Tagged: Ethereum

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 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 a Crypto Token?

What is a Crypto Token?

Token is a term that is frequently heard in the cryptocurrency community. In fact, you may hear Bitcoin referred to as a “crypto token” or something similar, because – theoretically – all crypto assets may be referred to as tokens.

Crypto tokens are programmable assets that may be created and stored on current blockchains. While they frequently have extensive compatibility with the network’s cryptocurrencies, they are a whole new digital asset class.

Tokens are units that are built on top of existing blockchains.

Tokens function within an existing blockchain to enable the development and execution of one-of-a-kind smart contracts, which frequently provide ownership of assets outside of the blockchain network. Tokens may be sent and received and can represent units of value such as electricity, money, points, coins, digital assets, and more.

Crypto tokens are a sort of cryptocurrency that symbolizes an item or a specific use and has its own blockchain.

How Crypto Tokens work?

To monitor transactions, blockchain employs a decentralized, or distributed, ledger that lives on a broad variety of independent computers. Each node organizes additional data into blocks, which are then chained together in “append only” mode. Because of the append-only structure, no one on any node can change or remove data from previous blocks. They can only contribute to the chain, which is one of blockchain’s primary security characteristics.

Cryptocurrency tokens provide an append-only safe record of cryptocurrency that is linked to a special-access contract that can connect to a variety of assets.

The token-based special-access contract can grant users access to assets like as cash, crypto coins, reward points, or even digital material such as music, art, a video clip, or a movie.

The tokens enable the ownership of a blockchain-verified private smart contract linked to that asset.

Coins Vs Tokens

While the terms “coin” and “token” are sometimes used interchangeably, they refer to different sorts of assets.

A crypto coin is often employed as the native coin of a blockchain, which is used to exchange cash, store value, and so on. Tokens, on the other hand, are not native to the blockchain on which they operate.

Crypto Token Types

Currently, there are four main categories of tokens

  • Payment Tokens: Payment tokens are the most well-known and extensively utilized types of cryptocurrency. These crypto tokens are used for buying and selling in the same way that the US dollar or the Euro are, only they are not backed by a specific government. Payment tokens are units of value that may be traded for other currencies that exist within the blockchain of crypto networks such as Bitcoin, Monero, and Ethereum. Third-party custodians or exchanges are also available to convert payment tokens into legal tender currencies such as the US dollar. People are increasingly utilizing these tokens to purchase products and services, albeit the aggregate number of retailers who accept them remains tiny.
  • Utility Tokens: These crypto tokens provide its owners with access to a product or service that is either now available or in the works. They are most typically employed as a fundraising mechanism for initial coin offers (ICOs), as a placeholder for the crypto currencies that buyers would get when the new coins go live on the network. The term for these tokens stems from the fact that they may be used to purchase an item or service from the issuer. Because they exist on an actual blockchain, their owners can be confirmed, and they can be readily swapped.
  • Security Tokens: Security tokens represent the rights and duties associated with securities such as stocks and bonds. A security token is often used to represent a stake of the firm that issued it. They can reflect legal ownership of an asset or a piece of an asset, such as real estate, stocks, exchange-traded funds (ETFs), and so on.

As a result, they are more strictly controlled than ordinary tokens. Companies may issue security tokens instead of traditional stock shares to raise funds more cheaply, or because the tokens provide immediate settlement and simpler cross-border trade.

  • Non-fungible Tokens: Also known as NFTs, these tokens have made the news lately because of the eye-popping sales prices of single NFTs connected with works of art, individual tweets, and sports memorabilia. They exist on pre-existing crypto networks, with ETH being one of the most popular. These tokens have private contracts that can be clearly distinguished from any other token in existence. Because of that feature, they are used by athletes, artists, musicians, and other creators as a way to connect with collectors, who see them as digital one-of-a-kind assets. Because the consumer may still reproduce the underlying material, they cannot copy, sell, or pirate it, NFTs have created new marketplaces for digital art and memorabilia. Some persons have also issued NFTs that provide ownership of non-digital assets that are one-of-a-kind, such as real estate.


Tokens can be used for investment purposes, to store value, or to make purchases.

The Takeaway

As the blockchain industry matures, the number of distinct digital assets will only increase to meet the diverse demands of all ecosystem members, ranging from business partners to individual users. Given that generating new assets in the digital world is less limiting than in the physical realm, these digital assets are widely predicted to change the way many sectors work, interact, and produce value, enabling a plethora of new social and economic possibilities.

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 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 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.

What is Ethereum?

What is Ethereum?

Ethereum is an open-source decentralized blockchain-based platform that allows individuals to conduct transactions and draw up contracts.

It has its own cryptocurrency, called Ether, and its own programming language, called Solidity.

As a blockchain network, Ethereum is a decentralized public ledger for verifying and recording transactions. The network’s users can create, publish, monetize, and use applications on the platform.

The most fascinating aspect of Ethereum is that the code published on its blockchain cannot be changed, modified, or hacked.

It is a decentralized programmable blockchain-based software platform, not simply a blockchain.

Ethereum was established in the summer of 2015 with the goal of broadening the spectrum of blockchain and cryptocurrency applications beyond Bitcoin’s initial scope, including permissionless financial services, crowdfunding, and new organizational structures.

Origin

Ethereum was initially described in a white paper by Vitalik Buterin, a programmer, in late 2013 with a goal of building decentralized applications.

Buterin argued to the bitcoin core developers that Bitcoin and blockchain technology could benefit from applications other than money, and that a more robust language for application development was needed, which could lead to the blockchain being used to store real-world assets like stocks and property. He recommended the construction of a new platform with a more sophisticated programming language, which would later become Ethereum, after failing to reach agreement on how the project should proceed.

Formal development of the software began in early 2014 through a Swiss company. The basic idea of putting executable smart contracts in the blockchain needed to be specified before the software could be implemented.

Several codenamed prototypes of Ethereum were developed over 18 months in 2014 and 2015 by the Ethereum Foundation as part of their proof-of-concept series.

In July 2015, “Frontier” marked the official launch of the Ethereum platform as Ethereum created its “genesis block.”

Since the initial launch, Ethereum has undergone several planned protocol upgrades, which are important changes affecting the underlying functionality and/or incentive structures of the platform.

After the Constantinople upgrade on 28 February 2019, there were two network upgrades made within a month late in the year: Istanbul on 8 December 2019 and Muir Glacier on 2 January 2020.

There have been two network upgrades in 2021. The first was the Berlin upgrade, implemented on 14 April 2021. The second was London, which took effect on 5 August. The London upgrade included Ethereum Improvement Proposal (“EIP”) 1559, which introduced a mechanism for reducing transaction fee volatility. The mechanism causes a portion of the Ether paid in transaction fees each block to be destroyed rather than given to the miner, reducing the inflation rate of Ether and potentially resulting in periods of deflation.

How does Ethereum work?

You might have heard that the Bitcoin blockchain is a lot like a bank’s ledger, or even a checkbook. It’s a running tally of every transaction made on the network going back to the very beginning — and all the computers on the network contribute their computing power towards the work of ensuring that the tally is accurate and secure.

The Ethereum blockchain, on the other hand, is more like a computer: while it also does the work of documenting and securing transactions, it’s much more flexible than the Bitcoin blockchain. Developers can use the Ethereum blockchain to build a huge variety of tools — everything from logistics management software to games to the entire universe of decentralized applications (which span lending, borrowing, trading, and more).

Ethereum uses a virtual machine to achieve all this, which is like a giant, global computer made up of many individual computers running the Ethereum software. Keeping all of those computers running involves investment in both hardware and electricity by participants. To cover those costs, the network uses its own cryptocurrency, Ether (or, more commonly, ETH).

ETH keeps the whole thing running. You interact with the Ethereum network by using ETH to pay the network to execute smart contracts. As a result, the fees paid in ETH are called “gas”.

Use cases

  • Decentralized finance (DeFi): An open and global financial system built for the internet age — an alternative to a system that’s opaque, tightly controlled, and held together by decades-old infrastructure and processes. It gives you control and visibility over your money. It gives you exposure to global markets and alternatives to your local currency or banking options. DeFi products open up financial services to anyone with an internet connection and they’re largely owned and maintained by their users. So far tens of billions of dollars worth of crypto has flowed through DeFi applications and it’s growing every day.
  • Non-fungible tokens (NFTs): Tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain — no one can modify the record of ownership or copy/paste a new NFT into existence. NFTs and Ethereum solve some of the problems that exist in the internet today. As everything becomes more digital, there’s a need to replicate the properties of physical items like scarcity, uniqueness, and proof of ownership. Not to mention that digital items often only work in the context of their product.
  • Decentralized autonomous organisations (DAOs): Think of them like an internet-native business that’s collectively owned and managed by its members. They have built-in treasuries that no one has the authority to access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organization has a voice. There’s no CEO who can authorize spending based on their own whims and no chance of a dodgy CFO manipulating the books. Everything is out in the open and the rules around spending are baked into the DAO via its code.

Advantages of Ethereum

Aside from decentralization and anonymity, Ethereum also has various other benefits, such as a lack of censorship. For example, if someone tweets something offensive, Twitter can choose to take it down and punish that user. However, on an Ethereum-based social media platform, that can only happen if the community votes to do it. That way, users with different viewpoints can discuss as they see fit, and the people can decide what should and shouldn’t be said.

Community requirements also prevent bad actors from taking over. Someone with ill intentions would need to control 51% of the network to make a change, which is nearly impossible in most cases. It’s much safer than a simple server that can be broken into.

It’s also getting easier than ever before to acquire Ether. Companies like PayPal and its Venmo subsidiary support purchasing crypto with fiat currency right within the application. Considering the millions of customers on each platform, they’re bound to get involved sooner rather than later.

Disadvantages of Ethereum

While it sounds like the perfect platform, Ethereum has a few key issues that need to be worked out.

The first is scalability. Buterin envisioned Ethereum the way the web is now, with millions of users interacting at once. Due to the PoW consensus algorithm, however, such interaction is limited by block validation times and gas fees. Furthermore, decentralization is a hindrance. A central entity, like Visa, manages everything and has perfected the transaction process.

Second, there is accessibility. As of the time of writing, Ethereum is expensive to develop on and challenging to interact with for users unfamiliar with its technology. Some platforms require specific wallets, which means that one must move ETH from their current wallet to the required wallet. That’s an unnecessary step for users ingrained in our current financial ecosystem and not beginner-friendly in the slightest.

Sure, PayPal is adding crypto support, but users can’t do much aside from holding it there. The platform needs to integrate with DeFi and DApps to increase accessibility in a meaningful way.

The platform does have some well-written documentation on the matter — another key way to bring in more users. But the act of actually using Ethereum needs streamlining. Learning about blockchain is very different from using it.

Patricio Aguirre
Proactive Computer Engineer - Blockchain Enthusiast & Crypto Learner