, yet still manage to stay competitive in the space.
Thank you for reading!
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