These days, there is a lot of confusion surrounding the concept of cryptoeconomics. People are unsure what it stands for and it’s very easy to get bogged down by lingo. In simple terms, cryptoeconomics is the use of incentives and cryptography to design new kinds of systems, applications, and networks. It is not a subfield of economics, but rather an area of applied cryptography that takes economic incentives and economic theory into account. When speaking about cryptocurrency and protocols, it’s very important to distinguish that they are products of the field of cryptoeconomics, not cryptoeconomics itself. Fortunately, It’s not required for everyone to have a fundamental understanding of cryptographic systems today, because we all encounter cryptoeconomics in our daily lives automatically.
Cryptoeconomics was developed using a combination of cryptography, networking theory, computer science and economic incentives. The realm of cryptoeconomics is vast and far-reaching, with cryptographic resources helping to create the checks and balances that make today’s world function. Bitcoin, for instance, makes use of penalties and incentives in order to operate. Mining and hashing, which serve as the basis for bitcoin’s existence, are inherently difficult and require highly specialized tools.
Blockchain registers were developed because of cryptoeconomics. They use Distributed Ledger Technology (DLT) to form a digitized, decentralized, public ledger of all cryptocurrency such as bitcoin, ethereum and zcash, along with protocols such as Openchain, IOTA and Corda. In order for a blockchain to exist, Proof of work (POW) is required. This is comprised of elaborate computer problems that must be solved in order for the blocks in the blockchain to be created. Each block then links to another one, forming a chain that is registered in a multitude of different ledgers across the world. Cryptographic protocols ensure that the blocks are secure, allowing this “trustless” system to operate.
Public-private keys and hashing are both examples of cryptographic processes that focus on security. They are both ways of keeping our data secure. Keys are a way of using encryption to store and retrieve data, and hash functions verify the authenticity.
With encryption and security systems on the rise in a world that is being constantly tested, the people who work in this field understand that Cryptoeconomics is a field that is going to grow exponentially as the world becomes larger and increasingly more and more complex.