Pulsechain: This article includes an introduction to blockchains, popular cryptocurrencies and new blockchains such as Pulsechain. After reading it, you will understand the basics of this innovation. The information shared in this article is in no way intended as financial advice.
What is a cryptocurrency?
A cryptocurrency is a virtual or digital currency. Unlike traditional fiat currencies, a cryptocurrency is secured with cryptography. This makes it virtually impossible to counterfeit or hack the currency.
Cryptocurrencies operate on a so-called blockchain, a distributed ledger. In simple terms, this is a network of computers that are connected to the blockchain network. A ledger can be seen as a grand register in which all transactions are kept.
An important feature of cryptocurrencies is that they are usually not issued by a central party, such as a government. As a result, the currencies are effectively protected from government interference or manipulation.
Some experts believe that blockchains and cryptocurrencies will disrupt and transform many industries, including the financial sector and related legislation.
The advantages of cryptocurrencies include the cheaper and faster transfer of funds and the fact that a decentralized system cannot collapse on one part. The disadvantages of cryptocurrencies are the high price volatility and the high level of energy consumption. However, a solution has been introduced for this last part. More on this later.
The best-known cryptocurrency is Bitcoin, followed by Ethereum and other smaller cryptocurrencies and blockchains, such as Pulsechain.
Bitcoin, Ethereum and Pulsechain
Ethereum (ETH) is to the Ethereum network what Bitcoin (BTC) is to the Bitcoin network and what Pulse (PLS) is to the Pulsechain blockchain. ETH is currently the second largest cryptocurrency by market capitalization after BTC. The market cap is calculated by multiplying the total amount of coins in circulation by the value of 1 coin.
Pulsechain is expected to launch in the second half of May 2022.
On blockchain networks, different tokens represent a wide variety of digital assets, such as NFTs, currencies, or anything else. This is made possible by smart contracts.
What are smart contracts?
Smart contracts can be stored on a blockchain such as Ethereum and Pulsechain. These are, as it were, programs that run when certain conditions are met. They are used to automate the execution of an agreement, without the intervention of a third party.
An example of such a smart contract is an ERC20 token on the Ethereum network. ERC20 stands for Ethereum Request for Comments 20 and represents a token standard that all tokens or smart contracts on the Ethereum network must comply with.
What is a blockchain fork?
Bitcoin, Ethereum and other blockchains have their own standards, although they are similar in some respects.
For example, the Binance Smart Chain (BSC) blockchain is a copy of the Ethereum protocol. The developers of the Binance Chain have set their own rules and conditions.
They then named the “new” blockchain BEP20. The biggest change they’ve made is the change in the consensus mechanism. This ensures that the BSC network enables cheaper and faster transactions than the Ethereum network. The same goes for Pulsechain on the PRC20 network.
What is a consensus mechanism?
A consensus mechanism is used in blockchain systems to reach the necessary agreement between nodes about a value or status of a network between distributed parties on the ledger.
A node is a computer that is connected to other computers and that follows rules and exchanges information. These nodes are essential to keep a blockchain network running. These nodes support the network through validation.
This agreement can be reached in several ways. The way this happens is called a consensus mechanism. The most important 2 are briefly explained below.
Proof-of-work consensus mechanism
The Proof-of-work (PoW) is a common consensus mechanism used by most cryptocurrency networks, such as Bitcoin, Litecoin and Ethereum. Although the developer team behind Ethereum is in the process of transitioning to a Proof-of-stake (PoS) mechanism, it uses PoW for now.
Proof-of-work requires a node to prove that it must be granted a right to add a new transaction to the blockchain. This right is obtained by putting in a feasible amount of effort, expressed in computing power. This is done to deter frivolous or malicious use of the blockchain.
The disadvantage of the Proof-of-work mechanism is that it requires an increasing amount of computing power. A large part of this is also lost when solving an equation and contributes nothing to the efficiency of the blockchain. Proof-of-work is therefore seen as excessively energy inefficient, leading to high costs and a strong negative impact on the environment.
Transaction costs in a Proof-of-Work blockchain
A frequently heard term when it comes to transaction costs is the gas fee. This is a reward given to miners or validators for placing or executing transactions on the blockchain. Miners solve complex mathematical puzzles to approve the transaction and to reach agreement (consensus).
Because there are thousands of applications running on the Ethereum blockchain, these miners cannot validate all transactions at once. Therefore, they have to choose a certain number of trades to validate.
All transactions that are not processed can be stored in the Mempool (memory pool). Miners can decide in this pool which transactions to validate. Users can add extra gas (fee) to prioritize their transaction, on top of the base fee.
If there are more users and applications on a blockchain, more transactions will be made and the gas fee will increase due to the increasing load on the network.
It goes without saying that the user benefits from low transaction costs and short waiting times. The high transaction costs and long waiting times are therefore the main disadvantages of a Proof-of-
Work mechanism and the Ethereum network.
Proof-of-stake consensus mechanism
Proof-of-stake is a method of reaching consensus through validators who own and wager coins rather than Minders who solve complex math problems.
This drastically reduces the amount of computation to verify so-called blocks and transactions. Coin owners offer their coins as collateral to validate blocks. They thus become validators on the blockchain.
To become a validator, an owner must wager a certain number of coins. For example, Ethereum requires a user to wager 32 Ethereum before he or she can become a validator.
What is Pulsechain?
Pulsechain is a new blockchain network with a proof-of-stake consensus mechanism, on which Pulse (PLS) is the original coin. The blockchain is expected to launch in May 2022 as an Ethereum hard-fork. Hard-fork means it is a copy of the Ethereum network.
This is not just a copy of Ethereum’s code, but a copy of the entire network, including all tokens and NFTs currently on the Ethereum network. Ethereum’s original code is being modified to have its own terms and rules (PRC20).
The consensus mechanism on the blockchain is being adapted from proof-of-work to proof-of-stake. This means that the Pulsechain blockchain is drastically less burdensome for the environment.
Moreover, copying the entire network means that all holders of coins in a decentralized wallet like MetaMask get all their belongings one more time, but on the Pulsechain network. However, the value of these coins will not be the same as on the Ethereum network, but will again be determined by the traders from the Pulsechain community.
The goal of the Pulsechain blockchain is not to surpass Ethereum as (possibly) the most used blockchain, but rather to unburden it. The Ethereum network is currently so heavily taxed that transaction costs and latency are soaring.
Now it’s your turn
What do you think? Do you recognize the explanation about cryptocurrencies and blockchains? How have you looked at the introduction of cryptocurrencies and its increasing popularity? What would you like to know when it comes to crypto? Do you have any tips or comments?
Share your experience and knowledge in the comments box below.
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- Fang, F., Ventre, C., Basios, M., Kanthan, L., Martinez-Rego, D., Wu, F., & Li, L. (2022). Cryptocurrency trading: a comprehensive survey. Financial Innovation, 8(1), 1-59.
- Bouri, E., Shahzad, S. J. H., & Roubaud, D. (2019). Co-explosivity in the cryptocurrency market. Finance Research Letters, 29, 178-183.
- Liu, Y., & Tsyvinski, A. (2021). Risks and returns of cryptocurrency. The Review of Financial Studies, 34(6), 2689-2727.
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Published on: 05/30/2022 | Last update: 05/30/2022
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