A Brief Explain: Why Blockchains Need Tokens (How it Works)
Hi, I'm Manabu.
Today's topic is as follows:
- 1. The Basics of Blockchain
- 2. Why Do We Need Tokens
- 3. The Trends will not Stop
You can learn the essential value of BTC and ETH by reading this blog post. I explain it without technical terms and math. Please Enjoy it.
1. The Basics of Blockchain
The core innovation of Blockchain is as follows:
Blockchain enables to transfer of value on the internet without a centralized entity by Token.
The most famous Token is Bitcoin. You can imagine Bitcoin as cash in real life.
Bitcoin = Cash in Real Life
For example, let's say you go to Tokyo🇯🇵 to buy clothes. So what do you think if you have to do the following every time you buy clothes:
- ✍️ You must Register a Membership
- 🏦 You must be Authenticated by Banks
I think it is extremely annoying, right?
Actually, it is the same as online shopping today.
As a result, you end up will use a few E-commerce websites because membership registration is time-consuming and annoying.
The result is that most people use Amazon, eBay, or something like that, meaning that companies with personal data will win the game, as you can see in today's internet market.
What's more, the Big Tech companies can lower their fees to almost the limit, which makes them stronger. I think no one can beat Amazon today. However, Blockchain is likely to be the game changer.
Blockchain = Trustless World
The meaning of Trustless is as follows:
- You don't need to trust anyone.
No one can alter/manipulate the Blockchain. The central administrator becomes less important. Currently, Amazon.com is run by Amazon, Inc, but there will be no need for an administrator in the future. It means we can lower the fees more than before💰
Most small shops have no choice but to obey the Big Tech companies such as Amazon to get a new customers.
However, if the fees are reduced to zero, then Amazon's role will become unnecessary. The stores can be reinvested in the business or passed back to consumers.
That being said, I guess most small shops will depend on the big website because they don't know digital marketing📈, so they need someone who supports them.
But lower fees will improve options and profit ratio. Furthermore, you will be able to purchase items that you were previously unable to purchase due to the profit ratio problem.
*Electronics, for example, typically have profit margins of less than 5%. So they can not sell them online right now, but that will change soon.
Very Basics: Why is Blockchain Immutable
If you want to learn more technical details about Blockchain, please Google it instead of reading my article. I focus on clarity.
Ex: Here is the Blockchain
Blockchains are connected by keys called "Hash." Creating this "Hash" requires an enormous amount of computation, which requires a High-Performance Computer💻 and Electricity Costs⚡️ to execute.
There are multiple Blockchains
The blockchain's data is copied and managed by multiple computers. The computers that store the blockchain information are called Nodes.
In the image, three chains have the same information, but there are more than 10,000 nodes around the world.
What if I alter the Second Block
You can see the red flag⛔️, right? If you want to alter the block, all the rest blocks need to be changed.
Theoretically, manipulating Blockchain is impossible. That requires massive computing power, but it does not pay off in the end. You will only end up losing money.
Objection: You can Alter the New Block
Someone might think that we can alter the first block.
Yes, it is possible.
But, who will do that? I think there is no one to do that.
Because, as I said earlier, you need massive computing power💻 to connect the blocks (so-called mining).
The miners maintain the Blockchain for the sake of profit💰. They mine the blocks and earn the Bitcoin, known as Proof of Work.
Crypto Economic Incentive
So what if the miner changes the first block and commits fraud? It will definitely spoil the value of Bitcoin, meaning the miner will lose their profit📉
Bitcoin Network (=Blockchain) has been running non-stop for 13 years with no financial loss, making it the most reliable and secure financial network in the world.
That's the source of the value of Bitcoin. If the miners are smart enough, they won't do that. Listed companies are mining these days, so I think they are wise enough not to do that.
Okay. That's the explanation of Blockchain.
Let's move on to the Token, which is the fun part.
2. Why Do We Need Tokens
In short, Tokens are the salary for the administrators.
To be precise, the people who verify transactions in the blockchain are called minors⛏. We do not call them administrators.
By the way, do you work with zero salaries? I think you are not. If so, it's not sustainable, right?
That's why Tokens are important.
Let me tell you a story about something related to this.
CouchSurfing is the Ancestors of Airbnb
When Airbnb came out, there was a criticism that it was impossible to stay at someone else's house. But now, it's common.
That being said, there was CouchSurfing, a web service that travelers could request homestay for free before Airbnb came out.
However, low revenues made it difficult for them to operate. And then, the presence has almost disappeared.
We can learn that it's important to integrate economics into the service. Tokens will make this possible💵
Decentralization will Cause a New Innovation
Tokens are decentralized, meaning that there is no centralized entity🏢 to manage them. The internet of today is an oligopolistic market controlled by big centralized companies.
For example, if you build an app to extend Twitter's function now, you will not be able to win. Because big tech will block the API, which means you have no choice but to halt your business.
Do you create your own business in Disneyland?
I think you won't, right? Creating new businesses on Twitter or Facebook is like creating new businesses in Disney Land. They are in control of you.
The word "American Dream" made America Stronger
Another example. What if the United States🇺🇸 passes a law that only benefits Americans? It will reduce the innovation there, right?
The word "American Dream" attracts many people globally, and the Immigrants achieve their own dreams while at the same time contributing to the development of the United States.
Freedom contributes to the development of the countries.
How to Create a Token? (Ethereum is a Rental Server)
If you want to mint your Tokens, you can basically do that on the famous chain. For example, Ethereum.
Of course, you can create your own blockchain by yourself. However, maintaining security and building trust is difficult. That is why the majority of people use Ethereum.
Ethereum is just like a Rental Server
You can imagine that Ethereum is just like a global company🏢 that lends its computing services to its users.
If you want to use the computing resources of Ethereum, then you have to pay for that by ETH, not USD. While you use Ethereum, such as issuing your token, you have to pay fees by ETH, which will reduce your ETH.
What if Ethereum is trully a Global Company?
If it's true, you must pay your USD to the Ethereum company before borrowing computing resources from them.
It is the same with AWS (Amazon Web Services). In this case, if the government censors it, it's over.
Perhaps some might say, what is the problem with government censorship? Here is an example to answer the question; People in Turkey🇹🇷 were unable to access Wikipedia:
From 29 April 2017 to 15 January 2020, the online encyclopedia Wikipedia was blocked in Turkey. On 29 April 2017, Turkish authorities blocked online access to all its language editions throughout the country.
The restrictions were imposed by Turkish Law No. 5651, due to the English version's article on state-sponsored terrorism, where Turkey was described as a sponsor country for Islamic State and Al-Qaeda.
What do you think about that?
What's more, you know that the people in China🇨🇳 can't use Google, Facebook, and Twitter. I guess there are many people who want to learn from global opinion. However, they can not.
Someone might say that you can use VPN to avoid censorship. That is correct. However, the Chinese government frequently closes the VPN connection, requiring you to pay another dollar each time you need a new VPN hole. It's possible, but most people don't do that.
Ethereum is World Computer
Ethereum is managed by computers around the world, which means no one can not stop it. Only the blackout⚡️ that happens simultaneously globally will be able to stop it. Ethereum is what brings freedom to the online world.
Token = NFT = Private Key
NFT is trending these days, but it's the same with a Token.
- BTC = Token = 21 Million
- NFT = Token = Only 1
- ETH = Token = Increasing
BTC is just like a Gold. NFT is just like a collector's item. Ethereum is just like a legal tender (you know USD is also increasing, right?).
People are Buying Private Key
Buying the tokens means authenticating the Private Keys. You can see your Private Keys from your MetaMask wallet.
Private keys are analogous to API keys🔑. For example, it will be issued when you rent the server from AWS. You can access AWS computing power by authenticating yourself with your own API key.
But if your API key has been stolen, someone can use it instead of you. It's the same with Token, but you can also sell it when it comes to Token. On the other hand, you can't sell your API key.
3. The Trends will not Stop
Though I'm mainly buying BTC, I don't necessarily believe that the price of BTC and ETH will go up.
I think the essential part is the major trend underlying this.
✍️ Note of Blockchain— Manabu (@manabubannai) May 8, 2022
Internet democratized the flow of Information.
Blockchain will democratize the flow of Money.
Blockchain will democratize the flow of money. Stablecoin is growing to enable this innovation.
USD will become Stronger in this Age
For example, let's say you owned a beauty salon in Thailand🇹🇭. I guess many people would use USD Stablecoin if they could receive USD without fees.
Most people agree that the USD is better than THB (Thailand Barts), right? Even though the U.S. government monitors the USD Stablecoin, most people will use it because they are good people.
#Bitcoin Payment is Awesome🤯— Manabu (@manabubannai) April 17, 2022
This is Lightning Network⚡️, a payment tool built on top of the bitcoin blockchain.
You can send money all over the world🌎 in less than a second. Much better experience than the bank🏦 pic.twitter.com/5NqF7joe7p
And there is no incentive for the U.S. government🇺🇸 to stop people from using USD Stablecoin because they are happy to see an increase in dollar circulation.
However, many countries prepare their CBDC (Central Bank Digital Currency). So we don't know the future either the government-controlled CBDC or the crypto network stablecoin will grow.
Will BTC and ETH die?
I think I don't think so because of the following reasons:
- Reason1: Crypto Market Cap is too big to Die
- Reason2: Big Techs are adapting Crypto Today
- Reason3: Countries will accept Crypto soon
Reason1: Crypto Market Cap is too big to Die
For example, Bored Ape Raises $320M By Selling Virtual Land In Its Metaverse.
I'm also one of the BAYC holders, and the sense of the value of the community is freedom. The money flowing into Bored Ape will probably create an economic bloc in the Crypto World.
Reason2: Big Techs are adapting Crypto Today
Instagram released the NFT function the other day. Twitter as well. This means that they are bridging Web2 and Web3.
🔴 @Instagram starts to support NFT‘s for US users first ⚡️— NFT DROP NEWS (@NFT_DROPNEWS) May 9, 2022
First captures bellow ⬇️ pic.twitter.com/7lqMYaAo27
As you know, Web2 companies such as Facebook, Twitter, Google, and Amazon are the Largest Companies by Market Cap.
Also, Crypto is a great option for influencers because it lowers the take rate, which means the profit ratio of influencers will go up. There is no drought that many influencers will support Crypto.
Reason3: Countries will accept Crypto soon
Finally, countries will accept Crypto payments for their profit because they know Crypto People are rich.
For example, Thailand🇹🇭 will most likely adopt it soon:
The Tourism Authority of Thailand (TAT) is working with regulators and a local cryptocurrency exchange to make it easier for crypto holders to spend their digital assets in the country. Next year(2022), the authority will set up a new unit to issue its own cryptocurrency, develop a wallet, and build a new tourism ecosystem.
"If Thailand is looking to recover about 80% of its pre-pandemic tourism revenue in 2023 but with half the number of foreign tourist arrivals we saw in 2019, we can achieve that by getting someone like Russell Crowe or a crypto holder like Tim Cook to travel here," he argued.
If the Thai government issues the Thai-Coin pegged by the value of Thai Barts, the Thai-Coin would connect to the Ethereum blockchain for sure.
Because they need the money from foreigners, there is no choice but to connect Ethereum or Bitcoin network to archive their goal. In this scenario, it will increase the trust of BTC and ETH.
Okay. That's it for my blog.
Anyways, it's not investment advice. I see the industry on a 10-year basis. So I will continue to buy BTC and ETH From now on. If I lose my funds, then I can learn from that. Money is just a tool. Experiences and Skills are the essential part.
I'm learning crypto seriously by "staking" my money in it.
*This article is part of the Roadmap to Learn Crypto. If you want to learn the basics of Crypto and grab the next opportunities using the Knowledge, please visit here.
My Goal: This website is my life log. I take action in my life and learn from my experiences. By sharing them, I can deepen my learning. I write articles that will maximize the reader's satisfaction.