The Power of Networks in Decentralized Finance + Mining
The US dollar’s stability is taken for granted by many. Hyperinflation has seeped into over a hundred countries across the globe, such as Argentina, Nigeria, Venezuela, Turkey, Sri Lanka, and Lebanon. For example, let’s put this into perspective — Venezuela has experienced an inflation rate hovering at around 2,000% over the past decade. However, the governments in a majority of the countries mentioned above do not allow residents to utilize currencies from other nations; moreover, most residents lack the necessary resources to access these foreign currencies. Thus, through harnessing the technology embedded in these decentralized systems, residents can utilize stablecoins, such as MakerDao’s Dai coin, which is pegged at the US Dollar to safely store their funds simply through their phones.
Blockchain technology, especially given its immutability and scalability, exemplifies the power of networks and game theory to democratize the realm of finance. By building a market with both lenders and borrowers, the exchange’s networks have become incredibly powerful, ensuring that both parties’ goals are met. The technological network utilized by these protocols provides users with a heightened sense of transparency, given that they can openly see all of the transactions occurring on the chain. Pertaining to Professor Easley’s insights regarding how the number of players, in theory, dictates the outcome, a similar concept can be applied here and the future of such technologies relies on the widespread consumer adoption along with the practices corporations utilize in regard to mining.
If the network of computers actively mining cryptocurrencies drastically increases, the computing power of the network could lead to a security breach and overtake the entire protocol, also exemplifying the network effect. Thus, the size of this network must be controlled to maintain its decentralized nature. In order to manage this effectively, crypto organizations increase the difficulty of the mining algorithms if the process becomes too accelerated to maintain the network and vice versa in the opposite direction. Helium, a wireless infrastructure company, decided to add a unique option for those interested in mining cryptocurrencies by enabling them to create and join The People’s Network, which is just individuals leveraging a hotspot for mining in a collective method. Given that it’s governed by an open group of members, it provides a decentralized alternative to those who join a network that holds decision-making power. Networks dictate the mining procedure for all cryptocurrencies — which ultimately impacts their level of circulation — transforming the decentralized finance system.
Source of inspiration: https://www.helium.com/