Category: Blockchain

What is an Initial Coin Offering (ICO)?

An initial coin offering (ICO) is a sort of capital-raising activity for cryptocurrency projects in their early stages.

During an ICO, a blockchain-based firm creates a limited number of its own native digital tokens and sells them to early investors.

While ICOs can provide a simple fundraising method and an innovative way for entrepreneurs to acquire funds, investors can also profit from both access to the service provided by the token and an increase in the token’s price if the platform is successful.

The primary benefit of ICOs is that they avoid intermediaries from the capital-raising process and establish direct relationships between the corporation and investors.

Furthermore, both sides’ interests are linked.

An initial coin offering (ICO) is a fundraising event in which a firm offers a new cryptocurrency.

Origins

It all started in 2013, when J.R. Willet, a software engineer, authored a white paper titled “The Second Bitcoin White Paper” for the token MasterCoin and raised $600,000.

Seven initiatives have raised a total of $30 million by 2014.

Ethereum was the largest that year, with 50 million ether minted and sold to the public, generating more over $18 million.

2015 was a more sedate year. A total of $9 million was raised through seven transactions.

In 2016, 43 ICOs raised $256 million, kicking off a surge in activity.

ICOs reached a new high in 2017, thanks in part to technical developments.

The issue of 342 tokens raised about $5.4 billion, propelling the idea to the forefront of blockchain innovation.

Telegram completed the biggest ICO to date. The UK-registered corporation raised almost $1.7 billion in a private ICO.

Types

  1. Private ICO: Only a small number of investors are permitted to participate in the process. Private ICOs often allow only accredited investors to participate, and a corporation might opt to establish a minimum investment amount.
  2. Public ICOs: A type of crowdfunding aimed at the whole public. Because almost anyone can become an investor in a public offering, it is a democratized form of investing.

How does an ICO Work?

When a corporation decides to hold an ICO, it publishes the date, regulations, and purchasing procedure ahead of time. Investors can purchase the new coin on the ICO date.

The majority of ICOs need investors to pay using another cryptocurrency, with Bitcoin and Ethereum being two popular options. There are ICOs that accept fiat money as well.

Typically, the purchasing procedure is transferring money to a specific crypto wallet address. Investors specify their own recipient address in order to get the cryptocurrency they purchase.

During an ICO, the quantity of tokens sold and the token price might be fixed or flexible.

  • Fixed number of tokens and price: The corporation determines both in advance, for example, selling one million tokens at a price of $1 per token.
  • Fixed number of tokens and a variable price: The corporation sells a fixed number of tokens and charges a variable price dependent on the amount of cash received.

A greater token price stems from more investment. If it sells one million tokens and raises $2 million, each token will cost $2.

  • Variable number of tokens and a fixed price: The corporation has a fixed price but does not limit the amount of tokens sold. As an example, suppose a corporation sells tokens for $0.50 each until the ICO concludes.

An ICO can be launched by anybody. Many new forms of cryptocurrencies are launched using this procedure due to the low barrier to entry.

ICO vs. IPO

ICOs are sometimes contrasted with initial public offerings (IPOs), which are fresh stock offerings by a private firm. Companies can raise capital through both ICOs and IPOs.

The fundamental distinction between ICOs and initial public offerings (IPOs) is that IPOs include the sale of securities and are subject to substantially tougher laws.

To launch an IPO, a firm must file a registration statement with the Securities and Exchange Commission and obtain its approval. A prospectus containing financial statements and possible risk factors should be included with the registration statement.

An initial coin offering (ICO) is the selling of a cryptocurrency rather than a securities. As a result, it lacks the formal criteria that IPOs do. However, if a corporation tries to circumvent the rules by holding an ICO for anything that meets the definition of a security, it may face legal consequences.

Advantages and Disadvantages

Online services may help with the creation of cryptocurrency tokens, making it extremely simple for a business to contemplate launching an ICO.

ICO managers produce tokens in accordance with the conditions of the ICO, receive them, and then distribute the tokens to individual investors by transferring the coins.

However, because ICOs are not regulated by financial institutions such as the SEC, monies lost due to fraud or ineptitude may never be recovered.

Early investors in an ICO are typically driven by the anticipation that the tokens will appreciate in value once the coin is launched. The prospect for extremely large profits is the key advantage of an ICO.

However, the legality of cryptocurrencies or digital assets is not assured.

The People’s Bank of China formally outlawed ICOs in 2017, deeming them harmful to economic and financial stability. In 2021, the Chinese government banned bitcoin mining and made all cryptocurrency transactions illegal.

What is a Decentralized Autonomous Organization (DAO)?

What is a DAO?

We have all heard about organizations. They are based in a certain nation, have a centralized management team that owns and governs the organization, and can have hundreds of thousands of members.

What if I told you there is a new type of organization? Can you picture coordinating with individuals from all over the globe without knowing each other, defining your own rules, and making your own choices all inscribed on a blockchain? DAOs are making this a reality.

A DAO, or decentralized autonomous organization, is a blockchain-based organization that is frequently administered by a native crypto token.

Anyone who buys and keeps these tokens has the opportunity to vote on crucial DAO-related issues. Smart contracts are often used in place of traditional corporate structures to coordinate the efforts and resources of many people toward common goals.

The primary distinction between a DAO and a basic interest club is that DAOs are entities with economic usefulness. Because they have their own governance tokens and treasuries, community members exercise caution while voting on how the DAO’s reserve money are spent, as well as other financial problems.

Finally, a DAO is totally managed by its individual members, who jointly make key choices concerning the organization’s destiny.

DAO is an organization that’s governed by code instead of leaders.

How do DAOs Work?

DAOs are designed to resemble a corporate structure, with rules and regulations developed using open-source code and enforced via smart contracts.

These smart contracts establish the groundwork for how the DAO will function.

They are very transparent, verifiable, and publicly auditable, allowing any potential member to fully grasp how the protocol will operate at each stage.

Following the formalization of these regulations on a blockchain, the next stage is to get finance. DAOs often go through a financing phase in which anybody who wants to participate can do so. Typically, funding is obtained by token issuance, in which the protocol sells tokens to acquire cash and replenish the DAO treasury.

Token holders are granted voting rights in exchange for their money, which are generally proportionate to their holdings.

The DAO is regarded live and active at the completion of the financing process, and all critical decisions about the organization are made by users achieving an agreement on ideas. Users get the capacity to vote on proposals by holding and locking cryptocurrencies into a voting contract, with the voting weight proportionate to the amount of cryptocurrency locked. The suggestion is then implemented in accordance with the specified network consensus rules, and voters are rewarded with additional cryptocurrency for their participation.

Why do we need DAOs?

Starting a business with someone that includes capital and money needs a high level of confidence in the individuals you are working with. But it is difficult to put your faith in someone you have only ever communicated with on the internet. With DAOs, you do not have to trust anybody else in the group; you simply have to trust the DAO’s code, which is completely visible and verifiable by anyone.

DAO membership

There are different models for DAO membership. Membership can determine how voting works and other key parts of the DAO.

  • Token-based membership: Depending on the token used, it is usually completely permissionless. Generally, these governance tokens may be freely exchanged on a decentralized exchange. Others must be earned by delivering liquidity or some other form of ‘proof-of-work‘ In any case, merely possessing the token allows you to vote.

  • Share-based membership: Share-based DAOs are more permissioned, but still quite open. Any prospective members can submit a proposal to join the DAO, usually offering tribute of some value in the form of tokens or work. Shares represent direct voting power and ownership. Members can exit at anytime with their proportionate share of the treasury.


Pros

  • No hierarchy: the community governs themselves
  • Democratic: anyone can raise a proposal and decisions go through majority voting.
  • Transparent: the code is open source for all to see.
  • Open access: Anyone with internet access could hold DAO tokens or buy them, this giving them decision-making power in the DAO.

Cons

  • Flat structure: Decision-making may be inefficient as majority vote is needed
  • No change: Difficult to change smart contract rules once deployed on the blockchain
  • Legality: Legal gray areas as DAOs are not bound to any specific jurisdiction

What is GameFi?

What is GameFi?

GameFi is a new concept in the gaming and blockchain businesses.

Traditional video game players who are familiar to paying to play an online game are drawn to blockchain video games where they might instead be compensated for their time and work.

What is GameFi?

The term GameFi is inspired by the term DeFi and stands for Game Finance.

GameFi refers to financial transactions in the crypto world that are based on games.

The term Play-to-Earn (P2E) is used outside of GameFi and may be considered synonymous with GameFi. Yet, P2E and GameFi do not have the same connotation.

While P2E refers to earning money by playing video games, GameFi encompasses much more. GameFi not only the system of making money by playing games, but also financial transactions and systems on gaming platforms.

To explain GameFi more clearly, there are staking, yield farming, etc. that exist in DeFi processes. We can say that it is the integration of financial transactions and NFTs into the gaming industry.

GameFi, in its most popular meaning, refers to decentralized apps (dApps) with monetary incentives. These are often tokens awarded as prizes for completing game-related activities like as winning battles, mining valuable materials, or cultivating digital crops.

It is critical to understand that GameFi is not a gambling site. To earn cash, the games to be part of this developing industry need players to use a combination of skill and strategy. Although chance plays a role in these games, it is not the most important element in determining who wins or is eligible for monetary compensation.

How do GameFi games work?

In these games, all objects are represented as NFT. Consider land plots, avatars, outfits, weapons, and gold bars. Once a player finds and accumulates these goods via gaming, they may trade them with others in digital markets for different NFTs or sell them for cryptocurrencies.

Depending on the game, players can boost their earning potential by spending time leveling up and upgrading their characters, building monetized structures on their property that other gamers pay to use, or competing in tournaments.

All NFTs and cryptocurrency transaction data are maintained on a public blockchain to keep track of what each participant possesses.

Today, GameFi comes in a variety of flavors. As a result, the ways via which gamers might gain cash from their games differ. There are, however, a few key elements worth addressing. To monetise the activity, many of today’s most popular blockchain games use a mix of the following characteristics.

  • Play-to-earn: Players in certain blockchain games are rewarded financially for accomplishing gaming objectives. The monies rewarded in these games are often derived from a reserve of native tokens kept within a smart contract.
  • Asset ownership: The notion of ownership of limited digital assets is central to many blockchain games today. Digital ownership of one-of-a-kind assets opens up previously unimaginable business potential. Owners can monetize their digital assets in the same manner that they may market their physical assets.

Bottomline

The GameFi concept outperforms existing online games.

As blockchain and NFT games hint to what is to come, the play-to-earn mechanism will eventually be the passport to widespread crypto adoption. So it is hardly surprising that this exponential trend shows no indications of abating.

If current trends continue, GameFi and NFTs will serve as a rallying point for DeFi.

Prospects for this new business are infinite, thanks to rising public interest and an injection of finance.

What is a Decentralized Crypto Exchange (DEX)?

What is a Decentralized Crypto Exchange?

Every person on the planet has heard about cryptocurrencies in recent years.

With the growing popularity of cryptocurrencies comes an increased interest in other digital financial transactions.

But, if you want to buy or sell cryptocurrencies, you will need a exchange.

A decentralized exchange, or DEX, is a peer-to-peer marketplace where cryptocurrency traders may conduct transactions without entrusting their assets to an intermediary or custodian.

To understand decentralized exchanges, first you should familiarize yourself with centralized exchanges. 

A centralized exchange is a platform where anyone may buy, sell, or trade cryptocurrencies that are listed on that exchange.

Assume you wish to acquire some Bitcoin.

You may visit an exchange, join up by supplying banking and identification information, and deposit some cash.
The exchange will tell you the price based on a “order book” of individuals buying and selling at various quantities, and you can then complete the transaction.

So, what comes next?

The exchange will display those Bitcoins in your account, and you may trade them for other tokens. But you do not truly own them since you are relying on the exchange to serve as a custodian on your behalf.

Any trade you perform, like as exchanging Bitcoin for Ethereum, takes place within the exchange’s database rather than on a blockchain.

The user’s coins are pooled into exchange-controlled wallets.

The exchange is in charge of your private keys

DEX supporters argue that the attractiveness of decentralized exchanges is security.

A centralized exchange can restrict your access to your cryptocurrency, limit or prevent your ability to trade it, and potentially leave you susceptible to hackers.

Centralized exchanges, on the other hand, are often considerably easier to use for newbies, and they may sometimes offer quick trading since they are not bound by blockchain technology.

How do DEXs work?

DEXs are constructed on top of blockchain networks and employ smart contracts to enable trade between individuals while retaining ownership of their currency.

Along with the trading cost, each deal incurs a processing fee.

Decentralized exchanges are classified into three types:

  • Automated market makers
  • Order books DEXs
  • DEX aggregators

Automated market makers (AMMs):

AMMs rely on blockchain-based services called blockchain oracles, which supply information from exchanges and other platforms to fix the price of traded assets.

Instead of matching buy and sell orders, these DEX’s smart contracts employ pre-funded asset pools known as liquidity pools.

Other users finance the pools, and they are then entitled to the transaction fees levied by the protocol for executing transactions on that pair.

To earn income on their cryptocurrency holdings, these liquidity providers must deposit an equivalent amount of each asset in the trading pair, a process known as liquidity mining.

If they try to deposit more of one asset than the other, the pool’s smart contract invalidates the transaction.

Traders can utilize liquidity pools to execute orders or earn interest in a permissionless and trustless manner.

These exchanges are frequently graded based on the amount of cash locked in their smart contracts, known as total value locked (TVL).

Order book DEXs

Order books compile records of all open orders to buy and sell assets for specific asset pairs. The spread between these prices determines the depth of the order book and the market price on the exchange.

There are two kinds of order book DEXs:

  1. on-chain
  2. off-chain

Every transaction in an on-chain order book is recorded to a blockchain.

That includes not only the transaction itself, but also the request to purchase or cancel an order.

It is the pinnacle of decentralization, but the requirement to place everything on a blockchain can make it more expensive and slower.

With off-chain order books, all of this happens elsewhere, with only the final transaction settled on the blockchain. Since orders aren’t stored on-chain, this method can run into some of the security issues of centralized exchanges but isn’t as slow or costly as on-chain order books.

It is vital to note that order book DEXs frequently have liquidity concerns.

Traders typically prefer centralized platforms since they are effectively competing with centralized exchanges and pay more costs as a result of what is paid to transact on-chain.

While DEXs with off-chain order books decrease these expenses, smart contract risks exist due to the requirement to deposit cash in them.

DEX aggregators

To overcome liquidity issues, DEX aggregators employ a variety of protocols and techniques.

These platforms effectively combine liquidity from many DEXs in order to minimize slippage on big orders, optimize swap costs and token prices, and provide traders with the best price in the shortest amount of time.

Another important purpose of DEX aggregators is to protect consumers from the price effect and to reduce the risk of unsuccessful transactions. Some DEX aggregators additionally employ liquidity from centralized platforms to give a better experience for consumers, all while staying non-custodial through interaction with certain centralized exchanges.

Why should you opt for DEXs?

Trading on decentralized exchanges may be costly, particularly if network transaction fees are high at the time the deals are made.

However, there are significant benefits to adopting DEX platforms.

  • Privacy: Because DEXs are anonymous, they should be your first choice if you desire total anonymity.
    Centralized crypto exchanges may request know-your-customer information, whereas DEXs operate on the premise of anonymity.
  • Token availability: Before listing tokens on centralized exchanges, they must be independently vetted to verify they conform with local rules.
    Decentralized exchanges may incorporate any token generated on the blockchain around which they are constructed, implying that new projects will likely list on these exchanges before their centralized equivalents.
  • Reduced security risks: Because all the funds in a DEX trade are housed on the traders’ own wallets, they are less vulnerable to a hack.

What are some potential downsides?

  • Requirement of specific knowledge: Users should be familiar with security principles in order to protect their cash in a DEX crypto exchange. Furthermore, you must have special expertise on the choosing of wallets as well as the funding of the wallet with appropriate tokens.
  • No customer service: Centralized exchanges function similarly to banks.
    They have consumers that they mostly wish to keep satisfied. However, there is no actor on the opposite end of a genuinely decentralized exchange.
    The protocol’s creators do not have the same connection with users. While there are entire communities of DEX users, you are alone responsible for your own finances.
  • Smart contract risks: Exploitable defects in smart contracts may evade extensive audits and detailed code reviews, causing more harm.
  • Unverified token listings: On DEXs, anybody can create a new token with the purpose of increasing liquidity. However, for investors, this may result in rug pull scams. As a result, traders must exercise extreme caution while validating tokens before to investing in them.

Final Thoughts

The first decentralized exchanges appeared in 2014, and their popularity grew in tandem with the rising popularity of DeFi.

DEXs have moved beyond their traditional order book model shortcomings thanks to the capabilities of the Automated Market Maker technology.

Decentralized crypto exchanges, on the other hand, have proven to be crucial venues for users to borrow cash for leveraging their holdings or give liquidity in return for trading fees.

DEXs have also allowed users to generate passive income from their cryptocurrency holdings by depositing them in liquidity pools.

On the contrary, the usage of smart contracts in DEXs continues to introduce dangers.

What is ERC20?

What is ERC-20?

Prior to the advent of Ethereum, every new coin required its own blockchain.

This put a lot of pressure on developers, who required time and money to build a network that could support their coin or fork an existing blockchain.

The introduction of Ethereum altered that, as it was the first project to operate as a development platform. This opened up a slew of new opportunities for blockchain technology and digital currencies alike.

Ethereum evolved into a platform for the creation of decentralized apps (dApps), smart contracts, and new coins. Soon after, a variety of token formats evolved, with ERC20 being the most popular and dominating.

ERC20 is an acronym that stands for Ethereum Request for Comment (ERC), with the 20 denoting a proposal identification on the blockchain. The proposal ID number specifies the collection of rules that must be followed in order for tokens with that ID to be generated, shared, or transferred, with the ERC20 list being the most extensively used set of protocols.

ERC20 was proposed in November 2015 by Ethereum developer
Fabian Vogelsteller

The standard specifies a set of criteria that must be fulfilled in order for a token to function effectively inside the Ethereum ecosystem. As a result, ERC20 should not be regarded as a piece of code or software. It is more accurately defined as a technical guideline or specification.

In other words, the ERC20 provides developers with a set of standards to follow, allowing for flawless operation inside the wider Ethereum ecosystem. ERC20 tokens are supported by a large number of decentralized apps and services, making it simpler for community members and companies to accept and utilize them on a wide range of applications (such as cryptocurrency wallets, decentralized exchanges, games, and so forth).

ERC20 is one of the most significant Ethereum tokens

What does ERC20 do?

ERC20 defines the functionality and protocols for coins created within its framework.

By describing how they must function, new tokens may be produced very quickly. In comparison to developing them on your own blockchain, it instills consumer confidence in the security of that token. According to Etherscan, around 470,000 token contracts exist under the ERC20 framework at the time this post is being written, owing to their relative simplicity of deployment.

ERC20 Standard Rules

If a smart contract want to use the ERC20 token, it must adhere to certain criteria called ERC standards. In other circumstances, if you do not follow the guidelines, it will not be appropriate to call it an ERC 20 token. There are now nine rules, six of which are necessary and three of which are optional.

The Mandatory Standards

  • totalSupply: specifies the total quantity of ERC20 tokens you intend to produce. To begin creating the token, you must first establish the entire supply of this token. You cannot, under any circumstances, create your own token on the fly since this will have a major impact on the value of these tokens.
  • allowance: The most significant function is the allowance function. In reality, when the contract wishes to carry out a transaction, it has to check the balance of the Ethereum smart contract to determine if the user has the required minimum amount. Using the allowance function, the contract can carry through or cancel the transaction.
  • transfer: The owner can use this function to transmit tokens to another address after determining whether the user has enough tokens to transfer. Furthermore, this behaves similarly to a conventional crypto transaction on other blockchain systems.
  • transferFrom: This function is mostly used to automate specific transactions.
    For example, maybe you have to pay someone the same amount every month, or maybe you have to pay rent and expenses. As a result, you may utilize transferFrom to schedule these payments for a certain day and time.
  • balanceOf: This function’s sole purpose is to return the total quantity of tokens held by any address. In reality, it serves as user information, so if you produced some tokens and sent them to other addresses, you can use this to see how many tokens you have left.
  • approve: The approve function aids in the elimination of token counterfeiting. Once the contract owner has checked the amount, he or she can approve the contract in order to receive the money. This approve function will also check to see whether the number is right in relation to the total quantity of tokens. As a result, counterfeiting tokens is impossible. If this function discovers any discriminates among the numbers, it will reject both the payment and the smart contract.

The Optional Standards

  • Token name: It is critical that the token be connected with a name or identity. Yet, you are not need to name them; however, associating identification with any token is beneficial when utilizing it within a community.
  • Decimal (Max: 18): It is actually pretty significant since it ensures the lowest possible value for your token. If the divisibility is zero, the lowest value is one; if it is two, the lowest value is 0.01. You can go up to 18 decimal places in this case.
  • Symbol: It is mostly used to create brand value via the use of catchy symbols, however you may not necessarily require a symbol for your coin.

ERC20 Advantages

The ERC20 standard has several advantages. It enables developers to create dApps on the Ethereum network. It also aids in the streamlining of the entire standardized procedure. Let us go over the advantages one by one to gain a clearer picture.

  • There is a standard protocol to maintain and follow.
  • Token implementation becomes easy for blockchain developers.
  • ERC20 tokens offer high liquidity.
  • Smart contracts ensure that transactions are risk-free.

ERC20 Disadvantages

  • Transfer function bug: Contract accounts and externally owned accounts are the two types of accounts in Ethereum. When attempting to engage with another externally owned account, just utilize the transfer function to transmit tokens.
    However, when its contract account is used, the transfer feature does not operate well, and you are likely to lose money.  But how exactly? When you use this blockchain technology to transmit money to a contract, the receiver is not alerted. As a result, they will not recognize it, and the token will be trapped within the contract, unable to be used. This is why you must utilize the approval + transferFrom functions. However, using these two might result in double-spending.
  • Low Entry Point: These standards, on the other hand, may be used by anybody to create tokens. There are no restrictions on who may and cannot attend. As a result, many people are producing unnecessary tokens that are flooding the market and, in many cases, creating fraudulent tokens to raise money.

The Takeaway

ERC20 is one of the most effective blockchain protocols. It is in charge of hundreds of tokens on the Ethereum network. It is also developer-friendly.

An ERC20 token may be created and released on the blockchain by anybody. ERC20 may also be used to create utility tokens for a dApp.

What is Crypto Staking?

What is staking?

Staking has lately gained popularity in the crypto world, and like many things in crypto, staking may be a difficult or easy concept, depending on how many layers of understanding you want to access.

Before delving into crypto staking, it is natural to ponder if it is worthwhile to stake cryptocurrencies. Indeed, crypto staking has seen a rapid growth in recent years, with intermittent surges in the number of people staking cryptocurrencies for yield farming prizes or fixed interest.

In reality, big exchanges such as Coinbase and Binance that offer staking services to consumers might earn APYs of up to 30%. As a result, you can plainly see a significant increase in the demand for staking cryptocurrencies, which generates numerous talks about staking.

Staking is a way of earning rewards for holding certain cryptocurrencies

Crypto staking is the process of locking up crypto holdings in order to receive rewards or interest. Cryptocurrencies are built on blockchain technology, which verifies crypto transactions and stores the resulting data on the blockchain. Staking is another term for confirming transactions on a blockchain.

These validation methods are referred to as proof-of-stake (PoS) or proof-of-work (PoW) depending on the kind of cryptocurrency and its accompanying technology. Each of these procedures contributes to crypto network consensus, or confirmation that all transaction data adds up to what it should.

However, attaining that consensus necessitates the participation of others. That is what staking is—investors that actively retain or lock up their crypto assets in their crypto wallet are participating in the consensus-taking procedures of these networks. Stakers are essentially the people that approve and verify transactions on the blockchain.

The networks reward those investors for doing so. The particular prizes will vary according to the network. It may be useful to think about crypto staking as equivalent to putting money in a savings account. As a reward from the bank, the depositor gains interest on their money while it is with the bank, which utilizes the money for other reasons (lending, etc.). Staking coins is therefore analogous to earning interest.

How does Crypto Staking work?

Staking is how new transactions are added to the blockchain in cryptocurrencies that follow the proof-of-stake concept.

Participants must first pledge their currencies to the cryptocurrency protocol. The protocol selects validators from among these individuals to confirm blocks of transactions. The more coins you commit, the more probable it is that you will be selected as a validator.

When a new block is added to the blockchain, new cryptocurrency coins are created and given as staking rewards to the validator of that block. Most of the time, the payouts are the same cryptocurrency that the members are staking. Some blockchains, however, employ a different form of coin for incentives.

To stake cryptocurrency, you must first acquire a cryptocurrency that employs the proof-of-stake concept. Then you may decide how much you wish to bet. Many prominent exchanges allow you to do so.

When you stake your coins, they remain in your ownership. You’re basically putting them to work, and you may unstake them later if you wish to exchange them. The unstaking process may take some time, and some cryptocurrencies require you to stake coins for a set period of time.

Staking is not available for all forms of cryptocurrencies. It is only accessible for coins that employ the proof-of-stake methodology.

To add blocks to their blockchains, several cryptocurrencies employ the proof-of-work concept. The issue with proof of work is that it needs a significant amount of computational power. As a result, cryptocurrencies that employ proof-of-work consume a lot of energy. Because of environmental issues, Bitcoin in particular has been chastised.

Proof-of-stake, on the other hand, does not need quite the same amount of effort.

Which cryptocurrencies are capable to be staked?

This also makes it a more scalable solution capable of handling larger volumes of transactions.

Here are a few of the major cryptocurrencies you can stake:

  • Ethereum: was the first cryptocurrency with a programmable blockchain that developers can use to create apps. Ethereum started out using proof of work, but it’s transitioning to a proof-of-stake model.
  • Cardano: is an eco-friendly cryptocurrency. It was founded on peer-reviewed research and developed through evidence-based methods.
  • Polkadot: is a protocol that allows different blockchains to connect and work with one another.
  • Solana: is a blockchain designed for scalability since it offers fast transactions with low fees.

Is Crypto Staking a Good Investment?

Anyone may earn crypto by staking it. However, unless someone has a large cache of proof-of-stake coins, staking is unlikely to make them wealthy.

Staking payments are comparable to stock dividend payouts in that they both provide passive income. They don’t need the user to do anything other than keep the correct assets in the proper place for a defined period of time. Because of compound interest, the longer a user invests their coins, the bigger the overall profit potential.

However, unlike dividends, there are a few factors specific to proof-of-stake currencies that determine how much of a staking incentive users are likely to earn. When looking for the most successful staking coins, users should consider the following variables and more:

  • How big the block reward is
  • The size of the staking pool
  • The amount of supply locked

Furthermore, the fiat currency worth of the coin being staked must be considered. Assuming that this value remains stable or grows, staking might be advantageous. However, if the coin’s value declines, earnings may be swiftly depleted.

What exactly is a stake pool?

A staking pool is a collection of coin holders that pool their resources in order to improve their chances of validating blocks and getting rewards. They pool their staking power and split the benefits in accordance to their contributions to the pool.

Setting up and managing a staking pool may take a significant amount of effort and expertise. Staking pools are best successful on networks if the entrance barrier (technical or financial) is reasonably high. As a result, many pool operators deduct a fee from the staking incentives provided to players.

Aside from that, pools may offer further freedom to individual stakeholders. Typically, the stake must be locked for a specific length of time, and the protocol specifies a withdrawal or unbinding time. Furthermore, there is probably definitely a significant minimum amount necessary to stake in order to disincentivize malevolent action.

The majority of staking pools have a minimal minimum balance and no extra withdrawal delays. As a result, joining a staking pool rather than staking alone may be preferable for beginning players.

The Advantages of Crypto Staking

Here are some of the advantages of staking cryptocurrency:

  • It is an easy way to earn interest on your cryptocurrency holdings
  • You do not need any equipment for crypto staking like you would for crypto mining.
  • You are helping to maintain the security and efficiency of the blockchain
  • It is more environmentally friendly than crypto mining

The major advantage of staking is that you earn more cryptocurrency, and interest rates may be quite high. In rare circumstances, you may be able to make more than 10% or 20% every year. It has the potential to be a highly rewarding method to invest your money.

And all you need is crypto that operates on the proof-of-stake mechanism.

Staking is another technique to support the blockchain of a cryptocurrency in which you have an investment. These cryptocurrencies rely on staking by holders to authenticate transactions and keep things operating smoothly.

The Dangers of Crypto Staking

There are a few risks of staking crypto to understand:

  • Crypto prices are volatile and can drop quickly. If your staked assets suffer a large price drop, that could outweigh any interest you earn on them.
  • Staking can require that you lock up your coins for a minimum amount of time. During that period, you’re unable to do anything with your staked assets such as selling them.
  • When you want to unstake your crypto, there may be an unstaking period of seven days or longer.

The most significant danger of crypto staking is that the price will fall. Remember this if you come across coins with unusually high staking reward rates.

Many lesser crypto companies, for example, promise high returns to tempt investors, but their prices later plummet. If you want to add cryptocurrencies to your portfolio but want less risk, cryptocurrency stocks may be a better option.

Although the crypto you stake is yours, you must unstake it before you may trade it again. To avoid unpleasant surprises, ask out if there is a minimum lockup time and how long the unstaking procedure takes.

Closing thoughts

Staking is a method of earning additional benefits by using your crypto holdings or coins. It might be beneficial to conceive of it in terms of earning interest on cash deposits or dividends on stock assets.

Essentially, coin holders enable their crypto to be utilized in the blockchain validation process and are paid by the network for doing so. Staking might provide another possible revenue stream for cryptocurrency investors.

What is a Crypto Wallet?

What is a Crypto Wallet?

A crypto wallet is not the same as a traditional wallet. You could definitely go for your wallet right now, open it, and either take out tangible money or put some back in—or at the very least a payment card. A wallet does not secure your money in any manner, except from the elements or becoming misplaced in your luggage.

A crypto wallet is a different beast entirely. A crypto wallet is a software or physical device that allows users to store and manage their Bitcoin, Ether, and other cryptocurrencies.

When you wish to acquire cryptocurrency, whether through a exchange or as a gift or revenue, you direct the sender to a unique cryptographic address generated by the wallet.

You can imagine your cryptocurrency saved on the wallet in the same way that files are stored on a USB drive, but the information stored on the wallet just refers to the location of your cash on the blockchain, the public ledger that records and authenticates all cryptocurrency transactions.

A crypto wallet is a way to manage, secure, and use cryptocurrencies

Origin

Satoshi Nakamoto created the first cryptocurrency wallet when he released the bitcoin protocol in 2009.

How does a Crypto wallet work?

Blockchain is a public ledger in which data is stored in “blocks.” These are records of all transactions, as well as the amounts stored at each location. Cryptocurrencies are not kept “in” a wallet in the traditional sense. The crypto assets reside on a blockchain, and the wallet software enables you to interact with the blockchain balances. The wallet itself stores addresses and lets their owners to transfer to other addresses while also allowing others to see the balance stored at any particular address.

A crypto wallet works by using two keys: one public and other private. The keys can be used to track ownership, receive, or spend cryptocurrencies. A public key allows others to make payments to the address derived from it, whereas a private key enables the spending of cryptocurrency from that address.

Public Key

Those who wish to send you cryptocurrencies will use your public key as your wallet address. This address is a combination of numbers and letters that ranges in length from 26 to 35 characters. This address is frequently shown as a QR code that can be readily scanned by a camera device to make it more useable.

Sharing your public key with others is secure since it can only be used to contribute funds to your crypto wallet and cannot be used to withdraw cash or see what is within your wallet.

Sharing your public key with others is secure

Private Key

Your private key functions more like a PIN or verification number, confirming your ownership of the cryptocurrency and allowing you to spend it. Your private key, as the name implies, should be kept private and only known to you.

Private key is actually a very lengthy string of digits. Most crypto wallets will share your private key with you as a seed phrase to make it easier for users to utilize.

A seed phrase is an organized series of 12 to 24 syllables that represents a random number. It is important to preserve your seed phrase printed on a piece of paper exactly as shown when you set up your crypto wallet.

Never ever share this information with others

Because your crypto wallet just holds your public and private keys, it may be better to think of it as a keychain. Your cryptocurrency is stored on the blockchain, a digital record, and is encrypted with the information from your wallet proving you are the owner.

It may sound hard, but most crypto wallets come with applications with surprisingly simple interfaces that allow you to keep track of your holdings with live price charts and even trade crypto directly from the app.

While each wallet has its own specific nuances, here are the general steps involved in sending or receiving funds using a crypto wallet:

  • Receive funds: You need to retrieve an address (also known as a public key) from your wallet. Locate the “generate address” feature in your wallet, click it, then copy the alphanumeric address or QR code and share it with the person who wants to send you crypto.
  • Send funds:  You need the address of the receiving wallet. Locate the “send” feature in your wallet and enter an address of the wallet you intend to send coins to. Select the amount of crypto you’d like to send and click “confirm.” Consider sending a small test transaction before sending large amounts of crypto. Note that sending coins requires a fee that will be paid to miners in exchange for processing the transaction.

Types of crypto wallets

It’s also worth noting that crypto wallets come in two varieties: hot and cold wallets.

  • A hot wallet is one that is linked to the internet and operates as a program on your computer or mobile device. Because of their user-friendly design, accessibility, and functionality, hot wallets are widely regarded as the ideal alternative for individuals just getting started with cryptocurrency.-
  • A cold wallet, on the other hand, is one that is not online and takes the shape of a tiny physical device that allows you to control your private keys and verify transactions before they are executed. Cold wallets are thought to be more safe, and as a result, they are better suited for large sums of money or long-term storage.

Hardware wallets

Hardware wallets are physical devices that use USB to connect to your computer.

As previously stated, these wallets are also known as cold wallets. You may transfer funds from them while they are linked to your computer, but once they are unplugged, your funds are fully protected.

But what if you misplace your hardware wallet?

A decent hardware wallet has a “seed,” which lets you to restore your wallet on any new device. Remember that the wallet does not contain your cryptocurrency; it only has the keys to the addresses where your money is stored.

Hardware wallets are an excellent choice for crypto traders who want full control over their crypto assets and value the security features that they offer.

Software wallets

Software wallets are classified as hot wallets since they are internet-connected and are available as apps or applications on your mobile devices or desktops.

Some of these wallets are cross-platform compatible, allowing users to manage their crypto assets no matter where they are.

As a result, they are a fantastic alternative for newcomers or people who value easy access to their digital funds.

Mobile wallets

Mobile wallets are hot wallets that may be accessed via a downloading app on your mobile device. Some mobile wallets also have a desktop companion software that allows you to synchronize your portfolio and manage your assets across different devices.

Mobile wallets are frequently seen as the greatest option for those who are new to the world of cryptocurrencies. They’re loaded with features that make managing your assets simple, and they have user-friendly interfaces.

The majority of mobile wallets will save your private key for you. While this is helpful (since you don’t have to worry about losing or accidently revealing it), it implies that the wallet (rather than you) controls your private keys.

Paper wallets

Cryptocurrency does not have to be entirely digital; once you have your address and private key, you can print it out — this is known as a “paper wallet”.

This is another type of cold storage because it is not connected to the internet.

Pros of Crypto Wallets:

  • Ownership of one’s own money: If you have your own private keys, the crypto belongs to you and you alone. Money in a bank, on the other hand, is theoretically the bank’s property.
  • Flexibility to send transactions whenever and to whoever you choose: Decentralized cryptocurrencies are resistant to censorship since no one controls the network, making it difficult for anyone to halt transactions.

Cons of Crypto Wallets:

  • User responsibility: When you start your own bank, you accept full responsibility for everything that goes wrong.
  • Learning curve: Using a crypto wallet necessitates a minimum amount of technical skills as well as being acquainted with a new type of financial environment.

The Takeaway

Setting up a crypto wallet is a necessary step in order to transfer, receive, and store cryptocurrency. These digital wallets store the key pairs that provide you access to the blockchain, which is where your crypto and crypto transactions are stored. To accomplish anything with your crypto, you need the keys, much like a car.

Fortunately, there are several solutions available these days, including wallets that are connected to the internet or the cloud (hot wallets) as well as physical devices known as cold wallets. Most hot and cold wallets are multi-asset wallets, meaning they may hold a variety of various forms of cryptocurrency.

What is a Non-Fungible-Token (NFT)?

What is a Non-fungible-token?

NFT is an abbreviation for “non-fungible token”.

NFTs are blockchain-based cryptographic assets with unique identification numbers and information that identify them from one another. They are distinct from fungible tokens such as bitcoins, which are identical to one another and may thus be used as a medium for economic transactions.

In economics, a fungible asset, such as dollars, may be easily exchanged while retaining the same value since their worth, rather than their distinctive features, characterizes them. For instance, trading two $5 bills for a $10 note. This is impossible if anything is non-fungible — these objects are not interchangeable with other items since they have distinct features.

Each NFT’s unique structure allows for a variety of usage scenarios. They are, for example, an excellent vehicle for digitally representing actual assets such as real estate and artwork. NFTs, which are based on blockchains, may also be used to eliminate intermediaries and link artists with audiences, as well as for identity management.

NFTs are tokens that can be thought of as certificates that represent ownership of these unique non-fungible items.

They can only have one official owner at a time.

NFTs can also be used to represent individuals’ identities, property rights, and more.

Origin

NFTs gained traction in 2017 with the release of CryptoKitties, a decentralized application (dApp) on the Ethereum blockchain that allows users to breed and acquire digital cats.

NFTs, on the other hand, have witnessed a strong increase in attention from collectors and artists alike in 2021.

Like other fungible tokens, are often constructed on the ERC721 token standard — a templated smart contract that describes how an NFT interacts with other smart contracts and users. The ERC721 standard has hastened the development and deployment of new NFTs, as well as the establishment of numerous markets like as Rarible, OpenSea, and SuperRare.

NFT markets enable users to advertise, purchase, and trade NFTs in real time, hence promoting the expansion of the NFT ecosystem.

The renewed interest in NFTs has resulted in a Cambrian explosion of unique applications that leverage the property of non-fungibility in novel ways, often with the goal of increasing asset ownership efficiency and reducing the need for intermediaries who siphon value away from creators and marketplaces.

However, NFTs are still in their infancy, which means there is a lot of room for development from inventive developers, creative artists, and conventional institutions looking to bring unique assets on-chain.

How are NFTs traded?

NFTs, like cryptocurrencies, are traded on specialized platforms. The most well-known NFT marketplace is OpenSea.

A sale does not always imply the transfer of the object represented by the token. What is exchanged is a blockchain-registered certificate of ownership for the NFT.

The certificate must be stored safe in a digital wallet, which can come in a variety of formats. Finally, NFTs are digital contracts with inherent rules such as the quantity of copies available for sale.

Digital scarcity

With the advent of digital technology and the ubiquitous usage of online communications, we have grown accustomed to web-based copy-and-paste sharing.

If I have a photograph and create a duplicate of it to give to you, we now both have this photograph. If it’s posted on social media, anyone may download or screenshot the image. Even if I attach some metadata to the original picture, there is no way for me to establish that the original photograph is mine. Because digital information may be modified or wiped, this type of digital asset does not offer evidence of ownership.

Everything changes when there is a scarcity of digital resources.

Non-fungible tokens enable digital assets to be genuinely unique and their ownership can be confirmed and transferred on the blockchain in minutes, resulting in an immutable and unalterable transaction record.

NFTs Vs. cryptocurrency

NFTs and cryptocurrencies both rely on the same blockchain technology. NFT markets may also compel customers to use cryptocurrencies to acquire NFTs.

Cryptocurrencies aspire to function as currencies by holding value or allowing you to purchase and sell items. Cryptocurrency tokens are fungible, comparable to conventional currencies such as the US dollar.

NFTs generate one-of-a-kind tokens that may be used to demonstrate ownership and communicate rights over digital products.

Why are NFTs valuable?

NFTs are valuable because they may be sold for a large sum of money. Consider how much money individuals have made from trading Pokémon cards, baseball cards, and other collectibles. This is the digital equivalent of a collectable. If a digital artist develops a work of art, they may make a lot of money with the NFT. Their artwork will be solely theirs. NFTs vary from trading cards in this regard.

Types of NFTs

NFTs provide a versatile framework for monitoring ownership of a diverse range of digital and physical assets via a blockchain network, as well as adding use to these assets in a variety of intriguing ways. The number of possible applications for NFTs is growing, but here are a few examples.

  • Digital Art: Tokenized ownership of digital artwork is one of the most well-known NFT use cases. Artists may monetise their work by tokenizing it and then selling it to a worldwide market of potential purchasers who just need an Internet connection to do so. Unlike conventional art marketplaces, which are frequently opaque, value-extracting, restricted in discoverability, and demand hefty listing costs, NFTs may be published on global, permissionless internet marketplaces and can even give creators with cash from all secondary sales.
  • Real Estate: To bring liquidity to typically fragmented markets, NFTs can also reflect ownership of real-world assets such as real estate. Tokenization of real estate improves the efficiency of transferring ownership by providing a single source of truth on the validity and provenance of a given property. Tokenizing real-world assets may be extended to incorporate a wide range of asset categories, including actual artworks, government papers, certificates, and degrees. While in in its infancy, real-world assets tokenized as NFTs open up a slew of new possibilities, ranging from revenue-generating real-estate tokens backed by rental income to issuing digital credentials without the requirement for a physical document equivalent. They can also digitize existing documents such as college degrees and intellectual property contracts, increasing credential transparency and opening up new avenues for automation.
  • Gaming: Because they enable unique in-game goods to be tokenized, monitored, and transferred in a non-custodial way, NFTs are a critical component of blockchain-based video games. In the case of typical online video games, centralized producers have total control over the distribution, ownership, and qualities of in-game commodities, which frequently influence the worth of certain characters and game results. If the publisher goes out of business, gamers may lose access to all of the game things they may have spent hours, days, weeks, or even months obtaining. NFTs not only provide players total control over their game stuff, but they also open up completely new gameplay possibilities. This covers the distribution of randomized NFT incentives in blockchain-based games, as well as the development of an interoperable metaverse, in which things from one game may be used and exchanged in another. NFTs have also furthered the growth of the play-to-earn model where users can monetize their time and effort from gaming by acquiring rare NFTs and selling them to others.
  • Music: Blockchains have enabled musicians to tokenize their work using NFTs in order to enhance revenue and stimulate audience involvement. With the Covid-19 epidemic accounting for an 85 percent decrease in music industry revenue, additional income from NFTs has helped artists offset these losses while also offering fans with a means to acquire unique rewards like as limited-edition souvenirs and even direct access to the artist’s time.
  • Collectibles: NFTs enable a new sort of digital collectible, similar to collecting actual trade cards or postage stamps. Collectors can purchase rare digital goods or show their support for a certain firm, brand, game, or artist. Unlike actual artifacts, which may be slow to move and expensive to maintain, NFTs are completely digital, transferable in seconds, and never degrade in quality. CryptoPunks, a collection of 10,000 unique 8bit-style characters algorithmically produced such that no two characters are precisely identical, is one of the most well-known NFT collections. CryptoPunks were among the first NFTs to be designed and distributed for free. They continue to draw customers who wish to possess a piece of NFT history.

Can anyone make an NFT?

Technically, anybody may produce a work of art, convert it to an NFT on the blockchain (a process known as ‘minting’) and sell it on their preferred marketplace.

You may also include a commission in the file that will pay you every time someone buys the artwork through resale. You must have a wallet set up, same like when purchasing NFTs, and it must be loaded full of cryptocurrencies. The issues stem from the necessity for money up advance.

The hidden costs can be excessively high, with sites charging a ‘gas’ fee for each sale (the cost of the energy required to conduct the transaction), in addition to a fee for selling and purchasing. You must also consider conversion costs and pricing changes based on the time of day. All of this implies that the costs might frequently be far more than the price you receive for selling the NFT.

Whether or whether NFTs are here to stay, for the time being, they are making some individuals money and opening up new avenues for digital creativity.

Cons

The hundreds of dollars in costs necessary to set up an NFT is a disadvantage.

If you want to create your own token on the Ethereum blockchain, you’ll need some ether, which, as previously said, is rather expensive. After that, there is a “gas” cost that compensates for the effort that goes into handling the transaction and is likewise dependant on the price of ether.

When an NFT is sold, marketplaces streamline the process by handling everything for a charge.

There is also an environmental cost to consider. Like Bitcoin, ether necessitates the use of computers to do computations, a process known as “mine,” and these computer jobs use a significant amount of energy. According to a Cambridge University study, Bitcoin mining consumes more energy than the whole country of Argentina. Ether is the second most popular cryptocurrency after Bitcoin, and its power consumption is increasing to the point where it is similar to the amount of electricity consumed by Libya.

On top of that, the number of NFT fraudsters is increasing.

According to Vice, the “Evolved Apes” NFT vendor made millions of dollars after offering a collection of 10,000 NFTs. The tokens were offered for public purchase last month, but the social media profile and website mysteriously vanished. NFTs were not delivered to buyers. This is one of numerous NFT frauds that are causing purchasers to lose a lot of money.

What is Cardano?

What is Cardano?

Cardano is a decentralized public blockchain platform that uses proof-of-stake (PoS) and aims to be a highly scalable and energy-efficient decentralized application (dApp) development platform with a multi-asset ledger and verifiable smart contracts.

Cardano blockchain platform powers the Cardano cryptocurrency — which trades under the symbol ADA.

Cardano is a third-generation blockchain. Bitcoin was the first of its kind. Ethereum came in second place. Ethereum led the pack, but its technology was basic because it was fundamentally new. To improve and expand, Ethereum must now rely on its governance system. Third-generation blockchains, such as Cardano, benefit from hindsight. They may identify past initiatives’ shortcomings and restrictions and evolve accordingly.

This is exactly the course Cardano took. The project began in 2014, not with a whitepaper, but with community study and collaboration aimed at addressing the shortcomings of existing blockchains. They then began coding from the ground up, seeking to address each of those constraints. Before being incorporated to the greater structure, each building component was presented to conferences and experts for assessment.

With this philosophy of methodical and peer reviewed development, Cardano is working towards addressing the problems of second generation blockchains.

The Cardano platform is based on the Ouroboros consensus protocol, which was developed by Cardano during its early stages. It was the first PoS system that was not only shown to be safe, but it was also the first to be informed by scholarly academic research.

Each development phase, or era, in the Cardano roadmap is anchored by the research-based framework, which combines peer-reviewed insights with evidence-based methods to progress toward and achieve milestones related to the future directions of the blockchain network.

ADA is the Cardano digital currency and is named after Ada Lovelace, a 19th-century countess and English mathematician who is recognized as the first computer programmer.

The Ada sub-unit is the Lovelace; one Ada = 1,000,000 Lovelaces.

There are three organizations that play an important role in the Cardano ecosystem. The network is maintained by the nonprofit Cardano Foundation, which is responsible for its governance and advancement. EMURGO is one of the founders of Cardano and is deemed the for-profit arm of the network involved in driving its commercial adoption. Blockchain infrastructure firm Input Output Hong Kong (IOHK) is the third partner, providing technology and engineering insights to the network.

Origin

Charles Hoskinson, the co-founder of Ethereum, began the development of Cardano in 2015 and launched the platform in 2017. The platform is named after Gerolamo Cardano, an Italian polymath, whose interests and proficiencies ranged through those of mathematician, physician, biologist, physicist, chemist, astrologer, astronomer, philosopher, writer, and gambler.

Roadmap

The Cardano roadmap is a summary of Cardano development, which has been organized into five eras:

  • Foundation (Byron era)
  • Decentralization era (Shelley era)
  • Smart contracts (Goguen era)
  • Scaling (Basho era)
  • Governance (Voltaire era)

Each era is centered on a collection of functionality that will be given over the course of several code releases. While the Cardano eras will be released chronologically, the work for each era is done in simultaneously, with research, prototyping, and development typically occurring concurrently across the many development streams.

Requirements

The algorithm used to build blocks and validate transactions is at the heart of every blockchain network. Cardano mines blocks with Ouroboros, an algorithm that employs the proof-of-stake (PoS) protocol. The protocol is intended to minimize energy consumption throughout the block creation process. It accomplishes this by reducing the requirement for hash power, or huge computational resources, which are essential to the operation of Bitcoin’s proof-of-work (PoW) algorithm. Staking determines a node’s ability to construct blocks in Cardano’s PoS system. A node’s stake is equivalent to the amount of ADA, Cardano’s cryptocurrency, that it holds over time.

How Ouroboros Works?

Ouroboros functions on a general level as follows.
It divides physical time into epochs, which are made up of set intervals of time called slots.
Slots are analogous to manufacturing shifts. An epoch now lasts five days, and a slot lasts one second, however these values are customizable and can be altered upon an update proposal. Epochs operate in a cyclical pattern, with one ending and another beginning. Each slot has a slot leader who is chosen using a “lottery” procedure. The larger the investment in this method, the better the odds of winning the lottery.

Slot leaders are in charge of the following duties:

  • Validating transactions
  • Creating transaction blocks
  • Adding newly-created blocks to the Cardano blockchain

Ouroboros requires a modest number of ADA holders to be online and connected to the network. The algorithm incorporates the notion of stake pools to further reduce energy usage.

ADA holders may organize themselves into stake pools and elect a few to represent the pool during protocol execution, making participation easy and assuring block production even if some are offline.

Layered Technology

There are two types of information involved in value exchanges. There is the straightforward, from, to whom, when, and how much — this is the only data Bitcoin can support. However, as we all know, value transfers are never this straightforward in our actual world. With each transaction, we might ask: what are the terms and circumstances of the transfer, why was the money transferred, and who was involved? This is referred to as metadata.

Ethereum allowed for the integration of all of this data. The link between the actual value transfer and the related metadata is referred to as a smart contract.

Contracts that are programmable. However, because there is no split between accounting and computation in Ethereum, this information is saved simultaneously, with no thought given to whether the metadata is always required to be included. This is an issue. The more data contained with each transaction, the more gas it costs, the more difficult it is for the blockchain to keep that information, and the more difficult it is for nodes to maintain the blockchain’s history.

As a result, Cardano isolates the transfer from the why.
They achieve this by dividing the platform into two different layers:

  • The Cardano Settlement Layer (CSL) is a protocol that allows for the settlement of transactions on the Cardano network. This layer is in charge of token economics as well as the balances of all user accounts. This layer is used to trade Cardano’s native currency, ADA. In layman’s terms, this simply implies that this layer contains all code related to accounts and the ADA token.
  • The Cardano Control Layer (CCL) this layer contains all of the smart contract functionalities. This layer can also enable regulatory components such as digital identification.

This allows for easier upgrades and enhanced flexibility.

Governance

Cardano wishes to establish blockchain-based governance. That implies that choices about the blockchain’s future may be voted on by token holders and incorporated into protocol.

They foresee a type of library where ADA holders may submit and vote on enhancements and adjustments. For the protocol to be implemented, a particular percentage of votes must be received.

Off-chain governance systems, on the other hand, offer some semblance of voting, however there is no consistent voting procedure across all partners. Miners cast their votes by allocating their computational resources (or stake in the case of PoS) to the blockchain split (version) that they favor. Users vote on the chain they will use by using it. Exchanges also have a say in deciding which tokens to support. However, all of this voting takes place after the fork. As a result, on-chain governance establishes a system in which everyone votes in the same way, and voting occurs prior to implementation.

However, there are both pros and cons to this system.

  • Pros: This approach will most likely aid in the prevention of hard forks. Creating a mechanism for discussion and voting promotes fast network upgrades without the hassle of heated discussions and controversial forks. It essentially democratizes the process by granting equal voting rights based on token holdings. This system decentralizes government as well. Instead of just a few engineers being in charge of suggestions and updates, the entire community may become involved.
  • Cons: On-chain voting has several disadvantages as well. If there is a problem, each implemented feature becomes far more difficult to remove. Code-based governance is immutable. We also trust the community to make informed judgments on protocol updates. To avoid actions such as trolling, systems must be in place. Even apathy would be detrimental to this system.

None of this governance system is currently in place; it’s all still being developed. The details of the protocol and how it will address the above concerns remain to be seen.

Treasury

A portion of each block reward (25%) is put into a treasury. This fund is decentralized and only accessible via the voting process explained above. Assume the Cardano community want to hold a development competition. The specifics are offered to the community, and ADA holders vote on whether or not to participate in the tournament. The community can then vote on how to support the tournament using the treasury. With a unanimous decision, monies from the treasury can be used to finance network developments and improvements.

Perhaps researchers would like to obtain funds in the future to explore aspects of Cardano and offer changes. The treasury system may be able to facilitate this.

All of this contributes to resolving the question of how blockchains should pay themselves once their supporting corporations have gone out of business.

Remember that this concept has not yet been deployed.

Conclusion

The Cardano project is expected to introduce a number of advances to the smart contracts platform sector. It is collaborating with professors from colleges all around the globe to include peer-reviewed academic research into its architecture, which is more than any other platform we’ve looked at so far, including Ethereum. It attempts to address alleged weaknesses in Bitcoin and Ethereum governance while adopting governance concepts from other blockchains.

What is Proof of Stake (PoS)?

What is Proof of Stake?

Proof of stake (PoS) is a consensus method that blockchain networks employ to reach distributed consensus and confirm transactions.

The fundamental tenets of blockchain technology are decentralization and distributed databases. However, one of the most important aspects of blockchain is the requirement for network nodes to reach consensus on the current state of the network.

As a result, the consensus mechanism is an important architectural idea in the blockchain ecosystem. Currently, the two most prevalent consensus techniques are Proof-of-Work (PoW) and Proof-of-Stake (PoS). While PoW has been the traditional method for obtaining consensus in blockchain networks, it has a number of drawbacks.

PoS tries to address the flaws that were visible in PoW.

How does PoS work?

Blockchain is a distributed ledger of transactions that is decentralized.

Because there is no one server overseeing the network, everyone must agree on which transactions are genuine. It would otherwise be feasible for anyone to make bogus transactions. The servers in a blockchain are referred to as “nodes.” Transactions are processed by nodes. Some nodes can add blocks of transactions to the chain, therefore maintaining and extending the ledger. These nodes are known as “miners” in PoW networks such as Bitcoin.

In PoS, nodes commit funds to the network — a process known as “staking” — in exchange for a chance to be chosen as the next block writer, as opposed to nodes vying to be paid for solving cryptographic problems, as in PoW. Nodes that may add blocks in PoS networks are known as “validators,” who are those who oversee validating transactions on a blockchain. Each validator has a chance of being chosen to write the next block and receiving the associated rewards. It’s like a lottery: the more the stake of tokens invested, the better the chances that node will be picked. The selection of the next block writer, the next validator, is a pseudo-random procedure dictated by the magnitude of the stake you have allocated to the network as a user.

Mining power in PoS

Mining power in PoS is determined by the number of coins staked by a validator.

Participants who stake more coins have a better chance of being picked to add additional blocks. Each PoS protocol picks validators in a different way. There is generally some randomness involved, and the selection process can also be influenced by other criteria like as the length of time validators have been staking their coins. Although anybody staking might be picked as a validator, the chances are slim if you’re staking a tiny amount.

If your coins account for 0.001% of the total amount staked, your chances of getting picked as a validator are around 0.001%. That is why the majority of players join staking pools. The validator node is put up by the owner of the staking pool, and a group of users pool their funds for a higher chance of winning fresh blocks. The pool’s participants share the rewards. A minor fee may also be charged by the pool owner.

PoS Vs. PoW

Both PoS and PoW techniques accomplish the same purpose, but in different ways.

The primary distinction between PoS and PoW networks is how the network obtains consensus for its blockchain. PoW achieves consensus by enabling a single member to write the next block in the blockchain and be compensated in the native coin of that blockchain for their work. Miners are basically consuming massive quantities of processing power and electricity while attempting to “solve an extremely difficult cryptographic puzzle”.

This technique has been criticized for needing excessive energy, having trouble expanding or developing the network, and failing to provide adequate throughput (the ability to process many transactions).

PoS can improve upon some of the biggest problems presented by PoW, namely:

  • Energy consumption: PoS requires less energy than PoW.
  • Transaction throughput: PoS networks can handle more transactions than PoW.
  • Scalability: PoS networks can scale more easily than PoW networks.

Security

A 51% attack is an effort by an individual or group to acquire control of a network by controlling the majority of hashing or staking power. It is unknown if PoS networks are more or less vulnerable to 51% attacks than PoW networks.

The issue is primarily theoretical, as 51% attacks have only happened a few times in actual life. Due to the vast amount of processing power required, conducting this sort of attack against a network as large as Bitcoin would be almost unfeasible.

In the case of PoS, attackers would have to purchase more than half of the tokens being staked. The attacker might then become the only validator and take control of the network. According to one argument, this may be impossible to do due to how high it would push the price of any single token. The objective is that individuals will prefer to engage honestly in the system by staking tokens rather than go to the hassle of attempting to attack the network, which could quickly become expensive.

Bottom Line

The promising advancements in PoS consensus algorithms have demonstrated their viability for use in current blockchain networks. PoS is an enticing idea, with significant value gains in terms of energy efficiency, blockchain protocol throughput, and transaction speed. As the discussion over cryptocurrency’s environmental effect heats up, PoS coins may be a viable option. It is crucial to remember, however, that PoS is still in its early phases of development. In the long term, a thorough knowledge of the fundamental logic for PoS as well as the inherent hazards is unavoidable.

Patricio Aguirre
Proactive Computer Engineer - Blockchain Enthusiast & Crypto Learner