Why crypto has a fundamental design fault
Scarcity is the fundamental economic problem of having unlimited wants and needs, but limited resources to fulfill those wants and needs. In other words, it refers to the limited availability of a resource, whether it is a tangible resource like water or oil, or a intangible resource like time or attention.
Because resources are limited, people must make choices about how to allocate those resources in order to satisfy their needs and wants. This often involves trade-offs, where one must give up one thing in order to obtain another. For example, an individual may have to choose between buying a new car or saving money for a down payment on a house.
Scarcity is a fundamental concept in economics, and it affects every person and society. It shapes the way that people make decisions, and it drives economic activity as people try to find ways to satisfy their needs and wants in the face of limited resources.
Does crypto has scarcity
Cryptocurrencies, like many other forms of money, can be thought of as having a certain level of scarcity. This is because most cryptocurrencies have a limited supply that cannot be exceeded. For example, the total number of bitcoins that will ever exist is capped at 21 million, and as of December 2021, around 18.7 million bitcoins have been mined. This limited supply is designed to mimic the scarcity of gold and other precious metals, which are also widely used as money because they are relatively scarce and difficult to produce.
However, it is important to note that the scarcity of cryptocurrencies is not the same as the scarcity of physical resources like oil or gold. Cryptocurrencies are digital assets that exist on a decentralized network, and they are created and transferred using complex algorithms and encryption. While their supply may be limited, they do not require the same level of resources to produce as physical goods.
In addition, the value of cryptocurrencies is not based solely on their scarcity. The value of a cryptocurrency is determined by a variety of factors, including its use as a medium of exchange, the level of demand for it, and the stability of the network on which it is based. As with any asset, the value of a cryptocurrency can fluctuate significantly over time.
How human can manipulate scarcity in cryptocurrency
There are a few ways in which humans can manipulate the scarcity of cryptocurrencies:
Mining: Cryptocurrencies are created through a process called mining, in which computers solve complex mathematical problems to verify transactions on the network. By controlling a significant portion of the mining power on a cryptocurrency network, an individual or group of individuals can influence the rate at which new units of the cryptocurrency are created.
Market manipulation: Cryptocurrency markets are subject to manipulation, just like any other financial market. Market manipulation can take many forms, such as spreading false or misleading information about a cryptocurrency, or engaging in practices like "pump and dump" schemes to artificially inflate the price of a cryptocurrency.
Forks: A "fork" is a split in the blockchain, the decentralized ledger that records all transactions on a cryptocurrency network. A hard fork creates a new version of the blockchain that is incompatible with the old one, while a soft fork is a backward-compatible update to the blockchain. Hard forks can create new, scarce cryptocurrencies if they result in the creation of a new, independent blockchain.
It is important to note that most of these activities are illegal or unethical, and they can have negative consequences for both the individuals involved and the broader cryptocurrency ecosystem.
Can crypto prevent human manipulation of the scarcity
It is difficult to completely prevent human manipulation of the scarcity of cryptocurrencies, as the decentralized nature of most cryptocurrencies means that there is no central authority that can regulate or control the actions of individuals or groups. However, there are a few ways in which the design of a cryptocurrency can make it more resistant to manipulation:
Proof-of-work algorithms: Many cryptocurrencies, including Bitcoin, use a proof-of-work (PoW) algorithm to create new units of the cryptocurrency and secure the network. In a PoW system, miners compete to solve complex mathematical problems in order to verify transactions and earn rewards. The difficulty of these problems is adjusted periodically to ensure that the rate at which new units of the cryptocurrency are created remains stable. This makes it more difficult for a single individual or group to manipulate the supply of the cryptocurrency.
Decentralized governance: Some cryptocurrencies, like Ethereum, have implemented decentralized governance systems that allow network participants to vote on proposed changes to the network. This can make it more difficult for a single individual or group to manipulate the network in their favor, as they would need to convince a significant portion of the network to support their proposal.
Transparency: Many cryptocurrency networks are designed to be transparent, with all transactions recorded on a public ledger called the blockchain. This can make it easier for network participants to identify and track any attempts at manipulation.
Overall, while it is not possible to completely prevent human manipulation of the scarcity of cryptocurrencies, the design of a cryptocurrency and the actions of its users can play a role in reducing the risk of manipulation.
That is why crypto may not sustain long enough unless it exhausts all possible prevention against human manipulations.