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What is a Stablecoin?

What is a stablecoin?

A stablecoin is a digital asset that is linked to a physical asset or fiat money. As a result, it is less volatile than other cryptocurrencies such as Bitcoin and Ethereum. The bulk of the 4000+ cryptocurrencies in existence in 2021 are not stable. This implies that they can change dependent on their market capitalization, the number of coins in circulation, the number of individuals investing, and other factors. Stablecoins originated in response to a market requirement for stability. They still use the same blockchain technology as other cryptocurrencies, but they have been designed so that their value does not fluctuate as much.

Types

There is some attraction to fiat currencies, which are backed by the full confidence and credit of the government that issued them. Fiat currencies benefit from some price stability because of this.

This, however, implies that many fiat currencies are essentially controlled by their central banks. Stablecoins are an attempt to bridge the gap between fiat currency and cryptocurrency. Stablecoins are classified into three types based on their operating processes.

  • Fiat-Collateralized: Fiat-collateralized stablecoins keep a fiat currency reserve, such as the US dollar, as collateral in order to issue a sufficient amount of crypto coins. Other kinds of collateral can include precious metals like as gold or silver, as well as commodities such as oil, however most fiat-collateralized stablecoins nowadays employ dollar reserves. Such reserves are managed by independent custodians and are audited on a regular basis to ensure compliance. Tether and TrueUSD are popular crypto currencies with a value equal to one US dollar and are backed by dollar deposits.

Pros:
– Stable price
– Not prone to hack

Cons:
– Needs an auditor to make sure transparency is maintained
– Slow liquidation to fiat

  • Crypto-Collateralized: Stablecoins that are crypto-collateralized are backed by other cryptocurrencies. Because the reserve cryptocurrency may be volatile, such stablecoins are over-collateralized — that is, a higher number of cryptocurrency tokens are kept as a reserve for releasing a smaller number of stablecoins.

Pros:
– More decentralized
– Quick and cheap liquidation — smart contracts

Cons:
– Not as price stable as the fiat baked stable coins
– Tied to the health of a particular crypto currency
– High complexity

  • Non-Collateralized (Algorithmic): Non-collateralized stablecoins do not employ reserves but do feature a functional mechanism, like that of a central bank, to maintain a stable price. For example, the dollar-pegged basecoin employs a consensus process to increase or reduce token supply based on demand. Such operations are analogous to a central bank producing banknotes to sustain fiat currency values. It is possible to do this by deploying a smart contract on a decentralized platform that can run autonomously.

Pros:
– No collateral required
– Most decentralized and independent
– Not tied to any crypto or fiat

Cons:
– Complex to implement as deeper understanding of finance, economics, technology and cryptography knowledge is required to think along these lines.

Advantages

Stablecoins are gaining popularity due to their promise of a more stable cryptocurrency choice. These are the crypto market’s safe bets, with support that prevents them from plunging overnight. But that’s not the only advantage of stablecoins; they also have a broader appeal, which means they’re more likely to get ingrained in society. As a result, it’s less of a risk for investors and early adopters, who can reasonably trust that the money they put into the currency isn’t going to vanish.

When the general public hears about a certain stablecoin, it is simpler to disseminate it and its effect since it is backed by a physical asset. The normal user is more likely to believe a currency that is the digital equal of a dollar than some transitory digital coin.

The presence of this anchoring feature elevates stablecoins from a mysterious new technology to something that even your grandmother could use. This has the potential to dampen the euphoria a little, because few young tech disruptors will be keen to share their preferred money with the older generation, because that’s just not hip enough. But, let’s be honest, hype hasn’t been doing a great job of keeping other cryptos afloat thus far.

Furthermore, stablecoins are a better choice for speedy transactions than options like Bitcoin and its rivals. The consistent pricing, quick turnaround, and accelerated processing make it suitable for paying for groceries or ordering pizza. The key method of grabbing market attention is to embed stablecoins in daily life and make them function for the user, which has shown to be effective so far.

Problems

Stablecoin, although being a hopeful development in the crypto industry, is not without its drawbacks. There’s no getting around the reality that many of the best stablecoins forego decentralization in favor of the same stability that makes people want them. This, in and of itself, contradicts the original ideology of cryptocurrencies and puts the market at risk of monopolization or cornering.

To be sure, some solutions advocate for decentralization while still attempting to retain the objectives of crypto’s creators. Those, however, confront the challenge of obtaining adequate funding. Essentially, if you rely on a bank to handle collateralization, you may anticipate value stability but at the expense of decentralization. Similarly, crypto-backed stablecoins are decentralized, but they must make certain concessions in terms of stability.

It’s always a balancing act, and not every business can pull it off.

Last but not least, while a crash in the underlying currency or asset is less likely than one in the crypto market, it is nevertheless possible. Stablecoins are not immune to nationwide currency value drops, which have historically occurred all over the world, thus they are not immune .However, if you have analytics on your side, you can generally detect this type of disaster well in advance. Just keep in mind that stablecoins aren’t magically guaranteed to remain stable indefinitely, and you’ll be OK.

Wrap up

Stablecoins are similar to traditional currencies, with the exception that they do not have any centralized qualities and instead utilize smart contracts and blockchain, which are written in computer code, to replace the functions of traditional investment and currency platforms. Finally, stablecoins provide greater benefits in terms of hedging the value as well as many methods to invest in DeFi-based smart contracts. Stablecoins eliminate centralization and become the bridge between the real economy and the encrypted economy, allowing users to focus solely on their earning strategy and never worry about the fluctuation in the crypto world.

What is HODL?

What is HODL?

HODL is a commonly used slang phrase in the Bitcoin and other cryptocurrency circles. Some individuals mistakenly believe that HODL is an abbreviation for “Hold on for Dear Life.” While the term is correct, it represents a little of revisionist history.

It turns out that HODL is a drunken misspelling of the word “hold.”

Origin

The word “HODL” first appeared in 2013 in a post to the Bitcointalk forum by an excited member named GameKyuubi. Bitcoin’s price was turbulent throughout 2013, soaring to over $1,100 at the start of December 2013, up from just over $100 in April of the same year.

In his post, he wrote, “I AM HODLING,” implying that from that moment on, he would merely retain his bitcoins rather than sell it, regardless of market conditions. Within hours, the error had made its way into every Bitcoin community channel in the form of jokes and GIFs, launching HODLing into crypto-jargon history.

HODL post

Strategy and Philosophy

HODL has become a crypto enthusiast’s catchphrase, suggesting a long-term strategy to cryptocurrency investing.

This method is consistent with GameKyuubi’s reasoning in the original article, which said that rookie traders are likely to fail in their attempts to play the market and should instead simply hold their currency.

For bitcoin maximalists, HODL is more than just a method for dealing with FOMO (Fear of Missing Out), FUD (Fear, Uncertainty, and Doubt), and other profit-depleting emotions.
Long-term cryptocurrency investors remain involved because they think that cryptocurrencies will eventually replace government-issued fiat currencies as the foundation of all economic organizations.
If this happens, the exchange rates between cryptocurrencies and fiat money would become meaningless to crypto holders.

Risks

Despite the recent high rate of return and the motivations to buy, smart investors should be aware of the hazards associated with cryptocurrency holdings. Cryptocurrency prices are quite volatile.

Investors may have to deal with severe ups and downs in asset values, which implies they must have far higher risk tolerances than investors in traditional financial products. They must have enough capital to avoid forced sales or to cover unanticipated liquidity demands.

With a relatively limited history in comparison to other forms of assets and fiat currencies, cryptocurrencies face an uncertain future. The cryptocurrency policy is still in its early stages. Cryptocurrencies can be used for fraudulent activities such as illicit transactions and money laundering if they are not monitored by a central body.

Different governments and political groups have expressed varying views on the usage of cryptocurrencies. It has the potential to greatly impede their function in enabling international transactions, hence lowering the value of cryptocurrencies. Unfavorable policymaking and public perception may have a long-term negative impact on asset value.

Token

$HODL is a cryptocurrency that was called after the popularity of the word “HODL” in the crypto community. The Binance Smart Chain is used by the HODL token, and HODL token owners can receive Binance Coin incentives.

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.

What is DeFi?

What is DeFi?

DeFi, or decentralized finance, is a blockchain-based financial system capable of stripping out traditional financial middlemen such as banks, brokerages, and exchanges.

It makes use of smart contracts to enable users to lend or borrow funds from others, bet on price fluctuations on a variety of assets using derivatives, insure against risks, and earn interest in savings-like accounts.

Because of it nature, a government-issued ID, social security number, or proof of address are not required. DeFi allows buyers, sellers, lenders, and borrowers to interact with one another or with a strictly software-based middleman rather than with a company or institution that facilitates a transaction.

To achieve the aim of decentralization, a variety of technologies and protocols are employed. A decentralized system, for example, might be made up of open-source technology, blockchain, and proprietary software. These financial products are made feasible by smart contracts, which automate agreement terms between buyers and sellers or lenders and borrowers. DeFi solutions, regardless of the technology or platform employed, are intended to eliminate middlemen between transacting parties.

Decentralized finance makes use of technology to disintermediate centralized models and enable the delivery of financial services to anybody, regardless of race, age, or cultural identity.

It lowers the barrier to admission.

Simultaneously, DeFi applications provide consumers more control over their money through personal wallets and trading platforms that cater to individual users rather than institutions.

How does it work?

DeFi provides services without the need of intermediaries by utilizing cryptocurrency and smart contracts. In today’s financial environment, financial institutions serve as transaction guarantors. Because your money flows through them, this gives these institutions enormous influence. Furthermore, billions of individuals throughout the world do not have access to a bank account.

A smart contract substitutes the financial institution in the transaction in DeFi. When a smart contract is live, no one can change it; it will always execute as planned. Smart contracts are also open to the public for inspection and auditing. As a result, defective contracts are frequently scrutinized by the community. This does imply that there is now a need to rely on more technical members of the community who can understand code. The open-source community helps keep developers in check, but this requirement will fade as smart contracts become simpler to comprehend and alternative methods of proving code’s integrity are created.

Main elements

There are certain DeFi “building blocks” that create a software stack, with every layer building upon another. These layers work together to create DeFi and its related applications that serve users in a variety of different ways. If one layer is off, so are the other layers.

The five layers that make up DeFi include:

1. Settlement: Foundational layer of the blockchain and its specific native asset. This layer provides security and a set of rules to follow.

2. Asset: Refers to all the tokens and digital assets that are native to the blockchain.

3. Protocol: Sets the protocols or guidelines for smart contracts.

4. Application: Brings the protocols to life with a user interface that is consumer-facing.

5. Aggregation: Consists of aggregators that connect the various dApps and protocols which make up the foundation for borrowing, lending on and other financial services.

Advantages and disadvantages

  • Decentralization: It is difficult to censor or stamp out, but it does need some heavy-duty computer. Maintaining a database and records over a network of numerous computers slows things down and increases the cost of transactions.
  • No intermediaries: There is no need for a third party to safeguard the assets. That means you don’t have to worry about a financial institution failing and taking your tokens with it — or about the government seizing and confiscating your tokens. On the other side, you and your passcode are the only things keeping your assets secure. If you lose (or someone steals) your passcode, your valuables are gone for forever.
  • Available to anyone: Without typical financial credentials such as identification or a credit score, you may be able to obtain a loan or exchange virtual currency. That openness promises to bring financial services to sections of the world where they haven’t always been available, or where they are prohibitively expensive or prone to fraud or confiscation. However, the disadvantage is obvious: if nobody is keeping track of who is utilizing a service or where they are situated, the systems might be utilized by criminals or run counter to penalties. The regulatory crackdown is already in effect.

Applications

  • Send money around the world quickly: Because blockchain technology is used, money may be moved in a safe and worldwide manner.
  • Borrowing: Borrowing money from decentralized providers comes in two main varieties.
  1. Peer-to-peer, meaning a borrower will borrow directly from a specific lender.
  2. Pool-based where lenders provide funds (liquidity) to a pool that borrowers can borrow from.
  • Lending: You can earn interest on your crypto by lending it and see your funds grow in real time.
  • Access to global funds: When you utilize a decentralized lender, you have access to funds deposited from all over the world, not simply those held by your selected bank or institution. This increases the availability of loans and lowers interest rates.
  • Stable coins: Volatility in cryptocurrencies is a concern for many financial products and ordinary spending. Stablecoins have been developed by the DeFi community to address this issue. Their value is fixed to another asset, generally a prominent currency such as the US dollar.
  • Grow your portfolio: There are fund management products that will try to grow your portfolio based on a strategy of your choice. This is automatic, open to everyone, and doesn’t need a human manager taking a cut of your profits.
  • Advanced trading: For traders who like a bit more control, there are more complicated alternatives. Limit orders, perpetual orders, leveraged trading, and more options are available. Decentralized trading gives you access to global liquidity, the market never closes, and you always have complete control over your assets. When you utilize a centralized exchange, you must deposit your assets prior to the deal and rely on them to protect them. Your funds are at danger while they are deposited because centralized exchanges are appealing targets for hackers.
  • Exchange tokens: Decentralized exchanges let you trade different tokens whenever you want. You never give up control of your assets. This is like using a currency exchange when visiting a different country. But the DeFi version never closes. The markets are 24/7, 365 days a year and the technology guarantees there will always be someone to accept a trade.
  • Insurance: The goal of decentralized insurance is to make insurance more affordable, faster to pay out, and more transparent. With more automation, coverage becomes very inexpensive and payouts become much faster. The information utilized to make a decision on your claim is totally transparent. Bugs and exploits are possible, like with any program. So, for the time being, many insurance products in the market are focused on safeguarding their customers from financial loss. However, programs are being launched to provide coverage for all life may throw at us. People who are typically priced out of standard insurance might benefit from decentralized insurance.

Final thoughts

DeFi is a vast financial ecosystem that aims to eliminate the intermediary and enable financial transactions between users. There is now a lot of buzz about DeFi and cryptocurrency. If you wish to participate, be sure you understand not just the benefits but also the hazards before you begin.

What is a dApp?

What is a dApp?

A dApp, or decentralized application, is a software program similar to any other software application. It might be a website or a mobile app, but the essential distinction is that they are based on a decentralized network, such as blockchain. This means that no single entity has control over the network.

A smart contract and a frontend user interface are combined in dApps.

For instance, when you write a smart contract on Ethereum, you are really creating backend code for your dApp, and while your dApp will have a user interface like a regular app, either all or part of the backend is built on top of Ethereum.

dApp = frontend + smart contract backend

Advantages

Many of the exciting aspects are center around ability to safeguard user privacy.

  • Censorship-resistant: It is extremely difficult for governments or powerful individuals to manage the network since there is no single point of failure. Proponents of free expression point out that dApps can be created as alternatives to social media sites. Because no single member on the blockchain can remove or stop messages from being uploaded, a decentralized social media network would be impervious to censorship.-
  • No downtime: Using a peer-to-peer approach ensures that the dApps continue to function even if individual machines or sections of the network fail.
  • Open source: This encourages the widespread development of the dApp ecosystem enabling developers to build better dApps with more useful of interesting functions.

Disadvantages

While dApps promise to address many of the major issues that plague traditional programs, they do have certain drawbacks.

  • Early stages: The use of dApps is currently experimental and subject to several challenges and unknowns.
  • Hackers: As many are run on open-source smart contracts, it allows hackers the rare opportunity to probe the networks looking for weaknesses.
  • Usability: The ability to develop a user-friendly interface is another concern. A lot of dApps have poor user-interfaces.
  • Update: Another restriction of dApps is the difficulty of modifying code. Once launched, a dApp will almost certainly require continuing updates to provide additions or to repair bugs or security threats. According to Ethereum, developers may find it difficult to make necessary upgrades to dApps since the data and code broadcast to the blockchain are difficult to edit.

Closing Thoughts

The “cryptoverse” has expanded dramatically since the birth of Bitcoin, the first cryptocurrency. The ability to store data in a decentralized manner was a crucial prelude to the decentralization of code execution. With Ethereum, smart contracts may now be deployed all around the world to power the backend of present and future dApps. And as more dApps are released, we’ll move closer to a more free, fair, and accessible internet.

What is Proof of Work (PoW)?

What is Proof of Work?

Proof of work, commonly abbreviated as PoW is the oldest method of consensus. A consensus algorithm is, in general, a decision-making process within a group.

A PoW algorithm works in such a way that nodes within a network proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expenditure with minimal effort on their part.

The goal of PoW algorithms is not to prove that specific work was done or that a computational issue was “solved”, but to discourage data modification by imposing high energy and hardware-control requirements.

Origin

Cynthia Dwork and Moni Naor introduced the notion in 1993 as a technique to combat denial-of-service (DOS) attacks and other service abuses such as spam on a network by requiring some work from a service requester, often processing time by a computer.

Markus Jakobsson and Ari Juels invented and standardized the term “proof of work” in a 1999 publication. PoW was later popularized by Bitcoin as the basis for consensus in a permissionless decentralized network in which miners compete to add blocks and mint new money, with each miner having a success probability proportionate to the computing effort exerted.

Why is PoW necessary?

The problem with a blockchain, such as Bitcoin, is to keep an agreed-upon transaction record in the absence of a central authority. So, the main challenge is how a group of peers with comparable status can agree on who should be permitted to contribute to the shared record. PoW is how miners (block publishers) demonstrate to the rest of the world that they have put in the effort required to construct a well-formed block of transactions to add to the blockchain.

PoW is significant because it provides evidence of confidence in a trustless environment.

This protocol ensures that excessive mining does not occur. This is accomplished by increasing the complexity of confirming each block.

It preserves the cryptocurrency’s supply while also assisting miners in keeping the network operational. At the same time, it makes use of limited resources such as time, processing power, and energy.

How does the PoW work?

The working of PoW protocol can be summarized in brief as follows

  1. The transactions are bundled together into units generally known as blocks.
  2. The transactions within each block are verified for legitimacy by the miners.
  3. A mathematical puzzle known as the proof-of-work problem has to be solved by the miners to account for verification.
  4. The first miner who solves each block problem is being rewarded.
  5. Then the verified transactions are stored in the public blockchain.

Benefits

There are several advantages to using PoW systems. They are an excellent method of discouraging spammers. If a fair amount of effort is required for each procedure, such as sending an email, most spammers will not have the processing power to send a significant number of unwanted emails.

Furthermore, PoW frameworks may be utilized to safeguard a whole network. This is the key benefit of blockchains that use a consensus approach for PoW. If enough nodes compete to discover a certain solution, the processing power necessary to overwhelm and dominate a network becomes unattainable for any one bad actor or even a single group of bad actors.

Limitations

  • Huge expenditures: There is a need for specialized computer hardware to run complicated algorithms for mining. The cost is also high and not affordable. In addition, the special mining pools need a massive amount of power to run, which further alleviates the cost.
  • The uselessness of computations: There is a lot of power required for the machines to generate a block by the miners. however, their estimates are not valid anywhere else, such as a company, science, or others.
  • 51% attack: A 51% attack is a PoW attack by the majority of the group of users, who controls the majority of the mining power. The attackers come in complete power, where they can monopolize by creating blocks and receive rewards.

Conclusion

The initial answer to the problem of double-spending was PoW, which has shown to be accurate and successful.

In the PoW, all miners are expected to compute a difficult sum. The winner is also selected by the individual who possesses the most hardware gadgets.

However, there are several flaws with the PoW method that must be addressed. This contains the quantity of energy required, the present concentration of power in mining pools, and the hazards of a 51 percent attack. The winner is also chosen by who possesses the most hardware equipment.

What is a Smart Contract?

What is a Smart Contract?

Smart contracts are essentially programs, recorded on a blockchain, that run when certain criteria are satisfied. They are often used to automate the implementation of an agreement so that all participants are instantly confident of the outcome, without the participation of an intermediary or the waste of time.

Smart contracts allow trustworthy transactions and agreements to be carried out between disparate, anonymous individuals without the requirement for a centralized authority, legal system, or external enforcement mechanism.

While blockchain technology has come to be thought of primarily as the foundation for Bitcoin​, it has evolved far beyond underpinning the virtual currency.

Origin

Smart contracts were first proposed in 1994 by Nick Szabo, a computer scientist who invented a virtual currency called “Bit Gold” in 1998. Szabo defined smart contracts as computerized transaction protocols that execute terms of a contract. He wanted to extend the functionality of electronic transaction methods, such as point of sale (POS), to the digital realm.

Many of Szabo’s predictions in the paper came true in ways preceding blockchain technology. For example, derivatives trading is now mostly conducted through computer networks using complex term structures.

How smart contracts work?

Smart contracts operate by executing basic “if/when…then…” statements typed into code on a blockchain. When preset circumstances are met and validated, a network of computers conducts the activities. These activities might include transferring payments to the proper parties, registering a vehicle, providing alerts, or issuing a ticket. When the transaction is completed, the blockchain is updated. This implies that the transaction cannot be modified, and the results are only visible to persons who have been granted permission.

Participants must agree on the “if/when…then…” rules that govern those transactions, investigate any conceivable exceptions, and create a framework for resolving disputes in order to set the terms.

Finally the smart contract can be coded by a developer; however, firms that use blockchain for business are increasingly providing templates, web interfaces, and other online tools to facilitate smart contract construction.

Advantages of Smart contracts

  • Speed, efficiency and accuracy: When a condition is satisfied, the contract is instantly executed. Because smart contracts are digital and automated, there is no paperwork to handle, and no time wasted correcting errors that frequently occur when filling out forms manually.
  • Security: Blockchain transaction records are encrypted, making them extremely difficult to hack. Furthermore, because each record on a distributed ledger is linked to the preceding and subsequent entries, hackers would have to modify the entire chain to change a single record.
  • Trust and transparency: There is no need to question if information has been manipulated for personal gain because there is no third party engaged and encrypted records of transactions are transmitted between participants.
  • Savings: Smart contracts eliminate the need for middlemen to conduct transactions, as well as the time delays and fees that come with them.

Future

For the time being, the most significant hurdle to widespread smart contract use is scalability. Processing data for thousands of internet firms would need a substantial amount of processing power. And capacity and speed are restricted on Ethereum. However, the future of blockchain is only around the corner. Capacity and speed appear to be no longer a problem as initiatives like the Internet of Things (IOTA) and the Internet of Services (IOST) show promising outcomes. This might imply that whole decentralized businesses function on smart contract technology, processing payments, moving assets, and managing day-to-day operations in a safe and distributed manner. Gartner, a research firm, definitely believes so. According to their annual report, smart contracts will be employed in more than 25% of worldwide businesses by 2022. It might be time to start thinking about how smart contracts could help your company.

What is Blockchain?

What is Blockchain?

Blockchain is a system of recording information.

Technically speaking, it is a distributed database shared between the nodes of the network mainly through internet. As a database, stores information electronically in digital format.

One key difference between a typical database and a blockchain is how the data is structured. A database usually structures its data into tables, whereas a blockchain, like its name implies, structures its data into chunks, called blocks.

This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature. When a block is filled, it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.

Cryptography is used to connect the blocks. A cryptographic hash of the preceding block, a timestamp, and transaction data are all included in each block. The timestamp verifies that the transaction data was there at the moment the block was released, allowing it to be hashed. Because each block contains information about the previous block, they create a chain, with each new block strengthening the previous ones.

As a result, blockchains are resistant to data tampering since the data in any one block, once recorded, cannot be changed retrospectively without affecting all subsequent blocks.

The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

Origin

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two mathematicians who wanted to implement a system where document time stamps could not be tampered with. In the late 1990s, cypherpunk Nick Szabo proposed using a blockchain to secure a digital payments system, known as bit gold (which was never implemented).

How does blockchain work?

The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is the foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. Therefore, blockchains are also known as a distributed ledger technology (DLT).

Private vs public blockchain

A public blockchain, also known as an open or permissionless blockchain, is one where anybody can join the network freely and establish a node. Because of its open nature, these blockchains must be secured with cryptography and a consensus system like proof of work (PoW).

A private or permissioned blockchain, on the other hand, requires each node to be approved before joining. Because nodes are trusted, the layers of security do not need to be as robust.

Uses

Blockchain technology can be integrated into multiple areas. The primary use of blockchains is as a distributed ledger for cryptocurrencies such as Bitcoin; there were also a few other operational products which had matured from proof of concept by late 2016.

  • Cryptocurrencies: Most cryptocurrencies use blockchain technology to record transactions.
  • Smart contracts: Blockchain-based smart contracts are proposed contracts that can be partially or fully executed or enforced without human interaction. One of the main objectives of a smart contract is automated escrow. A key feature of smart contracts is that they do not need a trusted third party to act as an intermediary between contracting entities -the blockchain network executes the contract on its own. This may reduce friction between entities when transferring value and could subsequently open the door to a higher level of transaction automation.
  • Financial services: Many banks have expressed interest in implementing distributed ledgers for use in banking and are cooperating with companies creating private blockchains.
  • Anti-counterfeiting: Blockchain could be used in detecting counterfeits by associating unique identifiers to products, documents and shipments, and storing records associated to transactions that cannot be forged or altered. It is however argued that blockchain technology needs to be supplemented with technologies that provide a strong binding between physical objects and blockchain systems.
  • Healthcare: In response to the 2020 COVID-19 pandemic, The Wall Street Journal reported that Ernst & Young was working on a blockchain to help employers, governments, airlines and others keep track of people who have had antibody tests and could be immune to the virus. Hospitals and vendors also utilized a blockchain for needed medical equipment.

Advantages of blockchain

  • Accuracy of the chain: Transactions on the blockchain network are approved by a network of thousands of computers. This removes almost all human involvement in the verification process, resulting in less human error and an accurate record of information. Even if a computer on the network were to make a computational mistake, the error would only be made to one copy of the blockchain. For that error to spread to the rest of the blockchain, it would need to be made by at least 51% of the network’s computers
  • Decentralization: Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the information, rather than the entire network, would be compromised.
  • Cost Reductions: Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage. Blockchain eliminates the need for third-party verification — and, with it, their associated costs
  • Immutable: Any validated records are irreversible and cannot be changed.
  • Anonymous: The identity of participants is either anonymous or pseudonymous.
  • Efficient transactions: Transactions placed through central authority can take up to few days to settle. If you attempt to deposit a check on Friday evening, for example, you may not actually see funds in your account until Monday morning. Whereas financial institutions operate during business hours, usually five days a week, blockchain is working 24 hours a day, seven days a week, and 365 days a year.

Disadvantages of blockchain

  • Technology cost: Although blockchain can save users money on transaction fees, the technology is far from free. For example, the PoW system, which the Bitcoin network uses to validate transactions, consumes vast amounts of computational power. In the real world, the power from the millions of computers on the Bitcoin network is close to what Denmark consumes annually.
  • Speed and data inefficiency: Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s Pow system takes about 10 minutes to add a new block to the blockchain. At that rate, it’s estimated that the blockchain network can only manage about seven transactions per second, (TPS). Legacy brand Visa, for context, can process 24,000 TPS.
  • Illegal activity: While confidentiality on the blockchain network protects users from hacks and preserves privacy, it also allows for illegal trading and activity on the blockchain network.
Patricio Aguirre
Proactive Computer Engineer - Blockchain Enthusiast & Crypto Learner