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Roadmap to Perfect Cryptocurrency | How to make a Cryptocurrency

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The purpose of crypto currency is to replace The existing financial system. This means replacing the money which Bitcoin is doing and replacing the payment rails which Ethereum and others are doing. However, this also means replacing the currency that's used for day-to-day transactions, and the quest for the crypto that's actually a currency continues with many contenders, including ft stable coins. That's why today I'm going to tell you what characteristics the crypto that is used as a currency should have. So that you'll know what a perfect cryptocurrency looks like when it eventually comes around. I need to give you a disclaimer . I am not a financial advisor , I'm just an educator and this blog post is written with the sole purpose of providing you factual information. Please contact a financial advisor if your portfolio has been killed. If you're new here, you might be feeling a little bit lost right  My name is "MrCrypt "and I am your crypto geek here at the cryptolibrarynow . I pass on the knowledge of cryptocurrencies, exchanges, DeFi, protocols, NFT's and market analysis are just a few of the topics I tackle on the daily basis. Now enough with the intro. Let's get it on , Let's unpack the perfect crypto currency . 

Money Vs Currency ?

I suppose I should start by clarifying what I meant in the introduction. As some of you will know, money and currency are not the same thing. For the sake of simplicity, you can think of money as being something that's held onto as a store of value, whereas a currency is used for standard financial transactions. Once Upon a time, Fiat currencies, which are of course used for everyday transactions, were backed by gold, which is of course not used for day-to-day transactions. Today, Fiat currencies are backed by nothing, and it's part of the reason why there's been so much inflation and part of the reason why crypto was created in the first place. Now, as I mentioned in the introduction, Bitcoins, BTC is slowly but surely taking the role of money, i.e, the store of value in the rapidly expanding crypto economy. Note that this is up for debate as some would argue that BTC can also be used as a currency thanks to the Lightning network more on that later . For the purposes of this blog-post, BTC is assumed to be money and nothing more, meaning that the role of an actual currency has yet to be filled in the crypto industry. As I also mentioned in the introduction, this is a role that stable coins and even payment cryptocurrencies like Litecoins, LTC are trying to fill. The problem with stable coins is that most of them are centralized. This not only goes against the ethos of cryptocurrency, but it leaves such stable coins vulnerable to all sorts of issues, especially since many of them are backed by various forms of government and corporate debt. There are also decentralized, stable coins, but as we've seen, they have all sorts of issues of their own, namely limits on growth due to the volatile collateral that's used to mint them now. Even payment cryptocurrencies like LTC have limitations that prevent them from being adopted as actual payment methods. Namely scalability, i.e, speed. Now, as you'll soon see, there are many cryptocurrencies that have some characteristics of a perfect payments coin or token, and I reckon it's only a matter of time before someone somewhere puts these characteristics together and creates a new crypto project that will be an actual crypto currency. You can consider this blogpost as being my small contribution to this new crypto project, which, to be clear, does not exist. It's an idealistic look at what the perfect cryptocurrency would look like if someone were to develop it.

Initial Distribution -:

So the first characteristic of a perfect cryptocurrency is an equitable initial distribution of the coin or token, and there's really no shortage of routes you could take in this regard. That said, it would be wise to avoid conducting an ICO if possible. This is because crypto projects that have conducted ICO's are at risk of regulatory scrutiny. And the initial distribution of the coin or token will likely be skewed towards early investors and the team, which is neither equitable nor desirable for a crypto that's supposed to be used for payments by everyone. This leaves two other options for an initial token distribution, and that's a fair launch or an Air-Drop. Now, as many of you will know, a fair launch is how Bitcoin, Litecoin, Dogecoin, Monero, and a handful of other cryptocurrencies got off the ground. Basically, someone posted on a forum saying they were going to create this cryptocurrency on this date and time, and invited everyone to come and mine it from zero. Now, fair launch. Cryptos are extremely rare these days, and as far as I can tell, that's simply because they're incredibly difficult to do in this day and age. There are just too many bad actors eager to make a quick buck, and it's hard to bootstrap an ecosystem. With no initial funding or team allocation. One solution to this issue would be to do a variation of what arweave did, which is to take a portion of all block rewards and or transaction fees and have them accumulate in a special wallet which the community can decide how to spend. This ties into crypto governance, Another way to distribute a coin or token in an equitable manner is to conduct an Air-Drop to active wallets on specific blockchains. This is exactly what live peer did with its LPT token, and it's something that's frequently done by crypto projects in the cosmos ecosystem. Ideally, these airdrops would be paired with some sort of decentralized identity mechanism so that a single entity controlling multiple wallets doesn't end up with an abnormally large share of the initial supply, as was the case with Juno. If you're wondering where you can find crypto airdrops, then click on me . Anyways, conducting an Air-Drop is probably the way to go if the cryptocurrency will use proof of stake as its consensus mechanism. And this brings me to the second characteristic of the perfect cryptocurrency.

Consensus Mechanism -:

So the second characteristic of the perfect cryptocurrency is it has a robust consensus mechanism. Now, there's a lot of debate out there as to what is the best consensus mechanism, and they all inevitably have pros and cons, from scaling to security to decentralization. Indeed, My Portfolio has a wide variety of. Alt-coins with varying consensus mechanisms, precisely because no cryptocurrency right now has the perfect consensus mechanism. However, if you were to ask me what mechanism the ideal crypto would have, it would be some form of proof of work. A completely novel version of it. Now this is because a proof of stake system could be easier to corrupt, as all you need is lots of capital to acquire enough stake to change the rules of the game. This is something big investors could do quite easily, and something governments can do with even greater ease since they're the ones with the money printers. However, this doesn't mean that the perfect cryptocurrency. Could use the same proof of work consensus mechanism as Bitcoin or Litecoin, and I would go as far as to say that it shouldn't because it would eventually make mining inaccessible to the average person, as is the case with BTC, LTC and others. One solution could be to use an ASIC resistant proof of work consensus mechanism like Monero. Meaning that you could mine this perfect cryptocurrency using a regular computer. Even then, though, you'd probably need to buy a pretty expensive rig to make mining worth it. And don't get me started on the electricity bills. Trust me, I know. This is why I emphasized the word novel a few moments ago. If you think about it, the whole point of a crypto consensus mechanism is to process crypto transactions accurately, i.e , securely. The reason why proof of work is so secure is ultimately because it's hard for a single entity or group of entities to manipulate crypto transactions, as we've seen with cryptos like Ethereum Classic. However, this can still happen if someone is able to acquire the computer power required to do so as such the ideal proof of work consensus mechanism should involve a type of work that's difficult if not impossible to corrupt with sufficient capital, and a type of work that the average person could easily do with technology that's widely available. Ideally whatever hardware is required to participate in consensus. Would be possible to build from scratch and the instructions would be open source for anyone to see, as is the case with helium's hotspots. Now, this might sound crazy, but it's possible that physical movement could play a role in this proof of work consensus mechanism, especially since smartwatches are commonplace. Microsoft is actually working on a similar kind of proof of work mechanism, albeit for advertising purposes. To read my "DEEP DIVE" on "PROOF OF WORK Vs PROOF OF STAKE"  click on me .

Tokenomics -:

Now, the third characteristic of the perfect cryptocurrency is the tokenomics that are aligned with the coin or tokens role as a payments currency. This is where things get quite complicated, but also very interesting, so listen closely. The reason why many believe that BTC can't play the role of a currency is because of its tokenomics. BTC has a maximum supply of 21 million. This supply increases at a slower and slower pace as per Bitcoin's halving cycles, which is why it might take around another 100 years , to mine the last three million or so BTC, as basic economics dictates, if the demand for an asset stays the same or increases while the new supply of said asset continues to decline, its price will rise. This is essentially the economics of BTC and many other cryptocurrencies, hence why their prices have all exploded over the last decade. There's only one problem though, and that's that this dynamic means the average person will eventually not want to spend their BTC, and some would say this is already the case today. After all, why would you spend something today that's going to be worth more in the future? This unwillingness to spend would eventually lead to what's called a deflationary death spiral where debt becomes more expensive, risk taking stops, and innovation slows to a crawl. Obviously, that's not ideal, and it's a situation that many debt burdened individuals and institutions want to avoid at all costs. To be honest, I'm not entirely convinced that this deflationary death spiral would actually occur, given the vested interests of the entities fighting against it, but the reasoning is admittedly sound, and it consequently could disqualify cryptocurrencies like Bitcoin from ever being actual currencies. So what would the tokenomics of the perfect cryptocurrency look like? Well, we know that a fixed or inelastic supply is no good because it leads to deflation and we also know that an infinite or extremely elastic supply is no good because it leads to inflation. This leaves only one option, and that's tokenomics. Which automatically adjust a coin or token supply based on demand to ensure its price remains relatively stable while simultaneously preserving the purchasing power of all its holders. This is exactly how ampleforth's tokenomics were designed, but the problem there is that ample supply adjustment isn't instant, which leads to lot's of volatility. Ample is also pegged to the US dollar, which is again not ideal even though it's pegged specifically to the 2019 U.S. dollar. Ideally, the perfect cryptocurrency would instantly adjust its supply based on demand and target a peg to a relatively stable asset that everyone recognizes and that's not a Fiat currency. This could be gold, and it could eventually be BTC. Heck, there might even be a way for this perfect cryptocurrency. To be backed by and redeemable for BTC, but this opens a whole can of worms about minting, burning, liquidations, and runs on the bank. I reckon there's a way you could avoid many of these worms by allowing self minting involving locking BTC in a special multisig wallet, but it's safe to say that this kind of crypto architecture is above my pay grade. It's also hard to conceptualize how an elastic currency could be backed by an inelastic money.

Blockchain Trilemma -:

Blockchain Trilemma

The 5th characteristic of the perfect cryptocurrency is the ability to directly or indirectly solve the blockchain trilemma. You'll know that the blockchain trilemma was defined by Ethereum creator Vitalik Buterin, and it states that a cryptocurrency cannot be decentralized, scalable, and secure. It can only do two of these three things effectively. Although there are many cryptocurrencies which have claimed to solve the blockchain trilemma, I have yet to find one that isn't centralized under the bonnet. Not only that, but the faster a cryptocurrency is, the faster its transaction history will grow. This rapid growth in transaction history means a smaller and smaller number of nodes will be able to store the full blockchain history, which will lead to centralization down the line. That said, the rapid growth of transaction history may not be an immediate issue if our hypothetical perfect cryptocurrency only supports simple transactions and has limited smart contract functionality. Even then, though, it's only a matter of time before this does become an issue. Now, given these facts, it's unlikely that any cryptocurrency will be able to directly solve the blockchain trilemma anytime soon, if ever. This means that the only option is to solve the blockchain trilemma indirectly. Ideally, the perfect cryptocurrency would leverage multiple decentralized storage solutions for its long-term blockchain history to ensure that this history can always be retrieved. This could potentially be done in-house by using a portion of block rewards or transaction fees to compensate storage nodes. Now, As for scalability, ideally the perfect cryptocurrency would focus on decentralization and security at the base layer like Bitcoin does, and rely on novel layer two scaling solutions like the Lightning network for speed like Bitcoin also does. According to block streams most recent estimates, the Lightning network can currently process around 40 million transactions per second with the current number of nodes on its network, and this scalability will only increase as the number of nodes increases. The only real issue is that it requires nodes to lock up large amounts of BTC in multisig wallets to ensure they stay honest, and that the absence of sufficient BTC collateral at certain junctions means large transactions don't go through. Moreover, having a handful of lightning network nodes process most transactions is really not all that different from the current financial system and could also create a single point of failure, i.e , result in centralization. This is an issue that the perfect cryptocurrency would ideally solve with some other incentive mechanism like enchain reputation or the ability to use other cryptocurrencies and possibly even real world assets as node collateral on this hypothetically perfect Lightning network .

Interoperabel and Privacy -:

The 6th characteristic of a perfect cryptocurrency is twofold, and that's privacy and interoperability. You might  know that privacy is a prerequisite for financial freedom. This is because if transactions are completely transparent, the people sending and receiving those transactions can still be coerced and punished, even though the transactions these oppressed people are sending are technically unstoppable. This isn't some conspiracy theory either. Blockchain analytics companies like Chainalysis are tracking just about every crypto transaction and they are actively sharing this data with governments around the world. This opens the door to some seriously dystopian stuff if privacy is not somehow preserved. At the same time, there are legitimate concerns that criminals could take advantage of this privacy to engage in an unprecedented amount of illicit activity, which begs the question of where to draw the line on privacy. To my mind, the perfect cryptocurrency would ideally keep all transactions private by default, but provide a tool that allows you to reveal your transaction history to authorities for compliance purposes. Alternatively, it could make it possible to attach a payment ID to transactions like on Haven protocol. In terms of interoperability, the perfect cryptocurrency would need to be seamlessly interoperable with most major cryptocurrencies, and ideally be interoperable with other payment systems as well. Crypto interoperability could be achieved by integrating with the Cosmos IBC, but seamless transactions with the Cosmos IBC are only possible for proof of stake cryptocurrencies. Alternatively, the perfect cryptocurrency could simply integrate with a next generation decentralized exchange like Thor Chain that allows for native coin and token swaps between and within different cryptocurrency blockchains. Now, As for interoperability with other payment systems, I can't say I know of any existing solutions, but the closest would probably be the flexor network with its AMP token. External interoperability would probably be very difficult to achieve in a decentralized way due to regulations and funnily enough, the AMP token is facing regulatory scrutiny from the SEC.

Governance Structure -:

The final characteristic of a perfect cryptocurrency would be either an effective governance structure or the absence of any governance structure. Now I'll explain why the absence of a governance structure is ideal in just a second. First, I need to explain why crypto governance is currently ineffective. For starters, most crypto governance follows  a 1 token equals one vote model, which really isn't all that different from proof of stake. This means that a handful of token holders have the power to pass whatever proposals they want, and this issue was recently confirmed as endemic by Chainalysis. Moreover, most crypto governance structures are Unchained versions of democratic processes, which we know to be inherently centralizing. Look no further than the capital city of your country if you need evidence. All the important decisions are made in Washington DC, in London, in Ottawa, etc. We're starting to see the same sort of centralization emerge in supposedly decentralized autonomous organizations with important decision making powers being delegated to small groups of community, elected representatives or council members, which are again put in place via token vote. Personnel from Crypto VCs are often the ones who occupy these positions of power, and I've seen them argue that this centralization is necessary because in crypto there are many cases where decisions need to be made quickly, say in the case of a hack, which makes sense and I completely agree. This is why the perfect cryptocurrency should ideally have a governance structure that's akin to an on chain monarchy. This is because it's almost exactly how all cryptocurrency consensus mechanisms work today, regardless of whether their proof of work, proof of stake, or something else. By some process, usually pseudorandom, based on stake or hash power, a single node is selected to produce a block and earn a block reward. This node is often referred to as a leader in crypto project documentation, and this leader is typically in power for a single block while it's being produced. So why not modify this mechanism to be suitable for governance? A leader is pseudorandomly or even randomly selected from the community to govern the crypto project for a short period of time, during which they can table proposals for community vote and decide how money is being spent from the Treasury. For extra security, a council consisting of developers and VCs could have the power to veto any malicious proposals coming from the crypto projects interim ruler. It sounds insane on paper, but I really think this could work in practice and the proof is again in the crypto consensus mechanisms themselves. The best part is that it would create a massive incentive for the users of this perfect cryptocurrency to participate in governance, because doing so would give them a chance of becoming the king or queen of a global payment system for a short period of time. And heck, maybe they could even be compensated. Now, as amazing as this may sound, the sad reality is we're a long way away from these kinds of novel governance structures and This is why the ideal governance structure for the perfect cryptocurrency might have to be no governance structure at all. As we've also seen with the governance structures of the world governments, it's easy to influence politicians if you have enough capital, and the inability to do so for cryptocurrencies like Bitcoin due to the absence of a governance structure is apparently driving some institutional investors mad.

That is all for today's blog-post about the characteristics of the perfect cryptocurrency. Now, if you guys have any ideas about what the perfect crypto that's actually used as a currency should look like, please drop them in the comments section down below, because I would really love to know what you all think. I'm sure any would be perfect crypto developers would love to know too. If you found it informative, let me know by sharing it to as many people as possible who have myths about the crypto bill. If you plan on sticking around for more interesting blogpost like this please pay a visit to cryptolibrarynow by clicking on the link below -:

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