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Gridcoin Internals

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Explore the Blockchain

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Make the World Better

Why Crypto­currencies?

A comparison between cryptocurrencies and fiat money

Regulated Inflation

State-issued currencies (fiat money) can be printed at political will. Therefore, the inflation rate is also subject to political will. In contrast, inflation rate of a cryptocurrency, e.g. Bitcoin, Ethereum or Gridcoin, is predictable. This is due to the fact that cryptocurrencies usually follow an open-source protocol. Most cryptocurrencies have their inflation rate, a result of the creation of new currency units, predetermined by their source code. Everyone can read this code and calculate the inflation rate.

Quick and Reliable Transactions

Non-cash payments to purchase goods are usually made by using wire transfer, debit or credit card. A bank transaction can take multiple days. Besides, classic transactions could be reclaimed even days after a payment has been conducted. On top of that, a credit card payment can even be reclaimed after weeks. Merchants can never be certain whether the money they got from selling finally belongs to them. Transactions within a cryptocurrency network are being conducted within seconds to minutes and are irreversible.

Small Transaction Costs

The transfer of fiat money from bank account to bank account requires enormous infrastructure between banks, which is complex and therefore expensive to establish and maintain. Also, fees and operation costs grow with higher amounts. Transaction costs of cryptocurrencies are negligible – no matter the amount.

No Intermediaries

Fiat money is based on banking systems. Transactions require consent of centralized organizations like money institutes. In addition, bank accounts can be frozen and bank customers may even be dispossessed of their funds. On the other hand, every cryptocurrency user is capable of controlling their own decentralized "bank account" without any influence of third party entities.

Absolute Ownership

European banks only need to guarantee that 100,000 Euros per bank account are protected against insolvency of the bank. Balances exceeding that amount belong to the bank's insolvency estate in case of bankruptcy. The consequence of a bankruptcy is partial dispossession of customers. In cryptocurrency networks there are no banks and 100% of the values belong to the users.

Fully Transparent and Fraudproof

Monitoring all transactions is impossible in fiat money systems. Besides the system being non-transparent to its users, this enables uttering of counterfeit money. All transactions ever made within a cryptocurrency network are transparent and are being checked, therefore false cryptocurrency units cannot exist. Furthermore, everyone can monitor how much money each existing account has by looking at the public ledger, the blockchain.

Micropayments

The minimum transaction amount of fiat money usually is a fixed amount, e.g. 1 US-Cent. Therefore there can't be micro transactions lower than this minimum unit. Cryptocurrencies can provide an arbitrary count of decimals, e.g. 0.00000001 GRC can be transferred within the Gridcoin network. These micro transactions enable a host of new use cases in machine to machine communication.

Pseudonymity

Disclosing personal information is a prerequisite to opening a fiat bank account. In contracst, cryptocurrency accounts can be generated by anyone. There is no user information necessary. An account consist only of a public and a private cryptographic key. The public key is known to the network, including the value of the account's funds. It acts as a pseudonym to the holder. The private key grants access to the funds only to the holder of the key.

User-generated Value

Originally, when fiat currencies were issued, they were just proxies to gold that the central bank actually had to save in their vault. A bank “note” was merely instructing a bank to pay out the corresponding amount of gold. This concept, called the “Gold Standard”, is the root of our trust in paper money. However, it is no longer applied.

Nowadays the value of a currency is expressed in comparison to another currency, usually the US Dollar. In case the European economy grows stronger than the American economy, the Euro will gain trust and the fiat trading pair EUR/USD will rise as a consequence. Thus, the value of a fiat currency is based on how much people believe that it will be useful as a payment instrument in the future. This is exactly the same trust people have to put in cryptocurrencies to establish their value.

Overcoming Bitcoin’s Deficiencies

The History of Cryptocurrencies – from Bitcoin to Gridcoin

Creating Blocks Through Wasting Energy – Bitcoin

Satoshi Nakamoto – a pseudonym whose holder(s) identity is yet unknown – invented the blockchain in 2008. This is a distributed, public list of all transactions ever published to it. Nakamoto’s intended use was to use the blockchain to keep record of Bitcoin transactions. Since every payment ever made is visible indefinitely, this solved a problem that prevented earlier cryptocurrencies’ adoption: Doubly spending coins.

Bitcoin requires the miners to find a nonce that, when hashed together with the last block and the new transactions, outputs a hash that is smaller than the threshold currently defined by the network. This ensures that it doesn’t get too easy to create (or forge) a block. There is no other way than checking each number in sequence, perform the hashing, and see if the result matches the requirements. This approach, called “proof-of-work”, is how the network decides who may create the next block, and thus be rewarded

In this way Bitcoin incentivizes the mindless waste of computing power, leading to whole datacenters consuming power for nothing. In 2013, the Bitcoin network already consumed electricity worth 15 Million Dollars – daily. While the exact figure is highly doubtable due to uncertainties in the amount of required hashes for a block, the equipment performing the hashes, and the price for power, it gives an impression of the scale at which Bitcoin is wasting energy: on nation-state level. In early 2019, Bitcoin’s power consumption was almost as high as Portugal’s, according to Digiconomist. In figures: All of the United States’ and France’s (the two main producers of nuclear energy) nuclear power plants combined would barely be sufficient to support Bitcoin, as by numbers by the U.S. Energy Information Adminstration.

The next logical step has been the development of a technology that inherits the advantages of Bitcoin without inclusion of the wasteful nature of the Proof-of-Work algorithm. There are two ways in which this could be achieved: One is to make securing the blockchain (i.e., the creation of new blocks) more efficient. Alternatively, the computations could be dedicated to a useful puprose.

Creating Blocks Through Staking – Peercoin

Attempting to make the block creation more efficient, 2012 saw the advent of Proof-of-Stake. Instead of mindlessly computing hash after hash to become the next one to create a block, each holder of coins may participate in a lottery, in which the users with the most coins have the highest chance of winning. The reasoning is that those who have invested most in the currency (who have put the most at stake) also have the highest interest in securing the blockchain.

Peercoin roots in this concept. New coins are created by issuing an interest rate on currency units that take part in securing the network. This algorithm is much more energy-efficient compared to Proof-of-Work. But without any other way to produce coins, one effect is obvious: the rich become richer.

Creating Blocks Through Useful Computations – Gridcoin

Gridcoin is the last stage in the development of cryprocurrencies. On top of the Proof-of-Stake, which adds energy-efficiency to a cryptocurrency, Robert Halförd put Proof-of-Stake to add usefulness.

In addition to Proof-of-Stake’s constant interest, a user can generate new coins for himself by donating computing power to BOINC. The Berkely Open Infrastructure for Network Computing is a platform for scientists who need extensive computations for their research, but cannot resort to supercomputers. Volunteers around the world can download work units and have their BOINC client do the calculations for the researchers.

Gridcoin rewards these computations like Bitcoin: the amount of produced Gridcoins grows with the conducted computations, but here the computations are meaningful. The spectrum of projects reaches from cancer, AIDS or malaria research to climate prediction as well as astro or particle physics. A user can even search for aliens within the SETI@home project.

How do BOINC-projects perform?

This graph displays how the projects’ magnitudes have evolved over time.