Cryptonomics, a term coined by John Jack Zwick, refers to “the economic and mathematical laws of cryptocurrency.”
It’s a relatively new term in the rapidly changing, technology-driven world that we live in and is indicative of how money as we know it is undergoing a transformation.
It describes how cryptocurrencies and their supporting technology shape the digital landscape in finance, business, and everything that money influences.
Today, cryptos are being used to transact digitally, securely, and under less regulation. These factors have led to mounting interest and incredible growth in using cryptocurrencies in industry, business, and personally. These digital currencies are increasingly being adopted globally, from trading and investing to paying for pizza and bitcoin gambling.
Let’s explore the concept as a whole.
In traditional economics, finance is regulated by a centralised bank that supports currencies used as a mode of value exchange.
When looking at cryptonomics, there is no longer any overarching centralised power controlling digital currencies. Instead, they are powered by blockchain, a highly secure, transparent, and irreversible technology.
When blockchain merges with traditional banking services, this is known as decentralised finance or open finance and enables payments and money to be universally available to anyone, irrespective of location.
Decentralised finance creates feasible alternatives to every financial service available, including insurance, asset trading, loans, and bank accounts.
In a cryptocurrency economy, fiat or cryptocurrency can be used to buy crypto, for example, bitcoin. The user stores their crypto in a wallet or on an exchange and uses it to pay for services, invest, trade in other cryptocurrencies, and play at a BTC casino – you name it.
Importantly, cryptocurrencies can be traded for one another without any regulation; they simply need the right exchange to facilitate the transaction. They can also be traded for fiat currencies such as USD, EUR, and JPY.
Ultimately, cryptonomics examines the conventions around the production and usage of cryptocurrencies and how goods and services are distributed digitally from decentralised technology.
Similarities Between Cryptonomics and Traditional Economics
Break down the word cryptonomics, and you get a combination and play on the two words cryptography and economics. So what does this mean for how the two compare?
On the whole, economics examines how people respond to incentives using the concepts of supply and demand.
When it comes to cryptonomics, the same concepts of the study apply, except now we are looking through the lens of blockchain and cryptocurrencies. Both operate on the premise that each user participates in the process to maximise their outcome. This is evidence that the concepts of crypto and traditional economics share a vein.
The Role Of Initial Coin Offering
A critical element in cryptonomics is an Initial Coin Offering (ICO). In essence, it is where the line starts and the cryptocurrency (as well as the demand for it) is born.
Similar to an IPO (Initial Public Offering), an ICO exists to raise capital to develop and launch a cryptocurrency, service, or application.
During an ICO, a white paper is usually created to outline the project’s parameters to be developed. Investors then buy in with either fiat or cryptocurrency and receive tokens representing a stake in the project. These are comparable to owning shares and can be used within the project’s ecosystem.
Contrary to normal shares, these tokens can be seamlessly transferred between users or through a recognised cryptocurrency exchange.
Because it is so easy to transfer the tokens, this allows for liquidity. In turn, this pushes price volatility determined by the market’s perception of the project.
The kicker is that the tokens provide access to a future product or service. So, in theory, the value of the tokens will increase as soon as the product is launched and usage increases. As a result, early ICO participants reap the rewards of capital gains on the issued tokens.
Benefits Of Decentralised Finance
Looking at the drivers that encourage users to adopt and participate in the cryptocurrency and decentralised ecosystem, most are related to simplicity and safety in a digital space. The main benefits of engaging with them include the following:
Autonomy For Users
One of the cryptonomics’ central concepts is autonomy in transacting. By definition, cryptocurrencies give users much more autonomy over their digital financial assets when compared with fiat currencies. Users can control how they spend their money without going through an intermediary authority such as a government or financial institution.
Users can be assured that all transactions made on the blockchain are anonymous. Any purchases a person makes with crypto are private and cannot be linked easily to the person unless they choose to make it public knowledge.
The entire cryptocurrency ecosystem is peer-to-peer. This means that users in a digital space can make and receive payments to any other user within the global network without getting approval from any external authority or source.
Safe and Secure Transactions
Once a cryptocurrency transfer has been authorised, that transaction cannot be reversed. This means you won’t incur “charge-back” transactions typically allowed by credit card companies.
Normally, an agreement or returns policy is drawn up between the buyer and seller to safeguard against fraud, protect both parties, and lay out the conditions if a mistake is made or a return is issued.
Furthermore, cryptography employs strong encryption techniques throughout the distributed blockchain. This ensures that all transactions are protected against fraud and account tampering.
Eradication Of Hefty Banking Fees
While people who transact using fiat currencies sometimes incur hefty banking fees, especially cross-currency, the same isn’t true for crypto users.
Regular bank account holders are subjected to account maintenance fees, overdraft charges, return deposit charges, and minimum balance fees. On the other hand, crypto users contribute minimally towards maker and taker fees, as well as deposit and withdrawal fees. The difference is stark.
Easier International Trade
Traditional banking platforms usually charge exorbitant fees for international wire transfers and foreign purchase exchange costs.
Cryptocurrency users, however, do not have to go through any intermediary institutions or governments to transact internationally and, as a result, have much lower fees. This is particularly attractive to travellers as they keep their expenses low.
Transfers with these types of digital money also mitigate time-consuming authorisation requirements and waiting periods.
Within the traditional banking system, a custodian, being the financial institution, has ultimate control of your financial assets. You can be locked out of your account if you infringe on any of the terms of service of the agreement, and there are certain hoops to jump through to get back in or even meet the minimum requirements for joining in the first place.
The ecosystem within cryptonomics is different as the user owns their private and public encryption keys and maintains complete access and control.
Better Access With Mobile Payments
Cryptocurrency users can transact anywhere and from their mobile devices, provided they have an internet connection. They are not forced to purchase a product at a bank or store physically.
Instead, they can send and receive payments from their device, whether a smartphone or computer. This makes this platform much more accessible to people on the go, people who transact outside of regular banking hours, and anyone who doesn’t have access to a computer when it is convenient.
Also, transacting this way has the added advantage of not having to divulge any personal information when making a purchase, unlike traditional online payment methods.
Crypto Payment Solutions
We will look at the payment solutions enabling people to transact in cryptocurrency.
These solutions facilitate effortless payments through various applications or websites. In general, they are highly adaptable and easily integrated by businesses. Once solutions are integrated, users can easily transfer funds to merchants and vice versa.
There are two types of payment solutions. Think of them like a wallet where you can manage your funds.
1. Non-Custodial Services
Non-custodial services enable users to independently manage their funds, transactions, and information details. Users get a private key consisting of mnemonic phrases that contain characters once they have opened their account.
These services can be accessed anytime within the application, and initiated transactions are shown in real-time. This helps users to track their payment activities instantaneously and be accountable for their transactions on the decentralised platform.
2. Custodial Services
As the name suggests, custodial services have custodians or servers with access to all user information. Before initiating any transactions, users must first let their custodians know.
If a person forgets their private key, the custodians can assist with recovering their wallet details.
Most Popular Crypto Payment Solutions
8Pay is a system that operates on the Ethereum Network. It includes a unique payment gateway intended for buyers and sellers.
The system makes transactions between the parties much easier and can be used to build subscription payment options for different products and services. It has features such as payment buttons, payment links, and invoice-generation capabilities.
Ethereum, ERC20 tokens, and stablecoins are the only supported currencies.
Atomic Pay is a non-custodial payment solution that accommodates seven cryptocurrencies, including Bitcoin Cash, Bitcoin, Dash, Litecoin, Dogecoin, Bitcoin Gold, and Stellar (XLM).
Its intuitive UI enables users to view all the required data in an organised manner. Atomic Pay is implemented in over 1,700 merchants across the globe and serves as an ideal payment crypto gateway.
It can be used for shopping in physical stores and includes an API integration that can generate its payment invoice in seconds.
Bitcoin Cash Register
Bitcoin Cash Register is an IOS and Android-compatible payment solution that is compatible. Anyone with an existing Bitcoin Cash wallet can create an account in Bitcoin Cash Register.
At the moment, the system only accepts transactions made in Bitcoin Cash.
Bitpay is one of the smaller newcomers to the block. That said, sellers and buyers find it very easy to use, and it has a simple yet intuitive interface.
Bitpay is linked with Skrill, which enables users to move from Bitcoin to fiat currencies effortlessly. Bitpay also allows its users to transfer cryptocurrencies from one wallet to another, and it has a Mastercard.
Blockonomics transacts exclusively in BTC. It has an intuitive interface that features various e-commerce plug-ins that instantly create invoices following every transaction.
The solution provider allows users to link it to their current wallets for added protection. Additionally, they can create P2P invoices whenever making a purchase.
CMM Pay is a non-custodial payment solution that also accepts Bitcoin transactions exclusively. Users can monitor crypto sales, wallet balances, and crypto conversions. It offers a 1% transaction fee for its services and is relatively easy to set up.
Coinbase Commerce is a non-custodial platform that accommodates Bitcoin Cash, Bitcoin, Ethereum, Litecoin, and USDC. Over 2,000 merchants globally have integrated the solution into their systems.
CoinGate is a crypto payment gateway that accommodates a multitude of cryptocurrencies like Bitcoin, Litecoin, Ethereum, and Ether, as well as fifty additional digital currencies.
It is a user-friendly payment solution with an API, shopping cart plug-ins, and simple payment buttons adaptable to all types of businesses.
The Bottom Line
The concepts around cryptonomics have ushered in an exciting era that provides an innovative way for money to be created and distributed. Prospects of financial freedom have enticed people to dip into the system and shy away from the traditional institutions that have been keeping a firm hold on what we can and can’t do with our financial assets.
Only time will tell if cryptonomics sticks to the principles of traditional economics or if it embarks on a different trajectory that defines the future.