Who’s with me? Can I get a high-five…? anyone?

Yeah, yeah, I know. You’d probably rather be reading articles about awesome Metaverse projects, crypto projects that are making the world a better place, or how you can earn a nice yield on those hefty moonbags in a fantastic DeFi protocol, but hey, tax is a part of life. And as that old cliché goes…Death and taxes and all that.

Meme Generated From imgflip.com

But, cheer up! This article will cover some of the most crypto tax-friendly jurisdictions in the world. So, if you are keen to learn how to keep those sats and ditch the tax (legally, of course), then you’ve come to the right place.

Crypto Tax-Friendly Jurisdictions

This article will cover crypto tax-friendly places that people can consider relocating to if they are serious about minimizing their tax obligations. Note that this list is in no particular order. There is no single “best” country for crypto tax as they can all vary quite significantly. There are a lot of different factors at play.

For example, some countries charge little tax on crypto; some charge no tax. Some don’t tax crypto capital gains, but they will tax frequent crypto day trading. Some countries won’t tax staking or yield income but may tax capital gains. Finally, some countries will only tax crypto held for under a year, so choosing “the best” crypto tax-friendly place really comes down to what is most important for the crypto holder.

Also, don’t forget that factors such as quality of life and amenities are important, so be sure to check out the factors to consider section near the end before you up and yolo into moving to another country.

Disclaimer here that nothing in this article is tax, financial, or life advice by any means. I am only providing a very high-level overview of my experience and findings. I am just some dude who writes articles on the internet; what do I know about taxes? Nada…

While I am happy to give you a good head start on your research, be sure to perform deeper DYOR on any considerations as these laws and regulations may be outdated and have changed by the time you read this article. There is also a chance that I could have some inaccurate info here as my sources may be outdated or misinterpreted. Please consult an international tax professional for specific tax info.

Okay, on with it! In no particular order, here are the top crypto tax-friendly jurisdictions.

Portugal

Image via Shutterstock

Okay, full disclosure here as I may be a bit biased placing this one first. I moved to Portugal about two years ago, and man, the crypto tax laws here are sweet!

Portugal is great for international citizens and an obvious choice for EU citizens residing in high tax countries within the European Union. Members in the EU can quite easily hop on over with little to worry about with regards to immigration hurdles. However, the process is a bit more cumbersome for those outside the EU.

International citizens can get their residency here by getting what is known as a “Golden Visa,” the TL;DR on that is basically that you can get residency by:

• Investing 500k into real estate- As of 2022, there are location restrictions to where residential real estate can be purchased to qualify. To encourage population dispersion outside of major hubs, these locations are limited to interior areas of the country as well as Madeira and Azores islands. There are no location restrictions on commercial or touristic properties.
• 350k acquisition of real estate located in an urban rehabilitation area. (Basically buying a home that needs fixing in a non-urbanized area)
• Investing 500k into preserving cultural heritage or artistic production.
• Investing 500k  into science and research. 
• 500k capital transfer for the incorporation or reinforcement of a commercial company.
• 500k acquisition of shares in investment funds or venture capital funds for the capitalization of Portuguese companies.
• Capital Transfer of at least 1.5 million Euros
• Start a business that generates 10 new full-time jobs for Portuguese citizens or 8 full-time jobs if the company is formed in a low-density population area. Alternatively, 500k can be invested into an already established business that creates 5 new full-time jobs for at least 3 years.

This golden visa also has a unique benefit. Residents only need to spend 7 days a year in Portugal to retain their residency status, so this is one of the few options you wouldn’t necessarily need to relocate to enjoy the tax perks.

If those price tags are a bit steep, there is also a popular freelancer visa that is ideal for digital nomads, though that may not help you obtain long-term residency. Another option for most mentions on this list is that you could take a crack at marrying a citizen from the country to obtain residency. As mentioned, this article is not tax or financial advice, and it is also definitely not marriage or relationship advice!

A Look at the City of Porto Image via Shutterstock

Cryptocurrency is tax-free in Portugal regarding capital gains and profits from interest income via staking, yield farming etc. I have also read that crypto day trading gains are also tax-free here on some taxation sites, but I cannot say this confidently as my personal experience with using a Portuguese accountant, I was informed that if your primary income is derived from frequent trading, then you do need to pay tax. So that is something to look into further if that applies to you.

Portugal is consistently ranked among the safest countries globally with low crime rates. It has fantastic free health care that ranks higher in quality than the health care system in the UK. This means that violent crimes here are unlikely to happen. Should you need to visit a hospital, it will likely be from doing something you probably shouldn’t, and the injury is likely self-inflicted. Luckily, in that case, you can get some of the highest quality healthcare in the world.

Portugal is Ranked 4th Safest Country in the World Image via blancavalbuena.com

Portugal also has something for everyone. Lisbon and Porto provide all the nightlife and metropolitan lifestyle one could want. If you want to party hard and spend those crypto gains you can’t go wrong with the party capital Albufeira which has become a very popular tourist destination, competing with the likes of Ibiza for a party lifestyle. If you travel inland, Portugal has some beautiful landscapes, lush forests, and many medieval villages that are UNESCO world heritage sites.

The weather in Portugal is also fantastic and there are climates to suit everyone. The northern parts and the city of Porto can be quite cool in the summer and cold in the winter for those who are not a fan of the heat. The south enjoys hot summer months and mild winter months. Portugal also owns the beautiful tropical island of Madeira and the stunning Azores islands.

Portugal’s Stunning Azores Islands Image via Shutterstock

The cost of living in Portugal is also relatively low compared to many places in Europe and is especially low outside the capital city of Lisbon.

Portugal Enjoys a Lower Cost of Living Than Most of Europe Image via Quora

In the city, a comfortable monthly income of around $US 2,000 would afford you a nice lifestyle while outside the city it can be much lower. Seriously, I’ve been to towns just outside of Lisbon where a glass of wine costs $0.50, beer for $1 and entire meals are around five bucks, quite affordable indeed!

Puerto Rico

San Juan, Puerto Rico Image via Shutterstock

Puerto Rico is a really popular tax-friendly destination for Americans as it is one of the easier places for them to move to escape taxation. The IRS comes knocking for their tax cut regardless of where Americans are located in the world. The United States is one of the few countries that tax both residents and citizens. This is in contrast to countries like the UK or Canada where you can be a Canadian or UK citizen, but a tax resident of another country and the taxman won’t chase you down as you can renounce your home tax residency status while remaining a citizen.

In Puerto Rico, Americans can enjoy paying 0% capital gains tax if they obtain their Puerto Rican residency. Though this has caused wealthy Americans to flock to the island in droves which has raised the cost of living substantially. The reason for this is that in order to get residency, individuals must purchase a property in Puerto Rico within 2 years of relocating there so property has become a seriously hot commodity and is in high demand.

So, unless you are a serious crypto whale with bank accounts bursting at the seams, you might find it difficult to be able to find affordable housing there. Aside from housing, the cost of living is quite affordable with a single-person income of around $US 1,700 being enough to live comfortably.

I would like to note though that at the same time as I am writing this article, it looks like the US government may attempt to start cracking down on US citizens who are using Puerto Rico as a tax shelter.

Congress Unfairly Takes aim at PR as a “Crypto” Tax Shelter While it is Apparently Fine as a Tax Shelter for Traditional Assets Image via decrypt

The capital city of San Juan is home to around half a million people and the island nation is known for some of the most beautiful beaches and nature in the world. There is something here for everyone as long as you are happy with average internet speeds.

The City of San Juan Image via Shutterstock

The crime rates in Puerto Rico are also quite low, much lower than the crime rates in many major US cities making it an even more attractive place to relocate.

United Arab Emirates- Dubai

Image via Shutterstock

Dubai is probably the most popular mention on the list as being a resident of the United Arab Emirates is about the closest anyone can become to being able to live tax-free without breaking laws. Residents are not obligated to pay taxes on crypto, property, income, or capital gains.

The city of Dubai is a paradise for people looking for an insanely high quality of life and a metropolitan lifestyle. There is no shortage of high-end restaurants, ethnic foods, Lambos for sale, or nightlife. It may just be the “party-est” city on the planet. It certainly is the home of luxury sports cars, apartments and yachts.

Ranking among some of the top safest cities in the world, crypto millionaires can feel pretty safe here as they drop their gains on expensive bottles of Dom Perignon and enjoy a lush lifestyle.

UAE Ranks 4th in Terms of Safest Asia-Pacific Countries Image via emirates247.com

You would think that a land full of millionaires and luxury everything would come with an insanely high cost of living, but Dubai is actually quite affordable with an estimated monthly living cost for a single person coming in at just under $US 2,500 per month. This cost will of course scale up significantly depending on how “bling-bling” you want to live.

Dubai is THE Place to Live the Crypto Millionaire Lifestyle Image via Shutterstock

The most affordable way to get your visa there is by setting up a company and employing yourself as a crypto trader. I know a few YouTubers and crypto traders who have done just that. Internet speeds in Dubai are among the best in the world, and the weather is fantastic, albeit a bit dry. It is in the desert, after all. The summer temperatures can rise to above 40 degrees Celsius, so you will want air conditioning.

Switzerland

Image via Shutterstock

Ah, Switzerland’s classic tax-friendly and financial powerhouse country with the iconic “Swiss bank account” often mentioned by villains in Bond movies. For decades, Switzerland has been a global tax haven, and crypto was not excluded. Crypto traded or held as an investment is not subject to capital gains tax.

Though getting Swiss residency is not easy. To get residency, you need to be:

• Under 55 years of age
• No criminal record
• Pass a stringent interview
• Invest a minimum of CHF 1,000,000

Switzerland is known for its extremely high quality of living, being one of the safest places in the world. It boasts a world-class financial system, has a fantastic education and healthcare system, enjoys political stability and is a member of the Schengen Zone, making it perfect for Europeans.

The weather here is perfect for anyone who enjoys the winter months and activities like skiing as Switzerland is known for some of the best ski hills in the world. So pack a parka and get the hot chocolate brewing if you plan on relocating here.

Image via Shutterstock

While Switzerland basically has the highest quality of just about everything, the cost of living in Switzerland is also one of the highest in Europe. After you invest your 1 million CHF to get residency, you will need enough left over to cover monthly living expenses of around 3,366 CHF. Switzerland is ranked as the third most expensive country globally for living costs.

Image via expatistan.com

On the list of the top ten most expensive cities in Europe, 3 are located in Switzerland, certainly not the ideal play for those who enjoy a cheap and cheerful lifestyle.

Singapore

Image via Shutterstock

Singapore is a popular choice as it is a fascinating and modern city. Seriously, if you haven’t been there, it is pretty mind-blowing how advanced the city is. Known for its iconic city centre gardens that feature a light-up music display and a hotel that looks like a cruise ship in the sky, Singapore is a very clean, safe and fantastic place to live.

When I visited the city, it almost even seemed too perfect; I felt like I was living in the Truman Show. I did not see a single person living on the street, not even a single piece of litter floating around.

The Iconic City Gardens that Feature a Light and Music Event in the Evenings Image via Shutterstock

Singapore residents enjoy zero capital gains tax on anything, and Singapore is known as an “investment haven.” Crypto day traders are free to trade here as long as it is not being conducted as part of business activity. If crypto trading is done as a business, it will be taxed as business income. Although there is a catch, and that is that Singaporean residency is difficult to obtain.

The best way to get residency there is by participating in the Global Investor Programme. This program allows investors to obtain residency in two ways:

• Invest at least $US 2.5 million in a new business or start-up expansion of an existing business or,
• Invest at least $US 2.5 million in a GIP approved fund that invests in Singapore-based companies.

Singapore consistently ranks as one of the safest places to live globally and has a high quality of living. As you would expect, internet speeds are lightning fast, there are fantastic restaurants and the best of pretty much whatever it is you are looking for.

Singapore Ranks High for Safety and Quality of Life Image via edb.gov.sg

The cost of living in Singapore is relatively high compared to other mentions on the list. While the cost of things like meals isn’t too bank-breaking, this is definitely not the place for a boozy holiday as alcohol purchases are quite pricey here…Not that I would know anything about that.

The weather in Singapore remains quite warm year-round but is pretty humid, so you will want to live in an air-conditioned space for sure.

Bermuda

Image via Shutterstock

Let’s turn back to the beautiful beaches of the world. Bermuda has no personal income tax, and there are no taxes on buying, selling or holding crypto. The use of crypto as a form of payment is also deemed perfectly legal here, making Bermuda the first country whose government were happy to accept tax payments in any recognized cryptocurrency! Very cool and forward-thinking of them.

Bermuda is one of the easier countries to get a one-year visa in as well, so if you are good at timing crypto markets, you may want to try and make sure the crypto top will be coming in over the next 12 months before you make the move.

It is possible to gain longer-term residency in Bermuda, though it is trickier. You can gain residency there by participating in the Bermuda Residency by Investment Program. To get this, folks are going to need to meet these requirements:

• Make an investment of $US 2.5 million dollars.
• Investments can be made in real estate, government bonds, government funds, charitable donations, investing in existing businesses or starting a new company.

Bermuda rates highly in terms of safety, has good internet speed, the perfect weather. As long as you aren’t afraid of disappearing in the Bermuda triangle, this is an absolutely beautiful place to settle down and experience a fantastic quality of life with world-class beaches.

Image via Shutterstock

That is as long as you’re happy with a slow and relaxing pace as the island is only home to around 65,000 people with an older population and little to do in terms of nightlife.

Belarus

Image via Shutterstock

Belarus is another option in Europe and has welcomed crypto holders with open arms since 2018. The government legalized crypto activities and chose to impose no crypto tax for crypto-related activities, including crypto mining. Belarusian President Alexander Lukashenko has even taken crypto legislation a step further in signing a decree for “digital economy development,” turning Belarus into one of the most forward-thinking hubs for blockchain development.

Belarus Is Definitely Thinking Towards the Future Image via park.by

This law was passed to provide a powerful boost to the digital economy and support digital innovation around blockchain technology. Interestingly, Belarus ranks among the top 15 countries globally for active cryptocurrency trading as the residents there know that the government fully supports the new industry and crypto users from less-friendly crypto jurisdictions have been relocating there.

Belarus is home to some incredible World Heritage Sites, and the capital city of Minsk has plenty of attractions to appease the residents. Unfortunately, I cannot give any insight as I have never been there, nor do I think I’ve ever met someone from Belarus, but according to this relocating to Belarus site, the nation has a rich cultural history and remains “culturally isolated.” Not sure if being culturally isolated is a positive thing or not, you may want to look into it a bit further before relocating, but to me, that sounds fascinating!

To relocate there, citizens from the following jurisdictions can enter Belarus for 30-90 days without a visa:

• Armenia
• Cuba
• Russia
• Serbia
• Ukraine
• Uzbekistan
• Venezuela

Residents from other countries will need to apply for a visa.

The climate here is nothing exciting, pretty standard warm summers and colder than average winters. The Eastern European climate generally experiences plenty of rainfall and snow in the winter, and internet speeds here are simply stated as average.

Slovenia

Slovenia’s Capital City Image via Shutterstock

The government of Slovenia also views crypto taxation favourably as they have passed tax legislation that allows for special tax laws for crypto investors. For example, there is no capital gains tax imposed on the selling of crypto for individuals, but crypto mining will be taxed as business income. Interestingly, businesses in Slovenia are not allowed to accept payments for goods and services exclusively in crypto.

Slovenia is a major Central European hub of activity with diverse geography, climate and culture. The country has a small population of around 2 million people. The climate varies greatly depending on the region, mainly experiencing cool winters and warm summers.

Slovenia enjoys good internet speeds, a high standard of living and is ranked quite high on the world safety index. There are quite a few options for anyone looking to relocate to this picturesque country. Some of those options are:

• Business Immigration Program
• Gaining employment via an employment contract
• Family reunification
• Through education in a public or private educational institution

More information on relocating to Slovenia can be found here.

Germany

Image via Shutterstock

German residents can take advantage of zero per cent tax on capital gains for anyone who sells crypto as long as it was held for longer than 365 days. This makes Germany a fantastic place for long term holders who can enjoy no capital gains tax with a side of beer and sausage wurst.

As with other EU countries, European Union members enjoy free travel between nations so getting German residency is a breeze. If you live outside of the EU, the process is a bit tricker. To relocate to Germany, there needs to be a reason. According to the German visa website, those reasons can be:

• Immigration for employment,
• Immigration for education,
• Immigration for entrepreneurs,
• Immigration for family reunions,
• Immigration residence permits.

There are many ways to obtain these, but before being accepted in the country, individuals need to prove that they are financially stable, have health insurance and have basic German language proficiency. Visas are available for those who want to start a business in Germany, study, work, perform scientific research, perform an internship, and for a family reunion.

I would definitely recommend looking at the visa immigration site above as it lays out what is required for each of these avenues. There are standards like funds needed for business activities and employment contracts that must be met before a visa can be approved.

Germany has one of the highest standards of living globally and is consistently ranked highly in terms of safety and quality of life. It consistently ranks among the top countries for nearly every metric and would be a fantastic place to call home. According to the Human Development Index, Germany is the 4th highest ranked country globally, an awe-inspiring achievement.

Germany Is Ranked 4th for Human Development Image via hdr.undp.org

The weather varies significantly in Germany from the north to the south of the country. As it is located in Central Europe, one can expect cold, snowy winters in the north, rainy winters and warm summers in the south. Germany is a very modern nation, among the most advanced globally, so no worries about slow internet speed here.

Costa Rica

Image via Shutterstock

Costa Rica has become a popular global tax haven and is enjoyed as one of the most beautiful places on the planet in terms of natural beauty. Waterfalls, jungles, exhilarating beaches, no capital gains tax, what’s not to love? Costa Rican residents are subject to zero capital gains tax in the nation unless income is derived from habitual transactions such as property. Capital gains derived from regular transactions are taxed at a flat rate of 30%.

Costa Rica rates near Italy in terms of safety and ranks higher than Spain and the United Kingdom, so you don’t need to worry too much about a five-dollar wrench attack here. Though it is located in Central America, and Costa Rica’s neighbouring countries are often making news headlines for pretty heinous criminal activity, so I would still have my guard up and research local safety before putting roots down.

The capital of Costa Rica is San Jose, which is home to over a million people, so city slickers can get their fill of a pretty decent sized metropolis. Costa Rica really does have it all going for it in terms of tropical nature, modern living, nightlife and activities, which is why it has become one of the main areas in Central America for both tourism and migration.

Ooh, I Could Spend a Day or Two Here Image via Shutterstock

As if Costa Rico doesn’t have enough to flex about in terms of a great standard of living and quality of life, it is also very affordable. A single person can live quite comfortably off about $US 1,500 per month, making it perfect for digital nomads and crypto traders. Oh, and it also has quite good internet speeds.

Vanuatu

Image via Shutterstock

If a beautiful tropical paradise takes your fancy, few places on the planet are more stunning than Vanuatu. Vanuatu is one of the islands that make up an archipelago of 83 islands off the coast of Australia, just above New Zealand.

Vanuatu has become a popular destination for investors as there are zero capital gains taxed on profits, dividends or income for traditional and crypto investments for individuals or corporations. So investors can sit easy chilling in their hammocks while sipping piña coladas, knowing they don’t need to stress about taxes here.

Fun Fact- Vanuatu is so crypto-friendly that you can actually pay in Bitcoin for your citizenship! Talk about forward-thinking. The two main ways to get residency in Vanuatu are:

Banking- This option requires that a Vanuatu bank needs to certify your ability to deposit 250,000 Vanuatu Vatu (US$ 2,250) per month into an account to ensure you have an income.

Investment- An investor can obtain residency by investing $10 million Vanuatu (approximately US$ 90k) in some form of real estate or agricultural project.

The Vanuatu passport is valid for five years, in which citizens will be able to renew it.

Vanuatu may not be for everyone, though. If you are happy kicking around coconuts all day on a remote tropical island, then sure, go for it. The population of the largest city on the island is home to only fifty-thousand people, so if you are excited by city life and the hustle and bustle, you may want to consider skipping this one.

Fancy Harpooning Yourself on This Remote Island? Image via Shutterstock

The cost of living in Vanuatu is also quite high compared to mainland European cities and comes without the amenities or convenience of location. Vanuatu comes in at being 5% more expensive than the Belgium capital Brussels for monthly living costs. The standard of living is quite high in Vanuatu, with low crime rates, which makes sense as it is difficult to get away with being a dirtbag on an island so small that everyone knows each other.

People who want to settle in Vanuatu should be content with a pretty simple life. Unfortunately, there are few paved roads, so probably not the best place to buy Lambos and internet speeds are often criticized for being slow.

Malaysia

Image via Shutterstock

If exotic locations and experiencing different cultures are your thing, then look no further than Malaysia. Malaysia has no long-term capital gains tax on crypto, and there is no tax on crypto trading unless your crypto trading is done as part of a business. If crypto trading is done as a business, then income will fall under the business income tax category.
Malaysia is relatively safe regarding low violent crime rates, though pickpocketing can be common, so watch out for that. Credit card fraud is also a problem there, so make sure you have one of those RFID protection wallets to help minimize risks.

One risk that shouldn’t be taken lightly is animal and insect bites. As funny as it sounds, monkey bites are no laughing matter, and they happen more frequently than you would think. Plus, Malaysia is home to some pretty dangerous insects and animals.

Cute, but Secretly Evil. Watch Out for These Munchkins Image via Shutterstock

The cost of living in Malaysia is very low. People who move there can live a pretty lavish lifestyle for under $US 2k per month, especially on some of the cheaper islands.

The capital city Kuala Lumpur is a pretty cool place, a real modern metropolis for those who like city life. A lot is happening there in terms of nightlife, and the city felt very advanced and clean with plenty of cultural experiences to enjoy.

Capital City Kuala Lumpur is a Very Modern City in an Ancient Country Image via Shutterstock

The easiest way to get residency is through their mm-2h program, which stands for Malaysia is my Second Home. This program is open to global citizens provided they can show proof of financial stability. This program allows foreigners to stay in Malaysia on a multiple-entry social visit pass that is good for 10 years with no minimum stay requirements. To qualify, applicants under 50 must meet the following criteria:

• Provide proof of bankable assets of at least MYR 500,000 (approximately $US 114,000)
• Proof of income of at least MYR 10,000 (approximately $US 2,300) per month.

Applicants over 50 must meet the following criteria:

• Proof of bankable assets of at least MYR 350,000 (approximately $US 80,000)
• Proof of income of at least MYR 10,000 (approximately $US 2,300 per month)

Any money brought into the country is tax-exempt and there are further conditions upon approval such as opening a Malaysian bank account and purchasing medical insurance from a Malaysian insurance company. Further details can be found here.

The internet speed in the capital is highly rated, varying depending on the location. The nation states the “average” internet speeds, but from my experience in some of the more remote locations, I would say the internet was non-existent.

Weather is something that should be taken into consideration. As it is a tropical climate, humidity is incredibly high year-round and Malaysia experiences not one but two monsoon seasons per year.

Malta

Image via Shutterstock

Malta is a fantastic European alternative to Portugal. Malta is the first crypto-friendly tax country to launch a holistic regulatory framework for blockchain technology, earning the title of “Blockchain Island.” Malta is suitable for crypto hodlers, but active day traders will likely want to avoid this one.

Residents here do not pay capital gains tax on long-term holdings or when crypto is purchased or sold. Crypto day trading will be taxed here, similar to stock market day trading, which is 35%. Getting residency here is fairly straightforward for EU citizens as they simply need to prove they are:

• Financially Stable
• Employed

Non-European citizens will be allowed to obtain residency at the “discretion of the authorities” and factor in considerations such as:

• Living in Malta for at least 6 months
• Financially Stable
• Employed

I would presume that as it is at the discretion of authorities, this option likely isn’t typical for non-European citizens, but it may be worth a look.

Malta residency has no minimum value property requirement, and it is renewable every 5 years. The cost of living in Valletta is a bit higher than many European countries coming in as the 25th most expensive European city, with the average cost of living for a single person coming in at around 2,500 Euros per month.

Malta’s City of Valletta ranks 25th most expensive Image via expatistan.com

Malta has a slow pace of life and is not known much for vibrant nightlife, making it more appropriate for those looking to relax while enjoying a lovely culture and beautiful architecture as opposed to partying. In addition, the internet speeds are very fast on the island, which is always an important consideration.

Malta enjoys nice weather year-round, never getting too hot or cold, and no monsoon seasons here.

Factors to Consider Before Making the Move

Deciding to move to a new country should not be all about tax avoidance. Quality of life, cultural experiences, safety, and climate should seriously be considered before making a move, and a lot of research should be done beforehand. Even considerations such as food likes and dislikes or dietary restrictions like vegetarianism are important factors to consider as not being able to enjoy the available food can really be a bummer.

For example, it is very common in Malaysia to eat scorpions and insects. Seriously. I tried to get on board with that, but nooooope, two crickets, a couple of ants and a beetle later, I was done with that experiment. I am also not a fan of fish and once stayed on a tiny island where that was literally all they ate, so food is a valid reason to cross places off a list.

Insects are a Healthy Part of the Malaysian Diet Image via Shutterstock

Professional advice should be sought before deciding to move countries as it can have a significant impact on asset holdings and tax implications. Many countries require you to renounce your tax residency status from your home country before becoming a tax resident of another country which can have other significant impacts.

For example, If you want to move from country B and obtain tax residency in country C, country B may have a requirement that you sell all of your assets and close bank accounts to move, and the assets sold in country B may be subject to capital gains taxation. This means that you may need to sell a home, a car, and all of your investments in your home country B, which could all be subject to hefty capital gains tax. Therefore, it may not make sense to pay 50k in capital gains tax on a house, a car, and other investments to save 5k worth of crypto tax by moving to another country.

I highly recommend speaking to an accountant and an immigration specialist from the country you are planning on relocating to, and a tax professional in your home country before making a move as there are a lot of factors that need to be considered.

In wrapping up, there are many amazing places to choose from if you are considering uprooting your life and venturing off into a brave new world. I cannot stress the importance of DYOR and make sure it is the right choice for you.

The post Top Crypto Tax-Friendly Jurisdictions appeared first on Coin Bureau.

However, this is expected as most blockchains, cryptocurrencies, and tokens stand on the pillar of decentralization. This implies a certain degree of regulatory absence as governments and authorities struggle to develop solutions to safeguard investors and users in the absence of any central entity to control or regulate. This effectively places a greater degree of responsibility upon individuals to be more mindful, informed, and educated on safe practices to be followed before engaging in the crypto and NFT ecosystem. And for those who firmly believe and profess in the vision of a decentralized future, this is a responsibility that they are duty-bound to accept.

With the NFT explosion in 2021, more scammers have started targeting users and holders of valuable NFTs. Some NFT holders have even lost NFTs worth $2.3 million because of phishing links, while others have lost $2.7 million in Ether because of a rug pull.

While there seems to be an endless list of methods through which scammers dupe NFT investors, we have managed to compile a list of safe practices that you can follow to limit your exposure to these scams. We will also discuss a few famous scams in the NFT space over the past year and the types of scams commonly observed. So if you’d like to know what they are, keep reading to find out.

What are NFTs?

Before we begin, let’s discuss what NFTs are exactly!

NFT stands for Non-Fungible Token. This refers to a unique piece of data in a smart contract address on the blockchain that isn’t inherently interchangeable for some other token. They are used as digital representations of specific rights vested with the owner of the NFT granted by the creator of the NFT. NFTs have grown tremendously in the past few years, with projects granting their holders a wide range of utility.

That said, let us look at some popular NFT scams from the past year.

Famous NFT Scams

While there were many NFT scams in the past year, these two, in particular, caught my eye. They might not be the biggest or craziest scams in the space, but they definitely had some interesting drama in the fold. Keep reading to find out what exactly went down!

CreatureToadz

CreatureToadz is an independent NFT crossover project by Skirano.eth. It is based on two of the most successful communities in the NFT Space- Creature World and CrypToadz by GREMPLIN.

NFTs from the CreatureToadz collection via OpenSea

When I say NFT scams, most of us think of phishing websites, and rug pulls by founders. Phishing, in particular, is very common, and most projects ask you to always refer to their official social media channels for legitimate links. But what happens when those very same social media accounts become compromised? Because that’s precisely what happened with CreatureToadz.

On 20th Oct 2021, members of the CreatureToadz Discord suddenly received a notification in the official Discord about a ‘stealth launch’. It urged users to begin minting immediately at the website mentioned in the message. Investors with FOMO implicitly trusted the message’s contents to be true since it was posted by a moderator of the official Discord. In a matter of 45 minutes, the hacker had collected a total of 88 ETH from over 580 mint transactions via the phishing website. By then, the CreatureToadz team had managed to regain control over the Discord and urged investors to stop minting from the site posted by the scammer. The team immediately tweeted an apology message to the community and offered to completely compensate the scam victims.

Meanwhile, the team was left wondering how the hacker had gained access to the Discord. In a Twitter Space hosted on the same day by NFT investor and journalist Andrew Wang, the hacker’s identity was linked to a Twitter account named HEERR. As this was being announced in the Twitter Space, listeners noticed that the hacker was actually tuning in live to the discussion in the Twitter Space. This prompted the participants to call out the hacker, asking him to return the stolen funds.

The hacker then revealed himself to be a 17-year-old high school student who had made the attack as a joke to show the vulnerabilities of NFT discord communities. This led to a heated discussion within the Twitter Space as people tried convincing the hacker to return the stolen funds. Ultimately the hacker promised to return the funds to the community by sending them to the CreatureToadz team, which refunded each of the affected wallets individually.

Despite this seemingly fortunate ending, participants in the NFT ecosystem were left scarred by this encounter as more NFT projects made it a point to let their community know that they would never deviate or do a stealth launch from the announced launch date. Even so, CreatureToadz wasn’t the first, and it certainly isn’t the last to fall for this scam.

Holy Primes

Most of us are familiar with the phrase ‘pump-and-dump’. It’s a common scam in the crypto and altcoin space, where groups collectively decide to increase the buying pressure of a particular token only to sell it all at the top once more investors get in. This price action is usually the result of a coordinated group effort and is not based on any fundamental utility or development. These schemes are generally seen in more liquid markets. However, this particular project that we will discuss is the subject of a pump and dump scheme in the NFT space- an illiquid market.

Discord Annoucement of Pump Plan by NFTLlama via Twitter

Holy Primes is a meme NFT collection by Pokilo.eth that features pictures of calculators with prime numbers. The project started off as a joke and has now introduced some utility to act as a mint pass for collections from new artists. However, this project is on the list today because of a tweet by NFTLlama back in September of 2021. The tweet called for a collective group effort to buy and pump the floor price of the NFT collection to at least 3 ETH. The tweet was very transparent about what it wanted to achieve- becoming the AMC/Gamestop Pump of NFTs and being featured on Forbes. Soon, many investors FOMO-ed in expecting to raise the floor price all the way to 15-20 ETH before it starts crashing. However, the collection started crashing as soon as it hit a floor of 3 ETH. Today, at the time of this writing, the project’s floor sits at around 0.03 ETH, with many of the participants in the pump having lost quite a bit from their initial buy prices.

Now, although I’ve put this project under the title of a scam, looking at how open NFTLlama was about what they were doing, you can hardly call it a scam, can you? Investors were more than aware that participating in this pump had a huge risk, yet they willingly gambled upon the chance of making a quick buck and riding on the hype train. While there was no misrepresentation, and it certainly isn’t illegal in an unregulated market such as the NFT space, the point of including this incident in the article is to make you more aware of the different schemes and pitfalls that you can fall into. If you’re in the NFT space, you will come across many more projects and community schemes with similar pump-o-nomics, but the best safe practice to keep your money safe is to stay away from participating in them.

Types of NFT scams

Now that we’ve seen a few real examples of NFT scams, let us look into some of the most common NFT scamming methods.

Phishing Scams

They say imitation is the best form of flattery, well, maybe not so much in this case. Phishing scams refer to attacks in which investors and users are duped into visiting and interacting with fake websites that look identical to the original. This method of attack is one of the oldest and most common in the history of the internet. You can lose money in this form of attack either by attempting to mint an NFT on the fake website (which just drains your ETH without sending an NFT) or by submitting the seed phrase of your wallet on a fake MetaMask or some other hot wallet website/pop-up.

Pump and Dump Scams

Ah, the era of influencer marketing. What could go wrong? Lil Uzi Vert probably got your back, right?

Wrong.

If you’re in the NFT space, it’s best you always do your own research about the project and its team. That said, while you might think influencers have your best interests at heart, that’s not always true. For example, we need only look at all the crazy pump and dumps we’ve seen in the space over the past year from high-profile influencers in projects such as Save the Kids, Dink Doink, and CxCoin.

Most influencers get offered crazy sums of money to promote a particular NFT or crypto project, and even if the team seems sketchy, the offer might just be too good to pass up. So regardless of how big a fan you might be, it’s in your best interest to look at projects with influencers behind them with more suspicion than usual. If you still need convincing on why your favorite influencer might just be engaging in a pump and dump scheme in the making, all you need to do is watch a few Coffeezilla videos. I swear you will be convinced.

Catfishing

That’s right, Catfishing! A practice that is commonly seen in dating apps where people pretend to be someone they’re not, to mislead you. I dare say that you’ll actually find more catfishes in your Discord DMs than you would in your dating profiles. These malicious DMs would resemble a message from a particular NFT team member or even a Discord bot offering you an exclusive whitelist or mint opportunity.

Phishing Scam via Discord DMs- A catfisher pretending to be a discord bot. (Disclaimer- nothing in this article or picture should be construed as endorsement of any project)

If you’ve ever replied to one, you’d find yourself being casually asked to disclose your wallet seed phrase or directed to a phishing link of the original project. Unfortunately, this method is so common in the industry that most project members add the word “Will Never DM you” to their name to get the message across.

Rug Pulls

Imagine cruising along a highway in your car when the wheels suddenly fly off. That’s what it feels like for most NFT investors who get rug-pulled. A rug pull is when the team behind a particular NFT project suddenly decides to abandon the project after launch and withdraws all funds intended to be used for the future development of the project from the treasury.

Recently, there was a massive rug pull of around $1.3 million from an NFT project called ‘Big Daddy Ape Club’ on the Solana Network. This particular rug pull happens to be not only the biggest NFT rug pull on the Solana network but also one of the most brutal ones. While most rug pulls leave investors with an NFT to hold, the investors of the ‘Big Daddy Ape Club’ project that paid the mint fees never even received their NFT.

Big Daddy Ape Club via Decrypt

To add insult to injury, most investors trusted the project as they were even verified by the decentralized identity verification company called ‘Civic’. The identity verification company is now working with law enforcement to track down the scammers. This shows that no matter how much you trust those verification badges, in the absence of direct regulatory scrutiny, you need to buckle down on your own vetting measures and be more critical of suspicious activity that you notice in the discord groups of these projects.

Bidding Scams

If you’ve ever visited OpenSea or most other NFT marketplaces, you would have noticed that users can place bid offers on NFTs even if they are not listed for sale. This feature allows owners to accept an offer without listing the NFT for sale. While this might save some gas fees and offer more flexibility in trades for the holder of the NFT, scammers have begun to use this feature to attack and snatch NFTs from owners at ridiculously low prices. For example, they might initially place a bid for 5 ETH, which they change to 5 USDC or another lower-priced cryptocurrency before you accept the bid.

Since victims of this scam usually lose their NFTs from oversight or carelessness, it is vital to keep in mind to always double-check the bid and the offered payment token before accepting the bid.

Malware

There have been a lot of MetaMask hacks in the past couple of years, with no one being able to understand how exactly the hackers gained access to their wallets. Victims swear that they never visited any phishing websites or revealed their seed phrase to anyone. So how exactly did this happen?

CryptoJordin’s MetaMask Hack Video via YouTube

That’s exactly what a Youtuber by the name of CryptoJordin found out. Sometime in December last year, he fell victim to a MetaMask attack and woke up to find all his funds drained from the wallet. Puzzled and determined to find out who the culprits were and how they had drained his funds, he recorded a series of videos documenting his investigation. His investigation reveals that the attackers had managed to install malware into his computer through a file share link in his email by pretending to be a gaming products sponsor. This malware quickly infected and gathered all the data about his home devices connected to his Wi-Fi. This allowed the hackers to remotely access and hack any device in his home. As much as hardware wallets are praised for their security, even they would have been vulnerable to this particular malware attack.

Discord and Social Media Hacks

Just last week, the social media accounts of many crypto influencers were hacked, and promotional videos of some scam projects were posted. While that particular hack happened on the YouTube platform, most of the social media hacking activity directed at crypto and NFT projects seems to occur on the Discord platform. Hackers gain access and control over the official server by compromising the team members’ accounts or posting links on the announcement channel of projects by gaining access to the Discord webhook feature. Many projects such as CreatureToadz, Monkey Kingdom and Fractal have fallen victim to this method of attack.

List of Safe Practices

Now that we’ve understood the most common scams in the NFT space, let us look at a set of safety guidelines that we must follow as participants in the ecosystem.

1. DYOR

That’s right, the number one practice to follow is doing your own research (DYOR). Most participants in the NFT space just follow one influencer after the next without taking the time to research and make informed decisions about a project. As entertaining as YouTube videos are, they are no substitute for one’s own research into a projects team members, their past activity, the proposed utility of the project and whether or not the artwork and community is something that suits you.

2. Avoid Anonymous or Pseudonymous teams

As a general rule of thumb, I find it safer to stay away from projects with anonymous or pseudonymous founders or teams. With these types of founders or teams, you can never know who they are or whether they’ve already been a part of previous rug pulls or scams. Primarily, this information allows you to be more informed and predict the team’s future actions. Secondly, in the event that the anonymous or pseudonymous founders have been involved with scams in the past, and this information surfaces a few days after the launch, the project gets affected as a whole and might never recover from the bad publicity associated with the founder.

3. Check Social Media Activity

Debatably, one of the best metrics to predict the legitimacy of an NFT project is by looking at the nature of their social media activity. Check to see if their social media campaigns rely a bit too heavily on Influencer marketing and if there is absolutely no trace of discussions on future plans and utility structures for NFT Holders. Moreover, while follower counts might indicate a level of interest in the project, the true gauge for calculating interest lies in the engagement that each of their posts receives from the community.

4. Use a separate wallet for mints

I find that using a separate wallet for connecting and minting from new NFT project websites helps me sleep better at night. As they say, never place all your eggs in one basket. After you’ve successfully minted an NFT, you can transfer it to your main wallet for safekeeping.

5. Double-check mint website with official channels

Always double-check the website URL before you connect your wallet to it. If you fail to follow this step, you might end up becoming a victim of phishing scams.

6. Check the contract address of the NFT collection

If you’re on the secondary market and you spot an NFT from a famous collection for dirt cheap prices, you’re probably looking at an imposter. So, before you FOMO in and click that buy button, cross verify the contract address of the NFT you wish to buy with the contract address displayed on the project’s official website.

7. Use a hardware wallet

Needless to say, hardware wallets are considered one of the best measures to safeguard your crypto assets. They will protect you against most malicious actors and attacks as they store the private key on the wallet device instead of the computer. This makes it hard for attackers to approve transactions without access to your hardware wallet. Essentially, this protects your NFTs from being moved without your permission. Some of the best hardware wallets in the industry are from Trezor and Ledger.

8. Never give your private keys or seed phrase

Not your keys, not your coins. The only time you will ever have to enter your seed phrase anywhere is when you’re either making a backup of your wallet or if you’re restoring an old wallet in a new device or browser. No one will EVER ask for your private keys or recovery phrase. If someone DMs you asking for your seed phrase to send you an NFT or whitelist your wallet for mint, you can be guaranteed that it’s a scam hoping to steal your wallet. Also, keep a watchful eye on any random pop-ups claiming to be MetaMask asking you to re-confirm your seed phrase; that’s a scam.

9. Never click suspicious links

Always be mindful of what you visit on the internet with the device you use to access your crypto wallets and accounts. Your device might become infected with a virus or malware that can target your MetaMask or monitor your financial activity by accessing suspicious websites and links. If possible, I’d suggest using a separate device with an independent internet connection for your crypto transactions.

10. Turn off your Discord DMs

For the love of God, if you’re planning to join a ridiculous amount of Discord servers to secure a whitelist or engage with a community, I’d suggest disabling the option to receive DMs from strangers selectively in certain servers, if not completely. This would drastically reduce your chances of becoming a victim of phishing links and catfishing attacks on Discord.

11. If it seems too good to be true, it probably is.

The last safe practice on this list is to doubt everything until proven otherwise. If something seems too good to be true, more often than not, it probably is. So, make sure you verify everything you come across.

Closing Thoughts

If you’ve managed to better understand what to expect and how to protect yourself when it comes to engaging in the NFT ecosystem, then this article has done its job. But be warned scammers are constantly innovating new ways to attack and steal from participants in the crypto and NFT ecosystem. So the only real way to be safe is to be proactive in educating yourself about safety measures to be followed as the ecosystem keeps evolving. Until then, as they say in the NFT community – WAGMI.

The post NFT Scams: How to Avoid them and Keep SAFE! appeared first on Coin Bureau.

Brenda and her Nana

“Nana, I got a present for you!” Brenda exclaimed as she handed her grandmother a gaily-wrapped present. It’s Christmas time at the Berenson family. After a sumptuous dinner filled with good food and lots of laughter, it’s time for exchanging gifts. Nana, the indisputable matriarch of the family, is seated in her regular seat with a plum-coloured crochet blanket wrapped around her slender frame. She beams happily at Brenda, her favourite grandchild, as she accepts the present from her. Then, with slightly trembling fingers together with Brenda’s young sturdy ones, ripping the wrapping paper away reveals a simple box. The cellophane tape gets peeled off, and the lid gives way to a beautiful blue-patterned Wedgwood teapot nestled in it.

Hibiscus Teapot Image via Wedgwood

“Oh, how beautiful”, said Nana as she slowly lifted the teapot to admire it. “I knew that you love the hibiscus flower, so when I saw this, I just had to get it for you.”, explained Brenda. “But this must be really expensive!” exclaimed Jessica, Brenda’s mother. “Where did you find the money for this? You’re still in college and art school, no less. Wait a minute, you’re not involved in anything illegal, right?” A slight frown crossed Jessica’s forehead as she walked over to Nana’s side to admire the teapot. “No, mom. Course not!” Brenda made a face at her, got up and left. “Why do you have to be so mean about this?” she yelled before heading upstairs, followed by the sound of a door slamming shut.

Brenda was busy making sketches in her room when a soft knock at the door drew her attention. She opened the door to find her Nana there. “Mind if I come in?” Nana asked. Brenda ushered her in and pushed some clothes away on the bed to make room for her. “I didn’t get a chance to thank you for that wonderful present. It’s simply gorgeous. You must have a cup of tea with me sometime soon.” Nana said while gently holding Brenda’s hand. “I’d love to, Nana,” said Brenda. “But I am curious. Where did you find the money to buy this? I heard your mom say that you’d lost your part-time job, and I can only imagine art supplies costs money. Your parents can barely afford your tuition. You didn’t…?” Nana asked cautiously. Brenda shakes her head. “It’s not what you think.” She stayed silent for a moment, then said, “If I tell you something, will you promise not to say anything to anyone?” Nana nodded.

She pulled out her phone and opened an app. It looked like a financial app with numbers on it. She scrolled to a page and showed Nana. “This is how much money I have now.” The bank balance on the app showed a tidy 6-figure digit. Nana’s eyes opened wide. “How did you get all this money?” she asked. “I bought some cryptocurrency early in the year. The price went up heaps, and I sold some. That’s how I got you the teapot.” Brenda replied. “What’s this cryptocurrency thing?” asked Nana with a look of confusion. “Well, the shortest way of saying it is that it’s a kind of digital money used for buying and selling mostly digital stuff, but it’s not controlled by a bank,” Brenda said. “Well, you’ve lost me completely, dear.” Nana gave a quick laugh. “Hmm.. let me think how I can explain it to you.” Brenda pondered.

A US 5 Dollar bill Image from Wikipedia

“Do you have a $5 bill with you, Nana?” Nana patted around her, reached into a pocket and came up with a crumpled bill. “Will this do?” Nana asked, handing it over to Brenda. “Perfect.” Brenda holds the dollar bill in front of her. “Let’s pretend I’m a shopkeeper, and you’re a customer coming to the shop to buy something from me. You pick something you want, hand over the cash, maybe I need to give you some change, and you walk away. We’ve just made a transaction. When you handed over the money, you have less than when you came in, and I have more when you left. We remained complete strangers to each other unless we shared some stories about ourselves with the other person. Got me so far, Nana?” She nodded.

“Nowadays, we buy stuff with money we see on the screen. We can’t touch or hold it, but we know it’s there, and I can use it whenever I want. It’s the same as using the $5 bill, except I can buy stuff from people I cannot see. So our money has gone digital.” Nana nodded.

The current form of digital money Image from dribbble.com

“Money usually gets deposited into a bank for safekeeping from robbers and thieves. Once you become the bank’s customer, the bank needs some information about you. Not only is it because it’s the law, but it’s also because the bank wants to make sure you’re not going to do bad stuff like sell drugs or something. You also need to trust that the bank won’t take your information and sell it to someone else. When you use cash, though, no one needs to know anything about you. So you are giving up some of your privacy for another kind of safety and convenience.

Since the bank keeps my money, it also records what’s happening to it. So if my records and the bank doesn’t match up, what do you think will happen?” Brenda asked. Nana thinks for a moment.

“Remember that time cousin Julia, and I argued when we were young? We both said it was our turn to wear your butterfly brooch.” Nana said, “Ah yes, oh.. the both of you were at each other hammer and tongs. I didn’t know who to believe.” “And in the end, both mom and aunt Pauline had to step in to decide what to do.” Brenda continued. “Point is, Julia and I alone couldn’t sort things out on our own. We needed a 3rd-party. What if, at that time, someone else, and not just one person, but many people, also kept track of whose turn it is to wear the brooch? When Julia or I forgot whose turn it is, we look at those records, and we’d know straight away.” Brenda said in a triumphant tone. Nana pointed out, “You’d still need a 3rd-party.” “Well yeah, true,” Brenda admitted. “But it wouldn’t be just one. It would be like public knowledge. Everyone knows.”

Blockchain – a form of public record-keeping Image via EvolvingScience

Nana digested this for a moment and said slowly, “So everyone knows everything about everyone.” Brenda said, “Yeah, that’s called blockchain technology. There are thousands of copies of records all around the world. So no one can make any changes to it once the money changes hands. And there’s no reason to doubt that the records can be faked because it’s impossible to do that.”

“What does this have to do with banks, though?” Nana asked. “Well, for starters, we don’t have to take the bank’s word for it when it comes to the absolute truth about records. Not that they would actually fake them.” Brenda added hastily. ‘What really gets me excited is that for the first time in human history, there is another way to deal with money that is as safe as banks and better too! It doesn’t make sense when I look at how much interest I’m getting from the bank versus what mom and dad are paying in mortgage interest. And you know what’s the dirty secret?” Brenda asked, slightly breathlessly.

“Oh? What’s that?” Nana quizzed. Brenda whispered in her ear. “The banks don’t need our money. They can make money out of thin air.” Nana’s eyes became wide. “But how?” “I’ll tell you that next time.” Brenda grinned impishly.

“So back to this cryptocurrency thing…” Nana countered. “Yes, well, it’s not always a kind of currency. Sometimes it’s also an asset, but that’s beside the point. Anyway, cryptocurrency is digital money based on blockchain technology. What makes it safe like a bank is because of that technology. Anyone can issue a cryptocurrency for any reason.” Brenda remarked triumphantly.

“Isn’t that dangerous? What if people get tricked? Or scammed?” Nana interjected. “Well, yes, which is why people need to spend time learning about the projects before they buy it. It’s the same as when dad went shopping for a TV the other day.” Brenda remarked defensively. “He went through like a dozen shops, compared prices, models and all sorts before he bought the one we have in our living room now.”

“So what you showed me on your phone just now are all these currencies that you bought,” Nana concluded. “Yeah, I bought them when they were cheap, the prices went up, and then I exchanged some of them for cash,” Brenda said. “That’s how I got the money for the teapot.” “So that’s why you were always holed up in your room, doing research?” “Brenda nodded guiltily.

“Well, I’m glad that’s all sorted out,” Nana remarked. “Thank you again for the teapot.” She brushed Brenda’s hair. “Now, as your Nana, here’s my advice. Go talk to your mother about this. I’m sure she’ll understand.” Nana smiled. Brenda replied in a huff. “I don’t know…” “Give it a try for me, won’t you?” Nana cajoled. Brenda made a face. “I’ll think about it.” Nana kissed her on the cheek and left the room.

Jessica and Brian

Jessica sighed as she saw Brenda headed upstairs. Nana patted her arm. “Time for my debut.” Thus saying, she handed Jessica the teapot, got up slowly from her seat, and Jessica handed her back the teapot. Nana gradually made her way up the stairs. 

Brian reassured Jessica. “It’ll be fine.” She reached under the tree, came up with a small box and handed it to Brian. “Merry Christmas.” Brian stared at the small box with a bemused look. “Oh?” He unwrapped the present, revealing a Ledger Nano X, opened. “Is this what I think it is?” He commented. Jessica replied, “What do you think it is?” “Some kind of crypto?” he queried. “Yes. But which is it?” Jessica countered. Brian thought for a moment and glanced at her. “You know I’m a noob when it comes to this, so it must be pretty well-known. Probably Bitcoin or Ethereum?” “It is one of those two, but which one?” Jessica replied smugly. “It couldn’t have been both?” She shook her head. “Alright, I’m guessing Bitcoin then.” He laughed. “It’s Ethereum.” She smiled.

“Well then, now that you’ve pulled me in to give me skin in the game, I suppose I should pay a bit more attention to it. So let’s start with what they are, and the difference between both?” Brian said. Jessica took a deep breath. “I’ll give it my best shot.”

“So you know both of them are cryptocurrencies, basically digital money made possible through blockchain technology. Brian nodded, indicating for her to continue. “Bitcoin is the first cryptocurrency to appear. It was conceived by someone or a group known as Satoshi Nakamoto. A document outlining the theory and usage of Bitcoin, called a whitepaper, was published back in 2008, on the heels of the financial crisis. So you know, almost anything digital these days can be copied by anyone, right?” Brian nodded. “One of the most important parts of the whitepaper was that Nakamoto had found a way to resolve an issue called double-spending.” “Double-spending?” Brian asked. “Yeah, like when you give me a dollar, I now have it, and you don’t. But if you send me a JPEG, you’ll still have your copy.” Jessica explained. “Ah right, ok, I get you. So no double-spending is there being only one JPEG passed around.” Brian remarked.

Jessica continued, “So for blockchain to work, we need lots of people to do the record-keeping, and there needs to be a master copy that keeps track of everything. Of course, nothing works better than an incentive, so Bitcoin was the incentive for people to keep records on the flow of Bitcoin on the network, basically where it is and when it was last used. The idea then is that people who get the Bitcoin would be able to use it like cash to pay for basic necessities.” “I gather that hasn’t happened?” Brian smirked. “Not yet, but it’s coming.” Jessica gave him a playful punch on the shoulder.

“Alright, let’s see what I’ve gotten so far. Bitcoin is a reward given to people who keep records of the movement of Bitcoin itself. That sound about right?” Brian asked. Jessica nodded. “So why do people call it a store of value?” “That’s because there is a hard limit to the number of Bitcoin that could ever exist, like 21 million.” Jessica continued. “And this limit can’t be changed at all?” Brian queried. Jessica shook her head. “Maybe not now, but in the future? I heard they’re making great strides with artificial intelligence and quantum computing?” He joked. Jessica gave him a playful shove. “Not likely.”

“Well, I can see how all this makes sense. We have inflation because more and more dollars are entering the market, but nothing is taken out of circulation. And there’s no limit to the amount coming in. Whereas with Bitcoin, even though there is also more coming in, there’s a finite number.” “That’s right,” Jessica said.

“Now, about Ethereum.” Brian reminded her. Jessica continued, “Right, ok. So Bitcoin is a kind of single-purpose blockchain. All it does is crank out Bitcoin all day long. Pretty useless for other things, at least that was the initial design. However, Ethereum has a much bigger plan. While also using blockchain technology, the guy who invented Ethereum, a Russian called Vitalik Buterin, came up with something called a smart contract that works on the Ethereum blockchain. Like Bitcoin, it also needs people to keep good records, and the reward is known as ETH.” “And it also has a limited supply like Bitcoin?” Brian interjected. Jessica shook her head. “No, there’s no limit.” “But then you have the same problem with cash!” Brian remarked excitedly. “Not so fast, mister.” Jessica put a finger to his lips. “ETH is also destroyed as it is used. In fact, more gets destroyed than what is given out, which makes it different from cash. And there’s more.”

“Getting back to the smart contracts, it’s an agreement that will execute itself.” “What do you mean?” Brian asked. “Remember that bet you lost a while ago, and you said you were going to do the dishes for a whole week?” Brian rolled his eyes. “I cannot believe you’re still bringing that up. I did the dishes, didn’t I?” “Yes, yes, I know you did. Just using it as an example.” “Fine.” Brian huffed. “I won that bet fair and square, by the way,” Jessica said in a gloating tone. “I don’t know about fair and square, but you did win. I’ll give you that.” Brian said. “So if let’s say I made a bet with someone else who is not as principled as you, and that person lost but didn’t make good on the bet. I might not be able to do anything about it.” Jessica pointed out. “I’d like to see him try. You’re the most persistent woman I’ve ever met. I don’t think running away to the north pole is enough.” Brian snorted. “Now, dear,” she patted him gently on the shoulder. “Where was I? Oh yeah, smart contracts.”

Trying to escape by running to North Pole Image via eposts.co

“Well, long story short, the Ethereum blockchain is more useful than the Bitcoin one because it has more functions, not just spitting out coins. With smart contracts, people can create services that use any agreement mechanism to work. To execute the smart contracts, people pay gas fees which can only be paid in ETH. These services that people built also accept ETH as payment, so some people think ETH can be more valuable than Bitcoin. And that’s why I gave you some ETH. Happy?” Jessica concluded.
Brian scratched the back of his head. “Well, it’s still all a bit fuzzy to me, but I can kinda see your point. Thank you for the present.” He gave her a quick kiss. “Now, let’s get on upstairs so I can give you my present.” Brian chuckled. “By the way,” she pointed to the Ledger device, “this thing doesn’t store bitcoin or any cryptocurrency in it, but it gives you access to what you can claim on the blockchain. There’s also a password called seed phrase in it. Both of them together is proof of your claim, especially the seed phrase. That’s like the key to your car. Anyone with the key can drive off in your car, so keep it safe, k?” Jessica warned. “Yes, ma’am.” Brian acknowledged.

Jessica and Brenda

The next morning, over breakfast, Jessica approached Brenda, “Hey, look, I’m sorry about yesterday. I shouldn’t have snapped at you or jumped to conclusions. You know, I’m just worried about you.” Brenda stared at her mom for a moment. “I didn’t do anything bad to get the money.” Jessica said, “Thanks for telling me that. I do trust you.” Both smiled. “So, where did the money come from?” Jessica asked casually. “I sold some crypto,” Brenda replied coolly. Jessica laughed, “I should’ve known.”

Wrapping Up

Well, that was a happy ending for that family. While it’s true that not all conversations concerning crypto will go as smoothly as the ones above, it’s worth taking the time to have a good chat about it. As enthusiastic as you may be about the prospects of crypto and the role it will play in the coming years, take the time to listen to the concerns and fears, acknowledge where the shortcomings maybe, but also point out that its imperfections lead to more room for improvement in the future. At the end of it all, people are either ready to take the leap or not. If not this time, maybe the next? Or they’re just waiting for the next big thing in crypto to tickle their fancy, making the leap a no-brainer.

For all of you taking on the challenge of explaining crypto to your friends and family, good luck and may the force be with you!

The post Explaining Bitcoin and Crypto To Your Family appeared first on Coin Bureau.

Now, as a participant in this market, how do you hedge your positions? For most people, the optimal decision is to ride out periods of extreme volatility by converting a portion of their holdings to a reserve currency of some type. For some, this might be a stablecoin pegged to a fiat currency like the dollar and to others, it might be a comparatively less volatile asset like Bitcoin. Among stablecoins, the use of ‘algorithmic’ stablecoins has especially picked up steam in the past few years due to rising concerns of safety and regulation in the stablecoin ecosystem.

In this article, we explore what exactly ‘algorithmic’ stablecoins are, why they are an integral part of the crypto ecosystem, and if they really are safer than centralized stablecoins like Tether, BUSD, etc.

What are Algorithmic Stablecoins?

Let’s break down the phrase. An ‘Algorithm’ refers to a set of instructions that a program or application self-executes when certain conditions are fulfilled. A ‘Stablecoin’ refers to a crypto asset or token that is pegged to a particular fiat currency, asset, or some other value function and is expected to maintain that value irrespective of market conditions or external factors.

By derivation, ‘Algorithmic Stablecoin’ can be defined as a stablecoin that maintains its peg through a decentralized self-sustaining protocol or economic system. As for how they achieve this stability, the most common mechanism used is supply manipulation. Most algorithmic stablecoins are built with an economic system and protocol that automatically increases or decreases the supply through functions of burning or minting tokens to maintain its peg. Most algorithmic stablecoins in the current market follow a non-collateralized model, this means that the stablecoins do not have any sort of economic or real-world financial backing/reserves.

Why do we need Algorithmic Stablecoins?

I’m sure you’ve heard of the Tether incident last year. This has left a lot of us worried over centralized stablecoin issuers’ compliance to their advertised claims of a fully-collateralized treasury or reserve structure. Moreover, centralized stablecoin issuers are also susceptible to all sorts of interference via ‘regulation’ by governments of the jurisdictions they are incorporated in. This means that if the government of a country where a centralized stablecoin issuer is incorporated decides to freeze the bank accounts of said stablecoin issuer for any such reason, then the redeemability of the stablecoin becomes zero, bringing its inherent value to zero. While this might seem more than unlikely, it is a very real risk.

An algorithmic stablecoin project, on the other hand, would be able to protect itself from any sort of legal regulation as long as it remains decentralized and independent of any fiat-based reserves or collateralization. This idea resonates strongly with those who align themselves with the vision of a truly decentralized independent global financial system. Besides, aren’t trustless transactions the backbone of crypto?

Types of Algorithmic Stablecoins

While many algorithmic stablecoin projects have launched over the years, this article has been curated to include the most innovative and diverse set of algorithmic mechanisms that projects have undertaken for maintaining their price peg. We can broadly categorize them into four models-

• Rebasing Algorithmic Stablecoins
• Seigniorage Algorithmic Stablecoins
• Over-collateralized Algorithmic Stablecoins
• Fractional Algorithmic Stablecoins

Categorization of Stablecoins via Coin98 Insights

Let us go over each model in detail and analyze the pros and cons of their economic structure.

Rebasing Algorithmic Stablecoins

The ‘Rebasing Algorithmic Stablecoin’ is one of the first models for a decentralized algorithmic stablecoin. Under this model, the token price is stabilized by a ‘rebasing’ of the total token supply. What does ‘rebasing’ mean? To put it simply, the total supply of the token is either reduced or increased every day across all wallets that hold the token. This increase or decrease in the token supply is proportional to the percentage of price increase/decrease from the peg price.

Let me break this down in numbers; say for example you bought 100 tokens at the price of $1 today and the price increases to $1.1 (a 10% increase) tomorrow, the protocol will automatically increase the total supply by 10% the next day. This means after the rebase, the number of tokens in your wallet would have increased by 10%, since we had 100 tokens before the rebase, we would have 110 tokens after the rebase. This rebasing mechanism is non-dilutive. Since all wallets automatically have their tokens increased or decreased, the wallet owner’s percentage stake in the total supply remains constant.

Now, the example above is a very simplified demonstration of the rebasing mechanism. In reality, most rebasing stablecoins don’t have a strict rebasing from the peg. They usually have a price tolerance band above and below the peg, within which the rebasing mechanism doesn’t kick in. The industry standard is a 5% tolerance above and below the peg.

But wait, didn’t I say that with an increase in token price, we get more tokens? So, wouldn’t that mean at the token price of $1.1, instead of having 100 tokens worth $110, I now have 110 tokens worth $121 after rebasing? How is this stable you ask? Let me explain.

While the algorithm does take care of the supply volatility, the price stabilization is done by us! That’s right, market participants like us make use of arbitrage opportunities. Since DEXs work on liquidity pools, the supply of the rebase tokens in the pool is automatically adjusted, bringing the price down instantly. However, in centralized marketplaces, the sudden increase in token supply would create additional sell pressure from existing holders looking to book profits from the rebase. The greater the volatility in price from the pegged value, the longer it takes for the rebasing mechanism to bring the price back to peg.

Pros – Since most rebasing stablecoins are non-dilutive, this means there is an opportunity to make a profit from holding the stablecoin provided you get in early. The most important metric for a rebasing token is the market cap. With increased adoption and usage, the market cap also increases. At the early stages, buying the token at a smaller market cap gives you a bigger percentage stake in the total supply. With an increase in market cap, the fatter your bag of algorithmic stablecoins becomes.

Cons – The same metric of the market cap also brings us to the con of holding rebasing algorithmic stablecoins. Similar to an increase in market cap making you richer, the converse is also true. With a fall in market cap, the value of your holdings decreases. This makes rebasing stablecoins similar to other traditional crypto-tokens.

In essence, rebasing tokens are ‘stable’ only in the fact that each token will always stay around the pegged price however this is not true for the stability of your holding’s total value. If you’d like to understand a bit more about the debate surrounding the viability of rebasing tokens, I suggest you check out this insightful video by Boxmining.

AMPL seems to have more or less maintained its price peg via CoinGecko

Some of the popular rebasing algorithmic stablecoins are AMPL (Ampleforth) and Base Protocol. While Ampleforth is pegged to the CPI-adjusted 2019 US dollar, Base Protocol follows a more novel approach in that it is pegged to the total cryptocurrency market cap. Of the two, currently, AMPL seems to be maintaining its peg somewhat consistently whereas Base Protocol seems to be failing in maintaining its peg. The team behind Base Protocol also seem to have gone radio silent with parts of their website being non-functional. As we’ve seen – in crypto, while some succeed, most fail.

Seigniorage Algorithmic Stablecoins

Seigniorage refers to the difference between the face value of a coin and its production costs. Put simply, it refers to a system where network participants are incentivized directly to maintain the value of a coin through mechanisms of minting and burning the token. In crypto, the ‘Seigniorage Algorithmic Stablecoin’ model follows a multi-token system to maintain its price peg. This usually involves one token that is pegged to a stable value and one or more tokens that function as incentives to maintain the stable price peg of the main token.

To understand how this works, it’s best to study the two projects that have utilized this model – Basis Cash and Terra Stablecoin.

BASIS Cash – Basis Cash follows a three-token system to achieve its price stability. The three tokens are:

• Basis Cash (BAC) – The token that is pegged to the dollar value
• Basis Shares (BAS) – An incentive token that facilitates reducing prices when the value of the stablecoin rises above $1
• Basis Bonds – An incentive token that facilitates raising prices when the value of the stablecoin falls below $1

The simplified version of the system is that when basis cash rises above its peg of $1, the protocol mints new tokens that are distributed to holders of Basis Shares. This leads to additional sell pressure that brings the price down. Similarly, when Basis Cash falls below its peg of $1, the protocol incentivizes users to burn Basis Cash tokens in return for bond tokens that are distributed 1:1. Users can exchange these bond tokens for Basis Cash tokens once the price peg of the token rises above $1.

Basis Cash’s complete fall from pegged value via CoinGecko

Looking at the current chart of Basis Cash, it is safe to say that this system did not work as intended. Though contributing to its failure were a variety of factors like the hack in which nearly 1 million BAC was market sold, Basis Cash also had fundamental issues with how the bond token system was devised. The bond token in itself did not possess the necessary value-driving utility, which is something that the next project we are going to look at seems to have perfected.

Terra Stablecoins (UST) – The Terra Luna ecosystem follows a two-token seigniorage system for maintaining the price peg of its stablecoins. The two tokens are:

• Terra Stablecoin (UST, KRT, EUT, etc.) – These are the stablecoins that are pegged to different fiat currencies.
• LUNA- this is the native crypto asset of the terra ecosystem. It is used to pay transaction fees while transacting on the network.

To explain simply how this works, the blockchain offers a protocol in which Terra Stablecoins like UST can be minted in exchange for LUNA tokens, and LUNA tokens can be minted in exchange for burning UST or another Terra stablecoin. Through the mechanism of arbitrage, the fiat peg of the stablecoin is maintained. When the dollar peg of UST dips below $1, participants in the ecosystem can burn UST in exchange for LUNA at current market prices, which makes them a profit. Similarly, when the dollar peg of UST rises above $1, participants in the ecosystem can mint UST in exchange for LUNA at current market prices, which makes them a profit. All of this is possible only because LUNA as a token holds independent value and utility in the ecosystem.

Terra Ecosystem providing utility and value for LUNA token via CoinGecko

While most seigniorage stablecoins have failed, Terra stablecoins seemed to have perfected the model by focusing on the one thing that most other projects failed to develop – a functioning value-driven ecosystem. The Terra stablecoins form an integral part of the Terra blockchain as they are used for most trading pairs on the Terra blockchain. The blockchain aims to achieve mass adoption by becoming the easiest and most stable global payment system on the blockchain. They can act as a decentralized bank, giving higher rates and reduced fees, thanks to their Anchor Protocol and Mirror Protocol. While Mirror Protocol brings in participants through its function of being able to create tokenized representations of real-world assets, Anchor Protocol helps keep the money flowing into the ecosystem within the ecosystem by offering attractive staking rewards for their stablecoins.

Over-collateralized Algorithmic Stablecoins

Before we begin discussing this particular model, I’d like to make it clear that most people consider the definition of an algorithmic stablecoin to be completely derived from an algorithm (i.e anti-collateral). However, while defining an algorithmic stablecoin at the beginning of this article, I mentioned that it includes any protocol that maintains its peg through a self-sustaining economic model without the need for trust. Therefore, I find it important to include one of the biggest players in the decentralized stablecoin ecosystem that fit this definition in this article – that’s right, you guessed it, we are talking about DAI.

DAI – While MakerDAO has renounced the title of an algorithmic stablecoin for DAI, we must include it in this article because DAI’s mechanisms for maintaining its price stability include smart contracts that burn and mint tokens based on the price volatility of its underlying collateral. This is similar to how seigniorage algorithmic stablecoins function and unlike a traditional centralized fiat-reserve stablecoin, the collateralization of DAI is roughly 1.5 times the average amount of DAI in circulation. This number can change depending upon the volatility of the assets used to collateralize DAI.

For example, when a person wants to mint $100 worth of DAI, they have to pledge 150$ worth of any accepted cryptocurrency. When the underlying price of the cryptocurrency falls, the user must repay a proportional amount of DAI to prevent the partial liquidation of their underlying asset. On the other hand, if the underlying price of the cryptocurrency rises, the user can unlock and mint more DAI tokens. In case the user fails to pay back the required amount of DAI, the collateral is automatically liquidated up to the extent required to pay the interest rate and penalty.

This is only a simple explanation of how MakerDAO’s DAI stablecoin ecosystem functions, but it’s enough to understand the process.

Fractional Algorithmic Stablecoins

This particular model of algorithmic stablecoins can best be described as the love child of seigniorage stablecoins and collateralized stablecoins. Like seigniorage stablecoins, fractional algorithmic stablecoins also have a multi-token system usually consisting of a secondary token that is utilized to mint the stablecoin. Fractional Algorithmic Stablecoins aim to achieve a middle ground between purely algorithmic stablecoins like UST, AMPL, BAC, etc., and purely collateralized stablecoins like USDC, USDT, BUSD, etc. They achieve this by partially collateralizing themselves with fiat-backed stablecoins like USDC and partially burning the second token that drives the ecosystem through defi initiatives. The ultimate goal for fractional algorithmic stablecoins is achieving capital efficiency. This means that the fractional reserve of these stablecoins tends to lower in the long run as this provides users with more value for the token in comparison to its reserves.

Frax mechanism via Frax Finance

There are two important concepts for fractional algorithmic stablecoins they are target collateral ratio (TCR) and Effective Collateral Ratio (ECR). These ratios help maintain the longevity and liquidity of the project, so let’s see what they are.

TCR – TCR is used during the minting of the stablecoin. It refers to the optimal collateralization ratio needed to bring the price to $1. If the time-weighted average price of the stablecoin has been higher than $1 during the past few days, the collateralization ratio will decrease, meaning you will need a lesser percentage of USDC than usual to mint the fractional stablecoin. On the other hand, if the time-weighted average price of the stablecoin has been lower than $1 during the past few days, the collateralization ratio will increase. This mechanism works with the simple idea of lowering the USDC components required for minting during consecutive days of high prices in the fractional stablecoin. By lowering the USDC requirement, we increase the burning speed of the secondary token which brings down the price of the token more effectively and vice versa.

ECR – ECR is used during the redeeming mechanism of the fractional stablecoin to determine the ratio of USDC and secondary token distributed. It is calculated as the current USDC reserve divided by the total fractional stablecoin supply. If TCR is lower than ECR, this means there is excess collateral in the system. Similarly, if ECR is lower than TCR, then the protocol is undercollateralized.

There are two notable fractional algorithmic stablecoin projects with varying results- FRAX and Iron Finance

FRAX – Frax Finance has a dual token system- FRAX and Frax Shares (FXS). FRAX is a stablecoin pegged to $1 and FXS acts as a utility token that is used to mint FRAX when the price of FRAX rises above $1. The ratio of collateralized and algorithmic depends on the market’s pricing of the FRAX stablecoin. If FRAX is trading at above $1, the protocol decreases the collateral ratio. If FRAX is trading at under $1, the protocol increases the collateral ratio. The collateral ratio to mint 1 FRAX is usually 75 cents of USDC and 25 cents of Frax Shares (FXS).  The FXS token also acts as a store of excess uncollateralized value. FRAX also has a buyback and re-collateralization function in its protocol that helps increase and maintain the peg of the token, which at the same time burns the FXS token.

Iron Finance – This project follows a model similar to FRAX but unfortunately fell victim to the death spiral. The death spiral refers to an algorithmic stablecoin’s eventual journey to zero because of a negative feedback loop. The reasons that made Iron finance fail were massive sell pressure from big whales and the failure of the oracle within the protocol that shifted undercollateralized reserves away from the target collateralization.

The case against Algorithmic Stablecoins

As promising as the model is, algorithmic stablecoins also come with their own set of challenges. The most important one is the difficulty in creating a sustainable and efficient mechanism behind its peg maintenance. Many algorithmic stablecoins have tried different systems, but less than half have survived and proved viable. Two common factors influence an algorithmic stablecoin’s long-term viability – a positive incentive loop, and an ecosystem-wide utility for secondary tokens in a multi-token model.

A positive incentive loop works and maintains the price of the stablecoin as long as the users don’t lose trust in the stability of the token. When it comes to purely algorithmic stablecoin models like the seigniorage model, they become more susceptible to a failure in the positive feedback loop during periods of high volatility as users’ trust in the token falters due to its lack of inherent value. Fractional stablecoins are also susceptible to this particular risk but have a higher level of resistance due to their partially collateralized nature.

Most multi-token stablecoin systems that fail, seem to be unable to balance the risk-reward ratio of their secondary tokens below a certain demand level. This is because the secondary token usually serves no other utility apart from maintaining the price stability of the primary token. Once it breaks a particular price level, the algorithmic stablecoin begins descending into a death spiral. However, some multi-token stablecoin projects like the Terra Stablecoins have perfectly balanced the independent demand for their secondary token LUNA by using the token to pay for gas costs in the network. This ensures that the primary stablecoin token has strong price confidence from investors due to the utility provided by the secondary token.

Regulation surrounding Algorithmic Stablecoins

As of this writing, there is yet to be any clarity on the regulatory status of algorithmic stablecoins in any jurisdiction in the world. But it is safe to assume that as long as the algorithmic stablecoin projects remain decentralized, they should be free from being classified as securities.

Closing Thoughts

Most algorithmic stablecoins strive to become the reserve currency of the decentralized finance ecosystem. This is a fine goal, but it is important that they also have utility apart from the stability they offer to be viable for the long term.

Rebasing Algorithmic Stablecoins- Rebasing tokens are heavily dependent on mass adoption to positively impact their holders and achieve equilibrium in the market cap of the token. Only once the token has achieved equilibrium in its market cap can it truly be considered stable, both in terms of price and purchasing power.

Seigniorage Algorithmic Stablecoins- The most important factor in ensuring a successful seigniorage stablecoin seems to be a multi-token system that has independent value apart from maintaining the price of the primary stablecoin. It is also important that the primary stablecoin finds utility by partnering with as many projects as possible to generate the adoption of the token.

Over-collateralized Algorithmic stablecoin- While this model is not strictly a pure algorithmic stablecoin, it offers a functioning model for decentralized stablecoins to follow and maintain a relatively stable price peg.

Fractional Algorithmic Stablecoins- The idea behind this model is to limit the tendency of a pure algorithmic stablecoin to fall into a death spiral. The fractional reserve aims to lock the trust of the market participants regarding the inherent value of the token. By locking a fully-collateralized fiat stablecoin instead of a fiat currency directly as a reserve, the platform gains the trust and reliability of a centralized stablecoin without having to deal with centralized regulators directly. However, this does not make a fractional algorithmic stablecoin completely reliable. The token can still dive into a death spiral due to unforeseen events like a hack or whale dumping that the protocol is not equipped to handle. Moreover, fractional algorithmic stablecoins also face the core problems that all centralized stablecoins face. (i.e the risk of regulation and freezing of assets).

Ultimately, the algorithmic stablecoin ecosystem is still very young. It is without a doubt that the only way we will find more functioning models for algorithmic stablecoins is by experimenting and failing as many times as possible.

The post Algorithmic Stablecoins- Everything you NEED to Know! appeared first on Coin Bureau.

Emotions play a part in all of our daily activities which includes our investment decisions. Whether it is bias and conviction, or fear and greed, these are often the most difficult hurdles to overcome when making intelligent and well-informed investment decisions. Fear and greed are the two biggest emotional enemies that plague all investors, regardless of their experience, they are very difficult feelings to reign in and keep under control as they sit at the core of our very human instinct. Many professional investors will sound like a record stuck on repeat as they state the mantra, “emotions have no place in investing,” and I agree. Though you don’t need to take my word for it, just take a look at the hundreds of articles written by respected publications such as Investopedia and CNBC that discuss how and why to avoid emotional investing, and the countless books written on how to not let emotions destroy your well laid out and defined investment strategies. On that note, everyone should have an investment strategy such as the one Guy laid out here as having a plan can help keep our emotions at bay.

Why Emotions are an Investors Worst Enemy

It is a sad truth that the majority of retail investors lose money, or underperform the market, whether it is in Forex, Crypto, Stocks etc. One of the main reasons is that retail investment behaviour is often emotionally fueled which has been proven time and time again to be a losing long-term strategy. One could argue accurately that there are a host of other reasons such as retail investors do not have access to the resources such as research teams, tools, and analytical data as the investment firms which is why they underperform, and I would agree with that as well, but for the purpose of this article, we are only going to be exploring the emotional side of investing. If the average retail investor could consistently outperform investment firms and fund managers, then there would be no use for fund managers, investment bankers, Wall Street and the lot of them.

Average Investors Earn Below Average Returns Image via thebalance

Everyone has heard the very simple investment concept, “buy low and sell high,” which sounds easy enough right? That is literally all you need to do to make money in the markets, so why do the majority of people underperform or lose money when investing? It all comes down to fear and greed I am afraid. As our investments start to go up, greed kicks in and we don’t want to sell as we hold on thinking, “what if it goes higher?” Anyone who sold Bitcoin at 20k is likely kicking themselves as they watched it shoot up to 60k, but ultimately, it is greed that makes us hold onto assets for too long and instead of selling for a profit, most investors get too greedy to cash out and end up holding assets as their price plummets back down to Earth. While taking profits too early can be a bummer, anyone who has experienced selling early will likely tell you that they are happy that they sold too early vs if they had held too long and “diamond handed,” an investment all the way back down to zero or negative. As the saying goes, “nobody has ever gone broke taking profits.”

An Image Showing the Investor Sentiment Lifestyle. Watch Out for Euphoria, This is Where Investors Get Burned by Greed Image via q3tactical.com

Buying into and holding past the Euphoria stage of investing is where the majority of investors get wrecked as their investment has been going well, they feel like geniuses as they are rich! (on paper) and they are so confident that their investment is going to the moon that they continue to hold and they may even start piling more money in here at this stage…No longer buying low, nor selling high, are they? And like all markets, the downturn is just around the corner and they were too greedy to sell. Even at the first sign of a market dip, greed makes many investors hold on hoping the dip is temporary and price may resume so instead of selling after markets dipped 10%, they will hold as prices continue their downward spiral. Here is another great chart showing this mentality.

Popular Graphic Highlighting Investor mentality image via steemit.com

Fear is the other side of the ugly two-faced emotion monster that wrecks investors, and this comes in two flavours. The first scenario where investors allow fear to hurt their portfolio is that many investors will get spooked at every little dip in the market and sell early, even if price is in an overall uptrend, not allowing the full market cycle or trend to play out. As a very crude and simple example, say a market goes up 5% drops 2% up 5% drops 2% up 5%, many investors would have panic sold at the first 2% drop and sold, missing out on the additional 10% rally that followed. The next way that fear can be a terrible beast is that many investors will panic sell at a loss if price falls below their entry position and they are in a net overall loss. This is obviously not always a bad idea as prices often can continue to fall for extended periods of time, but often when investors sell at a loss, if they would have just held through the dip, ignored the fear about losing money and remembered their logic and conviction as to why they invested in the first place and held onto their macro perspective they likely would have held as price potentially rallied again and went in their favour.

As an ex-financial advisor and an investor in traditional markets, I have a lot of respect and admiration for Warren Buffet, who is often considered the greatest investor of all-time…As a crypto investor, he is a real downer, but that is for another article such as I’ve highlighted in my article on Crypto vs traditional investments here.  While I avidly disagree with his crypto sentiment, the man deserves credit where it is due and I want to quote one of his famous expressions as it could not be more true, regardless of the markets.

“Be fearful when others are greedy, and be greedy when others are fearful,”

-Warren Buffet wrote in a 1986 Berkshire Hathaway Shareholder letter.

An even darker quote that highlights a similar narrative about doing the opposite of whatever emotions are fueling the markets, essentially, buying low and selling high, comes from Baron Rothschild, an 18^th-century British nobleman and member of the Rothschild banking family, one of the wealthiest families in history who made a fortune buying in the panic and crashed markets that followed the Battle of Waterloo:

“The time to buy is when there is blood in the streets,”

-Baron Rothschild following the Battle of Waterloo

Though that quote isn’t meant to be taken quite so literal in today’s society as people use it to describe that the time to buy is when the markets are down (blood red) in the streets, (Wall Street). This is often known as contrarian investing, and it is very difficult to do as it goes against human nature and instinct. As markets are crashing, everyone is terrified and wanting to sell, but that is the best time to buy which feels sort of like trying to catch a falling knife. While the best time to sell is when the markets are skyrocketing and everyone is piling in thinking that an asset is going to the moon, it is hard to sell when you think you may make a bucket load of cash if you just hold on a bit longer. But how do you know if the markets are in euphoric greed or panic fear? Well, that is where the very useful fear and greed index comes in.

What is the Fear and Greed Index?

There are different fear and greed indexes for different markets. CNNMoney was the first to create The Fear and Greed Index for the stock market to measure two of the primary emotions that influence how much investors are willing to pay for stocks. The index is measured on a daily, weekly, monthly, and yearly basis. In theory, the index is used to gauge whether the stock market is fairly priced and examines seven different factors to establish how much fear and greed is in the market. The seven factors are measured on a scale from 0 to 100 and include market momentum, market strength, trading volume, put and call options, junk bond demand, market volatility and safe-haven demand. A full explanation for how these are measured can be found here.

CNN’s Market Fear and Greed Index Image via money.cnn

This became such a popular metric and useful tool that the same concept was applied to other markets such as our beloved crypto market. The Crypto Fear and Greed index was published by the website Alternative.me and measures the emotions and sentiment driving the crypto markets. According to the website, the index was created to try and save people from emotionally overreacting to FOMO as markets are rising and selling irrationally when they see red numbers. The Crypto Fear and Greed Index measures data from five Bitcoin-related sources, with each data point being valued the same as the day before in order to visualise progress in sentiment change. The current index is for Bitcoin and other large cryptocurrencies, but the team stated that they are working on separate indices for different altcoins soon.

Crypto Fear and Greed Index Image via alternative.me

The different factors measured in the Crypto Fear and Greed index are as follows:

• Volatility (25%)- The index measures the current volatility and max drawdowns of Bitcoin and compares it to the corresponding average values of the last 30 and 90 days.
• Market momentum/Volume (25%)- The index measures the current volume and market momentum and compares it with the last 30/90-day average values and puts those two values together.
• Social Media (15%)- The index is able to analyze market-related keywords across Reddit and Twitter to check how fast and how many interactions are related to Bitcoin. The team notes that this feature is still experimental, and they are optimizing how the function works.
• Surveys (15%)- Using strawpoll.com, which is a large public polling platform, there are weekly crypto polls asking people how they see and feel about the market. This metric is currently paused as the team doesn’t feel it is worth giving those results too much attention.
• Dominance (10%)- The dominance of a coin resembles the market cap share of the entire crypto market. A rise in Bitcoin dominance is often caused by fear as it is the “safe-haven,” for crypto investors, and when Bitcoin dominance shrinks people are more confident and therefore greedy and willing to speculate in smaller altcoins as investors are looking for the potential of higher gains as many altcoins can out-perform Bitcoin in the short term.
• Trends (10%)- The index pulls data from Google Trends for various Bitcoin-related search queries, focusing more on the changing of search volumes as well as other popular Bitcoin-related searches.

The Crypto Greed and Fear Index can be Analyzed Over Time Image via alternative.me

With all that data, the index crunches the numbers into a simple meter from 0 to 100, with zero being extreme fear while 100 means extreme greed.

Benefits of the Fear and Greed Index

A common theory of contrarian investing goes back to the fact that most retail investors lose money so smart investors should do the opposite. While everyone tries to buy low and sell high and thinks they can do it, the statistics show that human emotion trumps logic and most investors end up buying high and selling low. The Fear and Greed index is a very simple yet useful tool that can provide us with a reminder to dismiss our emotions, or confirm our concerns about whether or not we are too emotionally driven, and look at the numbers. Numbers don’t lie and investing is a numbers game of probability, chance and trying to make well-informed and calculated bets. Proper investment decisions cannot be made without stats, numbers, figures, tools, reports, and data to support our directional biases on the markets and the Fear and Greed Index is one of those helpful tools that help ensure we aren’t investing based on emotions.

When the index shows extreme fear, this can be a sign that investors are worried and prices are likely down which could be a great buying opportunity (buying low). Conversely, when investors are too greedy, that can signal that the market may be overheated and is due for a correction, signaling that investors may want to consider taking profit (selling high).

Of course, this index is just one tool and should be used in conjunction with other analysis metrics and tools and should not be relied on alone to make investment decisions.

Thanks, Investopedia, Could not Have Said it Better Myself Image via Investopedia

Criticisms of the Fear and Greed Index

Some skeptics feel that investors rely too much on this index and it can encourage poor investment habits such as trying to time the markets, which has been shown statistically to be a losing strategy for many investors. Buy and hold strategies are often the best way to make money in the markets and by relying on tools such as the Fear and Greed Index, investors may sell when it would have been more advantageous to hold. The Crypto Fear and Greed Index can encourage investors to actively trade in and out of coins more often than they should, missing out on long term capital appreciation and having transaction fees eat away at profits.

Sometimes Buying and Holding is the Right Call, Sometimes it’s Not Image via mikeharrisny.medium

Closing Thoughts

While the Fear and Greed Index gives us really valuable insight into the overall sentiment of the market, it should not be used as gospel and solely relied on for investment decisions. I think it is one of many important metrics to keep an eye on, and used in conjunction with other fantastic metrics like those that can be found on the website lookintobitcoin.com. In my opinion, The Fear and Greed Index is great for those of us so deep into crypto that we forget to look outside of our own bubble.

Just about everyone I socialize with is into crypto and sometimes we can get caught in our own echo chambers when we are only surrounded by other crypto enthusiasts. Sometimes it can be hard to remember that we are still early and most people are not here yet, so, while I may be feeling euphoric after a crypto conference and all my friends meet up and talk about Bitcoin, we may be all be feeling very confident in it and think we are nearing a top but the Fear and Greed Index could read that people are over-all still fearful and that our euphoria may be completely misplaced so it can act as a great “reality check.”

As far as the criticisms go, it is up to each individual investor to figure out what is right for them as there is never a one size fits all solution to investing. There are a lot of investment experts with a lot of data to back up their claims that trying to time the markets is impossible and a fool’s game over time, while there are many others who claim that even if you can time the tops and bottoms with a 10-20% error for margin (as nobody will ever time the very top and bottom) in crypto and can time the stock market tops and bottoms with a margin of error of 10-30 days that you will enjoy far better gains. Each camp has its merits, and both are valid opinions. Investing is a life-long learning journey and depends on each person’s biases, how much time and effort they are willing to put in, what markets they are trading and how much expert knowledge they have, and whether or not they are confident that they will be able to accurately time the market as one mistake in timing can lead to some serious losses, or significantly hinder potential long-term gains.

The post What is the Crypto Fear and Greed Index? appeared first on Coin Bureau.

 But what if I told you there is a Layer-1 PoW blockchain that’s not only energy-efficient but completely scalable, decentralized, and secure, would you believe me?

That’s exactly what Kadena claims to be. Kadena’s token (KDA) has gone parabolic the past few months, quickly growing from a $100 million market cap to a $3 billion market cap in just 60 days. Some have even gone so far as to call it an Ethereum killer (yes, every coin seems to brand itself as so), but its founder Stuart Popejoy insists that Kadena is the next generation of smart contract blockchains working alongside ETH and BTC, offering true scalability with a proposed 480,000 transactions per second (TPS).

We’re going to take a deep look into Kadena in this review to see if the claims are true, if Kadena can work alongside ETH and BTC, or if it really is The Ethereum Killer.

What is Kadena?

Kadena is a layer-1 proof-of-work blockchain with a proprietary chain architecture called Chainweb that allegedly allows Kadena to scale limitlessly. It also has a layer-2 blockchain called Kuro that allows for permissioned (private) transactions. Both layers are built using the native smart contract programming language called ‘Pact’, which is built in Haskell.

Kadena’s vision is to be a highly scalable and developer-friendly blockchain that offers the same level of security seen in PoW blockchains like Bitcoin.  Except, unlike Bitcoin or Ethereum, Kadena offers smart contract functionality even on a Turing-incomplete programming language (more on this later).

Kadena is designed to be appealing and functional for not only retail or regular users but also institutional and enterprise users. Theoretically, Kadena’s innovative PoW consensus mechanism called Chainweb seems to have solved the infamous blockchain trilemma. This should come as no surprise considering the Kadena team’s rich heritage.

Kadena’s Team

The project was founded in 2016 by Stuart Popejoy and Will Martino and has deep ties to traditional finance, with the founders being former members of the JPMorgan blockchain development team for Juno and the SEC’s Cryptocurrency Steering Committee respectively. Among the list of advisors to the team, there is one name that stands out like the sun on a hot day, that is Dr. Stuart Haber, the co-inventor of ‘blockchain’ and the most cited author in Satoshi Nakamoto’s renowned 2008 Bitcoin white paper.

Will Martino and Stuart Popejoy- Founders of Kadena via Kadena

Interviews with both Stuart Popejoy and Will Martino are especially impressive and show the founders’ bright vision for Kadena’s future and their understanding of both the legacy financial system and the blockchain ecosystem. This understanding helped the founders design Kadena to combat the flaws found in both CeFi and DeFi.

Kadena’s Architecture

The brilliance of the team is displayed when analyzing all the components of Kadena’s architecture, namely:

1. Chainweb – the layer-1 public blockchain that provides limitless scalability in a PoW consensus mechanism utilizing an innovative system of ‘braiding’ between multiple parallel ‘peer’ chains.
2. Kuro – the layer-2 open-source private blockchain built specifically for eEnterprises providing a speed of 8000 TPS across 500 nodes.
3. Pact – the native open-source smart contract programming language created by the Kadena team using Haskell for implementation.

Let’s look at each of these components in more depth.

Chainweb

Chainweb refers to the layer-1 public blockchain developed by the team that provides limitless scalability in a PoW consensus mechanism. It also refers to the unique architecture of the Kadena blockchain. One of the most prevalent problems of a proof-of-work blockchain is its inability to effectively scale, but with Chainweb, Kadena has been able to overcome this particular issue through the incorporation of two key features to its architecture; namely ‘sharding’ and ‘braiding’. Now, what does that mean?

‘Sharding’ refers to the splitting of one blockchain into multiple individual chains and ‘Braiding’ refers to the mechanism in which each block in a peer chain contains references to the hash of the previous blocks from other peer chains. Simply put, Chainweb is an interconnected bundle of multiple parallel chains called ‘peer chains’ that all simultaneously work together for a single network.

The Chainweb graph for Kadena’s 20 ‘peer’ chains via Medium

Scalability – The element of ‘sharding’ helps in the scalability of the blockchain as each shard is only concerned with a small subset of transactions in the whole blockchain. Therefore, this leads to an increase in throughput as each shard in the chain can simultaneously process transactions and produce blocks. The more shards in the blockchain, the more transactions the blockchain can process.

Security – When it comes to providing security to these chains, the element of ‘braiding’ helps secure the network as each block in the network contains the hash of its previous block as well as the hash of previous blocks in other peer chains of the network. This feature allows each block to validate other blocks in the network, regardless of the particular shard or chain it is from. Therefore, for an attacker to harm the network, he must gain control of over 51% of the total hash power in the complete network instead of just one or several individual shards. This prevents a single shard attack and secures the network. While the implementation of braiding is slightly more complex, with the introduction of ‘degrees’ and ‘diameters’ in the structure of the Chainweb, you can gain a better understanding through Kadena’s educational article on it.

At present, Chainweb has a total of 20 ‘peer’ chains or shards in its network with a throughput of 480,000 TPS when working along with its private chain ‘Kuro’. At the beginning of this article, I mentioned that one of the leading criticisms for proof-of-work blockchains is their nature of being extremely energy-intensive. So naturally, the question now remains whether Kadena can be energy-efficient as it scales further and adds more peer chains in its network. And the answer to this is YES.

Kadena initially launched with a total of 10 peer chains, which later scaled to 20 peer chains in Aug 2020, and the results show that the energy consumption of the network remained the same even after doubling the number of chains on the network. This acts as a proof of concept for the blockchain’s ability to scale from 20 chains up to 1000 peer chains and more while using the same amount of energy to run the network, making the blockchain extremely energy efficient, especially at scale.

Kuro

Kadena also developed a private blockchain before launching its public smart contract platform. The Kadena Kuro (previously ScalableBFT) private blockchain is an open-source layer-2 blockchain that uses a Byzantine Fault Tolerant (BFT) consensus method and is optimized for enterprise-grade use cases.  Kuro is built using the Pact language and is tailored to serve enterprises with their blockchain needs. Some of the features that Kuro offers that other private blockchains don’t offer are:

• Automatic bug detection through formal verification.
• Human-readable code that is accessible to programmers and executives alike.
• Flexibility to upgrade smart contract terms to reflect changing business needs.
• Easy integration to existing enterprise databases with a native API.
• Advanced security options like key rotation and pluggable encryption allow you to dial up security to meet your specs.

Features of Kadena Kuro via Medium

As a proof of concept, a healthcare consortium has been using Kadena Kuro to help decrease the effort required to acquire and retain insurance provider information since 2018. Kuro can be used as a side-chain with a public blockchain network (such as Kadena’s public platform) to speed up transaction processes and build new data marketplaces. This feature is especially useful for enterprises with a good collection of user or market data that can be monetized and sold on a private blockchain.

Pact

Pact is the native open-source smart contract language of Kadena with built-in bug detection. It is the first truly human-readable smart contract language that is Turing-incomplete. It allows anyone to write on a blockchain in a straightforward, direct, and secure manner. Pact was designed to solve some key problems that are present in current-day standard smart contract programming languages like Ethereum’s solidity. Solidity, being a Turing-complete language, suffers from various attack vectors like unbounded loops and a lack of Formal Verification. Additionally, when you reference code from other contracts in Pact, you stay in control of what happens with your transactions, even if they change their code

Formal Verification (FV) – This is a feature of Pact that lets developers automatically verify whether their code has any bugs or loopholes through mathematical computation. Think of the ‘Formal Verification Tool’ as the ‘Grammarly Tool’ of coding. Formal Verification in Pact is designed to not only tell you whether your smart contract can execute what you intended but also verify whether it will perform no other action besides your intended programming.

Blockchain Governance – Unlike Solidity-based contracts, Pact smart contracts can be updated, altered, or fixed via an update system that allows users to declare new versions of a smart contract that are only applied when the new code has been properly run. Any faults will cause the smart contracts to revert to their original state and prevent any further changes.

Smart Contract Security – To understand the smart contract security of using Pact, we must first understand the concept of ‘Turing Completeness’ in programming languages. To describe it simply, ‘Turing Completeness’ refers to a programming language’s ability to express all possible programs or functions. In non-technical speak, it refers to whether a programming language is all-powerful and unlimited in its application according to modern computer standards for building all types of programs.

Turing Completeness vs Incompleteness via Medium

Pact was purposefully designed to be a Turing-incomplete language, unlike Ethereum’s Solidity which is a Turing-complete language. While it is true that Turing-complete languages are much more diverse and powerful in terms of their programming capabilities, they also offer a wider range of options to bad actors to exploit and attack a program or code. Most blockchain applications currently being run do not require the full range of features that a Turing-complete language offers. Therefore, a Turing-incomplete language like Pact can offer all the programming functionality needed for most smart contracts and the applications that run on it are even more secure.

One of the key functions that give rise to a variety of attacks in a Turing-complete program on the blockchain is ‘recursion’. Recursion refers to a program’s ability to loop an action until a specific condition is met for it to terminate. In a Turing-incomplete language like Pact, any recursion that is detected will cause an immediate failure and terminate all running code. This feature significantly reduces any potential attack vectors that may be present in smart contracts.

Remember the 2016 DAO attack on Ethereum? That’s one of the most famous examples of where an attacker was able to exploit the ‘re-entrancy’ function (courtesy of the Turing-complete nature of the programming language) of the smart contract and drain the DAO’s funds before the balance was updated on-chain.

Kadena’s KDA Token

Kadena’s native token is called KDA and is used to pay for computing power on the Kadena blockchain similar to how ETH is used for the Ethereum blockchain. KDA is also paid to miners for mining blocks similar to Bitcoin’s block reward of BTC for successfully mining a block. The total supply of KDA is 1 billion tokens and the current circulating supply at the time of writing is 166,581,608 KDA (i.e 17% of the total supply).

Token Allocation

Kadena Token Allocation via Medium

Kadena’s total token supply is divided into five.

Platform Reserve – Around 20 percent of the total supply is allocated to the platform reserve. The Platform Reserve is a form of treasury for the project, where the tokens in the platform reserve will be partially monetized and used to provide services such as insurance, smart contract verification, and gas station grants.

Miners – Around 70 percent of the total supply is allocated to miners. These tokens will slowly be released into supply as block rewards for miners. The emission rate is projected to last more than 100 years before the block reward pool runs out.

Investor/Strategic – Around 6 percent of the total supply is allocated to Investors/Strategic. These tokens are to be issued in token sales to investors or to be distributed for strategic partnerships with other projects or ecosystem initiatives.

Contributor – Around 3 percent of the total supply is allocated to ‘Contributors’. Contributors include employees, consultants, and advisors. These are essentially tokens reserved for the team and people behind the project.

Burned – Around 10 million tokens (1% of the total supply) were burned during the initial launch of the project.

Emission Schedule

KDA Emission Schedule up to 2031 via Medium

Token emissions in Kadena come from two sources – mining and platform emissions.

Mining Emissions – The mining pool accounts for around 700M tokens (70% of the supply), which will slowly be released into circulation through block rewards awarded to the miners for successfully mining a block. The emission rate is scheduled to last for a total of 120 years. The block reward began at about 2.3 KDA per block or 23.04523 KDA per block height at genesis. This amount will decrease by roughly 0.3% every 87,600 block heights until block height 95,308,800 when the mining reward stagnates at 1 KDA per block height. The block reward will eventually drop to zero at block height 125,538,057. This makes the token economy fall somewhere between inflationary (in terms of circulating supply) and deflationary (in terms of purchasing power of the token with successful adoption).

As a non-technical person, understanding and calculating the block rewards by looking at their GitHub was a headache. If you’re someone like me, fear not, I shall explain. Block Height refers to a position in a blockchain. In a traditional blockchain, the block height increases with every block that is produced. However, in a sharded blockchain like Kadena, the block height is calculated as follows: if there are 20 shards in the network, at any given block height, there will be 20 blocks (one produced by each of the shards/chains) positioned at the same block height.

Therefore, as Kadena scales into a higher number of peer chains, the individual block rewards become smaller and smaller, as there is a fixed reward at each block height. At any particular block height, the KDA rewards have to be split between all the blocks present in that block height.

Platform Reserve Emissions – The platform reserve accounts for 200M tokens (20% of the total supply). These are pre-allocated tokens that are vested over time. The time-locked slow vesting schedule was placed on the platform reserve to prevent inflation and at the same time provide strong economic backing to the platform so that it can fund and provide grants for various initiatives that will help its growth. At the time of writing, the platform emission rate stands at 22.08M tokens/year and 2M tokens/month. However, the team has reserved the right to change the emission rate in the future based on what they deem to be in the best interests of the project. With the current emission rate, the platform reserve tokens will be completely unlocked over 10 years from 2021 to 2030.

KDA Price History

Kadena’s token (KDA) has gone parabolic the past few months, quickly growing from a $100 million market cap to a $3 billion market cap in just 60 days. Kadena held two private token sales in early 2018 in the form of a Simple Agreement for Future Tokens (SAFT), the tokens were sold at the price range of $0.50-$0.75. Kadena also had a public token sale where it sold each token for $1. With the current price of KDA sitting at $9.72, that’s a 1,812% return since launch.  According to CoinMarketCap, it has hit an all-time low of $0.1213 in Jan 2021 and an all-time high of $28.25 in Nov 2021. All within 11 months! KDA especially caught investors’ attention during October and November in 2021. Some reckon this is because wrapped KDA had just launched on the Ethereum (ETH) network, along with Kadena’s rollout of non-fungible token projects, their new exchange listings, and the addition of support for KDA staking.

KDA’s race to the top in November! via CoinMarketCap

The KDA token is currently available on KuCoin, Gate.io, Bittrex, and more.

Kadena Ecosystem

The Kadena ecosystem is rapidly expanding with unique features like a ‘gas station’ and a new native NFT standard. It also has diverse projects building on it in the areas of DeFi, DEXs, NFT Marketplaces, and wallets.

Gas Station

In a blockchain first, Kadena offers the first crypto ‘gas station’ service. Gas stations are accounts that refund all gas utilized to execute specific smart contracts to users. The idea behind gas stations is to ease the user on-boarding in dApps, helping users experience a dApp without being forced through the hassle of acquiring the native crypto on an exchange and then transferring to the wallet to use the dApp’s services. Gas stations are a powerful means for the platform to cover many years of gas prices when combined with Pact’s ability for dApp developers to co-sign transactions and pay for a user’s gas expenditures when utilizing a dApp.

Kadena DAO

Dao.init is the name of Kadena’s first DAO that is currently in the test net before being launched to the main net. The formation of a DAO will allow the broader community to contribute feedback in a decentralized manner as Kadena’s ecosystem continues to grow. The DAO will serve two purposes: 1) it will allow the Kadena community to submit and vote on suggestions aimed at advancing the Kadena ecosystem, and 2) it will establish a decentralized procedure for adding new features to the Kadena platform.

Wallets

Currently, there are 2 wallet services on the Kadena blockchain – Chainweaver and Zelcore

Chainweaver – This wallet service is developed by the Kadena team. It uses a 12 words seed to generate your public keys.

Zelcore – This wallet service is developed by a third party and it uses a combination of your username and password for security. In Zelcore you are responsible for your security, a bad/short username/password will put your account at risk.

If you’re wondering which wallet to use, I suggest reading this article.

Kaddex

Kaddex is a decentralized multi-protocol AMM DEX with native decentralized bridges that is run by a DAO on the Kadena blockchain. It can offer zero gas fee transactions due to Kadena’s ‘gas stations’. Kaddex has its token called KDX which functions both as a governance token for the DAO and a utility token for the DEX. Kaddex provides unique LPs incentives that will attract new DeFi customers to the network. When a swap is performed the user is charged a standard 0.3% trading fee, of which 100% goes to Liquidity Providers.

NFTs

Non-fungible tokens on Kadena built with Pact, solve one key issue present in the ERC standards of Ethereum – lack of additional function besides ‘transfer’. According to Stuart Popejoy, the co-founder of Kadena, NFT sales in ethereum marketplaces that involve the function of ‘royalties’ are solely left at the hands of the marketplace. This creates a need to trust in a world that is supposed to be built on the concept of ‘trust-lessness’. Therefore the native NFT standard on Kadena makes it possible to automatically transfer royalties to the creator even if the sale/transfer is done outside of an NFT marketplace. This ensures and upholds the creator’s right to receive royalties from his NFT creation.

Future Plans

Kadena’s future looks bright according to its roadmap. The team seems ready to plunge headfirst into mass adoption with the roll-out of bridges connecting Kadena to blockchains like Terra, Celo, and Ethereum. The team has also hinted at a possible integration of Kadena into the Ledger hardware wallet. The team additionally has plans to offer various incentives in the form of grants like the developer grant and ambassador programs.

Conclusion

Honestly, Kadena’s architecture is beyond impressive and investors seem to be catching on to the platform’s vision. Kadena has effectively solved two major obstacles in the blockchain ecosystem, the first being the blockchain trilemma. Kadena’s unique Chainweb architecture promises to scale like no other blockchain in the market at the moment, while still holding onto the pillars of decentralization and security. It has even managed to become energy efficient at scale.  The second major obstacle Kadena seems to have solved is the onboarding of institutional and enterprise entities onto the blockchain through its innovative layer-2 platform called Kuro. Kadena, through its ‘gas station’ feature, has also made it possible for retail investors and laymen to interact with dApps built on its blockchain without the need for any native utility tokens for gas. Thus, with continued real-world application and commercial viability, Kadena seems closer to bringing blockchain to mass adoption than any other project in the market.

The post Kadena Deepdive! The Blockchain Trilemma solved?! appeared first on Coin Bureau.

So, the only thing to do is to continue the research. However, sometimes it might be tricky to know where to start. For me it was weird when starting out with cryptos. Being familiar with stock research I thought I can do the same things with cryptos. Needless to say, that didn’t work. Looking through the sites used for analyzing stocks was useless and when finding the crypto sites, I had no idea what to look for, or if the sites were any good. That’s why I’ve gathered here the top 10 crypto research tools that have helped me along the way. I’m sure you’ll get a lot out of them too.

10. Glassnode

To start things off I wanted to go with Glassnode. Glassnode is an on-chain analytics tool and it’s one of my favorite places to visit when the markets turn red and I need to see the bigger picture to regain my confidence. Looking at active wallet addresses rising always helps me sleep at night. But that’s not all. Glassnode offers a variety of different metrics and they support many cryptos including big names Bitcoin, Ethereum, and Litecoin, as well as many DeFi tokens and ERC-20 tokens.  

Last time I gave you a few metrics to look for and those were total active address and NUPL (Net unrealized profits/losses). However, Glassnode offers a lot more. The problem is that if you don’t know what to look for, or how to interpret the metrics and charts, it’s kind of useless. That’s why I want to redirect you to Glassnodes weekly on-chain analysis. You can read through these yourself or watch via YouTube, and I highly recommend you to do that. Watching those have helped me a lot in understanding the benefits of on-chain analysis as well as how I can do that analysis on my own. They also give you a sense of where we are in the market cycle which is often times helpful when managing your portfolio. Another place to really learn about on-chain analysis is from the Glassnode academy.

Here’s a look at the metric introduced in the last CB top 10 research tools article. Image via Glassnode.

And do you know the best part of all of the learning opportunities at Glassnode? They’re both free. No need to pay for anything before you know how to use these metrics. Then when you have learnt everything and want to start doing your own research, I suggest you opt for the $29 a month plan. They do offer one higher plan too but that costs $799 a month so I don’t think it’s relevant to many of us.

9. CoinGecko

Doing any research is kind if pointless if you don’t have anywhere to check your prices. That’s where GoinGecko comes in, although they do offer lots of other useful stuff. CoinGecko is available both online and as a mobile application so you can use it anywhere. The most obvious thing to do here is simply create your own portfolio and track it from the app. That way you’re always on top of crypto price movements.

On top of that CoinGecko is the perfect place to start when researching a new crypto. When you click on a crypto, you’ll find it’s market cap, price, volume, supply, exchange listings and a description. All of this is good to know when making up your mind whether the crypto is a s*itcoin or not. If you don’t know how to spot this type of a crypto then Coin Bureau has the perfect video on that. A few additional statistics you can find on CoinGecko are some social statistic, developer statistic and even brief analysis by IntoTheBlock.

Sadly not a green day when I took the screenshot. Image via CoinGecko.

Also, if you’re looking for something besides specific cryptocurrencies, you’ll find it here. On CoinGecko you’ll find derivatives, exchanges, DeFi, NFTs, Yield Farming, podcasts, and they have even published a couple of books. So, if there’s anything you’re looking for then steering your ship towards CoinGecko will be helpful. Most of the things they offer are free but they do have two paid plans available. First is the premium plan for roughly $4 a month which gives you an ad free CoinGecko. Then they have the premium+ for roughly $8 which opens up a lot more including access to their books, research reports, chat with their research analysts, and a lot more.

Last time I wrote about this topic I told you guys about CoinMarketCap and now I’ll say it the other way around. CoinMarketCap is just as good as CoinGecko and using either one will get you what you need. It’s often just about personal preference.

8. Messari

This is without a doubt the place you turn when searching for hidden gems and huge gains. That’s because the Messari screener is the best place to filter through your searches when on the hunt (or at least the best one I’ve found so far). You can filter by market cap, volume, liquid supply, on-chain indicators like active addresses, reddit subscribers and a lot more. On top of that Messari offers quite good research articles which do come in handy.  

Now I know it can be exhausting to go through so many different cryptos you’ve never heard of, since to be real 90% of them are worthless. However, it would be nice if someone were to do that for you so that you know which ones to look at and which to ignore. That can be done at Messari in form of community created screeners. Here you can find loads of different categories ranging from certain types of projects to asset manager portfolios. Often, I like to look at what large funds have invested in and see if I can find any good projects I should be holding too. These screeners include funds from the likes of Coinbase and Alameda Research, so pretty reputable names to say the least. Also, if you’re looking at metaverse or gaming projects there are separate screeners for them too. These screeners can’t be modified but you can always copy them by the click of a button and then edit them to be more suitable for your purposes. 

A look at Alameda Research Portfolio screener, not bad one year performance (800%). Image via Messari.

When it comes to prices there are two options, $25 a month for the premium and then $625 a month for the enterprise plan. So, if you’re a retail user like I am then that $25 dollar a month plan should be enough.

7. CoinMarketCal

Have you ever felt like you can’t keep up with all the events and upgrades going on in crypto? Well, I have. Luckily there’s CoinMarketCal. Here you can find a full calendar with everything surrounding crypto.

What I usually do is check the events listed as significant and then look at those concerning the top 100 coins. Often times I find stuff the news sites have totally missed, which is why this tool comes in handy. Did you for example know that if you’re an XLM holder you can be qualified for an AQUA airdrop in December? Or did you know that Stacks is getting a significant upgrade? Like the XLM example, it’s good to also check out what’s going on with those cryptos you hold. You don’t want to miss out on an airdrop just because you didn’t have a clue that there even was something to miss. We all know how lucrative airdrops can be.

Here’s a look at Coinmarketcal. The airdrop news is trending so guess I’m the only one not aware of the news. Image via Coinmarketcal.

Then lastly for those who like to trade. Looking here for potential big events can provide some good trading opportunities. That’s because CoinMarketCal supports a large variety of coins including small caps which tend to be extremely volatile. However, when trading based on news and events remember the saying, “buy the rumor, sell the news”. On top of that there can also be some opportunities find in the ‘Coins with Potential’ by CoinMarketCal. Here are those coins that have many and/or major events coming.

All of the features on CoinMarketCal are free and what I like about the site is that it’s strongly community driven. Anyone can post events and they then get voted on whether they’re legit or not. This voting system also allows CoinMarketCal to sort the hot picks from others and it makes it easier for you to find interesting opportunities.

6. Coin Metrics

Here’s a tool that doesn’t run out of things to look at and use. Coin Metrics is best known for their accurate and up to date on-chain data with over 400 metrics and 100 supported cryptocurrencies. Now what I do have to say is that this tool feels kind of aimed at more experienced people. The site is stylish and simple but I get a sense that Coin Metrics aims more for institutional clients. That’s because they offer some paid plans which you can’t get access to online but have to contact them directly, and when you purchase these plans you gain an access key to an API through which you can get access to more tools and data. That’s why if you’re a retail user doing some on-chain analysis I would go with Glassnode since I find it easier to use, and cheaper besides.

Definitely worth checking out. Image via Coin Metrics.

That said, Coin Metrics is still a great site which is why I have listed it here although my personal preferences are for other sites. I’ve come across multiple news sites using Coin Metrics’ research as a reference and you too can get access to those. These are useful since they provide you with important data while teaching you how to do the analysis yourself next time. They usually sum up each quarter with different charts showing a variety of useful statistics. Here you’ll get a good sense of how everything has been going and where we might be heading. On top of that they also sum up each week in shorter reports which are worth checking out.

5. LunarCrush

Hopefully you read the piece on sentiment analysis on Coin Bureau a few weeks ago, if you did you should be familiar with LunarCrush. But of course, not all of you read the piece so here’s a short introduction to LunarCrush. LunarCrush is a sentiment analysis tool that gives you all the essential information when it comes to public perception of a crypto. LunarCrush has two custom scores called AltRank and Galaxy score. I’ll leave a picture below so that you can see what they are based on. However, you don’t have to rely on this and LunarCrush does give you the ability to analyse cryptos yourself too.

Images via LumarCrush.

LunarCrush gives you the ability to sort by different metrics like social volume, bullish/bearish sentiment, volume, market cap and a lot more. Then you can look at the statistics for yourself and make your own analysis. One thing I like to look at is the total social volume and how much of that is bullish versus bearish. Looking at this as well as seeing how they develop along with the price might help you determine where a crypto is going. One thing I found that could present trading opportunities was looking at the bullish sentiment alone. There were many places in the last 3 months when an uptick in bullish sentiment was followed by an uptick in the price. However, I did not find any definite correlation and you could just as well have lost money trading. But if someone else wants to dig deeper into this I think there might be some possibilities in this.

The problem with doing more thorough analysis with LunarCrush is that you need to pay for access to more data. Without paying you will get a maximum of 3 months charts and no charts for the Altrank or Galaxy Score, only the values. This makes it harder to analyze the long-term trends. When it comes to the cost you will need to purchase LunarCrush’s native token LUNR. There are three levels, tier 1 for free, tier 2 for 30 LUNR, and tier 3 for 100 LUNR. At the time of writing this LUNR is trading at roughly $1.45. The problem with this system is that the Lunr token has been in a constant downtrend in the last 3 months which means that if it continues you can get the levels a lot cheaper in the future. 3 months ago, level 3 would have cost you about €1500 and now it’s only €150.

YIKES! Image via CoinMarketCap

Despite the potential cost LunrCrush is a great tool but there’s a one other thing I want to warn you about. While this is a place where you could find tradable assets and maybe even hidden gems there are a lot of scams. You should be aware that many meme projects use lots of bots and money to grow the awareness around their project. That naturally pushes these coins up in LunarCrush since that’s what this tool is for. However, these projects can be complete garbage and simply buying them based on the values shown on LunarCrush isn’t good. For example, right now there’s a crypto called Tacocat in the top 10 by social volume. I have no idea what it is or what it does but the name itself should ring some warning bells that tell you to do additional research.

4. Santiment

If you didn’t like the fact that you only see 3 months’ worth of data on LunarCrush then maybe you should consider trying Santiment. Here you can do similar social analysis on over 1000 cryptos. You can also include data like market cap, volume and even some on-chain analysis. This is a great tool to study individual cryptos.

Sanbase Studio is what features all the charts. Image via Santiment.

On top of that they offer great market insights that again, like Glassnode, offer both valuable information as well as context around the metrics found on the site. What I found is that they are quite active and tend to cover trending cryptos. One of their recent analyses is on Basic Attention Token (December 2021) that you might have noticed has had a good run lately. I’m not going to tell you here what they said about BAT, so if you’re a holder I suggest you take a look. I found it quite interesting. On top of this, Santiment has its own academy where you can learn lots about Santiment and the markets in general.

Then, on top of these two tools Santiment offers a screener tool. Here you can try and find those hot picks that’ll take your portfolio to the moon. However, to be able to use the social metrics you’ll need to have the pro plan. The Pro plan will set you back $49 a month and if you really want access to everything you can purchase SanAPI and that’ll with set you back $160 a month. SanAPI is, however, meant for developers and not retail users. If you want a discount on the prices, you can get that buy owning SAN tokens, a 20% discount to be exact. Staking these tokens will also unveil more possibilities which of one is SanR.

Take a look at this. Image via Santiment SanR

This is a decentralized market of trading signals. Here anyone that stakes 50 SAN can upload signals on where a cryptos price is headed. These positions will close in two weeks and the top performances in percentage terms will be awarded. Currently there aren’t many users so if you want to try to win some SAN you have a great probability. You can win up to $36 each two weeks with current prices. Other use cases for SanR are to look at the consistent top performers and maybe follow what they do. It’s interesting to see how this develops. Santiment also has plans to make the ecosystem even larger and greater by incorporating the SAN tokens. And don’t worry, the performance of SAN is a lot rosier than Lunr, though it is down considerably over the past month, mostly due to broader market forces.

3. Coinglass (Former Bybt)

Most of you might know this by its former name Bybt. I know wasn’t aware of the rebranding. Coinglass is a derivatives data tool and regardless of the name offers some valuable insights. In order to benefit from this data, you don’t need to be a derivatives expert. Most of the data here is useful for getting a sense of the market sentiment. 

One thing I like to look at here is the long/short ratio. From here you get a good view of what the sentiment around a crypto is. Another thing here is that you can adjust the time frame to as narrow as 5 minutes and this might help you spot the local top. For example, as I’m writing this Bitcoin is +6% in the last 24 hours and now the short ratio is starting to rise which might signal that a top for this short bullish run might be here. (Looking back the next day I was right). Another thing I regularly check here is the Statistics surrounding Grayscale and also now the ETF. That’s because I’m interested in how institutions view cryptocurrencies and currently many of them rely on these products to gain exposure. Now whether you should be getting your Bitcoin exposure through these is another question and you can find the answer to that in this Coin Bureau article.

Here’s a look at Coinglass and the Longs Vs Shorts by 24 hours, quite consistent. Image via Coinglass.

Lastly a nice thing to also check on once in a while is how Bitcoin is performing relative to the stock-to-flow model. If you don’t know what the S2F model is then CB has got you covered again. Shortly, it’s a valuation model that has so far proven to be one of the most accurate in projecting Bitcoin’s price. All the things on Coinglass are free and although I only mentioned Bitcoin, they have statistics on a variety of altcoins.

2. Coin Dance

Are you a fan of Bitcoin? If yes then you’ll want to have a look at Coin Dance. Here you can find tons of useful statistics on volume, nodes, politics, and adoption. Even if you aren’t a fan of Bitcoin this site is worth checking out since as we all know Bitcoin largely influences the whole market.

Interesting things I like to look at are those statistic that tell me about the wider adoption. Two in particular that I like to look at is Bitcoin by gender and Bitcoin by age. Currently Bitcoin is highly dominated by men so for those men reading this article try to get your better half to join us. And on the age thing, you should really try to get those elderly in on this too. It’s never too late to join a revolutionizing industry. And hey, they’re going to need those gains in order to fully enjoy retirement. Jokes aside, in order for cryptos to go mainstream we need to educate those who have no way of knowing what this whole crypto thing is. Regardless of age and gender everyone is needed and each of you can start by introducing cryptos to family and friends. And importantly, don’t just talk about the huge gains try to explain all the benefits since just entering because of 100x gains isn’t the right reason.

Those are two blue dominated pies to say the least. Image via Coin Dance.

Then back to Coin Dance for one last thing. Look at the adoption by country. This is an interesting statistic and you’ll see that countries with a weak currency are likely to adopt Bitcoin, look at Venezuela. Also, it’s interesting to see each country’s view on crypto and CoinDance have even listed which parties support Bitcoin in certain countries.

1. CryptoQuant

Again, a site filled with extremely important metrics. CryptoQuant offers data on Bitcoin, Ethereum, Stablecoins, and then generally on Altcoins. This data consists of market data, on-chain data, and exchange flows.

Getting right into certain picks here, one metric suited for the current situation is all exchanges estimated leverage. In the recent crash (December 2021) that took Bitcoin all the way down to $42k we saw the leverage drop significantly due to liquidations. Now, the price has started to rebound while the leverage has stayed relatively low. I would argue that this is extremely bullish since the leverage was rising constantly for a longer time and now we’ve shaken out a lot of over leveraged people, the rise in prices is on more sustainable ground I would say.

Please people, be careful using leverage. Image via CryptoQuant.

Another thing to look at is all exchanges reserves. You’ve probably heard Guy on Coin Bureau mention that we’ll see high volatility in the markets due to low liquidity on exchanges and this is true. However, now you don’t have to wait for Guy to say this since you can check this yourself on CryptoQuant. If you don’t now have the time to check I can quickly tell you that it’s extremely low, so, expect volatility.

Lastly, if you’re wondering on the cost, I’ll be happy to tell you that to access those statistics I mentioned plus lots more it’s completely free. You just have to create an account. If you need more, then they have an advanced plan for $39 a month (if billed monthly) that includes more accurate on-chain indicators. On top of that there’s the professional plan for $109 a month and a premium plan for $799 a month. I would argue that the best way to go is starting free and then if you feel that it’s necessary upgrade to the advanced plan. Those other two might be a bit too expensive, especially if you want to get some other tools on this list.

Conclusion

As I mentioned with LunarCrush you shouldn’t be relaying on just one of these tools and not even only those mentioned in these lists. There’re tons more useful tools and doing research also includes looking at the project site, including reading the complete whitepaper. These tools are just meant to enhance the analysis and using them in combination which each other makes them more powerful. Naturally, you have a higher chance of picking the right investment if five sites give you a buy impression rather than just one giving that. Also, these sites listed here are in no particular order since all of them are good with different use cases. But, enough said, take the things you learned here and head on out to do your own research.

The post Top 10 Crypto Research Tools: Where To Do Your Own Research? appeared first on Coin Bureau.

That day came quietly, with nary a trumpet blaring, on December 27, 2017, when the first transaction made using the Lightning Network was made on the Bitcoin mainnet. This is a Layer-2 solution for the Bitcoin blockchain that promises to unshackle the chains of scalability it faces and empower it to live up to its true purpose: as a medium of exchange widely adopted by every sentient being on Earth.

Bitcoin struck by Lightning (Network) Image via Shutterstock

In this article, we scrutinise this technology purporting to save Bitcoin’s bacon in this realm. Follow us as we familiarize ourselves with its workings, the benefits it brings to Bitcoin, the risks and drawbacks and where it could lead us, perhaps with Twitter in tow, in the not-so-far future.

The Lightning Network (LN) was born to address Bitcoin’s scalability problem. Faced with the blockchain trilemma of decentralisation, security and scalability, Bitcoin compromised on the last one in favour of the other two. Choosing this path gave Bitcoin the granite-solid foundation the project needed towards credibility in the technology itself. If I were to stack these three in order, decentralisation is the heaviest on the bottom, followed by security in the middle and scalability on the top. I imagine it would be far more difficult to improve on decentralisation versus scalability.

Currently, Bitcoin processes 5-7 transactions per second, about 10 minutes per block written to the chain, and that’s just sad. Not only that, one has to pay more in transaction fees during busy periods and still wait for the transaction to go through. I won’t even favor Visa or Paypal with a comparison on transaction speed. It’s awful enough as it is. However, it won’t be long when Bitcoin catches up with the LN charging ahead as its front.

What Is the Lightning Network?

The Lightning Network is a Layer 2 scaling solution that processes transactions away from the main chain, known as off-chain using smart contracts called channels. It sits on top of the main chain, hence the name Layer 2. By introducing this enhancement, its goal is to maximize transaction speed while also minimising the transaction fees involved. This technology works on any platform supporting smart contracts and multi-sig wallets, not just on Bitcoin! How can do that?

How It Works

Do you remember attending school assemblies? Every kid in school would file into the school hall and listen to what the principal has to say. Usually it’s to make announcements, and maybe give out awards too. These assemblies can run on for quite a while and there will be a few of us that would be bored quickly. We’d then whisper or maybe text each other while the principal drones on and on.  

The above scenario illustrates the relationship between the main Bitcoin blockchain and the Lightning Network. The school assembly is the main chain and the side conversations is what’s happening on LN. Basically, not all transactions are written onto the main chain, because that’s what’s causing the slow speed. Instead, the LN processes the “smaller” transactions on their own, and informs the main chain the outcome of the process. Let’s see how it would potentially work in real-life.

Kids at a school assembly

Single Channel

Whenever I move to a new neighbourhood, the first purchase I make is usually at the grocery store. Since I plan to be a regular customer with them, I will need to set up a payment channel with the store. This entails both parties having a multisig wallet. There are two components to it:

• public address – the digital location of the Bitcoin, kinda like an email address.
• private keys – the password for the public address, used to sign a transaction.

Both pieces of information are needed to complete a transaction. By setting a payment channel, I have become a node on the LN. This will be further explained later.

After sorting out the wallet, I deposit some Bitcoin into it, however much I think I will be spending there for the coming month. The payment channel is now established after the funds have been deposited. This is known as  the funding or anchor transaction. This transaction is recorded on the main chain by the LN.

The subsequent purchases I make throughout the store will be deducted from the initial deposit amount each time I pay for something. These are microtransactions that happen within the channel and are processed instantly. It’s like opening a bar tab, showing you have money to pay, but not paying until actual spending occurs.

When I move away from the neighbourhood, I’d stop being a customer at the grocery store. On the day I make my final purchase, I close the channel in a settlement transaction. That’s when the LN will submit the final balance to the main chain. Therefore, all the transactions I’ve had throughout the entire period is processed on the LN instead of the main chain. Pretty nifty, right?

Well, the biggest drawback though is that the merchant can’t touch the money in the channel until it’s closed. I can’t imagine the grocery store being happy to have a channel open with me for 5 years and not be able to use any of it during that time. The store will probably have some conditions like a timelock.  It’s an upper time limit on how long the channel can remain open. This is one of the LN’s security feature to ensure both parties are available to transact with each other throughout the entire period. If one of the party is missing, the other side won’t need to wait forever to get their money.

Mutual Channels

Sometimes, it’s not very practical to set up a payment channel for every payment made. Say you got invited to a dinner party in which the only person you know is your friend James who invited you. When it comes time to pay the bill, Mary, one of the people in the group, says she’s happy to pay the bill on behalf of everyone because she gets an employee discount. Each of us pay her back their share of the meal. It would be a bit of a pain for me to set up a channel with Mary because I might not see her again. However, James meets up with her regularly. Since I have a channel with James, I can pay Mary through him. In other words, a direct connection is not necessary as long as there is a mutual connection somewhere along the chain. James, I and Mary are all nodes on the LN.

Making Payments through LN nodes Image via Medium.com/coinmonks

It’s almost like the 3rd degree connections on LinkedIn except in the form of making payments. P2P lending will never be the same! Aside from that, there are other possibilities too like:

• Affiliate linking to a whole new level. You could use the influencer as a node to pay for the product they’re advertising. Perhaps the influencer can get a clip for each transaction done through them. This would greatly enhance the influencers’ social media reach. It would also save the companies having to do the paperwork to pay them back too.
• Visiting tourists can pay for items through a payment channel  set up by the tourism board for participating merchants. The board can earn a clip of each transaction in the process. The revenue can then be put back into the industry to promote tourism without touching taxpayer’s money.

These are really pie-in-the-sky thinking because the transaction fees on the LN isn’t a lot to begin with. Currently, it doesn’t pay to be a node on the LN to make money because the amounts are miniscule. More importantly, there isn’t mass adoption yet. In the future though, who knows?

The People Behind It

Before I get all starry-eyed thinking about the amazing changes it could bring to the future, let’s backtrack a bit into the past and look at the teams working on it.

This project was first proposed by Thaddeus Dryja and Joseph Poon back in February 2015 in a whitepaper.  The first transaction made on the LN was actually on the Litecoin network on May 10, 2017 by Christian Decker, from Blockstream. There are currently three teams working on the project, each coming out with their own version of a Lightning Network node written in different programming languages. Nevertheless, interoperability is considered in the design with potential for all these versions to co-exist peacefully with each other with no additional headaches for users. 

Lightning Labs working on the LN Image via Lightning Labs

Lightning Labs

Headed by Elizabeth Stark (no relationship to Tony Stark :P), Lightning Labs develop technology to enable the usage for the LN in the real world. The Lightning Network Daemon is their version of a LN node. Their other products are also geared towards the  usage of LN in a variety of ways. 

BlockStream’s c-lightning brightening up the sky Image via Blockstream

BlockStream

Since its inception in 2014, BlockStream has built itself up to be one of the major players in the blockchain technology and cryptographic sphere. They invest heavily in building crypto-financial infrastructure based on the Bitcoin blockchain. Their version of the LN is called c-lightning. The products they offer are extensive and slightly skewed towards the entreprise-level as that is their main target. 

ACINQ’s Lightning node on Eclair Stack Image via ACINQ

ACINQ

Unlike BlockStream, ACINQ puts the development of the LN as their primary focus. ACINQ node, based on the Eclair stack, is listed on their website as “the largest node on the Lightning Network”. As recent as Oct 2019, they raised a total of USD10 million to grow the company and further their R&D in the LN. 

LApps – what are they?

All three of the companies above are actively developing a series of apps on the LN to facilitate adoption for it. These LApps can be divided into three main categories: 

Dev Tools and Integration

These are targeted at developers leveraging on the Bitcoin network to create metrics and APIs. The most well-known is Bitrefill, an app for refiling prepaid phone cards and gift cards for gaming, entertainment and travel with BTC and LTC.

Wallets

The ease of use for these LApps are of utmost importance as that is what attracts usage from the masses. These include Zap Wallet, Eclair, Bitcoin Lightning Wallet and Lightning Peach, to name a few.

E-commerce Plugins and Payments

If the wallets are a passive way to get people interested in the LN, the LApps in this section makes it easy for people to get hooked without even realising it. The most prominent LApp in this category is Strike.  The start-up company was instrumental in getting El Salvador to adopt Bitcoin as legal tender and handles the Tip Jar in Twitter to transfer BTC or fiat from point A to B anywhere in the world using the LN. Strike’s role with these two entities succeeded in generating interest for the LN, promoting adoption at the same time. 

Security Measures and Risks for the LN

As mentioned earlier, the timelock is a security measure introduced to prevent channels being opened indefinitely with no activity. Aside from that, there’s also: 

• Asymmetric Revocation Commitments – when the channel is open, it is assumed that both parties sincerely want to transact with each other for the duration of the open channel. However, if one of them tries to cheat by leaving the channel suddenly without prior agreement from the other party, the cheater’s balance can be claimed by the cheated user through this security measure. This is done by setting some conditions early on when establishing the channel.  
• Fee attachment to node – it’s possible to attach a fee to each node that gets passed through so that the complete payment will only be made when it reaches its final destination. This is to prevent transactions getting hijacked in the middle by unsavoury characters. I haven’t managed to find a working example for this yet but it could become reality. 

Despite these security measures in place, there are still risks inherent to the nature of the LN. 

• The network can become too centralised –  if people can pay through nodes without having to open a direct channel, then it’s easy to imagine a handful of players worldwide letting 7 billion people be connected to each other indirectly. Scary, isn’t it? 
• Assymmetric Revocation doesn’t work offline – it’s only effective when the user is online on the network. 
• No support for offline payments – it seems pretty reasonable at first glance but actually, there are times that the user might not have access to the network if they are in an area with poor Internet connectivity. When that happens, sorry, you can’t pay using the LN. 
• Good for small and mid-size transactions, iffy for large-scale transactions – most of the transactions on the LN are microtransactions. If it’s a big one, it may require a bit of a wait, whereby both parties need to be online at the same time. The minute one of the party leaves, the transaction gets cancelled.

Taproot and the Lightning Network

There’s another risk involved but it’s more on the Bitcoin blockchain side rather than on the LN side.  

We mentioned earlier that the LN works with multi-sig wallets. When it opens and closes a channel on the blockchain, this information is visible. These transactions show up differently than a single-sig transaction. This is a vulnerability because these LN transactions are easily identified, thus susceptible to bad things happening to it, not to mention taking up space on the blockchain.

Recently, Bitcoin underwent an upgrade to the blockchain software, commonly known as Taproot. This upgrade included three proposals, one of which, BIP341 aka BIP-Taproot, specifically deals with this situation. With the implementation of this proposal, the multi-sig transactions are masked to look like single-sig ones. The difficulty in identifying them helps to secure the safety of the transactions done via LN. 

However, this proposal itself cannot be implemented unless BIP340 aka BIP-Schnorr is completed beforehand. This proposal allows the Bitcoin blockchain to aggregate multi-sig transactions into single-sig ones, reducing the transaction size. It also allows for transactions to be verified in batches. 

Schnorr Sig groups transactions into a batch Image via Bitcoin.com

Conclusion

Lightning Network is truly a game-changer for the Bitcoin project. While we’re nowhere near having a crypto currency be used in place of fiat, projects like the LN bring Satoshi’s vision of a decentralised currency in circulation one step closer to reality. Despite the risks currently present, I believe that with further development and research, it can only get better. 

The post The Lightning Network Electrifies Bitcoin appeared first on Coin Bureau.

In this article, we’re exploring something most of us don’t really think about called domain names, how it works currently, how it could work when it’s on the blockchain and how it affects you in a more personal way. 

All Hail DNS

We know that a website like www.coinbureau.com is known as a domain name. The .com is a domain extension. In the early days of the Internet, instead of a name, it was a string of numbers known as an IP address, which looks like this: 69.63.176.13. also known as facebook.com.  Which one would you find easier to remember? The name or the numbers?

 The domain name system (DNS) matches a site’s fiddly numerical IP address with an easily-remembered word or phrase. We can thus leave the boundless joys of IP addresses to the geeks and hackers while the rest of us get on with our lives.

Mapping the Internet with DNS.

In the early days of the internet there was money to be made from the DNS. Those people in possession of a working crystal ball were able to buy up domain names and sell them on, often for huge profits. In 2019, for example, block.one paid $30 million for voice.com.

Whoever first registered that domain can consider themselves to have had a decent day at the office. A shadier version of this practice known as cybersquatting inevitably sprang up too. This involves registering a trademark as a domain and then selling the domain back to the said trademark’s owner for an inflated fee.

This often leads to litigation and has kept plenty of lawyers busy over the years. One particularly entertaining example involved Microsoft going head-to-head with a Canadian high school student, while other disputes have involved big names like Lufthansa and the rock band Jethro Tull.

ICANN

Back to my earlier questions of: who controls/decides how the domain names work? The answer is  an organisation that most people have probably never heard of, the catchily-titled Internet Corporation for Assigned Names and Numbers or ICANN.

ICANN, the global internet Organisation. Image via ICANN

This is a non-profit body, based in California, that regulates and administers the entire DNS. It also authorises other organisations to act as domain name registrars that then themselves manage domain names. Domain.com, GoDaddy and Namecheap are three of the best-known examples of such registrars.

The ICANN is one of those entities that generally chugs along in the background unheeded by most of the world, playing a pivotal, if unsung role in day-to-day life. However, the existence of the ICANN throws up one of the dirtiest words in modern internet parlance: centralisation. 

ICANN’T

Anyone familiar with the concept of blockchain knows that one of its key features is its decentralised structure. There is no single point of entry, no back door left ajar. Blockchains are safer because of the lack of a central hub that can be targeted by those with malign intentions and because no one person or organisation is able to assume complete control.

To the many who hold the concept of net neutrality dear, the ICANN represents a centralised soft underbelly that concentrates power and influence in one obvious place. Anyone looking to disrupt, attack or manipulate the DNS knows exactly where to start.

Some will disagree with me, but I find it rather worrying that an organisation of such importance is situated in the United States, within easy reach of characters like Mark Zuckerberg or that fluorescent goon who apparently runs the place. 

Better perhaps then if it was situated in China, but then in the current climate that’s a moot point. The registrars that the ICANN oversees are themselves also prime starting points for anyone trying to manipulate or attack the system.

Centralised Points of Failure.

Running alongside the issue of centralisation is the fact that DNS servers are vulnerable to outside manipulation. Websites hosted by these servers can be attacked and disabled either by hackers or national governments for their own nefarious ends.

The owners of these websites live with the constant worry that they could be the victims of extortion or censorship, made possible by the immanent weaknesses of the DNS model.

Hackers especially are well-versed in manipulating the DNS and are often able to exploit its other vulnerability: the fact that the only information servers can see about a client is their IP address. Any hacker worth their salt is able to bounce their IP signal around the world and render themselves undetectable.

So, although the DNS is a vital component of our online lives, it is vulnerable to disruptive forces. In the past, such weaknesses could be written off as a price worth paying for the convenience and speed that the DNS offers. As TinyDNS.org puts it, without it ‘the internet would not exist.’ However, the emergence of blockchain is calling such assumptions into question.

Domain 2.0

What is the alternative to a centralised version of DNS that is susceptible to censorship and hacking vulnerabilities? Enter blockchain domains!

What Is It

We found out earlier that a DNS replaces IP addresses with names. In this case, what gets  replaced by blockchain domains are crypto wallet addresses (eg: bc1qxy2kgdygjrsqtzq2n0yrf2493p83kkfjhx0wlh.) This means the domain name is tied to a particular wallet address but it’s stored on the blockchain. The keys to access the website are stored in a wallet in a NFT. 

Examples of ETH Domain Names on sale Image via Opensea

An immediate use-case for blockchain domains is using it to send and receive payments (crypto for now) from anyone. If a website owner needs to be paid for goods or services, then they can simply give the customer their blockchain domain (for example payment.crypto) instead of copying and pasting a clunky wallet address.

The domain can take receipt of a crypto payment and the transaction is preserved immutably on the blockchain. At the moment blockchain domains need plugins to work inside most browsers, but web3.0 platforms like Opera, Metamask and Brave have been developed to support them.

Decentralised Domain Names. Image via Hackernoon

Already both the owner of the blockchain-based site and their customer have had their lives made easier. But things get better still thanks to the fact that the site’s owner also enjoys a greater degree of control and autonomy over their domain and the content on it.

By being part of a decentralised network, blockchain domains are impossible to block and resistant to censorship. The benefits of this are clear to anyone who either lives in an authoritarian state or has spent more than ten seconds considering what that might be like. Freedom of speech becomes much harder to curtail. On the other hand, hate speeches and content promoting disinformation and tribalism will also enjoy the same kind of protection, just saying.

Control rests in the hands of website owners and content creators because the blockchain domains they use are stored in wallets to which only they have the keys. The old system, whereby domain names are stored and managed by registrars who can be induced to shut them down, is starting to look obsolete.

Finally of course, there is the question of security. Blockchains are not entirely immune to hackers and you can be pretty damn sure they’re working on ways to crack them, but they are a heck of a lot more secure than other networks. A website with a blockchain domain is a daunting prospect for hackers and malware.

DNS Software Services

Just as companies like GoDaddy that provide a service to users for buying and registering regular domain names, there are also a number of companies offering similar services for the blockchain domains. It’s important to note that this area is still in its early stages, hence  each of the name service primarily focus on one or two blockchains. As the space develops and expands, with more user adoption driving it, there will be more interoperability between blockchains. Listed below are notable key examples.

Namecoin for Bitcoin (x.bit)

One of the earliest name service projects is Namecoin, created shortly after the emergence of the Bitcoin blockchain. It is said that miners mining Bitcoin also provide mining power for Namecoin, known as merged mining. There are two components to Namecoin: NameID and Dot-Bit DNS.

NameID combines a name with OpenID, an authentication protocol. Think of it as the blockchain version of “Login with Facebook”  and less invasive. Dot-Bit DNS is basically a decentralised version of the Internet phone book, aka websites. While it’s easy for central authority to go to ICANN and ask them to shut down websites, it would not be possible here.

Ethereum Name Service (ENS – x.eth)

If you’re wondering which blockchains are leading the way in supporting domains then you won’t be surprised to learn that Ethereum features high on the list. The Ethereum Name Service (ENS) is an open-source, not-for-profit endeavour that, in the words of Director of Operations Brantly Millegan, focuses on ‘decentralisation, censorship-resistance and programmability.’ ENS allows decentralised websites to bypass the approval of DNS registrars and the ICANN to build their services directly on top of the ENS blockchain and register a .eth address. Millegan is also at pains to point out that such sites don’t even need the approval of ENS themselves to get going.

When generating a ‘name.eth’ address, a ERC-721 NFT token is minted. The key difference between them and the other services highlighted below is that they’re not looking to substitute the current DNS system. There is also a yearly fee associated with the domain name that can be renewed with ETH. 

There is some renewed interest in the project after the recent airdrop of $ENS tokens to those who registered their domain name before October 31st 2021. Like most of the blockchain projects, ENS is moving to a DAO-like structure whereby holders of the token get a voice on the direction of the project. Since getting listed on Binance, the token price has yo-yo’ed quite a bit, between USD40 – USD120 in the space of a week. 

Disclaimer: I own some ENS tokens. 

Start here to get your own .eth address Image via ENS Domains

Unstoppable Domains (x.zil; x.crypto)

Another big player in the sphere is Unstoppable Domains. (It started off as a recipient of the ZILHive Grant granted by the entity running the Ziliqa blockchain. The first blockchain domain extension they created was .zil, followed by .crypto on the Ethereum network, which is more widely-used.

This San Francisco-based outfit cites the ‘tribalism’ of much of the crypto community as a major barrier to mass adoption. Their .crypto registry allows users to send and receive any cryptocurrency they like to any wallet of their choosing. CEO Matthew Gould argues that: sending money to a .crypto domain is a way simpler user experience for the millions of cryptocurrency users that currently have to copy/paste and type in long addresses in order to transact. Registering a cryptocurrency on Unstoppable is a one-time deal. There are no renewal fees, unlike ENS.

A few months ago, Unstoppable utilised Cloudflare’s Distributed Web Resolver to allow .crypto web addresses to be viewed from any web browser anywhere in the world. All users need to do to enable this is to update their DNS settings.

Censorhip Resistant and Decentralised Domain Service

Recently, Unstoppable moved their operations onto the Polygon network. The biggest benefit of this move is that all the gas fees will be taken care of on the Polygon network, thus users don’t need to pay them. The migration will happen in four phases, with the first phase having started on November 15th. 

• Phase 1: Minting on Polygon 
• Phase 2: Managing domains on Polygon
• Phase 3: Moving minted domains from Ethereum to Polygon
• Phase 4: Moving minted domains from Polygon to Ethereum

It’s exciting to see the progress Unstoppable has made and there are many big things waiting for it down the road.

Bonfida for Solana (x.sol)

Solana is one of the latest blockchains to also launch a name service for its blockchain. This effort is spearheaded by Bonfida. The name service also allows for IPFS CID, images and text to be stored on the Solana blockchain.  It even allows for Twitter verification! 

To create a domain name, the user needs to register the name they want on the Bonfire website. Then it will be put up for auction, which lasts 7 days. During this time, anyone who sees it is able to put a bid for it. At the end of the auction period, those who bid the highest gets the domain name. This also means that the creator may not necessarily be the person getting it firsthand. This is a way to safeguard against cybersquatting. 

After the initial auction period is over, there may be another chance to get the .sol domain name you want by browsing on Solsea, Solana’s version of OpenSea, just in case they get sold at the secondary market there. 

Buy .sol addresses here Image via Solsea

Going Global

It’s worth remembering that the issue of adoption is a key underlying factor in the blockchain domain space. Anything that can simplify the process of using cryptocurrencies on a daily basis is a welcome incentive for more people to wade into the crypto waters.

Similarly, those looking to build out the Web 3.0 that blockchain is making possible need all the help they can get to simplify their processes and maintain their autonomy. ENS and Unstoppable Domains, as well as newer players like UniLogin all understand the potential scope of blockchain domains and their place in this ever-expanding ecosystem.

Perhaps it is possible to imagine a future where everyone uses their blockchain domain name like a ubiquitous single log-in for browsing websites that require sign-ins and the same or a different one for sending and receiving payment, as hinted at by Matthew Gould in a podcast.  In the words of Brantley Millegan, ‘our clientele is the entire world.’

The post Blockchain Domains: Complete Guide from DNS to ENS appeared first on Coin Bureau.

The thing about passive income is that it’s a long-term game. For most of us just starting out, it might be just a few drops that you get from your investments. With the magic of auto-compounding, those few drops can slowly build up to a trickle, then a stream.  With this in mind, the suggestions presented here are for cautious investors. The returns aren’t spectacular, especially if measured through the lenses of exponential crypto gains in 3-digit percentage points and more. However, they will still beat anything you can get from a bank these days. Investing in something new can be a daunting prospect. The fear of “what if I lose everything I invested?” is a very valid concern.  That’s why preserving capital is the most important thing, followed by growing profit. Alright, let’s see how we can get started in a relatively safe way.

The dream for most of the working class.

Staking on the blockchain

How it works

You get what you put in. Whatever token you deposit into a stakepool or with a validator, you get the same type of token back. There may or may not be a lock-up period involved. This depends on the blockchain project.

What are the risks? 

The biggest risk is the project falls over, whether because it’s falling behind in competitiveness or the people in the project lost interest in it. There’s also the risk of a rugpull, ie someone running away with all the money. The more established a project is, the least likely this will happen though.

What sort of APY can I expect?

Depending on the project you decide to stake on and where you stake them, APY ranges anywhere from 4.6% to 14%. If you’re interested to find out which are the best tokens for staking in terms of APT, check out this page for the most updated rates.

Which projects are worth looking into?

When it comes to deciding which projects to stake on, I see there being two types: Layer-1 blockchain projects and everything else. For the purpose of keeping things simple, the focus in this section is on the Layer-1 projects. They are the least riskiest ones because lots of applications are built on it. There’s a huge reliance on the blockchain to be in good shape. It may not look like it, but decentralised projects are quite competitive too. If it’s even slightly behind, there’s always something snapping at its heels, ready to take over its spot anytime. 

Staking PoS coins is a slow and steady way to get more of your favorite tokens

Within the Layer-1 projects, there are also major and minor players: 

Ethereum

There’s a Chinese saying “Women hold up half the sky”. Substitute “women” for Ethereum” and “sky” for “crypto world” and that’s pretty much the state of things now. Thanks to Ethereum and smart contracts, we get DeFi, NFTs and who knows what else coming down the road. It’s undergoing growing pains now as it transitions from a PoW to PoS consensus mechanism. As part of this change, it’s looking for people to stake ETH tokens on its platform. 

Risk of falling over: next to zero. With the amount of institutional interest in it, not to mention all the existing dApps relying on it, it’s the 400-pound gorilla next to the 800-pound one that is Bitcoin. 
Lock-up period: Yes, all ETH tokens staked cannot be withdrawn until after the migration is over, which could be another 1-2 years away. 

Solana

Touted as the next “ETH killer”, Solana has made great progress since its inception in 2017. Born later than Ethereum, it’s got serious VC money invested in it. Boasting a theoretical throughput of 710,000 transactions per second, its ecosystem has also grown by leaps and bounds within the past year, not to mention its impressive price gains of 600% in the past 5 months. 

Risk of falling over: very small. There is a small but growing institutional interest in it. The ecosystem is thriving, ie people are using the dApps in its ecosystem. It also has an active team of developers that are itching to chomp away at Ethereum’s share of the market. 
Lock-up period: No. However, tokens withdrawn may need to wait for the end of an epoch, which would be anywhere from a few minutes to a few days, depending where you are in the epoch when the withdrawal request was made. One epoch lasts for two days.

Cardano

Cardano started before Solana but got caught up by it in terms of progress. The verdict is still out on the future prospects of this project. As a peer-reviewed blockchain, it is a solid method, perhaps a tad bit too solid, ie it needs to get reviewed faster. There were high hopes for the Alonzo update but judging from the reaction of the community and onlookers, it did not go as well as expected.

Still, it was the no.3 project on the blockchain before being dethroned by Solana. It is also actively making inroads into Africa, one of the least-banked (and more corrupt) continents in the world. If, through the usage of cryptocurrency, it is able to help governments realise that corruption is not the only way to get profits, that would be one of the biggest blessings indeed. 

Risk of falling over: Small. The community support is strong and many believe in the founder Charles Hoskinson’s vision. The developers are presumably working hard to get things back on track. 
Lock-up period: No. Tokens can be withdrawn anytime. 

Minor Players

A number of smaller players are jostling for space in this territory and gaining adoption fast like Fantom, Avalanche, Terra to name a few. All of them are worth looking into with small to medium risks of failing (as of time of writing). 

How do I get into it?

There are two ways to start staking: through a validator or stakepool that you get to select on your own or through the exchanges or a third-party that may or may not involve giving up custody on your tokens. The one-two steps are: 

1. Select a project you want to stake your tokens in.
2. Choose where you want to stake them in.
3. Sit back and go do something fun while your asset starts working for you. Some of them require your account to be on at all times. Check on it every few months or so to make sure it’s growing at a happy and healthy pace. 

Disclaimer: I stake on Cardano via the Daedalus wallet and I hold SOL and ETH tokens too. 

Lending

One of the most common ways to earn interest on your crypto assets is to lend them out. There are plenty of lending platforms available. Most of them are separated into two types: centralised and decentralised. Both carry their own rewards and risks. 

The way money works: someone gets someone else’s money

CeFi Platforms

How it works

Deposit your crypto assets into the platform and get the interest in either the original token or its native token. These platforms allow you to convert fiat to crypto, hence there is a KYC process in place to protect against money-laundering. These platforms work for those who are new to crypto and would like an easy way to get onboard.

What are the risks? 

The biggest risk associated with this method is custody issues. You are basically (temporarily) transferring ownership of your assets to them for them to do as they see fit. This is no different from having money in the bank. With banks, if they fall over, there is the government coming to the rescue. For the platforms, most of them are insured up to a certain amount, but there is not much recourse if things go pear-shaped for all parties involved, ie more than one platform asking for the insurance entity, thus the insurer itself running out of money.  

There is also the issue of collateralisation. Some platforms require over-collateralisation, so that if there is huge volatility in the market, the collateralised assets get liquidated. This affects lenders because the liquidated assets acts as a kind of guarantee that you will get your deposits back. Therefore, when reviewing the platforms, also check out their Loan-to-value (LTV) ratio. The higher the ratio, the riskier it is for your deposits.

What sort of APY can I expect?

A brief comparison of the diagrams above show that APY can range anywhere from 5% – 12%. These are still fairly conservative numbers compared to serious yield-farming. However, they’re still nothing to sniff at.

Which projects are worth looking into?

BlockFi

BlockFi is one of the earliest established crypto lending and borrowing platforms in this space. In addition, they also offer trading services and partnered with Visa to offer a BlockFi/Visa Signature credit card that gives you 1.5% back in Bitcoin. When it comes to interest rates, small balances get higher rates than bigger balances. 

Sample rates from BlockFi Image via BlockFi

Insurance Risk Gemini, a licensed custodian regulated by the New York (State) Department of Financial Services (NYDFS), has BlockFi’s assets in custody. Its custodial solution is SOC2-compliant is recognised by Deloitte, one of the global major accounting firms. 95% of the assets are in cold storage and the rest are in hot wallets, which are then insured by Aon, a major insurance company. In other words, it’s as safe as it can get. 

Celsius

Another established name in the crypto lending space, Celsius rewards depositers with either the original token or the Celsius token, which gives borrowers a discount in interest rates if used as collateral. The founder, Alex Mashinsky, is fairly active in social media promoting the company. However, there are some rumours circulating about some of its business practices including rehypothecation, ie using depositers’ assets to act as collateral on behalf of the company. 

Similar to BlockFi, it encourages small balances over large ones: 

Sample rates from Celsius Image via AllAboutCelsius

Insurance Risk Fireblocks is the current custodian for Celsius’ assets in cold storage. It used to be BitGo. Of particular note is that assets deployed for generating yield and income are not insured in any way. Celsius claims that deployed assets are no longer controlled by them, thus not covered by Fireblocks. 

They have plans for a self-insurance scheme coming in Q4 2021  or Q1 2022 where users can opt-in for 0.5% to 1% of weekly rewards are paid into a self-insurance pool to cover for those deployed assets. 

YouHodler

Slightly less well-known is YouHodler, an up-and-coming platform in the crypto lending space. Headquartered in Switzerland and Cyprus, this platform offers a unique product called MultiHODL for lenders. It basically allows depositers to allocate a small percentage of their deposits to something risky with the potential to earn more while keeping the majority of the deposits safe. This is based on the Barbell Strategy introduced by Nassim Taleb, he of the “The Black Swan” book fame. 

Unlike the other two platforms, YouHodler doesn’t differentiate between small and large balances. Instead, they have a flat rate based on tokens deposited: 

Sample rate from YouHodler Image via YouHodler

Insurance Risk YouHodler uses Ledger Vault as its custodian, providing up to USD150million in pooled crime insurance. This is the same company that creates Ledger cold wallets for consumers, the Vault being the enterprise-version. They safeguard the keys so that only select people have access to them. 

Other than the aforementioned, there are also a few more out there that are worth taking a look at like Crypto.com, Nexo, Gemini etc. 

DeFi Platforms

How it works

When you deposit your crypto onto a DeFi platform, you get interest-bearing tokens generated by the platform. For  example, depositing ETH, you get xETH back. As the interest grows, you get more and more xETH. When you surrender the xETH back to the platform, you will then get more ETH than what you put in in the beginning. 

Unlike centralised platforms, there is no KYC process involved. This is also because there is no way for you to convert your fiat into cryptocurrency on these platforms. You’d need to have some other way of getting your hands on the crypto beforehand. These platforms also utilise a non-custodial approach, which means the assets always remain in your hands, or rather, wallets. 

What are the risks? 

Smart Contract risks These are essentially computer programs written by humans, which means that there is a potential for errors to occur, sometimes intentional, sometimes not. The worst-case scenario is that you lose what you put in. 

No insurance The platform itself doesn’t offer any insurance but there are other blockchain projects that allows you to buy insurance up to a certain amount. 

Systemic risks This is basically the entire blockchain project going pear-shaped due to various reasons. One of them can be due to poor liquidity. This means not enough people borrowing from it, thus you’re earning very little interest. 

What sort of APY can I expect?

Oddly enough, stablecoins and other more established tokens don’t get as a good a rate compared with CeFi platforms. These are usually around 2% – 3%. However, the newer blockchain projects like Curve Finance fetch quite a decent 10%. 

Which projects are worth looking into? 

Maker

According to DeFi Pulse, a reference website for all things DeFi, Maker is currently the most dominant DeFi lending platform with almost 17% market share in a market worth USD108 billion and growing by the day. It is one of the earliest known projects in the crypto world with DAI being one of the first crypto-backed stablecoins. 

The idea is for users to deposit crypto-assets and get DAI in return. As a stablecoin, DAI can be used to earn interest on other platforms. These crypto-assets are over-collateralized to counter the volatility of the market. If the value of the loan is greater than the value of collateral provided, liquidation occurs. 

MakerDAO homepage Image via MakerDAO

AAVE

The second spot for lending on DeFi Pulse is AAVE. It’s a “system of lending pools” where depositers can lend their crypto assets into pools, governed by smart contracts, in exchange for earning interest. Starting life on the Ethereum blockchain, it has branched out to be available on the Polygon and Avalanche blockchains. 

AAVE in its current incarnation was launched in 2020, but it has origins from 2017 when it was known as ETHLend. Back then, it was a peer-to-peer lending platform, which required someone else on the other end. After it switched to smart contracts, it was a success last year, even going head-to-head with Compound, the then-no. 1 DeFi lending platform. 

Rates on AAVE Image via AAVE

Compound

Compound is one of the first projects in the DeFi space. It pioneered the idea of issuing a ERC-20 version of the token deposited, so that the ERC-20 version can then be put to further use, acting as a foundation block for “money legos” commonly seen in yield-farming strategies. Other DeFi projects also adopted this method of generating yield upon yield, doubling or tripling the potential rewards, with a certain level of risk, of course. 

It’s the ERC-20 version that’s getting you the big bucks Image via Compound Finance

Holding dividend-paying tokens

If staking isn’t really your cup of tea, there is another way to earn passive income in a relatively safe manner, which is holding dividend-paying tokens. These are projects that share their profit with users who hold their native tokens. A few of these are tokens issued by crypto exchanges. 

How it works

Buy the platform’s tokens, hold it in an assigned space, and just wait for the dividends to come trickling in. 

What are the risks? 

The stability of the platform or blockchain project is the key thing to consider. As long as it’s getting used with gradual adoption, your investment will be safe.

What sort of APY can I expect?

Taking into account the variables of each token, a range of 5% – 15% APY is not unheard of.  

Which projects are worth looking into?

KuCoin Shares (KCS)

KuCoin is one of the more popular crypto exchanges around despite the centralised approach. The platform has lots of promotions going on, mainly related to margin and futures trading, which I don’t do. What I did do was buy KCS tokens to trade. Regardless of the amount of tokens you hold, whether in the Trading or Main account, KCS gives out bonuses on a regular basis. At the time of writing, its price has reached all-time highs. If you forget to collect your bonus, the platform notifies you to do so, which is a nice touch.

Notifications for collecting bonuses plus a balance of what you’ve received thus far. Image via KuCoin

The biggest risk to look out for is the platform keeling over. Since it is a centralised exchange based in Hong Kong, here’s to the Chinese government not trying to do any funny business with it. The platform also performs upgrades every now and then. Sometimes it makes tings better, other times, I wonder. 

VeChain

The VeChain blockchain project is one of the projects that have gained a lot of adoption from enterprise companies. It started out as a blockchain for supply management. By combining a physical tracking component, such as RFID (radio-frequency ID), QR codes etc and adding that information to the blockchain, each step of a product’s manufacturing steps and standards are clearly visible for all in the supply chain to see. 

From PwC (Big 4 auditing firm), LVMH (Louis Vuitton), Walmart China and BMW to many others, VeChain also works with governments in China and Cyprus to manage records. It was selected by the Chinese government to provide a system for storing tax and business registrations, certificates and audits for the Gui’An New Area. Meanwhile, a Cypriot hospital used the Vechain blockchain to record the first 100 vaccine records for Covid-19. 

By staking VET, stakers get VTHO which is used to pay for all transactions related to writing data to the blockchain. Rewards occur every 10 seconds when a new block is created. Atomic Wallet is about to offer 1.63% APY for staking VET through its platform. Exodus Wallet is also offering VET staking at 1.5% APY.

Risks The project has offices in Singapore and China. While I don’t see the Singapore government doing anything underhand, especially if it’s trying to position itself as the cryptocurrency hub of the world, I can’t say the same for China due to its track record. How much that will have an effect on the Chinese team is hard to tell. Let’s hope no undue influence is involved.

Other Players

Aside from these projects, there’s also NEO, Nexo (security token) and Wink (online casino) to name a few. As with everything else, please exercise caution and do some research by looking at the pros and cons. 

Tokenized Home Loans

While DeFi is the standard way for most crypto users to make money, the economy can’t purely be based on money making money all the time. At the heart of things, there is still a level of pragmatism and productivity involved. Blockchain technology together with smart contracts are well on its way to disrupting many sectors of the economy. One of the most likely sectors to face change is in the area of mortgages and real-estate.

Buy tokens instead of shares to get exposure into real-estate

How it works

Instead of investing in a real-estate index fund or buying shares of a real-estate company to get exposure to the real-estate sector, the general public now has the option of buying a tokenized version of a specific property. It doesn’t mean that you are the actual owner of the property. It’s that you own a share of the company that issues the bond that finances the property. The rental income generated will be shared amongst the token owners in proportion. These tokens can also be resold in secondary markets.

What are the risks? 

This is an emerging sector, so it’s fair to expect a certain amount of risk involved. Some of these risks are not specific to blockchain technology. These include:

• renters not paying rent 
• bad real-estate properties – when you don’t live there, how do you know if it’s a good property or not?
• the company financing the property falls over
• the owners of the property become insolvent and you are last in queue to get your investment back. Sometimes, there might not be anything left for you after all the creditors have been paid.

What sort of APY can I expect?

The APYs depends on the property you’ve decide to invest in, which could be from 20% – 50% and above. That sounds really yummy but as mentioned previously, it carries its own set of risks. 

Which projects are worth looking into?

The companies offering this are based in the US, thus all properties are located in the US. However, this does not preclude overseas investors from buying into those properties. This adds a layer of risk because you’d have to trust the evaluators who provide evaluation for the property. Either that or do your own research before jumping in.

Lofty AI

As the name implies, Lofty AI uses AI technology to vet properties for investors to invest in. The long and short of it is that:

1. It accumulates raw data from the real-estate market.
2. Applies statistical methods to look for features that may correspond to future real-estate price changes.
3. Extract these features and group them, applying a label to them.
4. Train a Deep-Neural Network (DNN) to identify and predict future prices.

If you would like to learn more about the methodology in details, here is the link for it. 

To get started:

• Register and open an account with them with KYC details. 
• Minimum amount to invest: $50
• Deposit the amount you want to invest in into the property that piques your interest
• Tokens will be sent to a Algorand wallet as the project is built on Algorand. Future interest/income will also be deposited directly into this wallet.

The property itself is managed by a professional property management company to ensure it is in good condition at all times. They also offer the ability to sell a property through their platform.

Some properties available for investment Image via LoftyAI

Vairt

What is offered at Vairt is similar to LoftyAI. The difference here is that they use their 100-point proprietary tool combined with third-party market data to evaluate the property. Also,

• The minimum amount to invest is $1500.
• The funds are in a separate custodial bank account for security.
• The properties are given 30 days to raise the funds needed. If the target is not reached, the money will be returned to the investor.

The important thing to note is that a Limited Liability Company (LLC) will be created for each property successfully funded. The investment, in the form of tokens are shares of the LLC, not the property itself. 

Some data on a property for investment consideration Image via Vairt

Other players

These two are just examples of what’s started happening in this space. To find out more, here is a list to consider if this is something that truly tickles your fancy. 

Any other options for passive income?

Aside from the 4 main choices presented, there are still more ways to squeeze more money out from your crypto assets. Some of them carry higher risks than others but I thought it worth mentioning:

Play-to-Earn Games

While not exactly passive income, play-to-earn games are in the midst of starting a new trend, especially among the younger crowd. If you’re going to play, why not earn some money on the side? Some of the games requires buying a NFT to get started, so there’s your investment there. After that, the in-game assets can be sold on secondary markets, or you get points for playing which then translates into crypto etc. 

Unlike the other types mentioned above, this method doesn’t rely on you putting some tokens or money somewhere, so there isn’t any kind of APY per se. The gains would primarily be measured by the gamer’s ability and whether the NFTs are of value in the secondary market, which can be quite arbitrary.

HNT Mining

A blockchain project called Helium Network (HNT) aims to provide coverage for IoT through short-wave radio frequency. To be a miner, purchase one of the modem-like devices to be a coverage provider. After that’s set-up, you can check, through an interface, how many tokens you can get. Be warned: due to the popularity of these devices, there is quite a long waiting period for one to show up at your doorstep.

Loads of hotspots in LA with some stats of one miner Image via Helium Explorer Scan

There is a balance between the number of miners and the number of users in an area to generate the optimum amount of return. Miners act as either Witnesses, Challengers, or Transmitters at any given time. Here are some stats for reference: 

• 3-5  Witnesses > 150 HNT  per month
• 5-15 Witnesses > 500 HNT  per month 
• 15<  Witnesses > 800 HNT per month
  (source)

BAT Airdrop

Brave Browser offers BAT tokens if you opt-in to receive ads from them. They also do ad-blockers if you don’t want to see any ads. It’s a crypto-friendly browser in the sense that the ads are usually for blockchain projects. What they give isn’t much but it’s better than nothing. The tokens are directly deposited into the Uphold wallet for safekeeping. You can also check out this link to get a list of airdrops coming soon. Most of them require that you hold one type of crypto token beforehand or do an action as proof of participation.

Brave Browser offers BAT tokens for viewing ads Image via Brave

Looking at my own history of receiving BAT, I’m getting anywhere between 3-4 BAT a month. Of course, I can further stretch that by depositing the BAT tokens into one of the crypto lending platforms and earn an extra 3% interest on average. For something I’m getting free, it’s quite a good deal!

Conclusion

The world of crypto offers many opportunities for everyone to make some extra money. While crypto is seen as a high risk asset, due to the volatility in pricing, as more and more industries are affected, the utility and use-cases expand so that it’s not hard to imagine a world where tokenization of real-world items is the norm, just as we have generations of people growing up unable to imagine a world without the internet and fibre connections. 

Blockchain projects is all about network effects and group participation. Unlike web2.0 social media where the maximum value is in reaching the most number of users, the biggest value for blockchain projects is for early adopters. Do you have the foresight to become one?

The post Crypto Passive Income for Beginners appeared first on Coin Bureau.

However, with the right tools and the right knowledge a growing industry like this provides great opportunities. Be the first one to know about any major upgrades or ICOs and there’s a chance that you’ll make big bucks. We’ve seen how many cryptos tend to act in anticipation of a major update and those strong moves upwards are great place to be if you prefer some swing trading or day trading. But even if you aren’t interested in trading the news it’s extremely important to know what’s going on since major upgrades to our biggest crypto Bitcoin and Ethereum can have a significant impact on the whole market. So, what are these tools that help you keep up with crypto markets? Let’s have a look and see.

1. Read the News

Newspapers, radios, television and now the web. These are all mediums used by news sites to provide us with everything going on in the world. With the internet we have gotten more news sites since publishing on the internet nowadays is so easy. We have gotten more concentrated sites which only focus on one particular topic, and in our case, we want those focused on cryptocurrencies.

Now, reading these big news sites won’t necessarily provide you with the best trading opportunities, since there is a saying that once it’s covered in the news it’s too late. However, it doesn’t take away the fact that in the long run you’ll benefit from the knowledge you get. News sites do cover all of the major events going which you’ll be needing to know in order to manage your portfolio correctly. If you look at the top news sites for cryptocurrencies, I assure you that 99% of all major events surrounding at least the top 10 cryptos will be covered there.

We’ve got your news.

Two news sites I use for my daily crypto news are Cointelegraph and Coindesk. Both of them provide kind of the same information but I feel like Coindesk has taken a more traditional media view while Cointelegraph also includes price predictions and more “speculative” news. Coindesk recently upgraded their whole webpage and it’s currently in beta mode. Their new interface makes it easy to sort through topics, so you’ll find what you’re looking for. For example, in the current stake keeping up with policy changes is extremely important when every day, regulators are debating on what to do with cryptocurrencies. Another notable site which I personally use more rarely but heard good things about is Decrypt. I’m also sure that there are tons of good sites out there which are equally as good as those I mentioned here. However, where should you go if you need the most accurate information as soon as possible?

Those who are real news hounds might find news aggregator sites are extremely useful. These news aggregators pull together all the news from all over the web. Two popular crypto focused news aggregators are Cryptonews.net and Cryptopanic.com.

2. CoinMarketCal

This is perhaps the most comprehensive crypto calendar service out there and if something is happening in crypto, you’ll probably find it here. CoinMarketCal was founded in 2017 and has been growing since. CoinMarketCal features all sorts of events like Reddit AMAs, updates, hard forks, airdrops, listings, and ICOs. 

How CoinMarketCal works is by relying on the community to post events. Anyone can post an event here and then the community votes on whether the event is real or not. This is why size matters. If there’s not a strong user base, then it won’t work. If for some reason the community isn’t large enough to trust the page there can also be a trusted badge in the top left corner of an event which means that it has been verified by an official representative. With these two verifications it should be clear that you’re not wasting your time going through these events since everything’s verified as real.

A calendar with every important event. Image via Coinmarketcal.

However, since anyone is allowed to post on the platform and there are over 12,000 different cryptos currently it can be quite a pain to go through everything to find what you’re looking for. Therefore, as with most websites CoinMarketCal has search and sorting features. If you’re looking for a certain crypto then it’s as simple as typing in the name of that crypto in the search bar. However, often times you simply want to filter away all small cap events that don’t really have an effect on you or the markets. This you can do by choosing to only see the top 10 or maybe top 100 cryptos.

Another useful filter is to only look at major events, after-all you might not be interested in every Reddit AMA going on. To do this you can choose to only see trending events, Hot events, or significant events. These are ranked by looking at the number of views and positive votes. When filtering by these you usually see the events that are likely to have both an impact on that particular crypto as well as the whole markets.  

Another fun and potentially useful feature for traders is the coins with potential ranking. This calculates the number of events and votes to see which coins might be taking off from these events. I didn’t find any statistics of how many of these coins actually take off but that might be something you want to look into if trading is what you like.

Here are CoinMarketCal’s Coins with Potential, you’ll see the amount of events they have next to them. Image via CoinMarketCal.

Lastly, to give some criticism to CoinMarketCal the details on events are quite light. You won’t find much information rather than the title and the date. This is why looking through the news sites talked about earlier might clarify what’s truly happening in an event. Another place to check if you don’t know what an event means is to go to the projects website and see in their roadmap or their news site since who knows better than the project developers themselves.  

3. Coins Calendar 

Another comprehensive calendar service that provides you everything you need is Coins Calendar. This is basically just an equivalent of CoinMarketCal, but the uploading and verifying is a bit different.

Here’s a look at Coins Calendar, I really like the design. Image via Coins Calendar.

Here the community also uploads events, however, the events are not voted on. Instead users are required to upload the source of the event, which is then checked by Coins Calendar. Therefore, you won’t see any votes next to the events. The calendar page itself is good looking and easy to use and it has good search features. In my opinion the page is much clearer than CoinMarketCal, however, if I had to choose one, I would still go with CoinMarketCal. I feel that the platform there is more comprehensive and the community voting aspect makes me trust it more. That’s just my opinion. If you prefer Coins Calendar, I’m sure it’s just as good, here checking the source is super easy.  

4. Airdrops.io 

If you read the Coin Bureau article on best ways to earn free crypto, you’ll know that airdrops can be highly lucrative. For those who didn’t read here’s an example. Last year Uniswap decided to Airdrop 400 UNI to its users and in today’s prices (October 8, 2021) that would be worth roughly $10,000 – not bad.

However, it might be hard to know when these airdrops are going down and what you need to do in order to participate, and that’s why we have Airdrops.io. Here you can find a full calendar on upcoming Airdrops. On top of showing traditional airdrops where a project deposits you their native coin it also lists a few alternative types of Airdrops. For example, it can show some signing bonuses where you earn free BTC. They also categorise airdrops according to what you need to do, as an example there are those that require certain tasks as well as those which you get by hodling.

This is what you’ll find on Airdrops.io. Image via Airdrops.io.

Another extremely good feature Airdrops.io offers is that they always explain what needs to be done. There’s always a step-by-step guide and following that you’ll be sure that you do everything correctly. They also often link back to the original project behind the airdrop so that you can verify yourself both the authenticity and the requirements.  

5. CoinMarketCap 

Yep, this again. From CoinMarketCap you’ll nowadays find much more than just current market prices. Now for this article we’ll focus on its calendar services, of which I was pleasantly surprised by the high quality. CoinMarketCap has a full calendar on everything, airdrops, events, ICOs, and even Polkadot parachains.

As you’ll see from the right it’s in partnership with CoinMarketCal. Image via CoinMarketCap.

You’ll find these services in the top menu on CoinMarketCap. What I like about their layout is that they clearly divide the different calendars. This makes it easy for you if you only want to look at airdrops or maybe just ICOs. When you click on the events calendar you might notice an interesting detail. CoinMarketCap has a data partnership with CoinMarketcal. Thus, you can with confidence choose to look from either of the two sites since the information should be the same. However, as a quick tip, the filters and sorting systems are better on CoinmarketCal and there’s no denying that. So, if you’re doing more thorough research on a project I would suggest using CoinMarketCal. However, if you check crypto prices daily from CoinMarketCap then make sure to check the calendar too while you’re there.

6. Reddit, Telegram, Discord and Twitter 

As previously mentioned, looking at a project’s website might just be the best way to find out what’s happening. However, going through a large number of projects websites every day might be something you don’t have the time or even want to do. Luckily for us, we now have social media. Almost all projects have at least a Twitter account and many also have other channels like Telegram groups. Following these keeps you up to date on all the latest developments.

From projects Twitter sites you’ll find all their recent developments. Image via Twitter.

Of course, it’s not possible to follow all projects out there since the number of projects nowadays is way too many for that. Therefore, what I would do is choose those in your portfolio plus maybe some large cap coins. Primarily the ones you’re thinking of adding to your portfolio. To even make it easier for you I would perhaps create a separate account to follow these to avoid the other content creators you follow getting lost in the masses. Then when actively following these, you’ll start seeing how different news move the price of your crypto and maybe you even try to capitalize on that.

For those who like cryptos and want to chat and exchange ideas with others. Image via Reddit.

Another possibility for those who maybe don’t want to follow all of these projects themselves or want to find more details is to rely on the community. All of these three, Telegram, Reddit, and Discord are full of groups for all things crypto. You’ll find specific groups for certain projects and also larger groups focused on the whole markets, the most famous one being r/cryptocurrency on Reddit. However, while there are many smart people who give valuable information there’s also a bunch of nonsense like misinformation and promoting frauds. So, when engaging in these community groups make sure to double check the information out there.

Conclusion 

As you might have seen there are many ways to keep yourself on track. The most important thing is just to choose the channels you like and start following them. Also, it’s not that important what you choose as long as you’re actively following the cryptocurrency space as a whole. For example, just looking at YouTube on Coin Bureau’s or Digital Assets News’ videos will provide you somewhat of a view on what’s happening. There’s always a reason for why Guy does the videos in the order he does. He’s not just going to pick a project where nothing’s happening.  

For those of you who want to capitalize on trend trading news or some other way you need to be more alert. In order to successfully trade on how others will feel when they see the news piece you saw means you need to be first. To do this you need to follow the most accurate sites and use notifications to be ready right when something happens. However, it’s never guaranteed how others will react which is why it’s important to remember the risk of trading. But now, it’s time for you to go check on the calendars mentioned here, cause as mentioned in the beginning there’s a lot going on at all times in the crypto industry, and you don’t want to miss anything.  

The post How to Never Miss an Airdrop, Hard Fork, Swap or Block Halving appeared first on Coin Bureau.

What is this Ethereum Staking?

Without getting too deep into the weeds on this one, as it is a hefty topic, I’ll provide a quick summary of what this Ethereum upgrade is about and why we need it. If you are already well versed in the world of Ethereum, feel free to skip this section or check out this article that provides a thorough deep dive into all things Ethereum 2.0 related or you can also find Guy’s opinion on Ethereum 2.0 staking here.

Photo of Ethereum Logo Image via thefutureisnow

For those who don’t know, Ethereum is currently undergoing a much-needed upgrade that will allow the network to evolve from a proof of work consensus mechanism to Ethereum 2.0 which will run on a proof of stake consensus mechanism. Why this has been a much anticipated and vitally important upgrade is that Ethereum basically powers the entire Defi space, sustaining entire virtual worlds such as Decentraland and the Sandbox, also providing the network backbone that most of our beloved NFTs and crypto domains are hosted on, not to mention that nearly half of the top 100 cryptocurrencies are all Ethereum ERC20 tokens.

Image Showing a Mere Fraction of the Entire Ethereum Ecosystem Image via Reddit

With all of this activity on a rapidly growing Ethereum network, it has been known since Ethereum’s inception back in 2015 that the network would need to upgrade to proof of stake eventually if they wanted to keep up with the growing demand of the scaling Ethereum ecosystem. What this has to do with staking, is that those who stake their Ethereum are contributing to the Ethereum network itself, becoming validators of the network and contributing to the security of the blockchain, processing transactions and storing information by adding blocks to the new consensus model for Ethereum 2.0. As a reward for their participation and support, those validators or stakers receive interest on their staked coins.

The Ethereum Staking APY Returns Chart Showing Diminishing Returns as more ETH is Staked Image via extropy.io

How Much can you Earn Staking Ethereum?

The APY earned on staking Ethereum fluctuates depending on the number of participants and the amount of ETH that is being staked, not to mention it will also vary depending on the staking platform and method used. The rewards received are dynamically calculated based on the state of the network upon epoch completion. Network-level reward rates are a function of the total amount of ETH staked and average percentage of uptime for validators. This is shown in the image above, highlighting that the total APY for staked Ethereum is set to a fixed rate, with early stakers getting in with a nice 21% return, with that rate diminishing as more stakers come onto the scene as the APY technically remains fixed, but needs to be allocated equally among validators so the amount of ETH rewards received will diminish over time, resulting in a variable APY per individual validator.

Pretty sweet staking rewards. Image via StakingRewards.com

Current Ethereum staking rewards range between 4-20% on exchanges such as Binance, Coinbase and Kraken, as they advertise at the time of writing, though it is important to note that the higher interest rates went to the newcomers, with interest rates now being on the lower end of that scale. The APY for those wanting to run their own validators or utilize staking pools can expect between a 4-10% APY.

What are the Risks Involved?

Staking Ethereum isn’t all sunshine and rainbows, unfortunately, similar to any investment vehicle offering returns, there are always risks involved and Ethereum staking is no different. There is a small risk of losing funds through the slashing of Ethereum that users have staked if things go horribly wrong with the upgrade which is unlikely, but still a possibility to be aware of. Those choosing to become their own validators can also lose funds by being offline more than 50% of the time and not performing their staking duties correctly, having a mild penalty of not receiving the rewards that they were expecting. Validators can also lose their funds by publishing contradictory information about the chain, in which case the validator is slashed and ejected from the system. The amount slashed will be between 1 ETH and the entire staked amount, harsh but fair as this normally only happens in cases where a validator is acting maliciously.

Ethereum Co-Founder and Lead Developer Commits $1.5 Million for Staking on Ethereum 2.0 Image via criptomercato.it

The other major risk is market risk and applies to the fact that staked Ethereum is locked until the upgrade is complete, meaning that your Ethereum is not accessible to be able to sell. Ethereum staking is not suitable for short term traders or holders and should only be utilized for people who want to stake their Ethereum long-term. An example of market risk would be if Ethereum skyrocketed to 10k tomorrow, then plummeted back down to five hundred dollars. Staked Ethereum is not available to be sold for profits at 10k, nor would users be able to get out of the asset and jump a sinking ship should the value of Ethereum continue to drop. Ethereum stakers are at the complete mercy of the market, and many are hesitant to stake their Ethereum as the profit that can be made by selling Ethereum during a bull market will likely be worth more than the APY you can earn by staking it.

2021 Ethereum Returns Showing That Ethereum Gains are Higher Than Staking Returns Image viaFortune.com

How/Where can you stake Ethereum?

This can be a bit of a loaded question with no “one size fits all” answer. There are multiple different methods you can use to stake Ethereum, and different places you can go for staking. Not all staking methods are created equal, here I will cover the different ways you can stake, and the most popular places to stake, beginning with the most difficult to set up and most costly in terms of initial setup and amount of ETH needed.

Become your own Validator

Yes, for the most die-hard and “OG’s” in the Ethereum space, setting up your own validator node is the most decentralized and effective method for staking your Ethereum, but it isn’t going to come cheap or easy, and you definitely do not want to choose this method if you are not technically savvy, don’t hold 32 ETH, or won’t have access to continuous internet uptime.

Ethereum 2.0 Validator Machine Image via medium.com/coinmonks

People who choose this option generally do so because they want to directly support the Ethereum network and contribute to the security and functionality of Ethereum, ensuring the future success and prosperity of the Ethereum ecosystem.  To become a validator and set up a node for ETH 2.0 staking, all you need to have is a cool 32 ETH kicking around, which is only $115,000 dollars at the time of writing. Easy enough, right? Let me just smash open the old piggy bank and collect the coins buried in my couch cushions and I’ll get that 115k in two shakes of a lamb’s tail. Say you do have a lovely bag of 32 Eth sitting around, you will also need some hardware to become a validator, which in this case, will need to be a dedicated computer set up for staking, with software installed that will allow you to run a terminal command that will pull the Ethereum 2.0 node onto that machine. If this is the path that you would like to take, I have provided a link to a full detailed guide into running your own validator node that can be found here

Computer Screen Showing What Running an Ethereum Validator Node Looks Like Image via voskcointalk.com

What about the options for those of us who aren’t tech-savvy, don’t want the hassle of running our own nodes, or don’t have a money tree kicking around to be able to buy the 32 ETH needed for staking? Well, luckily there are plenty of alternatives, starting with the simplest solution which is staking with a centralized platform.

Centralized Staking on an Exchange

The quickest and easiest way to start staking Ethereum is on centralized exchanges. Binance, Kraken, and Coinbase all offer Ethereum staking, with no minimum amount of Ethereum required to get started, assuming you are trying to stake at least more than 0.0001 ETH that is. All you need is an account with one of these exchanges which many people already have, hold some Ethereum in that account and choose the staking option. Note that liquid Ethereum staking is not available in every jurisdiction, so you will need to check with your exchange of choice to find out if you are located in one of the supported regions. Note that once Ethereum 2.0 staking is initiated on any of these exchanges, it cannot be unstaked until the completion of phase one of the Ethereum 2.0 upgrade is complete. Staking on these exchanges does have some differences depending on the exchange.

Over $21 Billion Worth of Ethereum is Being Staked in ETH 2.0 Signalling User Confidence in the Successful Rollout in the ETH 2.0 Upgrade Image via thecoin

At the time of writing, Coinbase does not offer liquid staking, that is to say, that they do not provide users with an Ethereum pegged ERC20 token at a 1:1 value to the Ethereum that users stake as Binance and Kraken both do, leaving your Ethereum locked and your capital no longer liquid for use. Coinbase locks both your Ethereum and staking rewards as well, leaving them unable to access, but these rewards can be seen under the “lifetime rewards” section for users to view. Coinbase does plan to enable liquidity of staked ETH funds later this year according to their FAQ section, though there is no ETA on that yet. A detailed guide to ETH staking on Coinbase can be found here.

Ethereum Rewards Page in Coinbase Where Users can View Their ETH 2.0 Staking Rewards Image via Coinbase

Binance on the other hand works quite differently. Users who choose to stake Ethereum on Binance will receive a tokenized asset known as Beacon Ethereum or “BETH,” in return at a value of 1:1 that represents the value of the user’s staked Ethereum. Users can swap their BETH back to ETH once the first phase of the Ethereum 2.0 upgrade is completed. When the time comes, for the BETH to be converted back to ETH, users will receive the equivalent amount of ETH to the amount of BETH they are holding at the time they convert the funds. Many users prefer this method as the BETH tokens are liquid, so while the ETH is locked away being staked, users are free to transact with their BETH as they would with regular ETH, swapping for other assets, or participating in BETH yield farming to further increase their rewards when they go to convert BETH back to ETH. A guide on Binance ETH 2.0 staking can be found here.

The Ethereum Staking Process Shown in Binance When Users go to Stake Their Eth Image via Binance

Similar to Binance, Kraken also offers liquid Ethereum Staking to users with a low minimum balance to get started of just 0.00001 ETH.  Kraken provides a similar method of staking to users where users who stake their Ethereum will receive a pegged token representing the value of the Eth they staked at a 1:1 ratio. This token is called ETH2.S and can be used as users would use regular ERC20 tokens. As with all the centralized exchange methods, the staked Ethereum is locked and inaccessible until phase one of the Ethereum 2.0 update is complete. Note that while staking Ethereum is available on Kraken for users located in American and Canadian, liquid staking and the distribution of ETH2.S is not available, be sure to double-check supported regions before getting involved. More on ETH 2.0 staking on Kraken here.

Kraken’s ETH Staking Screen Providing a Warning and Explanation about Ethereum 2.0 Staking Image via Kraken

Staking Pools

The next way that users can get involved staking Ethereum if they have under 32 ETH is by joining and getting involved with staking pools. There are multiple staking pools to choose from, too many to cover here, but I’ll mention a couple of top choices for you to consider. Staking pools are protocols that can contribute to validator nodes, collecting Ethereum from multiple participants until the 32 ETH are needed to begin staking. A great thing about Staking pools and why the majority of users prefer this method is that they can hold their ETH safely off of centralized exchanges and still participate in staking. The most popular staking solution in this category is Lido.

Lido

Lido is a fantastic option as users can stake the Ethereum that they hold in their own non-custodial wallet such as Metamask, Coinbase Wallet, Trust Wallet and even Ledger, which is a real game-changer. Be sure to check out our **review** on why we think Ledger is one of the best options for storing, and even staking crypto.

Similar to Binance and Kraken, Lido offers liquid staking which is a great, decentralized way to participate in Ethereum staking without locking up your capital. While your Ethereum will still be locked, users will receive stETH at a 1:1 value of the amount of ETH they staked, plus rewards. stETH tokens are minted upon deposit and burned when redeemed back for Ethereum after the completion of the first phase of the ETH 2.0 upgrade. The stETH tokens can be used as one would use regular ERC20 tokens available to swap or sell. Lido’s Ethereum 2.0 staking feature also comes supported and preinstalled in the mobile wallet Argent, for ultimate convenience. You can find a full tutorial on how to use Lido with a software wallet here and how to use Lido with Ledger hardware wallet here.

Ethereum 2.0 Staking Supported Natively in Argent Wallet Through Lido Image via Argent

ANKR

ANKR is another fantastic platform offering many different DeFi services including node hosting for over 50 different blockchains and provide a really easy way to get involved with Ethereum 2.0 staking pools. ANKR offers ETH 2.0 staking through their decentralized staking protocol Stkr, which is a smart contract allowing users to get involved in ETH staking with less than 32 Ether, but a minimum of 0.5 ETH is needed. The STKR system has two staking options available for users to choose from, they can simply be a requester, or staker, where someone else runs the node for you, sharing the profits, or users can also choose to be a node provider even if they do not hold 32 ETH, earning higher rewards by combining their ETH with users who are only contributing ETH to make up the 32 needed.

ANKR is also the only mention on the list where users can redeem their Ethereum before phase one of the upgrade is complete. This is done by allowing a user who is running a node to transfer ownership to someone else who wants to run a node, swapping the new users 32 unstaked Ether to the person passing on the node holding the 32 ETH to the new participant, so they essentially swap places. ANKR provides liquid staking similar to Lido and works with Metamask, Trust Wallet, Bitkeep, Math Wallet, imTOKEN, Huobi Wallet and others. Users who choose to stake ETH will receive aETH token in return at a 1:1 peg to the value of their deposited Ethereum which can then be traded on exchanges such as SushiSwap and Uniswap freeing up liquidity for Ethereum 2.0 stakers. A full tutorial for how to get involved with staking Ethereum with Ankr can be found here.

Ankr’s Stkr screen Showing the Different Staking Methods Available for ETH 2.0 Image via reddit.com/r/Ankrofficial

Validators as a Service (VaaS)

The final option I would like to cover is for those Ethereum holders that maybe do hold the 32 ETH required to run their own node, but maybe they lack the technical knowledge, equipment, or simply do not have the time or desire to run their own node. This is where a Validator as a Service company can come into play. There are service companies out there that are happy to run a validator node on your behalf for a flat fee, monthly fee, or percentage of your profits.

List of a few Validator as a Service Company who Offer Hosted Ethereum Validator Services Image via cryptomode

People who choose this method will pay the service company to maintain and run the validator node on their behalf, leaving the ETH holder no need to invest in the hardware, nor have the know-how on how to set up, maintain, or run their own node. The drawbacks being that the funds are obviously still locked up, and users are opening themselves up to third-party risk as they need to trust the company running the node, and hope they won’t go bankrupt or disappear overnight. It is also worth mentioning that some of these services charge quite a high premium for this service, and the costs fluctuate greatly between providers so be sure to shop around for the best deal and ensure the service provider is reputable. Two highly rated, reputable, and reasonably priced VaaS companies to consider are Staked and Stakefish.

Closing Thoughts

Those are the most common methods that can be utilized by Ethereum holders who want to stake their funds. As I mentioned, the process of staking Ethereum is not something that should be done by short term holders or traders as the loss of access to Ethereum for an unknown period of time as we wait for the first phase of the upgrade to be completed is a barrier to entry, preventing many people from staking their Ethereum. Staking Ethereum is mainly utilized by long term Ethereum holders, and true supporters of the network who participate in Ethereum staking as they want to see the future of DeFi flourish and are passionate about the Ethereum ecosystem.

You will notice that platforms such as Celsius and BlockFi were not mentioned here as those platforms offer lending services, which is different to staking, but if you are interested in earning interest on your Ethereum holdings without staking, then lending platforms such as Celsius and BlockFi may be more suitable for you as your Ethereum remains liquid and can be accessed and sold without having to wait for the Ethereum Upgrade. You can find more information on lending platforms here.

The post How and Where to Stake Ethereum appeared first on Coin Bureau.

The 2021 bull cycle is showing signs of a maturing market so far as it isn’t just euphoric hype fuelling a single niche, but each sector of the blockchain industry is seeing healthy growth. The 2021 bull run has played out with two prevalent trends, while Bitcoin and DeFi are still seeing significant gains, all eyes have been on layer one alternatives to Ethereum such as Solana and Cardano. Incredibly though, even shadowing layer one protocols, the most explosive growth in a single sector came in the form of NFTs.  

NFTs Market Cap Grows 1,785% in 2021 Image via Forbes

NFTs were developed as a way to authenticate and store information about a digital asset which is stored on the blockchain. The first, and most obvious use case that people saw for NFTs was a way to revolutionize the digital art world, as artists were now able to create something truly unique, and those who purchased the art were able to verify the artwork’s authenticity and originality.

The reason why this advancement is so important and impactful is easy to understand when we compare NFTs to the value of an original piece of art in the real world. I can print 50 copies of Van Gogh’s The Starry Night on my printer at home, but they wouldn’t even be worth the cost of the paper and ink used in the process. Yet, the original piece itself is worth well over 100 million dollars with one wealthy billionaire recently stating he would liquidate his entire empire and pay a billion dollars to be able to own the original! Wow, a billion dollars for a blurry painting? I got into the wrong line of work.   

Portrait of Vincent Van Gogh’s The Starry Night Image via moma.org

The use cases for NFTs have already far surpassed the act of simply making and authenticating digital art. We see the concept of NFTs already being used extensively in the gaming and music industries, and even brick and mortar mail delivery and supply chain companies are looking into NFTs as a way to track mail and shipments. The use cases for NFTs are endless and only limited by our imaginations. Anything in the real world that needs to be verified, authenticated, and non-alterable have potential uses to be moved into digital NFT format which is why we are now seeing legal documents, contracts, birth certificates, educational certificates, wedding certificates and even wedding rings being minted into NFTs!

Two Coinbase Employees Exchange Virtual Wedding Rings During Wedding Ceremony Image via The Verge

If you are looking for the top platforms to mint NFTs, then you have come to the right place. If you’re not quite up to speed yet on just what the heck NFTs even are, here is the complete guide to NFTs, and even Guy has dabbled into the world of NFTs, and covers why they cannot be ignored here. If you think the whole NFTs craze is a bit silly, well I can’t say I blame you after seeing the CryptoPunk that sold for a whopping $7.6 million dollars. If you still need some further convincing that NFTs are a juggernaut and here to stay, then I definitely recommend you check out the top 10 most expensive NFTs ever sold and then join me bitterly as we stew in the “psssh, I could have come up with something better than that,” club.

Who Can Create, Buy, and Sell NFTs?

The great thing about NFTs, just as with regular art, is that anyone can be a creator, buyer or seller! Arguably, the barrier for entry to create, buy, and sell NFTs is even lower than real-life art as you don’t even need all the messy art supplies to get started, nor leave your house to buy or sell. We already see artists and musicians converting their work to NFTs, but it isn’t just for the artists. Entrepreneurs, corporations, authors, videographers, educators, supply chain companies, athletes, social media personalities selling minted tweets, even government officials are taking advantage of this technology. The ease in which an NFT can be created, purchased, and sold has come a long way since the first piece of digital art was minted as an NFT back in 2014 by Kevin McCoy, with the process being now more streamlined than ever.

Okay Fine, I Could Not Have Done Better Than That! Image via Sotheby’s

There are dozens of online NFT marketplaces where buyers and sellers can come together to well… buy and sell NFTs. Many of the places where people sell game-related NFTs exist in blockchain videos game marketplaces themselves such as CryptoBlades and Splinterlands. Here is an article that covers some of the highest paying blockchain games around, where NFTs are being sold for some pretty decent cash. Of course, if you are looking for a more general place to buy and sell NFTs of all sorts, then you need to look no further than sites such as OpenSea and Rarible. Here are the top ten sites where artists, collectors, and art enthusiasts come together to create, buy, and sell NFTs, of these ten, I will be covering the top five in more detail.

Top 10 NFT Marketplaces Image viainfluencermarketinghub

Okay, now that you know a bit more information about what non-fungible tokens are, why they are valuable, some use cases for them outside of the art world, and even where to go to buy or sell them. Now, how and where do you go about actually creating them? Fortunately, we have covered the “how,” in our How to Mint NFTs 101 Guide, as for the “where,” if you have made it this far in the article and are about to go deeper into the minting process and platforms, then I must tip my hat to you on taking this step.

While myself and many like me are stewing bitterly in the earlier mentioned, “psssh, I could have come up with something better than that,” club, you are actually journeying into the future of digital art, gaming, music, or you name it! While you are looking into becoming the next big thing in this digital revolution, pioneering and paving the way for future generations, I am going to be telling my grandkids about how back in my day, I missed out in buying Tesla stock and minting NFTs, then the grandkids will go home and complain to their mother about how grandpa was telling stories again about how he should have been the one to come up with the CryptoPunks idea. It’s fine, really, I’m not bitter about it at all.

Top 5 Platforms to Mint NFTs

Remember when I mentioned that the whole NFT process has become a lot more streamlined since the first-ever NFT was created? Well, you will be happy to know that the marketplaces I mentioned earlier for buying and selling NFTs are also the go-to place to mint your NFTs. Talk about the ultimate convenience!

#1 OpenSea

There is one clear winner in the NFT space when it comes to minting, buying, and selling NFTs of all sorts, spanning across multiple different genres. Talk about a one stop-shop as OpenSea contains the widest variety of available NFTs for any taste and any aspiring artist, collector, investor, or art enthusiast.

OpenSea Market Where NFTs are Bought and Sold. Image via OpenSea

One of the benefits of choosing OpenSea to mint NFTs is that creators can actually mint their digital art for free here, with no gas costs associated if you choose to mint your NFT on the Polygon network as opposed to the Ethereum network. It is important to know that OpenSea will charge a one-time fee for account registration before creators can sell on the Ethereum network, and there will also be a fee if the NFT that you want to list on the market was minted outside of OpenSea. If Ethereum is your network of choice, there will be recurring ETH network fees for any transactions associated with the NFT as well, so be sure the get familiar with the fee structure on OpenSea before getting too involved with Ethereum minted NFTs as those gas fees can be nasty. If Ethereum Gas fees are getting you down, be sure to check Guy’s tips and tricks to save on gas fees. In order to get started with OpenSea, the first thing you will need to do is connect a wallet such as Metamask. From there you can go straight into the area where you can choose to mint a stand-alone NFT or create a collection.

Creating an NFT Collection Page Image via OpenSea

A great feature here is that artists can add a category for the type of NFT or collection they are creating, whether it is art, trading cards, collectables, sports, or utility, and artists can add links for their collection to all of their social media handles as well to promote their art across all of their different social networks.

The creator of the NFT can also select their royalty fee up to 10%, this is the fee that the creator will earn every time the NFT is resold. The NFT creator can choose which digital assets can be accepted for paymentas well, and how many copies of the NFT can be allowed to exist, and even choose how many to release at one time. OpenSea should definitely be on the radar for anyone wanting to get involved in this space.

 #2 Rarible

Another great place where a community of NFT enthusiasts meet up to buy, sell, and create NFTs is Rarible. If nothing you see on OpenSea is striking your fancy, then take a wander over to Rarible and see if that is a little more your style. Before you head over to Rarible, be sure to check out our Rarible deep dive review here.

Like OpenSea, Rarible is also powered by the Ethereum blockchain and works in a similar way. At the time of writing, Rarible does not offer gas-free minting or a cheaper alternative to Ethereum as the platforms OpenSea and Mintable do, so fees on Rarible can be a bit higher than their competitors, at least until the highly anticipated Ethereum 2.0 upgrade is rolled out. 

The Rarible Marketplace Image via Rarible

Just like with OpenSea, to get started with Rarible, you will need to connect an Ethereum wallet such as Metamask to interact with the platform. When choosing to mint an NFT on Rarible, artists can choose if they want to create a single collectable or multiple, which is useful if a musician wants to create audio NFTs that multiple users can enjoy. With Rarible, users can choose to select a set price or allow buyers to bid on their product with the purchase going to the highest bidder. The creator of the NFT can also choose to have additional features or files unlocked once the NFT has been purchased if they want to include any add-ons or extra features. Artists can choose the percentage of royalty payments up to 30% that they want to receive each time the NFT is resold. All of these customizations are done on the minting page, which makes the whole process really straightforward and user friendly.

Creating an NFT using Rarible Image via Rarible

#3 SuperRare

SuperRare is the third most popular NFT platform in terms of the most active users, and also built on the Ethereum network similar to OpenSea and Rarible. The main difference with SuperRare is that it aims to be more like a social network for art creators and collectors, connecting like-minded individuals. This platform was created with the idea that collecting is a social activity, so collectors should be able to come together and collect in a social environment with one another. The way that this social atmosphere is able to exist is that, unlike the other platforms, SuperRare is not joinable by everyone. Anyone is able to purchase NFTs on SuperRare, but only artists who are invited by existing members can upload artwork on the platform. Once invited, artists need to fill out an application form with the requirement that all artwork created for SuperRare must be original, digital, and not available anywhere else on the internet.

SuperRare Market Place Image via SuperRare

As with all the other platforms, the first thing needed will be an Ethereum wallet to connect to the platform. Once this is done, all artists wanting to get involved in the SuperRare ecosystem will need to fill out the application form and be accepted by the community of Artists on the platform where they will be able to participate and become part of the community.

Creating an NFT on the SuperRare Platform Image via SuperRare

SuperRare supports artwork to be uploaded in the form of image files, audio files, video files, and 3-D file types, so there is something here for everyone.

#4 Foundation

Foundation is another NFT platform built on the Ethereum network that is unique in the sense that it facilitates live auctions for digital artwork. Instead of simply buying and selling NFTs at a set price. Foundation uses an auction process similar to what we see from leading auction sites such as Christies which is known for auctioning some of the worlds most prestigious collectable items. Similar to SuperRare, anyone can register to purchase art on Foundation, but any artists who want to create art for the auction process needs to be accepted into the Foundation community first. Artists can be invited by an existing community member who has successfully sold an NFT, and there is also a voting process that can be done by the Foundation community when considering new artists to bring in.

Artwork on Foundation Available for Bidding Image via Foundation

Once you have been accepted, as always, the first step is connecting your Ethereum Metamask wallet. Foundation provides a very straightforward, and easy process for artists to upload and mint their work. Similar to Rarible in terms of needing to pay Ethereum gas fees in order to go through the minting process, Foundation does not have the option to mint NFTs for free such as OpenSea and Mintable.

It is good to note that the buyer will pay a 15% fee on the acquisition of an NFT which gets paid to the Foundation marketplace for facilitating the sale which is considerably higher than the 2.5% fee charged on the sale of NFTs by both Rarible and OpenSea. Foundation also supports image, audio, video and 3-D rendered files for the upload and minting process.

#5 Binance and FTX

 It isn’t just these community-driven platforms available for buying, selling, and creating NFTs either. Major exchanges such as FTX and Binance are getting involved in a big way. They saw the potential behind this digital revolution and didn’t want to be left out, sat on the sidelines so the fifth mention for places to mint NFTs is going to go to both Binance and FTX.

The great thing about being able to mint your NFTs on an exchange is that chances are that you probably already have an account made to do your crypto buying and selling, so this is one less step to take by not having to register for a third party NFT website. Another advantage here is that you don’t need to transfer Ethereum to a wallet like Metamask, you can purchase the funds needed to mint and transact directly from the exchange and use those for the minting, buying, and selling process, saving money on gas fees. Binance and FTX both offer an NFT marketplace where users can go and shop their little hearts out on all things digital art related. Binance has combined both the bid style of NFT purchasing similar to Foundation, as well as the option to just purchase art for a set price.

Binance General Marketplace for buying NFTs at a set Price Image via Binance NFT Marketplace

FTX also has a simple to use interface where users can shop for and bid on their favourite NFTs. The FTX and Binance NFT marketplaces are very similar to one another in terms of functionality, so it really comes down to users using whichever marketplace is owned by their preferred exchange, and which marketplace has the more exciting collection of NFTs.

FTX Marketplace for NFTs Image via FTX

When it comes to minting on these platforms, both Binance and FTX have made it so easy that anyone can do it. One of the advantages to minting NFTs on Binance is that the NFT marketplace is built on the Binance Smart Chain so users are able to avoid those pesky Ethereum Gas fees and mint their NFTs for a much lower cost. Fees for minting on the Binance Smart Chain (BSC) network will need to be paid in BNB, so make sure that you are holding some BNB in your Binance account before attempting to create your NFTs. The Binance NFT marketplace supports image, video, or audio files so they have the bases for media types covered.  

Simply choose the name for the NFT and a description, pay the fee in BNB, and you are good to choose if you want to list the NFT and sell it for the highest bid, or a set price. NFT sellers can also choose to accept payments in Ethereum, BUSD, or BNB, with 1% of all sales go to Binance which is much lower than many of the other available platforms mentioned here, though a potential downside here is that the royalty fee for the creator is also fixed at 1% for any resales which is lower than the other platforms mentioned. It is also good to note that all NFT listings will need to be approved by the Binance NFT team before they are publicly listed.

Creating an NFT in the Binance Marketplace Image via Binance NFT Marketplace

Minting NFTs on FTX works in quite a similar manner to Binance, with the fees being the biggest difference. Once you already have your account at FTX setup, you can navigate to the NFT section and choose to mint/list your NFTs. Creators will need to choose a name for their NFT, whether or not they want it to be part of a collection or stand-alone, how many copies to mint, and if they want to include any additional attributes. Sellers can also choose a set price, or if they want it to go to the highest bidder. Fees for creating NFTs on FTX costs $10 dollars which is paid in USD. This fee can be charged from the user’s fiat or stablecoin account balances. Once the NFT is approved by the FTX team, the NFT will be available for sale on the FTX marketplace. As far as fees are concerned, FTX makes it straightforward with fixed fees with no surprise Ethereum gas fees which can often blindside users of the Eth network. FTX charges a 5% fee to both the buyer and seller when an NFT transaction is completed.

Creating an NFT on the FTX Exchange. Image via FTX

Conclusion

That is about it for the top 5, well actually, top 6 places to mint NFTs as I threw in a cheeky two for one for you guys as I couldn’t decide which was better between Binance and FTX as they are both similarly fantastic options for minting NFTs. While many crypto and DeFi enthusiasts will prefer the more community-driven options such as OpenSea and Rarible, as many feel that centralized exchanges like Binance and FTX are the enemy, almost as bad as those big banks, but like almost everything in the crypto space, convenience comes at the cost of using centralized platforms, so it really comes down to user preference at the end of the day.

The world is so new to the NFT space as well, and new developments are happening quicker than I can finish a cup of coffee, so while most of the top NFT marketplaces currently run on the Ethereum network, I expect some of these top platforms to either adopt, or get bumped in the near future to make way for new contenders as we see really exciting NFT developments rising fast in the Cardano, Solana, Avalanche and even Tezos ecosystems, quickly catching up and becoming fast movers in the NFT space.

The post Mint NFTs: Top 5 Platforms to Create and PROFIT! appeared first on Coin Bureau.

It should thus come as no surprise that NFTs have enjoyed such parabolic momentum in the markets and have sparked such high interest levels across many investors, institutions and crypto VCs.

Furthermore, the recent craze that we have witnessed surrounding NFTs could have indeed been fuelled by the fact that NFTs empower investors, asset holders and digital artists with a new format of blockchain-enabled ownership. In fact, these unique digital assets provide owners with proof of authenticity relating to pretty much anything one can think of.

Be it digital art, music, real estate or even precious metals, NFTs allow anyone to immortalise an asset on the blockchain through its distributed ledger system. Moreover, the ability to store valuables on-chain as non-fungible tokens is proving particularly beneficial for artists and collectors as it creates a new, permissionless, disintermediated environment for them to trade and exchange their art pieces.

Non-Fungible Tokens Are Restructuring The Proposition Of On-Chain Ownership

While it is true that NFTs are spawning a new market, captivating the imagination of many and allowing more artists and creators to realise their potential, non-fungible tokens still remain a rather exclusive, niche and somewhat enclosed environment.

Their uniqueness and scarcity have been their main focus and selling point but, despite their incredible success, there is a general lack of liquidity in the non-fungible token market. This is because the NFT market is limiting access to the broader audience, which includes retail investors and small collectors, as the majority of high-end NFT artworks are too expensive and quite frankly off-limits for most investors in the space.

Due To Their High Price, Some NFTs Are Out Of Reach For Most Investors In The Space

Thus, to ensure more liquidity and give investors the opportunity to gain more exposure to NFTs, many artists, creators and NFT issuers are beginning to experiment with a new non-fungibility model, the Fractionalised NFT. Up to this point, the majority of applications and use cases for NFTs have been pretty much linked to the realm of digital art, collectibles and gaming. But, what if Fractionalised NFTs could be the ultimate solution to democratising investment in not only the digital asset space, but in the entirety of the financial system?

Introduction To NFTs

An NFT is a type of cryptographic token that represents a unique, non-fungible asset and constitutes a tokenised version of a digital or real-world asset. NFTs function as verifiable proofs of authenticity and ownership in a blockchain network. Furthermore, they are non-interchangeable with one another and introduce a new proposition of scarcity in the digital asset world.

NFTs Are Unique, Authentic And Original Assets, And Their Proof Of Ownership Can Be Verified On The Blockchain

The term ‘fungibility’ refers to the property of an asset whose individual units are basically identical and interchangeable with one another. For instance, in order to act as a medium of exchange, all fiat currencies are fungible, meaning that each individual unit must be interchangeable with any other equivalent individual unit. A $1 bill is interchangeable with any other genuine $1 bill.

NFTs Can Be Traded Freely In NFT Marketplaces, But The Value Contained Within The NFT Will Always Be Unique To The Asset Itself

NFTs can be utilised by decentralised applications (dApps) to allow for the creation and ownership of unique digital collectibles and items. While an NFT can be openly traded in marketplaces such as OpenSea or Binance NFT, it is important to note that the value contained within it is and will always be unique to the asset itself.

Various frameworks have been created to facilitate the issuance of NFTs, with the most prominent being the ERC-721 token standard for the issuance of non-fungible tokens on the liquidity-rich Ethereum blockchain. A more recent and improved standard is ERC-1155, which enables a single contract to contain both fungible and non-fungible tokens.

The Two Most Prominent Ethereum Token Standards Are ERC-20 And ERC-721 – Image via HyperTrader

The majority of NFTs are associated with ERC-721 tokens and they are tracked on the blockchain to provide proof of ownership. Smart contracts store the exclusive data structures that differentiate the NFT from all other tokens, essentially making it unique.

When an NFT is exchanged between owners, it can be traced back to the original smart contract address on which it was minted, allowing buyers and sellers to verify the authenticity of the NFT and prevent fraud and forgery. The introduction of these NFT token standards allows a higher level of interoperability between networks, artists and investors, and enables the seamless transfer of these unique digital assets from one dApp to another.

However, there are some drawbacks to the widespread adoption of NFTs. This is because these ERC-721 tokens are not interchangeable with other ERC-721s, making the trading process more complex and the markets less liquid. Moreover, because of the high barrier of entry, most investors don’t have the funds to participate in the market of rare NFTs.

These constraints have most definitely inhibited NFTs from gaining the exposure and liquidity necessary to develop into an efficient and sustainable digital asset ecosystem, and have stunted the potential growth of its market overall. A new NFT model, the Fractionalised NFT, could indeed be the solution to some of these limitations.

About Fractionalised NFTs

NFT fractionalisation represents a new concept in the digital asset space and, because of its innovative proposition, it is most likely set to revolutionise the underlying architecture of non-fungible tokens as well as potentially open up new horizons in the world of investing.

Fractionalised NFTs Constitute A Novel Infrastructure In The Crypto Space And They Are Developing At A Fast Rate – Image via CoinGecko

When an NFT undergoes its fractionalisation process, it is first locked in a smart contract. The smart contract then splits the ERC-721 NFT into multiple fractions in the form of ERC-20 tokens, with each fraction representing partial ownership of the NFT.

Shareholders will possess a fraction of the NFT, essentially a percentage of the original ERC-721 asset, equal to the value of their ERC-20 tokens divided by the total number of ERC-20s minted when the NFT was initially locked in the smart contract. Fractions are typically put up for sale at a fixed price for a specific period of time, or until they sell out completely.

If The Mona Lisa Were A Fractionalised NFT, Each Fraction Owner Could Possess A Piece Of The Artwork – Image via Algorand Blog 

Fractionalised NFTs are of particular appeal as they offer a variety of interesting benefits to their issuers and holders. For instance, imagine a scenario in which we could fractionalise say Leonardo da Vinci’s (go Italy!) universally recognised ‘Mona Lisa’. Let’s now suppose that the, of course, priceless painting was valued at $1 billion and was represented on-chain as an ERC-721 asset. Given the incredibly high price of the art piece, only a small number of investors could afford to bid for it.

If, however, a smart contract were to fractionalise the Mona Lisa NFT into multiple fractions, each fraction would then represent fungible ERC-20 tokens. This, in turn, would allow every fraction owner to utilise their ERC-20 tokens to buy, sell or auction off their share of the NFT.

NFT Fractionalisation Incentives

Among the many benefits that come with NFT fractionalisation, there are several reasons why an NFT owner might want to fractionalise their asset. In fact, there are three major benefits to NFT fractionalisation, with these being:

• Price Discovery
• Asset Liquidity
• Democratisation Of Investment

Price Discovery

Price discovery mechanisms determine how much a specific NFT should cost. In order to do this, the worth of an NFT is generally established by using three different metrics: Past Sales, Auction and Fractionalisation.

The Past Sales mechanism utilises historical data to generate a price estimate for the NFT, and is typically used on the open market where there are many other similar, interchangeable products for sale. Applying this method to estimate the price of NFTs isn’t necessarily the most efficient as, more often than not, there quite literally isn’t enough historical data on the asset to formulate a fair evaluation.

The Auction mechanism reveals people’s willingness to pay for a specific NFT asset, and is used to gauge a rough price estimate. The Auction mechanism takes value from the bidder who is willing to pay the highest price for the asset, and this usually constitutes a great evaluation process as well as an excellent way to come up with an estimate for NFTs, since collectors hold their own different valuations.

As previously mentioned, the Fractionalisation mechanism entails taking an NFT, locking it into a smart contract that then divides it into multiple fractions of fungible ERC-20 tokens, rendering these tokens openly tradable on the market. This process produces a price estimate for each ERC-20 token, which then allows for an overall evaluation of the underlying ERC-721 NFT itself.

More Asset Liquidity

NFTs are inherently distinguished by the fact that they possess unique, one-of-a-kind characteristics. Their non-fungibility and scarcity have always been their main focus as well as their most important selling point. However, one of the most pressing issues when it comes to NFTs and NFT trading is the generally illiquid market that encapsulates them. In fact, illiquidity in the space remains a point of concern among NFT artists, creators and investors, as it is clear that the NFT market is limiting access to its selection of rare and most valuable NFTs.

Beeple’s ‘Everydays’ NFT Sold For $69 Million At Christies! – Image via NYTimes.com 

Indeed, with some NFTs going for millions of dollars, it is not surprising that only a few investors globally can afford to place their bids for them and get their hands on some of the most top-notch NFTs out there.

This naturally causes asset illiquidity due to the fact that just a handful of investors are willing to buy these NFTs. NFT fractionalisation, however, was created and designed to address and solve the lack of liquidity that exists in secondary markets.

When an NFT is fractionalised, the ERC-20 tokens representing each NFT fraction could be traded on decentralised and centralised exchanges, thus increasing the asset liquidity of the NFT itself. Instead of an artist waiting weeks for their NFT artwork to sell, numerous investors may buy NFT fractions immediately at a reduced price, which effectively addresses some NFT illiquidity issues.

Democratising Investment

More often than not, the prices in NFT marketplaces inhibit smaller investors and collectors from participating in NFT auctions, leaving only a few investors capable of purchasing the most expensive NFT pieces. Breaking up a high-end, expensive NFT into multiple fractions lowers the barrier of entry and ownership costs, and essentially allows more investors to gain exposure to the market of prestigious NFTs. Furthermore, it is important to note that if the price of the entire ERC-721 NFT increases, so will the price of the individual fractions of ERC-20 tokens.

Overall, thanks to their design, fractionalised NFTs can essentially boost the liquidity of the NFT market by fragmenting the base NFT asset into multiple, natively liquid components, and can also open up more investment opportunities for smaller collectors, democratising access to the previously exclusive NFT environment.

DeFi-NFT Fractions

NFT fractions have a variety of different applications in both the real world and the digital asset sphere. Indeed, bringing price discovery, liquidity and democratisation to the NFT environment opens up some exciting opportunities in the space, especially in Decentralised Finance (DeFi).

This is because fractionalised NFTs could potentially be leveraged in real estate investing, digital art, augmented reality (AR), gaming, fantasy sports, and more. With regards to Fractionalised NFTs in the real estate business, projects such as LABS Group, for instance, have already started experimenting with the concept of NFT fractionalisation in cross-border real estate investment.

Fractionalised NFTs Could Revolutionise Real Estate Investing

In fact, the project allows participants to invest in multiple properties around the world through the Ethereum they hold in their Metamask wallet. When users decide to invest in property via LABS Group, the project will automatically redirect them to their selection of real estate fractionalised NFTs that can then be purchased and staked on the platform to earn rewards.

In the gaming sphere, there are a few groups pioneering the new NFT fractionalisation trend, with the first being Niftex. Niftex is a blockchain-based startup that is working on its own NFT sharding technology, whereby NFTs are essentially fractionalised into ‘shards’ which can be purchased in an IPO-like format.

Fractionalised NFTs Could Play A Major Role In The Development Of The Gaming Industry

From there, a liquid market is created for the NFT shards using the Uniswap protocol, allowing investors and holders to buy and sell the shards like they would with any other crypto asset. The basic idea with Niftex is to increase NFT liquidity via sharding, and to essentially allow holders to accrue enough shards to gain access to the original NFT. Niftex has witnessed some major early wins with the Axie Infinity community where ultra-rare Axies, the gaming platform’s NFT assets, owned by community members have been fractionalised and sold via the Niftex platform.

Ultra-Rare Axie Infinity NFTs Were Sharded And Sold On The Niftex Platform – Niftex Twitter

Another interesting project looking to pioneer the fractionalised NFT trend is Fractional. Fractional is a decentralised protocol enabling NFT owners to mint tokenised fractional ownership of their NFTs as ERC-20s, with each fraction acting as governance on the underlying ERC-721 asset.

Fractional Allows NFT Holders To Mint Tokenised ERC-20 Fractions From Their Original ERC-721 Asset – Image via FractionalArt Medium 

The goal of the Fractional protocol is to facilitate the process of buying and holding a certain percentage of an NFT. In essence, the Fractional mechanism enables users who have been previously priced out of specific high-end NFTs by renown artists, such as Beeple and his ‘Everydays’ NFT for instance, to purchase a piece of their artwork. This furthermore allows the NFT holder to see some liquidity for their asset arise almost immediately, as opposed to having to wait for weeks or even months on-end for a buyer to appear.

In addition, because of the governance perks inherent in the ERC-20 token fractions, fraction holders also have the ability to vote on the reserve price of the entire NFT asset. This reserve price is the price in ETH required to be bid by a third party who is willing to purchase the NFT through auction. At the completion of the auction, all fraction holders will be able to cash in their fractions for ETH.

Fractionalised NFTs In DeFi

Some DeFi protocols such as Aave and Compound allow users to borrow capital by pledging their crypto assets as collateral. The borrowed funds come from lenders who deposit their assets in the DeFi protocol in return for some form of reward, mostly staking rewards. Typically, the collateral pledged by the borrowers is in the form of popular cryptocurrencies like Ethereum or USDT. At present, the realm of DeFi collateralisation is gradually entering the NFT space, with some new, exciting projects offering collateralised loans on NFTs and fractionalised NFTs.

NFTfi Brings DeFi Collateral To Non-Fungible Tokens – Image via NFTfi.com

Perhaps one of the most relevant DeFi-NFT collateralisation projects is NFTfi, a decentralised protocol allowing users to put up their NFT assets as collateral to borrow capital or offer loans to other users on their NFTs. The NFTfi protocol is currently experimenting with the proposition of DeFi-centric loans based on fractionalised NFTs as well, whereby users can pledge their ERC-20 fractions of an ERC-721 NFT asset as collateral to borrow cryptos like ETH or USDT.

Charged Particles Encapsulates Interest-Bearing DeFi Tokens Within NFTs – Image via Charged.Fi

Charged Particles is a decentralised protocol that is fundamentally restructuring the DeFi-NFT ecosystem, by allowing users to wrap their native NFT assets with interest-bearing tokens. Charged Particles enables NFT holders to deposit their ERC-721 or tokenised NFT fractions into its dApp, which then wraps the NFT with interested-bearing tokens through its integration with DeFi protocol Aave. This constitutes a true representation of the growing demand for NFTs in the DeFi sphere, and is also symbolic of the shared, hybrid infrastructure that is developing between DeFi and NFTs.

Fractionalised NFTs For Pre-IDO Liquidity

At this stage, it should be clear that NFT fractionalisation is posing a great number of benefits to holders, issuers, artists and investors. However, one of the most intriguing use cases for fractionalised NFTs is perhaps their ability to provide pre-Initial DEX Offering, or pre-IDO, liquidity for projects launching in the DeFi space.

Among the few projects looking to pioneer the DeFi-NFT pre-IDO liquidity environment is Genesis Shards, a decentralised protocol that wraps illiquid pre-IDO tokens into NFTs. The value proposition of fractionalised NFTs in the pre-launch token market is actually pretty relevant, as it enables a project’s pre-IDO tokens to gain some form of price discovery and economic exposure even before the IDO is held.

Genesis Shards Wraps Illiquid Pre-IDO Tokens Into Liquid, Fractionalised NFTs – Image via GenShards.com

Typically, the only way investors can access pre-IDO tokens is through over-the-counter (OTC) deals and transactions, however, these trades are usually pretty unreliable, come with some inherent risks and require a substantial amount of initial capital.

Fractionalised NFTs, on the flip side, can be leveraged to create a liquid pre-launch market by wrapping pre-IDO tokens into NFT fractions made up of tradable ERC-20 tokens. This allows projects such as Genesis Shards to effectively bring price discovery, liquidity and democratisation to pre-IDO tokens via fractionalised NFTs.

These pre-IDO NFT fractions can be either traded on NFT marketplaces such as OpenSea, for instance, or can be held until the project holds its IDO, after which NFT holders can swap their NFTs for the project’s IDO tokens.

It is thus clear that the functionalities of fractionalised NFTs stretch above and beyond the realm of digital art and gaming, as they are slowly but surely coming to merge with the DeFi ecosystem in a manner that was yet to be seen in crypto. In fact, thanks to projects such as LABS Group, Niftex, Axie Infinity, NFTfi, Charged Particles and Genesis Shards, NFT fractionalisation is progressively becoming more of an established proposition in the space, and it can develop, expand and realise its use cases in a purely decentralised, permissionless and disintermediated fashion.

In Conclusion

NFTs have come to firmly establish themselves within the digital asset space, and they are fuelling an enticing ecosystem of diverse artistic, gaming-oriented and DeFi cross-over utilities. NFTs are inherently distinguished by the fact that they possess unique, one-of-a-kind characteristics. Their non-fungibility and scarcity have always been their main focus as well as their most important selling point. However, one of the most pressing issues when it comes to NFTs and NFT trading is the generally illiquid market that encapsulates them.

Fractionalised NFTs, on the other hand, allow artists and investors to gain access to greater liquidity, as the NFT is broken down into multiple fractions of ERC-20 tokens that can be sold or redeployed in other DeFi protocols. By fractionalising an NFT, the asset holder can enjoy a variety of attractive benefits, which include NFT price discovery, more asset liquidity and democratisation of investment.

Indeed, bringing price discovery, liquidity and democratisation to the NFT environment opens up some exciting opportunities in the space, especially in Decentralised Finance (DeFi). There is most definitely a use case for fractionalised NFTs in the world of digital art, augmented reality, gaming, fantasy sports and, most importantly, pre-IDO liquidity.

With reference to this last note, fractionalised NFTs can be leveraged to create a liquidity-rich pre-IDO market, in which NFTs can essentially become DeFi options as well as the financial vehicles necessary to solve the illiquidity endemic in the pre-launch environment.

While the development of the NFT ecosystem is still rather young, that of fractionalised NFTs is perhaps even younger but, in due course, NFT fractionalisation is most likely destined to disrupt not only the world of fine art and gaming, but potentially even that of Decentralised Finance and investing as a whole.

The post Fractionalised NFTs – Making Non-Fungible Tokens Affordable appeared first on Coin Bureau.

Among these blockchain-enabled value propositions is Decentralised Finance (DeFi), a movement that is spearheading an attractive, alternative financial ecosystem and has firmly established itself as a true powerhouse in the digital asset space.

Decentralised Applications (dApps) constitute one of the most notable developments to come out of DeFi technology and their uniqueness lies in their ability to be disintermediated from third party actors and permissionless, meaning that anyone with an Internet connection and a supported wallet can interact with them.

DeFi Introduced dApps To The Digital Asset Space And Is Reshaping The World Of Finance As We Know It

Contrary to traditional financial applications, dApps typically do not rely on trust and they do not require custodians or middlemen to function, which essentially makes them ‘trustless’. These inherently decentralised qualities allow dApps to perform a wide selection of use cases, including decentralised trading, lending, borrowing, staking, liquidity provision and, more importantly, yield farming.

Yield farming is one of the newer liquidity concepts to emerge from the DeFi ecosystem, and it entails a process of generating capital and earning rewards through crypto asset holdings using DeFi liquidity protocols. Yield farming allows anyone to earn passive income using the decentralised ecosystem of ‘money-legos’ built on Ethereum.

Because of this, yield farming may very well change the way crypto investors HODL their assets in the future, as it enables them to leverage the built-in high APYs and staking models of many DeFi protocols, as opposed to just leaving their assets lying idle in a wallet somewhere.

The Origins Of Yield Farming

Bitcoin can be considered the first deployment of DeFi as it enabled people to execute trades and financial transactions without the presence of intermediaries. Thus, Bitcoin and a few other early cryptocurrencies arguably initiated the first DeFi wave. The second wave, however, was led by the Ethereum blockchain as it added another layer of programmability to the technology.

To this day, the majority of crypto assets and blockchain-based projects are built on Ethereum because it provides the openness, infrastructure and liquidity required to implement dApps and perform asset swaps efficiently, despite the fluctuating, high gas fees.

The Majority Of dApps Are Building On Ethereum Primarily Because Of Its Liquidity And Network Effect

Some of the advantages of DeFi include transparency, immutability, programmability with smart contracts and, most importantly, self-custody of funds, meaning that DeFi participants are the sole custodians of their capital and they are not required to rely on centralised crypto exchanges to store their assets.

Thus, given the immense potential that DeFi brought to the space, several projects began experimenting with DeFi functionalities in traditional financial applications, and looked to essentially create a DeFi-TradFi cross-over infrastructure.

In fact, when the Ethereum-based project Compound began offering its decentralised lending and borrowing protocol, it opened the door to a completely new world in Decentralised Finance and attracted large quantities of investors looking to maximise their ROI.

In Mid-2020, Compound Began Distributing Its Native Governance Token COMP As A User Incentive

In June 2020, Compound started to distribute its governance token, COMP, to the protocol’s user base. With the way the distribution process was structured, demand for the token initiated a craze and moved Compound into the leading position in DeFi.

This is primarily due to the fact that this Ethereum-based project allows users to stake and lend their tokens to the Compound protocol and earn interest on their assets for doing so. Consequently, this mechanism ignited a new trend in the DeFi space, and led investors to embark on a journey to find the protocols offering the highest APYs across the industry.

Throughout 2020, A New Craze Emerged In The DeFi Space, Yield Farming

The term Yield Farming was coined as a result of the process of actively searching for the best ROIs in the space whereby users, known as ‘farmers’, are on a constant lookout for the most profitable ‘yields’ in DeFi protocols on mainly Ethereum and the Binance Smart Chain.

How Yield Farming Works

Yield farming, also referred to as liquidity mining, is a way to generate rewards with cryptocurrency holdings. Put simply, it implies locking up crypto assets and receiving staking rewards and interest on those assets. In a sense, the yield farming process resembles that of staking, but with a few extra added complexities.

In most cases, yield farming requires users, called liquidity providers (LPs), to add funds to a protocol’s liquidity pool. Liquidity pools are basically smart contracts that store and preserve users’ funds, and they reward users for providing liquidity in the first place. These rewards may come from fees generated by the underlying DeFi protocol, or from some other sources.

Image via CoinCentral

Some liquidity pools pay their rewards in multiple tokens, and these reward tokens can then be redeployed to other liquidity pools to earn additional rewards there as well. Thus, it is quite simple to see how some incredibly complex farming strategies can emerge from this, but the basic idea is that liquidity providers deposit funds into a liquidity pool and earn rewards in return.

Yield farming is most commonly done with ERC-20 tokens on Ethereum and BEP-20 tokens on BSC, so naturally the rewards are usually in some kind of ERC-20 or BEP-20 format. This, however, may very well change in the near future as yielding protocols develop further and start implementing cross-chain bridges more efficiently.

Yield farmers will typically move their funds around quite a lot between different protocols in search of the highest yields. As a result, DeFi platforms may also provide economic incentives to attract more capital to their platform as in fact, just like on centralised exchanges, more liquidity tends to attract more liquidity.

Getting Started With Yield Farming

Now that we have defined and clarified what yield farming is, let us now discuss how a new user can get started with yield farming.

Yield Farming Strategies Come With A Certain Amount Of Structure And Procedure

Firstly, as a disclaimer, it is only reasonable to list the Pros and Cons that come with a yield farming strategy.

The Pros include:

• dApp Availability: Up to this point, a variety of yield farming-centric applications have come to life, and they give farmers the benefit of tracking their investments and percentage yields from a simple, all-in-one interface.
• Easy and Fast Implementation: To become a yield farmer, one needs only two required elements which are Ethereum, or BNB in some cases, and a crypto wallet. The barrier of entry to yield farming is relatively low, which draws immense attention from crypto investors looking for higher returns on their assets.
• Incredibly High Annual Percentage Yield (APY): While in staking protocols 8-10% APY on stablecoins such as USDT, USDC or DAI is the norm, yield farming can boast as much as 100% APY!

A Visual Of The Annual Percentage Yield On PancakeSwap – Image via PancakeSwap.Finance

The Cons include:

• Short-Term Rewards: It cannot be denied that yield farming is growing strongly in a fast-paced market, but it is still rather unstable so there is a risk of inconsistent returns. More than that, given its ease of entry, profitable strategies are hard to figure out.
• High Gas Fees On Ethereum: Put simply, gas is defined as the fee for each transaction performed within the ETH blockchain. Gas fees have been on a steep uptrend as of late, and this is one of the downsides of yield farming. Thus, farmers should be conscious not to pay gas fees that are higher than the expected reward.
• Benefits For Those With Greater Capital: DeFi allows anyone to participate in yield farming, but the rewards will be considerably higher for those users with a lot of initial capital. This is essentially because the more crypto you own, the more you can deposit in high APY strategies, naturally resulting in a higher ROI.
• Impermanent Loss Risks: This refers to a temporary loss suffered by a liquidity provider (LP) due to the volatility in a trading pair. Impermanent loss is one of the major hurdles of AMM protocols and it occurs when the price of tokens inside an AMM diverge too quickly in any direction, causing a token imbalance.

Yield Farming Platforms

In this section we shall discuss the most reputable yield farming platforms and take you through the process of getting started with yield farming on Ethereum, with Compound and Uniswap, and on the Binance Smart Chain, with PancakeSwap. For simplicity, we have selected these DeFi platforms as they offer perhaps the most straightforward and ready-to-go approach to yield farming.

The Importance Of Total Value Locked (TVL)

Total Value Locked (TVL) is the sum of all funds locked in a protocol’s liquidity pool. This is a very important metric to measure how healthy a yield farming platform is. An increase in the Total Value Locked leads to an increase in the yield farming on a platform. The current TVL for DeFi is approximately $64 billion, and these metrics can be tracked on DeFi Pulse.

Total Value Locked Is A Great Metric To Gain Insight On The Health Of A Farming Platform. Image via DeFiPulse.

As previously mentioned, there are various platforms where you can farm tokens. They all operate in a similar fashion, but the rewards system might be different and specific to the farming platform. Below are some of the yield farming platforms running on the Ethereum blockchain and the Binance Smart Chain (BSC).

Farming On Compound

Compound is an Ethereum-based protocol that allows lending and borrowing of crypto assets. The lender offers a loan by providing liquidity to the Compound platform, and then gets an interest on the loan supplied. The lender’s interest is then calculated based on the ratio of supply and demand for the crypto assets they provide, which may of course fluctuate from time to time.

A Visual Of The Annual Percentage Rates On The Compound Platform – Image via Compound.Finance

Lending capital on DeFi money markets such as Compound and Aave constitutes the easiest way to earn returns in Decentralised Finance. You can deposit stablecoins such as DAI or USDC to either of them and start earning yield instantly!

A Visual Of The APYs On DeFi Platform Aave – Image via Aave.com

Aave generally has better rates than Compound because it gives borrowers the ability to choose a stable rate of interest rather than a fluctuating, variable rate. The stable rate tends to be higher for borrowers than the variable rate, which increases the marginal return for lenders.

However, one of the most appealing additions made by Compound is the new incentive mechanism for farmers through the issuance of its native governance token COMP. In fact, anyone who lends or borrows on the Compound platform can farm a certain amount of the COMP token.

Thus Far, Compound Has Distributed 976,102 COMP Tokens To Farmers And Borrowers – Image via Compound.Finance

At present, 2,312 COMP tokens are distributed daily across the Compound user base meaning that, at approximately $400 per COMP token, this results in more than $920,000 in additional rewards each day. These COMP farming rewards are of course diluted across the platform’s 294,000 suppliers/farmers and 8600 borrowers and, despite the relatively low APYs, the incentive for users to farm on Compound remains incredibly high.

In addition, Compound has its own native interest-bearing tokens called cTokens, which are used to pay farmers for supplying liquidity to the protocol. When farmers provide and lock 5ETH on Compound, for instance, the protocol automatically generates 5cETH tokens, that earn farmers interest and can be redeployed on other DeFi platforms as well. Farmers can then redeem their cETH for ETH at any time, plus their staking rewards.

To participate in yield farming on Compound, as well as most other farming platforms, users will need to:

• Acquire crypto that is used on the particular farming platform. Widely accepted crypto assets are ETH, BTC, and stablecoins such as DAI, USDT, USDC and BUSD (for BSC farming).
• Download a decentralised wallet such as Metamask, Trustwallet or Wallet Connect. Register as prompted, and make sure that private keys and the seed phrase are secure and kept somewhere safe. You may follow Guy’s step-by-step guide on how to do this.
• After installing the preferred wallet, send funds to the wallet.
• Go to the dApp section of the wallet to start farming.
• For beginner farmers, it is advisable to start farming with the Compound platform because of the COMP incentive and its ease of use.

In Compound’s case, users looking to farm should:

• Go To Compound.Finance
• Click on ‘App’.

Image via Compound.Finance

• Connect Wallet through the Metamask icon.

Image via Compound.Finance

• Approve Connection Via Password and Unlock Wallet.

Image via Compound.Finance

• Once the connection is approved, users can choose from a selection of assets that they want to supply in order to start farming COMP.

A Visual Of The Compound Supply Market – Image via Compound.Finance

• If users want to supply the platform with a stablecoin such as DAI, for example, they will need to first click ‘Collateral’ and then ‘Use DAI As Collateral’.

Image via Compound.Finance

• Users will then need to enable DAI as collateral and pay a small ETH transaction fee.
  Once the transaction is executed, users will be able to deposit their DAI into the Compound platform and start farming COMP. The User’s APY will be displayed in the ‘Dashboard’ section together with their ‘Supply Balance’ and their ‘Interest earned and paid, plus COMP’.

Image via – DataDrivenInvestor

It is also important to note that the more assets a farmer supplies, the more potential borrowing power they have. Using the image above as an example, a user could provide liquidity with 1,237 DAI and potentially borrow $928. In this scenario, DAI would be held by Compound as collateral, and the user could borrow $928 for additional farming on other DeFi protocols, for instance.

Farming On Uniswap

Uniswap, one of the most well-established Ethereum-based AMM protocols in the space, is arguably the largest liquidity pool in DeFi. Uniswap allows Liquidity Providers (LPs) to earn fees as a reward for adding their capital to a pool. On Uniswap, liquidity pools are structured between two assets in a 50-50 ratio, a model typical of Automated Market Makers (AMMs).

Uniswap, A Sophisticated Decentralised Trading Protocol

LPs are of vital importance to Uniswap’s functionality as a DEX, as they provide the liquidity and collateral necessary for the protocol to execute trades in a decentralised manner. In fact, every time someone executes a trade through a liquidity pool, LPs that contributed to that pool earn a fee for facilitating the transaction. The exchange has a trading fee of 0.30% for every token swap but, instead of going to Uniswap, these fees are given to Liquidity Providers as a reward for providing capital.

Adding Liquidity On Uniswap v.3

Unlike most DEXes, Uniswap doesn’t contain order books and its liquidity is maintained through liquidity pools. This means that anyone can become a liquidity provider (LP) for a token pair on Uniswap by simply depositing equal amounts of each token in exchange for token pools. For instance, if a user wanted to add liquidity to an ETH-DAI pool on Uniswap, they would have to add the exact same amount of each token.

Visual Of The Uniswap Liquidity Pool Structure – Image via Uniswap.org

Currently, at the time of writing, 1 ETH equates to approximately 2,270 DAI. So, if the LP wanted to provide liquidity to the pool with say 3 ETH, the necessary 50-50 ratio would look something like 3 ETH – 6,810 DAI.

To add liquidity to a Uniswap pool and start yield farming on the platform, users will need to:

• Go To Uniswap.org.
• Click ‘Launch App’.

Click On ‘Launch App’ In The Top Right Corner – Image via Uniswap.org

• Click ‘Pool’.

Image via Uniswap.org

• Click ‘Connect Wallet’ to connect with Metamask.
• Once connected, users can either browse through popular liquidity pools by clicking on ‘Top Pools’, or click on ‘New Position’.

Top Pools On Uniswap – Image via Uniswap.org

• After having clicked on ‘New Position’, LPs can select their preferred token pair.

Select Token Pair – Image via Help.Uniswap.Org

• They must then review their preferred Fee Tier.

Review Fee Tier – Image via Help.Uniswap.Org

It is important to note that Uniswap v.3 offers 3 different Fee Tiers for every token pair: 0.05%, 0.3% and 1.0%. The 0.05% Fee Tier is ideal for assets that trade at a fixed or highly correlated rate, such as stablecoins. Thus, this Fee Tier is most suitable for liquidity pools such as DAI-USDC or USDC-USDT, for instance.

The 0.3% Fee Tier is best for most pairs, and the ones that undergo price fluctuations, such as ETH-DAI for example. This higher Fee Tier is more likely to compensate LPs for the greater price risk that they take on relative to stablecoin LPs. The 1.0% Fee Tier is primarily used for exotic pairs, and it is implemented to reward LPs for taking on major price risks on their assets.

• Set Price Range

Set Price Range – Image via Help.Uniswap.Org

Uniswap v.3 allows LPs to select a specific price range in which they can provide liquidity, which is one of the perks of the recent Uniswap upgrade. This means that if prices move outside the selected range, the user’s position will be concentrated in one of the two assets and will not earn any interest until prices come back into the range.

Deposit Tokens – Image via Help.Uniswap.Org

• Deposit the desired token amounts.

Preview And Approve Transaction – Image via Help.Uniswap.Org

• ‘Add‘, ‘Preview‘ and Approve Transaction on Metamask

Farming On BSC: PancakeSwap

Launched in September 2020, PancakeSwap is a Binance Smart Chain-based DEX and AMM protocol running primarily on smart contracts and permissionless liquidity pools. Similarly to Uniswap, PancakeSwap allows any two tokens to be exchanged, but with a few extra gamified additions.

PancakeSwap, The Go-To DEX On The Binance Smart Chain

The Binance Smart Chain has grown exponentially over the course of the last year, as investors, traders and yield farmers started to accumulatively reject the inefficiencies of the clogged-up Ethereum blockchain, and looked to more sustainable DeFi options. BSC is fast, cheap and easy to use, and its community is one of the strongest in the DeFi space.

The Binance Smart Chain Ecosystem Has Grown Exponentially Throughout 2020 And 2021 – Image via Binance Blog 

Let us now discuss how you can get started with yield farming on PancakeSwap and also farm its native token CAKE. To farm on PancakeSwap, users will need to:

• First create a BSC compatible wallet, such as Metamask or Trustwallet.
• Purchase some BNB tokens and send funds to the BSC compatible wallet. It is important to note that native BNB purchased on centralised exchanges cannot be utilised for DeFi applications on BSC. To yield farm on PancakeSwap, users will need to convert their native BNB tokens into BEP-20 BNB. This can be done directly on the Binance centralised exchange through the Binance Bridge or, alternatively, on Trustwallet.
• Head over to PancakeSwap.Finance. Once there, users will encounter various tabs such as Trade, Farms, Pools, Lottery and Collectibles. The Trade tab allows users to swap between tokens on the Binance Smart Chain mainnet, and constitutes the heart and soul of the PancakeSwap DEX.

Contributing To The CAKE-BNB Liquidity Pool

If farmers want to provide liquidity to the CAKE-BNB liquidity pool, the first thing they will need to do is acquire an equal value amount of CAKE and BNB tokens, which they can purchase on Binance first and then send to their Metamask wallet. It is also important to remember that, similarly to Uniswap, PancakeSwap utilises a 50-50 token ration in liquidity provision in order to maintain funds balanced and incentivise trading.

A List Of The Active Farms On PancakeSwap – Image via PancakeSwap.Finance

Users will then need to interface their Metamask wallet with the PancakeSwap platform by clicking on ‘Connect’ in the top right corner. Once they’ve successfully connected Metamask with PancakeSwap, they can head over to ‘Farms’, click on CAKE-BNB liquidity pool and then ‘Enable Farm’.

The CAKE-BNB Liquidity Pool On PancakeSwap Currently Offers 52.72% APR! – Image via PancakeSwap.Finance

In order to enable a farm, PancakeSwap charges a very small transaction fee, currently around $0.07, which users will need to pay in BNB token. After having completed and signed the transaction on Metamask, the option to add liquidity to the farm becomes open.

Alternatively, farmers can head over to the ‘Trade’ tab, then click ‘Liquidity’, ‘Add Liquidity’ and select their desired input tokens, in this case CAKE and BNB.

Just Like On Uniswap, LPs Need To Provide A Pair Of Tokens Due To The 50-50 AMM Structure – Image via PancakeSwap.Finance

• Add liquidity in the amount you want to contribute, but you can also use the ‘Max’ button to contribute up to your maximum in your wallet.
• Then Click ‘Supply’ and pay the liquidity provision transaction fee on Metamask with BNB, which will be considerably lower than Uniswap on the Ethereum network.

In return for supplying liquidity, you’ll receive CAKE-BNB LP tokens which represent your share of the liquidity pool. These LP tokens are interest-bearing tokens and they allow LPs to earn rewards every time a trade is executed through that liquidity pool.

What Next?

Once you receive your LP tokens, you may head over to ‘Farms’ and redeploy your LP capital through staking. The process of doing so is exactly the same as the one mentioned above.

• Click on ‘Stake LP’ and approve your LP tokens for staking.

Once You Have Your LP Tokens, You Can Redeploy Them In LP Staking Through ‘Farms’ – Image via StakingBits Medium

Once the transaction has been approved and the LP tokens are inserted into the PancakeSwap smart contract for staking, you will essentially start earning CAKE immediately. Farming on PancakeSwap can be incredibly beneficial for investors as it allows them to generate yield while maintaining their position open on their assets.

It is clear that farming offers some inherently optimal ways for crypto investors to yield high returns on their investment, as we have seen with the CAKE-BNB liquidity pool. Therefore, because of its qualities and growing adoption across the space, yield farming is proving to be quite the innovation in the DeFi ecosystem and is set to potentially revolutionise the way crypto enthusiasts, investors and traders will HODL their assets from now on.

In Conclusion

Yield farming is one of the newer trends to come out of DeFi technology, and it is slowly establishing itself as a true powerhouse in the space. Yield farming entails the process of actively searching for the best APYs and moving assets across the ecosystem to essentially ‘farm’ the best crops and yield the highest returns.

Originally, the concept for yield farming started when Ethereum-based DeFi project Compound began incentivising participants to use its platform in return for its native governance token COMP. To this day, Compound is still distributing COMP tokens to anyone who lends and borrows crypto assets through the platform.

The COMP incentive, paired with the possibility to farm native tokens just by using the platform, spearheaded a craze across the digital asset space and inspired users to come up with intricate strategies to move assets around and look for the most profitable crops to farm.

Yield farming as a procedure is rather straightforward and requires users to hold crypto assets relevant to the specific farming platform, a decentralised wallet such as Metamask, and the will to make some serious gains in a relatively short amount of time.

If you’re just starting out with yield farming, Compound is perhaps the best solution for you. Once you’ve developed your skillset further, you can then start farming on protocols such as Uniswap, on Ethereum, and PancakeSwap, on the Binance Smart Chain.

A yield farmer’s gains can be very enticing indeed, however, it is advisable to always exercise caution and understand the risks prior to engaging in the intricate, fast-paced and highly profitable DeFi segment that is yield farming.

The post Getting Starting with Yield Farming: The ONLY Guide you Need appeared first on Coin Bureau.

Throughout its historical development, blockchain technology has given birth to a variety of different financial applications, value propositions, crypto assets and alternative infrastructures. While blockchain has most definitely spearheaded some of the most fascinating technological innovations of the last decade, to this day its design remains rather isolated and enclosed.

Despite Blockchain’s Disruptive Technology, Its Ecosystem Remains Rather Siloed And Enclosed

Public blockchains, such as Bitcoin and Ethereum for instance, are built as digital ledgers that are open-source, transparent and visible to all. However, despite on-chain data being fully transparent, a blockchain’s infrastructure is essentially designed to be a self-contained, siloed ecosystem.

There is, of course, good reason for this as one of the most vital elements of blockchain technology resides in its ability to preserve network security. In fact, to maintain the consensus that underpins the security and accuracy of a shared ledger, only miners who meticulously follow the rules of each network are allowed to verify and write transactions to the blockchain.

This system is indeed effective, however, the siloed nature of blockchain is somewhat stunting the growth and progress of the DeFi ecosystem, locking DeFi participants into a single, enclosed network when actually, given its permissionless and disintermediated functionalities, it should allow users to gain access to a wider array of opportunities.

At a time when the DeFi Lego-like composability of decentralised Applications (dApps) is changing the face of financial infrastructures as we have always known them, it’s more important than ever for independent blockchains to communicate and share data with one another.

Most Blockchains Operate Within Their Own Siloed Ecosystems, But DeFi Requires Them To Intercommunicate

While projects such as Polkadot, Kusama, Avalanche and Cosmos are experimenting with the concept of cross-chain interoperability and network composability, DeFi users quite simply would like to be able to move assets from one chain to another, use dApps interchangeably and leverage other DeFi services more efficiently. Thus, there seems to be a widespread desire for blockchain intercommunication and while blockchain infrastructures have remained rather isolated until very recently, one of the most optimal solutions can be found in cross-chain bridges.

About Cross-Chain Bridges

Cross-Chain Bridges enable interoperability and intercommunication between vastly different networks, such Bitcoin and Ethereum for instance, and between one parent blockchain and its child chain, known as a sidechain, which either operates under different consensus rules or inherits its security from the parent blockchain, as is the case for Polkadot and Kusama parachains.

Cross-Chain Bridges Connect Two Separate Blockchain Infrastructures

Cross-chain bridges allow for the transfer of assets, tokens, data or ever smart contract instructions from one chain to another and between completely independent platforms, enabling users to:

• Deploy digital assets on one blockchain to dApps on another.
• Conduct fast, low-cost transactions of tokens hosted on non-scalable blockchains.
• Implement and execute dApps across more than one platform.

Need For Cross-Chain Interoperability

Crypto enthusiasts, investors and institutional entities are all growing increasingly aware of the issues posed by chain maximalism, the risks of Balkanisation, and of the overall closure inherent in most blockchain networks.

This sentiment is primarily driven by the fact that blockchain, at heart, was always designed to solve some of the complexities, bottlenecks and limitations that have historically characterised traditional financial structures. Still, for the majority of blockchain participants, it is near to impossible to seamlessly execute trades and efficiently move assets across the digital asset space without encountering some kind of technical hurdle.

The Exponential Growth In DeFi’s Total Value Locked (TVL) Is A Clear Indication Of The Need For Interoperability In The Space – Image via DeFiPulse

With Decentralised Finance skyrocketing since the beginning of 2020, the demand for cross-chain composable systems in the DeFi space is currently at an all-time-high. In essence, this is due to the fact that today’s DeFi networks remain siloed and isolated within their own ecosystems and cannot trustlessly communicate with each other to exchange meaningful amounts of value.

We build too many walls and not enough bridges – Isaac Newton (1643-1727)

The solution to this essentially resides in cross-chain interoperability as it allows projects to effectively cooperate with one another and break the boundaries separating their respective infrastructures.

However, most of the existing solutions that provide cross-blockchain communication are either too complicated, risky, overloaded or will most likely include a third party medium. Having a third party act as escrow during a cross-chain transfer thoroughly deprives blockchain of its innate decentralised philosophy and inherently defeats the purpose of its technology altogether.

To remedy this, cross-chain bridges provide the necessary underlying architecture for blockchain projects to safely develop their interoperability features and reliably interact with other chains, while obviating the need for a third party medium.

How Cross-Chain Bridges Work

As previously mentioned, a cross-chain bridge is a connection that allows the transfer of tokens, assets and data from one chain to another. Both chains can have different protocols, rules and governance models, but the bridge provides an intercommunicative and compatible way to interoperate securely on both sides.

Cross-Chain Bridges Allow The Transfer Of Assets And Data Between Two Different Blockchain Platforms – Image via CoinClarified

Not all cross-chain bridges are the same as, in fact, there are quite a few designs in existence, but they can generally be divided into two main segments:

• Centralised Cross-Chain Bridges, based on third party trust.
• Decentralised and Trustless Cross-Chain Bridges, based on cryptographic-mathematical trust.

More centralised bridges rely on some kind of central authority or system to function, meaning that users are required to place their trust in a third party mediator to use a specific application or service. Using a centralised bridge can appeal to those users who have perhaps just entered the crypto space and haven’t yet developed the skillset or the confidence required to move their capital across different chains on their own.

While there are definitely some benefits to using centralised bridges, such as ease of use and relative automation, most crypto aficionados prefer to engage in cross-chain operations on their own accord and generally look to more decentralised and trustless options.

Wrapped Bitcoin Is Obtained Via A Centralised Cross-Chain Bridge And Minted On The ETH Blockchain

Among the most popular trust-based, centralised bridge solutions is the initiative that enables Bitcoin holders to leverage the benefits of the Ethereum blockchain via Wrapped Bitcoin (WBTC). In this centralised bridge system, users deposit X amount of BTC through partners called ‘merchants’ into a wallet controlled by a trusted, centralised custodian which stores Bitcoin safely and then mints Wrapped BTC (WBTC) tokens of equal value on Ethereum.

This can potentially turn out to be rather beneficial for Bitcoin holders as Wrapped BTC, unlike native BTC, is an ERC-20 token that can be utilised as collateral in a variety of DeFi protocols, such as Aave, Compound, MakerDAO and Uniswap.

Trustless Cross-Chain Bridges Rely On The Mathematical Truth Of The Blockchain’s Nodes

On the other hand, decentralised cross-chain bridges are those in which users aren’t required to place their trust in a single entity or centralised authority, but rather their trust is placed in the mathematical truth of the underlying blockchain’s codebase. In blockchain systems, mathematical truth is achieved by many computer nodes reaching a common agreement, or consensus, in accordance with the rules written into the code. This allows for the creation of an open, decentralised and transparent system that almost entirely relies on the blockchain’s foundational infrastructure and removes many of the issues ingrained in centralised ecosystems, which are subject to potential corruption and malicious behaviour.

Cross-chain bridges can be built to serve a variety of purposes, and not just asset transfers. Indeed, they are not only capable of enabling tokens on one network to be utilised on another, but they can also be implemented to exchange any type of data, including smart contract calls, decentralised identifiers and off-chain information such as stock market price feeds via oracles.

Cross-Chain Bridge Architecture

When a user transfers assets from blockchain A to blockchain B through a decentralised cross-chain bridge, these assets aren’t technically ‘sent’ or relocated elsewhere. In fact, this transfer is quite the illusion as assets on blockchain A are not transferred, but rather temporarily locked on blockchain A while the same amount of equivalent tokens is unlocked on blockchain B. Assets on blockchain A can then unlock when the equivalent amount of tokens on blockchain B becomes locked again.

Assets Are Locked On The Base Layer And Unlocked On The Secondary Blockchain And Vice Versa – Image via Consensys Medium

Many blockchain projects in the space have started implementing and developing their own interoperability features through this aforementioned system due to its effectiveness and decentralised nature. The concept for this cross-chain interoperable architecture, called a two-way peg (2-WP) system, dates back to the very early days of Nakamoto, and while this system does theoretically work it actually comes with some inherent risks.

Any decentralised cross-chain bridge system relies heavily on assumptions of trust and honesty between the two actors involved in the cross-chain bridge. If these assumptions fail to hold, then it is possible that assets on both blockchain A and blockchain B unlock at the same time, causing a malicious double spend. To counter this, projects such as Clover Finance, a Substrate-based parachain looking to forward its own in-house 2-WP mechanism, allow for a seamless and secure cross-chain communication system to be put in place via trustless 2-WPs.

In DeFi Cross-Chain Bridges, Assets Are Locked On Blockchain One And Subsequently Minted On Blockchain Two – Image via MakerDAO Blog

Another pertinent example of a decentralised blockchain bridge is the Ren Protocol. The Ren Virtual Machine (RenVM) is supported by a large, decentralised network of computer nodes that establish consensus in a manner similar to the Ethereum network.

The RenVM spreads information and data across many devices, and leverages multi-party computation (MPC) to create shared cryptographic signatures that enable its network to lock digital assets on one blockchain and allow users to mint equivalent assets on another blockchain.

With Its Decentralised Network Of Devices, The RenVM Enables Users To Lock And Mint Assets On Two Separate Blockchain Infrastructures – Image via MakerDAO Blog

Thus, the RenVM mechanism allows users to basically ‘transfer’ assets and data from blockchain A to blockchain B without assistance from any third party entity.

Sidechain Bridges

Before diving into sidechain bridges, it is constructive to briefly analyse what sidechains are, as it will help to better contextualise the functionality and importance of a sidechain bridge as a whole.

Sidechains are independent blockchains with their own consensus mechanisms, individual nodes and infrastructures. Sidechains benefit from the decentralisation and security of the underlying main blockchain and maintain the flexibility to perform highly specialised use cases. Primarily, sidechains are synonymous with scalability as they allow the underlying blockchain to dilute and spread out some of its workload across a parallel ecosystem of sidechains, thus making its entire system more efficient.

Sidechains Benefit From The Underlying Blockchain Architecture And Can Perform Highly Specialised Functions

Polkadot and Kusama parachains constitute perhaps the most relevant example of a sidechain, as they too benefit from the security, reliability and Layer-0 scalability of the Polkadot Relay Chain, and possess independent, highly-specialised functions. Especially in the Polkadot ecosystem, sidechains need to be constantly tied-in with the central Relay Chain but can also establish cross-chain communication with other parachains as well. Of course, in order to do so, a sidechain-specific bridge is required.

The Relay Chain Is The Foundation Layer Of The Polkadot Blockchain And Provides Security To All Parachains – Image via PlasmNet

Unlike a bridge that links two completely different blockchains, a sidechain bridge connects a parent blockchain to its child. Because the parent and child operate under different consensus rules, communication between them requires a bridge.

For instance, the developers of the popular blockchain-based game Axie Infinity created a dedicated Ethereum-like sidechain, called Ronin, to allow the game to scale beyond what was possible on the Ethereum mainnet. Ronin’s Ethereum bridge enables users to deposit ETH, ERC-20 tokens and NFTs into smart contracts, which Ronin’s validators pick up and relay to the sidechain.

Another well-known example of an Ethereum-based sidechain bridge is xDai. Similarly to Ronin, xDai is secured by a set of validators distinct from the miners who maintain the main Ethereum blockchain. Two bridges, the xDAI Bridge and the OmniBridge, connect the xDai chain to the Ethereum mainnet, allowing easy transfer of tokens.

The xDai OmniBridge Enables Users To Lock Any ERC20 Token On Ethereum And Mint An Equivalent Token On The xDai Sidechain – Image via xdaichain.com

Moreover, sidechains are set to play a vital role in the development process of the Ethereum network with the roll-out of its sharding capabilities with ETH 2.0. In fact, Ethereum 2.0 will introduce increased scalability to the ETH network by bundling many sidechain transactions into a single transaction secured on the main Beacon Chain.

Imagine that Ethereum has been split into thousands of islands. Each island can do its own thing. Each of the island has its own unique features and everyone belonging on that island i.e. the accounts, can interact with each other AND they can freely indulge in all its features. If they want to contact other islands, they will have to use some sort of protocol. – Vitalik Buterin at Devcon 2018 – LinkedIn 

Building Bridges On Polkadot

Polkadot was designed to be a ‘blockchain of blockchains’ with the belief that all future blockchain infrastructures will require interoperability to function efficiently. Polkadot allows sovereign Layer-1 blockchains, called parachains, to be fully intercommunicative and cross-chain composable, while benefitting from the security, scalability and Layer-0 functionality of the Polkadot central Relay Chain.

Parachains Are Independent Layer-1 Blockchains Running In Parallel Within The Polkadot Ecosystem – Image via Polkadot Medium 

In addition, Polkadot allows its parachain structures to connect with external networks such as Bitcoin and Ethereum through cross-chain bridges. These Polkadot bridges can be implemented in a number of ways, with some being built as common good utility bridges for the entire Polkadot community, and others as a for-profit bridge design run by specialised teams.

One of the most intriguing and value-rich functionalities that come with Polkadot’s cross-chain bridge architecture is the ability to bridge and seamlessly interconnect two external and separate chains such as Bitcoin and Ethereum. For instance, through its parachain bridge system, Polkadot could allow the transfer of assets from Bitcoin to Ethereum in a completely decentralised manner. In order to achieve this, Polkadot leverages its in-house cross-chain bridge design called Cross-Chain Message Passing (XCMP).

XCMP Bridge

As mentioned earlier, parachains take their name from the concept of parallelised chains that run parallel to the central Relay Chain within the Polkadot ecosystem, on both the Polkadot and Kusama Networks. Due to their parallel nature, parachains are also able to parallelise transaction processing and deliver new levels of scalability to both Polkadot and Polkadot-based projects.

They are fully connected to the Relay Chain and enjoy the security provided by the Polkadot framework. However, in order to communicate and share data with other systems, parachains leverage a mechanism called Cross-Chain Message Passing (XCMP).

Parachains Use The XCMP Bridge To Communicate With Each Other And Exchange Data – Image via Web3Foundation

Polkadot’s XCMP bridge is a protocol that lets its otherwise isolated parachain-sidechain networks send messages and data between each other in a secure and completely trustless manner. This Cross-Chain Message Passing system is firstly initiated by opening up a channel between the two parachains.

This channel must be recognised by both the sender and the recipient parachain, and it is a one-way channel. Furthermore, a pair of parachains can have at most two channels between them, one for sending messages and another for receiving them.

In order for the bridge to be established, a deposit in DOT is required which will then be returned once the bridge closes again. Thus, through the XCMP channel, two separate parachains can create an intercommunicative structure for them to transfer valuable data and assets between each other and attain unprecedented levels of cross-chain bridge interoperability.

Cross-Chain Bridges: The Future Of DeFi

Cross-chain bridges can essentially be conceptualised as the foundational infrastructure that will fuel all future blockchain systems, as they allow for the creation of dynamic, interoperable and interchangeable blockchain layers.

Interoperability and cross-chain composability between separate blockchains, including parent chains and sidechains, open up a vast ocean of opportunities for users and allow network participants to access the benefits of each chain without jeopardising the security and advantages of the main chain.

Consequently, this produces some exciting use cases for cross-chain bridges in the ever-changing realm of Decentralised Finance, giving crypto enthusiasts the option to move assets across the space in a permissionless, disintermediated fashion while leveraging the functionalities of both the main and secondary chains.

Cross-Chain Interoperability Encapsulates The Future Of DeFi and Of Blockchain Networks

Bridges are proving increasingly valuable in DeFi protocols, as they enable DeFi users to transfer digital assets from a blockchain that holds considerable token value but that cannot maximise dApps of its own, like Bitcoin, to one that has developed a well-established DeFi ecosystem, like Ethereum.

Thus, in this scenario, it is only thanks to cross-chain bridges that Bitcoin can benefit from the functionalities of DeFi by becoming Wrapped Bitcoin (WBTC), an ERC-20 token, on the Ethereum blockchain. This is certainly beneficial for native BTC holders as they are now able to trade and move their Wrapped BTC around the DeFi space and reap the rewards of the best chains in the ecosystem.

Blockchain Bridges Allow Networks To Achieve Greater Scalability Through Higher Performance And Transactional Throughput

Furthermore, as previously mentioned, DeFi bridges enhance network scalability by allowing main chains to connect with their secondary chains and distribute some of their transaction load across their ecosystem.

The most optimal example of this is perhaps the Polkadot parachain network, through which the Polkadot main chain can dilute its work load via its sidechain system increasing its transactional throughput and performance overall. Given the obvious benefits inherent in cross-chain bridge solutions, Ethereum is currently developing the infrastructure necessary to support its own DeFi sidechain bridges, which are set to roll-out with Ethereum 2.0.

Conclusion

Scalability, efficiency and innovation are the name of the game and, with cross-chain bridges, DeFi just got way easier. In fact, it is only a matter of time before more and more dApps, blockchain-based projects and crypto investors come to the realisation that, without cross-chain bridges, the DeFi applications that we, the users, love and utilise the most wouldn’t actually be that feasible an option.

As the inherent connection linking one blockchain to another, cross-chain bridges provide projects with the infrastructure required to attain interoperability in a decentralised manner and allow for the seamless implementation of cross-blockchain composability.

The concept of a cross-chain bridge in the digital asset space dates back to the very early days of Bitcoin, when the value proposition of an innovative, permissionless peer-to-peer network first emerged. Since then, blockchain bridges have flourished to such an extent that they are proving to be crucial for the overall development of the DeFi ecosystem and its Lego-like liquidity structures.

Ultimately, the demand for cross-chain bridges in the space remains incredibly high, as they firstly enhance the network performance of many DeFi protocols out there and, secondly, because they could very well turn out to be the definitive, universal catalyst for blockchain adoption.

The post What Are Cross-Chain Bridges: And Their Importance for DeFi appeared first on Coin Bureau.

Blockchain, defined as a digital ledger technology, is primarily known for its application to cryptocurrencies and constitutes the foundational layer of this relatively new, exciting financial infrastructure.

Introduced in 2008 to serve as a public ledger for Bitcoin, blockchain has given rise to hundreds of value-rich, diverse and unique crypto assets, and has furthermore pioneered an emerging ecosystem of applications in various fields, including supply chains, DeFi, NFTs, patents, smart contracts and on-chain governance.

Blockchain First Emerged With Bitcoin In 2008 And Has Ever Since Produced A Dynamic Ecosystem Of Various Crypto Assets

The European Union Agency For Network And Information Security defines blockchain as:

… a public ledger consisting of all transactions taking place across a peer-to-peer network. It is a data structure consisting of linked blocks of data … This decentralised technology enables the participants of a peer-to-peer network to make transactions without the need of a trusted central authority and at the same time relying on cryptography to ensure the integrity of transactions. – ENISA (2019) 

In contrast to traditional ledger systems used by banks and governments for centuries, which are inaccessible and centralised, blockchain ledgers are decentralised and transparent. In fact, there is no central authority acting as the exclusive manager of the ledger and the main responsibilities of said ledger involve storage, updates and verification of transactions.

Blockchain stores, shares and synchronises data as ‘chains of blocks’ using cryptographic techniques. Blocks represent a set of recorded transactions and each new block of transactions is linked to the previous one, creating an ever-growing ‘block’ chain. The creation of each block must be approved by all network participants and this process can be achieved through a ‘consensus mechanism’ that establishes the rules for transaction verification and validation.

Blockchain Stores And Processes Transaction Blocks Via Cryptographic Techniques

One of the most common approaches is ‘mining’, which relies on the Proof-of-Work (PoW) mechanism. With PoW, in order to add a block of transactions to a blockchain, network participants compete to find a solution to a complex mathematical problem based on cryptographic algorithms, and these network participants are commonly referred to as ‘miners’. When a miner finds the solution to the problem, and after validation from other participants, the block of transactions is added to the blockchain.

In Bitcoin Mining, Miners Compete To Solve Complex Algorithmic Equations To Validate Blocks And Receive Rewards For Doing So

While Proof-of-Work allows Bitcoin, Ethereum and other crypto assets to process transactions peer-to-peer in a secure and disintermediated manner, PoW at scale requires huge amounts of computational power which only increases as more miners join the network. But, on the other hand, a perhaps more sustainable solution exists, and this solution is Staking.

What Is Staking?

Staking can be thought of as a less resource-intensive alternative to mining. Its mechanism involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. In essence, staking is the process of locking crypto assets to receive rewards, which some liken to blockchain dividends. However, in order to gain a better grasp of what staking is, a brief analysis of the Proof-of-Stake mechanism is required.

Staking Constitutes The Foundational Layer Of The Proof Of Stake Mechanism

This is because Proof-of-Stake implements a consensus mechanism that differs completely from that of Proof-of-Work, and allows blockchains to operate in a more energy-efficient manner while maintaining a substantial level of decentralisation.

Proof Of Stake

While Proof-of-Work has historically proven to be a robust and efficient mechanism to facilitate consensus in a decentralised manner, the amount of computational power required for it to function correctly has turned into a growing concern across the space.

The Cambridge Bitcoin Electricity Consumption Index From January 2017 To July 2021 – Image via cbeci.org

In fact, the complex puzzles that miners are competing to solve serve no purpose other than making sure that the network remains secure, and while one could argue that PoW’s excessive use of resources is justified, this does not equate to the most optimal processing mechanism.

Proof-of-Stake (PoS), on the flip side, was created as an alternative to Proof-of-Work and was designed to solve some of the issues inherent in PoW. The idea with PoS is that network participants can lock their crypto assets into a staking protocol that, at particular times, assigns the right to one of them to validate the next block of transactions, resulting in a reward for doing so.

Proof of Stake Is Proving To Be Way More Energy-Efficient Than Proof of Work

In PoS, the probability of being selected to validate block transactions is proportional to the amount of tokens held by a participant. Thus, what determines which participants create a transaction block is not based on their ability to solve algorithmic puzzles, like in Proof-of-Work, but on the amount of staking assets they hold.

Proof of Stake arguably constitutes a more sophisticated and scalable blockchain solution due to the fact that, as opposed to Proof-of-Work that utilises excessive energy to solve hash challenges, a Proof-of-Stake miner is limited to mining a percentage of transactions that is reflective of their ownership stake.

In theory, this means that a miner who holds say 5% of the crypto assets available can mine only 5% of the transaction blocks, which greatly reduces the need for large amounts of computational power to validate transactions and inherently makes the network more efficient.

PoS’s scalability proposition is one of the main reasons why Ethereum is set to migrate from Proof of Work to Proof-of-Stake in the (hopefully) not so distant future with ETH 2.0.

Delegated Proof Of Stake (DPoS)

Delegated Proof of Stake (DPoS) is an alternative version of PoS that allows network participants to commit their token balances as votes, where voting power is proportional to the amount of tokens held. These votes are then used to elect a number of delegates who manage the blockchain on behalf of their voters, ensuring consensus and security.

Typically, staking rewards are distributed to these elected delegates who then distribute a part of the rewards to their electors, in a manner propositional to their individual contributions.

Basically, DPoS allows for consensus to be achieved with a lower number of validating nodes and, as such, it tends to enhance network performance and processing efficiency.

How Staking Works

As previously mentioned, Proof-of-Work relies on miners to validate and add transaction blocks to the blockchain. In contrast, Proof-of-Stake chains validate and produce new blocks through the staking process. Staking is an umbrella term used to denote the act of pledging crypto assets to a cryptocurrency protocol to earn rewards in exchange.

Moreover, when users stake their assets in a protocol they are inherently contributing to the preservation of the protocol’s security, and they receive rewards in the form of native tokens for doing so.

Consequently, the higher the amount of assets pledged, the higher the rewards received. These staking rewards are all distributed on-chain, meaning that the process of earning these rewards is completely automatic and disintermediated from any third party escrow.

Some staking coins and current yields. Image via Staked.us

This staking rewards mechanism, quite frankly, constitutes a brilliant value proposition for many digital asset enthusiasts as it allows for consistent asset compounding and brings life to the ultimate entrepreneurial dream of ‘earning while you sleep’!

How Are Rewards Generated?

Proof-of-Stake assets such as Solana, Cardano, Tezos and Polkadot all allow users to deploy their assets to their respective protocols and earn rewards via staking, as displayed in the image above. Specifically, there are two types of rewards that get distributed:

• Staking Rewards (Inflationary Rewards)
• Transaction Fees

For staking rewards, users stake their crypto assets with a Proof-of-Stake node to validate a block of transactions. If the node a user has delegated to successfully signs or attests to blocks, the user will receive staking rewards, thereby increasing their total crypto asset net worth. In case the node is unresponsive or malign, a portion of the node’s assets, and therefore the user’s assets, could be significantly reduced or destroyed completely.

Protocols Incentivise Users To Lock Their Assets To Gain Rewards And Contribute Towards Maintaining The Protocol Secure

Thus, staking rewards are beneficial for both individual stakers and protocol nodes as, on the one hand, they incentivise users to lock their assets in exchange for some kind of native token reward and, on the other, they improve the overall security of the protocol itself. When stakers are selected for block validation and receive freshly minted native asset rewards, these rewards are called inflationary rewards.

This essentially means that every time a block is validated, new tokens of that currency are minted and distributed as staking rewards, hence the term inflationary.

With regards to transaction fees, each transaction carries with itself a small fee making it easier for the node to prioritise the selection of transactions to be entered into the block. The set of accumulated fees from the underlying transactions also go to the node.

Transactions are the foundational layer of blockchain and cryptocurrency, and they play a variety of different roles depending on the protocol’s specific architecture. For instance, transactions may vary from token transfers to smart contract execution and, despite the dissimilarity in transaction types, the common thread is that these transactions always get ordered and are aggregated into a new block so that all nodes in a network can agree on the entire state of the blockchain.

How To Participate In Staking

Staking represents a fairly decent investment tool for anyone whose assets are just lying idle in a crypto wallet and not generating any passive income. When it comes to staking, one can perform two roles:

• Validation: Most suitable for blockchain companies and technical enthusiasts.
• Delegation: Appropriate for most crypto asset holders.

To become a validator node in a Proof-of-Stake (PoS) network, crypto asset holders are required to stake their tokens as collateral as opposed to spending electricity as is the case for the Bitcoin PoW network. As previously mentioned, validators are selected randomly to create and validate blocks and the probability of a validator’s selection is contingent on the amount of tokens staked. Participants in a PoS system can essentially vote in on-chain governance with their staked assets, and if PoS were a democracy a user’s stake would constitute their voting power.

In PoS Systems, Validators Are Selected Based On The Amount Of Tokens Held In Their Wallet – Image via Ledger.com

In fact, PoS validators vote with their assets on blocks of transactions that they deem valid. They receive staking rewards if the majority of the network agrees and risk losing their entire stake if they try to cheat, for example by voting on two different transaction blocks simultaneously. This system inherently creates a balanced infrastructure by encouraging a rise in the number of nodes and discouraging nodes from acting maliciously.

Furthermore, it is important to note that not everyone can become a network validator. This is due to the fact that validators need to meet specific requirements imposed by the protocol and, in most cases, the barrier of entry is rather high. For instance, in order to become a validator, one will potentially have to:

• Stake a minimum amount of tokens; In the case of ETH 2.0, a minimum stake of 32 ETH is mandatory.
• Set up a secure and performant infrastructure.
• Build a team of developers and engineers responsible for the continuous development and upgrade of the infrastructure.

Delegation

Owning a massive amount of just one digital asset may not be that appealing to many crypto aficionados out there. However, many PoS systems foresee this issue and implement ways to enable asset holders to stake their tokens with a validator that they do not run themselves. This process of staking assets through a validator is called delegation.

Validator And Delegator Intercommunication Process – Image via Ki Foundation Medium

Delegating assets to a validator entails contributing towards the count of the validator’s stake in return for a percentage of the staking rewards received. In practical terms, a delegator deposits tokens into a smart contract and specifies which validator’s influence in the network they want to increase. Consequently, as the rewards earned in the validation process increase, the staking rewards are automatically split between the validator and the delegator.

Staking Pools

A staking pool is a group of crypto asset holders aggregating their resources to increase their chances of validating blocks and receiving rewards. In a staking pool, holders combine their staking power and share rewards in proportion to their contributions in the pool.

Staking Pool Infrastructures Allow Holders To Pool Their Assets Together To Increase Their Chances Of Earning Higher Staking Rewards – Image via TopStaking

Setting up a staking pool often requires high levels of expertise and a substantial amount of initial capital and, as such, pool providers will most likely charge a fee from the staking rewards distributed to pool participants. Typically, the stake has to be locked for a specified period and usually has a withdrawal, or unbinding, time set by the protocol.

Furthermore, it is very likely that the staking pool will require participants to hold a minimum amount of tokens before they can be considered as potential contributors, which disincentivises malicious behaviour.

Liquid Staking

Apart from the traditional staking mechanisms discussed thus far, some DeFi protocols have started implementing an alternative staking format called Liquid Staking. The term Liquid Staking is used to describe protocols that issue token representations of staked assets, which creates the possibility to use these representations in other DeFi applications or gain immediate liquidity for the staked amount.

Effectively, Liquid Staking implies the creation of a new on-chain token to represent the staked amount, making staked assets essentially liquid and available for further trading. In addition, tokenised stake representation allows users to circumvent some of the limitations imposed by particular networks such lock-up and unbonding periods, for instance.

Liquid Staking And Tokenised Stake Representation Offer Crypto Investors The Possibility To Execute Additional Trades With Locked-Up Staking Capital – Image via Polkadotters Medium

Liquid Staking opens up a wide array of investment and trading opportunities for stakers as it allows for the creation of additional tokenised capital that can be redeployed in yield farming, high APY and liquidity provision protocols. Because of these advantages and functionalities, tokenised stake representation is proving to be a growing trend in the DeFi space, with projects such as Ramp DeFi, Kira Network, StaFi, Acala DeFi and LiquidStake spearheading the movement.

Staking VS Yield Farming

Given the incredible diversity of the crypto space, it is fairly easy to get caught up in all of its complexities and various definitions. Therefore, while staking and yield farming do in fact share some similarities, it is important to define the differences between them in order to avoid confusion when navigating the DeFi space.

Both staking and yield farming involve users providing liquidity to a protocol in order to gain rewards in return. Yield farming, also known as liquidity mining, is defined as the process of providing liquidity to earn ‘mining’ rewards. Liquidity mining, however, should not be confused with Proof-of-Work mining, which entails solving algorithmic equations to validate blocks.

Instead, when users provide liquidity to a decentralised exchange or protocol they provide assets such as ETH, for instance, so that when other users of the protocol want to exchange their USDC tokens for ETH, there will be enough of the quoted asset for the trade.

Staking And Yield Farming Are Quite Similar, However, Yield Farming Involves A More Active Process Of Searching For The Best Staking APYs On The Market

Consequently, the user making the trade will pay a fee to the protocol which, in turn, will reward the liquidity provider for supplying the asset in the first place. Yield farming, in a sense, is rather similar to staking but it actually involves the more dynamic process of actively moving assets around different protocols to essentially ‘farm’ the best rewards possible.

Generally speaking, staking is intended for medium to long-term investments, as the tokens are locked up for a set amount of time. In contrast to yield farming, staking is deemed the safer, less risky investment option and results in a fairly decent return on investment. Yield farming and liquidity mining, on the flip side, carry increased risks such as impermanent loss for example, and because of this they will usually result in some of the highest APYs in the crypto sphere.

A Visual Of The PancakeSwap Staking Protocol – Image via PancakeSwap.Finance

At the time of writing, providing CAKE tokens to the PancakeSwap protocol carries a yearly APY of approximately 95%, which is of course unheard-of in traditional financial infrastructures. Thus, while yield farming does indeed come with its risks, it also enables investors to gain access to unprecedented ROI percentages that they wouldn’t be able to find elsewhere.

In Conclusion

Staking is an umbrella term used to denote the act of pledging crypto assets to a cryptocurrency protocol to earn rewards in exchange. When users stake their assets in a protocol they are inherently contributing to the preservation of the protocol’s security, and they receive rewards in the form of native tokens for doing so.

Proof of Stake arguably constitutes a more sophisticated and scalable blockchain solution due to the fact that, as opposed to Proof of Work that utilises excessive energy to solve hash challenges, a Proof of Stake miner is limited to mining a percentage of transactions that is reflective of their ownership stake.

Therefore, while Proof of Work has proven to be a robust mechanism for validating transaction blocks, it is neither the most eco-friendly nor the most efficient processing method. Staking, instead, constitutes a less resource-intensive solution and allows users to validate blocks directly by becoming network validators or through delegation.

Network participants who have a substantial amount of initial capital can become protocol validators and receive staking rewards for verifying transactions, or they may even set up their own staking pool and open it up to potential contributors, charging a fee for their management services.

While the ROI inherent in most staking protocols could be deemed somewhat average for crypto, staking represents a great investment tool for people whose assets are just lying idle in a crypto wallet and aren’t generating any form of passive income. Thus, staking offers not only a more efficient processing mechanism but it is also a great way for investors to increase their crypto asset net worth over the medium to long-term outlook.

The post Crypto Staking: The Dividends Of Blockchain appeared first on Coin Bureau.

In addition to this, several blockchains are struggling to implement intercommunication and cross-chain composability features as they find themselves being siloed and isolated within their respective ecosystems and limited by their very own design. It is therefore clear that crypto exchanges, projects and blockchain-based services ultimately need to find new ways to interact with other decentralised networks to ensure that data is seamlessly exchanged and assets are efficiently transferred.

In fact, it is not at all productive that users wanting to transfer assets from one network to the other incur such overwhelming complications and bottlenecks, while also having to pay exorbitant gas fees for a simple swap or transfer.

Cross-Chain Interoperability Allows Two Or More Separate Chains To Communicate With Each Other – Image via CoinPayments

Essentially, the solution to this resides in cross-chain interoperability as it would allow projects to effectively cooperate with one another and break the boundaries separating their respective infrastructures. However, most of the existing solutions that provide cross-blockchain communication are either too complicated, risky, overloaded or will most likely include a third party medium. Having a third party act as escrow during a cross-chain operation thoroughly deprives blockchain of its innate decentralised philosophy and inherently defeats the purpose of its technology altogether.

To remedy this, the Polkadot Network is initiating a Polkadot-based parachain development for blockchains to safely and reliably interact. This type of parachain development allows for the creation of new, parallel Layer-1 blockchains that are connected to the Polkadot Relay Chain and facilitate the cross-chain movement of data, transactions and assets, while ensuring network security and scaling potential.

Polkadot Developed Parachains To Ensure Network Security, Scalability And Interoperability – Image via Bitcoin.com

Before diving into the parachain ecosystem, it is constructive to briefly discuss Polkadot’s role as a multi-chain network, interoperability enabler and true innovator in the DeFi space.

What Is Polkadot?

Envisioned by Ethereum co-founder Dr. Gavin Wood, Polkadot is a protocol that allows data to move across different blockchains creating a novel ecosystem to initiate DeFi infrastructure for heterogenous sharding, adaptability and transparency.

Through its parachain system, Polkadot can act as a multi-chain network that processes several, parallelised transactions on multiple chains at once, eliminating the one by one transaction bottlenecks typical of traditional networks. Given its use of parallel processing power, Polkadot can offer improved scalability solutions to its projects and create the most optimal conditions for them to achieve future growth and adoption.

Polkadot’s central chain and foundational layer is known as the Relay Chain, which constitutes the base architecture containing all of the protocol’s validators and authenticators staked in DOT. The Relay Chain is composed of a relatively small number of transaction types and possesses a deliberately minimal layer of functionality, for instance smart contracts are not supported on it. In fact, the main responsibility of Polkadot’s Relay Chain is to coordinate and manage the ecosystem as a whole which, of course, includes parachains. Any specific work is delegated to parachains, which have differing implementations and features.

The Relay Chain Is The Foundation Layer Of The Polkadot Blockchain And Provides Security To All Parachains – Image via PlasmNet

Polkadot was designed to be a Layer-0 multi-chain network, meaning that its Central Relay Chain can provide Layer-0 security and scalability for up to 100 Layer-1 blockchains connected as parachains. This is quite the groundbreaker as it enables a plethora of blockchain infrastructures to build and develop within its ecosystem, while furnishing Polkadot with a value-rich, dynamic and ultimately interoperable network.

Indeed, it is primarily thanks to this multi-chain hybridity that Polkadot is able to utterly reshape the DeFi landscape and cultivate an entirely new set of value propositions through its parachain-based, built-in layer of interoperability.

What Are Parachains?

Parachains are the diverse individual Layer-1 blockchains that run in parallel within the Polkadot ecosystem, on both the Polkadot and Kusama Networks. Connected to and secured by the Central Relay Chain, parachains share and benefit from the security, interoperability, scalability and governance of Polkadot. Polkadot’s cross-chain composability, furthermore, allows any type of data or asset to be transferred between parachains which, in turn, opens up a new horizon of use cases and potential applications not just in DeFi but in the broader crypto space as a whole.

Parachains Are Independent Layer-1 Blockchains Running In Parallel Within The Polkadot Ecosystem – Image via Polkadot Medium

Structurally speaking, parachains are maintained by a network maintainer known as a collator. The collator is in charge of collecting parachain transactions from users and producing state transition proofs for Relay Chain validators. Essentially, collators maintain parachains by aggregating parachain transactions into parachain block candidates and producing state transition proofs for validators based on those blocks.

Collators Maintain The Parachain Network, Aggregate Transactions And Generate State Transition Proofs For Validators On The Relay Chain – Image via PolkadotWiki

Thanks to the inherent interoperability that Polkadot provides them with, parachains can also connect to external networks such as Bitcoin and Ethereum using cross-network bridges. An utmost example of a parachain providing cross-chain bridge capabilities is no other than Clover Finance, a project that leverages a unique 2-way peg system to seamlessly move assets and data from the Polkadot Network to Bitcoin and/or Ethereum, among a variety of other chains.

Furthermore, because of their intrinsic versatility, parachains can be custom built to serve any particular use case, including:

• Decentralised Finance
• Decentralised Data Storage
• Internet of Things
• Identity Verification
• Gaming
• Credentials
• Non-Fungible Tokens (NFTs)
• Oracles
• Digital Wallets

These parachain-native, malleable features indeed allow Polkadot to build a truly dynamic digital asset infrastructure and provide the scalability, security and interoperability needed to really turn the promise of blockchain into the next generation of the Internet, Web 3.0.

The Difference Between Parachains And Smart Contracts

Smart contracts are small pieces of software that run on dedicated blockchains such as Ethereum, Elrond, Solana, Tezos and Cardano, among many others. As they all run on the same blockchain and compete for its computing resources, this can lead to congestion, long execution times and unpredictable running costs. In fact, this is considered to be one of the major inhibitions limiting blockchain infrastructures from achieving real-world adoption, and this is because they are simply not efficient enough and present too many complications to be fully-deployed.

In Times Of High Network Congestion, Smart Contracts Can Suffer From Latency And Slowness – Image via BlockGeeks

On the other hand, parachains are individual and independent blockchains designed for a single purpose and that provide their users with a huge selection of utilities and different use cases. Furthermore, these individual parachains are capable of communicating with each other, building a high-performing network of blockchains rather than a single blockchain trying to solve all the issues on one virtual computer. In doing so, Polkadot-based parachains strive to ultimately diminish the constraints imposed by chain maximalism and reduce the risks of Balkanisation.

Parachains: The Future Of Blockchain

Polkadot’s parachain model was designed with the belief that the internet of the future will entail many different blockchains working in tandem and collaborating with one another. Thus, just as the internet now caters to different users and their specific needs, blockchains also need to be able to provide a variety of services, with one network perhaps being gaming-specific, another for finance, one for data storage, other networks for NFTs and internet of things applications, among the many other possible utilities.

Blockchains Of The Future Will Have Multiple Utilities To Cater To The Needs Of Their User Base – Image via Fluree

Therefore, because of this future interoperable vision, Polkadot does not place any specific requirement on the design of its parachains, other than the fact that they must be able to prove to Polkadot validators that every block of the parachain follows the agreed-upon protocol. This allows parachains to enjoy quite a substantial amount of infrastructural leeway and this flexibility means that every single parachain can possess its very own design, governance process and token, optimised for its particular use case.

This relative architectural freedom also allows parachains to be run as private or public networks, as enterprises or communities, as platforms for developers and other projects to build applications on top of, as DeFi service providers or as ultimate cross-chain bridge protocols. The possibilities are clearly manifold and they embody the true essence of Polkadot’s multi-chain design, while enhancing the development of the interoperable, cohesive blockchain network of the future.

Scalability

Through its parachain model, Polkadot allows projects to achieve scalability at Layer-1 rather than having to rely on Layer-2 solutions altogether. This is in fact quite the advancement as it allows for the creation of a majorly decentralised, more efficient methodology of implementing blockchain scalability.

Parachains Implement Parallelised Transactions To Increase Scalability And Transactional Throughput – Image via Polkadot Medium

This is primarily because parachains, as Polkadot-based Layer-1 blockchains, can process transactions in parallel and spread out the workload consistently across their entire ecosystem, increasing transactional throughput and scalability as a whole.

Interoperability

Parachains allow blockchain communities to have full control and sovereignty over their own Layer-1 blockchain while also benefitting from the possibility of engaging in free trade with other parachains and external networks. By leveraging Polkadot’s cross-chain composability features, parachains can synthesise an interoperable economic infrastructure through which they can exchange assets, data, smart contract calls and off-chain oracle information such as stock price feeds or real-time market developments.

This essentially puts an end to the siloed nature of the blockchain space and opens up new opportunities for applications to interoperate and intercommunicate with one another, ultimately reducing the limitations of chain maximalism as well as Balkanisation risks.

Let us now discuss the mechanism used by parachains to communicate with one another and process cross-chain transactions, effectively overcoming the boundaries between their separate architectures.

Cross-Chain Message Passing (XCMP)

As previously mentioned, parachains take their name from the concept of parallelised chains that run parallel to the central Relay Chain within the Polkadot ecosystem, on both the Polkadot and Kusama Networks. Due to their parallel nature, parachains are also able to parallelise transaction processing and deliver new levels of scalability to both Polkadot and Polkadot-based projects.

They are fully connected to the Relay Chain and enjoy the security provided by the Polkadot framework. However, in order to communicate with other systems, parachains leverage a mechanism called Cross-Chain Message Passing (XCMP).

Parachains Use The XCMP Paradigm To Communicate With Each Other And Exchange Data – Image via Web3Foundation

Polkadot’s XCMP is a protocol that lets its otherwise isolated parachain networks send messages and data between each other in a secure and completely trustless manner. To achieve this, Polkadot deploys a simple queuing mechanism based around a Merkle tree structure to ensure trust and verification clarity. The Relay Chain validators are responsible for moving transactions on the output queue of one parachain into the input queue of the destination parachain, but only the metadata associated with this output-input process in stored as hash within the Relay Chain.

While the XCMP design is still under development, Polkadot has set a few defining parametres with regards to its architecture and main functionalities, and these are listed as follows:

• Cross-chain messages will not go to the Relay Chain.
• Cross-chain messages will be limited to a maximum size in bytes.
• Parachains can reject messages from other parachains.
• Collators are in charge of routing messages between chains.
• Collators generate a list of output messages and will receive input messages from other parachains.
• When a collator produces a new block to hand off to a validator, it will aggregate the latest input queue data and process it.
• Validators will authenticate the proof that a parachain’s block includes the processing of the expected input messages to that parachain.

Cross-Chain Message Passing (XCMP), that is the mechanism allowing data or assets to be moved between two parachains, is firstly initiated by opening up a channel between the two parachains. This channel must be recognised by both the sender and the recipient parachain, and it is a one-way channel. Furthermore, a pair of parachains can have at most two channels between them, one for sending messages and another for receiving them. In order for the channel to be established, a deposit in DOT is required which will then be returned once the channel closes again.

On September 12th 2020, Polkadot Founder Gavin Wood Announced The First Successful Inter-Chain Transfer On Polkadot Via XCMP – Image via GavinWoodTwitter

Thus, through the XCMP channel, two separate parachains can create an intercommunicative structure for them to transfer valuable data and assets between each other and attain an unprecedented layer of interoperability that was indeed yet to be seen within the digital asset ecosystem.

Governance

Parachains on Polkadot are flexible and free to adopt whatever governance model they see fit, and can access a number of ready-made modules for implementing various on-chain governance systems. Because Polkadot provides its parachains and their respective teams with a series of sophisticated on-chain governance systems, this greatly reduces the chances of hard forks of their chain, which could potentially split their community in two.

Moreover, on-chain governance ensures transparency for parachain communities and constitutes a major prerequisite for institutions and potential investors who, more often than not, want to see clear decision making processes before getting involved in a project.

Parachain Slot Leasing

Projects that wish to run as parachains on Polkadot need to lease a slot on the Relay Chain by winning a parachain slot auction. A parachain slot is a scarce resource on the Polkadot Network and only a limited number will be available. Over time, as parachains ramp up, there may only be a few slots that are unlocked every few months but the end goal is to eventually have 100 slots available on Polkadot, split between parachains and parathreads.

Auction bids are placed in the Network’s native token, being DOT for Polkadot and KSM for Kusama. Teams can choose to lease a slot on Polkadot for a minimum of 6 months and a maximum of 2 years. By participating in a Polkadot or Kusama slot auction, the parachain’s team agrees to lock up the amount of DOT or KSM they bid for the entire duration of the chosen slot lease period, after which the amount will be fully returned to them.

Parachain Slot Auctions Bids Are Placed In DOT For Polkadot Parachains And KSM For Those On Kusama – Image via TrustWallet

Throughout the slot lease period, the KSM or DOT is reserved in the original account but is not available for staking, transferring and cannot be redeployed. Furthermore, teams can bid for a slot auction through self funding or via a crowd-loan system, in which contributions are solicited from existing DOT or KSM holders in exchange for some kind of reward.

For investors, a key difference between parachains and ICOs, IDOs and IEOs resides in the fact that participants maintain full ownership and control of their tokens. In fact, as opposed to swapping ETH or BNB for tokens at ICO, users can stake their DOT or KSM in exchange for project airdrops. If the parachain wins the slot auction on either Polkadot or Kusama, funds will be locked for the dedicated time period. If, however, the parachain loses the slot the participant’s funds are simple returned to them.

Parachain Slot Acquisition

Polkadot only supports a limited number of parachains, currently estimated to be around 100. Given this limited slot availability, Polkadot can allocate them as follows:

• Governance granted parachains, or ‘common good’ parachains.
• Auction granted parachains.
• Parathreads.

Governance granted parachains are allocated by Polkadot’s on-chain governance system, and are deemed as a ‘common good’ for the network. These might entail cross-chain bridges from Polkadot to other chains, for instance. Common good parachains are usually considered system level chains and do not typically possess an economic model of their own. The finality of these parachains is to primarily help remove transactions from the Relay Chain, allowing for a more efficient parachain processing.

Image via Polkadot.network

Auction granted parachains are those granted in a permissionless auction, hence their name. Parachain teams can either bid with their own DOT assets, or deploy a crowd-load system to source tokens from the project’s community.

Parathreads have the same API as parachains, however they operate on a ‘pay-as-you-go’ basis. Let us now discuss Parathreads in greater detail.

Parathreads

Parathreads open up the competitive parachain paradigm and lower the barrier of entry to gaining the benefits of shared security and connectivity. With parathreads, Polkadot is even more accessible to projects that perhaps don’t possess the capital required to bid for a parachain slot action and gives them the opportunity to join its Network if their application requires greater throughput.

In fact, while parachains can borrow DOT or KSM from users via crowd-loans, they might not have a strong enough community to begin with. Thus, using parathreads, a team can gain access to the Relay Chain and bootstrap their application by implementing a ‘pay-as-you-go’ system.

Parathreads Are Parachain-Like Networks That Implement A Pay-As-You-Go Mechanism – Image via Polkadot Medium

The parathread model is particularly suitable for projects that do not require continuous connectivity to the network. Moreover, this is generally quite advantageous for projects as it allows them to switch between being parachains and parathreads depending on their needs and on the availability of parachain slots on the central Relay Chain.

Acala Network: Polkadot’s First Parachain On Rococo

Polkadot’s vision for a sharded parachain ecosystem is gradually becoming a reality with Acala Network becoming the first to win a parachain slot on the Rococo Testnet. Acala Network, the self-proclaimed DeFi hub for Polkadot, announced that it had secured the slot on March 26th 2021.

Acala Network Was The First Polkadot-Based Parachain To Win A Slot On The Rococo Testnet – Image via AcalaNetwork Twitter

Back in February, Acala launched an Ethereum Virtual Machine (EVM) based on Polkadot’s Substrate framework to facilitate interoperability with Ethereum-native assets and is currency looking to forward the goal of providing cross-chain interoperability on the rapidly expanding Polkadot Network. Furthermore, Acala aspires to also launch a dollar-pegged stable coin designed for cross-chain applications and to be used in any Polkadot-based project.

Polkadot launched Rococo as a parachain testnet in August of 2020 in order to effectively test cross-shard communication protocols for Polkadot and allow projects to be deployed as parachains on Polkadot’s sister chain, Kusama Network.

Kusama Parachain Auctions

Polkadot’s ‘canary network’ and sister chain Kusama is also implementing parachain slot auctions and is looking to on-board projects of the highest quality as parachains on its Network. Launching parachains on Kusama represents the culmination of a multi-stage process that began with the launch of Kusama Chain Candidate 1, back in August 2019.

The Highly Anticipated Parachain Slots Auctions Begin On Kusama – Image via PolkadotNetwork

The first real-world, functioning parachain to launch was Statemine, which is essentially Kusama’s version of Polkadot’s Statemint. Designed by Parity Technologies, Statemine is a Polkadot-based, generic asset parachain developed to provide users with functionality for deploying assets such as CBDCs, stablecoins, other fungible tokens and NFTs.

Kusama’s Statemine acts as a common goods parachain and, thus, its slot was granted through governance instead of an auction system. The Statemine parachain can also be used to deploy central bank digital currencies (CBDCs), NFTs and other fungible tokens on Kusama. While Statemine’s utility as a solitary chain remains of key importance to the KSM ecosystem, its inherent value will only be realised once a community of interoperable parachain networks goes live on the Kusama architecture.

Kusama’s first parachain slot auction opened on June 15th 2021 and resulted in Karura Network winning the first slot with a total lock-up bid of 500,000 KSM, equating to more than $100 million at the time of writing.

Karura Network Was The First Project To Win A Parachain Slot Auction On Kusama – Image via KaruraNetwork Twitter

Karura Network is looking to deliver a DeFi hub similar to that of its sister chain Acala Network, but on Kusama. While Karura and Acala are designed to operate in parallel and implement the same code, they are distinguished by their financial derivatives and are expected to become fully interoperable once the cross-chain bridge between Polkadot and Kusama becomes functional.

Upcoming Parachains On Polkadot And Kusama

It is by now clear that parachains are ramping up high interest levels across the space and are intriguing large quantities of users, investors and developers alike. With slot auctions raising over $200 million in crowd-loans so far, projects are gearing up to participate in the parachain bidding race and numerous campaigns have indeed already commenced.

Currently, the only guaranteed parachain slots on the Kusama Network are those allocated to Karura Network, Statemine and Moonriver. However, by analysing the PolkadotJS App, it is evident that there are bound to be many more.

The Numerous Parachain Slot Auctions And Crowd-Loans On-Going In The Polkadot And Kusama Ecosystems – Image via PolkadotJSApp

Polkadot-specific parachains, instead, are set to go live later this year but there still does not seem to be any point of reference as to when this may be. For greater context, Polkadot’s founder Gavin Wood stated:

Polkadot’s parachains launch is expected to begin once two things have happened: firstly, a full external audit should be completed on all new logic. Secondly, the Kusama canary network should have demonstrated that the new logic works in the wild by executing at least one successful auction involving crowdloans and hosting at least one functional parachain […] After Kusama’s first auctions complete successfully, one would expect Polkadot’s auctions to happen soon after.’
— Gavin Wood – Polkadot Medium

Conclusion

Parachains can be viewed as those fundamental elements driving cross-chain composability and interoperability within the Polkadot and Kusama Networks, as they allow for the creation of a truly dynamic and utterly versatile architecture. In fact, by implementing parachains within its ecosystem, Polkadot is able to split its infrastructure into a multiplicity of parallel Layer-1 blockchains which allow it to process transactions efficiently and move assets across its network in a more decentralised fashion.

Polkadot’s parachain model is furthermore in-tone with the idea that future blockchains will have to perform a variety of specialised functions and will by nature have to possess a wide repertoire of capabilities.

Thus, because their innate flexibility, scalability and interoperability features, parachains could very well be the potential solution to some of the most pressing issues haunting blockchain today and indeed eliminate the previously irresolvable, complex bottlenecks inhibiting the technology from achieving mass adoption and use case.

The post What Are Parachains? Complete Beginner’s Guide appeared first on Coin Bureau.

The following piece will take a look at the differences in trading vs investing, which can be helpful in sorting out your own approach to buying and selling cryptocurrencies.

Getting Rich with Crypto

Cryptocurrencies present us with several ways to generate income and profits, or even to become rich in the long run. These methods include mining crypto, staking and yield farming, investing, and trading.

Crypto trading and crypto investing could be your path to riches.

Mining seems very attractive until you realize that setting up the equipment for mining is quite expensive and requires some experience in working with complex software and computer hardware. Not to mention the ongoing maintenance required and the expense of electricity and cooling for your mining equipment. Yes, mining can be quite profitable, but it’s not for everyone.

Staking and yield farming are both attractive alternatives, and probably fall under the heading of investing, although there is some of the trading mindset involved here as well, especially for yield farming.

The two most common methods in use to get rich with crypto, or even to simply improve your financial status, is through crypto trading and crypto investing. The two activities are often thought of as being the same thing, but there are fundamental differences between the two, and understanding how each matches with your own goals is important before you start buying and selling cryptocurrencies.

Master Investor vs Master Trader

Before looking specifically at crypto trading and investing let’s look at an example of successful traders and investors in the traditional markets. There are two men we can look at who undeniably embody trading on one hand and investing on the other. These two men are George Soros and Warren Buffet. No doubt you’ve heard of them. Both have become incredibly wealthy during their lives, but in quite different ways.

Warren Buffett – Master Investor and George Soros – Master Trader. Image via Quora

George Soros has based his financial life on trading, making short term bets on various assets in search of profits. He is a legendary trader, known as the man who broke the Bank of England in reference to his shorting of the Pound Sterling in 1992, causing the Bank of England to withdraw the Pound from the European Exchange Rate Mechanism (which would later lead to the creation of the Euro), and pocketing roughly $1 billion for himself on the trade. Five years later in 1997 Soros would again make huge bets on currencies, this time the Thai baht and Malaysian ringgit, and net hundreds of millions of dollars.

Soros also managed what is arguably one of the world’s most profitable hedge funds. His Quantum Fund delivered returns of roughly 30% to investors over the course of three decades. To put that in perspective, if you had invested $1,000 in the Quantum Fund in 1970 by 2000 that initial investment would have been worth $4 million!

Soros has been one of the most successful traders of our age, amassing a personal wealth of over $8.6 billion, although he has also donated $32 billion in addition to his current personal wealth.

In contrast to Soros there’s the most famous investor of all time – Warren Buffet. Buffet prefers a value investing style, and has been known to say that when he purchases a stock he does so with the expectation of holding it forever. That is truly investing!

Warren Buffet is the GOAT when it comes to hodling. Image via Reddit.

Buffet has amassed over $100 billion in personal wealth, and Berkshire Hathaway, the company he founded and runs, is worth over $400 billion. All of that wealth was created by purchasing stocks and other assets that Buffet believed were undervalued in relation to their true intrinsic value. In the financial world the intrinsic value of something is determined through a process known as fundamental analysis, in which all the available information about a company or asset is analyzed to determine the true or intrinsic value of the asset.

Buffet has the gift of being able to do fundamental analysis very effectively, and over the years he has bought and sold hundreds of companies and their stocks, making huge profits on many of the investments. Those profits were made over years, if not decades as this type of investing takes time for the assets to appreciate. However it can also yield far greater profits than trading.

Soros has made his fortune by finding short-term trades caused by short-term market imbalances. Buffet made his fortune by finding long-term investments that were undervalued based on their intrinsic worth. These are two different styles for approaching the market, but as you can see both can be successful. Whether one trades or invests is a function of the person’s personality, goals, risk appetite, and approach to finances.

Types of Investors

Investors come in different types, but in general there are three dimensions to investing in cryptocurrencies:

• Active vs passive management;
• Growth vs value;
• New vs established projects.

So many investing strategies to choose from.

Understanding these dimensions and your own preferences can make it easier to determine what crypto investments might be best for your own portfolio.

Active vs Passive Management

For most investors in cryptocurrencies an active style is required. That’s because there currently aren’t the same types of funds and ETFs available for cryptocurrencies as there are for stocks and the like. This active management style means that the investors are doing their own research and selecting their own cryptocurrencies to invest in.

For those who do want to remain hands off for now there are trusts being created by the likes of Greyscale and Osprey that could fit the bill until ETFs and more traditional funds are created for the passive investor. Note that these trusts do come with hefty fees, however that’s offset by the fact that working with a fund means that you deal with the company that manages the fund for any account questions or information you need, such as setting a password, tracking gains and losses or gathering documents for filing your taxes.

Growth vs Value Investing

Investors can choose value, investing in cryptocurrencies they believe are undervalued, or growth, which are the cryptocurrencies that are seeing the greatest current growth.

Sometimes growth is best, but other times value outperforms. Image via Euclidean Technologies.

For example, in 2020 decentralized finance (DeFi) was all the rage. There were many new projects that sprouted up around DeFi applications and many of them were the fastest growing in the cryptocurrency space. By contrast, more established players, while still delivering good returns, weren’t growing as quickly since they were already considered to be fully valued.

New vs Established

This is tightly related to the value vs growth characteristic. Basically it means investors can choose to invest in established cryptocurrencies such as Bitcoin and Ethereum. These projects have a much larger community, larger market capitalization, and are so well established that it’s unlikely they are going to suffer a complete wipeout.

By contrast there are the new, up-and-coming projects. These are untested for the most part, and while they typically offer much richer rewards, they also come with much greater risks. A new project might take off like a rocket, or it could sink like the Titanic.

Types of Traders

There are several different types of traders based on the time horizon of their trades:

Scalpers: This is the most short-term trader of all types. Scalpers look to take advantage of very short-term changes in price trading in and out of a coin within minutes or even seconds. Scalpers often look to take advantage of arbitrage opportunities or mismatches within the order book and can make hundreds of trades per day, accumulating small profits on each trade that add up to large daily profits.

Scalping is the most active of the trading styles.

Day Traders: Popularized in the forex and equity markets day trading is a strategy where the trader ends each day flat, or with no open trades. This minimizes overnight risks, which can be particularly helpful in the volatile and fast-moving cryptocurrency markets. Day traders might keep positions open for as little as minutes or as long as several hours in order to capture the daily movement in a coin or token.

Momentum Traders: Momentum traders look to take advantage of the current price trends within markets. Their underlying assumption is that the current direction or trend of the price will continue, allowing the trader to make a profit from the continued trend. Momentum trading requires a good understanding of market conditions and a strong sense of timing since it is important to be able to judge when a trend is losing steam and could possibly reverse. Trades could be held from hours up to weeks depending on the strength of the trend.

Swing Traders: Swing trading is similar to momentum trading in that it looks to take advantage of the short term movements in a coin’s price. Swing traders use technical analysis quite extensively in order to determine proper entry and exit prices and their trades can last anywhere from days to weeks. Swing traders often look for the explosive moves that happen in breakouts or trend reversals.

Crypto Investing vs Crypto Trading

Now that you have a real-world example to refer to let’s take a deeper look into the characteristics that define investing and trading.

Time Horizon

The time horizon is one of the top characteristics that distinguishes investing from trading. Investors are concerned with the long-term. They are buying and hodling, not concerned with the day to day fluctuations and volatility in the markets. An investor believes that in the long-term, we’re talking years or even decades, that the coin they are purchasing will increase in value.

Some primary differences between traders and investors.

The mind-set behind this for cryptocurrency investors is often that the technology is so new, and adoption rates so low, that massive growth in the coming years is inevitable. They strongly believe that blockchain technology will overtake the traditional financial systems, but realize that it could take years for this to play out.

Traders have a different mindset in which they are concerned with the short-term price movements of the various coins and tokens they track. Some very short-term traders are even concerned with the hourly movements in prices. Traders look to make quick profits from the markets, and believe they can do so with the assistance of technical analysis of the price history and trading volumes of various assets. Traders rely heavily on volatility to help them realize large profits in a short period of time. The volatility of cryptocurrencies makes them an ideal asset class for traders.

One important thing to understand about the cryptocurrency markets, that affects both crypto investors and crypto traders, is that the cryptocurrency market cycle is very short when compared with traditional asset classes such as equities or commodities. This means cryptocurrency markets experience both bull markets and bear markets over a shorter time frame, and with greater intensity. For example, cryptocurrency bull and bear markets might last for as long as a year or two, while bull and bear markets in equities can stretch on for a decade or longer.

Trade Frequency

The trade frequency refers to how frequently trades or investments are executed. Traders tend to have a high trade frequency, whereas investors have a low trade frequency. Where traders might execute trades on a daily basis, or even multiple trades daily, investors frequency might be measured in weeks or even months.

You can tell a trader from an investor by holding time. Image via InvestorsUnderground.com

An investor is looking for long-term price appreciation in the coins they purchase, and thus could accumulate coins over the course of months or years. This could mean they only make purchases and sales at very long frequencies, buying when coin prices are depressed, and potentially selling when prices are stronger.

Traders look to make profits frequently however, which means their trade frequency is necessarily much greater. A trader looks to profit from constantly evolving market opportunities, making small profits on each trade that add up to large profits in the long term.

Risk Profile

The risk profile of a trader or investor is a measure of how much risk an individual is comfortable with. Cryptocurrencies are already considered to be quite risky, and risk is correlated with the potential returns of an investment.

The large price fluctuations of the cryptocurrency markets make them the riskiest of all asset classes. However risk doesn’t exist in a vacuum. It needs to be compared with returns as well. This is known as the risk / reward ratio. If the potential rewards from an asset are considered to be quite high, as they are in cryptocurrencies, then the amount of risk that’s acceptable is also higher.

If you want to stack some coins you need to take some risks.

Anyone who is in the cryptocurrency market can already be assumed to have a high risk tolerance, since cryptocurrencies are the riskiest asset available. However it is still possible to categorize cryptocurrency speculators based on where they fall on a scale of risk tolerance. Crypto investors tend to be a more risk-averse group in general, which is why they tend to focus on the long term and ignore the daily price fluctuations seen in the cryptocurrency markets. That’s because time helps to smooth out volatility in the long run, and at the same time it also lowers risk.

Traders are more willing to accept the risk inherent in short-term market moves in the belief that they can offset that risk with the greater rewards possible from rapid trading in and out of the market. The short-term volatility in crypto markets does increase risk, but it also increases the potential reward. Traders who have an extremely high tolerance for risk might even engage in margin trading, which can greatly enhance profits, but also carries the risk of greatly increasing losses as well.

Analysis Type

One of the key differences in crypto investors and crypto traders is the type of market analysis they use to determine what and when to buy and sell. Because investors have a long time horizon they are far more likely to use a fundamental style of analysis, where they look at all the underlying factors of a cryptocurrency and the project it is associated with. This includes adoption rates, hash rates, and the utility of the blockchain.

Two different strategies for analyzing cryptocurrency markets.

Traders are more concerned with the pure price action of the cryptocurrencies they  trade, and so they are far more likely to engage in technical analysis. This is a method for predicting the future price of an asset based on statistical variables, and the historical price action of the asset. Technical analysis includes reading chart patterns, support and resistance levels, trend lines, and many other statistically based indicators.

Profit Mindset

The profit mindset is the way in which crypto traders and crypto investors look to make profits and generate wealth from their activities. Cryptocurrency investors typically have four primary ways in which they profit from their activity:

1. Price Appreciation: This is the most basic way in which profits are made. It is simply an increase in the price of the cryptocurrency relative to the purchase price. When you buy Bitcoin for $10,000 and the price increases to $30,000 this is price appreciation.
2. Dividends: While not strictly the same as dividends in the equity markets, where shareholders receive a portion of the company’s profits, there is a similarity to some aspects of cryptocurrencies. For example, staking coins pay those that hold them and generate an annual yield. Those payments come from the transaction fees generated by the network, and can be considered as very similar to stock dividends. Another type of dividend in cryptocurrencies comes from the practice of burning coins. This reduces their supply and is equivalent to a stock buyback plan in the equity universe. A third dividend type comes from the practice of yield farming, which is when investors receive yield from their coins by lending them to provide market liquidity.
3. Forks: While not as common as they once were, forks once provided cryptocurrency investors with very nice dividends in some cases. A fork occurs when there are two philosophies within a development community, leading the blockchain project to split into two different forks. When this happens anyone holding the coins of the original fork gets to keep those coins, plus they get “free” coins from the creation of the new fork. For example, there are 105 forks of Bitcoin, 74 of which are still active and holders of Bitcoin at the time of the fork also received “free”coins.
4. Airdrops: This is when a project distributes coins for free to the community, generally for marketing reasons. Airdrops can be distributed to those who have participated in the project, or a related project. They might also be distributed to those who simply register for the airdrop.

Whether trader or investor, there’s always a profit mindset.

Traders have just one motivation for their activity – price appreciation. They look to profit from the short-term price movements of the cryptocurrencies they buy. Traders might also purchase coins to take advantage of hard forks and air drops, but would then sell the “free” coins they received immediately to collect their profits.

Shorting the Market

Where investors only profit from the upward movement in prices, traders are able to profit from both increasing and decreasing prices. Making profits when prices are trending higher is easy. You simply buy low and sell high. However it is also possible to make money by selling high and buying low, which is known as “shorting the market”.

Shorting is quite common in stock trading, but is a bit more difficult with cryptocurrency due to the lack of brokers offering margin. When shorting an asset you borrow the asset from your broker and sell it at the current price with the belief that price will decline in the future. If you are right and price does decline you later buy the same asset at the lower price and then return it to the broker.

The difference in the selling price and later purchase price is where the profits are generated.

Short Selling – Sell high and buy low.

For example, you might believe that Bitcoin is entering a bear market phase. The current price is $40,000. If you borrow 1 BTC from your broker you can sell it immediately for $40,000. Several days later Bitcoin’s price has dropped to $30,000. You purchase 1 BTC with the money made from the earlier sale and return it to the broker to settle your debt with them and keep the remaining $10,000 as your profit from this Bitcoin short sale.

Conclusion

As you can see there are fundamental differences in the mindset, risk appetite, and strategies used by crypto traders and crypto investors. Understanding what these differences are can help you understand if your own personality is more suited to crypto trading vs crypto investing.

The fun part is that you don’t need to settle on one or the other. Cryptocurrencies are still in the very early stages of their development and will likely increase in value in the coming years, making them a good investing choice.

While you’re waiting for those crypto investments to mature the volatility of the cryptocurrency markets still makes them attractive for traders looking for quick profits. Taking advantage of this can allow you to increase your investment holdings through trading activity.

Ultimately the decision is yours. It’s also important to note that the volatility of the cryptocurrency market does make it very important that you only invest money that you are willing to lose if things end up going badly in the crypto markets.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

The post Crypto Trading vs. Crypto Investing: Complete Beginner’s Guide appeared first on Coin Bureau.

Of course I’m referring to the increasing adoption of cryptocurrencies, not only by blockchain enthusiasts, but by the average retail investor, and by the traditional institutional investors. The trend in cryptocurrency adoption has picked up massive momentum in 2020 and 2021, and the popularity of digital forms of currency continues to grow.

It’s not so long ago that Bitcoin was unveiled and embraced by a small group of technological anarchists known as the Cypherpunks. Since then, just a dozen years, Bitcoin has grown to be worth hundreds of billions of dollars, and the overall cryptocurrency market encompasses thousands of currencies and projects, with a total market cap of over $1 trillion.

And as the ecosystem grows it is being embraced by global banks and corporations, and even by those who once called it a “fraud” and said it would never survive.

JPMorgan CEO Jamie Dimon’s Bitcoin moments of regret. Image via Marketwatch.com

Now those same individuals are going all in on blockchain investing, and it’s probably time for you to also consider blockchain investing as part of your overall financial strategy. After all, Bitcoin and other major cryptocurrencies make financial headlines daily, and fortunes have been made in the emerging blockchain space, yet it is still very early in their development and growth. Think of cryptocurrency investing like investing in technology firms in the early and mid 1990s.

Another indication of the growing strength of the cryptocurrency markets comes from the financial powerhouse S&P Dow Jones Indices, who publish the popular S&P 500 Index among others. That group has recently added new indices that increase the mainstreaming of blockchain assets. The new indexes, S&P Bitcoin Index, S&P Ethereum Index and S&P Crypto Mega Cap Index, will measure the performance of digital assets tied to them.

Not only does this increase the visibility of cryptocurrencies, it also adds an air of legitimacy to the entire industry.

However, even though blockchain assets have made massive strides in adoption, “crypto” remains mystifying and confusing for many. Which is why we’ve put together this basic guide to blockchain investing. It will help explain the basics of cryptocurrencies, how they might fit in your investing portfolio, and clear up some misconceptions while also reinforcing some best practices when it comes to personal investing.

Let’s get started!

What is cryptocurrency?

A cryptocurrency is a type of decentralized money. It can serve a number of purposes, but is typified by the fact that it is not created or controlled by a government or any other centralized organization.

The various forms of money over the years.

Unlike the traditional government issued currencies, also known as “fiat” currencies, cryptocurrencies have no physical form. They are strictly digital assets that are secured by cryptography – hence the name “crypto”currency.

Blockchains use cryptography to encode the information used in the creation, transfer, and storage of the currencies. This is how blockchain currencies avoid counterfeiting and double spending. And this is how the blockchain ledger, which records all the transactions of the blockchain, is kept secure as well.

One of the major benefits to cryptocurrencies is that by decentralizing they can avoid interactions with third-parties and government agencies, putting the control of wealth back into the hands of the individual. Some blockchains even allow for anonymous processing of transactions, which some privacy-concerned individuals see as another huge benefit.

And of course, since they have value, cryptocurrencies have become increasingly popular for speculation and investing.

Most popular cryptocurrencies

There are literally thousands of cryptocurrencies in existence, and hundreds of different public blockchains. Obviously that makes investing a bit more complicated, however it is possible to narrow the scope a bit by focusing on the most popular cryptocurrencies. The two that are most popular by far are Bitcoin and Ethereum. Also very popular are the stablecoins such as Tether (USDT) and the U.S. Dollar Coin (USDC).

Just a small selection of the popular cryptocurrencies available.

• Bitcoin (BTC): Both the first and by far the most popular crypto, Bitcoin was created by the pseudonymous Satoshi Nakamoto, who described it as a “peer-to-peer electronic cash system.” The creation of Bitcoin sparked a financial revolution that’s still playing out a dozen years later.
• Ethereum (ETH): The second-largest cryptocurrency, Ethereum is a digital coin and computing platform that uses a system of “smart contracts” to automatically execute transactions. The Ethereum blockchain is the most commonly used worldwide as it is the backbone for many decentralized finance (DeFi) platforms, and for the increasingly popular non-fungible tokens (NFTs).
• Stablecoins: Unlike Bitcoin and Ethereum, stablecoins are often backed by local currencies or other assets in an effort to avoid the volatility experienced in most blockchain assets. Because of this the stablecoins typically have their value pegged to $1 and fluctuate very little away from that value.

Why Cryptocurrencies is Different from Fiat

Fiat currencies, such as the U.S. dollar and the Pound Sterling, are issued by government central banks. As you might guess from the name “central” bank, this means there is a centralized authority that controls the money supply, interest rate, and ultimately the value of a given country’s currency.

Cryptocurrencies arose from the belief that this type of centralized government control over currency is both manipulation and a dangerous attempt to manage an incredibly complex global economic system. Fiat currencies and the central bank control is also thought to be the source of inflation in the world that blocks the average person from ever being able to build a store of wealth.

Decentralized currencies are vastly superior for the average person.

Being decentralized, cryptocurrencies have no central authority controlling them. The full control of the money is left in the hands of the individual. Adding in that many cryptocurrencies have a deflationary mechanism that actually promotes the value of the currency increasing rather than being eroded over time, and you can see where these blockchain assets are superior to the archaic fiat currencies.

Why Cryptocurrency has Value

So, considering that these blockchain assets are decentralized how can you be sure that they will actually have value in the future?

Ultimately anything only has value because people agree that it does. Often this comes from the utility of the item or asset, such as gold being a store of value. In the case of gold, and of any government issued fiat currency, there is only value to them because people agree that they have value. Fiat currencies are backed by the tax-debts of the issuing government, which supports the notion of them having value.

Generally an asset such as cryptocurrency or gold has value for a few potential reasons—although not all have to be true at once:

1. People want to hold the asset to store value or as an investment;
2. People think the asset is generally scarce with a reasonable assurance that it will remain scarce;
3. People believe that it serves some useful function either as money, a commodity, or a tradable good.

Bitcoin has been called “Digital Gold” because it functions as a store of value similar to physical gold.

Taking a look specifically at Bitcoin, it has value for a few different reasons:

1. The mining process. The same economic incentives that drive people to dig up gold or drill for oil are at work. Because Bitcoin has value people are willing to dedicate time and resources to create new Bitcoin.
2. The network effect. Bitcoin was the first cryptocurrency and it remains the most dominant cryptocurrency. It’s market capitalization is roughly half of the entire cryptocurrency market. So even though there are many alternatives people continue to use it because it remains the most widely adopted and secure network.
3. Scarcity. There will only ever be 21 million Bitcoins produced. That scarcity was intentionally baked into Bitcoin as a deflationary measure. Comparatively, modern fiat currency is a product of monetary policy that is controlled by central banks. As we’ve see all over the globe, time and again, it’s pretty easy for central banks to get that monetary policy wrong and cause all kinds problems.

In short, people are attracted to Bitcoin’s value proposition because it offers an alternative to traditional assets and is based on computer code that is global, apolitical, censorship-resistant, and inherently scarce.

Approaching Crypto Investing as a Newcomer

The very first investment you need to make when entering the cryptocurrency space as a newcomer is an investment of time. You should definitely understand the basics of how blockchain technology and cryptocurrencies work. Fortunately information on the various cryptocurrencies has become far easier to find and access, and there are many people putting time and effort into making cryptocurrencies easily understood. Since you’re here at Coin Bureau have a look around at our comprehensive resources as a beginning.

You can also check out our cryptocurrency guy – who is appropriately named Guy – over at our Youtube channel. You’ll find a wealth of information and ongoing educational resources. We’re biased, but it is one of the best, unbiased and most comprehensive blockchain and crytocurrency resources you’re likely to find.

Next, buy some Bitcoin and get comfortable with the process. Now you’re already a blockchain investor, congratulations!

Investing in Cryptocurrency

Before taking a deeper dive into blockchain investing it’s important that you know there are good reasons for getting involved, and there are poor reasons. It’s equally important that you know your own reasons.

Good Reasons to Invest in Cryptocurrency

1. You believe that cryptocurrencies are the way of the future and will likely replace the traditional fiat money — if this happens, you want to be educated, prepared, and experienced.
2. You support the social vision behind cryptocurrencies— that currency should be decentralized and under full control of the people who use it.
3. You understand and appreciate how blockchain technology works— you value the peer-to-peer aspect of transactions, their security, and confidentiality.

While it’s true that fortunes have been made investing in cryptocurrencies, it’s also true that fortunes have been lost. Remember that cryptocurrencies (outside stablecoins) are extremely volatile and high-risk investments.

Don’t be surprised if your blockchain investments take you on a bit of a wild ride.

For example, from mid-April 2021 to late June 2021 Bitcoin fell from nearly $65,000 to a low of just below $29,000. And even with that hair-raising drop it remains up by 270% over the prior 52-weeks. If you can’t stomach this type of volatility then blockchain investing might not be for you. And even if it is we recommend allocating only a small portion of your investing capital into crypto.

With that out of the way, if you are still genuinely interested in blockchain technology’s potential to change the financial landscape of the world we live in, and are willing to learn and to manage the risks presented, then keep reading.

General Investing Principles

Whether you’re investing in blockchain assets, stocks, bonds, or other asset classes there are always some general investing principles to keep in mind.

Look for value added opportunities. No matter what the asset is you should always direct your investment dollars towards things that make people’s lives easier or better in some way. Also look into the management behind any project you invest in to ensure they are knowledgeable, experienced, and talented. A combination of an excellent product and an excellent team should almost always yield an excellent investment.

Invest in your own education. There are so many great resources out there that can help you learn about investing. So buy the books, listen to the podcasts, watch the Youtube videos, and read the blogs. Seriously, there are so many resources out there that it’s impossible to run out of new things to learn about investing.

Investing in your knowledge and skills will always pay dividends.

Improve on your productivity. You can see this in action in the blockchain world with Ethereum, which makes developers more productive when creating dApps, and in Uniswap, which makes traders more productive thanks to its ease of use. Not only can those provide you with a good example in productivity, they can also be considered as good additions to your crypto portfolio. The fact of the matter is that things that increase productivity are often good investments as well.

Keep the long-term in mind when investing. Short term purchases are fine, but that’s trading, not investing. Investments are mode for the long term, and honestly it is far easier to see where something might play out over several years, versus how it will play out over several days or weeks. Smart investors are also patient investors who are willing to wait for their investments to mature.

Blockchain Investing Principles

When you’re getting started out with your blockchain investing portfolio it can make good sense to follow these 5 principles:

Getting started is the hardest part. We all procrastinate to some degree and taking the first step in investing in cryptocurrencies, when you aren’t sure about the process or the investment, and you could potentially lose money, makes getting started the hardest part. So why not take advantage of our special offer where you can receive $10 of free Bitcoin for your first $100 purchase. That’s an immediate 10% return on your investment, plus it gets you started easily. With institutional investors moving funds into blockchain assets the growth in the sector is only getting started. You need to get started as well.

Once you get started our Guy is happy to help you with your research.

If you’re already investing in equities think of your blockchain investments in terms of your stock investing. While the two might be different in many respects they do share some similarities. For example, buying a token from a good blockchain project is akin to purchasing a stock in a good company. You can also bring in principles like value investing and dollar cost averaging, which are known to work well with stocks.

Take the time to understand the underlying benefits and utility of the project. You wouldn’t buy a stock without understanding what the company does, so why would you buy a cryptocurrency without understanding what the underlying project is trying to accomplish? Read the website, the whitepaper, Reddit comments, forum posts, and anything else you can get your hands on that explains the project. You should know whether there’s an actual product released, how the economics of the token work, and whether investors seem to be accumulating the token or not.

Try to buy your tokens when they are at a discount. This is no different than waiting for a pullback in the stock market. As I’m writing this Bitcoin has been flirting with $30,000, which is more than 50% below its price just two months earlier. Ethereum is currently trading right around $1,900 when it was over $4,000 two months ago. They are the same tokens they were two months ago, but market conditions have brought the prices down to more attractive levels.

Waiting for better prices can be a wise investing decision.

Make your blockchain investment just a portion of your overall investments. You wouldn’t put all your money into gold or a single stock. Neither should you put everything into cryptocurrencies. Diversification is always an important principle when investing. Avoid putting all your crypto investment capital into just one coin too – even Bitcoin. Diversification helps to even out volatility, and it’s a sensible investing decision.

Misconceptions about Blockchain Investing

One of the top misconceptions, that continues to persist and be perpetuated by those who oppose cryptocurrencies, is that they are somehow shady and linked to illegal activities. Much of that is down to the technology being new and not properly understood.

And it is true that in the early days Bitcoin was used for a number of illegal transactions involving drugs, guns, and other criminal activities. Yet no one seems to make the connection that prior to the creation of Bitcoin, and indeed even up to today, fiat currencies are used for the same illegal purposes.

Fortunately as cryptocurencies become more mainstream they are also gaining a better reputation. With Wall Street investors and big name funds entering the crypto space it has helped to improve the public image of Bitcoin and other cryptocurrencies. Now, with major companies like Tesla, Microsoft, and Paypal accepting Bitcoin, and some of the largest university endowments and Wall Street hedge funds invested in crypto, it has definitely transitioned into something more respectable.

Many major companies now accept crypto. Image via Cryptooa.com

What’s interesting in all this is drawing the parallels between the growing acceptance of blockchain technologies now, and the evolution of internet technology in the mid-1990s, when many people believed it was only about gambling and pornography. Today we know nothing could be further from the truth.

Avoid the Reddit Pundits

While Reddit can be a fun and informative forum in some respects, it’s not the place to go for your financial advice. Those fools pumping meme stocks like AMC Theaters and Gamestop, or the dubious cryptocurrencies like Dogecoin and Shiba Inu, are a poor reflection on the entire sector.

While it’s true that the world of professional wealth managers and financial institutions may not have the best interests of the common man at heart, the Reddit crew is even worse. Sure they spout decentralization and the removal of these big, controlling interests in finance, but the facts are that anyone at all can post to Reddit and other online venues. There are no educational requirements, and no certifications required. Hell, they don’t even reveal their real names in most cases!

Following the fan theories promoted on Reddit and similar sites has nothing to do with investing, and if you do follow that advice and lose money you have no one to blame but yourself. Following the Reddit crowd is nothing more than the most base speculation, and typically only those who begin the pumping of the asset end up profitable.

Reddit can be great fun, but it’s not great for investing advice. Image via CNBC

I’ve been researching and studying blockchain technology and cryptocurrencies for over four years. It’s my job to research blockchain projects, and even I only understand a minority of the projects that have been built. And I can tell you that some projects look really great on the surface.

They look like an easy 10-bagger or better, until you look deeper. Or even worse until you invest and are later hit by the news report explaining what went wrong. Consider the three following characteristics and you’ll understand why it is so important to get your blockchain investing information from someone you know and trust:

• There’s been an explosion of financial information on the internet.
• Much of this financial information lacks transparency. You have no idea who is behind it.
• Creating a new blockchain project can be as easy as clicking through a script.

This is a perfect recipe for investors to get scammed at worst, or at least to be fooled into losing large amounts of money.

Don’t become the victim of a crypto scam.

And while it’s most likely to happen to newcomers, it can just also happen to those of us with more experience in the space. There are a number of times I’ve spent several days researching a project only to ultimately find out that there’s no way to know who is behind the project, or that the smart contracts hold some code that would allow for a rug pull by the developers.

Blockchain is gaining mainstream adoption, but beyond the top 20 projects or so it is still very much a Wild West out there.

What’s the Best Time To Buy?

Just like the stock market, there’s no real way to time the cryptocurrency market. It’s obviously not a good idea to buy at the peak of a bubble, but unfortunately there’s also no way to know when that peak occurs. It’s also not good to buy when prices are falling sharply. If you’re looking for the best time it would be when prices are low and stable, however if you do buy at those times you’ll likely need some patience to see the benefit of your investment.

Choosing the right time to buy and sell can help your investing returns.

Trading the cryptocurrency markets is a huge topic all by itself, and here at Coin Bureau we’ve already done the fundamental research into many different blockchain projects. In the coming months you can also expect us to expand on our coverage of technical analysis, giving you a better insight into how to read the charts, and what trading methods might be useful in various market scenarios.

While not an exact science, this type of investment research can help in determining when to buy a particular cryptocurrency. It might even help with determining tops and bottoms in the market, although those can be very subjective. For example, back in late March 2017 most people were avoiding buying Bitcoin as it passed the $1,000 mark because they felt it was a top for the market. Of course in hindsight we know that was a massive bargain, and we won’t ever have the chance to buy Bitcoin at such a low price again.

Here are some basic guidelines you might want to keep in mind when you’re considering a blockchain investment:

• Don’t compare crypto bubbles with bubbles in traditional markets. In crypto a 10% move is normal volatility, and a 100% move is often just the start of a far larger move. In traditional markets a 100% move nearly always indicates a bubble.
• Don’t immediately buy in on a dip because it could end up being far larger. Remember that cryptocurrency moves are often quite large.
• Don’t necessarily buy in just because you see a huge spike in price. Manipulation does happen in the cryptocurrency markets, especially with smaller projects, and “pump-and-dump” schemes are a reality. Get educated on the project you’re considering and buy when it seems price is good.
• Don’t get shaken out of your positions by the wild swings you might see in cryptocurrency prices. You need to have conviction and understand that the cryptocurrency revolution is still in its very early days.
• While some blockchain investment is necessary, it is only a slice of the overall investing pie. Plan on allocating somewhere between 2-10% of your investing money to cryptocurrencies when you are just getting started. The rest of your money should be in stocks, bonds, commodities or even fiat currencies to maintain a fully diversified portfolio.
• Stick to the top blockchain projects when starting out. Bitcoin and Ethereum make a good foundation for any portfolio, and beyond them you may want to stick within the top 20 cryptocurrencies initially. Remember, it isn’t easy to get rich quick, but it is far easier to get rich steadily and slowly.
• With that in mind, consider a strategy like dollar-cost-averaging where you make regular investments – weekly or monthly – and slowly grow your portfolio.
• When you experience a loss, and you will, consider it to be a lesson and learn from it. Examine what may have gone wrong with the investment, and strive to avoid a similar occurrence in the future.

Conclusion

Blockchain assets are an emerging asset class, and they are certain to continue evolving and growing in importance to the global financial industry in the coming years. Naturally we have no idea which tokens will thrive, but that’s true for any asset. Owning some cryptocurrencies should be a part of any savvy investor’s portfolio.

As a decentralized asset cryptocurrencies have remained protected from third-party interference and government agencies. However that might always be the case. We do know that blockchain technology can give us a highly secure, and even anonymous asset class however, both of which are likely to be increasingly important in the future.

And while blockchain purists shun the involvement of governments in the cryptocurrency space, the truth of the matter is that governmental regulations will lend an air of respectability and trust to the asset class for many traditional investors. In turn that should increase adoption and make various cryptocurrencies more valuable, as we’ve already seen occurring in 2021.

You should now have a basic understanding of why investing in blockchain projects is important, and even how to get started. However we’ve only just scratched the surface of investing in cryptocurrencies. There are many emerging ways in which you can profit from cryptocurrencies, including staking, DeFi protocols, yield farming, crypto lending, leverage, and others. Each deserves a deeper investigation, and in the coming months we will be doing just that so make sure to bookmark us and come back often to increase your blockchain investing knowledge.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

The post The Basics of Blockchain Investing appeared first on Coin Bureau.

To the uninitiated, cryptocurrency begins and ends with Bitcoin. This isn’t entirely surprising. Bitcoin grabs most of the headlines, with its moves to ever-greater all-time highs and its adoption by the likes of Tesla and PayPal.

It gets bankers hot under the collar and has books written about it. It’s the most evangelised of all the cryptos, with a seemingly endless procession of fervent disciples falling over themselves to proclaim it as the saviour of humankind. To them and plenty of others, Bitcoin is the original and still the best.

Once you delve a little deeper into crypto though, you’ll quickly notice that not only are there thousands of other projects out there, but that one name in particular crops up time and again. It won’t be long before you come to realise that Ethereum is behind much of what is going on in crypto besides Bitcoin. There is, in fact, a strong case to be made for Ethereum being as important a project as Bitcoin and perhaps even more so.

Image via Shutterstock

A glance at the likes of CoinGecko will show you that Ethereum has a market cap second only to Bitcoin’s and is some way clear of its nearest rivals in this regard. But to view Ethereum and its native ether (ETH) coin as the second biggest crypto is to massively underestimate the whole project.

ETH is only one part of what Ethereum is about: this is not merely some altcoin we’re talking about here. The Ethereum project’s ambitions, what it has achieved so far and what it hopes to achieve in the future, make Bitcoin seem a little one-dimensional by comparison.

Crypto’s Base Layer

The world of crypto has been throwing up plenty of stories recently. Yes, there’s all the Bitcoin-related hoo-ha, but also the explosion of decentralised finance (DeFi) and the recent frenzy around non-fungible tokens (NFTs). These latter two talking points owe their existence largely to Ethereum, which has for years been providing the platform for thousands of other crypto projects to build on top of.

Ethereum was conceived and built to be a complete crypto ecosystem, offering a blockchain that could host all manner of other platforms and currencies. On its website, Ethereum describes itself as ‘a technology that’s home to digital money, global payments and applications,’ that functions as a ‘digital economy’ in its own right.

Ethereum’s landing page. Image via Ethereum.org

The technology that Ethereum has developed has spawned thousands of projects already, with more appearing all the time. Indeed, many of the biggest and most valuable crypto projects and tokens – some with multi-million dollar market caps themselves – run on the Ethereum network. While Bitcoin concerns itself with the storage and transfer of value, Ethereum is geared towards the creation of value and the continued growth of the cryptocurrency space.

Yet for all its success, Ethereum is facing some daunting challenges. It has become bloated by its sheer functionality, with its network slowing to a crawl under the weight of all the traffic it is having to handle. Change is coming, though seemingly at a snail’s pace. All the talk now is of Ethereum 2.0 – the next iteration of this almighty project that, it is hoped, will help it achieve its full potential.

This piece will look at what is expected of Ethereum 2.0 and why it is so hotly anticipated by the crypto community. We’ll examine the problems it is intended to fix, what its implementation could achieve and why we’re still waiting for it to go live. But before all that, we need to take a closer look at the current state of the Ethereum project, as well as examine its history and what it has achieved so far.

Ethereum: A Potted History

The Ethereum project was first outlined in 2013 by a nineteen-year-old programmer named Vitalik Buterin. This absurdly precocious Russian-Canadian university dropout is now a legend of the crypto space, despite being still only in his twenties. Buterin conceived Ethereum with the idea of bringing a ‘general-purpose flexibility’ to the blockchain, his aim being to build a platform that others could use to build their own programs and applications.

The V-dawg himself. Image via cnbc.com

Several other figures were involved in the founding of Ethereum, the most notable being Charles Hoskinson (later the founder of Cardano) and Dr Gavin Wood (author of Ethereum’s Solidity programming language and later the founder of Polkadot). These two both left the project because of differing opinions as to how it should proceed.

The Ethereum network went live in July 2015, in the wake of a crowdfunding round the year before. Wood’s contribution was instrumental to the network, as it was he who designed the Ethereum Virtual Machine (EVM), ‘the environment in which all Ethereum accounts and smart contracts live.’ The ins and outs of the EVM are too complex to be detailed here, but it essentially allows for these aforementioned smart contracts to be written, which in turn allow for applications to be built on Ethereum.

Smart contracts are self-enforcing and they function in a similar way to a vending machine. Put in some money, select a product and the machine dispenses it. Programmers are able to write smart contracts which can then form the basis of programs and applications running on top of the Ethereum blockchain. Again, the complexity of smart contracts is a matter for a more in-depth piece, but the important thing to know is that Ethereum is designed to allow developers to use its network for their own projects.

Image via Shutterstock

This functionality enabled Ethereum to grow rapidly, as projects flocked to use its platform. The ETH coin was designed to be used by these developers to pay for their usage of the network, though Ethereum was designated as a non-profit by Buterin in 2014. As the network grew in popularity, so ETH began to be used more by all of those developers and users interacting with Ethereum. This usage is what propelled ETH’s value upwards, despite the coin having no fixed supply.

Dapps, DeFi and Stablecoins

Projects that run on Ethereum are known as decentralised applications (dapps), which function in the same way as the apps we know and use every day, but with no single point of authority. By using Ethereum’s blockchain, they are able to store transaction history and other data immutably, without having to resort to the expensive process of building their own blockchains.

The field of dapp development has grown rapidly since Ethereum’s inception and thousands of projects now have dapps running on the network. Dapps have flourished in a number of sectors, most notably finance, technology, gaming, art and collectables. These dapps are sometimes referred to as being part of Web3 – the next iteration of the internet in the age of blockchain.

Uniswap Trading Volumes on the rise. Image via Uniswap

Dapps now offer everything from crypto-based financial services to online games and virtual worlds. They can be used for web browsing, betting, buying art or streaming music. Many Ethereum-based dapps have become big-hitting crypto projects in their own right, helped in large part by another aspect of Ethereum’s platform: the ability to create and issue other tokens.

As a result of this functionality, dapps can launch their own tokens using Ethereum’s ERC-20 token standard. These tokens run on Ethereum’s blockchain but can be traded on the open market along with most other cryptocurrencies. As a result, many of the top 100 cryptos (and plenty others besides) are tokens that run on the Ethereum network. These include projects like Tether (no.4 at the time of writing), Uniswap (no.8) and Chainlink (no.10) meaning ERC-20 tokens are traded in huge volumes every single day.

Ethereum’s popularity as a developer blockchain has put it at the forefront of the decentralised finance (DeFi) revolution, which has seen thousands of projects spring up to challenge the world of traditional finance. DeFi essentially eliminates financial middlemen, allowing people to conduct financial transactions in a peer-to-peer manner, with no cut being payable to intermediaries.

Image via Shutterstock

2020 saw an explosion in DeFi’s popularity, with new users pouring money into protocols that let them take out loans, loan out their crypto to others, trade coins and tokens on decentralised exchanges and much more besides. The DeFi sector now has over $41 billion locked into it and every one of the top protocols runs on Ethereum.

The Ethereum network is also heavily used by those trading and using stablecoins – cryptocurrencies pegged to the value of a real-world currency (usually the US dollar) or other assets. These pegged values help mitigate much of the risk involved with trading other, more volatile cryptos and their use has become increasingly widespread.

According to a recent Consensys report, three-quarters of all stablecoins now run on Ethereum, with the network handling over $1 trillion in transactions in 2020. Once again, much of crypto’s heavy lifting is being done by just one platform.

Riding the NFT Wave

More recently, it’s been impossible to avoid all the hype surrounding non-fungible tokens (NFTs) which have been making headlines for commanding some truly insane prices.

NFTs are digital tokens representing digital assets. They’re stored on a blockchain and contain an immutable record of who owns them. They’re built using smart contracts and can be coded so that, when sold on, a proportion of the sale price goes to the original creator, even if they aren’t the seller at that time. As such, many artists and musicians are taking advantage of them to sell their works – again without the need for intermediaries.

Image via Shutterstock

Opinion is divided over NFTs. Some see them as a promising step towards putting power back into the hands of creators and rewarding them properly for their work; others view them more as a sign that Satan and his legions may finally be at the gates. There’s no denying however, that, once again, Ethereum is the driving force behind this new crypto sector.

Two new Ethereum token standards – ERC-721 and ERC-1155 have been developed to create NFTs, while most are bought using ETH and are stored on the Ethereum blockchain. It seems that every new innovation in crypto has Ethereum humming away in the background.

Too Popular for its Own Good

Ethereum has had its share of setbacks. A hack in 2016, which exploited a weakness in one of the projects built on top of it, resulted in $50 million worth of ETH being stolen. The decision was taken to split the Ethereum blockchain (a process known as a hard fork) in order to recover the stolen funds. The fork became known as Ethereum Classic and the project still operates to this day.

Hacks and hard forks are part and parcel of life in crypto and Ethereum emerged relatively unscathed from its encounter with them. More pressing however is the extent to which the Ethereum network is now buckling under the strain of all the traffic it is having to handle.

Transactions Fees through the roof. Image via glassnode.

This problem has become so acute that the Ethereum network can become unusable at times. Transaction speeds have slowed to a crawl (the network can only handle 15 transactions per second) and the fees payable to have these transactions executed (known as ‘gas fees’) can be astronomical at times of heavy usage. In short, Ethereum has become a victim of its own success, weighed down by all the users it has attracted in its short life span.

This state of affairs has been going on for some time and has led to the creation of a number of projects that are seeking to knock Ethereum off its lofty perch. These ‘Ethereum killers’ include the likes of Charles Hoskinson’s Cardano and Gavin Wood’s Polkadot, both of which are developer blockchains similar to Ethereum but designed with far higher transaction capacities and the ability to handle more traffic.

As early Ethereum developers, both Hoskinson and Wood could see that the project was going to suffer scalability issues as it grew. While neither Cardano nor Polkadot is ready to challenge Ethereum’s dominance just yet, they are built without Ethereum’s flaws and will continue to grow if Ethereum isn’t able to get its house in order soon.

Understanding Ethereum’s Problems

By now you’ll have read the word ‘blockchain’ several times over the course of this piece alone. If you’ve spent any time in crypto, you’ll have heard it a whole lot more. Blockchain technology underpins all cryptocurrency. It provides a means to safely store and record all the transactional and historical data of a crypto, while ensuring that it can never be tampered with. Thus the integrity of the system is maintained and dishonesty made all but impossible.

The Bitcoin Network distributed across numerous nodes. Image via Shutterstock

The most well-known blockchain is, of course, Bitcoin’s. A network of individual computers (nodes) is spread across the globe and each node verifies every transaction that takes place on the network. When a certain number of transactions have been verified, they are grouped together into a block.

In order to keep the network secure, each block is encoded with a long sequence of letters and numbers, known as a hash. Each block carries its own hash and a copy of the hash of the preceding block. These matching hashes enable a new block to be added to the chain. When a new block is produced, the user that created it is rewarded with a set number of bitcoins. These block producers are known as miners and the process of deciding on which miner creates a new block is known as network consensus.

To arrive at the matching hash involves solving a complex mathematical problem, which can only be done using brute force computing power. The more power a miner uses, the greater their chances of solving the problem first and being able to mine the new block. This is why many have expressed concern about the vast amount of electricity the Bitcoin network uses.

This method of achieving network consensus is known as proof of work, with the work in question being the computing power expended to arrive at the matching hash number.

Bitcoin’s code was written so that the complexity of the problems to be solved to create a new block increased as more blocks were mined. As a result, the Bitcoin network has become slower and more energy-intensive as its popularity has grown. The proof of work consensus mechanism has become obsolete as Bitcoin has grown.

The Ethereum network is now suffering from similar problems to Bitcoin’s because it too uses proof of work to achieve network consensus. High demand and heavy traffic have made blocks on Ethereum harder to mine, meaning the whole process has become slower and more expensive.

Ethereum miners need to use more power to produce blocks and thus let the network move forward, meaning that the gas fees they charge have become higher. The result is a network that slows to a crawl when lots of people are trying to use it.

These are the problems that Ethereum 2.0 is designed to solve.

ETH 2.0 – Let’s Get Going

To bring Ethereum into the mainstream and serve all of humanity, we have to make Ethereum more scalable, secure, and sustainable.

 This is Ethereum’s stated aim for ETH 2.0 and an acknowledgement that the current state of the network is inadequate. The process of upgrading Ethereum to ETH 2.0 is a long one and not due to be completed until next year. It has been divided into three separate stages, which we will examine in a minute. Before that, we need to understand the new type of blockchain consensus mechanism that Ethereum is moving to.

We’ve already noted the drawbacks to a proof of work blockchain. In order to combat this wastefulness and inefficiency, Ethereum is moving towards becoming a proof of stake (PoS) blockchain – one where consensus is achieved in a much more efficient and less intensive way.

Image via Shutterstock

On a proof of stake blockchain, those nodes that want the chance to mine new blocks and claim the rewards can stake their crypto for a chance to become what is known as a ‘validator.’ This works much like a lottery: the more tickets you buy (the more you stake) the greater your chance of winning. One validator is then chosen at random to mine the new block and claim the reward, which is usually a cut of all the fees paid for the transactions contained within the block.

This way of achieving consensus eliminates the need for multiple miners to use huge amounts of power in order to be allowed to mine a new block. However, Ethereum’s switch to this new system is not straightforward and will be conducted in three discrete stages.

Stage 1: The Beacon Chain

This first stage actually went live in December 2020, generating considerable excitement in the Ethereum community and beyond, as the switch to ETH 2.0 seemed finally to be underway.

The Beacon Chain: ready for lift-off. Image via Ethereum.org

The Beacon Chain is focussed on allowing staking to take place on Ethereum – this will then allow stakers to run validator software and participate on the PoS blockchain. The Ethereum team are hoping to attract as many validators as possible, in order that control over the network is not concentrated into the hands of too small a number of validator nodes. This decentralisation will, it is hoped, address the issue of network security.

The Beacon Chain’s staking functionality will also help pave the way for the next stage of ETH 2.0, which will rely on a PoS system being in place in order to work.

Stage 2: Sharding

In order to improve Ethereum’s scalability and allow it to handle more transactions, extra chains, known as shard chains, will be introduced in order to lighten the load of the main chain. The plan is to eventually have 64 shard chains running in parallel, thus vastly increasing the amount of traffic the network as a whole is able to handle.

Sharding. For all we know, this is exactly what it’ll look like. Image via Ethereum.org

The shard chains will eventually be randomly assigned validators by the Beacon Chain. This will further increase network security as no two validators would be able to collude to take over a shard. The spreading out of the network over these shard chains will not only enhance speed and security, but should also eventually allow people to run an Ethereum client from a laptop or smartphone, thus securing the network still further.

Sharding is expected sometime this year, ‘depending on how quickly work progresses after the Beacon Chain is launched.’ Once in place, this will allow for the final stage of ETH 2.0 to take place.

Stage 3: The Docking

Both the Beacon Chain and the shard chains will run separately from the Ethereum mainnet, which will continue to use a proof of work consensus. The docking will join the mainnet with the Beacon Chain and the shard chains, finally moving the whole Ethereum network to a PoS consensus.

This coming together of all aspects of ETH 2.0 will see the good ship Ethereum made ‘ready to put in some serious lightyears and take on the universe.’  Insert theme from 2001: A Space Odyssey here.

The docking; last but not least. Image via Ethereum.org

This final stage of Ethereum’s long-awaited upgrade is expected to take place either towards the end of this year or in early 2022.

To Infinity… and Beyond?

Amidst all the excitement of Bitcoin’s price increases over the last year and the bull market the whole crypto market has been enjoying, it hasn’t gone unnoticed that ETH’s price has skyrocketed too – up an astonishing 1,200% since this time last year. This dwarfs Bitcoin’s 850% rise and reflects the importance of Ethereum to the entire crypto universe.

Much of ETH’s rise can perhaps be attributed to prevailing market sentiment, with crypto as a whole enjoying a boom year while the rest of the financial world came close to imploding. Yet much of ETH’s continued success can be put down to excitement about the coming of ETH 2.0 and it’s no surprise that the price really started to climb after the rollout of the Beacon Chain in December.

ETH over the last year. Image via Coin Market Cap

The fact is that anyone with a decent working knowledge of crypto knows how big Ethereum has become and how central it is to so much of what is going on in crypto. Half the projects out there probably wouldn’t exist without it and any balanced portfolio is almost certain to hold at least one asset that runs on Ethereum.

Perhaps the best indicator of Ethereum’s success is the number of projects that are looking to take it on, as it huffs and puffs its way towards its new dawn. Cardano and Polkadot have been mentioned already, but Algorand, Stellar, Tezos and NEAR Protocol are amongst others with an eye on Ethereum’s crown. The original smart contract blockchain cannot afford to rest on its laurels.

ETH 2.0 has been a long time coming and we’re not there yet. Despite some fixes being made to the network in the meantime (watch Guy’s recent video if you want to learn more about them), Ethereum is still some way off from fulfilling its massive potential.

But, assuming the careful rollout of ETH 2.0 goes according to plan, Ethereum looks set to scale new heights in the years ahead. There is a palpable sense amongst many in crypto that the best is yet to come: at least, those who aren’t too busy shilling Bitcoin.

Featured Image via Shutterstock

The post Ethereum 1.0 to 2.0: A Complete Beginner’s Guide appeared first on Coin Bureau.

Previously the laws and regulations, such as those allowing double-taxation, kept Australians from adopting cryptocurrencies on any large scale. Thankfully the government made some changes to the regulations, and that’s resulted in increased interest and adoption of cryptocurrencies in Australia in 2021.

Consider Swyftx for example, which has seen its user base go from zero to more than 35,000 since launching in 2019. It’s also been reported that the exchange/broker hybrid is handling $120 million in transactions every single day.

If you want to buy crypto in Australia, you need a legitimate exchange. Image via Shutterstock

If you’ve ever looked into buying or trading cryptocurrencies in Australia you likely know there are dozens to choose from. Some are local and only available to Australian or New Zealand residents, while others are global in scope.

At the end of the day however you need to find the broker that lets you buy crypto in Australia with the best fees, easiest verification requirements, and highest convenience. You might also be concerned with anonymity or payment modes, or the deposit and withdrawal limits.

That means you’ll need to do some research to find the best Broker in Australia for buying crypto based on your needs. Or you can let us take care of the research and you can find the option that works best for you.

And with that out of the way let’s get on and learn how to buy some crypto in Australia.

1) Swyftx

There are several features of crypto exchanges that are very important to traders. At the top of the list is fees, but there are other things of consideration such as the trading interface offered, the liquidity and spreads, and the level of customer service offered. There is one Australian broker attempting to fix all of these issues, and that’s Swyftx.

Swyftx is improving crypto exchanges in Australia. Image via Swyftx.com.au

They are giving Australian crypto traders a place to go where they aren’t being robbed blind by fees, where the customer service staff is helpful, and where the trading interface allows for more intelligent trading.

The great thing about Swyftx is that it isn’t just an exchange. It also offers full brokerage services, which is a bonus for traders and crypto investors. It also makes Swyftx the perfect exchange whether you’re brand new to crypto or if you’ve got years of experience. At Swyftx you can expect low, transparent fees, excellent spreads, over 220 assets to trade, and even an SMSF savings account to help with your retirement savings.

You can just tell that traders love what Swyftx offers as the exchange has grown to over 35,000 traders since they launched in 2019.

Nearly 1,000 Excellent 5-star reviews. Image via Swyftx.com.au

One thing to really like about Swyftx is there flat fee of 0.6%. At first glance that might seem high compared to the exchanges offering fees of 0.2% or less, but a closer look shows where Swyftx is better than those others as they offer spreads that are as low as 0.41%. Other exchanges that have low fees can have spreads as high as 5%!

Swyftx is able to offer these ultra-low spreads thanks to their proprietary algorithm that can locate the lowest spread from across dozens of exchanges. This allows Swyftx to lower the total cost of trades (fee + spread) to as low as 1.01% in some cases. You won’t find such low total costs at many other exchanges.

Swyftx compares very favorably with the competition. Image via Swyftx.com.au

And Swyftx has made it very simple to get started. You begin by clicking the large, blue “Signup” button in the upper right corner of the website. This will open the Swyftx registration page where you’ll enter your name, email address, phone number, county of residence, and a password of your own choosing.

Then check the box to agree to terms and conditions, and the box to prove you aren’t a robot by completing the captcha. Finally, click the “Create my Account” button.

Swyftx Verification

One of the more troublesome parts of registering for any cryptocurrency exchange is the need to complete KYC requirements, but Swyftx has even made this part of the process so simple that 70% of their clients are able to complete it in under 2 minutes.

One of the easiest registration and verification processes in the industry. Image via Swyftx.com.au

To complete the KYC identity verification process you’ll need to log into the account you just created then click the “Profile” link in the left sidebar and under that the “Verification” link. That will open an online form asking to verify the following information (note each is verified separately):

• Email address
• Mobile phone number
• ID document number

Quick and easy verification is one of the benefits of using Swyftx. Image via Swyftx.com.au

To verify the email click the button and an email will be sent to you where you’ll need to click a verification link. That’s sorted.

The phone verification is equally easy. Click the “Verify Now” button and a 6 digit PIN will be generated and sent to your phone via SMS. Input that code in the popup box on the website and you’ve verified your mobile phone number.

Quickly and easily verify your mobile number. Image via Swyftx.com.au

The final step is verifying your ID documents and Swyftx has simplified this by doing away with the need to scan and upload documents. Instead you’ll only be required to enter the information exactly as it appears on your ID into the web form.

Full KYC verification in under 2 minutes. Image via Swyftx.com.au

Once that’s verified you’re all set. It’s very likely the entire process took you less than 2 minutes.

Swyftx Deposits

For deposits in AUD Swyftx offers several options:

• PayID (instant deposit method)
• POLi (instant deposit method)
• OSKO (deposit within same business day)

Choose from various deposit options. Image via Regional Australia Bank

In an exciting development, Swyftx has announced they will soon add credit/debit card payments, becoming the first Australian platform to offer this service. Bank transfers are also possible through the OSKO network. These typically take 2-6 hours to process, although it isn’t uncommon for the bank to hold up a large first deposit for up to 24 hours. Swyftx checks for transfers at approximately 9:00am, 12:00pm, 3:00pm, 6:00pm, 8:00pm, and 10:00 pm AEDT on every business day.

Is There An Affiliate Program?

It might not be the most important part of choosing a broker, but it is nice to see an affiliate program on offer at Swyftx. With it you can earn 30% of the fees collected on all trades for the lifetime of the referred account. The affiliate program can be used casually to refer friends and family members, or it can be used more extensively.

A generous affiliate offer. Image via Swyftx.com.au

Payouts are made on the 1^st of every month, and you will always know exactly what your commission is thanks to the real-time tracking system included in the affiliate backend. One thing that is missing is marketing materials to help out with advertising and promotion.

2) Coinspot

Coinspot was launched in 2013, and it bills itself as Australia’s most trusted exchange. Because it’s been operating for such a long time in Australia it is extremely well known in the crypto community, and it is well respected. The exchange has remained at the forefront of the cryptocurrency revolution in Australia and is often the first broker to offer new features.

Inside a basic Coinspot account. Image via Coinspot.com.au

As of January 2021 users at Coinspot can enjoy all the following features:

• User-friendly interface makes it easy for all levels of cryptocurrency users.
• Easily buy and swap from a selection of more than 230 cryptocurrencies.
• Stop-Loss & Limit Orders to help you make the most of market opportunities.
• Many deposit options available like POLi payments, PayID, BPAY and cash.
• Over-the-Counter desk and support for Australian Self Managed Super Fund (SMSF) investors.
• Excellent security measures, including 2-Factor Authentication to protect from hackers and theft.
• Affiliate program that rewards 30% of commissions (for 1 year) for referred users.

Creating an Account & Login

Creating a Coinspot account is similar to what you would go through at any other crypto exchange. It begins by clicking on the white “Register” button in the upper right corner of the website. You then fill in the requested details and click the “Create Account” button.

Register an account in seconds. Image via Coinspot.com.au

Almost immediately after registering you’ll receive an email from Coinspot to verify the email address you used to register. Clicking on the verification link in the email completes the basic account setup and lets you log into Coinspot. However, you are not able to make any deposits or withdrawals until you verify your ID in accordance with AML regulations.

Coinspot Verification

Verification at Coinspot involves proving you are who you’ve registered as by providing identification documents. Once these documents are received and processed by Coinspot (which can take up to 24 hours) you will have access to deposit up to AUD$2,000 per day, and to make withdrawals. Complete verification requires all the following:

• Full name
• Date of birth
• Phone number
• Residential address
• Scanned copy of a valid identification card or passport with proof of address
• A selfie photograph holding up an ID document

This is a standard procedure that you’ll find at nearly all the cryptocurrency exchanges.

CoinSpot Fees

Coinspot prides itself on its simple and transparent fee structure, which also happens to include some of the lowest fees of any of the Australian crypto exchanges.

Simple, transparent, low fees have made Coinspot a favorite since 2013. Image via Coinspot.com.au

Note that this fee structure does not include the mining fees charged if you choose to do a swap from one cryptocurrency to another, or if you choose to send your coins off the exchange after purchasing them. These mining fees differ from one cryptocurrency to the next, and can even differ based on the network traffic of the blockchain in question. That said, mining fees typically amount to less than a five-cent piece.

3) CoinJar

Another popular option to buy crypto in Australia is the CoinJar exchange that was launched in 2013. The exchange/broker is primarily focused on its Australian clients, but more recently it has also expanded and now offers its services in the U.K. as well. It also offers CoinJar for Institutions on a global basis, but that’s not really relevant to individuals, although it does indicate that CoinJar could offer its services globally in the future.

The exchange features a taker/maker fee structure where takers pay a fee that can be as low as 0.1%, but won’t exceed 0.3%. Makers do even better, with fees going from 0% up to a maximum of 0.2%.

So long as you are always buying on the bid and selling on the ask you’ll only ever pay the maker fee, which means your maximum fee at CoinJar will be quite low. However spreads can be high at times due to a lack of liquidity, so traders will need to keep this in mind.

The fees at CoinJar are reasonable. Image via Coinjar.com

As another hybrid exchange/broker CoinJar allows for purchasing crypto with fiat, or trading between various cryptocurrencies. Deposits can be made via bank transfer, BPAY, NPP, Blueshyft, or for those who already have some cryptocurrency any of the supported coins can be deposited as well.

CoinJar is also serious about security, using 2-factor authentication for all accounts, and securing a minimum of 90% of the digital currencies held in cold storage wallets. CoinJar is very transparent about its operations as well, which can give a sense of security for users.

In addition, they use data encryption, Transport Layer Security, periodic security audits and best practice organization security. CoinJar also utilizes advanced machine learning techniques to recognize suspicious logins, account takeovers and financial fraud.

Creating a CoinJar Account

Creating your account at CoinJar is pretty much the same as creating an account at any other cryptocurrency exchange. It begins with clicking the “Sign Up” link in the upper right corner of the website. After filling in the form you’ll receive an email with a link to click that will confirm your ownership of the email address.

Easy registration process. Image via CoinJar.com

This will get you access to your account and the trading platform, and if you are depositing cryptocurrency you can do so and begin trading. However if you want to make a fiat currency deposit you’ll need to verify your identity by uploading your ID documents. This is all in accordance with AML regulations.

Another benefit to verifying your account is that it will make you eligible to receive a CoinJar Swipe debit card.

CoinJar Swipe Cards

CoinJar Swipe is a debit card that’s available to the Australian customers of CoinJar. It allows for a seamless exchange of cryptocurrency to fiat without waiting for several days for a bank transfer to process. It also allows for the conversion of crypto to fiat without any fees.

A debit card makes it so easy to spend cryptocurrencies. Image via Coinjar.com

Funding the debit card is quite simple. Inside your account you’ll see a ‘Swipe Account’ and if you move some cryptocurrency into this account you can then use the CoinJar Swipe card to withdraw the funds from an ATM or at any place where you would normally use a debit card. Transfers are instant and the funds are available immediately. The only downside is the $29 fee for ordering a new card.

CoinJar Rewards

CoinJar Rewards is a reward system that allows users of the exchange to accrue points for using CoinJar to buy, sell and trade cryptocurrencies. Points can be used to offset exchange fees, to purchase items in the CoinJar Store, or to offset the cost of ordering a new CoinJar Swipe card. Accounts must be verified to accumulate CoinJar Rewards points.

4) Coinbase

Not all the exchanges available to Australian cryptocurrency enthusiasts are based in Australia. One popular exchange for buying Bitcoin and a number of other cryptocurrencies is Coinbase, a San Francisco, CA based exchange. In business since 2012, it is the largest U.S. based crypto exchange and one of the top global exchanges.

Like the first entry in our list Swyftx, Coinbase is also a hybrid exchange and broker. They also offer custodial services for institutions, a cryptocurrency payment platform, and their own stablecoin pegged to the US dollar called the USD Coin (USDC).

Coinbase is one of the largest global cryptochanges, but is it right for Australians? Image via Coinbase.com

While Coinbase is easy to use, which is a good part of the reason it’s grown so large, it is also disliked by many long-term cryptocurrency enthusiasts for several reasons including:

High Fees

Coinbase has some of the highest fees in the industry, but it gets away with that (so far) because its simple user interface makes it a good choice for those who are brand new to cryptocurrencies.

Many people think it’s worth it to trade some extra fees for a simple interface and ease of use. More experienced crypto traders and investors can sidestep the high fees by using the Coinbase Pro platform, however one downside is you can’t buy and sell crypto using fiat at Coinbase Pro.

Users do not Control Keys

Even though all of the centralized exchanges hold users private keys, this continues to be a major complaint of Coinbase users. There’s really not many ways to get around this, but users still remember the popular saying: “Not your keys, not your coins.”

Coinbase Limits User Privacy

Coinbase is definitely not a friend of privacy, and as far back as 2014 there have been reports of Coinbase tracking it’s users addresses, where they transfer coins, and how they spend coins. Users have had accounts frozen for sending to certain addresses. In 2019 Coinbase acquired a company called Neutrino.

Neutrino Announcing Acquisition.

The focus of Neutrino is analyzing blockchains in order to discover the identities behind addresses on those chains. Coinbase also recently attempted to sell its data to the Internal Reveneue Service (IRS) and the Drug Enforcement Administration (DEA). And it was successful in winning the contract to sell its data to the Secret Service.

If privacy is important to you stay away from Coinbase, but if you’re not bothered and love the ease of use then it could be your perfect exchange.

Coinbase Deposits & Fees

Coinbase has quite a confusing fee schedule, and that might be because they are trying to hide the high cost of their fees. They also have limited options for making deposits, which can be a real downside for some users. And currently in Australia Coinbase does not support selling cryptocurrencies. All of that means you can buy easily enough, but you’ll have to move your coins elsewhere if you want to sell them.

When it comes to fees there is an entire long page on the Coinbase website to explain the fee structure. You can have a look here if you like. A more simplified version of the Australia fee structure is shown in the chart below:

You will pay higher fees when you buy crypto at Coinbase. Image via Coinbase.com

Buying Crypto at Coinbase

Buying any cryptocurrencies at Coinbase begins with registering an account. That’s easy enough. From the home page click the “Sign Up” button in the upper right of the screen and then complete the simple form. Click the “Create account” button and you’re set.

Coinbase makes it easy to register a new account. Image via Coinbase.com

Once you’ve registered Coinbase will send you an email asking you to click a link and verify the email is yours. Following that they will send you an SMS to your mobile with a PIN that needs to be entered at the Coinbase site to verify your mobile number.

You can never be too safe when it comes to crypto. Image via Coinbase.com

This is the phone number that will be used later for 2FA codes, so be sure it’s one you will always have access to.

It’s also going to be necessary to provide Coinbase with your ID documents to complete the KYC process. And you’ll need to register a debit card to make purchases.

Once you’re logged into your account look for the blue button (BUY / SELL) at the top of the home page. Clicking it will bring up a box that allows you to BUY, SELL, or CONVERT Bitcoin and the other cryptocurrencies supported at Coinbase.

Buying crypto at Coinbase is just so easy. Image via Coinbase.com

Coinbase Insurance

Nearly all cryptocurrency exchanges have zero protections when it comes to investor schemes or government sponsored insurance plans, however Coinbase has privately insured its client’s funds against any losses due to hacking or theft.

Coinbase Security

Coinbase has long been very upfront in letting their clients know that security is extremely important when dealing with cryptocurrencies. Coinbase themselves help this along by requiring all accounts use 2FA for the log in process.

They also hold 98% of all client funds in cold storage to limit the amount of coins a hacker might be able to reach. Of course this helps them as well, since any successful hacking attempt would be compensated by their own insurance policy.

Even with all this security and safeguards we want to warn you never to store your coins in any exchange wallet. You should always move your cryptocurrency to a non-custodial third-party wallet that only you have access to. This is the only way you’ll know the coins you’ve purchased are actually in your possession.

Coinbase is the safest exchange for the time being.

While Coinbase does seem to be quite trustworthy, it’s worth noting that they also have frequent site outages, when users are unable to log in and retrieve their coins. Be safe rather than sorry and transfer the crypto you buy off the exchange.

Taken all together there are several serious downsides to using Coinbase in Australia, however if you’re looking for ease of use and aren’t expecting to sell your coins anytime soon, then Coinbase can be an acceptable alternative for buying crypto in Australia.

Conclusion

The options above are just a few that can be used to buy crypto in Australia. There are many others, but we think these four are enough to get anyone started.

But there are many exchanges not covered here, so to be complete you might want to conduct your own research on top of what we’ve already done for you. One option we like is Binance, because it offers one of the greatest varieties of altcoins and has some other excellent features and perks.

You can access our full Binance review here.

The post Buying CryptoCurrency in Australia: Top 4 Options appeared first on Coin Bureau.

Before you get started however let’s talk about why you want to actually buy Bitcoin, and not some derivative product like an ETF, a future, or a CFD.

You’ve probably heard about these derivative products that don’t actually have you owning anything when you buy them. Instead you are just speculating on the price of the asset, in this case Bitcoin.

Flying the Bitcoin Jack

It’s been said that this is a simple way to speculate on the price of Bitcoin, and at the end of the day that is true, but these derivative products have some definite flaws and risks, especially when it comes to Bitcoin.

The biggest flaw in using a derivative like a CFD or a spread bet is that Bitcoin was created in response to the financial mess created by derivatives in the 2007-2008 financial crisis. When you use derivatives to speculate on Bitcoin price changes you’re defeating the entire purpose of Bitcoin and the cryptocurrency revolution.

And with that out of the way let’s get on and learn how to buy some Bitcoin in the UK.

Coinbase

Coinbase is based in San Francisco in the US, but that doesn’t mean UK users can’t buy Bitcoin here. They certainly can. Established in 2012, Coinbase is the largest US cryptocurrency exchange and is also ranked among the top global exchanges.

In addition to being a cryptocurrency exchange, Coinbase is also a cryptocurrency brokerage. And they offer custodial storage services for institutions, a cryptocurrency payment platform, and their own stablecoin pegged to the US dollar called the USD Coin (USDC).

Buy Bitcoin at one of the largest global exchanges. Image via Coinbase.com

While Coinbase is the largest US cryptocurrency exchange, it is also disliked by the cryptocurrency community for several reasons:

• High fees: The fees at Coinbase are considerably higher than many of its competitors. The exchange is able to get away with this because their easy to use interface makes them perfect for new cryptocurrency users who are willing to pay a little more for simplicity and convenience. The high fees can be avoided by switching over to the Coinbase Pro platform, but this can be overwhelming to new crypto traders, plus it isn’t possible to buy and sell using fiat currency at Coinbase Pro.
• Users do not control private keys: While this is true for any centralized exchange, it remains a huge negative for Coinbase in the minds of many users. Anytime coins are held in an exchange wallet the exchange retains control over the private keys. Because the private keys convey control and ownership of the Bitcoin many users avoid any wallet that does not give them access to the private keys. A popular saying is “Not your keys, not your coins.”
• Coinbase attempts to limit user privacy: As far back as 2014, there have been reports that Coinbase tracks the ways its users transfer and spend their Bitcoin. This activity was confirmed in 2019 when it was learned Coinbase had acquired Neutrino, a tech company focusing on analyzing blockchains in order to discover the identities behind addresses on those chains. Many believe Coinbase acquired this company to reduce the privacy of Bitcoin users everywhere. Coinbase also recently attempted to sell its data to the Internal Reveneue Service (IRS) and the Drug Enforcement Administration (DEA). And it was successful in winning the contract to sell its data to the Secret Service.

Coinbase Deposits and Fees

Coinbase is well known for its confusing fee schedule, and the high cost of those fees. Added to that is a limited number of deposit options, making it not as simple as other exchanges when it comes to banking. Below is a chart showing deposit methods for Coinbase:

Take your pick of deposit methods. Image via Coinbase.com

When it comes to fees there is an entire long page on the Coinbase website to explain the fee structure. You can have a look here if you like. A more simplified version of the UK fee structure is shown in the chart below:

Fees are the worst part of buying Bitcoin. Image via Coinbase.com

Buying Bitcoin at Coinbase

Buying Bitcoin at Coinbase begins with registering an account. That’s done easily enough. If you land on the home page there is a button in the upper right to “Sign Up.” Click that and fill in you first name, last name, email address, a password, and check the box to certify you’re over 18 years old. Then click the button to create your account.

Quick and easy registration. Image via Coinbase.com

Following that you’ll receive an email from Coinbase where you’ll need to click a link and verify the email. Next you’ll be asked for your phone number and an SMS is sent to the number you provide with a code to be entered to confirm the phone number.

2FA checks keep your account safe. Image via Coinbase.com

This is the phone number that will be used later for 2FA codes, so be sure it’s one you will always have access to. Like any account these days you will also need to provide identity documents to Coinbase in order to unlock higher levels and buy, sell, and trade. And you will need to enter your account information for deposits and withdrawals.

Once you’re logged into your account look for the blue button (BUY / SELL) at the top of the home page. Clicking it will bring up a box that allows you to BUY, SELL, or CONVERT Bitcoin and the other cryptocurrencies supported at Coinbase.

Buy, sell, or convert cryptocurrencies quickly and easily. Image via Coinbase.com

Coinbase Insurance

Cryptocurrency exchanges have no protections when it comes to investor schemes or government sponsored insurance plans, however Coinbase has privately insured its client’s funds against any losses due to hacking or theft.

Coinbase Security

The first line of security at Coinbase is simply securing your own account. Coinbase helps with this by requiring some form of 2FA for all accounts. It then goes further by keeping more than 98% of all client funds in cold storage offline. And of course its insurance policy would pay for any losses due to theft or hacking.

That said, you should never store your Bitcoin in an exchange wallet. After you buy Bitcoin immediately move it to a non-custodial third-party wallet that you control. There are several reasons for this. One is that as long as the Bitcoin remains in the Coinbase wallet they have the private keys and retain control over the coins.

In other words they don’t truly belong to you. Also, Coinbase is a huge target for hackers, and just because Coinbase has never been the victim of a hack, it doesn’t mean they couldn’t be at any time. History shows that if your coins are stolen by a hacker there’s very little chance you’ll ever recover them.

Coinbase Earn

Free is good. Image via Coinbase.com

This is an interesting program that Coinbase added in 2019. It allows users to earn small amounts of alternate cryptocurrencies for watching videos and taking short quizzes about each specific altcoin. Coinbase is always adding new cryptocurrencies and users can earn over $150 in cryptocurrencies if they go through all the lessons.

Changelly

Changelly was launched back in 2013 as a prototype developed by the team at MinerGate, which was a popular mining pool at the time. Since then Changelly has gone its own way and the two businesses are no longer connected.

Changelly is a cryptocurrency exchange, but with a difference. It is used for cryptocurrency swaps, and as such it does not hold any user funds, nor does it participate in any liquidity pools. It is however, one of the most secure ways to exchange cryptocurrencies. And you can use it to buy Bitcoin in the UK using a credit card, which is incredibly convenient we think.

Choose from the best providers online. Image via Changelly.com

As you can see the credit card buying aggregates offers from other cryptocurrency selling services. Users can choose from Visa, Mastercard, Apple Pay, and bank transfer as the method of payment and can sort the offers based on these payment methods. And in addition to Bitcoin users can choose from over 130 other cryptocurrencies when they are ready to branch out.

Fees are pretty good too. Changelly finds the best offers available from providers, and it adds its own small 0.25% fee to the transaction. That sure beats the fees from other top exchanges.

After choosing your provider you’ll be asked to add your Bitcoin address on the next screen. This is where your Bitcoin will be delivered. It also means you need a Bitcoin wallet. There are a huge number to choose from and Bitcoin wallets are available for your PC or Mac, and for your Android or iOS phone.

Or you can simply use an online wallet. You’ll enter your address as shown below. Triple check to ensure you are entering the correct wallet address because Bitcoin transactions are irreversible. If you send your coins to the wrong wallet address that’s where they’ll stay.

Always triple check to make sure it’s the right address. Image via Changelly.com

In order to use the service you will need to sign up for whatever provider you’re using. So, Changelly will redirect you to the provider, and they will first ask for an email address to create an account with them. The provider may also ask for other information such as your name, phone number, or address. This is all in keeping with KYC requirements.

Is Changelly Safe?

Of course it’s well known that hackers can and do steal cryptocurrencies, and that there are plenty of other potential scams and fraudulent services out there. So what about Changelly? Are they trustworthy? Are they safe?

A simple three step process to buy Bitcoin. Image via Changelly.com

While nothing is ever guaranteed, we feel very confident in calling Changelly a safe exchange service. In fact, since it requires nothing but your email address (maintaining privacy), and it doesn’t use a custodial wallet to hold your coins, it could well be one of the safest alternatives for buying, selling, and trading cryptocurrencies.

And if you don’t believe us then look online and see what the internet has to say. You’ll find that Changelly users are pleased with the service, happy with the low transaction fees, and glad to have a service that maintains their privacy.

Paxful

Paxful is what is known as a peer-to-peer (P2P) marketplace, and it’s been connecting buyers and sellers of Bitcoin since 2015. Since that time it has grown to over 200 employees and offices that stretch from New York to Hong Kong, with offices in Manila and Talinn thrown in for good measure. All this is to say that Paxful is not some fly-by-night operation that can’t be trusted. Just check out this page for some social proofs.

3 million users can’t be wrong. Image via Paxful.com

So, why choose Paxful over a traditional exchange model like EXMO and Coinbase, or a swap service like Changelly? One very good reason is the huge selection of payment methods supported by Paxful. Where the other exchange services limit you to credit or debit cards and bank transfers, Paxful has a wealth of other options. No, seriously, Paxful has over 350 accepted payment methods.

Choose from the largest collection of payment providers. Image via Paxful.com

Getting started at Paxful is quite easy too. Head over to the website and look at the top of the page for a button that says “Get Started.” When you click that you’ll have the choice to Log In or to Create Account. Click that button to create an account.

Simple, quick signup process. Image via Paxful.com

You’ll almost immediately receive an email from Paxful with a link to confirm your registration. Click that link and you’ll be taken to your profile page. You will need to fill in your phone number here, and provide identification documents in order to use the platform.

Add your phone number here. Image via Paxful.com

How to Buy Bitcoin On Paxful?

Buying BTC on Paxful is pretty straight forward. Firstly, make sure our on the Paxful homepage, select the payment method you want to use and key in the amount you want to spend and be sure to select the currency of your choice. Then just tap that ‘search for offers’ button.

Search for the best deals. Image via Paxful.com

You’ll then see all the offers available on the Paxful marketplace which match your search query. Select the seller that you want to buy from by clicking the ‘Buy’ button and then key in the amount of money you want to spend.

Choose the best seller. Image via Paxful.com

Finally you’ll be taken to a chat page where the payment instructions for the transaction will be given.

Escrow with Paxful

Paxful provides a secure escrow service for Bitcoin transactions. Once you have selected a seller you want to use and the offer is accepted by the Bitcoin seller, the Bitcoin are automatically moved into escrow.

This means that the seller can no longer cancel the trade and that the buyer has a set amount of time to make the payment. If the payment is made within the timelimit, then the Bitcoin is transferred to the buyer.

Is Paxful Safe?

Because Paxful is nothing more than a marketplace bringing buyers and sellers together some caution is certainly a good thing. That aside, Paxful is trusted by more than 3 million users globally and has an excellent reputation. It uses an escrow model that ensures sellers actually have the Bitcoin they are claiming to sell, and that it gets delivered to the buyers.

At the same time it also ensures that the buyers make good on their end of the deal and deliver the payment to the seller. It actually works very well and takes the need to trust the other party out of the equation since the Paxful system makes the trades trustless.

• To ensure your buying experience is as safe as possible follow these tips:
• Check the seller reputation score and be sure it’s as high as possible.
• Choose sellers with over 6 months on the platform and with many positive reviews.
• Keep all communication with the seller on the Paxful platform

Conclusion

As you can see there are plenty of options for buying Bitcoin in the UK, and to be honest this review has only scratched the surface. There are many other exchanges we haven’t covered here, such as Binance.

While we might not choose Binance as our best Bitcoin exchange, it is our favorite altcoin exchange, and when your ready to expand from Bitcoin into other coins you might want to give it a go too. You can access our full Binance review here.

Featured Image via Shutterstock

The post Buying Bitcoin in The UK: All The Options appeared first on Coin Bureau.

Image via Status

These are just a few of the many questions people have been asking since Ethereum 2.0 launched. Here at the Coin Bureau, we have been keeping an eye on these questions. While you will find some of the answers in our recent video about Ethereum 2.0, others are going to need some more attention.

By the end of this article, you will have a good grasp of Ethereum 2.0 and will also have the answers to just about every question you might have about it.

What is Ethereum?

If this is the first question that came to mind when you saw one of the many headlines about Ethereum 2.0, we recommend you read our in-depth article about Ethereum first. In short, Ethereum is a cryptocurrency that doubles as a platform on which you can build applications.

A few of the applications built on Ethereum.

Applications built on Ethereum are similar to those you find on your computer or on the internet. The difference is that applications built on Ethereum are decentralized – they are not kept on a single computer or server.

A more technical overview of the Ethereum blockchain. Image via Researchgate

Instead, applications on Ethereum are stored across the multiple computers that are connected to its blockchain network. This means that it is virtually impossible for any applications made on Ethereum to experience downtime. It also makes it hard for regulators to restrict access to them or shut them down.

The Ethereum script required to create an ERC-20 token is incredibly simple. Image via Medium

In addition to applications, Ethereum allows you to easily create digital tokens. Instead of having to build your own cryptocurrency from scratch, you can use a sort of “template” provided by Ethereum.

This template is called the ERC-20 standard, and over 200 000 different tokens have been made on Ethereum so far. Some have very unique qualities programmed into them (check out Ampleforth).

Why is Ethereum Important?

There is a reason why Ethereum is the second largest cryptocurrency by market cap. It sustains the largest ecosystem of applications in the cryptocurrency space, and over half of the top 100 cryptocurrencies are built on the Ethereum blockchain as ERC-20 tokens.

Much of Ethereum’s ecosystem (excluding the 200 000 tokens, of course). Image via TheBlockCrypto

Most importantly, almost the entire decentralized finance space is built on Ethereum. The DeFi space consists of a couple dozen applications that let you do things like trade, lend, and borrow ERC-20 tokens without a centralized entity like a cryptocurrency exchange or bank.

DeFi has seen significant growth in 2020.

As it turns out, cutting out the middleman is quite lucrative. Annual interest rates in Ethereum DeFi protocols can be anywhere between 3-10 000%+ (though the extreme APYs are rare and short lived). This has attracted nearly 15 billion dollars of cryptocurrency to the DeFi space, which is growing by the day.

Image via Ethgas

The ETH token is used to pay for Ethereum’s network fees known as gas, and this is measured in a unit called gwei. As demand for tokens and applications grows, so too does the demand for ETH. This is why some believe Ethereum may someday overtake Bitcoin to become the largest cryptocurrency.

The number of transactions on the Ethereum network has been rising steadily since its release.

There is just one problem: the Ethereum network can only handle around 15 transactions per second. This means that the ever-increasing number of people using Ethereum applications is not sustainable. Ethereum cannot scale, and it is only a matter of time before there are too many users for the network to support. High network fees on Ethereum have already been in the news for months.

This is where Ethereum 2.0 comes in.

What is Ethereum 2.0?

Ethereum 2.0 is Ethereum’s solution to its scaling problem. It has been in the works since Ethereum’s creation in 2015 when it was known by the name Serenity. You can think of Ethereum 2.0 as the next stage of Ethereum’s evolution as a cryptocurrency platform.

How Does Ethereum 2.0 Work?

Ethereum 2.0 consists of an entirely new blockchain called the Beacon Chain. The Beacon Chain uses something called sharding to increase Ethereum’s performance. This essentially involves creating additional blockchains called shards that attach to the main chain (in this case, the Beacon Chain).

A technical overview of Ethereum 2.0’s Beacon Chain. Image via Medium

Since you no longer rely on a single blockchain to process transactions, you can allocate certain applications to specific shards. For example, you could have a sharded chaid for all the virtual worlds built on Ethereum such as Decentraland, and another shard that is exclusively for DeFi protocols like yEarn.

The roadmap for Ethereum 2.0 and where we are.

The rollout Ethereum 2.0 is divided into multiple stages. Even though the Ethereum 2.0 network technically went live on December 1^st, there is still a long way to go before it is fully operational. In other words, you will not be seeing any applications or DeFi protocols on Ethereum anytime soon.

The full rollout of Ethereum 2.0 is expected to take around 2-3 years (from the time of writing). Until it is complete, Ethereum and Ethereum 2.0 will exist in parallel. This will have some interesting effects on the price and economics of the ETH cryptocurrency. These will be discussed at length later in the article.

Differences Between ETH 1.0 & ETH 2.0?

There are two major differences between Ethereum and Ethereum 2.0: network speed, and how ETH cryptocurrency is mined. Whereas Ethereum can only process 15 transactions per second, Ethereum 2.0 can theoretically process around 100 00 transactions per second.

Image via Ledger.

In Ethereum, new ETH is given as reward to miners who dedicate their computing power (usually in the form of specialized cryptocurrency mining equipment) to verify transactions by solving cryptographic puzzles on the Ethereum blockchain. This is called proof of work mining and it is the same mining process used in Bitcoin.

Image via Ledger

Instead of proof of work, Ethereum 2.0 uses proof of stake. This involves putting down a large amount of ETH to act as a node (using a regular computer) which validates transactions on the Ethereum blockchain in exchange for more ETH. The twist is that if you stay offline for too long or try to manipulate the network, you can lose some or even all your staked ETH.

Ethereum 2.0 Staking FAQs

After years of testing Ethereum 2.0, the official staking contract for Ethereum 2.0 launched on November 4^th, 2020. This was a sort of “accumulation phase” wherein a minimum of just over 525 000 ETH needed to be staked by over 16400 unique validators for the next phase to begin.

Participation was quite low at the start of the Ethereum 2.0 launch phase.

This accumulation phase necessary to ensure that the network was sufficiently decentralized before launching. Ethereum was having a hard time reaching this threshold at first, but the minimum amount of participation was achieved just in time for the December 1^st launch.

Ethereum 2.0 Staking Rewards

Staking rewards on Ethereum 2.0 range from around 22% to 5% per year (paid in ETH) depending on the amount of ETH being staked on the network.

Current annual returns for staking on Ethereum 2.0.

As you can see, the more ETH that is staked on Ethereum 2.0, the lower the annual returns. This reward schedule is intended to strike a delicate balance between incentivizing people to stake and protecting the ETH cryptocurrency from experiencing too much inflation.

How do I stake Ethereum 2.0?

You can stake on Ethereum 2.0 in one of two ways. The first way is to run your own validator node which requires 32 ETH, a solid internet connection, and a moderately powerful computer. You can read all the details about what you need if you want to run a validator node on Ethereum 2.0 by clicking here.

A few of many staking pools for Ethereum 2.0

The second way to stake on Ethereum 2.0 is to join a staking pool. At the time of writing, there are dozens of staking pools for Ethereum 2.0. Most major exchanges have also added support for Ethereum staking. If you use an exchange like Binance, Coinbase, or Kraken, you can stake your ETH there.

But before you do, there is some fine print you should know about.

Ethereum 2.0 Staking Conditions

There are a few important things you need to keep in mind before you stake on Ethereum 2.0. The first is that for the time being, it is a one-way trip. In other words, once you commit your ETH to the Ethereum 2.0 network, there is no turning back – you cannot convert it back into 1.0 ETH.

Second, if you decide to run your own validator node on Ethereum 2.0, any downtime you experience (e.g. your internet goes down) can result in you losing some of your staked ETH. This is called slashing, and it can even occur by accident if there is an error in the network, and you will not be compensated.

Third, you will not be able to move your staked ETH until the next phase of Ethereum 2.0, which will occur in the next 1-2 years. This means you will not be able to withdraw, trade, or do anything with that staked ETH. That is unless of course you decide to stake your ETH in a pool that offers tokenized ETH 2.0.

What Is Tokenized Ethereum 2.0?

Also referred to as ETH 2.0 or Beacon Chain ETH, tokenized Ethereum 2.0 is an ERC-20 on the original Ethereum blockchain which represents ETH that has been staked on the 2.0 network. You can consider it to be a clever workaround to the 1-2 year lock up period for staking on Ethereum 2.0.

The Uniswap decentralized exchange, one of the most popular applications built on Ethereum.

This tokenized ETH is basically a sort of IOU – you stake your ETH on Ethereum 2.0 in a special staking pool, and a custom Ethereum application created by the staking pool provider will mint (create) an ERC-20 version of the ETH you have staked in the 2.0 pool. You can freely trade this tokenized Ethereum 2.0 if you wish (though you will probably have to use a decentralized exchange like Uniswap to do so).

So called “interest bearing tokens” such as aTokens issued by Aave are popular in the DeFi space.

The nifty thing is that this tokenized Ethereum 2.0 will accrue a portion of the interest being earned by your staked ETH in real time! Also, whoever holds that tokenized Ethereum 2.0 will be able to redeem the staked ETH it represents when it becomes possible to move it in the next 1-2 years.

The benefit to the staking pool operator for providing this tokenized Ethereum 2.0 is that it will likely attract more stakers to their pool, increasing the pool provider’s staking rewards. The benefit to you is that you still have access to your staked ETH.

How Can I Get Ethereum 2.0?

While you cannot actually buy Ethereum 2.0 yet, you will soon be able to get a tokenized version of ETH being staked on Ethereum 2.0 (as discussed in the previous subheading).

Rocket Pool’s recent announcement regarding their development of tokenized Ethereum 2.0.

Rocket Pool is currently developing the technology to do just that and expects to make tokenized Ethereum 2.0 a reality some time in early 2021. The FTX cryptocurrency exchange is also considering launching a staked ETH token.

Should I Stake Ethereum 2.0?

This depends on whether you are in it for the long haul or not. If you are just looking to make a quick buck from your ETH, you will probably be better off not staking. We are at the start of another cryptocurrency market bull run, and you might miss out on a good selling opportunity if your ETH is locked on the Ethereum 2.0 network.

Bitcoin’s stock to flow model is said to influence cryptocurrency market trends. Image via Lookintobitcoin

However, if it becomes possible to tokenize the ETH staked on Ethereum 2.0, this will allow you to sell your staked ETH by proxy when the price is right. Obviously if you are in it for the long haul, the question of staking or not should be a no brainer. Note that this is not financial advice, and the decision to stake is ultimately yours to make.

If any questions about Ethereum 2.0 staking were not answered here, check out the Ethereum Launchpad.

Will Ethereum 2.0 affect Ethereum price?

The short answer is yes. How exactly Ethereum 2.0 will affect Ethereum’s price however is something that is a bit more complicated. Here are a few scenarios to consider. It is likely that we will see some combination of all of these in the near future.

Scenario 1: Reduced ETH Supply Increases The Price Of ETH

As you have read, any ETH that is staked on Ethereum 2.0 will be locked up for 1-2 years. This means that any ETH that is staked is effectively not in circulation. This would have a positive impact on the price of Ethereum, because assuming demand stays the same, a limited supply means an increase in price.

Participation was quite low at the start of the Ethereum 2.0 launch phase.

At the time of writing, just over 1 million ETH is being staked on the Ethereum 2.0 network. This is slightly less than 1% of Ethereum’s total supply. While this may not have a very restrictive impact on supply, it certainly will if the amount of staked ETH was to rise to say, 10-20% of ETH’s total supply.

Scenario 2: Tokenized Ethereum 2.0 Leads To Unsustainable Price Growth

Things get a bit more complicated when you throw tokenized Ethereum 2.0 into the mix. Having a tokenized version of ETH that accrues interest and can be freely traded would be incredibly valuable, especially to those using DeFi applications.

Many have speculated that tokenized Ethereum 2.0 will be in very high demand if released.

The demand for tokenized Ethereum 2.0 would be incredibly high and could even be so high that tokenized Ethereum 2.0 would be worth more than Ethereum. This price imbalance would likely be temporary as it would motivate people to stake their ETH to create tokenized Ethereum 2.0 that they can sell at a premium.

This is where things could get messy though, because if the demand for tokenized Ethereum 2.0 becomes too high, it could eventually lead to a crash of the Ethereum network and price of ETH.

Higher prices leading to higher demand leading to higher prices is a vicious cycle. Image via Financial Times

A high demand for tokenized Ethereum 2.0 motivates people to stake more ETH on the Ethereum 2.0 network. This reduces the circulating supply of ETH, making ETH more valuable. This makes tokenized Ethereum 2.0 even more valuable, leading to an even higher demand and consequently more staking.

In short, tokenized Ethereum 2.0 could take the price of ETH higher than ever before, but it could do so in a way that is unsustainable and could even crash the network.

There are only around 200 000 DeFi users. Image via Medium

Thankfully there will probably not be enough demand for tokenized Ethereum 2.0 for this to happen, simply because there are not enough people who understand DeFi.

Scenario 3: ETH Prices Crash Temporarily After Ethereum 2.0 Can Be Traded

As you read this, there are tens of thousands of validators on Ethereum 2.0 earning interest in ETH. They are not able to sell the ETH they have earned… yet. When it does become possible for them to do so, it is very unlikely they will simply continue to sit on that ETH.

Miners tend to sell their crypto sooner than we do.

You see, many of the validators on Ethereum 2.0 are or used to be Ethereum miners. They are there to make a profit, and they regularly sell any ETH they have earned as a way of making that profit. After two years of no profit, they would be itching to sell most if not all the ETH they have accumulated.

Token emission schedules such as this one for Solana’s SOL token can have a negative impact on price. Image via Binance

Basic economics dictates that this massive supply of ETH being sold at once could crash its price. This would likely be temporary however, and developers at Ethereum could also mandate a sort of cool-down period wherein these validators would not be able to move more than a certain amount of ETH at one time.

Scenario 4: Ethereum 2.0 Fails And ETH Prices Crash

This is probably the least likely scenario, but it is certainly one to keep in mind. If something goes terribly wrong with Ethereum 2.0, that could have a devastating impact on the price of ETH. For the time being, Ethereum essentially has no competition – they are the largest cryptocurrency in their genre by far.

A few of Ethereum’s competitors. Image via Medium

That said, there is technically competition, namely from projects like Polkadot and Cardano which were both created by former co-founders of Ethereum. If anything was to go wrong with Ethereum 2.0 or during the transition from Ethereum to Ethereum 2.0, faith in the network would switch quite quickly along with the money currently invested in it.

This begs the question, if Ethereum is so slow, how will it survive until Ethereum 2.0 is completed?

What Will Happen To Ethereum?

Ethereum is not going anywhere for the next few years. This is in large part due to the plan by Vitalik Buterin and other Ethereum developers to implement layer-2 scaling solutions onto the network. They believe that this will allow Ethereum to remain competitive against other similar cryptocurrencies until Ethereum 2.0 is finished.

The timeline for Ethereum scaling as outlined by Vitalik Buterin.

Most layer-2 scaling solutions basically involve processing some portion of transactions on a separate blockchain and then recording them on the Ethereum blockchain in a batch as a single transaction. These types of scaling solutions are referred to as rollups, zkrollups, or zksnarks.

An overview of a few scaling solutions for Ethereum. Image via Twitter

Layer-2 scaling solutions will bump Ethereum’s transactions per second from 15 to anywhere between 1-4000. If are curious to know how this is accomplished or want to know about some layer 2 projects, check out OMG Network and Loopring.

Once Ethereum 2.0 is finished, everything built on Ethereum will have to be migrated to Ethereum 2.0. This process will likely begin long before Ethereum 2.0 is open for business and will probably be the make or break moment for the project.

If this migration is too turbulent or if there are any significant issues with the 2.0 network, Ethereum could potentially lose some or all its ground to its competitors. If all goes well however, Ethereum might just surpass Bitcoin as the largest cryptocurrency by market cap.

Featured Image via Shutterstock

The post Ethereum 2.0: Complete Overview of ETH’s New Form appeared first on Coin Bureau.

I remember the assistant branch manager once showing him how to use the cash machine there and explaining to him how the shiny new debit card he’d been sent in the post worked. I also remember his assessment of this experience as we walked away: ‘a lot of nonsense.’ The world he lived in was changing and so too was the money that made it go around, but he preferred to stick with what he knew.

Image via Nairametrics

It’s been fewer than 20 years since he died but, when I think how much has changed in that time, it seems like more. Here in the UK and in the developed world as a whole, the use of cash is plummeting.

Cheques have almost completely died out and I for one can’t remember the last time I visited my local bank branch. I sure as hell couldn’t tell you the manager’s name. An increasing number of us manage most or all of our financial affairs online and we pay with a card when – or if – we visit a shop.

Online payments have gone through the roof in the last few years, with platforms like PayPal or Google Pay making the process almost absurdly easy. The pandemic, with its lockdown and social distancing measures, has only accelerated the pace of change. It’s never been easier to spend money.

The Death of Cash

We are moving towards a cashless society. Many see this as being a good thing and consider the use of cash to be outdated and inefficient. Others point out that this trend threatens some of the most vulnerable members of our society, who have many reasons for relying on cash. As with any upheaval, there are winners and losers.

Death of Cash. Image via Shutterstock

The shift in the way we use and spend money is not confined to the high streets of the developed world. Across much of Africa, especially in remote areas, many people now pay for goods and services with their mobile phones and have little or no interaction with cash or banks.

In Asia, steps have been taken to try and reduce cash use. India has reduced the number of high denomination notes in circulation, while South Korea is phasing out coins altogether in recognition of the growing use of cards and smartphones.

Having a bank account is something most of us take for granted. However, across the world, including in developed nations like the UK, there are thought to be nearly two billion people who don’t have access to what you and I probably consider to be a basic service. The global banking system serves the interests of those lucky enough to have money. Those who don’t are all-too-often left out in the cold.

A change is Gonna Come

The financial crash of 2008 showed how wide the gulf was between the banks and the majority of ordinary people. We could only stand by and watch as almost nobody from the sector was held to account for what went wrong and the banks themselves were bailed out with money from our taxes.

It’s no surprise that this injustice helped give birth to perhaps the biggest threat to traditional finance. In 2009, Satoshi Nakamoto published the whitepaper for bitcoin, the world’s first and still foremost cryptocurrency.

One Currency to Rule Them All

Here at last was something to challenge the status quo: a digital currency that cut out all the middlemen and allowed users to transact directly with each other. They could do so anonymously and neither bankers nor tax authorities could intervene to take their cut. It was no surprise to see powerful figures in the banking industry going out of their way to bash bitcoin and predict its demise.

A lot has happened since Satoshi first outlined his vision. Bitcoin has exploded in price, thousands of other cryptocurrencies have sprung up and now we are seeing the explosive growth of the decentralised finance (DeFi) sector. One thing is certain: cryptocurrencies are now a feature of the financial landscape. The big beasts of traditional finance are starting to acknowledge this, as well as the need to work with them rather than against them.

The Next Step

For economists looking towards the future of money, the decline of cash and the rise of cryptocurrencies both point in the same direction. Our lives are becoming ever more digitalised, as we spend more and more time online. The money and financial systems of the future will need to acknowledge this fact if they are to remain relevant and useful to us. The world my grandfather lived in is gone and won’t be coming back.

Bank of England. Image via Shutterstock

Across the world, central bankers and policy-makers are taking note of the change. There is a growing realisation among many of them that the concept of digital currency needs to be brought into the mainstream. The idea may once have been seen as a threat, but now its potential is becoming apparent. Thus, the idea of digital currencies issued by central banks may soon become a reality.

Why go Digital?

Central banks have their reasons for wanting to phase out cash, though it is unlikely they will want to get rid of it altogether. Cash is often associated with parts of the economy that are hard to regulate and, crucially, hard to tax. Criminals, money launderers and those wanting to avoid paying tax all make extensive use of cash, which is hard for the authorities to keep track of. Limiting its use thus helps starve the black economy of oxygen.

Cash is also expensive to produce and distribute. Constant innovation is needed to keep ahead of advances in counterfeiting technology, while the costs of transporting and safely storing it are high. The Bank of England estimates that it spends £40 million a year replacing damaged notes and its rollout of new polymer banknotes over the last few years has been an expensive process.

20 Pound Bank Note. Image via Bank of England

The downsides of cash, coupled with the rise of cryptocurrencies, makes the idea of issuing digital currencies an intriguing one for central banks. But, before we look into those banks and countries that are considering such a move, we need to draw an important distinction.

Digital vs Crypto

Don’t be fooled into thinking that the banks have suddenly embraced cryptocurrencies with open arms. Bitcoin, ether and the thousands of other coins out there are still anathema to the folks in suits. What is being embraced is the technology behind them and the aspects of them that can be advantageous to the current system.

Yes, the banks are waking up to the promise of blockchain and how it can be harnessed to power digital versions of established fiat currencies. Note the distinction: digital, NOT crypto. These mooted digital currencies will not be mined through solving cryptographic puzzles, and it’s unlikely that they will give their users anonymity.

Their value will be pegged to that of the national currency they represent and their supply will be regulated by the central banks that issue them. And, of course, those central banks will want them to be traceable and taxable.

The Taxman Wants his Cut!

Banks across the world have been working on the idea of central bank digital currencies (CBDCs) for some time and a few have even completed pilot schemes. The Central Bank of Uruguay ran a pilot from November 2017 to April 2018 of its e-Peso, with transfers facilitated by mobile phones. As well as the Central Bank, a number of private companies, including IBM, took part in the trial. Results are still being evaluated and the scheme was considered a success.

South America could prove particularly receptive to this type of initiative, as several countries there, most notably Venezuela, have been struggling with hyperinflation and the economic devastation it brings with it. Crypto has provided a lifeline here and Latin American governments will be hoping that digital currencies may be able to do even more.

In Sweden meanwhile, where over 80% of transactions are electronic, a trial of the e-krona is ongoing and due to end early next year. The Riksbank of Sweden has been quoted as saying that it believes that ‘a scenario within the not-too-distant future, in which cash is not generally accepted, cannot be ruled out.’

Two Countries Considering CBDC

The most important pilot scheme of all is that currently underway in China, a country which has always viewed cryptocurrencies with deep suspicion. As such, the People’s Bank of China first began considering the idea of issuing its own digital currency back in 2014, long before the crypto bull run kicked into gear in 2016/17. The thinking was that, if digital currencies were going to change the world, then the People’s Republic needed to be ahead of the curve.

In 2017 its ‘Digital Currency/Electronic Payments’ (DC/EP) project was launched as part of a broader scheme to upgrade the country’s technology sector. The heightening of tensions with the US thanks to Donald Trump has spurred the project on, as China seeks to shrug off its reliance on American finance.

A pilot scheme was begun across four Chinese cities earlier this year and later expanded to include 28 more. It appears to have been successful and a formal launch is mooted for sometime towards the end of this year, though the coronavirus crisis may have set this back. Nevertheless, analysts predict that it could succeed in largely phasing out cash by 2022.

All Eyes on China

The success or otherwise of China’s experiment will be watched keenly across the world. The central banks of many other countries are researching and in some cases actively developing their own CBDCs. These projects will almost certainly be stepped up if the Chinese pilot scheme proves successful.

Image via Shutterstock

Canada, Brazil, South Africa and France are all reported as having schemes in development, while in the UK the Bank of England is actively researching the possibility of taking sterling digital.

That’s not to say there aren’t sceptics. While there’s an impressive list of countries either researching or developing CBDCs, several are not. These include the likes of India and Italy, as well as several nations perceived as being particularly tech-savvy like Finland, Estonia, Lithuania and Denmark.

All the countries have CBDC programs that have been allowed to languish, with several citing concerns about the viability of the underlying technology as a factor. Others claim that the benefits of CBDC schemes cannot be said to outweigh the potential risks. That list of naysayers may be as telling as the list of those jumping aboard the CBDC bandwagon.

Pros & Cons

There can be no doubting the potential CBDCs have to continue the breakneck pace of change that is sweeping through the world of finance. As cash use dwindles, digital versions of existing fiat currencies could fill the gap it leaves behind. It is hard to imagine a different scenario.

If this change has the desired effect: if it is indeed able to reach those billions of unbanked people across the world and bring mainstream finance to them, then this is surely a good thing. If by gradually phasing out cash and replacing it with something more traceable, central banks are able to limit funding for organised crime and terrorism, then so much the better.

The Stick up of the Century

CBDCs could potentially offer greater control over the monetary system and may be a valuable tool against future market crashes and hyperinflation. They could also speed up retail payments, allowing money to move more quickly and easily around the world.

Yet there is still plenty that we don’t know. Blockchain promises much and its cheerleaders tout it as a safe, secure system on which to build the technology of tomorrow. But how safe and how secure? If ways are found to compromise it then CBDCs could become a glaring point of weakness for those states that implement them.

The question of disintermediation also keeps many bankers awake at night. Could CBDCs negate the need for retail banks? If they follow the lead of cryptocurrencies then an explosion in the growth of peer-to-peer transactions could make many banks redundant. Could the global financial system withstand such a blow?

Trustless Blockchain Tech. Image via Shutterstock

Finally, some countries have questioned the need for CBDCs by pointing out that the current systems we have in place are already pretty damn efficient. Online payment platforms make it easy for so many of us to send money to all corners of the globe, while the old days of traveller’s cheques and suitcases full of foreign currency are long gone for those travelling abroad.

Do we really need the disruption that CBDCs will inevitably cause before their use becomes widespread? Many see the question as a solution in search of a problem.

Conclusion: Buckle up

It would take a brave soul to bet against the eventual introduction of CBDCs across the world. They are a natural meeting point for the worlds of traditional finance and cryptocurrencies and almost certainly represent the next leap forward for the global financial system. World leaders, economists and bankers are all coming to realise that the future is digital.

Much will depend on the success of China’s trial scheme. If all goes well in the People’s Republic then the rest of the world won’t be far behind. Other trials in South Korea, Thailand and Ukraine may well offer more valuable insights and the reports from Uruguay and Sweden will make for fascinating reading. But make no mistake, China will lead the way as it continues to vie with the US for economic supremacy.

The way people across the globe earn, store and spend money is changing all the time and it won’t pay to get left behind. We will have to hope that CBDCs can empower those at the bottom of the pile and give them access to the financial products so many of us consider a birthright. Even it that does happen, I wouldn’t expect my grandfather to have been impressed.

Featured Image via Shutterstock

The post Central Bank Digital Currencies (CBDCs): Complete Beginner’s Guide appeared first on Coin Bureau.

Yet, as with any crisis worthy of the name, there are always those who benefit. A lot has been written about the companies and individuals making money in these dark times and we can’t get enough of reading about the tech giants are getting richer than ever, as we all sit clicking our way through the days.

Losers & Winners

Just today, it was revealed that Mark Zuckerberg had joined the exclusive centibillionaires club – a fact that manages to be both unsurprising and infuriating at the same time. On that note, I implore you not to look at the graphic that visualizes Jeff Bezos’s wealth. It’ll only make you depressed.

Despite the grim reality of Jeff, Mark and their buddies making money while the rest of us stew, there are glimmers of light. One of these emanates from the decentralised finance (de-fi) space. At the start of 2020, there was around $665 million locked into de-fi; a figure which has grown to $4.2 billion. As our faith in mainstream financial systems wavers, so more of us are turning to alternatives.

The Rich Get Richer. Image via Shutterstock

De-fi offers us the chance to take control of our own crypto assets and make use of them as we see fit – all beyond the reach of banks and other traditional lenders. We can take out loans, supply liquidity to earn interest and trade, all outside the financial mainstream.

The decentralised aspect cuts out the middlemen (and their hefty cuts) and gives us greater returns to complement our increased control. It’s a rare and welcome case of the little guy coming out on top.

Things move fast in the world of blockchain and crypto. Many of us may only be starting to get our heads around the specs and potential of de-fi, but others are way ahead. For those new to the space, it can seem like the best de-fi gains have already been made.

Big de-fi platforms like Aave and Kava have rocketed in value as money pours into the sector and smaller investors could be forgiven for thinking that the train may have pulled out of the station.

The Decentralised Finance Revolution. Image via Shutterstock

But another train is pulling in, bringing with it yet more potential for those able to jump aboard. Non-fungible tokens (NFTs) are considered by many to be the next big thing in the cryptoverse and could help take de-fi itself to the next level.

There are already some exciting use cases for NFTs, as well as new platforms springing up to help us take advantage of them. But before we get into all that, let’s take a look at exactly what NFTs are and how they work.

NFTs: A Beginner’s Guide

When explaining NFTs it’s perhaps best to start by talking about their polar opposite. Fungible assets are something we encounter every day with the fiat currencies we use. So for example, one US dollar is like every other US dollar out there.

The buck in my wallet is worth exactly the same as the buck in yours and both are completely interchangeable. These dollars, like every other dollar in existence, are thus fungible. Cryptocurrencies are fungible too: a bitcoin is a bitcoin is a bitcoin.

Fungibility & Tangibility Explained. Image Source

A non-fungible asset is therefore one that has its own unique qualities and cannot be readily exchanged with another. Let’s take a book as an example. Back in 1998, John Paul Getty Jr paid $7.5 million ($11.5 million today) for a first edition of The Canterbury Tales by Geoffrey Chaucer. Not everyone’s idea of a little light reading, but each to their own.

When I looked on Amazon just now, the most expensive copy available was the ‘deluxe gift edition,’ retailing at the princely sum of £14.95 ($19.57). A quick calculation tells me that I can settle down and read the Wife of Bath’s and the Miller’s tales just like the late Mr Getty may have done, having paid $11,499,980.43 less for the pleasure of it than he did.

The point here is that although my copy of Chaucer’s page-turner may contain the same material as the first edition, they are palpably not interchangeable. One is a rare and valuable piece of England’s literary history, the other is a mass-produced hardback delivered to my door by one of Bezos’s henchmen. If I were to turn up and try and swap one for the other then the chances are I’d find myself in prison with plenty of time to catch up on some reading. Both books are non-fungible.

Some of the exotic pets on offer over at Cryptokitties

Perhaps by this point, you’ve made the natural progression from The Canterbury Tales to the CryptoKitties phenomenon. The latter is currently the best-known example of an NFT in the crypto sphere. This frankly baffling trend sees users pay to buy, sell, breed and customise digital cats.

Each cat is unique and some change hands for large sums, thus proving the adage that a fool and their money are soon parted. CryptoKitties was developed by Axiom Zen on the Ethereum blockchain and became so popular that in December 2017 it almost brought the entire network to a standstill.

Happily for proponents of NFTs, their potential extends way beyond the brightly-coloured inanity of the digital cat sphere. Before we look at these in more detail, it’s worth taking a glance at the two different types of NFT out there.

Token Types

You’re probably familiar with ERC-20 tokens – the Ethereum-based assets created by smart contracts that can be sent and received. Many popular cryptocurrencies use the ERC-20 standard, including Basic Attention Token, 0x, EOS, Augur and TRON. These are, of course, all fungible tokens.

Non-fungible tokens have two different issuance standards. The first and most popular is ERC-721. Your lovingly-collected Cryptokitties are basically ERC-721 tokens. Then there are the more versatile ERC-1155 tokens. These allow for both non-fungible and fungible issuance and are currently most common in blockchain games.

Some Valuable Fortnite vBucks. Image via PC Games

If you’ve ever played Fortnite then you’ll be familiar with the various weapons and outfits you can acquire, which are non-fungible. But the game also has its own native currency (V-bucks) which allows you to make those in-game purchases.

These V-bucks are the fungible assets that the ERC-1155 standard can support alongside the non-fungible ones. ERC-1155 essentially allows developers a much greater level of flexibility.

NFTs On The Market

We’ve seen how NFTs essentially function as digital collectables. And, as they are issued on the blockchain, they have a number of advantages over other non-fungible assets such as rare books or works of art.

They cannot be counterfeited, replicated or printed on demand and they enjoy the same ownership rights and permanence guarantees that you find with Bitcoin. As a result, they can function as a much less unwieldy store of wealth than many of their physical equivalents.

The NFT market has already seen over $100 million in volume since its inception and is growing rapidly. Much of its focus is currently on blockchain games and the opportunities contained within them, but other platforms are making use of the technology and opportunities are opening up.

NFTs and Defi

DeFi has a limitation in that it’s confined to the cryptocurrency sphere. All the services it offers revolve around crypto – the loans taken out, the interest earned and the trades made are all done through the leveraging of crypto assets. NFTs offer a chance to expand DeFi’s scope beyond all that and bring real-world assets into play.

One platform set up to make this happen is Tinlake, this securitization Dapp on Ethereum allows investors and borrowers to finance their own asset pools. That’s done with open sourced smart contracts which easily integrate with the DeFi ecosystem.

In short, companies seeking finance or cash flow in the real-world can offer up assets as collateral. Tinlake then tokenizes these assets and brings them on-chain as non-fungible tokens.

How Tinlake Works. Image via Tinlake

On the flipside, the investors get access to a new asset class that may previously have been out of reach. Banks are kept out of the picture all along the way.

The smart contracts that Tinlake uses pool the NFTs representing the real-world assets. These pools then raise funds in stablecoins like DAI by issuing fungible tokens as shares of the pools’ proceeds. These tokens are interest-bearing and take the form of risk tokens (TIN) and yield tokens (DROP). Both tokens are burned when funding is paid out.

There’s a lot more to Tinlake than this article has scope for, but it is essentially offering an entry point for NFTs into the de-fi space with enormous benefits for both. Companies can use the platform to raise capital, get advances on cash flow or securtize real-world assets, while investors can diversify into new asset types that leverage NFT’s.

Blockchain Games

This sector is currently dominating the NFT project rankings, with in-game collectables forming the primary use for the tokens. As we’ve seen with Fortnite, such collectables are a huge part of the appeal for gamers and the use of ERC-1155 tokens also enables native tokens to be used as well.

Both play a vital role in building and maintaining the worlds that such games look to create. The more immersive the experience for the player, the more they are likely to play the game.

Many of these games have taken already-existing formats and updated them for the blockchain era. Where once upon a time kids traded football cards in the playground (sigh), now they can do so on the blockchain, using Sorare.

Some of the Blockchain Cards on Sorare. Image via Sorare

Here, cards can be bought and sold, as well as pitted against each other in virtual matches and updated as the season and player stats progress. There are a whole load of other trading card games out there too, including Contract Servant and Gods Unchained, which all offer variants on the theme.

The virtual world sphere is particularly well represented with The Sandbox, Decentraland, Somnium Space and Crypto Voxels all providing places for users to buy land, build empires and see their virtual assets appreciate in value if they have the knack.

Land owned in these games could be rented out to advertisers, with the original owner retaining that ownership throughout, while skins and weapons could also become collectable. Again, this ability to have in-game purchases accrue in value over time plays a big role in building the world of the game itself and retaining players within the ecosystem.

Alongside CryptoKitties sits another big digital pet platform in the form of Axie Infinity. The premise is similar: buy a digital creature (called an Axie), customise it and put it up against those of other players.

Steps to Getting started on Axie Infinity. Image via Axie Infinity

As with Sorare bringing football cards into the 21st century, so Axie Infinity is a natural progression from those Tamagotchi and Digimon people were once so obsessed with. NFTs are the magic ingredients making this progress possible.

It’s also worth remembering that the global gaming community numbers in the billions and so is a huge potential market for NFTs to unlock. As these games here and others following in their wake gain users and traction, it’s entirely possible to imagine this market growing exponentially in the near future.

Blockchain Art

If we look again at the table of the most popular NFT projects, then we also see a number of platforms dedicated to creating, collecting and trading digital art on the blockchain.

Projects like SuperRare (number two in the rankings at the time of writing), MakersPlace and Known Origin all make it possible for artists to sell their works in digital form – presumably a godsend in the current circumstances. The blockchain makes these pieces immutable and thus collectable, while NFTs represent the works themselves.

Some stats on the Digital Art Market. Source: Superrare

The wider implications for copyright holders are clear. NFTs offer them a chance to further monetise their output, while simultaneously guarding against its unauthorised reproduction. Power is being put back in the hands of the creators.

Blockchain Domains

The other prominent group of platforms in the NFT project rankings are concerned with blockchain domains, their licencing and distribution. For those of you who haven’t read my earlier piece on this emerging asset class, these are easy-to-read replacements for long and garbled digital wallet addresses, which can also serve as payment gateways.

So if you’re running a site that provides a product or service you can request for crypto payments to be sent directly to your site address. An example would be Coinbureau.crypto. This replaces the need for copying and pasting wallet addresses (a practice which is vulnerable to attack) and makes the whole business of sending and receiving payments a whole lot easier.

Benefits of a Blockchain Domain. Image via Unstoppable Domains

A blockchain domain also makes your website censorship-resistant, as the private keys to it are stored in a wallet to which only you have the keys. No third party can interfere with or disable the site without those private keys.

The old system whereby domain name registrars were able to take down websites is looking creaky. The benefits of this are clear: governments cannot suppress free speech and people will have much better access to information as a result.

The big players here are the Ethereum Name Service and Unstoppable Domains, both of which place highly in the NFT project table. Blockchain domains can of course be bought and sold like any other asset, providing those with foresight with an opportunity to make some money. Back in 2018, CryptoWorld.com was sold by one such individual for $195,000.

The Future

NFTs are just getting started and their potential use cases are constantly evolving. They could be employed as an extra layer of security for KYC checks, as peoples’ identities and credentials could be represented and verified by NFTs.

Ticketing systems could be revolutionised, recognising the difference between tickets: after all, a theatre ticket that allows the holder to sit in the front row is different from one that has them parked behind a pillar at the back of the circle. Supply chains are already starting to explore the possibilities that blockchain and NFTs offer, with massive potential gains for suppliers and consumers everywhere.

The projects using NFTs today represent the beginning of another chapter in the blockchain and crypto sphere. As their adoption expands, so too will their potential uses and this makes them an intriguing prospect for those looking to identify new areas of growth. De-fi still has a lot of growing to do and its potential is vast, particularly when NFTs are considered in tandem.

It’s easy to get disillusioned when you read of the vast wealth that a handful of corporations and individuals are able to build up in times like these. But the explosion of blockchain tech and the limitless potential it offers means that there is hope for those of us who don’t have billions of dollars in the bank.

New frontiers are opening up, with new opportunities for investment and reward, that those of us in the know can take advantage of. NFTs are the latest and one of the most exciting of these frontiers and their evolution over the coming years is going to be fascinating to watch.

Just as well, if we’re going to still be waiting for Succession to come back.

Featured Image via Shutterstock

The post Non Fungible Tokens: Complete Guide to NFTs appeared first on Coin Bureau.

The last few years have thrown up numerous scams and scandals which have seen billions of dollars worth of crypto disappear. Sometimes the missing funds are recovered and their owners reimbursed; often they’re not. Cautionary tales abound.

Background

Just as there are millions of people across the world investing in cryptocurrencies, so too is there no shortage of others looking to fleece them. The last few years have thrown up numerous scams and scandals which have seen billions of dollars worth of crypto disappear. Sometimes the missing funds are recovered and their owners reimbursed; often they’re not. Cautionary tales abound.

Mt Gox Ivestors Waiting For Money. Image via The Verge

In 2014 the Mt. Gox exchange collapsed, following a hack which saw 844,408 Bitcoins (over $9 billion at today’s prices) lost. In 2019 two Israelis were arrested for stealing over $100 million in crypto through phishing schemes and a hack of Bitfinex.

The QuadrigaCX scandal is a murky tale of deception and intrigue which saw $190 million in crypto assets vanish, along with the exchange’s founder. These are three of the biggest and most well-publicised debacles to have rocked the world of crypto, but there are numerous others. Each time it happens, lives are turned upside down, life savings are lost and innocent people suffer.

There is a more recent scandal still playing out, which has not attracted as much attention as those above, at least here in the West. The numbers involved are so huge that last year it was thought the price of BTC was being affected by the fraudsters dumping their ill-gotten gains onto the markets.

Some of the PlusToken Promoters. Image via Siliconangle

This was PlusToken – a crypto wallet which originated in China and promised investors returns of up to 30%, but which turned out to be a Ponzi scheme. Nearly $6 billion is thought to have been lost and just yesterday more arrests were made by Chinese police investigating the case.

But before we take a closer look at PlusToken itself, it’s worth examining in a bit more detail exactly what Ponzi schemes are and how they work.

False Promises & Diminishing Returns

Ponzi schemes have been around for a century, ever since Charles Ponzi, an Italian who moved to America, set up one involving the US Postal Service in 1919. The concept is thought to pre-date him, but the scope of his operation was enough to tie his name to such scams forever.

The premise is simple: the scheme’s originator attracts investors with the promise of high and regular returns, with little or no risk attached. The investment strategy itself is often portrayed as secret or too complex for anyone but schemesters themselves to understand. All the scheme’s efforts are focussed on attracting new investors, whose money is then used to reward those who invested earlier.

Image via Shutterstock

A core of ‘satisfied customers’ helps to attract more investors to prop up the scheme and keep the payouts flowing. Most of the money is of course going to those at the top of the pyramid, with only a fraction being paid to those lower down.

The scheme can only last as long as new investors can be found and their money eked out to provide evidence of returns. Once the flow of new investors dries up, the scheme comes crashing down and the originators – along with most of the money invested – are nowhere to be found. Ponzi schemes are much like pyramid schemes, though there are some subtle differences.

Charles Ponzi

Ponzi’s initial scheme involved arbitraging international reply coupons (IRCs). These coupons were included in letters sent overseas to cover the cost of the recipient’s reply. Ponzi spotted that IRCs could be bought cheaply in places such as Italy and then exchanged in the United States for postage stamps of a higher value. These stamps could then be sold at a profit.

There was nothing illegal in doing this and Ponzi began seeking investors for his scheme. He promised some eye-catching rates of return: 50% profit on investments within 45 days, rising to 100% over 90 days.

Charles Ponzi Scamming in the 20s. Image via Wikipedia

Sure enough, money began to flow in and Ponzi was as good as his word regarding those returns. The problem was that the money being paid out wasn’t coming from the re-sale of IRCs (the logistics of which soon became impossible) but from subsequent investors. Ponzi himself was pocketing millions and living the high life.

So much money was poured into Ponzi’s scheme that it was bound to raise questions. The Boston Post began investigating and Ponzi was eventually revealed as a fraudster. It was estimated that his scheme had cost investors around $20 million (nearly $200 million today). Many lost everything they had, having remortgaged their homes to invest. Ponzi wound up in prison and eventually died – broke and unrepentant – in Rio de Janeiro in 1949.

Ponzi’s Legacy

That figure of $20 million doesn’t begin to adequately quantify the misery that Ponzi left in his wake. Yet despite this, others would adopt similar tactics down the years, often with greater levels of success.

The most notorious of these is undoubtedly Bernie Madoff, the New York financier who defrauded investors of anywhere between 18 and 65 billion dollars through his own vast and complex Ponzi scheme. Madoff was sentenced to 150 years in prison for his crimes and is incarcerated in North Carolina. So far, less than $1 billion has been returned to his victims.

Bernie Madoff Showing up to Court. Image via NY Times

What Ponzi, Madoff and others like them have shown is that gullible investors can be milked for incredible sums. People can be relieved of their money with promises of high returns and low risk, with a notable absence of detail offered by way of explanation. This is as true in the crypto sphere as it is anywhere else and perhaps to an even greater extent.

Boom and Bust

Crypto’s 2017 bull run is still fresh in the memory and many still associate Bitcoin, Ethereum and all the other altcoins with insane gains and easy money. It’s hard to blame people for this sense of optimism, however misplaced it is in many cases.

Wages are stagnating, interest rates are close to zero, the world is entering another recession and many young people are facing up to the fact that they may never be able to own their own home. Fear, uncertainty and doubt hover over the horizon. For many people, there doesn’t seem to be much hope of enjoying the same advantages that their parents did.

The Cryptocurrency Craze of 2017. Image via Shutterstock

All this makes crypto one of the few opportunities for many people to boost their income. We probably all know someone, or know of someone, who cashed in back in 2017. Those people who bought three Bitcoin for $50 a pop, resisted the urge to spend them on the darkweb, and subsequently found themselves with enough money for a deposit on an apartment.

Yes, there are those of us who know the risks involved with crypto and are careful with what coins and projects we invest in. However, there are still plenty who want to make a killing and make it quickly. Just as there were in Ponzi’s day and will be forevermore.

Crypto Ponzis

There have been several crypto-based scams which have resulted in staggering losses over the last two years. There was the BitConnect Ponzi scheme in 2018 which saw losses of over $2 billion. Then, just last year, the founders of the BitClub Network were indicted for fraud that involved crypto mining pools. It’s estimated that investors lost $722 million.

The Promised Returns at Bitconnect. Image via Tech Crunch

Both of these pale in comparison to the scale of the PlusToken scam. The targets were mainly investors in China and South Korea, although others were affected across East Asia and there were reports of victims from places as far afield as Germany and Canada. Investors were lured in with promises of returns of 9-18% if they bought PLUS tokens using BTC or ETH.

They were told that these PLUS tokens would gain in value up to $350 and that the scheme would derive its profits from crypto mining operations, affiliate programs and exchange profits. The mooted PlusToken wallet was also touted as a potential game-changer in the space. It is estimated that the project sucked in nearly $6 billion worth of crypto, including 180,000 BTC, nearly 800,000 ETH and 26 million EOS.

Most of this has never been recovered. PlusToken turned out to be a scam worthy of Madoff or Ponzi himself. Early investors did see returns, but they were funded by other investors queuing up behind them. It seems that the scheme’s masterminds were a canny bunch.

PlusToken Promotional Event

They lured investors through social media, most notably WeChat, but also took pains to hold public salons and workshops where investors were taught how to recruit more people to the platform. Adverts also appeared on billboards and in grocery stores. These public measures gave the project an air of legitimacy that it seems confounded the doubts of many sceptics.

Then there was the PlusToken app, an apparently sophisticated platform where users could deposit Chinese yuan and then convert it into a range of cryptocurrencies. Rewards were paid out in PLUS tokens and the developers appealed to users’ vanity by assigning them to one of four tiers depending on the size of their investment.

These PLUS tokens turned out to be worthless and those who had invested enough to qualify for ‘Big Boy’ or ‘Great God’ status found themselves feeling anything but great or godlike. It is estimated that PlusToken had attracted somewhere between three and four million users by the time things started to go wrong.

‘Sorry, we have run’

In June 2019 PlusToken users began reporting difficulties in getting their funds off the platform and talk started to grow of an exit scam. PlusToken staff spread rumours that a hack had taken place in order to throw users off the scent, while at the same time beginning to move funds out of reach. As an added slap in the face to panicking investors, some transactions carried notes which read, ‘sorry, we have run.’ PlusToken was starting to unravel.

Some of the PlusToken Suspects. Image Source

The breadth and scope of the scam had attracted the attention of Chinese law enforcement and six suspects were arrested on the Pacific island of Vanuatu in late June 2019. It is thought that they were running the scheme from an address in the island’s capital, Port Vila. These six (pictured below) were then extradited back to mainland China, where they are currently awaiting trial.

Dumping The Spoils

The Vanuatu raid may have netted six of PlusToken’s big players, but many more remained at large. They then began cashing out the scheme’s hoardings of BTC on various exchanges. It is this move that is thought by some to be behind the massive drop in crypto prices around that time: a testament to how much PlusToken had managed to reel in. Some estimates say that between one and two per cent of the total circulating Bitcoin supply might have been involved.

The group’s supplies of ETH and EOS remained in place until this year, as many of the wallet addresses where they were being held had been identified. Analysts are still keeping close tabs on these wallets and trying to identify others, but recent activity suggests PlusToken staff members may still be trying to liquidate funds. It seems that in many cases they have been able to bypass exchange KYC procedures and trade stolen funds on the open market.

Plustoken Bitcoin Dumps & Price Pressure. Image via Chainalysis

The most recent round of arrests is thought to have netted over 100 people and so it will be interesting to see what happens to the outstanding funds now that so many more are in custody.

Investors must be hoping that they may be able to recoup some of their losses and the fact that so many wallet addresses have been identified may make this possible. History would suggest that this may be unlikely. Ponzi, Madoff and the PlusToken fraudsters all have one thing in common: the ability to make money vanish into thin air.

Conclusion

As the vast majority of PlusToken’s victims are from China and South Korea, the story hasn’t garnered as much attention here in the West as it has in East Asia. There are also conflicting views on the destination of the missing funds and their negative impact on crypto prices.

American blockchain analytics firm CipherTrace disputes the notion that PlusToken staff dumped BTC on exchanges and affected the price. This is in direct contrast to the claims made by the Chinese-run firm PeckShield.

There is also disquiet in the crypto sphere that this sort of scandal could easily happen again. Other scams are thought to be lurking and there is concern that investors in China are more susceptible to schemes that promise high yield returns than their Western counterparts.

The gulf between China and the West is growing and the pandemic crisis has done nothing to help the situation. Yet the crypto sphere presents opportunities for fostering unity that may not exist elsewhere.

One such opportunity should be the determination to co-operate on stamping out schemes like PlusToken and its future imitators. After all, Ponzi schemes and tales of fleeced investors only serve to harm crypto’s image and deter mass adoption.

The global crypto community needs to act as one where such scams are concerned: wherever they take place and whoever they affect, we should work together to stamp them out.

Featured Image via Shutterstock

The post PlusToken Scam: The Biggest Crypto Fraud in History appeared first on Coin Bureau.

The introduction of its COMP token on June 17^th sent the crypto world into a frenzy as users rushed to deposit their assets and earn unholy amounts of interest along with daily rewards paid in COMP for participating in the ecosystem as a lender and/or borrower.

Hype is still on the horizon with Binance listing the COMP token on June 25^th, causing a 25% spike in price on Poloniex. The sudden drop in crypto markets during the same period has not phased Compound users, who still have over 600 million USD worth of crypto locked on the platform.

By the end of this article you will understand why people are so excited about Compound as well as its significance in the world of DeFi.

What is DeFi?

If you want to wrap your head around Compound Finance, you first need to fill it with the knowledge of DeFi. In a sentence, DeFi allows anyone on the internet to access financial services in a secure, decentralized, and private manner without the use of a middleman. This includes saving, trading, lending, and just about anything else you would usually do with money that involves centralized third parties such as banks.

Decentralized finance vs. traditional finance: Image Source

As you might have guessed, this ecosystem involves cryptocurrencies and not fiat currencies (although stablecoin cryptos which are “pegged” to the price of a fiat currency such as USDT or USDC are commonly used in DeFi). The overwhelming majority of popular DeFi decentralized applications (Dapps) and the assets used within them are built on the Ethereum blockchain.

Decentralized exchanges in cryptocurrency: Image Source

DeFi has been a hot topic in cryptocurrency for quite some time, well before Compound took centre stage. Up until recently, the spotlight in recent months had actually been on DeFi protocols such as Kyber Network, Uniswap, and Bancor which provide decentralized exchange (DEX) services. The ‘endgame’ of DeFi is effectively the total elimination of third parties in all value transactions (yes, even Binance).

What is Compound?

Compound is a decentralized lending platform that was created by Californian company Compound Labs Inc. in September of 2018. Like many other protocols in DeFi, Compound is built on the Ethereum blockchain. Although Compound was initially centralized, the recent release of its governance token, COMP, marks the first step in turning Compound into a community-driven decentralized autonomous organization (DAO).

While Compound’s goal has been stated in many different ways in many different places, the underlying idea is this: put your idle cryptocurrency to use. The Compound protocol lets users to lend and borrow 9 Ethereum-based assets including Basic Attention Token (BAT), 0x (ZRX) and Wrapped BTC (wBTC).

The Compound finance protocol: Image via Compound Finance

At the time of writing, you can earn annual interest (also known as APY) of over 25% when lending BAT. No Know Your Customer (KYC), Anti Money Laundering (AML) or credit record is required to use Compound.

Users of the platform do not just have the potential to earn crazy interest rates but are also rewarded in COMP tokens for borrowing or lending cryptocurrency. Given the high price of the COMP token, this has opened the door to some brain-teaser level of DeFi gymnastics that has allowed users to increase their APY to over 100%.

This is a large part of why people are crazy about compound. We will explain how such insane interest rates are possible later in a moment. First, we need to cover how Compound works.

How Does Compound Work?

As mentioned, in the Compound protocol users can deposit cryptocurrency as lenders and/or withdraw cryptocurrency as borrowers. Instead of lending directly to borrowers, lenders combine their assets into asset pools from which users can borrow.

Compound lending pools: Image via Compound Finance

There is a pool for every asset (Basic Attention pool, 0x pool, USDC pool, etc.). Users can only borrow a USD value in crypto that is below the collateral they have supplied (e.g. 60% of the collateral). The amount they can borrow depends on the liquidity and market cap of the collateral.

When you lend cryptocurrency on Compound, you received an amount of corresponding cTokens that is generally much larger than the amount of crypto you deposited. cTokens are ERC-20 tokens which represent a fraction of the underlying asset.

For example, at the time of writing, lending 1 DAI would give you almost 49 cDAI in Compound. cTokens exist to allow users to earn interest. Over time, users can purchase more of the underlying asset they deposited with the same fixed about of cToken they received.

Compound cTokens explained: Image via Compound Finance

In contrast to legacy borrowing services, interest rates are neither fixed nor agreed upon by the two parties involved in the transaction. Instead, the interest rate is determined by supply and demand and constantly updated by a complex algorithm.

As a rule of thumb, the greater the demand there is for an asset, the higher the interest rates will be for both lenders and borrowers. This gives incentive to lenders to lend and deters borrowers from over-borrowing. Lenders can also withdraw their assets at any time.

If a user has borrowed more than what they were permitted due to a drop in the price of the asset they provided as collateral, they risk the liquidation of that collateral. Holders of the borrowed asset can choose to liquidate the collateral and purchase it at a discounted price. Alternatively, borrowers can pay back a portion of their debt to increase their borrowing capacity above the threshold of liquidation and carry on as usual.

Compound Liquidity Mining

The main idea behind liquidity mining is to give incentives to both lenders and borrowers to use the Compound protocol. The reasoning is that failure to do this would result in a gradual decline of the platform as lenders and borrowers gradually drop off or move to similar protocols in the DeFi space. To ensure a consistently high level of liquidity and participation, Compound rewards both lenders and borrowers in COMP tokens.

Compound liquidity mining explained: Image Source

This is done using a smart contract and the distribution COMP rewards are based on a handful of factors including the interest rates of an asset’s lending pool and the amount of people interacting with the lending pool. 2880 COMP tokens are distributed daily with half going to borrowers and the other half to lenders.

What does the COMP token do?

In addition to being the carrot on the stick that motivates users to use Compound, the COMP token gives users governance over the protocol. This allows users to have a say in the future of Compound. 1 COMP token is required to cast a vote, and votes can be delegated to other users of the protocol without needing to actually transfer the token to them.

Compound governance token: Image via Compound

All proposals made in Compound consist of executable code. A user must have 1% of the total COMP supply on hand or delegated from other users to table a proposal. Once submitted, there is a 3-day voting period wherein a minimum of 400 000 votes must be cast. If more than 400 000 votes affirm the proposal, the new change implemented after a 2-day waiting period.

The COMP ICO

There was no initial coin offering (ICO) for the COMP token. Instead, nearly 60% of the 10 million token supply was allocated to investors, founders, current team members, future team members, and community growth.

Specifically, just under 2.4 million COMP tokens were given to shareholders of Compound Labs Inc., just over 2.2 million were given to the Compound founders and team, just under 400 000 have been saved for future team members, and just under 800 000 have been allocated for community initiatives.

The distribution of COMP tokens: Image via Compound

The remaining 4.2 million tokens will be distributed to the users of the protocol over a 4-year period (assuming a consistent daily distribution of 2880). It is worth noting that the 2.2 million COMP tokens given to Compound’s founders and team members is apparently temporary and will be ‘returned’ after a 4-year period. This is to allow for a transition period wherein the founders and team can still guide the protocol via voting as it gradually becomes “fully” autonomous / community driven.

Cryptocurrency Yield Farming

Although the philosophical reasons for DeFi’s existence are all well and good, what really has people rushing to platforms like Compound right now is the ability to leverage smart contracts within and between various DeFi protocols to receive impossibly high interest rates.

In the cryptocurrency community this is known as yield farming and fundamentally involves a mind-bending mix of borrowing, lending, and trading that would put the Federal Reserve to shame.

Cryptocurrency yield farming profits: Image Source

Yield farming is extremely risky, and many consider it to be a variation of leverage trading. This is because it makes it possible for users to trade sums of crypto much larger than the underlying amount they have actually put down.

You can think of it as your own personal pyramid scheme with the pyramid flipped upside down. The entire structure is reliant on a single asset which must either increase in price or stay the same or else everything comes crashing down.

The specifics of how yield farming works depends primarily on the asset you are trying to accumulate. In terms of Compound, yield farming involves maximizing your return in COMP tokens for participating in the ecosystem as BOTH a lender and borrower.

This effectively allows users to make money from borrowing cryptocurrency in Compound. This is done using a platform called InstaDapp, a dashboard that lets you interact with multiple DeFi apps from a single point of reference.

Compound Yield Farming

InstaDapp offers a feature called “Maximize $COMP mining” which can give you a more than 40x increased return in COMP tokens. The short of it is that the USD amount of COMP tokens you receive outweighs the USD value of the interest you owe on the money you have borrowed. How this works was detailed quite nicely in this YouTube video but if you do not have 30 minutes to watch it, we will break it down for you in a single paragraph.

Suppose you have 100 DAI. You deposit the 100 DAI into Compound. Since Compound allows you to use those funds even though they are “locked”, you use the 100 DAI with the “Flash Loan” feature in InstaDapp to borrow 200 USDT from Compound.

Yield farming with Compound: Image Source

You then convert the 200 USDT into (roughly) 200 DAI and put the 200 DAI back into compound as a lender. You are now lending 300 DAI and owe 200 USDT. This gives you a return in COMP which gives you an annual interest rate in USD that can easily exceed 100% even after accounting for the interest rate you pay for borrowing the 200 USDT.

Magic, right?

As mentioned earlier, the success of this scheme is dependent on the stability or growth of the underlying asset. For example, even though DAI is technically a stablecoin, it can still fluctuate by a fraction that is large enough to soak the sandcastle and bring it down. This tends to happen to stablecoins when the rest of the market fluctuates and traders rush to hedge their losses using fiat-pegged tokens.

The Compound Roadmap

Unlike many cryptocurrency projects, Compound does not really have a roadmap. In the words of Compound Labs Inc. CEO Robert Leshner “Compound was designed as an experiment”.

Compound development goals: Image via Compound Blog

This quote is taken from a Medium post from March of 2019 which appears to be the closest thing to a roadmap you can find from Compound. It details 3 goals the project wished to achieve: enabling support for multiple assets, allowing each asset to have its own collateral factor, and becoming a DAO.

In the months that followed, Compound posted regular development updates to Medium. The most recent post was earlier this month and its subtitle states the following: “Our core work on the Compound protocol is done. It’s time for the community to take charge.” Considering the development team seems to have successfully achieved the 3 goals it outlined just over a year ago, it seems that Compound may be one of the few “finished” cryptocurrency projects.

Compound development proposals: Image via Compound

In reality, the future of Compound will be determined by its community. Based on the publicly viewable Governance Proposals within compound, most appear to involve adjusting reserve factors and collateral factors for supported assets.

In short, reserve factors are a small portion of the interest paid on loans by borrowers which are set aside as a “liquidity cushion” in the event of low liquidity. A reserve factor is the percentage of the collateral you can borrow as a borrower. It is also likely that more assets will be added to Compound as time goes on.

Compound Finance vs. MakerDAO

Up until Compound rushed the stage, MakerDAO was the most popular DeFi project on Ethereum. For those unfamiliar, MakerDAO also allows users to borrow cryptocurrency using Ethereum, BAT or wBTC as collateral.

However, the cryptocurrency you can borrow is not “just another” Ethereum-based asset, but an ERC-20 stablecoin called DAI which is ‘soft-pegged’ to the US dollar. Unlike USDT or USDC which are backed by centralized assets held in custody, DAI is fully decentralized and backed by crypto.

Compound Finance vs. MakerDao

As in Compound, MakerDAO does not let you borrow the full amount of the Ethereum collateral you deposited in DAI. Instead, you can only borrow 66.6% of the USD value of the Ethereum you have put down as collateral. This means that if you deposited 100$ worth of Ethereum as collateral, you would be able to withdraw roughly 66 DAI as a loan. In contrast to Compound, this reserve factor is not subject to change and DAI is the only asset which can be borrowed on the platform.

Both MakerDAO and Compound have been used to yield farm. Funny enough, Compound users were borrowing DAI on MakerDAO to lend it in Compound when it had the highest interest rate. MakerDAO also gives users the option to lock up their DAI in return for interest.

MakerDAO’s focus on DAI. Image via MakerDao

While there are many differences between the two DeFi giants, the two most notable are 1) that the goal of MakerDAO is fundamentally to support the DAI stablecoin and 2) that Compound gives users additional incentive beyond interest rates (COMP) to participate in the protocol.

How it is that Compound overtook MakerDAO so quickly is quite easy to understand when you put the two protocols side by side. In addition to greater incentives for participation, Compound also supports substantially more assets for lending and borrowing. This gives it the advantage when it comes to yield farming, which is arguably the driving factor behind these kinds of DeFi protocols.

Furthermore, Compound is much easier to understand and use than MakerDAO, which has elaborate borrowing fees and protocols that exist primarily to ensure the stability of DAI. You can see how that works here.

COMP Price Analysis

The price history for COMP is quite limited considering it has only been on the markets for 2 weeks. During this time, it went from a price of around 60$USD to over 350$USD in a matter of days. It has since pulled back around 30% but remains steady as cryptocurrency markets slip into negative percent changes.

COMP Price Performance: Image Source

Oddly enough, it seems that Compound is also keeping BAT in positive percentage territory since it is currently the asset with the highest interest rate on the platform (around 25%).

At the time of writing, COMP is once again rallying up by over 10 percent following an announcement from Coinbase that the token has officially been listed for trading. Whether successive listings by large exchanges is what is keeping the asset closer to the moon than the Earth cannot as of yet be said with certainty.

Considering its appeal over similar protocols such as MakerDAO, it does not seem likely that this asset will retrace back to 60$USD without another black swan event (not financial advice!).

Where to get COMP Cryptocurrency

At the time of writing, you can buy COMP on about a dozen exchanges including Coinbase Pro, Binance, and Poloniex. Oddly enough, the Binance pairings are not yet listed on CoinMarketCap but include BTC, USDT, BNB, and BUSD.

COMP Markets & Trading Pairs: Image Source

When combined, the 24-hour volume on Binance is on par with Coinbase Pro. The total 24-hour volume is quite low given its market cap but if you are looking to get your hands on COMP there is absolutely no shortage of liquidity on Binance and Coinbase Pro for the time being.

COMP Cryptocurrency Wallets

Since COMP is an ERC-20 token, it can be stored on just about any wallet which supports Ethereum. The list is long but includes the likes of Exodus wallet, Trust Wallet, Atomic Wallet, Ledger and Trezor physical wallets, and browser wallets such as MetaMask.

If you are using Compound and do not intend on voting, make sure to regularly transfer your accumulated COMP tokens to your own wallet from time to time. Just keep in mind that you must have at least 0.001 COMP accumulated if you want to withdraw it.

What we think about Compound

While we are stoked about Compound, there are a few peculiarities that have surprisingly not attracted much attention. The first is the exceptionally high allocation of COMP tokens to stakeholders, founders, and team members. As mentioned previously, this accounts for around 60% of COMP’s total supply.

If this were any other token, traders and investors would run to the hills. When the founders and backers of a cryptocurrency project have the lion’s share of the asset, this leaves other token holders open to a pump and dump scheme reminiscent of the ICO craze in 2017-2018.

Who holds the most COMP cryptocurrency?: Image via Compound Finance

Second, it appears as if the founding members and investors which backed Compound Labs Inc. are very involved in Compound’s community governance. The publicly viewable “Top Addresses by Voting Weight” shows that nearly all of the top 50 COMP token holders consist of people involved in Compound Labs Inc.

Interestingly enough, yield farming provider InstaDapp is also in the top 10. This means that despite being community driven, Compound is still very much in the hands of its original stock.

Third, it is hard to see how lending protocols such as Compound could have any practical use in the real world. This is primarily because it is somewhat pointless to borrow an amount of an asset that is less than what you currently hold.

Lenders and borrowers on Compound: Image Source

For the time being, very few DeFi protocols allow you to borrow more than you own. This is not an issue for those interested in yield farming, but in the real world being able to borrow more than you own is the central value proposition of having lending services in the first place.

While it is true that the prospect of saving your money with a DAO would be more profitable (and perhaps even more secure) than doing so though a bank, it seems hard to imagine how those high APY rates would remain if there was a sudden surge in lending supply by retail investors.

Compound’s own algorithm would lower the interest rate to a level that might be comparable to a bank. This is because it is doubtful whether there would be an equivalent surge in people wanting to borrow less than they currently own.

Black Swan Events

Our final concern with Compound is how it could handle a black swan event. For those unfamiliar, a black swan event is an unforeseen external circumstance which disrupts markets. The current pandemic is an example of a black swan event as it sent stocks and cryptocurrencies into a freefall in March of this year.

Whereas centralized institutions have some wiggle room in terms of responding to these sorts of market fluctuations, DAOs operating off pre-programmed smart contracts do not.

Cryptocurrency market crash March 2020: Image Source

Understanding why this is a problem can be best understood by examining what happened to MakerDAO during the March flash crash. As mentioned earlier, the purpose of MakerDAO is ultimately to uphold the stability of the DAI token. Simply put, this involves maintaining a balance between the USD value of DAI in circulation and the USD value of the collateral which backs it. This is done by minting and burning DAI against the existing collateral in various contexts.

When the March black swan spread its wings causing a sharp drop in cryptocurrency prices, this triggered a significant number of borrowers’ “vaults” to have their collateral liquidated. Why? Because the amount of DAI they had borrowed was suddenly more than the 66.6% reserve threshold they need to stay below to avoid liquidation.

MakerDAO collateral vault auctions: Image Source

As you can imagine, the other users in the system which would normally buy the liquidated collateral at a discount were hesitant to do so, meaning there was nobody to buy it and bring equilibrium to the protocol (since DAI is used to buy the collateral and is burned when doing so).

When you remember that networks can become extremely congested in times of volatility, this effectively meant that the ratio of “vaults” containing collateral being auctioned to the amount of users willing and able to buy was easily in the neighbourhood of 100-1.

This allowed some users to buy the collateral funds at near-zero prices in the absence of any actual auction participants. Although this was great for the users who decided to buy the cheap collateral, MakerDAO’s ecosystem was thrown off balance.

MakerDAO liquidation 2020: Image Source

While Compound has had the fortune of not going through the March flash crash in its current ‘DAO’ state, the fact of the matter is that we are still very much in volatile times when it comes to both cryptocurrency markets and legacy markets.

It may very well face an issue identical to MakerDAO, where a sudden drop in price causes the collateral of borrowing users to be liquidated without enough buyers available to bring financial stability and liquidity to the protocol.

Conclusion

Despite these concerns, we believe that the Compound protocol hold some serious promise. After all, it seems that Compound is one of the rare and recent instances of a fully functioning DeFi project on par with the likes of Ren’s RenVM, which allows for decentralized, secure, and private cryptocurrency swaps between blockchains.

Furthermore, assuming the operation of the Compound protocol is actually handed over to the community, it will hopefully be able to refine the platform into something that will be used outside the fences of crypto yield farmers with a dollar-green thumb.

Make no mistake, what we are seeing is the beginning of a new era of finance. MakerDAO, Kyber Network, Uniswap, and Compound are in truth the first steps on a much longer journey to a world where finance is decentralized, transparent yet private, secure, and accessible to virtually everyone on the planet.

Here is to hoping that Bitcoin will cause people to inadvertently FOMO into the some of the most exciting technologies to date.

Featured Image via Shutterstock

The post Compound Finance Review: DeFi Lending & Yield Farming appeared first on Coin Bureau.

However, the stablecoin market is quite saturated right now. There are a whole host of equally attractive dollar backed alternatives backed by exchanges, trusts and banks. There are also a number of decentralised variants that are taking the market by storm.

So, with so much competition, should Binance USD be considered?

In this Binance USD review, I will attempt to answer that. I will also give you what you need to know about the tech as well as some top tips when it comes to using BUSD.

What is BUSD?

The Binance USD (BUSD) is a stablecoin that is backed and collateralized by U.S. dollars. It gives its users the ability to transact with other digital and blockchain-based assets while minimizing volatility risks.

The BUSD was created with the intention of improving the decentralized financial ecosystem through the use of a frictionless global network which allows digital assets to increasingly add accessibility, flexibility, and speed to transactions.

What is Binance USD? Image via Binance

Binance USD’s were issued as ERC-20 tokens on the Ethereum blockchain. They are backed on a 1:1 basis by U.S. dollars that are held in U.S. bank accounts owned by Paxos, who is the partner of Binance in this project.

Additionally, BUSD has been one of only three stablecoins thus far approved by U.S. regulators, with the other two being GUSD issued by Gemini Trust Company, and PAX, also issued by Paxos.

Origins of BUSD & Expansion

Binance and Paxos announced their partnership to create the Binance USD stablecoin on September 5, 2019, and that the New York State Department of Financial Services (NYDFS) had given their approval of the BUSD. Beginning September 12, 2019 the BUSD was made available for purchase on a 1:1 basis with the USD from Paxos.

On September 20, 2019 the BUSD became available on the Binance platform in trade with BTC, BNB, or XRP. The stablecoin is audited on a monthly basis by the accounting firm Withum as required by the NYDFS.

Why Use Binance USD. Image via Paxos

In the six months since the launch of BUSD Binance has created several compelling reasons not only to use the stablecoin on the Binance platform, but to also begin using it outside the Binance ecosystem. On the platform itself Binance has expanded trading to include 48 different trading pairs with USD.

This gives investors and traders a chance to trade the token against many of the world’s top cryptocurrencies, as well as against leveraged tokens. Binance has also added a platform that allows for single-click buying and selling with 8 fiat currencies. Investors can do so using USD, EUR, GBP, JPY, RUB, CAD, VND, and CNY with bank transfers or with credit cards.

Tech Behind Binance USD

The Binance USD was created to be fully collateralized with U.S. dollars held in U.S. bank accounts on a 1:1 basis. These accounts are created and administered by Paxos, and are audited on a monthly basis as prescribed by New York state regulations.

Any requests to buy or sell BUSD are accompanied by a movement of cash into or out of the reserve account. Based on these requests BUSD tokens are either minted or burned accordingly.

As an example, a purchase of $1,000 worth of BUSD will result in 1,000 BUSD tokens being minted and an increase of $1,000 in the reserve accounts. On the other side of this a redemption of 1,000 BUSD will cause the burning of those tokens and a decrease of $1,000 in the reserve as the U.S. dollars are removed and transferred to the person who redeemed the tokens. In the event there is some critical security threat, such as a hack, Paxos has the ability to pause the transfer, creation, or destruction of BUSD tokens.

While Paxos controls the creation and destruction of BUSD tokens, there are also ERC-20 smart contracts in existence that work with BUSD tokens. These smart contracts help provide security for the process as it removes the need for third parties and moves the transactions to the trusted capabilities of the blockchain network.

Process of Issuing & Redeeming BUSD

And since BUSD is an ERC-20 asset it is simple to trade tokens because transferring and viewing transactions is supported by most wallets and exchanges that support Ethereum.

The NYDFS monitors and regulates BUSD in compliance with the Trust Charter. This ensures that Paxos is following all applicable New York banking laws in its operating procedures regarding BUSD. The regulations in place require Paxos to have a means to freeze accounts, and to wipe account balances of frozen accounts when required.

This regulation is adhered to through a function called “setLawEnforcementRole.” This function can be used if neeed to place administrative restrictions on the circulating supply of BUSD.

Because this goes against the decentralization of assets, Paxos has been very clear in asserting that the function is only in place to meet regulation requirements, and to prevent such illegal activities as terrorist financing and money laundering. In that respect Paxos has said the function will never be used unless required by law enforcement agencies.

BUSD vs. PAX?

Paxos has partnered with Binance to create the Binance USD stablecoin, but prior to that they have also issued their own stablecoin called PAX. Both the BUSD and the PAX are backed on a 1:1 basis by U.S. dollars held in reserve in U.S. bank accounts by Paxos Trust Company.

BUSD Compared to Paxos’ PAX Stablecoin

Binance choose to partner with Paxos because of their track record in creating a trusted stablecoin solution. This made it far easier for Binance to launch a trusted stablecoin for their own platform and ecosystem.

There is no mixing of the USD held in reserve to back both stablecoins and they are used separately to support different goals.

Current State of BUSD

As of early March 2020 the Binance USD has been in circulation for six months. In that time it has grown to see a total supply and market cap of nearly $200 million, and daily trading volumes approaching $100 million. That places it in the 35th position on Coinmarketcap.com as of March 25, 2020.

Also, according to data from Binance, as of March 11, 2020 there were more than 40,000 users holding BUSD on Binance and Binance.US, with that user base growing by 20-30% on a weekly basis. There have also been 416 million BUSD purchased since the launch of the token, whether that be through Binance or Paxos, or through any of the 45 exchanges that allow for purchases and trading of BUSD.

Range of Exchanges that Support BUSD

The growth and momentum of the BUSD stablecoin has been pretty remarkable, although having the backing of Binance has certainly helped. Even so, growing from a market cap of $17 million in September 2019 to $182 million in March 2020 is impressive, and it shows how strong the Binance community is, and how the company has been able to foster adoption of the stablecoin even outside its own ecosystem.

While BUSD is only #35 based on market cap among the total universe of cryptocurrencies, it is also ranked #5 among stablecoins. Interestingly the #4 stablecoin is Paxos Standard (PAX) with a market cap of $262 million. Considering the impressive growth rate of BUSD it could feasibly overtake PAX within the next month or two.

After passing the $100 million market cap milestone on March 11, 2020 the Binance CEO Changpeng Zhao commented in a press release:

BUSD’s market cap crossing $100 million is a big milestone for Binance, illustrating the strong need and use of alternative assets in the market. We are looking forward to seeing more utility through the power of stable digital assets and serving our part with BUSD, a NYDFS-approved USD-based stablecoin.

The team behind BUSD has made these huge strides in just six months through hard work, the development of new features and partnerships, by increasing the use cases for the stablecoin both within the Binance ecosystem and without, and by providing the marketplace with a solid solution to connect fiat currency and cryptocurrency.

The Uses of BUSD

Binance USD is transacted on the Ethereum blockchain network in the same manner as any other ERC-20 token. Any user looking to redeem their BUSD can simply send the tokens to a Paxos controlled address where the tokens will be burned and the corresponding fiat currency amount will be transferred from the Paxos reserve accounts to the user’s bank account.

How To Use BUSD

Because BUSD exists on a public blockchain like the Ethereum network it is possible for traders to use BUSD as an alternative to fiat currencies. This means users and businesses are able to outsource banking needs to Paxos through BUSD. In addition, because BUSD is an ERC-20 token it can be integrated with any of the Ethereum based dApps and smart contracts.

Binance and Paxos have taken advantage of this over the six months since BUSD was launched to add the following use cases and features:

• A zero maker fee promotion for all BUSD pairs traded on Binance;
• Several lending products at Binance where BUSD can be deposited to earn interest of as much as 15% annually;
• BUSD can be used as collateral for borrowing on Binance Margin Trading;
• BUSD can also be used as cross collateral on the Binance Futures platform;
• Binance has introduced 48 different BUSD trading pairs, including trading against the Chinese yuan (CNY), Russian ruble (RUB), and Vietnamese dong (VND);
• Binance platform has introduced a feature that allows users to instantly convert from several other stablecoins to BUSD on a 1:1 basis and without fees. This stablecoin convert feature can be used with TUSD, USDC, and PAX.

In addition to those above features Binance.US has also begun to ramp up adoption of the BUSD. It already features seven different BUSD trading pairs (BUSD/USD, BTC/BUSD, ZIL/BUSD, XRP/BUSD, BNB/BUSD, ALGO/BUSD, and ETH/BUSD).

It has also recently introduced the capability to deposit USDC at Binance.US and have it instantly converted to BUSD on a 1:1 basis without any fees.

Conclusion

Since launching in September 2019 the Binance USD has grown in use from traders and investors, while also finding significant support from companies outside its own ecosystem. Thanks to its fully regulated status it has become considered as a safe bridge between fiat and crypto assets.

In addition, BUSD has many benefits for the financial industry from decentralized finance, or DeFi, to wealth management and account settlements. There are also global use case application for payments thanks to the fast redemptions and minting process that functions automatically through smart contracts.

The exponential growth of BUSD in the first six months since its launch shows that the market was ready for an alternative to the existing stablecoins. Besides providing utility within the Binance exchange, the stablecoin can also be used as a medium of value transfer across the Ethereum and Binance chains. Binance has also indicated that full support for online payments will soon be coming.

BUSD offers several advantages over other stablecoins, such as its improved transparency as a fully regulated stablecoin. It also has price stability, is fully collateralized and audited monthly, has scalability, and is fully supported by the Binance ecosystem, which almost guarantees its continued growth and adoption.

Featured Image via Shutterstock

The post Binance USD Review: Complete Guide To BUSD Stablecoin appeared first on Coin Bureau.

Apart from being the leading project focused on distributed IoT, IOTA also employs some of the most unique technology that differentiates it from a number of other blockchain based networks. During its four year history, there have been numerous ups and down.

However, is IOTA still everything it’s cut out to be?

In this IOTA review, I will attempt to answer that and give you everything that you need to know. I will also analyse the long term potential of MIOTA.

What is IOTA?

Iota is a unique public distributed ledger that was created without the use of a chain or any blocks. That’s right, no blockchain. Instead, it uses directed acyclic graph technology and something it calls the Tangle to provide consensus without the need for miners.

IOTA has been around for longer than many of the blockchain projects out there, and the initial funding for the project came from a 2015 crowdsale that raised 1,337 Bitcoin, worth roughly $500,000 at the time.

Unique Features of IOTA. Image via Iota Website

I know that sounds like a small amount, but crowdsales and ICOs weren’t very common in 2015. All of the nearly 3 quadrillions IOTA tokens were issued to the crowdsale participants at that time, with none reserved for the founders, developers or advisors.

Because there were no tokens allocated for the team, the community donated roughly 5% of the total supply of IOTA to the IOTA Foundation and that has been used as the funding for the project.

The goal of the IOTA project is to enable the growing machine economy by powering all the machine-to-machine payments necessary to enable the Internet of Things.

With IOTA, all of the computing devices that are embedded in machinery throughout homes, businesses, and factories will be able to communicate, sending and receiving data, and using the feeless IOTA Tangle to make small micropayments to keep the data flowing.

IOTA DAG Technology

The technology of IOTA is based on the Tangle, a data structure that is based on directed acyclic graph (DAG) technology, and was created specifically for IOTA. The DAG data structure grows increasingly complex as more nodes and transactions are added, which helps provide security. Additionally, the DAG moves in one direction and does not loop back on itself.

The Tangle is a graph that is composed of nodes which are connected to each other with edges. It is directed in that the node connections have a direction, so moving from point A to point B is not the same as moving from point B to point A.

And acyclic means the structure is not circular, so that moving from node to node along the edges means always moving forward, and there is never backtracking or encountering the same node twice.

Blockchain Structure vs. The “Tangle” Dag based structure

In the IOTA Tangle, all of the connected nodes hold transactional data, and consensus is built into the system. Rather than using a Proof-of-Work blockchain where consensus is separated and miners are required to form a consensus, the Tangle requires each participant to confirm two other transactions in order to get their own transaction confirmed. This gives us a completely decentralized and self-regulating peer-to-peer network.

This consensus mechanism allows IOTA to remain feeless, and it will always remain feeless no matter the size of the network. By eliminating miners there is no need to pay anyone directly in the network. Instead, each user is paying by using a very small amount of their computing power to confirm two other transactions.

This works because as each transaction is confirmed and those transactions that have confirmed it receive confirmations themselves, there becomes a build-up of weight behind the transactions. And the greater this weigh the more reliable and immutably secured each transaction becomes.

More Activity leads to high Scalability and Transactions

One issue that IOTA has faced since the start is the fact that this DAG network could be taken over by an attacker gaining control of just 33% of the hashing power on the network. In order to avoid this happening the IOTA Foundation has introduced a special node called the Coordinator.

This Coordinator is controlled by the IOTA Foundation and it protects the IOTA Network from attacks. Because it makes the network centralized the use of the Coordinator has been criticized.

The IOTA Foundation says that once the network becomes large enough the Coordinator will no longer be needed and it will be decommissioned at that time, making IOTA completely decentralized.

IOTA Use Cases

IOTA isn’t just a theoretical network, it has real world use cases and applications that continue to expand as the IOTA network grows and gains increased adoption. Below are a few of the current use cases.

Smart Cities

Taipei signed an agreement with the IOTA Foundation in January 2018 to test the IOTA technology in transforming the city into a futuristic smart city. The earliest tests involve the creation of a digital ID card based on the Tangle, and integration of Iota into air pollution monitoring devices.

Perhaps most importantly, the Taipei government feels that citizens will have more trust in government services once data integrity is ensured through the use of distributed ledger technology.

Smart Energy

The power and energy sector is moving towards the Internet of Things at a furious pace and the decentralization of the electricity grid began back in 2016. Because IOTA is scalable and feeless it is an ideal solution for the energy industry.

IOTA has been working with Dutch power consortium Elaadnl since 2017 in creating smart charging stations for electric cars. These stations are setup so that data transfer and payments occur automatically between car and charger. Furthermore, the same technology is being tested to create smart energy communities.

eHealth

Medical records are already rapidly moving into the digital world. This movement is already helping health care practitioners provide better, more rapid and effective care for patients. It is also helping with research initiatives. One area where IOTA believes it can improve on digital eHealth initiatives is by securing data integrity so that providers can be assured they are using reliable data.

Privacy is also a huge concern in the health care field, and IOTA can help here as well with their Masked Authenticated Messaging, which uses aMerkle tree based signature to send and receive encrypted data over the Tangle, ensuring security and privacy are kept intact.

Automotive and Mobility

The transportation industry can benefit greatly from IOTA technology and the feeless transfer of value between IoT devices. For example, vehicles equipped with their own cryptocurrency wallet can pay for tolls, parking, charging stations and other services automatically. They could also receive payments for selling data, ride-sharing and delivery services.

Supply Chains and Manufacturing

The IOTA platform will be able to assist in all phases of manufacturing and the supply chain as it can provide immutable documentation at every point ensuring the authenticity of goods.

By writing data in the Tangle we can know the origin of a product, including the country and who created it. We can know exactly when it was manufactured, and can even trace it to the employees who manufactured it.

All of this data and more can be recorded and stored, giving manufacturers, distributors and consumers more trust in the products being delivered to them.

Beyond Use Cases & into Partnerships

Over the years IOTA has built up a huge list of partners, both large and small, and it continues adding new partners and new projects, even now in 2020. Below are some of the largest and most publicisized partnerships, as well as some of themore recent projects being tackled by IOTA and partners.

Microsoft

IOTA announced all the way back in November 2017 that they were launching the first public marketplace for data on the Tangle together with Microsoft. The plan was to built the marketplace in order to monetize data. This was a perfect fit for IOTA since it’s focused on the Internet of Things (IoT), and data is the primary resource for the IoT.

Image via NextWeb

According to IOTA co-founder David Sonstebo “Any kind of data can be monetized,” Sønstebø said. “If you have a weather station collecting wind, temperature, humidity, and barometric data, for instance, you can sell that to an entity that is doing climatic research.”

Just a month later it came out that there was actually no formal partnership between Microsoft and IOTA, however Microsoft blockchain specialist Omkar Naik did state in an email to IOTA.

We are excited to partner with the IOTA Foundation and proud to be associated with its new data marketplace initiative.

Despite the lack of a formal partnership, IOTA and Microsoft have continued to work on technological innovations based off IOTA’s Tangle network.

Volkswagen

With the automotive, supply chain, and manufacturing sectors all a focus of IOTA’s use case it comes as no surprise to see Volkswagen as one of the partners of IOTA. Driverless technology is just one application that IOTA can help solve, with sensory data from vehicles being added to the database to improve each future iteration of the technology.

Image via Twitter

Volkswagen made its partnership with IOTA public in January 2018 and hopes to use the mobility technology as part of its future development.

IOTA began collaboration with Porsche on Program 4 in 2018. The program is expected to be the development of an electric Porsche, but details of the project have been kept secret.

DnB

In May 2018  IOTA and DnB, the largest financial group in Norway, signed a cooperation agreement to drive open innovation and co-creation in the space of citizen centric innovation, machine economy and decentralized data marketplaces.

The partnership was meant to place an emphasis on data privacy management systems and formulating new business models.

Bosch

Bosch was one of the first companies to announce a partnership with IOTA. The two began working together in October 2017. Bosch sees great potential in the technology being developed by IOTA, and believes it will mesh well with Bosch’s own technological initiatives.

Image via Twitter

Bosch is an engineering and electrics firm and is the largest supplier of automotive parts in the world. It was already heavily invested in the IoT space through its Cross Domain Development Kit, which is a programmable sensor device that connects to the Internet of Things and has innumerable use cases.

The partnership between the two companies was a natural fit for two pioneers in the IoT space.

Fujitsu

IOTA entered into a partnership with Japanese electronics firm Fujitsu at the same time as the Microsoft partnership, with the same goal of developing a marketplace to monetize data. In August 2018 they released a paper explaining the use of IOTA-focused blockchain as an immutable data storage medium for their audit trail process, which caused optimism around IOTA to surge.

In April 2019 Fujitsu demonstrated a Tangle-based system described as “a new protocol standard when it comes to IT products and services.” The system was debuted at the Hannover Messe industrial trade fair, the largest such trade fair in the world. It is expected to be first utilized in Fujitsu’s Augsburg smart factory.

Jaguar Land Rover

Most recently (April 2019) Iota announced a partnership with U.K. based Jaguar Land Rover. The partnership will see Jaguar Land Rover rewarding drivers with Iota cryptocurrency for reporting data to Jaguar. The car maker says the funds earned could be used to pay for tolls and parking, as well as for electric charging stations.

Image via IOTA Blog

The adoption of IOTA technology by Jaguar Land Rover is a part of its Destination Zero vision, which includes zero emissions, zero traffic congestion, and zero accidents. The envisioned solution would have drivers earning cryptocurrency for reporting on road conditions and traffic congestion. Vehicles will come equipped with their own cryptocurrency wallets to store the payments.

STMicroelectronics

In July 2019 STMicroelectronics, one of the world’s largest semiconductor manufacturers, announced that they were working on a software update to their STM32 chip that would integrate IOTA technology. The new updated chips, which can be used in all sorts of IoT devices from smartphones to smart refrigerators, will be able to send and receive data from the Tangle in real time.

In January 2020 STMicroelectronics announced that an open-source SDK for the STM32 chip had been developed and released, and that it allows the STM32 chips to operate as an IOTA node. A spokesperson for the company said developments and improvements to the SDK are ongoing, while also stating a growing number of use cases for the chips are being explored, such as examples in the smart energy sector.

Dell Technologies & Linux Foundation

In October 2019 IOTA announced a partnership with Dell Technologies and the Linux Foundation. The announcement of the partnership said the three companies were working together on a project called “Alvarium” which is meant to create a system that will validate whether data can be trusted. The project will create a data marketplace which will be capable of rating how trustworthy the data being sold is.

There are a huge number of small, medium and multi-national corporations that have shown interest in Iota and partnered with them on a wide variety of different projects. For a complete list see The IOTA Archive. That website also contains the latest updates regarding these and other IOTA partnerships.

The IOTA Team

IOTA was founded in 2015 by a trio of entrepreneurs who saw that the blockchain was not the most effective means of creating a distributed ledger. In 2017 the IOTA Foundation was established to oversee the research, development, and standardization of IOTA and the economy of things.

The key members of the IOTA Foundation are as follows:

David Sonstebo – David is a serial entrepreneur who co-founded the IOTA Foundation and serves as a co-chairman on its Board of Directors. Prior to IOTA, he founded a stealth hardware IP company which developed a low power processor for use within IoT devices.

Dominik Schiener – Dominik is another serial entrepreneur who founded several companies prior to IOTA, including Bithaus and Fileyy. He was a co-founder of the Iota Foundation and serves on the Board of Directors as a co-chairman.

Professor Serguei Popov – Professor Popov is the third founding member of IOTA and he serves on the Board of Directors of the Iota Foundation. He is a professor of mathematics at the University of Campinas in Sao Paulo Brazil. He is the author of the IOTA whitepaper and the creator of the Tangle.

The Three Founders of the IOTA Foundation

Jakob Cech – The Head of Engineering for IOTA, Cech stepped into the position in October 2019, making him one of the most recent additions to the executive team. He has a background in artificial intelligence and technical writing, and prior to joining IOTA he was a program manager at Microsoft.

Lewis Freiberg – Lewis serves as the Head of Ecosystem for Iota, which is primarily involved with the promotion of an understanding of Iota and its technology, as well as looking for innovations involving Iota. He has been in the distributed ledger technology industry since 2013, and prior to that he spent nearly a decade in the commercial software industry.

Holger Kother – Holger has spent his career in various IT projects at multinational companies over the past 15 years. At Iota as the Director of Partnerships he is concerned with creating partnerships between the foundation and the integrators and partners interested in using the Iota technology.

Iota Community

There is no disputing that IOTA has a passionate community behind it. This is a great asset for any project as it leads to greater awareness and fosters broader adoption for the IOTA token.

So, how big exactly is this IOTA Community?

Well, as a first point of reference, they have a pretty large and active Twitter following with over 120k followers. This is more than we have seen on a number of other projects. On this Twitter account, the IOTA team keeps the community updated with the latest announcements and there is always a great deal of interaction with these tweets.

For broader community discussion IOTA has a Discord server as well as a general Reddit subreddit and a more specific IOTA Markets subreddit. In the Discord, they have over 22,000 members and across both of the subreddits they have over 130k members.

Screenshot of the General IOTA Discord Server

To get a better sense of the discussion amoung the community, I decided to jump into their Discord. There were numerous different chat threads that covered aspects of the project and ecosystem.

One thing that struck out for me in the discussion within this community is that there were very few “moon boys” to be seen. Most of the discussion were about partnerships, technology and broader adoption – always a good sign.

IOTA Token (MIOTA)

The long-term objective of the IOTA project is to create a network capable of power microtransactions between IoT devices. With IOTA an open market of devices can be created, where resource usage and transfer can be billed second-by-second in real-time.

This will open up enormous possibilities, such as vehicles that share weather and road conditions for small micropayments, or smart thermostats sharing temperature, humidity or wind data with weather stations.

The IOTA total and circulating supply is 2,779,530,283. The team decided on this number because it is optimized for ternary computation, being the largest possible 33-digit ternary number.

This total supply was pre-mined at the genesis transaction and there will never be more IOTA minted or mined. It is a fixed supply. Because there are no miners required to secure the IOTA network there are no incentives for anyone to try and raise network fees by slowing the network, or any other conflict of interest.

MIOTA Performance

Even though IOTA tokens were created in 2015 as part of the crowdsale, it wasn’t until June 2017 that the tokens were listed on an exchange. At that time the token traded between $0.55 and $0.65.

The token was volatile from the start, dropping from its opening levels to just $0.18 a month later, and then rebounding and climbing over $1by mid-August 2017. It couldn’t hold up that high and by November 2017 it was back under $0.40, but that didn’t last for long as December 2017 was the huge rally for the entire cryptocurrency market.

Image via CMC

It reached its all-time high of $5.69 on December 19, 2017, and quickly fell from those heights. Even so, it struggled and managed to remain above $1 until July 2018. From there is crept steadily lower and as of August 2019 it sits at just $0.265044.

There was a pop higher in the beginning of 2020, with MIOTA climbing as high as $0.34 briefly, but the news of the Trinity wallet hack on February 13 put an end to the rally that had been inspired by news of Coordicide finally putting an end to the Coordinator. As of early March 2020 MIOTA is trading at $0.223925.

Buying & Storing MIOTA

Even though it took 2 years for the IOTA token to get listed on an exchange today it is on dozens. The greatest trade volume is from Bitfinex and Binance, although there’s also a good deal of volume from Huobi Global and HitBTC (although we would avoid the latter).

Given that the volume is well spread out across exchanges, it means that MIOTA liquidity is not reliant on a single exchange. This means that if ever there was an issue with one of the exchanges, traders could always find an alternative market to place their orders.

Register at Binance and Buy MIOTA Tokens

On the individual exchange books, the turnover also appears to be healthy. The markets are deep and liquid which means easy execution for your larger block orders – no slippage.

For storing IOTA tokens the best alternative used to be the native Trinity wallet, which is available for both desktop (Windows, Mac, Linux) and mobile (Android and iOS). The recent hack involving the wallet has created concerns across the community however and even though the wallet has been patched it will certainly be some time before users regain their trust for the wallet.

Coordicide – The Evolution of IOTA

IOTA has been criticized for being too centralized, because since its early days it has implemented the use of a review node it calls the “Coordinator.” This special node acts to provide a checkpoint function on the Tangle, producing transactions called “milestones” that are meant to protect the network from attacks by bad actors.

The IOTA Foundation has long said “The short answer is that the coordinator can and will be removed if our research team is convinced that we sufficiently understand the coordinator-free Tangle.“

IOTA’s plan to eventually remove the Coordinator from the Tangle, called Coordicide, is expected to achieve the goals of scalability without centralization. The removal of the Coordinator will mark a major milestone in the goal of finally creating a Distributed Ledger Technology solution that is truly enterprise-ready.

As of February 2020 the plans for Coordicide have taken their next step forward, with IOTA announcing the replacement of the centralized Coordinator with a new decentralized consensus system being called “Shimmer.”

IOTA has said their Shimmer solution will balance decentralization with security and scalability, and it does so be pulling from naturally occurring systems, such as the flight patterns of bees and the design of the immune systems of living organisms.

New Consensus Mechanism

IOTA has added a new consensus mechanism to power Shimmer. That mechanism is a reputation-ranking system that uses something called “mana” to reward “good nodes.” Mana can also be removed for nodes that behave inappropriately. IOTA’s engineers claim this system will solve many of the problems associated with popular blockchain consensus mechanisms like Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS).

Ever since Bitcoin launched over ten years ago the biggest issue for blockchain technology has been the tradeoffs made between decentralization, security, and scalability. The innovative new consensus mechanism from IOTA promises to solve all three problems at the same time.

The IOTA Foundation has described the consensus mechanism as a modular solution “meaning that each module can be independently replaced should new research reveal further improvements,” This is important because “software that was not designed with modular foundations will begin to stagnate. Flexibility to upgrade in the future is critical to the long-term success of such rapidly advancing technology.”

The mana reputation system will allow token holders to vote on the assignment of mana reputation points to nodes that behave well in the network, and these mana points can also be voted away at any time. The system also includes auto-peering, in which neighboring nodes share information to reach full network consensus as quickly as possible.

This solution uses far less power than the PoW mechanism. In the Shimmer mechanism more mana will allow for more transactions to be processed, solving the scalability problem. By voting up the “good actors” these nodes become more strongly embedded in the Tangle, while the “bad actors” will become orphaned and unused.

Cellular & Fast Probabilistic

In addition, IOTA is testing two new consensus systems together with the mana system of node reputation. These are Cellular Consensus and Fast Probabilistic Consensus.

With Cellular Consensus, agreement on node reputations is said to “shimmer” through the network, which creates a collective agreement that looks similar to the movement of a colony of insects. Any nodes that behave strangely are seen in the same way insects detect predators in their midst.

It should be noted that this mechanism is very difficult to mathematically implement, which means it will take likely years of testing by IOTA before it is ready to be fully deployed on the mainnet.

Fast Probabilistic Consensus has individual nodes randomly verify the behavior of other randomly selected nodes. In addition, the percentage of agreement required in each round is also random. All of this randomness makes it more difficult to attack the network.

IOTA’s Coordicide is the result of years of planning and work. While the final phase on implementation is likely to be some time in the future still, the current plan appears to have taken into consideration many or most of the issues that might arise. IOTA and its proponents believe this will finally solve the problems of scalability, decentralization, and security existing at the same time.

Chrysalis or IOTA 1.5

Immediately following the announcement of Coordicide the team at IOTA also announced the mainnet would see an immediate upgrade dubbed “Chrysalis”, which is meant to improve the transactional efficiency of the mainnet prior to the completion of the Coordicide upgrade.

Chrysalis will transition the mainnet to an enterprise-ready network until the final Coordicide improvement is ready to be deployed. The project has been named “Chrysalis” because this is the form a caterpillar takes before transforming and emerging as a butterfly.

The Transition to Tangle Free IOTA

There are a number of improvements being included in the Chrysalis update, which is currently scheduled to be completed in the third quarter of 2020. One is a white-flag approach to calculating balances which will optimize for the speed and efficiency of tip selection.

It also includes a new selection algorithm for the Coordinator, allowing the network to support an increased number of confirmed transactions per second while also improving computational efficiency.

Chrysalis will also support atomic transactions, a new signature scheme in parallel with WOTS, and a new URTS tip selection. A further change will make IOTA capable of issuing tokens, which was a change requested by the IOTA community and the corporate partners.

The Qubic Protocol – Beyond Coordicide

One of the newest, and exciting projects for IOTA is the Qubic protocol. Qubic was created from the acronym QBC, which stands for quorum-based computation. The Qubic protocol is IOTA’s solution to outsourced computation, smart contracts, oracles, and much more.

The Qubic protocol specifies how IOTA will deal with quorum-based computations, which include constructs such as oracles and smart contracts. It will allow for a permissionless, fog/cloud-based, general purpose, multiprocessing capabilities on the Tangle.

Eventually users will be able to tap into the pool of global unused computing power while also helping to secure the Tangle, thus creating the IOTA-based global supercomputer.

Overview of Qubic Protocol

It should be noted that while the idea for Qubic originated back in 2012 in a thread on the Bitcointalk forum, it has changed greatly since then. It is also still a work in progress, and could remain so for quite some time. The scope of the project is actually enormous.

Teo things the IOTA team were very clear about when announcing Qubic is that it will not be a new token or coin, and that there will be no airdrop or ICO for Qubic.

The original conception of Qubic had some difficult to overcome problems, and the IOTA protocol was actually designed to solve those problems by becoming a global standard for IoT payments and messaging. The fee-free nature of IOTA transactions is one of the things making Qubic possible by enabling:

• A way to safely communicate with the outside world in a trusted environment;
• A powerful, distributed fog computing platform for building complex IoT applications;
• A new type of smart contract, which collects micro-payments in real time as it runs;
• A reward system for incentivizing honest participation in the Tangle.

Concerns and Criticisms

IOTA hasn’t gone without criticism over the course of its life, with much of it centered around the technical flaws of the encryption algorithm. There is also the $11.4 million theft of IOTA that occurred in 2018 where a hacker created fake seeds and thus gained access to user’s wallets.

The biggest criticism of the project surrounds the fact that the project uses an encryption algorithm named Curl which the developers “rolled” themselves. This means they created the encryption algorithm from scratch, a highly discouraged thing in the cryptography industry.

Research Paper on Iota CURL algorithm. Image via Twitter

These encryption algorithms typically need years of study to ensure they are secure, and that need was proven when Curl was found to have a property known as Collision, whereby the function will produce the same output when given two different inputs.

This could have allowed a hacker to easily steal tokens from the network. While IOTA’s developers have since corrected the vulnerability, some wonder what other surprises might lie under the code waiting to be exploited.

Another criticism of the project is in connection to the team’s avoidance of open source, which is even construed as being hostile by some. One of the cornerstone’s of most blockchain projects is an open source codebase, so with IOTA disdaining open source code, many wonder what they might be hiding.

Despite the work that has been done on Coordicide, the question about centralisation of the project was raised recently as the coordinator was shut down. This was done in response to the Trinity wallet hack.

Trinity Wallet Hack

An additional concern that only surfaced in February 2020 is the security of the official IOTA wallet app called Trinity. On February 12, 2020 it was learned that a hacker had been able to exploit a vulnerability in the wallet to steal roughly $2 million in funds.

Hack Updates. Image via Twitter

In response the IOTA Foundation shut down the Coordinator to stop any further theft while the hack was investigated. It remained shut down for nearly 2 weeks as the Foundation first patched the Trinity wallet, and requested users to update to the latest version which included migrating their seed to a new seed.

The seed migration period has been set for February 29, 2020 through February 7, 2020. This will be followed by a 2 day optional community validation period, following which the IOTA network will finally be restarted on March 10, 2020 at which time users will again be able to make transactions. Needless to say after this second hack the trust for IOTA has taken a severe blow.

Conclusion

Iota is certainly one of the more unique crypto projects, with the use of the Tangle a direct departure from the usual blockchain solutions. The goal of powering the Internet of Things is probably one of the loftiest in the space as well. And with the Tangle providing feeless transactions, extreme scalability, and quantum resistance it’s possible the Iota team could eventually realize their goal.

That said, the team needs to avoid any further security concerns, and the removal of the Coordinator will be a crucial step for the project. To succeed as a machine-to-machine payment system the entire protocol needs to undergo vigorous testing and most likely a long experimental process. The same is true if a data marketplace is ever to be launched on IOTA.

The hostility and disdain that the team holds for the open source community could also hurt the project in a field where developers are coming to expect open source as the norm. And there’s been some hostilities between founding members, which has already caused a divide, with founding member Sergey Ivancheglo cashing in all his MIOTA coins this past November nd walking away from the IOTA project.

Overall the Iota Foundation appears to be doing an excellent job in securing partnerships and the business development of the project. They already have a strong stable of partners, and could see adoption spread rapidly in several sectors if they can find success with their distributed ledger solution.

The recent Trinity wallet hack is certainly troubling, but is something that will fade with time. More exciting has been the release of Coordicide, and the news that there is now a timeline to shutdown the Coordinator and finally make IOTA the decentralized network it has always been meant to be.

Featured Image via Fotolia

The post IOTA Review: Distributed Permissionless Ledger for IoT appeared first on Coin Bureau.

When looking through exchange listings for “Bitcoin” you’ll come across quite a few variants that include Bitcoin as part of their name. Bitcoin SV, also known as Bitcoin Satoshi Vision, is one of the most recent. A Bitcoin fork that has shot into the top 10 of all coins by market cap.

So, is Bitcoin SV worth considering?

In this Bitcoin SV review I will attempt to answer that. I will take an in-depth look at the project as well as the long term adoption and price potential of BSV.

What is Bitcoin SV?

Bitcoin SV was created on November 15, 2018 as a fork of Bitcoin Cash due to differences in the viewpoint of the development community regarding how Bitcoin Cash should evolve. With the successful activation of Genesis by the Bitcoin SV team on February 4, 2020 the altcoin is coming closer to the original vision of Satoshi Nakamoto as laid out in the original 2008 Bitcoin white paper.

Images via BitcoinSV

Because of this Bitcoin SV is said to be the original Bitcoin, with the original Bitcoin protocol. The developers claim this will keep Bitcoin SV more secure and more stable, while also allowing it to scale massively.

As Bitcoin SV positions itself as the original, real Bitcoin there are many who dispute the claim. After all, it isn’t the first time a project has claimed to be the original Bitcoin, although in this case there does seem to be some merit to the claim. With the restoration of the original Bitcoin protocol it is hard to dispute the claim of Bitcoin SV returning to the core of what Bitcoin was meant to be.

Another consideration one has to wonder about is whether Bitcoin SV will ever be able to compete with the original Bitcoin in terms of branding, market traction, and pricing. So far in 2020 it seems to be doing a good job, having climbed from just below $100 at the start of the year to $373 as of February 11, 2020.

And even though Bitcoin SV is now the fifth largest cryptocurrency, the $6.65 billion market cap pales in comparison with Bitcoin and its $185 billion market cap.

How Bitcoin SV Emerged

In August 2017 there was a fork in the Bitcoin blockchain which created Bitcoin Cash. The reason for the fork was a difference in vision among the developers, some of whom believed Bitcoin had moved away from its original purpose of creating an efficient, peer-to-peer digital cash. So they forked Bitcoin and created a new version that they felt was more in-line with the original vision of Satoshi Nakamoto.

The community behind Bitcoin SV forked from Bitcoin Cash in November 2018 for many of the same reasons, however this fork was somewhat different in that it was a more aggressive split. In the initial days following the fork from Bitcoin Cash the new Bitcoin SV community behaved in a way that appeared as if they were trying to compel others to follow their vision by force.

Two main companies behind Bitcoin SV Fork. Images via nChain & CoinGeek

The fork came about after nChain and CoinGeek, the two organizations behind Bitcoin SV, made a claim that Bitcoin Cash had made so many changes to its protocol that it had also become far from what Bitcoin was originally meant to be.

The followers of these groups chose to fork Bitcoin Cash and return to the original vision of Bitcoin. However when the fork occurred the Bitcoin SV community didn’t simply roll back the changes that had been implemented in Bitcoin Cash and declare Bitcoin SV to be back to the original Bitcoin protocol, instead they actively, overtly, and aggressively attempted to wipe out Bitcoin Cash by taking over its hash power.

Email from Craig Wright to Roger Ver Threatening Hash War. Image via Breakermag

Eventually this hash war was ended by the implementation of replay protection by both Bitcoin Cash and Bitcoin SV. This made the split between the two blockchains permanent, and each network was able to show sufficient community support to remain viable without destroying one another.

It’s interesting to note that the Bitcoin SV community has remained controversial ever since, with their de facto leader Craig Wright causing a huge rift within the blockchain community as a whole after claiming to be Satoshi Nakamoto.

That claim has never been proven, but if it is someday there’s little doubt that Bitcoin SV should be able to take over as the leading cryptocurrency. On the other hand, if the claim is never proven Bitcoin SV could become despised for its aggressive and controlling behavior.

Main Technological Innovations

As you might suppose given that Bitcoin SV was a fork from Bitcoin Cash, the two have some definite similarities. One of those is a pursuit for larger block sizes to enable the processing of as many transactions as possible. Bitcoin Cash has kept its block size to 8 MB, which is much larger than the 1 MB size for Bitcoin.

In the case of Bitcoin SV, it has already mined a 103 MB block, which is the largest block ever mined on a public blockchain. In the future Bitcoin SV could theoretically mine blocks that are multiple gigabytes in size. If Bitcoin SV can pull this off, and initial indication are that they will, this is something to certainly look forward to.

Block Sizes and Transactions on the Three Networks

By increasing the block size in this way the Bitcoin SV developers are pursuing the scaling that was intended for the original Bitcoin. But increased block size is only one of the goals of the project. The developers also want to have a blockchain that allows businesses to build applications on top of it, and to provide a clear choice for miners.

Perhaps most tellingly, the community behind the project believes Bitcoin SV can provide an improved global payment system, with an exceptional user experience. Obviously that’s a huge undertaking, and while the team is heading in the right direction now, there will be plenty of hurdles along the way.

Below are three of the main improvements expected from Bitcoin SV:

• Scale – Bitcoin SV has mined a 128 MB block, but the successful implementation of the Genesis protocol has removed block size limits for Bitcoin SV.
• Transaction costs – One major goal of the project is to minimize the transaction costs, which the developers feel is one of the keys to a successful cryptocurrency.
• Network development – Developing the network to match Satoshi’s vision required lots of work, and the release of the Genesis protocol is a major step in creating the cryptocurrency described by Satoshi in the original Bitcoin white paper.

Bitcoin SV vs. Bitcoin Cash vs. Bitcoin

You already read above how Bitcoin SV shares characteristics with both Bitcoin Cash and Bitcoin. Of course they all started with the Bitcoin protocol, so it shouldn’t come as a surprise that there are similarities.

Primarily all the differences that exist between the three coins started with the adoption of Segwit. It was Segwit that led to the fork which created Bitcoin Cash. And that fork led to the larger block size of Bitcoin Cash.

In the case of Bitcoin SV it was later forked from Bitcoin Cash when the community claimed Bitcoin Cash had moved so far from the original Bitcoin protocol that it is little more than an altcoin developer experiment. The community chose to split from Bitcoin Cash in an effort to preserve the original vision of Satoshi Nakamoto, leading to the moniker “Satoshi Vision” for the newly forked coin.

The Bitcoin Forks Compared

Because of this Bitcoin SV is said to have a clearer vision, giving the coin more stability, better scalability, and increased adoption by the businesses in the crypto ecosystem. In a similar manner, the company nChain that runs Bitcoin SV has a mission to “ignite global adoption and enterprise-level usage of Bitcoin” which they intend to achieve through Bitcoin SV.

nChain believes that massive scaling and a stable protocol are what’s needed to make Bitcoin SV the coin that business choose over Bitcoin Cash, and even over Bitcoin itself.

BSV Crypto Nomics

It’s interesting to note that Bitcoin SV has always been the least profitable coin to mine between itself, Bitcoin Cash, and Bitcoin. That said, profits do fluctuate very regularly. And Bitcoin SV recently surpassed Bitcoin Cash in terms of market capitalization, although the flippening was short-lived and Bitcoin Cash has since recovered its number four position in terms of largest market caps.

The long-term value of Bitcoin SV will ultimately be determined by the ability of the developers to turn it into an actual currency that’s used regularly in commerce. To make that happen an objective use-value outside a medium of exchange will need to be discovered or created for Bitcoin SV. One industry that’s been developing that use-value is the gaming industry. There are others, but gaming seems to be at the forefront for now.

Here’s why it is logically necessary for Bitcoin SV to develop a use-value. Like any good or service, Bitcoin SV is not apart from the laws of economics. It is just as subject to those economic laws as any asset or store of value.

Bitcoin SV Being used by Gaming Companies. Images via CalvinAyre

Consider why U.S. dollars have value. Of course now it is backed by the U.S. government, but at one time dollars were backed by gold. Because they were once gold receipts you can look into the past to see where the use-value of the U.S. dollar originated.

Other paper currencies may have similar past use-value, but in the present many are considered to be backed by the dollar as the world’s reserve currency. It all traces back to the connection with gold, and as time goes by that connection is eroding, which is why the purchasing power of money continues to erode.

In today’s day and age cryptocurrencies in general, and Bitcoin SV specifically has a value that’s been attributed to it. This value has nothing to do with being backed by anything in the past.

It’s never been backed by gold, or a reserve currency like the U.S. dollar, or by anything else which has intrinsic value. Instead the use-value of Bitcoin SV comes from its present inherent value, not from anything in the past.

So, what exactly is that present inherent use-value? What can someone use BSV for today, other than exchanging it for another currency?

BSV Use Cases

According to Simit Naik, the Director of Business Services for nChain, the one current use-value for Bitcoin SV is provably fair gaming. This use as a verifier in fair gaming is completely separate from its exchange value. According to Naik:

That’s just one use-value. Firms like nChain are in the business of discovering new ones all the time. The more that are found and applied, the higher BSV’s use-value becomes. That in turn becomes its value floor. The remainder is speculative. The higher the floor, the more stable the total value.

That brings us to the interesting, but speculative question of which cryptocurrency currently in circulation has the highest value floor?

Each coin has both an inherent value and a speculative value blended into its current price, which makes it impossible to know exactly what the floor of any given coin is. However it does seem as if Bitcoin SV has a higher floor than Bitcoin for example.

That’s because BSV has already shown a higher use-value than BTC. In fact, Bitcoin might have an extremely low floor, since it is relegated to block sizes of only 1 MB. It could be that Bitcoin is relegated to no more than a store of value, with nearly zero use-value otherwise.

Store of Value without Utility? Images via Twitter

Ethereum clearly has a higher use-value, and thus a higher floor, since it can be used to directly store ownership records for other assets, among other things. While we know that this gives Ethereum a use-value floor today, we can’t really say where that floor is.

For something to be considered as money it isn’t enough for it to simply have a use-value though. Consider computer software. It certainly has a use-value, but isn’t considered to be a form of money. That’s because it’s not fungible. There’s no way to easily divide it into homogeneous units, nor is there any fixed supply.

Cryptocurrencies are a type of software, however it is also fungible with a fixed supply and it is divisible into homogeneous units. This is why we can logically consider Bitcoin SV as a form of money. And it is approaching a use-value where it can not only logically be thought of as money, but can also practically be thought of as money.

BSV Exchanges & Wallets

When it comes to the markets for Bitcoin SV, it is fairly well supported across a range of exchanges. These include the likes of Huobi, OkEx, Binance JEX and others. There also appears to be quite extensive volume for the cryptocurrency across these exchanges.

Taking a look into the individual order books, they appear deep with extensive liquidity. This could make it easy to execute larger block orders without incurring to much price slippage on the orders. BSV is crossed with other cryptocurrencies as well as fiat pairs like the Korean Won.

When it comes to storing BSV, there is limited support from most of the major hardware wallets. However, there are a number of desktop and mobile wallets that could be used for storing your coins. We covered this extensively on our post of the best Bitcoin SV wallets.

People Behind BitcoinSV

Unlike some other cryptocurrency projects where there is an individual or individuals who are the founders and leaders of the project, Bitcoin SV is sponsored and developed by corporate entities.

The sponsorship for the project comes from CoinGeek, while the development work on the project is carried out by nChain, a company that’s been involved in blockchain development efforts since 2017, when it was founded by Craig Wright. nChain is well-known for filing numerous blockchain related patents.

The team that’s developing Bitcoin SV was assembled with the full intention to follow industry best practices in an effort to deliver a full node implementation of the Bitcoin blockchain. It is also committed to maintaining the network, and to deliver stability and unprecedented quality.

Key Backers of Bitcoin SV. From left: Craig Wright, Calvin Ayre & Jimmy Nguyen

While nChain was founded by Craig Wright, who has claimed to be the one and only Satoshi Nakamoto, and is currently run by Jimmy Nguyen, the development efforts are overseen by Daniel Connolly as the Lead Developer at nChain.

He joined the company after working for two decades in enterprise systems development, holding several senior IT positions with United Nations agencies. Daniel was an anonymous contributor to Bitcoin in the past, as well as being the primary contributor to the BitcoinJ-Cash project.

The Technical Director at nChain is Steve Shadders, and he not only helps to provide oversight for the Bitcoin SV project, but is also responsible for liaising with sponsors and other industry participants. Steve has been contributing to Bitcoin development efforts since 2011, and was also one of the first contributors to BitcoinJ, in addition to creating one of the first open-source mining pool engines.

Bitcoin SV Team

The Bitcoin SV core research team has more than ten PhDs across a variety of disciplines including mathematics, cryptography, physics, computer science, and network theory. They also have industrial experience in software development, data science, business strategy, and consulting.

Lead Developer Daniel Connolly & Technical Director Steve Shadders

This core team includes five full time C++ developers who have a collective 95 years of experience. Additional C++ developers are also working on the project on a contracted basis.

Quality assurance is equally important, with one full time QA manager and three full time QA engineers ensuring the development and maintenance of test environments as well as the documentation, performance, and approval of all changes to the protocol.

BSV Price Performance

Bitcoin SV began trading at $88.30 and on the first day of trading historical data shows the coin closing at $68.75. Within a week the price of Bitcoin SV was pushed above $200, but as the hash wars came to an end so too did the price of BSV drop to the $50 level. That also reversed rapidly and by December 2018 the coin was trading around the $85-100 range for the most part.

BSV Price Performance. Image via CMC

Price declined in the first quarter of 2019, keeping mostly to a range of $60-80. That lower level was broken in April 2019, but by the end of May the coin was rallying again, and topped $200 heading into June.

July, August, and September 2019 saw a steady decline in BSV from over $200 to the $80-85 level. As the coin headed into 2020 it was trading just below $100.

The beginning of 2020 has been excellent for the coin, with BSV rising to $363.40 as of the close on February 11, 2020. That’s a gain of more than 250% in just six weeks.

Development Progress

Based on communications from Lead Developer Daniel Connolly and Technical Director Steve Shadders the recent Genesis hard fork that took place on February 4, 2020 came with the following changes to the Bitcoin SV protocol:

Solution to Bitcoin’s Scalability Problem

One of the nagging problems for Bitcoin has been its inability to scale, and the community hasn’t seen fit to fix the issue, insisting on a block size of just 1 MB and limiting Bitcoin to just 4-7 transactions per second. Needless to say this has seriously undermined any attempts to support enterprise usage of Bitcoin.

In the case of Bitcoin SV a record setting 128 MB block has already been mined, but with the implementation of the Genesis fork there are no limits on the possible size of blocks. This solves the scalability issue and means transaction capacity for Bitcoin SV is now infinite.

This will allow the mining community to manage block size and transaction capacity on the network, which is exactly what Satoshi envisioned in the original Bitcoin white paper.

BItcoin SV Genesis Fork in Feb 2020

The removal of a cap on the block size will allow for enterprise-level applications to be built on the Bitcoin SV blockchain. Miners will also benefit since they can earn more transaction fees to make up for the slow erosion in mining rewards due to the halving process that occurs every four years and reduces mining block rewards by half.

Restoring the Originality of Bitcoin Protocol

Bitcoin has now existed for over a decade and each year the developers make changes to the Bitcoin protocol. Because of this the Bitcoin we know today has strayed far from the original Bitcoin protocol. The Genesis hard fork on Bitcoin SV has restored the original Bitcoin protocol as outlined in the original white paper. In essense this has resulted in four key technical changes:

• Restoring the OP_RETURN Functionality: This change allows script developers to terminate scripts early, and with ease.
• Increasing The Script Numeric Type To Big Numbers: This change allows for complex mathmatical calculations to be performed more efficiently. The change was needed due to the limitations of 32-bit numbers. This change returns the original design and enables it to perform complex calculations and scripts with advanced functionality.
• Rescind P2HS For New Transactions: Pay to Hash Script (P2HS) enables hiding output scripts at the time of creation. This change was introduced by developers, but it is against the original Bitcoin protocol, which supports an honest record of events. P2HS has led to poor privacy practices, and rescinding P2HS will allow Bitcoin SV to return to better privacy practices.
• Restoring nLockTime and nSequence: Restoring the original usage of nLockTime and nSequence will allow for high-speed micropayments as intended by Satoshi.

P2P Relay of Transactions with Complex Scripts

Since the Genesis fork all participants are now able to use complex transaction types freely. Prior to Genesis a participant would need to find a miner to assist in confirming block transactions whenever complex transaction types were used.

Like any software we can expect the public blockchain that is Bitcoin SV to evolve as time goes by. While technical changes are inevitable, one thing that won’t change are the base protocol rules that govern Bitcoin SV.

Roadmap & What to Expect

Bitcoin SV begins by simply restoring what was the original Bitcoin protocol. The precepts laid out in the original Bitcoin whitepaper are being embraced by those working on the Bitcoin SV project.

By re-enabling the Satoshi op_codes Bitcoin SV is now prepared to add advanced technical functions, including smart contracts and tokenization. This original Bitcoin protocol is what has been needed to see Bitcoin grow and thrive, and it needs to be allowed to exist without constant tinkering and changes.

Now that this original protocol has been restored it needs to remain stable. Aside from critical security patches there shouldn’t be any needed changes required. By remaining stable Bitcoin SV will generate confidence from enterprises looking to build applications on top of a public blockchain. Just like the protocols that govern the internet has remained relatively stable over the years, so too will Bitcoin SV remain stable.

Image via BitcoinSV Roadmap

Next will be the growth of massive scalability to meet future market needs rather than simply viewing current transaction volumes. It’s important that Bitcoin SV is prepared for potential demand as a function of supply.

This will allow Bitcoin SV to function as the foundation of many different industries that require this type of massive scaling. Scaling will also help keep the mining community healthy, since increased transaction volume also means increased mining fees.

Of course security also remains critically important to the Bitcoin SV roadmap. The developers will continue to ensure the blockchain is properly optimized, and that quality assurance and testing steps remain in place.

Finally, Bitcoin SV will strive to continually improve the payment experience. The project will work on both measurement and improvement of the safety of 0-conf transactions, fast transaction propagation, and miner-configurable fee policies.

Conclusion

Sure Bitcoin SV hasn’t been without its controversies and detractors, but at the end of the day it still has a strong community, and appears to truly be interested only in delivering the vision of Bitcoin’s creator. The Genesis hard fork makes the blockchain the closest to the protocol set out in the original Bitcoin white paper.

It isn’t certain yet if this is what markets need, but Bitcoin SV has certainly seen some massive gains in price leading up to the Genesis hard fork, and unlike the pumps we’ve seen from other coins over the years, these gains are sticking. That simply highlights the strength of the Bitcoin SV community, and their dedication to making Bitcoin SV the biggest and most useful blockchain on the planet.

The true test for Bitcoin SV begins now that it has restored its protocol to match Satoshi’s Vision. Will the blockchain thrive? Will it finally succeed in turning a cryptocurrency into money that’s actually widely used where so many have failed?

It certainly won’t happen overnight, but we should find out over the coming months how successful Bitcoin SV can be.

Featured Image via Shutterstock

The post Bitcoin SV Review: Complete Beginners Guide to BSV appeared first on Coin Bureau.

That’s easy to say, but the process leaves many wondering where to start and how to proceed. Moreover, collecting information on all of your trades and compiling them in your tax returns can be a daunting task.

Fret not my fellow hodlers, as in this post, I am going to give you exactly what you need to know. I am also going to give you 8 of my favourite crypto tax tools & software that could help simplify this process.

But before diving in, let’s take a look at some taxation regulation.

Global Crypto Tax Treatment

If you’re in the U.S., the U.K., Japan, France, or Australia then crypto taxation is something you need to take seriously. These are the countries that already have tax regulations in place, and they expect their citizens to pay those taxes reliably.

Here’s a table from the CryptoResearch Report which shows how cryptocurrencies are classified by these countries, and what taxes citizens are required to pay:

As you can see the tax laws for cryptocurrency varies depending on the jurisdiction. That aside, there are still many useful tools for calculating crypto taxation, and for simplifying filing paperwork.

Much of this software works for any number of countries, can import data from crypto exchanges, and can generate all the appropriate tax forms. Think of these tools like TurboTax, but for cryptocurrency activity.

Once you’ve collected all your crypto records through this software you can take everything to your tax accountant to figure out, or you can use tax preparation software and handle everything yourself.

While crypto taxation is intimidating for many, using these tools really makes it quite simple, and there’s nothing to fear when filing taxes. According to Coinbase:

All crypto sells, conversions, payments, donations, and earned income are reportable by U.S. taxpayers

The following events are considered taxable in nearly all jurisdictions that require tax payments on cryptocurrencies:

• When you sell your cryptocurrency for fiat (USD, GBP, AUD, JPY, EUR…)
• Exchanging your cryptocurrency for another cryptocurrency
• Using your crypto assets to pay for goods or services
• When you receive cryptocurrency as earnings (either through mining or as payment for services offered to a third party)

There are some crypto transactions that aren’t taxable though, and it’s good to know what these are so you don’t inadvertently end up paying too much in taxes. Examples include charitable donations, transferring crypto between wallets, and buying and holding cryptocurrencies. Other country’s tax authorities have made similar rulings.

In the U.S. tax authorities have stated that even if a return is accepted now it is open to audit from the IRS and tax payers could be asked to file an amended return years later and pay back taxes.

Top 8 Best Crypto Tax Tools

The good news is there is software which will identify which transactions are taxable and which aren’t, saving you from making that determination yourself.

They do this through a series of questions, which are also input into the appropriate tax forms. The tax tolls will also try to help lower your tax bill by using capital loss deductions if you’ve had losses on your crypto trading and investing activities.

With all of that aside here are the top 8 cryptocurrency tax software tools available to traders and investors today.

CryptoTrader.Tax

While some of the crypto tax software later in this list seem pretty complicated that isn’t the case with CryptoTrader.Tax. According to the website it will let you finish your crypto taxes in “the easiest and most reliable way.”

The tool supports over 35 different exchanges, making it simple to import your trades and easily calculate gains and losses for the entire year. It really doesn’t get much easier or simpler.

There are plenty of other useful features baked into the platform which make it a very straightforward method for anyone to calculate their tax liability from their cryptocurrency activities. One of these features is the automation of all the reports and forms needed when filing.

Main User interface of CryptoTraderTax

CryptoTrader.tax will not only generate the IRS Form 8949, it will also create an Audit Trail Report, a Short & Long Term Sales Report, a Cryptocurrency Income Report, and many others. The platform then allows users to download these reports so they can integrate the data into programs like TurboTax and TaxAct, or send them to a tax accountant.

By using CryptoTrader.tax throughout the year traders can keep an eye on their profits and losses, and their tax liability. This can help in reducing capital gains and taxable events if that’s useful.

Traders can get started for free with the platform, and if they use it to file there is tiered pricing from $49 to $299 per tax year based on the number of trades imported.

This is a crypto tax solution that makes it simple to manage your taxes and it does it at a reasonable price. Plus it will reduce or eliminate much of the stress associated with crypto taxes and provide reliable and accurate tax reports.

Koinly

Koinly combines crypto accounting and tax all in one software package. The UI is one of the best in the crypto tax field, and in addition to handling tax reporting for the U.S., Australia, and Canada it also supports tax reporting for more than 20 other countries.

These aren’t just generic files being generated either. These are actual reports that users can submit directly to their tax authorities. For example, U.S. users will receive a completed Form 8949 and Schedule D in pdf format.

Of course Koinly has an API that allows it to connect to major exchanges, and it supports over 300 different exchanges as well as over 70 wallets and more than 6,000 blockchains. It will synch users complete transaction history quickly and easily.

Features of the Koinly Tax Tool

What really sets this platform apart is that it isn’t just for taxes. You can use it to keep track of your crypto portfolio as well, watching how it changes over time, and generating some really lovely graphs. While there are certainly other portfolio tracking tools, Koinly shines by offering both portfolio tracking and tools to monitor and reduce taxes.

Koinly has a feature that matches transfers between exchanges and your own wallets, which helps avoid unnecessary taxes. It also has a smart error handling system that warns when there are discrepancies in the data or when there might be inaccuracies in the tax report. They also have a crypto tax guide to help users get the most out of the platform.

Koinly also lets users get started for free. Payment is only required to generate reports. Prices range from $79 for up to 300 transactions to $399 for up to 10,000 transactions.

TaxBit

Another great alternative crypto tax tool is that of TaxBit. This is one of the only crypto tax software packages that was founded by blockchain CPAs and cryptocurrency tax attorneys.

Not only this, but TaxBit is the only company that we have on the list that has received substantial venture funding. In January of this year they had announced a $5 million seed round from a number of well-known investors. These include the likes of Peter Thiel’s Valar Ventures as well as Winkelvoss capital (amoung many others).

So, you know that the software has powerful backers behind it, but is it any good?

TaxBit User Interface

Well firstly, although this is a crypto tax tool (supports over 4,200 coins), it also supports a range of other assets. The likes of commodities, equities and other fiat currencies. This means that you can use it for your other trading purposes.

TaxBit is also partnered with numerous exchanges so you can quickly and easily track your transactions. These include the likes of Kraken, Coinbase Pro, Bitstamp and many more.

Something else that I really liked was their portfolio analytics tool. Unlike most software that is used only at the end of the year to generate the returns, TaxBit allows you to monitor your portfolio live and on a continuous basis. This gives you a full picture of your potential tax position currently.

You will also appreciate the immutable audit trail that has been designed by CPAs. This means that in the even that you were to ever get an audit from the IRS, you could easily drill down into any transaction and see how gains / losses were calculated on the cost basis.

TaxBit User Interface

The software also lets you customise your personal tax rate. Using the demographic information that you provide, TaxBit calculates your individual tax rate by taking into account the state and federal levels. This can give you the most accurate picture of your liability or refund.

And finally, when it comes to submitting your forms to the IRS, you can easily download IRS form 8949 with all of your trades. You can either download this in a simple pdf form to be sent to your accountant or you can download it for use in tax filing software such as TurboTax, TaxAct et al.

When it comes to pricing, TaxBit has three tiers. They have basic for $50, Plus for $175 per year and Pro for $500 a year. Below are what each of the pricing options entail:

• Basic: 250 Transactions, 10 Exchanges / Wallets, Current Year Tax Form and Chat Support.
• Plus: 2,500 Transactions, Unlimited Exchanges / Wallets, All tax forms and Chat Support.
• Pro: 25,000 Transactions, Unlimited Exchanges / Wallets, All tax forms and CPA Phone Support

CoinTracking

CoinTracking calls itself the leader in cryptocurrency reporting and tracking, and with over 490,000 clients, including more than 750 corporate clients, they might not be wrong. CoinTracking is particularly detailed, and users will know exactly how their portfolio is performing, how diversified they are, and what their tax burden is going to be all throughout the year.

CoinTracking has a web-based solution which allows for the easy connection to exchanges via an API, or through CSV files. This allows CoinTracking to display the complete trading history of a user, and determine profits, losses, and taxes owed. Final reports can be generated in a number of formats, including CSV, PDF, XLS, XML, and JSON.

The CoinTracking Tax Report Feature

The platform aggregates all of the transactions made through the connected accounts, showing exactly what was sent or received, and the exact trades made over the course of the year.

The platform also shows the historical coin prices at the time the trades were made, and has over 11 years of data on more than 7,000 altcoins. Over 70 exchanges are supported, including more than a dozen that are closed.

CoinTracking begins with a free tier that can be used for up to 200 transactions, although the tax reporting and linked accounts are limited. To fully unlock the features a Pro account is needed. This is just $9.99 per tax year and covers up to 3,500 transactions. Unlimited transactions are an affordable $49.99 per tax year.

Accointing.com

Accointing is one of the newer tax accounting solutions, having been launched in 2019. It also claims to be an all-in-one solution that covers everything crypto and tax related. It does have a user-friendly interface, and in many cases you’ll be able to get your crypto-tax information together in just a few clicks of your mouse.

One of the most powerful features is the portfolio management tool that comes with Accointing. You can even drill down to view the state of your portfolio at a specific timeframe. Related to this is the Holding Period Assistant dashboard, which will look at when you added cryptocurrencies to your portfolio and then make tax-strategy recommendations such as a tax-loss harvesting strategy, based on your holdings and holding period.

So much power with the click of a mouse. Image via Accointing.com

When it comes to crypto taxes, Accointing has you covered. The Tax Review feature automatically goes through all the steps required to accurately calculate your tax burden. It will even generate reports based on different cost accounting methods, giving you the ability to easily choose the best for your situation. And it allows you to mark off transactions as airdrop, hard fork, gift, or payment.

All of this is made possible by the import function of Accointing. The data import software included in the Accointing package makes it super easy to upload everything from wallets and exchanges via CSV or API. Once you’ve linked all your wallets and exchange accounts it’s as easy as clicking a mouse button for accounting to pull in all your data and begin its tax calculation magic.

You might think all this is going to be expensive, but you’d be wrong. In fact, if you have 25 transactions or less Accointing is free to use. That includes all the features of the software, not some watered down version. If you have more transactions you do have to pay for the software. The first tier covers up to 500 transactions and costs $79. Considering the amount of time Accointing will save you this is a real bargain. Prolific traders can move up to cover as many as 5,000 transactions for $179 and the top tier covers 50,000 transactions for $299.00.

Overall Accointing is a very powerful and user friendly tool for tracking your portfolio and generating tax reports. Both features will save you time and quite possibly a good bit of money.

BitcoinTaxes

BitcoinTaxes is another popular crypto tax solution. Launched in 2014, it is a web-based solution which offers users a group of excellent tools for tracking annual tax obligations. It includes the ability to generate detailed tax reports including all the transactions carried out throughout the year.

These reports include transaction data pulled from many popular exchanges such as Coinbase Pro, Bittrex, and others. It’s also possible to add your own data via CSV files, and users can add any funds they’ve spent on personal items or donations. The platform also supports importing any mined cryptocurrencies that may have been received throughout the year.

Bitcoin Taxes capital gains calculator

The platform will generate your capital gains for the year, which can then be input into the tax software of your choice, or can simply be printed out to share with your tax accountant, or to attach to your tax return.

One huge downside to this platform is the need to manually enter the coin price for each separate time-frame. This could create quite a bit of work for active traders.

You can get started for free at BitcoinTaxes, and the paid plans begin at $29.95 per tax year. The platform is available to residents of the U.S., the U.K., Germany, Canada, and Australia.

LukkaTax

LukkaTax was previously called LibraTax, and the original version has been around since 2014. This is another popular crypto tax platform frequently recommended by crypto enthusiasts who are also interested in keeping up to speed with their taxes.

The LukkaTax website claims you can collect your data from any source, including both exchanges and wallets. The platform will calculate based on crypto-crypto trasactions, crypto-fiat transactions, and mining transactions.

Main Benefits of LukkaTax

The platform supports over 3,700 different cryptocurrencies. The platform generates a number of different reports, including the IRS Form 8949 needed to file taxes in the U.S.

LukkaTax costs a flat $19.99 for the tax year, no matter how many transactions are being input to the platform. There are versions for tax professionals and institutions, which costs $39.95 per tax return.

In addition to tracking crypto activity for the current tax year LukkaTax has the ability to look back in time and calculate tax obligations for prior years for those interested in filing an amended return.

ZenLedger

ZenLedger is a simple and effective platform for calculating cryptocurrency taxes, and those who also use TurboTax may want to seriously consider using ZenLedger for their digital assets since it’s the official partner of TurboTax. The platform integrates with over two dozen popular cryptocurrency exchanges, and has support for a large majority of fiat and cryptocurrencies.

ZenLedger will quickly import transaction history from supported exchanges, and will use the data to automatically fill in the required information in tax documents. This includes capital gains, donations, closing statements, and income from cryptocurrencies. The platform also generates a profit and loss statement.

ZenLedger integration into TurboTax

All of the reports and documents created by ZenLedger are IRS-friendly. That means they can all be submitted directly or used in conjunction with other tax reporting solutions. ZenLedger works perfectly for all levels of crypto enthusiasts.

ZenLedger pricing starts at $69 for 100 transactions and climbs to $999 for unlimited transactions. It’s not the cheapest solution, but it is worth the price.

Conclusion

While no one enjoys doing taxes, these solutions make finishing the crypto-portion of taxes easier and less stressful.

Best of all, with the landscape surrounding cryptocurrency taxation continually changing, these platforms will keep in front of those changes and help their users remain compliant with the latest tax laws in their respective countries.

Using one of the seven solutions provided above will ensure the correct information is being collected and reported to tax agencies, and could help users avoid any penalties or fines. Keeping track of tax information for digital assets can be a challenge, but these crypto tax tools make it far easier.

The post Best Crypto Tax Software: Top 8 Tax Tools for Crypto appeared first on Coin Bureau.

The intention behind this upgrade was  to fight off the constant threat that ASIC mining rigs have been posing to the Monero ecosystem. Moreover, with the upgrade to RandomX it means that you can now mine Monero with your CPU. No expensive mining rigs and equipment required!

So you are perhaps wondering how you would do this?

Well, in this in-depth guide I will take you through the exact steps required in order to mine Monero with your CPU. I will also give you some top mining tips.

Why The Upgrade?

For those that have been following the Monero story for quite some time, you will no doubt have heard of their battle against ASIC mining chips. ASIC mining can lead to the centralisation of a network which can threaten the privacy of Monero.

Last year, Monero forked the blockchain and made tiny changes to the code. This seemed to work for a while as the ASICs that were developed were rendered moot. However, the issue raised its head again recently as it became clear that ASICs were still hashing Monero.

Monero’s Anti ASIC Stance. Image via Shutterstock

The problem lay with the old mining algorithm that Monero used. This was the cryptonite algorithm that was pretty easy to develop an ASIC for. Hence, Monero could continue forking the code or they could look to a completely new solution.

Enter RandomX

RandomX is a mining algorithm that takes the fight against ASICs one step further. It is able to acheive this through the use of random code execution and memory hard techniques.

Moreover, RandomX was optimised for more general purposed CPU use. Of course, this could have a perverse effect on some of the GPU miners that have been hashing on the old algorithm. Indeed, the mining return for those running GPUs dropped considerably post update.

However, one miners loss is another’s gain. Given that RandomX was optimised for CPU mining it means that you can use your home machine to start mining some Monero. So, let’s take a look at how exactly that is done.

XMR RandomX Mining: Step-by-Step

Now let’s get you set up to begin mining XMR with the CPU in your machine. It’s a quick and easy process.

If you don’t already have a wallet that supports Monero the first thing you’ll need to do is to download a wallet so you have somewhere to receive the XMR you mine. We recently did a review of the Best Monero Wallets that you can use to help you decide which wallet to use.

You could solo mine Monero, but you’ll almost surely need to wait a long time to find a block. The better solution is to use one of the many mining pools. It’s easy to set up and it stabilizes your earnings from mining. We’ve done a Monero Mining Pool guide previously, but there are many other good pools you can choose from too.

Once you’ve decided which mining pool you’re going to use you will need to download the mining software for Monero. The two best choices are XMR-STAK-RX and XMRIG.

Using XMR-STAK-RX

Here are the instructions for using XMR-STAK-RX. Note that all mining software is identified as a virus by Windows. Click for “More Information” and allow the download.

Step 1: Downloading the Files

After downloading the appropriate version of XMR-STAK-RX you will need to extract it, and then you can run xmr-stak-rx.exe. You may get a similar message from Windows about the software being a virus when trying to run the software, again you’ll want to add it as an exception and allow it to run.

Step 2: Running the Chosen Files

It will open a command prompt window and ask if you want to use the simple setup method. Press ‘Y’ and then enter.

Step 3: Simple Setup

You will be asked which currency you wish to mine. Type ‘monero’ and press enter.

Step 4: Choose Monero

Next, you’ll be asked for your pool address. We’re using 2Miners as our pool. Once you’ve entered the appropriate mining pool address press enter.

Step 5: Entering Mining Pool information

Next, you’ll be asked for a username, which is your wallet address or pool login. If using a wallet address you should copy/paste and then press enter.

Step 6: Entering your XMR Address

Next, you’ll be prompted for a password. You can simply type ‘x’ and press enter.

Step 7: Entering your XMR Address

Next, you’ll be asked if the pool supports TLS/SSL. If you’re unsure you can just type ‘n’ and press enter. If you’re using 2Miners like us you’ll want to type ‘n’.

Step 8: Pool supports TLS/SSL?

Another command window will open and it may ask you to reboot. Don’t reboot just yet. You can just press enter and the command prompt should move to the next step. The original window will also be open, but it can be closed now that you’re done configuring the mining software.

Step 9: Don’t Reboot

And in the second window, you should see that you’re now mining. You may see several error messages, but eventually, the software will begin using your CPU to mine and will begin detecting blocks.

Step 10: Mining XMR on XMR-STAK

Now you are mining monero using your CPU. It will give you an update of the amount of blocks that you have found and the XMR that you have mined.

Using XMRIG

If you prefer you could also use the XMRIG mining software for Monero, however it comes with a default developer fee of 5%. You can change that in the config file, but you cannot go below 1%, so the XMRIG miner is not free.

Here are the instructions for downloading and running XMRIG.

First download the proper version of the miner from Github.

Step 1: Downloading XMRIG

Once the files are downloaded they will need to be extracted to a location of your choice. The files will almost certainly be flagged as a virus and you will need to add an exception to save and later to run the miner.

Step 2: Allow files to be run

Once the files have been extracted you can go to the folder and see the files. You will need to open the config.json file with Notepad or another text editor (not Word) so that you can set your parameters.

Step 3: Setting Mining Parameters

Once you open the config.json file scroll down near the bottom to the section called “pools”. There you will add “rx/0” for the algo, “monero” for the coin, the pool address for the url, your wallet address for the user field, and “x” for the pass field. You will also want to change the keepalive setting from false to true. Don’t forget the parenthesis or the miner won’t work properly.

Step 4: Optimal XMRIG Config Settings

Save and close the file and then double click the xmrig.exe file to start the miner. You will get a command prompt that opens and the miner will be running.

Step 5: Letting XMRIG Run & Mining XMR

There you have it. You can now leave XMRIG running and it will send the block rewards to the wallet that you have chosen. Of course, this will be reduced by 5% as you will have to give some over to the developers of the software – so pros and cons.

Conclusion

And there you have it, my simple guide about how to mine monero with a CPU. Of course, if you have been mining XMR with your GPU rigs then you may discover a fall in your ROI which is an unfortunate side affect of this RandomX upgrade.

However, if you want to increase your returns from Mining with your CPUs then you can look to invest in some high quality ones. These will no doubt be cheaper than the cost of buying GPUs or advanced ASICs.

For example, you can look to buy the Intel i5 7600 or the Intel i7 8700k. Both of these CPUs should get you added bang for your buck. The i5 has been tested to produce about 1.63 kh/s whereas the i7 can output about 2.36 kh/s. Of course, these are just two examples and there are many other CPUs that can work.

Indeed, now may be one of the best times to start mining XMR with your CPU. As more miners start joining the network the difficulty will increase and your ROI would fall. Be sure to do the appropriate calculations on this number before buying a new CPU.

Happy Hashing!

Featured Image via Shutterstock

The post Mining Monero with CPUs: Step-by-Step Guide post RandomX appeared first on Coin Bureau.

At that time it was quite promising looking, but then missed deadlines and new projects sent it into the shadows, where it remained until just recently. When the Golem team finally released its beta main net launch this past April the light shone on the project again.

So, is it a project really worth considering?

In this Golem review I will attempt to answer that. I will also take a look at the long term use cases and price potential of GNT.

What is Golem?

The Golem project is focused on creating a global supercomputer that will offer purchasable computing power through a global decentralized, distributed network of computers. It also allows those with spare computing power to make some GNT tokens by offering their idle CPU to the network.

The first stage of the service is being called Brass Golem, and this is what was launched in April 2018. It has a specific focus on CGI rendering, specifically for the 3D modeling application Blender and the rendering engine LuxRenderer.

Overview of Golem. Source: Golem Website

The team feels this is a good first offering as 3D rendering is extremely processing-intensive and can be quite costly.

As an example, let’s say you’re an animator and have created a scene in Blender that you’d like to render in full HD-resolution. You could do the rendering on your own computer, but depending on how powerful your processer is that could take days or even weeks. It’s not likely anyone wants to wait that long to render a scene. There are other options if you want it rendered more quickly.

One option would be to outsource the rendering to a rendering farm. These are dedicated services that offer to rapidly render 3D animation and other modeling. They are also very expensive. And they can be fully booked at times, meaning there’s still a delay in how long it takes to have your scene rendered.

Golem Technology

The new alternative is the one offered by Golem. You can use their software and the GNT token to rent the processing power of the users on the Golem network. And you can specify how quickly you’d like the rendering done, or how many subtasks you’re willing to accept.

You can then set the price you’re willing to pay in GNT tokens on an hourly basis. For slow renders you can set a lower rate, but if you need your render done quickly a higher rate will accomplish that.

This is great for animators who need fast, inexpensive rendering. It’s also great for anyone who has spare computing power – and that’s pretty much anyone who has an idle computer in their home. The Golem network allows you to sell your spare computing power and get paid in GNT tokens.

With the launch of the Brass Golem beta the Blender renders are the only real-life application available, but that will change in the future as the Golem team has plans for many other real-life applications. Pretty much any task that uses significant processing power can be improved through the use of the Golem distributed network.

Screenshot of Golem Application. Source: Golem Whitepaper

It should be noted here that adoption of Golem for Blender rendering has been slow, but the team is continuing forward with this new data and is planning on releasing their next iteration of the network, called Clay Golem, sometime in early 2020.

In the meantime, they are also working on a number of new use cases, which I will highlight below.

Golem Use Cases

The Brass Golem beta already allows users to earn tokens for providing unused computing power to the network. The initial use case was to allow users to render complex Blender animations and scenes far more quickly than is possible on a personal desktop machine, and far less costly than a Blender farm.

In addition to that initial use case, the Golem team has added a second use case, and they are working on additional use cases to increase the adoption and utility of the Golem network.

The most recent addition to the Brass Golem mainnet is gWASM, which allows developers to run WebAssembly binaries on providers’ machines by turning WASM into a container for heavy server-side parallel computations.

Standard WebAssembly and the Golem Wasm. Image Source

This makes it easy to create new decentralized applications with a Web Assembly backend. It’s even possible to integrate existing applications by moving the computationally heavy and expensive part to Golem.

Coming soon is gLAMBDA, which was originally built as a way to support distributed RASPA execution, most useful for molecular computations. The app runs in a gVisor-secured Docker container and contains Python packages. It is the Golem network’s first foray into scientific research computing, which the team believes could be a huge use-case for Golem.

A second use case coming soon is video transcoding. It will allow users to transcode huge video files using Golem and Golem Unlimited. The development team says they will approach this as a dedicated web service which will include an intuitive interface for less tech-savvy users. This would be a step up from the interface used for Blender rendering.

Image via Golem

Another initiative of the Golem developers is Golem Unlimited, which is being developed to utilize trusted computing resources during periods in which they are idle. Golem Unlimited has been created for enterprise users, such as data center setups, desktops within an organization, or render farms, where all the participants trust each other.

Golem Unlimited creates an internal trusted network of computers, with nearly all being providers, and one central hub being a requestor. Any of the organizations’ computers are able to join the internal network and provide computing power for tasks.

Current use cases being explored for Golem Unlimited include MPI Computations and Hoard Compiler Gromacs. Once it is possible to run these use cases Golem will connect hubs and their corresponding networks, making them one fat provider.

The Golem Team

Golem’s development and management team is based in Poland. The co-founder and acting CEO/CTO of Golem is Piotr Janiuk. After receiving a dual Masters’s degree in Mathematics and Computer Science he went on to software developer jobs and eventually found himself as a senior lead developer at imapp, which was where most of the original Golem team came from.

Another co-founder and acting COO of Golem is Aleksandra Skrzypczak, who began her career with a Bachelor’s degree in Informatics and then went on to get a Master’s degree in Mathematics by writing a thesis about the usage of machine learning in social networks. She also worked as a senior lead developer for imapp before helping found the Golem Project.

One further co-founder of Golem is Julian Zawistowski, who recently moved from his role as CEO of Golem and took the position of Director at the Golem Foundation. He was an economics and international politics student at the Warsaw School of Economics, graduating with a Master of Arts degree in the field of economics.

Golem Team Members Celebrating MainNet Launch. Source: Golem Blog

In addition to Golem, he was also the founder of a company called imapp which provides programming and analytics for businesses. He only stepped away from imapp in June 2019.

The rest of the team consists of just over 2 dozen individuals, most of whom previously worked with Zawistowski, Skrzypczak, and Janiuk at imapp. Most of the developers and software engineers are computer science majors from Polish universities.

Overall the team is solid, but there are no blockchain rockstars working on the Golem project. They have missed deadlines in the past, but as proven by the main net release of Brass Golem they eventually get the job done.

Golem GNT Token

Computing power is bought and sold on the Golem network using its native GNT token. The GNT is an ERC-20 token that is tied to the Ethereum blockchain. The team decided to use a blockchain token for its system to make it trustless.

With the GNT transactions occurring on the blockchain there are no worries about a failure to pay or a breach of contract. And the actual file transfers and rendering occurs off the blockchain, so there’s no need to worry about the throughput of the network.

GNT was pre-mined and there are a total of 1 billion GNT in existence, but just 980,050,000 in circulation. The token was sold in an ICO that took place on November 9, 2016. The ICO raised roughly $8 million and tokens were sold at $0.01 each. The token hit its all-time low of $0.008797 soon after on December 12, 2016.

GNT Price Performance. Image via CMC

As of October 24, 2019 the GNT token is trading at $0.040533. While this is the lowest price for GNT since March 2017 it is still a good return over a 35-month span since the ICO.

The token hit an all-time high of $1.25 on January 8, 2018 but has fallen throughout 2018 and 2019 as the overall crypto markets have experienced broad-based weakness. It is possible the token could get a boost when the team releases the Clay Golem version sometime in early 2020, so now might be a good time to buy.

GNT Trading & Storage

The GNT token is trading on many different exchanges, with the largest volume trading on CoinEx. There’s also a good amount of volume on DCoin, UpBit, Binance, and Poloniex, with smaller volumes on a good dozen other exchanges.

It is worth pointing out that the Golem team has no intention to boost the value of the token. Their intent is simply to use the GNT as a payment means on the Golem network, and they have no partnerships with exchanges or any plans to market the token as a speculative investment.

In terms of GNT market liquidity, over 60% of the volume is taking place on CoinEx. This means that the token liquidity is quite centralised and dependent on a single exchange – not always the best from a market microstructure perspective.

Register at Binance and Buy GNT Tokens

Either way, there is reasonable volume for GNT on Binance. Taking a look into the GNT / BTC order books on the exchange you have a reasonable level of turnover with relatively deep order books – although you may encounter some slippage with larger orders.

Once you have your Golem tokens you will want to move them off of the exchange into a cryptocurrrency wallet. Keeping a large holding of crypto on an exchange is not a wise move given the numerous risks that are posed by the likes of hackers etc. We have covered a list of some of the top Golem wallets where you can store your GNT.

GNT Price Forecast

Remember that the Golem team has no desire to have the GNT used as a speculative investment token. There were claims that the token was overvalued in the past, but after the 2018 selloff in cryptocurrencies, that’s really no longer the case.

Even so, markets have once again slipped and stumbled late in 2019, so with no coordinated push from the team, it isn’t likely we’ll see a significant increase in GNT price levels anytime soon.

The GNT definitely has room to grow from current depressed levels, and the addition of several use cases should help to foster growth. If the team can create a platform that’s much easier to use than the current Golem network setup we could see a huge upside for the token.

Currently, it’s simply too technical and complex to get a node up and running and to purchase rendering time. The Golem team needs to make this far easier for non-technical people to gain mass adoption.

With that said, even the rendering market is big, and with additional use cases added the processor usage market is immense. Consider the billions in profits being made by the likes of Amazon, Google, and Microsoft with their cloud businesses.

We could see slow steady growth for GNT until a major use case is added or a simple platform is unveiled.

Golem Development

Although Golem has been criticised for the delays in the release of the mainnet, this is not always in the hands of of the developers.

It takes time to code a robust and comprehensive protocol while making it safe and secure. Hence, I am sometimes more interested in seeing the raw coding output to see how much work is being done.

By diving into a projects public GitHub repository, we can get a good sense of this. Below are the code commits over the past year for the top three most active repos in the Golem GitHub.

Code Commits to Select Repos in Past 12 Months

As you can see from the above commits, there has been quite a bit of activity over the past year. There are also a further 83 other repos in their GitHub with varying degrees of commits.

This is more than we have seen at other projects at this stage of development. In fact, if we were to take a look at the commits compared to other projects, Golem comes in at number 20.

So, although there has been a long delay in launching the Main net, one cannot claim that this is as a result of slow development. If you want to keep up to date with the latest then you can head on over to their official blog.

Something else that I really want to look at is plans that Golem has for the next few months with their adoption timeline.

Golem Adoption Timeline

As you might have guessed by the description of the project it’s sweeping in scale, and can be expected to take quite some time to reach a level of fairly widespread adoption in the 3D rendering industry.

It could take even longer for Golem to be able to tackle other use cases and industries, but the team has already been working on the project since 2014 and is optimistic about its future development and adoption.

Golem Roadmap with Go-to-Market Strategy for each stage. Source: Golem Whitepaper

The April 2018 release of the Brass Golem beta main net came almost a year later than initially planned, but it has proven to be a solid platform so far. It is specifically for CGI rendering, but the team expects to have a completed product released sometime in 2020 and has been able to add smaller more specific use cases to the platform in the year-and-a-half since the launch of Brass Golem’s beta mainnet.

The project has stopped posting a roadmap as of 2019 and instead releases mid-term Kanban boards which helps show where the team has been and where they are is headed but doesn’t put a timeframe around any of the deliverables. You can see the Kanban board here.

Conclusion

When you think about the potential of a global supercomputer you can see what a cool project Golem is. If you imagine out decades into the future it can begin to seem like science fiction, with all the world’s computers forming an interconnected network capable of processing power we can only dream of today.

Of course Golem is only in its infancy now, but in the coming 4 or 5 years they could conceivably already have millions of computers all contributing processing power to complete massive tasks quickly and seemingly effortlessly.

The downside to Golem right now is the lack of marketing from the development team, and the slow pace at which they seem to be working. Fortunately for them there is no other project that is close to what they’re doing, but the slow pace could end up being their downfall if a strong competitor arises.

They do have a strong community following them however, with a lot of attention on Reddit following their main net launch, and nearly 150k Twitter followers.

In the coming months it would be great to see the team expand from its base in Poland and add some global team members, as well as creating some strong partnerships. It would also be great to see the pace of development increase, but I suppose that’s true for most blockchain projects.

Featured Image via Golem

The post Golem Review: Decentralised Blockchain Super Computer appeared first on Coin Bureau.

It is also one of the most promising projects to come out of the Neo ecosystem, which is itself quite a revolutionary blockchain. Ontology is looking to build a “decentralised trust network” where users control their data and can effectively “assetize” it.

So, this sounds interesting but is it worth it?

In this Ontology review, I will attempt to answer that. I will also analyse the long term use cases of ONT and its pricing potential.

What is Ontology?

While Ontology touts itself as a public blockchain, and it is that, it was created to serve the needs of corporate clients, those who require privacy and aren’t looking to share their data on a private blockchain.

This makes Ontology a blockchain-as-a-service (BaaS) platform, which is becoming quite common. Ontology is attempting to provide corporate users with an easy way to benefit from the decentralized and distributed nature of the blockchain.

Image via Ontology Blog

Ontology users will find ID management, smart contracts, a decentralized data exchange, and the ability to create their own digital assets and applications that can be hosted on the Ontology dApp platform.

Ontology was created by the same developers who created NEO, which is why you’ll see similarities between the two, such as a dual token system, where ONT is the same as NEO and ONG provides power for the network in the same fashion that GAS powers the NEO network.

Ontology Background

Ontology was created by a Chinese tech company called Onchain that’s been involved with the development of distributed network architecture and blockchain solutions for businesses since 2014. Onchain was founded by Da HongFei, who remains the CEO, and Erik Zhang, who holds the position of CTO.

These two were also the creators of Antshares in 2016, and this blockchain later became NEO. In the meantime, they also launched Ontology in November 2017.

There are similarities between NEO and Ontology, but there are also distinct differences that make both valid and necessary networks. It should also be pointed out that even though there is overlap between the management and development of the two projects they are separate.

Onchain oversees both, but Onchain remains separate from the two projects as well.

Ontology Technology

What makes Ontology unique from other blockchain projects is that it isn’t just a single blockchain, but is a network of blockchains that was designed to make it easy for enterprise users to migrate proprietary systems to distributed ledger technology with minimal downtime and disturbance of the systems involved.

While the main blockchain is public, the other chains attached are like a private space for the enterprise. It gives them the benefits of blockchain technology quickly and easily, without the need to hire a development team or worry about security, which is provided by the main Ontology blockchain.

Interaction amoung mainchains and sidechains on Ontology. Image via Ontology Blog

Besides the differences in the two networks, you’ll also find several similarities in the design of NEO and Ontology, which shouldn’t be surprising considering they share some of the same development team.

One of the key similarities is that they are both smart contract platforms used to host decentralized applications (dApps) and are competitors of the Ethereum network.

Ontology was developed to specifically address the enterprise usage problems encountered with the Ethereum network. The major issue comes because Ethereum is open-source, but many enterprises aren’t interested in an open-source platform because they prefer to keep their data proprietary and safely away from prying eyes.

Ontology compared to other sidechain solutions

Ontology has an additional role besides supporting enterprise needs, and that’s to act as a bridge between NEO and legacy systems. And unlike many existing blockchain projects, Ontology is unconcerned with its cryptocurrency becoming a consumer-facing transactional currency. Instead, it is focused on the needs of its enterprise user base.

While you might suppose the lack of concern with becoming a transactional currency might be a negative for price growth, in fact, it could help support the price of the ONT token, but I’ll show later how the ONT and ONG currencies work together, the value of each, and how they’ve been accepted by exchanges and cryptocurrency markets.

Potential Use Cases

Everything discussed above is simply the setup of the company and some theoretical ideas. Here we get into the meat of Ontology, or how it is necessary for enterprise users, and how it can help the business world.

In order to really understand this, we need to have an understanding of the workings of enterprise business systems. We can do this through an examination of the banking business, which will show how Ontology and NEO will be able to work together and provide serious competition for the likes of Ethereum and other smart contract platforms.

In many cases, the banks don’t actually handle many of the loan servicing functions. Instead, they outsource these functions to third-party vendors who specialize in loan servicing.

This is an efficient setup and works well for all those involved. One factor that needs to be addressed however is security and privacy. As you can imagine, a huge organization such as Capital One isn’t going to give an outside vendor full access to their systems.

Capital One Credit Offers API Architecture. Image via Capital One

That would be a breach of security and would put private and proprietary information at risk. And there’s no reason a vendor who handles loan servicing functions would need full access to the Capital One systems.

In order to make this work Capital One has data stored in a series of proprietary systems and software platforms. This allows them to segregate the data and give access only to those who need it to perform a function or service for the bank.

Internal Capital One employees would access the data through an internal software platform, which would give them the access they need. Third-party vendors could also access the same data, but in a more limited fashion through a web portal designed specifically for third-party access. And even tighter access could be granted, perhaps view-only, through a different web portal.

All of these systems are getting their data from the same Capital One database, and they are synced and updated regularly, in some cases this could even be in real-time.

Ontology Solution

With so many systems working together to provide data to those who need it you can imagine how difficult it would be to migrate to a new system. Not just banks, but also health care facilities, governments, insurance companies, and other organizations require privacy in their data.

In some cases, it is to protect trade secrets, but in others, it could be for regulatory compliance or consumer protection. In many of these cases, it is illegal for the organizations to allow outsiders access to customer data.

This has created difficulties for blockchains like Ethereum and NEO, which were designed to support enterprise usage, but because they are public, open-source platforms, the very enterprises they are meant to support are unwilling or unable to use them because they could lose control of their data.

And that’s where Ontology becomes so incredibly useful…

Ontology’s Trust Ecosystem. Image via Whitepaper

Because Ontology allows for a network of blockchains it is similar to the traditional systems being used in banks and hospitals and the like. It allows the enterprise to maintain control over access to their data.

Rather than making the data public and combining it with all the other public data being stored, the data is kept separate, and the enterprise decides who has access to the data, and which data might be shared with the NEO ledger, making it public.

Ontology keeps the enterprise data tightly controlled, and the enterprise has the ability to do as they like with their own data, either keeping it internal to their own organization, giving limited access to third-parties, or making it entirely public.

Ontology dApps

Ontology has recently ventured into the world of dApps and currently lists a total of 39 available dApps. Nearly all are game dApps, including a retro Super Mario game. The top games are multi-player online virtual world called ONTLAND and the RPG game HyperDragons Go!

Ontology Team & Community

The Co-founder and Chief architect behind Ontology is Jun Li. He has a Bachelor’s degree in Computer Science, Master’s in Communication Engineering and an MBA.

He has a long background in the IT and Fintech sector. For example, he previously provided technical architecture and management support for firms including Infosys as well as the China Financial futures exchange.

Ontology’s Global Team

In terms of the broader Ontology team, there are over 200 core members that span a number of different technical disciplines. They are also spread out in offices located in Asia, Europe and North America.

In terms of the broader community, Ontology has a pretty strong following. This would make sense given that many people who have backed Neo have a de-facto interest spreading awareness for Ontology.

Over on their Twitter account they have over 80k followers. This is more than we have seen on other cryptocurrency projects. These followers are also engaged and help share announcements on this Twitter account.

Ontolgy’s English Telegram Group

Then, taking a look at their Telegram, they have over 28k members in their main group chat. I jumped in to get a better sense of the conversation. It’s really quite engaged and there is a healthy balance of technical & news related conversation.

To top it off, there is also a Discord server that has about 16k members as well as a Reddit subreddit. In this subreddit there are are also about 16k subscribers and there is a relatively healthy discussion going on there.

So, all in all, a strong team and a healthy community.

Ontology Tokens

There are a total of 1 billion ONT tokens, but the circulating supply is just over half of that amount. The reason is that very little of the ONT supply was distributed to the community.

In fact, just 12% of all ONT tokens were distributed to the community in a series of airdrops to NEO holders, Ontology newsletter subscribers, and others. Fully 35% of the ONT tokens were put aside for Ontology, and 28% are held by institutional investors. In addition, there was 15% distributed to the Ontology core team, and 10% is held by the NEO Council.

These tokens were released as NEP-5 tokens on the NEO blockchain but were later swapped for native tokens after the June 30, 2018 launch of the Ontology mainnet.

ONT Price Performance. Image via CMC

The ONT token was first listed on exchanges in March 2018 and debuted at a high over $3. It soon was trading under $2, but by the end of March had climbed back above the $2 level. It climbed rapidly in April 2018, gaining momentum as it reached the end of the month above $9.

It charged into May 2018 and reached an all-time high of exactly $10.00 on May 3, 2018. After that, it retreated steadily until reaching its all-time low in December. It spent most of 2019 above $1, but has recently dipped and trades at just over $0.77 as of August 28, 2019.

As for the ONG token, it is generated and paid out to nodes for securing the network. There will be a total of 1 billion ONG produced over a period of 22 years. Users can stake ONT with the node owners to receive a portion of the ONG payments. Currently, the yield for staking is 3.19% annually.

Buying / Storing ONT & ONG

Markets for the ONT and ONG tokens are similar, but a bit different. For example, the Bibox exchange is the top exchange for ONT, but it is only second for ONG, being beaten out by BKEX.

There are a good number of exchanges for trading ONT, including OkEx, Binance, Hit BTC and Huobi Global. For ONG you would want to head to Binance, Digifinex, MXC, or a number of other exchanges.

When it comes to volumes of ONT, they appear to be pretty high and well spread out across the exchanges. This means that liquidity is not concentrated in the hands of any singular exchange.

Register at Binance and Buy ONT Tokens

In terms of the liquidity on the individual exchanges, it is also quite healthy. For example, if we were to take a look at the Binance order books they appear to be deep and there is high turnover. This means that it could be easier to execute larger block orders.

You can store your tokens in the desktop OWallet, which is a native Ontology wallet, or in the mobile ONTO wallet, which combines coin storage with a cryptographically secured ID that allows you to take control of your data and build trust over time.

Development & Roadmap

It can sometimes be tough to tell exactly how much work has been done a project. This is because team’s often embellish their progress.

That is why I like to dive into their GitHub repository. The amount of code that is being pushed is one of the best ways to determine direct protocol updates.

Hence, I decided to look into the Ontology Network’s GitHub. Below are the total commits for the top three pinned repositories over the past year.

Commits for Select Repos over past 12 months

As you can see, the developers have been quite busy pushing code with a fairly regular stream of commits to all repos. There are also a further 36 other repositories in their GitHub with varying levels of commits.

This is about in line with some of the other projects that we see in the crypto space. This level of development does indeed make sense giving the major milestones that the project met over the past year.

Here are some of the most notable updates that were rolled out:

• May 2018: VBFT Consensus Algorithm Released
• Jul 2018: ONTO app released
• Feb 2019: Ontology Development Platform on Google Cloud
• May 2019: Multichain Design Released
• May 2019: Ontology WASM TestNet

In terms of what to look forward to, the project does have some interesting updates planned. These include a multi layer and multichain business ecosystem to be rolled out in late 2019. And then, in 2020 we can look forward to a Heterogeneous cross-chain POC.

If you wanted to keep up to date with the latest from the project then you can head on over to their official blog.

Conclusion

Ontology wants to make it easier for enterprises to move their data to distributed ledger systems, which are considered more secure, immutable and trustless.

They also seek to increase trust through the use of blockchain-based IDs. This could save a huge amount of resources that currently go towards guaranteeing trust.

The project certainly has a solid team behind it who understand the challenges facing the stated goals. It’s promising to see that the token has remained in the top 30 cryptocurrencies, and thanks to the ties to NEO it’s entirely probable that Ontology will continue to grow and prosper, taking over the blockchain needs of the business world.

Featured Image via Fotolia

The post Ontology Review: Neo Based Decentralised Trust Network appeared first on Coin Bureau.

The good news is that while all these acronyms might seem intimidating, they’re actually pretty easier to understand. This article will explain what each acronym means, when each type of funding model is used, what the pros and cons of each are, and how to get involved.

We’ll also go over some of the most popular token sales in each category, and discuss how the changing landscape might impact projects and investors.

Let’s get started!

Initial Coin Offering (ICO)

Blockchain projects began using Initial Coin Offerings (ICOs) in July 2013, when Mastercoin held what is thought to be the very first ICO. In an ICO the blockchain company sells tokens to investors, typically in exchange for BTC or ETH, in an effort to raise funds for the ongoing development of the project.

Some of the early ICOs. Image via Slideshare

Investors buy the tokens with the expectation that they will increase in value and can be sold at a profit later.

The pros and cons of ICOs:

Pros

• Easy to participate. If you have BTC or ETH in your wallet you can typically get involved.
• ICO campaigns often include bounty programs and airdrops that allow users to get some tokens for free.

Cons

• The lack of regulation has seen many fake or scam projects raise funds and then disappear with investor money.
• Once you buy the token you still need it to be listed on an exchange to trade it.
• It’s very high risk. In addition to the prevalence of scams, there’s also the risk that the price of the token will drop following the ICO.

Security Token Offering (STO)

A Security Token Offering (STOs) is a new method for raising funds that came about in reaction to the beginning crackdown by the Security and Exchange Commission on fraudulent ICOs.

With the STO an investor must be considered accredited to purchase ($1 million+ net worth and $200k annual income for 2+ years). The security tokens themselves work similarly to stocks and give their owners rights to equity and dividends from the issuing company.

The STO Lifecycle and an ICO compared to an STO. Images via Hackernoon & BitDeal

The pros and cons of STOs:

Pros

• Scams and fraud have been eliminated since the STO works within the regulatory framework of the SEC in the U.S. and FINMA in Europe.
• Because tokens are issued as securities they are backed by the assets of the issuing company and have real value.

Cons

• Investors must be considered accredited by the SEC to participate in STOs, which makes the barrier to entry quite high.
• Similarly to ICOs you have to wait for the token to get listed on an exchange to be able to trade it.

Initial Exchange Offering

The latest fundraising scheme being used is called Initial Exchange Offerings (IEOs) and they are an alternative to the ICO, with tokens being sold directly from an exchange platform.

IEOs are similar to the ICO, but the exchange takes full responsibility for the fundraising process, including vetting the blockchain project to determine if it is legitimate and likely to be successful.

Binance taking the lead with Initial Exchange Offerings. Image via Binance Launchpad

The Launchpad on the Binance Exchange is the largest and most well-known platform for IEOs so far, but there’s also Huobi Prime, OkEx Jumpstart, Bittrex International, KuCoin Spotlight and over a dozen others.

The pros and cons of IEOs:

Pros

• Very low barrier to entry. If you have a verified account and cryptocurrency on the IEO platform you can participate.
• The exchange does the vetting of the project to ensure it is trustworthy.
• Tokens are listed immediately on the exchange and available to trade.

Cons

• There’s no guarantee the token price will rise following the IEO.
• They remain utility tokens and have no assets or real value backing them.

Why So Many Options?

ICOs were created as an alternative to the IPO, which gave blockchain companies a way to raise capital for their projects without giving up any of the equity in the company. The fact that ICOs were unregulated made it easy for projects to run fundraising campaigns.

Unfortunately, the lack of regulation also invited scammers, fraudsters and bad actors to create projects simply as a cash grab…

As a result, the STO was introduced and it solves one of the main issues that ICOs have, which is the lack of any available compensation for investors if the project somehow dies or disappears.

STO Registration Requirements. Image via Medium

Because the STO tokens are linked to real equity and regulated under SEC and FINMA requirements all the projects using this fundraising method are legitimate and there are no concerns about the project’s disappearing with investor funds.

The IEO is something of a hybrid. While there is no equity behind the tokens launched via and IEO, there is due diligence performed by the listing exchange platform. The exchange takes on the burden of investigating the financial condition, risks, project development, market position, product viability, and other factors.

When an exchange allows an IEO there’s a reputational risk to the exchange if the project turns out to be bad. Because of this risk, the trust level from buyers is increased.

How Users Can Participate

There are still a number of projects launching using the ICO method, and joining is quite easy. All you need is cryptocurrency (usually BTC or ETH) with which you buy the ICO token.

In the case of an IEO, you also need an account at the exchange holding the token sale. In many cases, the exchange has its own proprietary token that must be used to participate in the IEO (Binance Coin for Binance for eg.)

Recent IEOs on the Binance Launchpad. Image via Binance Launchpad

When it comes to STOs there are increased regulations to adhere to and more requirements for investors. Buyers are required to be accredited investors under regulations, and that increases the barrier to entry. Under U.S. laws an accredited investor meets one of the four following requirements:

1. An organization with over $5 million in assets, such as a hedge fund or other fund;
2. An individual with net assets exceeding $1 million, not including the investor’s primary residence;
3. Annual income in excess of $200,000 for an individual or $300,000 for a married couple. This income must be maintained for the past two years and expected to continue in the year in which the security tokens are purchased;
4. A company whose members are all accredited.

ICOs Breaking the Mould

Late 2017 was the time of the ICO when nearly any project was able to raise millions of dollars within minutes or less. The most popular ICOs at the time were Ethereum, NEO and EOS. In the case of EOS the amount raised was $4 billion.

Another successful ICO was held by messaging app Telegram in support of their planned Telegram Open Network (TON) in 2018. This was a private ICO and it raised $1.7 billion in two sales rounds.

Telegram TON ICO & Other ICOs. Image via TechCrunch

Those who bought certain ICO tokens were well rewarded for their risk-taking. For example, Ethereum sold its tokens for $0.311 and subsequently saw its price jump as high as $1,432.

Today it remains above $300. The NXT token sold for just $0.0000168 in its token sale and reached as high as $2.16 per token at one point. It currently trades for just over $0.03 per token.

Interest in ICOs declined in 2018, partially due to the bear market in cryptocurrencies, but also because of the scams prevalent in the ICO space. The ICO model was based on trust and it became too difficult to trust new ICO projects.

STOs Continue to Grow

The first alternative to ICOs became STOs with their increased regulations and safety for investors. Unfortunately, they haven’t been very popular because they are both expensive and difficult for the blockchain project to implement, and out of the reach of most retail investors.

Still, there have been successful STOs, but nowhere near the scale of ICO fundraising. Blockchain Capital was one of the first, raising $10 million in just a few hours. Spice VC was able to raise $15 million during its fundraising campaign. And the NEXO platform generated $52.5 million to help develop its cryptocurrency loan platform.

STO Funding in First half of 2019. Image via Inwara H1 Report

As you can see, these STOs didn’t bring in billions of dollars, and they also didn’t generate the massive returns seen from some ICOs. In fact, none gained more than 200% even at their all-time highs, and most are flat to modestly higher currently.

And even though these STO tokens are different from most cryptocurrencies, being backed by actual equity, they still suffered along with the broader market during the 2018 bear market. STOs are trustworthy, but the high barrier to entry makes it unlikely they’ll ever become wildly popular like the ICO was in 2017.

Welcome to The IEO Show

IEOs don’t have an STO’s high barrier to entry, and they have a higher trust rating from investors since the projects offered have already been vetted by the listing exchange, who has their own reputation to consider when listing a project.

The IEO process is straightforward. A project that wants to list submits an application to the exchange. The exchange then does due diligence on the project, evaluating the product, their tokenomic model, the management and development team, the community behind the project and any other relevant factors.

They then respond to the application and if accepted will inform the project the price the token can be listed at and the success fee charged by the exchange.

Initial Exchange offering in H1 2019. Image via Inwara H1 Report

These success fees can top $1 million but have been acceptable to blockchain projects because so far the success rate for IEOs has been an unbelievable 100%.

Tokens listed in IEOs in 2019 have been able to raise millions of dollars in mere seconds…

One of the first was the BitTorrent listing on the new Binance Launchpad platform. The investor hype for this one was so great that the Binance Launchpad platform crashed under the weight of so many users attempting to access the site and purchase tokens. Within a couple of minutes, the IEO was complete, with BitTorrent (BTT) raising $15 million.

There are over a dozen other exchanges with their own IEO platforms and as the crypto ecosystem recovers in 2019 the number of IEOs is expected to increase.

Conclusion

As the fundraising space for blockchain projects continues to evolve it’s almost certain we’ll get some new acronym for a new type of campaign. My guess is that evolving regulations will eventually put fundraising primarily under an STO model, at least in most countries. This new model will allow for all investors however, just as traditional equities do.

In the meantime, the IEO appears to be the best choice, not only for investors but also for the blockchain projects themselves. They are easy to put together, since the exchange does the heavy lifting, and as of mid-2019 are extremely popular and successful.

While the fees for the listing project can be quite high, the 100% success rate helps to offset that to some degree.

Until regulations are drafted covering the issuance of new tokens the exchanges remain in a strong position as they bring trust, liquidity and growing experience to the token launch process.

Featured Image via Shutterstock

The post ICO vs. STO vs. IEO: Comprehensive Guide To Token Fundraising appeared first on Coin Bureau.

Basically, it’s your change from any Bitcoin or other cryptocurrency transaction.

In this post, I will give you everything you need to know about unspent transaction outputs and how you can use it to read the blockchain.

But first, to get a better understanding of UTXO and how it functions here’s an example of a cryptocurrency transaction, using the best-known Bitcoin as the crypto.

UTXO Example

If you own any Bitcoin you’ll see the exact balance when you look in your wallet. However, the balance you see might be comprised of several UTXOs. Let’s say your Bitcoin balance is 10 BTC.

That might be 5 UTXOs worth 2 BTC each, or it could be 10 UTXOs worth 1 BTC each, or it could be four UTXOs with values of 3.5 BTC, 2.5 BTC, 2.25 BTC, and 1.75 BTC. The amounts of each UTXO are irrelevant, but they must add up to your total balance, in this case, 10 BTC.

So now let’s say you’re shopping on Amazon and you’ll be using your BTC balance to pay (hypothetical future Amazon Bitcoin purchase). Your total comes to 0.25 BTC, but you don’t have a UTXO of 0.25 BTC in your wallet and it’s not possible to split UTXOs.

Example of a Bitcoin transaction with unspent Output. Images from Shutterstock and Amazon

Instead, the wallet will send the 1.75 BTC UTXO and the Bitcoin network will take that and mint two new UTXOs. One will be valued at 0.25 BTC and go to the Amazon receiving wallet, and the other will be valued at 1.5 BTC and will go back to your wallet as change.

Maybe your wallet has a number of 0.1 BTC UTXOs. It would also be possible to combine three of these UTXOs and receive 0.05 BTC as your change. Basically, any transaction can use any combination of UTXOs, but you can’t control which ones are used.

That’s because your wallet decides which UTXO to use in any transaction, and automatically sends any change back to your own wallet. This is actually a good thing, because in the past you were required to specify where your UTXO change was supposed to be delivered.

If you mis-typed your wallet address your change could get sent somewhere else and you’d be out of luck.

How are Transaction Fees Handles?

The transaction fees are actually taken from the UTXO that is sent back to you as change. So in the above example, the 1.5 BTC UTXO sent back to you would actually be a bit smaller as the transaction fee would be taken from this UTXO.

Practical Examples

Of course, the most important aspect for you is how to use read the UTXO data on the blockchain. Before you can do this, you will need to choose your preferred blockchain expolorer.

Once you have your block explorer, you can take a deeper look into any transaction that you have sent or are due to receive. For example, the below is a transaction of $36.

Example of UTXO, spent & unspent transactions on blockchain.com

As you can see, the total input to the transaction is $45.19. There are two outputs which are the $36.13 spent output (going to the 1MfLb95r8jUMBbYjh3cJFGs5oLn4nP8w98) and the $9.02 unspent output which is being sent back to the sender.

You may be wondering why the unspent amount is going back to a new address?

This is because the unspent transaction output is being sent to what is called the “change address“. This is a new address that is created for the sender by the wallets.

As mentioned above, the transaction fee is subtracted from the unspent transaction amount that is being sent to you. So in reality, every transaction will have two transactions.

These days, the modern Hierarchical Deterministic (HD) wallets are able to handle these transactions and generate the change address automatically. This is why you will sometimes see that a new address is generated every time after you initiate a transaction.

This is a feature that is built into these HD wallets that is meant to ensure your privacy. So, the next time that you notice your address changing you will know that is related to a new UTXO coming into your change address.

The Importance of the UTXO Concept

The concept of UTXOs helped simplify accounting on the blockchain dramatically. Rather than tracking and storing every single transaction ever made, and in order, with the use of UTXOs each node only needs to track information about unspent coins, or UTXOs.

How The Bitcoin Network keeps track of Transactions. Image via bitcoin.org

This works because Bitcoin’s network only allows each coin to be spent once. That means every BTC sitting in a wallet is unspent either because it was received as a mining reward, or because it was minted during a transaction as change.

The concept of UTXOs is a critical one in preventing double spending on the blockchain, and they also prevent users from spending nonexistent coins. Each network node maintains a database containing every UTXO in existence. This means any transaction sent with a coin not in the database will be rejected by the nodes.

Potential Node Storage Problems

All of the UTXO database is stored in the RAM, which makes it crucial to keep the dataset at a manageable size. The larger the database becomes the more expensive it is to run a full node. And if it becomes too expensive to run a full node the network will see increasing centralization among the wealthy minority able to afford running a node.

In fact, it is this risk of centralization that has kept Bitcoin developers from increasing the block size. By keeping the blocksize at 1Mb it limits the growth of the database, since there are a limited number of transactions and a limited UTXO set. If the blocksize were increased it would make the UTXO set grow correspondingly quickly and it would become more expensive to run a full node.

Growth of UTXOs on the Bitcoin blockchain since inception. Image via blockchain.com

That said, it will be necessary to increase the Bitcoin block size to allow for second layer scaling solutions. But there are other changes that can be made to minimize the impact of an increasing UTXO set size.

Node Storage Solutions

As mentioned above there are solutions to the node storage problem as the UTXO dataset grows larger. The first solution is to store part of the dataset on a hard disk drive rather than in RAM.

This dramatically increases storage size, although the slow speed of hard disk storage leads to slower validation of transactions. Still, as long as validation times are kept under the ten minute average block time this solution will be acceptable.

Additionally, the Bitcoin development team continues to make improvements that optimize the UTXO database. Plus Segregated Witness and other scaling solutions actually slows down the growth of the UTXO dataset indirectly.

One way that Segwit improves the UTXO problem is by making signature data 75% less expensive. That’s important because signature data has no impact on the UTXO dataset size, and by making it significantly less expensive users will have an incentive to use transactions that don’t increase UTXO dataset size.

It also encourages developers to design smart contracts and other new features in ways that won’t have an impact on the UTXO dataset size.

Conclusion

While I used Bitcoin for my discussion of UTXO, it isn’t the only blockchain to make use of UTXOs. Other cryptocurrencies that use the UTXO method include Litecoin and Bitcoin Cash.

We can also find many cryptocurrencies using other methods of accounting, such as Ethereum. It has an account based transaction model that doesn’t use UTXOs. And this method provides the Ethereum network with a simpler code base and better space savings measures.

There are tradeoffs though. One is a loss of transaction privacy to some extent, and there are potential scalability issues later in the life of the blockchain.

At the end of the day, the UTXO method of accounting works for Bitcoin and other cryptocurrencies. Accounting methods are actually a very important and highly debated subject among blockchain developers and if you ask ten developers the best accounting methods for blockchain ledgers, you’re likely to get ten different answers.

There’s no perfect answer to the question of accounting methods, and like the scalability issue, it is sufficiently complex that a perfect solution isn’t likely to be found. Instead, developers will continue using the solution that works best for their blockchain, and in many cases, this will continue to be the UTXO method.

Featured Image via Fotolia

The post Unspent Transaction Ouput: Complete Beginners Guide to UTXO appeared first on Coin Bureau.

If you’ve ever completed a Bitcoin transaction and it’s seemed to take forever to go through you’ve run into the Bitcoin mempool. In times when the Bitcoin network is seeing heavy usage there are people who have had to wait hours, and in some cases days, for a transaction to be confirmed.

This happens when the size of the mempool grows exceptionally large. In fact, exchange support operators will often use the mempool as a reason for delayed withdrawals. They will tell you the mempool has spiked in size and confirmations, thus withdrawals, are taking longer than normal.

In this post, I will give you everything that you need to know about the Bitcoin Mempool. I will also give you some top tips in order to speed up your transaction.

The Bitcoin Mempool

As I mentioned earlier the word ‘mempool’ is a shortened form of Memory Pool. It is a place where data is stored to await processing. In the case of the Bitcoin mempool, the data being stored is the transaction data of the Bitcoin network. Because of this you’ll sometimes hear the mempool referred to as the transaction pool.

The Bitcoin mempool is where all the pending transactions wait to be picked up by miners, who will validate them and add them to the next block in the blockchain.

Bitcoin Mempool over the past year

While the mempool is associated with the blockchain it isn’t a part of the blockchain. The mempool is not a single location. Rather each Bitcoin node has its own mempool, and each mempool has its own memory capacity. These nodes are run by Bitcoin miners and Bitcoin users who choose to run a full node on their computer to help decentralize and secure the network.

Now let’s learn how transactions get into the mempool in the first place, and how they get out of the mempool and stored in a block on the blockchain.

Before the Mempool

Before anything happens someone needs to initiate a transaction. This is when a Bitcoin wallet is opened and a user enters a destination address and the amount to be sent and then clicks the send button. A Bitcoin transaction has just been started.

As we all know this transaction won’t send the Bitcoin immediately to the recipient’s wallet address. Instead, the transaction is broadcast to other nodes in the network. This broadcast happens when the transaction is signed with the sender’s private keys and unspent outputs are selected to construct the transaction.

There are also a series of checks performed which I won’t go into detail about here. Once these checks are complete the transaction gets added to the mempool of unconfirmed Bitcoin transactions.

What happens in the Mempool?

Your transaction arrives in the mempool and joins the thousands and tens of thousands of other transactions waiting for confirmation in the mempool.

The confirmations come from miners. Every transaction on the Bitcoin blockchain needs at least one confirmation before it reaches the recipient address. That’s because this first confirmation bundles the transaction into a block and it then gets indelibly added to the blockchain.

Bitcoin transaction life-cycle with Mempool. Image Source

Just because your transaction is in the mempool it doesn’t mean a miner has to pick it up and confirm it. And if it isn’t picked up for a long time it can get canceled and returned to you from the mempool. Currently, the expiry of transactions from the mempool is set to 2 weeks.

That means any transaction which remains in the mempool for longer than 2 weeks will have its funds sent back to the sender. This expiry was put in place to keep the mempool from getting bloated with unconfirmed transactions.

So, what is it that allows some transactions to get confirmed within 10 minutes, while others could end up being returned to the sender after sitting in the mempool for 2 weeks? There are a few factors, but there are two that are most important in determining how quickly a transaction is picked up from the mempool and confirmed.

Bitcoin Transaction Fees

I’m sure you’re aware that there’s a transaction fee for each Bitcoin transaction. That fee is set by the sender and most wallets allow you to change the transaction fee you’re willing to pay. Typically the transaction fee is small so you hardly notice it. That transaction fee is an additional incentive that gets tacked onto the mining reward (currently 12.5 BTC) that’s paid out when a miner finds a block.

Estimated fee and transaction time in Bitcoin Fee Calculator

Because there are thousands of transactions in a block these small transaction fees add up. Just as you’re able to set the transaction fee, miners are able to choose which transactions to confirm.

And of course, they pick those with the highest transaction fees. That means when the mempool is extremely full you’re transaction with a small fee might not get picked up. And that brings us to the second reason for delayed transactions.

Bitcoin Mempool Size

After a block is validated all the transactions it contains are removed from the mempool. That’s necessary to create space in the mempool for new incoming transactions. When a block is confirmed you’ll see a drop in the size of the mempool.

The size of the mempool is constantly fluctuating as transactions are confirmed and new transactions are placed in the mempool. Sometimes the mempool is getting smaller, and sometimes it is getting larger. Remember that a block is created once every ten minutes, and each block can only hold a limited number of transactions.

Mempool based on transaction size over past 30 days. Image via Jochen-Hoenicke

However, there is no limit on how many transactions can be sent to the mempool. This means sometimes there are more new transactions arriving at the mempool than there are transactions being confirmed and removed. And when this occurs there are delays in transactions getting confirmed.

There is also a limit on the number of unconfirmed transactions that can be stored, which is determined by the number of nodes in the Bitcoin network. Because there is a limit on memory available the mempool is programmed to set a minimum fee once it reaches a set size limit.

Any transactions with a fee lower than this minimum are removed from the mempool, and only new transactions with a large enough fee are accepted into the mempool.

Speeding up Your Transaction

Now that you have a fair understanding of what the Bitcoin mempool is and how it works, it helps to take a look at a few methods that you can use in order to speed up your transaction and avoid the dreaded “unconfirmed” status.

Below are some of the ordered steps that you can take in to get a faster transaction.

1. Use SegWit Wallets

Segregated Witness (SegWit) is a relatively new upgrade to the Bitcoin network that helps free up space in Bitcoin blocks. Essentially, when you send a SegWit enabled transaction, all of the data that is related to the signature is removed from the transaction.

SegWit was activated on the Bitcoin network on the 23 August 2017 and since then, there are a number of wallets that have support for the new transaction type. These include the likes of Electrum, Ledger, Samourai and many others.

This is something that you will have to choose when you are initially setting up your wallet. You will get the option of either going for the SegWit or “Legacy”.

2. Choose a Higher Fee

As mentioned above, the fee that you choose for the transaction will impact on the speed at which it is picked up by the miners. Hence, a higher fee means it is more likely to be picked up early.

Choosing a transaction fee in the Electrum Bitcoin Wallet

Of course, you don’t want to pay an unnecessarily high fee if a lower one is required for your desired time-frame. Most wallets will give you an indication of within how many blocks it will take for the transaction to be propagated based on a set fee. This will allow you to estimate the time it will take.

Pro Tip?: There are a number of fee calculators that will give you an indication of the fee that needs to be applied and how many minutes it will take.

3. Time the Transactions Carefully

The Bitcoin mempool and the unconfirmed transactions associated with it are changing constantly. Hence, if the transaction is not urgent you can wait until the mempool shrinks down and then initiate your transaction.

There are a number of websites that you can use to track the mempool as well as the number of unconfirmed transactions. You can check out Blockchain.com for the mempool size or you can jump on over to BTC.com for the number of unconfirmed transactions.

How long it will take before the unconfirmed transactions get cleared and the mempool to die down is really hard to say. There are numerous factors that could impact on this so you will need to decide whether to push on or hold out.

4. Use a Transaction Accelerator

If you do send a transaction and it happens to get stuck because the fee was too low, then you can always make use of a Bitcoin transaction accelerator. These services are provided by the miners and allow users to request the operators to “push” their transaction through.

Pro Tip?: ViaBTC offers a free transaction acceleration service. While prioritization is not guaranteed, it could be worth a try at first.

If you want to make sure that your transaction gets pushed through then you can use the paid services. These are guaranteed services and the user’s transaction is pushed through as a priority.

Conclusion

The mempool is a holding area for transactions as they wait for miners to confirm them and add them to a block. In some instances the mempool can become too crowded, causing delays in transaction confirmation, and higher fees.

Of course, knowing exactly what the Bitcoin mempool is is only the first step. Once you get a grasp exactly of how it works and how it impacts your transaction, you can fine tune these transactions to get the most bang for your buck (read “satoshis”).

Having said this, the role that a bloated mempool will have on slow transactions may eventually become a thing of the past.

This is because of off-chain scaling solutions such as the Lightning Network. There are numerous Lightning payment channels that have opened up and are taking the strain off of the Bitcoin blockchain. It will be interesting to see how the size of the Mempool evolves as Lightning adoption takes off.

Featured Image via Fotolia

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