THE NAKAMOTO EFFECT: EXPLAINED
The Nakamoto effect, also known as the Cantillon effect 2.0 was introduced to the world by bitcoin for people earning creation benefits in the Bitcoins-Compass. Bitcoin has established itself well in the market today however still requires clear ideas for some people. When asked why BTC is needed, the responses were mixed, where major people defined bitcoin as either a Ponzi scheme or money for criminals. However, bitcoin has the potential to solve systemic inequity and corruption that disturbs the present monetary system.
Bitcoins are generated through a process called mining which requires solving huge-crypto equations. The process is functioned by miners who are then rewarded with bitcoins and fees on solving the problems and on the basis of how much protection they give, this, in turn, is termed as the Nakamoto effect. While the Cantillon effect is a long-forgotten classical theory that deals with the distribution of money and its impact on individual health and why it is one of the injustices in society today.
The contemporary monetary system is built on the generation of money mainly through bank-issued debt with interests and the transfer of wealth which results in an unstable financial system, encouraging the concept of “future doesn’t matter”. Around 425 systemic banking, monetary and debt crises were reported between the year 1970 to 2010, as per the international monetary fund. This sums up to an average of 10 cases per year. Authorised state money is comparatively more delicate and forms an unequal system while on the other hand major countries with different currencies have a history of higher stability and equality conditions. Cryptocurrencies prove themselves to be the solution for unstable monetary systems and state money issues. Another relevant proof is the rise of bitcoin after the great financial crisis between 2007-2008, where the crypto industry emerged as a one-in-all solution for business monetary issues.
THE CANTILLON EFFECTS: EXPLAINED
The market of cryptocurrency and blockchain technology is growing very fast. New technologies are being created, new ICOs are being launched, and many cryptocurrencies are becoming more successful than ever before. But sometimes the price of these coins grows so fast that it cannot be justified by its use-value only. Sometimes you will see a price surge in a coin with no news or updates coming from the development team. This is called a Cantillon effect . The phenomenon occurs when the market prices of goods change before the goods are supplied or demanded in quantity significant enough to shift the entire market price.
The Cantillon effects deal with pricing changes from a shift in money supply which was initially proposed by an economist in the 18th century named Richard Cantillon. The biflation effect is a form of Cantillon effect that occurs when a central bank generates money into the economy in order to inflate the asset process during debt deflation and subsequent recession period. The Cantillon effect is the process of levying additional taxes on people earning sticky wages or a significant portion of wealth in dollars. The tax is awarded to people investing in financial assets or those working for the government as picked contractors.
Based on the effect, the first recipient of the money supply has an investment chance to spend the money before prices increase. The fundamental reason behind this is the creation of new fiat money at a minimal cost and its distribution to particular parties, mostly banks. The money is then used by the banks to buy assets and products whose prices are still not raised due to the increased money supply.
PROTECTION AGAINST THE CANTILLON EFFECT
One of the most straightforward ways to protect yourself from unequal money distribution is by learning the monetary system. The Cantillon effect is the process whereby one person’s expenditure becomes income for another person. To avoid this disturbance, one should utilise advanced blockchain technology to create a decentralised multi-level marketing system, based on smart contracts which will be able to eliminate “the middleman”, or shall we say, the distributor. The present generation has a lot of issues when it comes to the sharing economy. In fact, they find ways to avoid the Cantillon effect. The Nakamoto and Cantillon effect is a phenomenon where an increase in the economic base can lead to a decrease in the velocity of funds.