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What Is An Automated Market Maker (AMM)?
Automated market makers were among the first decentralized finance applications and are still among the most well-known DeFi products today. In 2018, Uniswap became the first decentralized platform to effectively use an automated market maker (AMM) system when it launched. Before then, traders could only make use of order books, which pair traders based on their bids and offers to facilitate trading on conventional centralized exchanges. This required the exchange operator to keep a price-organized list of all active buy and sell orders for each asset. Each trading pair handled by the exchange had a corresponding order book (a pair of assets that can be traded for one another). It was an effective and popular strategy except that it required that you rely on and follow the directives of a central authority. However, the need for more decentralized methods of exchange drove companies to the drawing table and that was the founding of Automated Market Makers. ## What is an Automated Market Maker (AMM)? Simply put, an Automated Market Makers (AMMs) is a decentralized exchange (DEX) protocol that uses formulas to determine the price of assets. Where centralized exchanges like Binance value assets using an order book, Automated Market Makers use a pricing algorithm. Platforms that use AMMs automated cryptocurrency trading and make it fully decentralized through the use of smart contracts and deft tokenomics. Users essentially trade against the liquidity locked within smart contracts, not the counterparties, as is traditionally the case. Liquidity pools are a common name for these smart contracts. It should be noted that in conventional exchanges, the position of a liquidity provider is only open to Businesses or the affluent. However, with AMMs, any entity that satisfies the conditions programmed into the smart contract is eligible to become a liquidity provider. Uniswap, Balancer, SushiSwap, and PancakeSwap are a few examples of AMMs. ## How do Automated Market Makers work? An AMM's primary goal is to guarantee that users can always trade cryptocurrency, even in the absence of counterparties with matching offers. Because of this, AMMs do not rely on order books to set up trading pairs. Instead, they use smart contracts to manage unique crypto asset pools created especially to supply the liquidity required to support frictionless trading. For example, when trades take place on a decentralized exchange like Kraken, it is directly between user wallets. In other words, if you sell BTC for ETH or SOL, there is a buyer of ETH using BTC on the other side of the exchange. This transaction can be described as peer-to-peer (P2P). AMMs, on the other hand, might be thought of as peer-to-contract (P2C). Since trades take place between users and contracts, counterparties in the conventional sense are not required. There is nothing like order types on an AMM because it doesn’t use order books. Instead, a formula determines the price you will receive for an asset you want to buy or sell. Though it's important to note that some potential AMM designs in the future might overcome this restriction. Furthermore, what are called trading pairs on centralized exchanges exist on DEXes as Individual "liquidity pools". For instance, you would need to locate a BTC/ETH liquidity pool if you wanted to exchange Bitcoin for Ether. AMMs employ predetermined mathematical calculations to ensure that the ratio of assets in liquidity pools is as balanced as possible and to get rid of inconsistencies in the pricing of pooled assets. For instance, top DeFi exchange protocol, Uniswap, and many other DeFi systems establish the mathematical relationship between the specific assets maintained in the liquidity pools using the straightforward x*y=k equation. Here, x signifies the value of Asset A, y stands for Asset B, and k remains a constant. In essence, the liquidity pools of Uniswap always maintain a condition in which the result of multiplying the prices of Assets A and B is always the same. This guarantees that consumers can always get a quoted price for their chosen deal as long as there is enough liquidity in the pool. This leads to the next question: ## What is a Liquidity Pool? From the above definitions, it is clear that Automated Market Makers rely heavily on Liquidity pools to facilitate trade. Let us now examine what liquidity is and the process through which these DeFi Protocols maintain their liquidity. A liquidity pool is a reserve where individuals or businesses can deposit crypto assets which will then be used to enable future transactions. Similar to how FX traders buy and sell currency pairs, liquidity pools normally accept two cryptocurrency pairs. For instance, a trader can use an AMM to sell Bitcoin (BTC) and buy Ether (ETH) from a BTC/ETH liquidity pool, and vice versa. Some liquidity pools and AMMs simultaneously manage multiple cryptocurrencies depending on the AMM and decentralized exchange. ## What is a Liquidity Provider? As mentioned earlier, centralized exchanges usually only accommodate dedicated market makers, companies, and extremely rich individuals. However, Automated Market Makers have made it possible for literally anyone to deposit assets in their liquidity pools. These individuals or business entities are called liquidity providers. With AMMs, anyone who satisfies the necessary criteria can act as a liquidity provider. Although the specifications differ amongst liquidity pools, most smart contracts demand that you deposit a specific amount of tokens which is usually a substantial amount, typically in the form of cryptos like Ether, Bitcoin, or Binance Coin. In turn for providing this liquidity, providers get network fees from all trading activity taking place within their liquidity pool. It's one of several ways bitcoin owners can use their holdings to generate passive income. ## Impermanent loss Notwithstanding although, passive income is always attractive to investors, there are dangers connected to contributing to liquidity pools, one of which is Impermanent loss. This occurs when the same tokens have different values within and outside of a liquidity pool. Since the price-adjusting algorithms of liquidity pools only care about maintaining a balance between the values of the assets within a pool, when the price ratio changes, the pools adjust to fit. Withdrawing your assets from a liquidity pool when this adjustment is unfavorable can result in a loss. Of course, the loss only occurs if you remove the assets from the pool which is why it is called impermanent. However, Keeping your assets locked in a liquidity pool for fear of impermanent loss also prevents you from taking advantage of other profitable chances. Hence stablecoin or wrapped token pairs, as well as other token pairs with similar values, operate well with AMMs as opposed to those with larger ratio gaps. Impermanent loss is usually insignificant if the price ratio between token pairs remains within a modest range. Just be sure you understand the concept of impermanent loss in relation to your preferred AMM before locking your funds into their liquidity pools. ## Concentrated Liquidity Concentrated liquidity is one of the newest developments in AMM development. In fact, it is one of the hallmarks of the most recent version of Uniswap, v3. This particular feature is intended to increase the effectiveness of the price-adjusting process, reduce slippage, and enable liquidity providers to charge larger fees. With concentrated liquidity, Liquidity Providers can allocate assets to particular price points. Liquidity Providers can design unique price curves that suit their preferences by combining various concentrated liquidity positions. Additionally, this enables them to get trading commissions based on the liquidity offered at particular price ranges rather than the liquidity of the entire pool. ## Constant Product Formula The Constant product formula is a mathematical formula introduced by Ethereum founder Vitalik Buterin which is as follows: tokenA_balance(p) * tokenB_balance(p) = k Uniswap later adapted it to the more popular x * y = k formula In practice it works like this; token price in a liquidity pool is determined by the constant, "k," which denotes a constant asset balance. In an ETH/BTC Liquidity pool, the price of ETH increases every time it is purchased since there is less ETH in the pool than there was before the purchase while the corresponding BTC in the pool decreases in price. In contrast, when more ETH is added to the pool, the price of BTC increases. This allows the pool to maintain a steady balance where the combined value of ETH and BTC in the pool is always equal. In the end, whatever the level of price volatility, there will eventually be a return to a condition of equilibrium that reflects a fairly accurate market price. The strategy encourages traders to profit from price discrepancies between the AMM and other crypto exchanges until it is balanced again if the AMM price strays too far from market pricing on other exchanges. ## Automated Market Maker Variations 50/50 token pair pools: This is the type of AMM operated by Uniswap. This ground-breaking technology enables users to construct a liquidity pool using any pair of ERC-20 tokens in a 50/50 ratio. It is, so far, the most reliable and oldest AMM model on Ethereum. Multiple assets liquidity pools: Instead of having just a trading pair in one liquidity pool, some Protocols find a way to stretch it. For example the Automated Market Maker, Balancer goes one step further than Uniswap. By enabling customers to build dynamic liquidity pools of up to eight different assets in any ratio, Balancer pushes the boundaries of Uniswap and increases the adaptability of AMMs. Similar Assets Liquidity pools: Another AMM model is the type operated by Curve where digital assets of a similar class such as stablecoins get locked in the same liquidity pool. This enables it to provide effective trades, and offer some of the cheapest deals and rates in the market while addressing the liquidity issue. ## Popular DeFi Platforms Using AMM
### Uniswap
What Are Liquidity Pools? DeFi Liquidity Explained
The cryptocurrency market is a very active community that initiates thousands of transactions to be verified daily, but verifying transactions can be pretty slow. Crypto liquidity pools provide a faster means of turning digital assets into cash, and this option can be helpful for people who make frequent transactions. This article will inform you about liquidity pools, how they work, and several other things you should know about them. ## What is a liquidity pool? A liquidity pool is a smart contract containing large portions of cryptocurrency, digital assets, tokens, or virtual coins locked up and ready to provide essential liquidity for networks that facilitate decentralized trading. A decentralized exchange relies greatly on liquidity because of the regular rate at which transactions are made on their network; for this reason, decentralized exchanges need to be connected to liquidity pools that can help maintain a steady functional network that doesn’t delay transactions made by traders. In crypto liquidity pools, digital assets are locked and ready for exchange. Liquidity pools serve as a digital asset reserve that can provide liquidity to help speed up transactions for decentralized finance (also known as DeFi) markets such as decentralized exchanges (also known as DEX). Unlike traditional finance, which pairs buyers and sellers to complete a transaction, liquidity pools do not need to connect users to complete a trade. Instead, they function automatically through automated market makers (amms) that connect you to the smart contract with your requested digital assets locked up in them. Automated market makers are algorithmic protocols that determine digital asset prices and automate asset trades on liquidity pools. A liquidity pool gathers its assets through users called liquidity providers (also known as LPs), who contribute to a percentage of the crypto asset in a typical liquidity pool smart contract. ## How do liquidity pools work? Liquidity pools use automated market makers (AMMs) that connect users aiming to trade pairs with the appropriate smart contracts for them. AMMs are the protocols used to determine the price of digital assets, and it does a great job of providing the most reasonably accurate market price on liquidity pools. Before liquidity pools can achieve their principal function of providing enough liquidity for crypto markets worldwide, they will require the tokens of liquidity providers. To become a liquidity provider, you can adapt the steps below to any liquidity pool platform of your choosing: 1. Credit your crypto wallet with the crypto tokens you aim to lock up in a liquidity pool and connect it to the liquidity pool platform of your choosing or sign up on a liquidity pool platform and credit the liquidity pool wallet of your account on that platform’s wallet. 2. Find the trading pairs you’d like to invest in and deposit an equally divided portion of your crypto investment into that trading pair; for example, to invest $1000 into an ETH and USDT trading pair, you would need to deposit $500 each in both ETH and USDT on that liquidity pool. Once you’ve made your deposit, select the period you want to have it locked up in the pool. After the period of lockup has elapsed, you, as a liquidity provider, will be rewarded with liquidity pool tokens according to your selected trading pair and liquidity pool platform. However, during the lockup period, you will also acquire an earning portion of the transaction fees paid to make exchanges with the pool you committed your crypto. Some crypto liquidity pools also provide the option of staking liquidity pool tokens in exchange for earning the platform's native token. ## Why are liquidity pools important? Liquidity pools play a significant role in providing liquidity in illiquid markets and boosting the DeFi ecosystem. The low liquidity that peer-to-peer exchanges offer can slow down the speed of transactions in financial markets. Still, with the help of liquidity pools where tokens are locked up in smart contracts, people can make transactions quickly. The price of assets on crypto liquidity pools is also very fair. They can only be influenced by the current market exchange rate, which offers relatively accurate prices for the assets they supply to liquidity pool intelligent contracts. Unlike traditional exchanges, where buyers and sellers can influence the bidding price of their transactions with other traders, liquidity pools provide a more consistent environment where prices can be more accurate. ## Pros of liquidity pools
### Faster transactions With sufficient liquidity being provided through liquidity pools, you can make faster transactions and turn your tokens into cash within a shorter period. Liquidity pools provide a faster means of making transactions than P2P exchanges, which require traders to release assets, verify trades and spend some time making transfers needed to complete the exchanges. Liquidity pools already have reserves of the crypto pair you wish to exchange, allowing for faster, trustworthy exchange. ### Secured exchange with reduced possibility of scam The process through which users of liquidity pools acquire their crypto pairs is secure compared to that of a P2P transaction. P2P transactions require two users to trust each other to complete their end of the contract. Still, with liquidity pools, automated market makers (amms) automatically connect users with contracts containing their trading pairs. Amms also releases the crypto already locked up in smart contracts. With such a system, people making transactions on a crypto network can quickly receive their assets without the possibility of the other trader refusing to release them. ### Fair price on exchanges Prices offered for exchanges on liquidity pools are not influenced by bias or greed, which P2P exchanges can be affected by because traders determine the trading price of their exchanges. Amms provides the market price for making exchanges on liquidity pools, and the prices amms provide are based on authentic information that users can trust. ## Cons of liquidity pools
### Scam Liquidity Pools The smart contract code of a liquidity pool may be accessible to developers. Developers with such access can breach the smart contract by obtaining all your assets locked in the liquidity pool without your permission. For this reason, users of liquidity pools are advised to do extensive research on the integrity of the liquidity pools they connect to their wallets and read the terms and conditions of the smart contract they join. ### Risky price change Since Automated Market Makers (AMMs) determine prices on liquidity pools, assets locked up in their smart contracts are subject to constant change. Amms constantly update the prices of trading pairs on the list of trading assets they offer on pools. ### Impermanent Loss The change in prices offered by liquidity pools can lead to a significant loss or gain of assets stored in the pool. The crypto market is volatile, and a tremendous price change can lead to losing assets locked up in a pool. Volatile changes can easily affect small asset portions, and lost assets may be unrecoverable for investors who only lock up a small asset portion to a liquidity pool. ## Trending liquidity providers
### Balancer
What Is Ethereum 2.0 - And Why Is It So Important?
Back in 2015, Vitalik Buterin launched the Ethereum network. At that time, he designed the Ethereum network to function through a proof of work consensus model and serve as an Ethereum blockchain platform where anyone could execute many activities at high speed. The Ethereum network proof of work consensus model has a not-so-complex block reward mining process where complex mathematical puzzles verify transactions on the Ethereum network. Through proof of work, Ethereum miners use mining to validate Ethereum transactions made on the Ethereum network and earn rewards for participating in the Ethereum ecosystem. Recently, the Ethereum network went through two upgrades. Initially, the first upgrade was from proof of work Ethereum mainnet to a separate new network – a proof of stake beacon chain, created to serve as a new and improved Ethereum blockchain. The proof of stake model is a consensus mechanism where Ethereum miners earn more block rewards depending on how much staked Eth they already have on the Ethereum network. The Ethereum Foundation identifies the proof of stake layer as the "consensus layer or beacon chain," and the proof of work layer as the "execution layer or Ethereum mainnet." However, the Ethereum community identifies "Eth2" & "Eth1," as the "consensus" & "execution" layers, respectively. After testing the proof of stake consensus layer as a separate layer, the Ethereum foundation has brought about the merge. The merged Ethereum network is the second upgrade to the Ethereum network and is currently used to validate the blocks of transactions on the Ethereum blockchain. After this read, you will realize the stages the Ethereum network has gone through and how they function to provide users with a scalable network. ## What is the Ethereum Merge? The Ethereum Merge is the second phase of the upgrade and the current Ethereum network that combines two different consensus mechanisms. The Ethereum mainnet and the Beacon chain are the consensus models that make up the Ethereum Merge. On Ethereum's merged block, the Ethereum mainnet and the Ethereum beacon chain function through proof of stake. The merge signifies the complete change to the proof of stake validation protocol that utilizes staking services. The Ethereum Merge now serves as a separate blockchain, swapping proof of work with the proof of stake validation process. ## What is Ethereum 2.0? Ethereum 2.0 (also known as Beacon chain) is the first upgrade that validates transactions through the proof of stake consensus mechanism, unlike Ethereum 1.0, which validates transactions using proof of work. On the Ethereum 2.0 network, validators of Ethereum transactions can earn more by staking rewards. Ethereum 2.0 requires fewer gas fees and maintains the decentralized way users love to process transactions on the Ethereum blockchain. The Ethereum 2.0 upgrade also provides a platform where users can process more transactions simultaneously. The only discomfort regular miners might experience through this upgrade is that for anyone to partake in a validation process, they must stake a minimum of around 32 ETH tokens. But anyone can still join one of the many staking pools to make up the difference. A staking pool combines several stakers aiming to achieve the total staking amount required to become a validator on Ethereum's blockchain. ## Ethereum 1.0 vs. Ethereum 2.0: What’s the difference? Ethereum 2.0 functions on pos blockchains, while Ethereum 1.0 functions on pow blockchains. With pos blockchains, the Ethereum network's scalability is far higher than when it used just the pow blockchain. Ethereum 2.0 provides an increased level of transaction speed. It provides a platform where users create secure smart contracts faster than before. ## What is Proof-of-Stake (PoS)? Proof of Stake (or the PoS blockchain) is a consensus layer that allows users to earn more by staking eth tokens over time. The more you stake, the more block rewards you can earn. The Proof of Stack model has increased the Ethereum network's scalability by a tremendous amount. The Ethereum network now provides an even more cost-friendly service approach to validating Ethereum transactions and earning a fair share of rewards. A staking pool is easy to join. To become a validator, all you need to do is join staking pools. Ethereum 2.0’s proof of work verification process has increased the number of people who can participate in validating Ethereum transactions, adding a boost to the Ethereum ecosystem. ## Ethereum 2.0 Roadmap The upgrade to Ethereum 2.0 has gone on since 2020, and these are the phases which it went through: ### Phase 0 This phase was the launch of Ethereum 2.0's beacon chain. During this phase, the beacon chain could only execute some activities on the execution layer as a live blockchain test. ### Phase 1 In this next phase, Ethereum 2.0 implements shard chains. Shard chains are the separate chains that will make up Ethereum's blockchain after this phase. Shard chains are a huge factor in increasing the scalability of Ethereum's network. ### Phase 1.5 Phase 1.5 is the merge phase that brought the pow and pos chains together to form one pos chain. This phase did not affect any users of the former pow chain, and it provided a barely noticeable smooth transition. ### Phase 2 This phase needs to be more detailed but believed to be when the beacon chain can fully partake in all Ethereum network functionalities, such as the pow execution layer. At this phase, Ethereum 2.0 will function at its full capabilities. ### Ethereum 1. x This final phase also needs to be more detailed. It is described as a developmental phase where Ethereum developers strive to improve Ethereum 1.0 as users continue to enjoy the benefits of Ethereum 2.0. ## Benefits of Ethereum 2.0
### Greater scalability The proof of stake layer that Ethereum 2.0 functions on provides Eth holders with better, more considerable returns on their staked Eth. The Ethereum 2.0 network rewards Eth holders depending on the amount of Eth they retain on the Ethereum network, and this means the more Eth you stake, the more reward you can earn as a Validator. The new validation method is more cost-effective and an excellent method of increasing earnings by saving Eth. And with shard chains that enable 9,970 more transactions than the initial 30. The rate at which you can earn will increase at a faster rate. ### Increased decentralization Ethereum 2.0 provides more decentralization than Ethereum 1.0 did. It further strengthens the trend of decentralization in the crypto market. By implementing the proof of stack validation method, more people can become validators through staking pools or by staking their own Eth to become validators. A more significant number of Validators has emerged since the launch of Ethereum 2.0, and that has further increased the decentralized network of Ethereum transactions. ### Enhanced security Ethereum 2.0 uses proof of stake to validate transactions faster than Ethereum 1.0. With the increased speed Ethereum 2.0 processes transactions, Ethereum 2.0 has added many more layers to the already dependable level of security it provides. On Ethereum 2.0, Validation is faster. With proof of stake, Ethereum 2.0 has gathered a more significant number of Eth holders staking Eth, which they need to remain online to maintain. By locking down staked Eth, Ethereum 2.0 has provided a robust and reliable level of security for its users. ### Faster and cheaper transactions With Ethereum 2.0, the Ethereum community can validate transactions faster and experience reduced transaction fees. The new speed at which transactions can get processed simultaneously ensures that users of the Ethereum proof of stake network can enjoy a more excellent user experience. Ethereum 2.0 allows users to quickly and speedily execute activities with a less disruptive workflow. Ethereum 2.0's proof of stake transaction method also reduces the money spent on powering mining machines to maintain the Ethereum network. ## Conclusion The successful launch of Ethereum 2.0 is a major upgrade to the level of services provided by Ethereum. The Ethereum foundation believes that this major upgrade has increased Ethereum's network's scalability to a level of better-optimized cost. Ethereum's price on the crypto market has responded well to the upgrade to Ethereum 2.0. The upgrade will not only moderately decrease the electricity consumption required to validate Ethereum blockchain transactions, but it will also increase the rewards earned from it. Several crypto enthusiasts have tweeted that Ethereum's price on the crypto market might experience a drop post-merge. But the new Ethereum network is doing a great job, and you better believe the Ethereum foundation has much more innovation ready to share with the crypto market.
What Is a Crypto Whitepaper? A Detailed Look At These Publications
A whitepaper is a piece of information or a guide crafted in an academic layout to inform the readers about some specific issue. For instance, marketers use whitepapers to promote their products. Developers use whitepapers to elaborate on their project's new improvements and technologies. Another major use for whitepapers can be seen in the government sector, where authorities publish legislation and policies to gauge public opinion. Crypto companies have also started using whitepapers to promote their crypto projects. Let us discover what a crypto whitepaper is and its importance in the world of blockchain. ## What is a cryptocurrency whitepaper? Crypto whitepapers are basically a user’s guide that aims to attract investors for the currency. When a new crypto is released, the launching company publishes the details about the currency in the form of a whitepaper. The paper aims to explain commercial, technical, and financial information about the currency. The companies include facts, statistics, formulas and diagrams about the currency to emphasize the importance of buying this currency. Although writing a whitepaper is not necessary for every company that intends to launch a cryptocurrency, a whitepaper gives a sense of professionalism and legitimacy to the company and the new currency. A legitimate and professional business allows investors to understand better how and why this new currency is better or different from its rivals. A white paper usually follows very moderate and plain language that every potential investor can understand. Even a common man with basic knowledge about blockchain who reads it just for information can grasp the fundamentals. ## 7 questions every whitepaper should answer about a crypto project There are some questions that a good whitepaper must answer. ### Concept: What is the project about? The concept of a whitepaper refers to the introduction of the crypto project that is being launched. This section is a quick summary of the program and gives a general idea of what problems the cryptocurrency aims to address. ### Operations: How does it work? A major part of a well-written white paper discusses the working and operation of the new cryptocurrency. Two main themes covered under this vast umbrella are “what will be the project's goals?” and “how will it accomplish its goals?” ### Validation: Why do people need this project? Investors and interested parties are keen to know how a new project would fulfill their needs. It must be able to clearly convey why someone would want to invest in or use that program. ### Technology: Why is this project on the blockchain? The new advancements in terms of technology in the crypto project should be clearly stated in the white paper. The publication must be able to defend how it is relevant to the current blockchain world and user needs. ### Tokenomics: How does the token fit into the picture? Supply and demand play key roles in the success and failure of a crypto project. It should be able to justify that the currency is relevant to the needs and fits perfectly in the law of supply and demand. ### Team: Who’s behind the project? Crypto whitepapers should include a section dedicated to introducing the employees, funders, advisors, and founders of the cryptocurrency. The section aims to inform the readers about the team's expertise, skills, and relevance to the program. ### Roadmap: What are the project’s plans? A roadmap gives the reader an idea of the project timeline as well as the authenticity of a crypto whitepaper. Usually, it is a good practice to devise monthly or quarterly goals for the cryptocurrency project and add them to the whitepaper. ## Why are whitepapers important? Whitepapers hold critical value in cryptocurrencies as they aim to introduce a new cryptographic project to the world. This document contains the most in-depth information about the functionality and creation of a cryptocurrency: hence researchers and developers looking for a detailed understanding of a project use whitepapers as the main resource. A whitepaper publicly states every nitty-gritty detail about the cryptocurrency. This ensures that there is no hidden information or motive behind a crypto project. Additionally, investors can compare the attributes with pre-established cryptocurrencies and decide whether it is a good investment opportunity or not. ## Useful concepts to understand a crypto whitepaper Understanding crypto whitepapers can be very tough for someone new to this field. Thus, it is recommendable to gain familiarity with the following basic concepts: ### Blockchain Blockchain is basically a decentralized, distributed digital ledger made to store and secure data. It can include information regarding Decentralized Finance smart contracts, crypto transactions or NFTs (non-fungible tokens). The difference between conventional data storage and blockchain is the decentralization of authority. It has four types based on the level of permissions each is controlled with. The types are Public, Private, Hybrid, and Consortium blockchains. ### Consensus mechanism A consensus mechanism is set in place to build trust, integrate security and achieve an agreement across network. A consensus mechanism is very useful in keeping precise records of transactions made on the network. In the world of crypto, Proof of Work and Proof of Stake are the two most frequently used consensus mechanisms. ### Nodes In blockchain and cryptocurrency, a node refers to the devices of individual network stakeholders authorized to facilitate communication for network processes and to keep track of the blockchain ledger. The main purpose of a node is to validate and verify every incoming transaction and continue adding new blocks to the main chain. There are two main categories in which nodes are classified: Full nodes and Lightweight nodes. ### Mempool Mempool is a portmanteau of two concepts: transaction pool and memory. When network nodes are assigned a new transaction, they run several verification checks to ensure the transaction is valid. This process is often quite time-consuming. During this process, a mempool mechanism offers a place for the suspended transaction to stay. ### Soft-forks and Hard-forks A Soft-fork is fundamentally a new change that is added, or an existing function is modified without bringing about any change in the blockchain structure. A Hard-fork refers to a change in the blockchain protocol that changes the status of a transaction from invalid to valid. ### Governance In blockchain terminology, governance involves the concepts of control and decision-making power. Maintaining decentralization in a project also requires some level of governance to tackle uncertainty, cost issues and delays in network processes. Methods and the level of governance vary along different types of blockchain projects. ### Smart contracts These are automated programs in a blockchain whose conditions are predetermined by the transacting parties. The purpose of a smart contract is twofold. First, to build trust between the participants of the transaction and second, to automate the process flow and automatically trigger the next action in line once the necessary conditions are fulfilled. ### NFTs Crypto assets that are identified with unique codes are known as Non-fungible tokens (NFTs). Additionally, the unique metadata assigned to each asset makes them distinguishable from other NFTs. Music, real estate, artwork and any other real-world assets that one can think of can be represented as NFTs. ### DeFi DeFi is a shorter version of the term “Decentralized Finance”, DeFi refers to fairly distributing authority and decision-making power among all stakeholders. This system aims to inject authority and trust among individual P2P digital exchanges and challenge the traditional centralized banking system. DeFi provides individuals with their own digital wallets, allowing them to hold or transact their assets as per their requirements. ### Staking Staking allows stakeholders to earn a passive income by holding a certain amount of cryptocurrency in their accounts. The staker (validator) is assigned a transaction to be verified. Upon correct validation, the network rewards the validator with more crypto. The amount of crypto held determines the chances of a node being selected as a validator. The more crypto held in a wallet, the more chances of selection. ### GameFi GameFi is an amalgamation of Gaming and Finance; this concept brings together advanced gaming and blockchain technologies, such as cryptocurrency and NFTs. GameFi allows the players to earn crypto for the time and effort spent in a game. The players can monetize and shift their progress and rewards earned in a game to other games as well. ## Examples of cryptocurrency whitepapers
### Bitcoin whitepaper Bitcoin is the most popular cryptocurrency of all time. Satoshi Nakamoto published the well-known Bitcoin whitepaper in 2008. The paper was named “Bitcoin: A Peer-to-Peer Electronic Cash System”. ### Ethereum whitepaper The whitepaper for one of the most successful cryptocurrencies was written by the 20-year-old Vitalik Buterin in 2014. The idea for the paper “Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform” was proposed in 2013. ### Solana whitepaper Solana's paper describes Proof-of-History and highlights its current plans. Anatoly Yakovnko published “Solana: A new architecture for a high performance blockchain v0.8.13” in 2017. ### Polkadot whitepaper Polkadot paper and the respective open-source cryptocurrency were both released in 2020. The author of the paper “Polkadot: Vision For a Heterogeneous Multi-chain Framework” was Dr Gavin Wood. ### Decentraland whitepaper This paper focuses on the economical and technical approaches and motivation behind the project “Decentraland.” The paper was published in 2017 by Esteban Ordano, Ariel Meilich, Yemel Jardi, and Manuel Araoz. ### Sandbox whitepaper Although Sandbox was launched in 2011 by Pixowl, its latest version was released in 2021 under the name “The Sandbox.” ### SENSO whitepaper This crypto whitepaper details the use cases of SENSO, the in-platform currency of Sensorium Galaxy, as well as revealing a number of features and future plans attached to the project.
### Conclusion A whitepaper is a document that provides the reader with the necessary information required to learn about a crypto project and gives the investors an idea about whether the project is worth investing in or not. Crypto companies mostly publish whitepapers to catch the attention of potential investors and users. The papers are usually in simple and understandable language; however, a reader needs to have some basic knowledge of the fundamentals of blockchain and crypto to understand a crypto whitepaper fully.
Best NFT Rarity Tools
The exponential growth of the NFT space is making even the most skeptical investors take an interest in this market. Aligned with this rising enthusiasm, demand for the best NFT tools seems equally affected as investors try to identify the next best non-fungible asset out there. Rarity reigns supreme when it comes to getting the most for your money in any collectible market. It is essential that you track trending NFTs if you want to turn a profit. Sniping NFTs is the act of buying NFTs that are priced below their value due to the seller's unawareness of their rarity. Fortunately, there are rarity tools, often referred to as rarity sniper tools, to help you with that. This article introduces you to the concept of NFT rarity and reviews some of the top NFT tools currently available. Let's get to it.
## What Is NFT Rarity? Several new NFTs have hit the market, but how do they differ in trait value? What makes some NFTs sell for millions while others sell for less? It has to do with rarity. NFT rarity determines how rare and valuable an NFT is. Collectors highly prize truly rare NFTs, which makes them more expensive. Consequently, people want to know whether the NFT they own is rare or whether the one they plan to purchase is rare. ## NFT Rarity Calculation Methods It is possible to calculate the rarity of an NFT using several methods. By calculating the rarity of an NFT trait based on its rarest trait, taking the average rarity of traits, or examining rarity statistics. ### Trait NFT Rarity Ranking To compare NFTs, one can simply compare the rarest attribute of each non-fungible token. Yet, this approach has one significant flaw despite its simplicity and straightforwardness: it ignores the NFT's overall rarity, just focusing on the rarest one. ### Average Trait Rarity Another method that will help you check NFT rarity is to average the rarity of traits present on the NFT. If an NFT had two traits, one with a 50% rarity and one with a 10% rarity, then its average trait rarity would be (50+10)/2 = 30%. The problem with this method is that it stresses the overall rarity of every trait, which means the single super NFT rare trait does not receive enough trait value, and the overall rarity value is diluted.
### Statistical Rarity In this method, you multiply all of an NFT's traits together to determine the NFT's overall rarity. If an NFT has two traits, one trait has a weight of 10%, and the other has a weight of 50%. That NFT would have a 5% 'statistical rarity' (10% * 50%). These three approaches have different results when comparing the rarity of some NFTs. Average Rarity and Statistical Rarity tend to overvalue many of the traits in an NFT, potentially diluting the value of an ultra-rare, one-of-a-kind trait. Trait Rarity faces the complete opposite problem by narrowing the calculation to the single rarest trait. A solution? Rarity Score.
## How to Calculate NFT Rarity The value and rarity of NFTs differ even if you have thousands of them in a single collection. Therefore, a decrease in supply leads to a rise in demand, which drives NFT prices up. However, supply value is not the only factor contributing to NFT rarity. To get an NFT rarity calculated, you can opt for various methods, as we already mentioned. Different parameters, such as rarity based on the rarest trait, will be considered by assessing all NFT traits statistically or by calculating the average rarity. A Rarity Score is therefore used to calculate the rarity of an NFT. Calculating the Rarity Score does not need to be done manually since various rarity tools can do it for you. With the right NFT rarity tool, you can view the results in just a few clicks. Rarity Score stresses single rare traits while including overall trait rarities in its calculation. To date, this is by far the best way to calculate rarity. Here's the formula: > [Rarity Score for a Trait Value] = 1 / ([Number of Items with that Trait Value] / [Total Number of Items in Collection])
## Best NFT Rarity Tools Although the formula is pretty straightforward, there's no point in doing all that math on your own to estimate the rarity of all of your desired NFTs. There are several investment tools available to assist you. Investments in NFTs come with many risks. Using a reliable NFT investment tool can help you check NFT rarity and stay on top of the changes effortlessly. Needless to say, these tools shouldn't be used as the only criterion for buying NFTs. Make sure you research the NFT market and project in question well before making a purchase. ### Rarity.tools
What Is Crypto Cold Storage and How Does It Work?
When it comes to crypto, having a good investment strategy might not be enough. That’s particularly true these days, with a volatile market, a dragging crypto winter and the blowout of major crypto players shaking users all over the world. If you're looking to offset risk and give yourself some peace of mind, perhaps you’ll consider keeping your digital assets in cold storage. A cryptocurrency wallet is essentially a digital account for your virtual money, enabling you to receive, send and store your assets with ease. However, there is a difference between keeping your crypto online and offline, especially if you’re concerned about the safety of our coins and tokens. If you’re interested in moving your crypto into cold storage, here’s how to get started. ## What Is Crypto Cold Storage Cold storage is a term used to describe an offline storage system. An example of a physical medium used for cold storage is a piece of paper or an engraved piece of metal. When it comes to cryptocurrencies, cold storage is offline storage of the codes - called keys - that allow your assets to be managed. Since your crypto wallet is offline, it’s almost impossible for it to be hacked or used by an unauthorized party, making it one of the safest ways of storing cryptocurrency. Besides not being connected to the internet, a cold crypto wallet gives the user a private key, passphrase, password or some other form of encryption protection that becomes the only way of accessing the wallet. But while there are many advantages in opting for a cold storage strategy, it’s worth bearing in mind that your assets will be harder to trade quickly as you’ll have to go through more steps in accessing your portfolio. ## Why Use Crypto Cold Storage The crypto market has been upended by a series of crashes and the downfall of lenders such as FTX, prompting many in the space to either sell their assets or consider alternative options to keeping their net worth safe. The fall of FTX, for example, had led to questions over the advantages of using centralized crypto exchanges over decentralized alternatives. While these platforms are no doubt convenient, they are exposed to significant risks such as hacks, data breaches, liquidity issues, bankruptcy, not to mention that users can only access their funds through the exchange. If the platform is somehow compromised, you might never see your money again. Taking complete ownership over your digital assets, keeping them in a wallet and taking them offline can help mitigate some of those risks. ## Hot Storage vs Cold Storage There are two kinds of crypto wallets users can typically choose from: hot and cold, each offering a different range of features. Cold wallets can be divided into: ### Paper Wallets As the name indicates, a paper wallet is simply a piece of paper where you’ll find your public and private keys printed or even written down. This offline method can be a safe way of storing and managing your crypto since hackers have no way of accessing your wallet keys. That said, losing a paper wallet might result in you losing all your assets since you won’t be able to use your keys. ### Hardware Wallets A hardware wallet is an external physical device where you can store your keys, normally a Bluetooth device or a USB stick. Moreover, transactions can normally be approved only after its user pushes a button on the device, meaning that remote unauthorized third parties would have a hard time trying to get away with your money. The biggest advantage of cold storage is that you can’t hack a piece of paper or an external device that’s not connected to the internet. On the flipside, cold storage wallets can seem quite impractical since there are quite a few steps involved in accessing your crypto. A hot wallet, on the other hand, lets you store your keys on a platform or application such as web-based, desktop or mobile wallets, connected to the internet, meaning that your funds are more easily accessible and you can carry out day-to-day transactions with greater ease. Most hot wallets are also free. However, they can leave users open to vulnerabilities that can be targeted by hackers. ## Types Of Cold Storage Wallets There are a number of cold storage wallets currently available, although you should keep in mind that not all options might support every token you have. Here are the top three most popular options: ### Ledger
What Are Fan Tokens? All You Need To Know
This constantly changing and developing era of modernization and technology is bringing new and exciting platforms for users to participate in and engage with. Cryptocurrency, the technology featuring a new form of money exchange, is now reaching new heights. Multiple new concepts that were unthinkable a few years back are now ruling the market. One such concept is that of fan tokens, and it has been a major attraction, especially among sports fans.
A glimpse at 2020 shows that every business and industry suffered huge setbacks, yet cryptocurrency and related services performed remarkably well. Many institutions, especially sports clubs, have adopted new ways to make money and raise funding for their programs. Sports clubs launched fan tokens that brought in a new form of fan participation through cryptocurrency. ## What are fan tokens? Fan tokens are a special kind of cryptocurrency that gives holders access to various fan-related activities. These fan-related activities include voting in some of the club decisions, special match ticket discounts, teams’ bus designs, etc. These are just a few examples of what could be the possible activities that are offered by fan tokens. ## NFTs vs Fan Tokens Fan tokens give fans memberships and allow them to gain exclusive offers and have a voice in the team's decisions like never before. Fan tokens are replaceable with other such tokens, making them ‘fungible’ as opposed to Non Fungible Tokens (NFTs). ## Rise of Fan Tokens Prominent sports clubs like AC Milan, Inter Milan, Santos FC, and FC Porto, etc., are the initiators of fan tokens. Initially, fan tokens sparked during the COVID-19 lockdown. Sports organizations needed an alternative to generate revenue that was impossible due to Covid restrictions. Many organizations plan to launch their digital assets after seeing the waves they have created for other clubs. Some major sports clubs which sell fan tokens are FC Barcelona, Manchester City, etc. Of late, many US sports teams are expected to join in on the hype, while some associations like NFL, NBA, and NHL have reached agreements with Socios. ## How Do Fan Tokens Work? Fan tokens operate on a no-fixed-value principle, meaning their weightage comes from the value of fan participation and involvement. Fan tokens have a fluctuating value. Initially, a fan token is offered at a fixed starting price. Then, it either gains or loses value over time. Fan tokens determine the shape of fan activities, participation, and revenue streams for sports teams offering those tokens. ## Using a fan token Socios.com is one of the leading platforms for buying fan tokens through the currency ‘Chiliz ($CHZ)’. People who buy a fan token can then earn rewards, win prizes, and get involved in several activities, like deciding the team's motto. Other perks associated with these crypto assets are meets-and-greets and easy access to signed objects distributed by stars of the fans’ favorite teams and clubs. Sometimes, teams offer exclusive promotions to fans with the number of owned fan tokens equal to or more than a specified threshold. ### More the Merrier More tokens mean more privilege and access to the activities. Fans have more say in the decisions of the fans’ respected teams or even individual stars that you bought the fan tokens for! ## Fan token vs DAO token Fan tokens are analogous to DAO governance tokens. A governance token allows token holders to decide and have a say in tech issues. Fan tokens can be considered a way of expressing ‘team patriotism’ by fans. ## Types of fan tokens Different sectors have introduced multiple kinds of fan tokens. Sports tokens and music tokens are the most famous types of tokens. These serve a common purpose: increasing fan involvement and generating revenue. ### Gaming Gaming applications and e-sport teams use fan tokens to enhance community engagement. For example, some of the big names Socios has partnered with are Team Alliance and Team Heretics, among many others. ### Football More than 19 Football clubs have already made their respective fan tokens. Examples include PSG, AC Millan, Manchester City, and FC Barcelona. Football has the most fan tokens associated with it compared to all other sectors involved with such digital assets. ### Fighting Fan tokens increase fan participation in chats and polls in professional MMA organizations. For example, UFC and PFL have released their own fan tokens. ### Movies The entertainment sector has stepped into the world of digital assets recently. One of the major movie companies ‘Mogul,’ has introduced NFTs and a DeFi platform for the showbiz industry. Additionally, they have announced a plan to introduce fan tokens for this sector as well.
## How to identify a fan token? As a part of a fan club or sports club, people are familiar with the logos and slogans of the clubs. Hence they can easily identify a fan token when they see it. Before buying a fan token, you can check its worth by knowing its market capitalization. The seller of the fan token sells a particular one that the fans identify and buy. These fan tokens serve a different purpose than other cryptos( like Ethereum); they solve financial or tech problems in a more fan-based reward system. ## Benefit to clubs A fan token serves to be a helpful tool for clubs and teams as it helps them generate revenue on a much bigger scale. Now that the effects of Covid have been minimised, the focus of fan tokens has changed. It is directed more towards an enticing and reward-based fan experience rather than revenue generation. Some good examples are fan tokens in both the sports and music industries. One of the most in-demand fan tokens nowadays is the ‘KPOP fan token’ It is a fan token for famous Korean popular music. ## Crypto vs Fan Token Like cryptocurrencies, fan tokens can be sold, bought, and traded. The difference between the two is their value; for example, Ethereum tokens being stablecoins, have a fixed value. Whereas fan tokens have a set selling price at the start, which changes over time. It changes per market movement and how much participation it gets from the token holder. ## How to buy fan tokens
### Where to Buy There are some platforms from where one can buy fan tokens, for example, Socios.com, Phemex, etc. Initially, a seller sells a fan token for a fixed price at that time, known as ‘FTO’ (fan token offering). After which, the prices rise following the gain in popularity of the token. You can use cryptocurrencies like Chiliz ($CHZ), Tether (USDT) etc, to buy fan tokens. Fans first have to purchase CHZ through a crypto exchange if they wish to purchase a fan token. ### How to Buy These simple steps summarize the process: 1. Buy Chiliz or other acceptable cryptocurrencies from Socios.com or any other crypto exchange. 2. Select the desired token and specify the number of fan tokens you want to purchase. 3. Receive your tokens after the system verifies your payment. The price change of the tokens varies with popularity, wins, and losses. Tokens may rise in value if the team is considered a champion, while if the team does not perform well, its token value may fall. The more fan tokens one has, the greater will be the access and right to vote on a variety of matters surrounding their favorite team. ## Five Fan Token Projects You Should Know
### 1. Santos FC Fan Token SANTOS
What Is Big Eyes Coin? Here's All You Need To Know
Amid a prolonged crypto winter, not too many projects have been brave enough to give a try at a major launch. But as a new year approaches, many are looking to turn the page. One investment theme that could hold up in 2023 are community-driven tokens, following in the footsteps of successful projects such as Dogecoin (DOGE) and Shiba Inu (SHIB). One particular project that’s created a lot of chatter and the “next big player” in the cryptocurrency industry is Big Eyes Coin (BIG). As the meme token gears up for a much-anticipated launch, let’s find out what sets Big Eyes apart from others. ## What Are Meme Coins? The first decentralized cryptocurrency to ever be created was Bitcoin (BTC) and soon after Ether (ETH) hit the market, marking the beginnings of a new economy based on blockchain technology. However, this also gave rise to a new phenomenon: meme tokens. Simply put, meme coins are digital currencies inspired by jokes, memes and internet parody. Despite generally lacking utility, meme coins have seen an explosion in popularity, initially led by Dogecoin (DOGE). Dozens of meme coins have sprung in the last few years, sometimes even based on parodies or parodies, although it might not always be clear what exactly makes these tokens so buzzworthy. That said, they’re still a considerable part of the crypto market, rallying big communities behind it.
Top 10 Metaverse Crypto Projects To Watch In 2023
We’re living through transformative times, which can feel both exciting and hard to keep up with. All that talk of Web 3.0, cryptocurrencies and the metaverse, but most of us are still left scratching our heads when trying to understand what it actually means. The good news is that while the technology might be a new concept, there are plenty of great projects already taking off and creating opportunities that could change your life in a profound way. In particular, the metaverse and crypto are coming together to shape the future of digital frontiers in areas like gaming, work, entertainment, education, shopping and much more. With so much going on, it’s perhaps worth getting to know what’s this all about and which metaverse projects to keep a close eye on in 2023.
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