Blockonomist.

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Proof Of Work Vs. Proof Of Stake

Proof Of Work ideology was first introduced in 1993 to combat spam Emails while, In 2011, a Bitcointalk forum user called Quantum Mechanic proposed a technique that he called “Proof Of Stake.”  The technique went largely unused until Satoshi Nakamoto used it for Bitcoin. He realized that this procedure could be used to reach a consensus between many nodes on a network, and he used this as a way to secure the Bitcoin blockchain. The proof of work mechanism works by solving a cryptographic puzzle; the puzzle is solved by miners, and the first one to solve the puzzle gets the miner reward. Proof Of Work gives more rewards to better and more equipment. Having a higher hash rate gives you a higher chance to create the next block and receive the mining reward. To increase chances, further miners come together in mining pools. They combine their hashing power and divide the premium evenly across everyone in the pool. Proof Of Work is causing miners to use vast amounts of energy, and it promotes the use of mining pools, making the blockchain more centralized as opposed to decentralized.  The basic idea was to shift from the ideology of letting everyone compete with each other with mining is wasteful, so instead, he proposed using an election process in which one node is randomly chosen to validate the next block, proof Of Stakes has no “miners” but instead “validators,” and it doesn’t allow people to mine new blocks but instead mint new blocks. Validators aren’t chosen in a completely random manner; to become a validator, a node has to deposit a specific amount of coins into the network as a stake. The size of the stake deposited determines the chances of a validator being chosen to forge the next block. If a node is chosen to confirm the transaction on the next block, he’ll have to verify if all the transactions within it are valid. If everything checks out, the node signs out on the block and adds it to the blockchain. As a reward, the node accepts the fees that are associated with the transactions inside this block. To build trust among validators, validators lose a part of their stake if they approve a fraudulent transaction.

3 Mins Read

June 4, 2021
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Stablecoins: How do they work?

By definition, stable coins are cryptocurrencies created to minimize volatility because they are designed as a more stable asset; this is also known as a fixed exchange rate where a currency’s value is set against any other currency’s or asset’s value like USDT(Tether). The price of a stable coin is not influenced by market conditions, and various things back stable coins. The first and most common are the Fiat-backed stable coins. Crypto coins like the USDT and USDC are supported by the US dollar meaning 1 USDT coin will always be worth one US dollar. Then there are Commodity-backed stable coins. The value of these coins is fixed to commodities like Gold and Silver and are less likely to be inflated. Lastly, there are Cryptocurrency backed stable coins; they are supported by the value of another cryptocurrency. An example of a Cryptocurrency-backed coin is Le-Dai which is backed by the Ethereum blockchain. Stable coins allow investors to access the market without going between the Fiat banks, and it also allows investors to deposit large amounts of cash without going through a traditional banking system. The promise of stability with these coins is what attracts investors the most. Each type of stablecoin has its own set of advantages and disadvantages, and none of them are perfect. However, the value and stability they could provide to businesses and individuals around the world — by allowing universal access to established national currencies, facilitating payments and remittances, and supporting emerging financial applications — could be disruptive.

3 Mins Read

May 28, 2021
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What are Decentralised Exchanges?

The four core roles of any exchange are Order matching, Capital deposits, Order books, and Asset exchange. To create a fully decentralized exchange, each of these functions should be fully decentralized. Typically on cryptocurrency exchanges, the asset exchange part is decentralized by default. The assets are cryptocurrency; the other three functions, mainly deposits, are usually centralized due to Know Your Customer and anti-money laundering regulations. Exchanges are required to seek user’s identities for any capital deposits. This is stored on a centralized server that holds your personal information and exchanges with any form of databases or servers, allowing the user to access the cryptocurrency market. While the decentralized exchange gives you access, a decentralized exchange cannot shut anyone out. The most apparent benefit of a DEX is the same with any decentralized application the censorship resistance. Any application built on a decentralized blockchain can’t be shut down unless the entire chain is shut down. Decentralized exchanges require the users to be 100% responsible for and in control of their funds. Dex’s are undoubtedly an essential part of the future of cryptocurrencies and are already a significant help for people in restricted countries that want to access the blockchain ecosystem with more growth and development time. DEX’s will be advanced and become a better option against traditional exchanges.

2 Mins Read

May 27, 2021
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What is DeFi?

DeFi stands for Decentralised Finance and is a broad overarching term used to describe various financial tools within the blockchain ecosystem. I essentially leverage decentralized networks to transform old financial products into trustless protocols that run without intermediaries. Several DeFi tools have existed for a while, such as decentralized exchanges or dexes, lending platforms, stable coins, and prediction markets. New DeFi tools offer a more complex, potentially more rewarding, but riskier way to earn cryptocurrency platforms. Two widely know tools are Yield Farming and Liquidity pools; Yield Farming is essentially the process of making returns or yields on your capital by putting it to more productive use. Money markets offer some of the simplest ways to new yields on your cryptocurrency, and this setup is optimal for financial adherents who want to retain leverage on their capital. Liquidity pools might offer better yields than money markets. Still, there’s additional market risk, platforms such as Uniswap offer liquidity providers or LPs with fees as a reward for adding on their assets to a pool. Liquidity pools are generally configured between two assets in a 50 50 ratio. LPs are fees to facilitate the market; however, there is a risk of impermanent loss, which is the loss created by providing liquidity for an asset that could rapidly change in value.

2 Mins Read

May 26, 2021
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Where does Bitcoin come from?

The process of generating new bitcoins is referred to as bitcoin mining, or it is the process of extracting finite bitcoins through the Bitcoin network. In complex terms, Bitcoin mining is the process of generating new Bitcoin by solving algorithmic puzzles; the people who are solving these puzzles are called Bitcoin miners. These miners use highly advanced computers that can ultimately run complex mathematical problems. These algorithms are just a long series of numeric values that, when ordered correctly, result in the puzzle being solved. When a miner solves a puzzle, they are rewarded in Bitcoin. The amount of Bitcoin that a miner receives upon completing a puzzle is referred to as the Bitcoin reward per block. Not only does mining allow the miner to produce and earn bitcoins it is also an important activity that helps the ledger of transactions upon which Bitcoin is based to be maintained. As the years have passed, Bitcoin has evolved from an emerging to an established market. Consequently, the mining capability has excelled exponentially too. Due to the saturation of miners looking to solve puzzles and earn Bitcoins, this means that over time more miners have begun utilizing the most powerful and advanced technology creating very high barriers to entry for new miners.

2 Mins Read

May 25, 2021
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Blockchain-Simplified for you

As the word blockchain suggests, A blockchain is a chain of blocks that contains information. This approach was initially described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to tamper with them. However, it mainly went unused until Satoshi Nakamoto adopted it in 2009 to create the digital cryptocurrency Bitcoin. A Blockchain is a distributed ledger that is completely open for anyone to access; each block contains data, hash, and the previous block’s hash. A hash identifies a block and all of its contents, and it is always unique. Once a block is created, its hash is being calculated. Making any changes inside the block will cause the hash to change. Hashes are very useful to detect changes in blocks. The hash of a previous block creates a chain and makes this approach so secure. Blockchains use the Proof-Of-Work technique; it’s a mechanism that slows down the creation of new blocks. The security of a blockchain comes from the creative use of hashing and the Proof-Of-Work mechanism. Blockchains are distributed instead of using a central entity to manage chain Blockchains use a P2P(Peer to Peer) network, and everyone is allowed to join. When a new block is created, it is sent to everyone on the network to verify the block to ensure that it has not been tampered with, and then this block is then added to the blockchain by each node. All the nodes in this network create a consensus to validate blocks.

2 Mins Read

May 24, 2021
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Ripple(XRP) Explained

XRP is the token that was created by Ripple Labs in the year 2012, and XRP currently hovers in the top 10 cryptocurrencies by market capitalization, typically from day to day. Its main goal is to make sending money as easy as sending an E-mail; XRP is not a traditional type of currency out there in the market. In the current financial system, we use the SWIFT banking method or the SWIFT payment method to send funds over international waters. With the current existing SWIFT method, users have to wait for 3–5 business days for the funds to reflect in the beneficiary’s account. Since the funds go through a network of intermediary banks, the user also has to pay banking fees for this transaction. Ripple net wants to decentralize the current system of these transactions, and that’s through a consensus protocol. Within this consensus protocol, they have nodes and validators which process and validate a user’s transaction. With XRP, a user can expect the beneficiary to receive his/her money within 3–5 seconds instead of 3–5 business days, and with using XRP, a user can expect virtually 0 transaction fees. XRP wants to create a universal bridge token that all the other tokens use as a standard, and hopefully, this will come with the reduction of exchange fees. There were 100 billion XRP tokens created, out of which 80 billion tokens went to Ripple labs to be released to the public over time. The rest 20 billion tokens were for the three founders.

2 Mins Read

May 22, 2021
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What is Bitcoin halving?

The halving of Bitcoin is an event that reduces the number of bitcoins in circulation by half. It occurs every four years, or to be precise, every 210,000 blocks its a section of the validation logic in the bitcoin source code. It affects a Bitcoin miner’s profitability and often has an impact on the Bitcoin price. It is also one reason why Bitcoin is perceived as sound money, becoming deflationary in the long run and the inflation rate trending to zero. Miners are rewarded for validating and confirming transactions on the bitcoin network, and they do this using an agreement mechanism called Proof Of Work. In Proof Of Work, miners constantly validate transactions and group them as blocks for which they’re paid in block rewards; block rewards consist of two elements transaction fees and block subsidy. The first block mining happened in January 2009. For the first block, the block subsidy was set at 50 bitcoins — an arbitrary number chosen by Satoshi Nakamoto, the creator of the Bitcoin network. In November 2012, Bitcoin went into its first halving at the block height of 210,000, where the block reward was cut in half from 50 Bitcoins to 25 Bitcoins, the second halving occurred in July 2016 at the block height of 420,000 with 15.75 millions of bitcoin in circulation, the third highly anticipated halving occurred in May 2020 at the block height of 630,000 with 18.375 millions of bitcoins in circulation. Bitcoin halving occurs every four years and roughly till the year 2140 when the Bitcoin blockchain reaches a final number of 32 halvings and stops rewarding miners with block subsidy. After the last Bitcoin halving, miners will have to rely on transaction fees solely.

3 Mins Read

May 21, 2021
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What are hardware wallets?

Hardware wallets are non-custodial wallets that give you complete control over your crypto funds and are very secure when compared with the other available options. Hardware wallets add an extra layer of security to your crypto funds by requiring a physical device that is needed to access your accounts. Crypto funds are coded into the blockchain, hardware wallets can be imagined to be a key that can give access to the account coded into the blockchain. Generally, a pin code must be used to access the account using a hardware wallet to make transactions. Every hardware wallet comes with a Seed Phrase, which is a string of 24 randomly generated words that are unique to every user. If a user loses his or her hardware wallet, he or she can order a new hardware wallet and set it up using this unique Seed Phrase. However, Hardware wallets aren’t secure as a fully air-gapped cold storage device, but it is much safer than the widely used online layers of security to protect an account.

2 Mins Read

May 21, 2021
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Understanding Cardano

Cardano was developed in 2015 and launched in 2017, Cardano is very young at the moment, but their way of working is very different from the other existing cryptocurrencies. It’s somewhat different than other cryptocurrency projects because it’s built around peer-reviewed papers. Cardano claims to be the third generation of cryptocurrencies, the first generation being Bitcoin and the second being Ethereum. Cardano aims to solve three pain points of the current generation: Interoperability, Scalability, and Sustainability. Bitcoin uses a proof-of-work algorithm and lets everyone mine new blocks; this process is slow and wastes a lot of computing power. In the case of Cardano, not everyone is allowed to mine new blocks; instead, the network elects a few nodes to mine the blocks. These are called slot leaders. The Cardano network aims to be the “internet of blockchains” or, in other words, a blockchain that understands what happens in other blockchains, and this would mean seamlessly moving assets across multiple chains. Cardano also allows people to attach metadata to a transaction if they wish to; this comes as a good gesture towards the banking system, which usually doesn’t accept the concept of cryptocurrencies. Cardano has a unique system to maintain its sustainability by keeping its very own unique wallet called treasury which isn’t controlled by anyone. It’s a smart contract that releases a part of the funds to the developers who wish to improve the Cardano protocol.

2 Mins Read

May 21, 2021
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Is Bitcoin truly decentralized?

Traders and Researchers fear that bitcoin mining might be a very expensive affair ten years down the line if the market situation for bitcoin mining continues to be the same, making it a “Rich man’s business.” Adding the current situation with what it is predicted to be like, the bitcoin mining market will belong only to the richest of the league, making them more potent than now. With the growing prices of bitcoin mining, environment enthusiasts have also been raising concerns over bitcoin mining energy consumption; popular studies even suggest that if Bitcoin’s seigniorage income will become unviable unless the current methods are substituted with more energy-efficient methods. Tesla’s CEO Elon Musk also announced that the American electric vehicle manufacturing company would no longer accept payments in Bitcoin. Researchers suggest that technological advancements in the form of faster and more energy-efficient hardware will bring down the price of Bitcoin over time; this suggested influence in the market price of Bitcoin implies subtle traces of centralization in the future.

2 Mins Read

May 21, 2021
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What is a Token burn?

A Token burn is the destruction of a certain amount of Tokens or Coins to reduce the number of coins in circulation. The main objective of putting Token burn into practice is to support an asset price growth and value increase, and this method is successfully applied by Crypto projects, traditional businesses, and even global corporations. The public record of this process is called Proof-Of-Burn. On the whole Token burn is a deflationary measure helping to increase the token value and to retain the confidence of the token holders. This strategy not only reduces the total supply but also increases the market value of tokens. Usually, when a company burns tokens or blocks a certain number of tokens, it causes the price to increase due to the low supply and demand. Token burn is also used to maintain stability and minimize the fall in the price of a token. Token burning is done by sending the selected number of coins to an address that cannot be accessed by anyone; many crypto projects like Binance, Ripple, Stellar follow this practice. It can be said with certainty that this approach is beneficial because it will bring considerable benefits in the long run. Any token project consumes a certain amount of currency to artificially maintain the asset price at the required level, thereby preventing the devaluation of coins that are not used for a long time. If this strategy is ignored, the cost of the number of tokens is often zero, and the project will be unprofitable. Burning usually does not result in an immediate increase in the asset value because it often destroys coins that have not been in circulation for a long time. However, as the demand for coins increases over time, it can increase considerable growth, and updates from previous highs can be achieved faster.

3 Mins Read

May 21, 2021