TIL: How Cryptocoins Split Tokens
C
ryptographic tokens are mysterious creatures that people don't realise actually are like something they already know about.
Redemption Certificates and Bills of Exchange
Bills of Exchange is the name of a quite old system of payment that was part of the beginning of paper money. The first types were redemption certificates. According to some specified rate of conversion, such a certificate could be redeemed for a chunk of some precious metal.
Banks and merchants started to use these certificates speculating that some percent of certificates would not be redeemed, and would print more than they could redeem.
Technically a certificate of redemption places a debt on the issuer, and being unable to redeem it the issuer is liable for both the thing being redeemed and some extra cost since they essentially have borrowed your silver or gold and "redeemed" means immediate exchange.
However, the convenience of this kind of token of value for both sides of the business continued, until the end of the gold standard (pegging supply of banknotes to holdings of gold), and then we were all placed at the mercy of banks who set the rate of issue of non redeemable bills of exchange.
Value, Supply and Demand - Why we can't trust banks!
The value of a currency is affected by how many exist versus how many things can be exchanged for them. The banks can now issue bills arbitrarily (central banks are a monopoly on what in crypto equivalent is the ability to issue new tokens).
Money is like water flowing through a landscape, individual market niches have a capacity to hold potential saleable assets for various time periods, like lakes and seas, and like the ocean metaphor often used in Steem vernacular, most of us are fishies in the ocean.
Banks can fill these basins in entirely arbitrary ways, causing "bubbles" when a particular market niche is flooded with money first, and the increased supply causes the prices to go up to account for the fundamental demand versus the amount of money available for this purpose.
When the lakes dry up
There has been several major incidents in which private notes were distributed to facilitate trade, the Notgeld (emergency money) of early 20th century Germany, and the Greenback. The failure of money brings a society to a standstill - barter is very constrained by the coincidence of wants and even many times mediate commodities would arise, like Mackerel cans in american prisons and often cigarettes in many prisons also.
A great deal of misery is caused when currencies fail. By fail, I mean that after some time, the money bound up in an inflated asset starts to go back on the market, and the imbalance between supply of money in this niche and others is revealed and the price collapses in that niche and in some proportion of cases the owners of this overvalued asset owe money and accelerate the selling to recover debt to the lenders.
Bills of Exchange, Splitting and Invalidation
Having covered the various elements of the background of this, now back to the primary subject.
Most people will be familiar with bank cheques, and would know that you set an amount of value, then sign it, and the holder of such a bill is entitled to that much of your money. In this form it is more generally called a "Negotiable Instrument" because when you want to use it in trade, you can change who it goes to, and as the issuer (signatory) you can take one bill, make 2 or more new ones that divides the original bill, and you mark and sign the original to make it invalid.
You would also know of the endoresement "Not Negotiable" which you also specify the recipient. Only this person can redeem the value on the bill.
This is exactly the same with crypto tokens. The miner wins the right to issue a new bitcoin token by winning a proof of work that yields a new token. Currently this is 12.5 bitcoins.
So, if our miner wants to spend this, but they only want to spend half a bitcoin, they make two new certificates containing reference to the original, one is the payment, and one is the change, 0.5btc goes to the recipient, and the 12btc is assigned back to the miner.
In bitcoin terminology, these new issued bills are called inputs and outputs.
Inputs are tokens that have been assigned to a key you control, a wallet address.
Outputs are new tokens from splits or old tokens you have assigned to a different wallet address that you do not control.
Teaser
I will be discussing the issue of supply regulation of currencies and what it should be, the question of the ever growing size of blockchains, and I am coming closer to deciding to write a revised updated version of my ideas about social structures and evolution.
We can't stop here! This is Whale country!
Loki was born in Australia, now is wandering Amsterdam again after 9 months in Sofia, Bulgaria. IT generalist, physics theorist, futurist and cyber-agorist.
Loki's life mission is to establish a secure, distributed layer atop the internet, and enable space migration, preferably while living in a beautiful mountain house somewhere with a good woman, and lots of farm animals and gardens, where he can also go hunting and camping.
"I'm a thoughtocaster, a conundrummer in a band called Life Puzzler. I've flipped more lids than a monkey in a soup kitchen, of the mind."
- Xavier, Renegade Angel
- Xavier, Renegade Angel
All images in the above post are either original from me, or taken from Google Image Search, filtered for the right of reuse and modification, and either hotlinked directly, or altered by me
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Is that a cannabis cigarette I see? :)
No, just a hand rolled cigarette. I don't use those extendy tube filter holder things, but I was aping the expression and composition of Hunter S Thompson's well known portraits.