Litecoin – The Digital Silver

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In the following blog, we will introduce you to another cryptoasset from our dynamic portfolio – Litecoin. Litecoin is a constant member of our Fumbi Index Portfolio that came about as an alternative cryptocurrency with fast and cheap peer-to-peer transactions that are not controlled by any central authority.

Historical Development of Litecoin

The beginnings of Litecoin go back to 2011 when its founder Charlie Lee, a former Google engineer and MIT graduate, decided to create the first ‚successful‘ alternative cryptocurrency by copying and modifying Bitcoin’s source code.

Back when Litecoin was created, only eight altcoins existed, and seven of them were forks. Forks are projects that largely took over Bitcoin’s source code and made a few changes. Even though Litecoin wasn’t the first alternative cryptocurrency to copy and modify Bitcoin’s source code, it’s historically one of the most successful and well-known altcoins. Thus it earned the status of a „digital silver“.

The main idea behind Litecoin was to create an alternative that provides cheaper and faster transactions than Bitcoin to increase the effectiveness of the use of cryptocurrencies for regular transactions. Litecoin deviated from bitcoin to test new innovations and possibilities for the application of cryptocurrencies.

What is Litecoin?

Litecoin is a peer-to-peer cryptocurrency that allows for immediate payments to anyone anywhere in the world with almost zero expenses. Like Bitcoin, Litecoin is a decentralised cryptocurrency founded on a global payment network with open source code that isn’t controlled by any central organ.

Initially, Litecoin was a strong competitor of Bitcoin, mainly due to its fast and cheap transactions. However, because of the growing number of alternative cryptocurrencies, Litecoin’s popularity eventually started to decline.

Elemental Differences Between Bitcoin and Litecoin

Like Bitcoin, Litecoin uses a proof-of-work (PoW) mechanism to verify blockchain transactions. However, due to certain modifications, this system is considered a ‚lighter‘ and faster version of Bitcoin. 

The key difference between Litecoin and Bitcoin is that Litecoin uses a mining algorithm called Scrypt PoW, which allows for shorter transaction times. Bitcoin uses the SHA-256 PoW algorithm.

The Scrypt PoW mining algorithm initially focused on lowering the efficiency of specialised miming equipment but was ultimately unsuccessful. Though it’s still possible to mine Litecoin even with home mining equipment, the industry is dominated by large scale Litecoin miners.

Litecoin generates a new blog approximately every 2.5 minutes – about four times faster than bitcoin, which generates a new block around every 10 minutes. It’s directly proportional to the litecoin supply that is four times higher than bitcoin. While bitcoin’s limit is 21 million BTC, the litecoin is capped at 84 million LTC. The following table characterises the basic differences between Litecoin and Bitcoin:

Based on information from Litecoin.info

Litecoin Halving

New litecoins are created through the mining process when miners add new transactions into the blocks. The miner that manages to verify a block gets a certain amount of litecoins as a reward for their effort. The amount consists of a set number of new Litecoins and transactional fees included in the block. 

The Litecoin network’s base reward is halved every 840,000 mined blocks. Considering the average block mining speed of 2.5 minutes, approximately 210,000 blocks get mined per year. That means halving in the Litecoin network takes place about every four years.

The last halving within the Litecoin network happened on 5 August 2019, when the base block reward (so-called coinbase) got halved from 25 LCT to 12.5 LTC per block. Next halving is expected around 23 August 2023, when the block reward will drop from 12.5 LTC to 6.25 LTC.

The idea behind halving is a gradual decrease in the accumulation of litecoins. In traditional financial markets, the decreasing offer of an asset with a constant or growing demand leads to growth of value because the rarity of the asset is increasing. 

Litecoin SegWit

Segregated Witness is a blockchain protocol upgrade proposed as a solution for an issue with Bitcoin scaling. The need for a SegWit was caused by a 1MB block size limit on the bitcoin blockchain. With the increased use of the network, the blocks began to fill up fast, slowing transactions and increasing transaction fees.

Many miners initially criticised SegWit as a dangerous upgrade for the bitcoin blockchain. Some even believed it might cause a complete collapse of Bitcoin. Of course, every blockchain upgrade poses risks, such as an incorrect source code. If the code wasn’t properly checked and tested, it could disrupt the network. 

Litecoin was the first cryptocurrency that implemented SegWit within its platform. As a result, Litecoin proved that the code works as it’s supposed to. The SegWit implementation drew considerable attention to Litecoin in the crypto community. It even led to considerations of using Litecoin as a „canary network“ for Bitcoin where could be tested various improvements for Bitcoin’s future development. Either way, Litecoin provided invaluable help to the bitcoin community by showing that there is no need to be afraid of SegWit, and the upgrade works as it’s supposed to.

Lightning network

The 2017 Litecoin SegWit actualisation prepared an excellent soil for Lighting Network implementation on the Litecoin network. 

Lightning Network is an off-chain system of payment channels run by smart contracts and designed to simplify direct trade between users. 

The idea of Lightning Network is that the payment channels where transactions take place are outside of Litecoin’s main chain. That makes it possible to perform transactions between subjects that don’t trust each other without the necessity to stress the main network.

The payment channels are usually focused on smaller transactions, such as payments for a coffee or lunch. After opening a channel, for example, between the customer and the cafe, both parties can immediately exchange an unlimited amount with minimal transaction fees.

Opening a channel means a single transaction on the main chain. Then all transactions through the channel are recorded off-chain until one of the parties decides to close the channel. Closing the channel means uniting all off-chain transactions under a single transaction written into the blockchain.

Furthermore, the Lightning Network implementation introduced so-called Atomic Swaps that allow the trader to exchange bitcoin for an equivalent amount of Litecoins. This added considerably to the increase in interoperability of these two very similar networks.

Litecoin Goals

Litecoin is a form of digital money that both individuals and institutions can use to purchase assets and transfer resources between economic subjects. The main advantage of using litecoin is that subjects can perform cheap and fast transactions without the necessity of interaction with the provider, such as a bank or centralised payment gate. 

Presently, Litecoin isn’t receiving the attention it deserves. However, once cryptocurrencies reach a critical number of users and become a truly accepted payment method, maybe it will be Litecoin that becomes the standard cryptocurrency of a new digital sphere. 

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The Fumbi company is the first of its kind because it offers cryptocurrencies to the general public and even at minimal deposits. Investing in cryptocurrencies through Fumbi is very simple and minimises risks. 

You can start with a deposit from €50

*Did you come across a term you didn’t understand? Don’t worry. You can find all essential terms regarding cryptocurrencies in our Fumbi Dictionary.

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Avalanche – The Internet of Finance

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Today we will introduce the basic attributes of the Avalanche protocol – a relatively new innovative blockchain platform whose main motto is extremely high scalability and speed of transaction verification without having to give up decentralisation or security.

History

The Avalanche protocol, along with AVAX, the network’s native token, was created by Ava Labs, founded by Cornell University professor Emin Gün Sirer and two computer science doctoral students, Kevin Sekniqi and Maofan „Ted“ Yin.

As early as 2002, E.G. Sirer, along with V. Vishnumurthy and S. Chandrakumar, worked to create a conceptual peer-to-peer virtual currency called Karma. The Karma digital currency was the first currency to use the Proof-of-Work system to issue new coins.

However, at that time, the PoW system was used only to issue new coins and was not used as a consensual network protocol. Karma was created shortly after the terrorist attacks of 11 September, so it was very difficult to raise funds for its development.

Over the years, however, Sirer has become a prominent and respected figure in the field of cryptocurrencies. For example, he published a research paper outlining the security vulnerabilities of the DAO platform. However, no one took his warnings seriously, which subsequently resulted in the hacking of the DAO platform, in which hackers stole a total of 3.6 million ETH. Additionally, he has proposed consensus adjustments for Bitcoin or Ethereum.

In 2018, he founded his own company, Ava Labs, and in 2019 created the Avalanche cryptocurrency itself. At the beginning of February 2019, the so-called „seed sale „was launched, i.e. the initial sale of tokens to private investors. In September 2020, the Avalanche Mainnet was officially launched.

What Is Avalanche?

Avalanche is an innovative blockchain ecosystem that has been designed to function as a secure, globally distributed and decentralised network. The developers themselves refer to the project as a „platform of platforms“. The protocol uniquely uses three different blockchains to create an interoperable and trustworthy environment on which developers can build. In addition, Avalanche offers payment solutions within the network itself using the native AVAX network token.

Avalanche was created to address several of the majority problems found in most blockchain networks today. The platform fights centralization and provides an alternative to networks such as Ethereum. Avalanche seeks to address the shortcomings of this network and provide even greater programmability and scalability.

Key Characteristics

Avalanche was created as a platform that allows anyone to create their own blockchain. The basic features of the protocol include:

  • Modularity – Avalanche allows anyone to use the network’s „building blocks“ to create their own, standardised blockchain optimised for a particular application. These newly created blockchains are interoperable and exist within a common blockchain network. Therefore, Avalanche is an ecosystem of blockchains and can be constantly expanded to meet the specific needs of developers.
  • Scalability and security Avalanche blockchain uses a Proof-of-Stake (PoS) consensus mechanism to ensure blockchain protection. This system works reliably thanks to a vast number of validators in the network, which ensures that the network is resistant to attacks and, at the same time, reliable and secure. Avalanche can process approximately 4,500 transactions per second, which is much more than all competing blockchains.
  • Performance – Avalanche has created a new set of protocols, called the „Snow family“, that allows all blockchains built within the Avalanche ecosystem to process thousands of transactions per second.
  • Sustainability – Avalanche uses an energy-efficient, eco-friendly, Proof-of-Stake consensus instead of the Proof-of-Work algorithm.
  • Smart contract support – Supports the creation of smart contracts in the Solidity programming language and the use of Etherea programming tools such as Remix, Metamask or Truffle.

How Does Avalanche Work?

Avalanche uses a triple blockchain strategy to simplify network development processes. All three blockchains are authenticated and secured via the Primary Network. The main protocol network is a type of subnet that verifies all built-in blockchains running on the Avalanche platform. An important part of the main protocol network are validators, who stake their tokens and thus participate in validating the system.

The triple blockchain system consists of:

  • Exchange chain (X-chain) – A decentralised blockchain designed to be easy to program. This network allows anyone to create various smart digital assets. These new assets can be, for example, stablecoins, utility tokens, NFTs, wrapped tokens, and others.
  • Platform chain (P-chain) – Blockchain responsible for the smooth operation of the network. It mainly serves to coordinate validators in the network, maintain and monitor active subnets, or create new subnets.
  • Contract Chain (C-chain) – Created to simplify development for developers coming from Ethereum’s environment. C-chain is a method of conversion chain that is compatible with all essential Ethereum tools. Users can seamlessly migrate their decentralised applications to this blockchain. The network supports popular Ethereum tools, such as MetaMask, Web3.js, Remix, or Embark.
Source: Avalanche Network

Avalanche Consensus Protocol

The Avalanche consensus protocol combines the best features of the Nakamoto consensus (robustness, decentralisation) and the classic consensus protocols (throughput, low latency or low memory requirements).

The basic feature of these protocols is high speed. Avalanche protocols reach an irreversible consensus in less than two seconds, faster than all currently available protocols. Avalanche allows you to process thousands of transactions per second (up to 4,500 TPS), which is throughput at the level of current payment systems.

The Avalanche Consensus Protocol operates on the principle of repeated random voting of sub-samples of validators. When any validator on the network sees a transaction that needs to be verified, it randomly selects a small subset of other validators to decide whether the transaction is valid. Each of the selected validators will have their own opinion on the validity of any transaction. Selected validators are weighted according to the amount of their deposit (staked AVAX tokens), while this methodology allows the protocol to theoretically extend the scalability to millions of participants.

When a sufficiently large portion of the subset of validators responds that the transaction is valid and should be accepted, the original validator will agree to accept the transaction. This validator now considers the particular transaction valid. If approached by another validator in the future (it will be part of a subset of validators), it will reply that the transaction is valid and should be accepted.

The same goes for a reversed scenario – if a large enough portion of the subset of validators responds that the transaction is invalid, then the original validator will decline the transaction and recommend all other future validators to decline the transaction as well. The protocols are memory-efficient and consume a minimum amount of electricity. 

Snowman Consensus Protocol

Snowman is an optimised protocol for reaching consensus on the network – it is highly efficient, scalable, and ideal for smart contracts. Snowman works on the principle of the Avalanche consensus protocol. It is used on the Platform chain (P-chain) and the Contact chain (C-chain).

Athereum

Athereum is a subnet of the Avalanche network, the „friendly fork“ of Ethereum, using the Avalanche consensus mechanism. The Athereum developers consider it a friendly experiment because they themselves are supporters of the Ethereum ecosystem. In this way, they try to help Ethereum solve its shortcomings.
It is the use of the above-mentioned Avalanche Consensus Protocol that allows this subnet to have high throughput and the ability to reach consensus on the network almost immediately. Athereum developers use the same development tools used in the Ethereum network (Web3js, MyEtherWallet, MetaMask). In addition, when a specific application operating on Ethereum is transferred to Avalanche, all existing ETH holders are entitled to ATH tokens (Athereum tokens) in equivalent value.

Source: The Coin Republic

Athereum’s intention is not to replace Ethereum but to provide an alternative environment for running decentralised applications with higher throughput and faster consensus. The intention is to inspire and motivate to increase research and development of decentralised applications as well as to optimise the Ethereum Virtual Machine (EVM) itself.

Native Network Token – AVAX

AVAX is the native token of the Avalanche network. Users use this token to receive rewards (staking) and pay fees. An important feature of this token is its limitations. Unlike most other POS consensus platforms, which have an unlimited supply and are constantly increasing it, Avalanche has a fixed limited supply of 720 million tokens.

The first 360 million tokens were issued at launch (the vast majority locked in vesting periods between 1-10 years). Another 360 million will be released through staking. As with bitcoin, staking rewards will decrease over time as the number of tokens in circulation grows.

In addition to the limited offer of AVAX tokens, as with Bitcoin, AVAX also differs in that it burns tokens for fees and all types of primary network operations – for example, burning transaction fees, network rental fees, or for creating subnets and individual blockchains.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-managed portfolio accurately tracks the price movements of the entire crypto market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of as little as €50.

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Did you come across a term you didn’t understand? Don’t worry. You can find all essential terms regarding cryptocurrencies in our Fumbi Dictionary.

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Algorand – Carbon Neutral Blockchain

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The following article will introduce you to another cryptoasset from our dynamic portfolio – Algorand. The algorithm is a decentralised blockchain platform whose main goal is to solve the lingering problem of the blockchain trilemma.

History of Algorand

The idea to create a decentralised Algorand platform originated in 2017. It came from Silvio Micali, a professor at the Massachusetts Institute of Technology (MIT) and one of the winners of the prestigious annual Turing Award from the Computer Association for technical contributions to the world of computer science.

Silvio Micali has been involved in cryptography since the 1980s. He is one of the co-inventors of zero-knowledge proofs, pseudo-random generation, and verifiable random functions, which are currently at the core of many modern blockchain platforms, including Cardano, Dfinity, and Elrond.

Micali designed Algorand in collaboration with an internationally recognised team of researchers, mathematicians, cryptographers, and economists to ensure the network’s true decentralisation while providing the maximum possible security and scalability.

The Algorand network was officially launched in June 2019, and its blockchain already contains more than 20.7 million verified blocks.

What is Algorand?

Algorand is a decentralised open-source blockchain infrastructure whose primary goal is to solve the so-called blockchain trilemma.

Blockchain trilemma is a concept solving the challenges that developers face when designing individual blockchains. The trilemma problem is that developers are forced to compromise in one of three essential areas when creating blockchains:

  • Decentralisation – the creation of an autonomous blockchain system that does not rely on any central point.
  • Security – the ability of a blockchain system to defend against attacks, bugs, and other unforeseen issues and function as expected from it.
  • Scalability – The ability of a blockchain network to handle an ever-increasing number of users without time constraints and rising fees.

Algorand is a network that seeks to achieve equilibrium in all of the above areas. Additionally, Algorand is designed as a network focused on fast payments and near-instant completion of transactions.

Key Features

Key features that have made Algorand popular among users include:

  • Low fees – Algorand fees are calculated based on the size of the transaction, and the user can choose to increase the fee if they want the transaction to be confirmed as soon as possible. However, there is no gas fees concept in Algorand, as is the case with other smart contract platforms. The minimum transaction fee is 0.001 ALGO ($0.0006)
  • Transparency – The whole Algorand code is open-source, so it is accessible to anyone, anytime, anywhere.
  • High throughput – On Algorand, blocks are produced on average every 4.5 seconds, with each block containing up to 5,000 transactions. Therefore, the network can process up to 1,000 transactions per second. At the present load, the network processes an average of 11.1 transactions per second, according to the algoexplorer.io web portal.
  • Finality – Transactions on the Algorand network are final as soon as they are confirmed in the block, so there is no need to wait for multiple network confirmations.

Consensus Protocol

According to the founder of the Algorand network, the problem with many current blockchains is that when using traditional consensus algorithms, blockchains must sacrifice at least one of the three key features for individual networks to work effectively. Silvio Micali and his team decided to solve this problem by inventing a new consensus protocol called Pure Proof-of-Stake (PPoS), which they subsequently implemented into the Algorand protocol.

PPOS is built on the basis of a two-phase block production process consisting of proposing and voting. The protocol in each block round uses the verifiable random function to select the block proposer and a group of voting commissions that approve the proposed block. The block proposer and the groups of voting commissions are selected at random from all ALGO token holders (i.e. the accounts on which the tokens are held). The probability of selection is directly proportional to the holder’s share of the total number of ALGO tokens.

The block proposal is followed by a voting process in which the network nodes check and confirm that there are no double or excessive spending transactions in the block. If the commission agrees that everything is fine, the block is added to the blockchain. If a problem occurs in the block or malicious activity is detected, the network goes through a recovery process in which the faulty block is dropped, and the process of selecting a new block proposer begins.

It is the simple process of restoration and discarding the wrong block that has often been the target of broader criticism. This is because the network does not use any mechanism to punish bad block proposers, as is common in other blockchain networks. Instead, the network goes through a simple recovery process that simply discards the faulty block. Although this system supports the speed and efficient scalability of the network, it does not penalise the designers of faulty blocks in any way.

Source: Binance

Staking in the case of Algorand works particularly efficiently. Basically, it is enough just to keep ALGO coins in your wallet, and the coins are automatically staked without the need to perform any further operations. The only specificity is that the user’s rewards become part of the total balance but do not automatically participate in the staking process.

Accumulated rewards become part of staking only if the user performs an operation with them – for example, once in a while, sends them to another address and back.

Smart Contracts in the Algorand Network

Decentralised finance is currently the fastest-growing sector of the global blockchain ecosystem. However, there is still room for improvement in sophisticated decentralised applications, which already allow easy sending and receiving of money and much more complex functions of loan return, insurance, or asset tokenisation.

Algorand belongs to protocols that have the functionality of smart contracts. Smart contracts in the Algorand network are contracts that can be controlled from any network node in the blockchain once deployed in the protocol. After the contract is deployed, its specification is transferred to a specific application which gets its ID assigned. A specific type of transaction then triggers applications called an Application Call Transaction.

Smart contracts are usually written in TEAL, the syntax of a programming language to specify a program that is eventually converted to bytecode to AVM. For easier understanding, in the case of the Ethereum network, smart contracts are written in Solidity language and converted into bytecode for execution via EVM (Ethereum Virtual Machine). However, it is also possible to write smart contracts in Algorand in Python using the PyTeal library or Reach, similar to JavaScript.

In the case of Algorand, the changes in the state of the network are recorded by the so-called Algorand Virtual Machine (AVM) that runs programs associated with transactions from individual network nodes.

Forkless Technology

The term fork characterises a situation in which one blockchain branches into two separate chains. In practice, branching can occur, for example, if part of the community does not want to receive new updates or when significant protocol changes are not backwards compatible with an older version of the software client. Additionally, a fork also occurs when two miners in the network mine a new block at almost the same time and the information about the extracted blocks has not yet managed to be distributed among all network nodes. To maintain the continuity of the blockchain, one of the branches always gets abandoned and the transactions that are part of it become invalid.

The PPoS consensus algorithm uses a collective voting mechanism to verify blocks, ensuring immediate finality of transactions and eliminating the possibility of foreclosure. In the Algorand network, it is never possible to add two blocks to a blockchain at once because only one block can always reach the required limit of votes from selected voting commissions. In practice, after each block is verified, users can be immediately sure that the block containing their transactions will be part of the blockchain forever. Thanks to this technology, there is no need to wait for several block confirmations for transactions in the Algorand network. In Bitcoin’s blockchain, it is often necessary to have at least three block confirmations before the resources are credited to the wallet.

Green Blockchain

In the ecosystem of cryptoassets, Algorand is considered to be one of the most effective and ecological blockchains. Since April 2021, the platform has even become carbon-negative, which means that it buys more carbon credits than its actual carbon emissions.

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Source: Twitter

Algorand Foundation

The mission of the Algorand Foundation is to create a decentralised and borderless global economy based on Algorand technology. The Algorand Foundation assists in this goal by taking responsibility for project tokenomics management and overseeing decentralised project management as well as a healthy and prosperous ecosystem.

An important part of the vision are also the so-called Algorand ambassadors. They help build local communities to spread knowledge and understanding about the development of this blockchain ecosystem around the world. The Algorand Foundation has created a global program for these ambassadors for their work in creating national and international communities. The foundation also rewards ambassadors for creating educational content for ecosystem development.

Algorand Ecosystem

The most popular projects from the Algorand ecosystem include:

  • AlgoFund – A project to support innovative and revolutionary projects built on the Algorand platform.
  • Kaafila – Decentralised media and education project based on Algorand technology and IPFS.
  • Openfabric -An ecosystem for creating and connecting artificial intelligence applications.
  • Folks Finance – A protocol aimed at providing decentralised loans, in which, among other things, it is possible to deposit free funds and collect interest in return.
  • CryptoTrees – CryptoTrees uses a carbon-neutral Algorand blockchain to plant trees and save forests around the world. Users can obtain tokens through games and initiatives while contributing to the fight against climate change.

Native Network Token – ALGO

The native currency of the Algorand network is the ALGO coin, which is the cornerstone of the entire infrastructure. Rewards in the Algorand network are distributed to all ALGO coin holders instead of only network validators collecting the rewards. This means that all ALGO coin holders can collect rewards of approximately 7.5% per year.

The maximum number of ALGO coins is fixed at 10 billion. There are currently 7.1 billion coins in circulation, with up to 2.5 billion coins owned by the Algorand Foundation and Algorand Inc.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market. Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks. 

You can start with a deposit of just €50.

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Chainlink – Decentralised Oracle Network

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The following article will introduce another cryptoasset from our dynamic portfolio – Chainlink. Chainlink is a decentralised Oracle network that plays an important role in the implementation of blockchain technology in the real world. The main goal of this network is to provide inputs from various external data sources to the blockchain.

History of Chainlink

The Chainlink network was founded in 2014 by Sergey Nazarov, a relatively well-known figure in the cryptoasset ecosystem. The original idea of this network was to create a centralised Oracle system that could verify incoming inputs from external sources. However, the idea gradually transformed into a decentralised Oracle network that communicates with smart contracts and verifies the authenticity and security of data from external sources.

The Chainlink network was officially launched in June 2017 under the leadership of the SmartContract company. A few months later, in September 2017, the project’s Whitepaper was published, describing the complex operation.

The Chainlink team sold native tokens through an initial coin offering (ICO) and managed to raise $32 million by selling 35% of their total token stock.

What is Chainlink?

Although blockchain performs the role of a decentralised, secure ledger for transactions in any network almost perfectly, its shortcomings are particularly evident in receiving information and data from outside the blockchain.

In practice, a massive amount of external factors and information affect events in all financial markets, including the cryptocurrency one. Chainlink deals precisely with the issue of security and authenticity of external data affecting the blockchain.

Chainlink is a decentralised blockchain network. In a way, it creates a bridge between the Oracles that provide blockchains with proven and secure inputs from the real world and smart contracts that operate on individual blockchain networks.

Each Oracle Chainlink network consists of multiple independent Oracle nodes that obtain data from multiple independent external data providers. These nodes then aggregate and merge the data into a single data point, which they then transmit to the blockchain so that the data can be used to make smart contracts work properly.

Oracles

Oracles are specific data channels that are necessary for most blockchains because blockchains cannot directly access external data sources outside their network. Oracles act as an entity that finds and verifies real-world data and sends this information to the blockchain. External data are often needed to execute a smart contract with predefined conditions.

Smart Contract Architecture

The Chainlink network architecture generally consists of three basic types of smart contracts:

  • Order-Matching Contract – This contract assigns a „Service Level Agreement (SLA)“ to Oracles with the best offer.
  • Reputation Contract – Verifies the integrity of Oracle by reviewing its records. This includes factors such as the total number of requests completed, the average response time, and the amount of LINK cryptocurrency available to Oracle. Based on this, the contract evaluates and identifies dubious and unreliable nodes.
  • Aggregating Contracts – Aggregating contracts collect data from Oracle and assign the most accurate results to each smart contract that needs it.

How Does Chainlink Work?

To ensure communication between blockchain-based smart contracts that provide various services and external data sources, Chainlink performs two basic types of operations: on-chain and off-chain. The overall data acquisition process consists of three steps.

  • Step 1: Oracle Selection – An entity that needs to draw data from an external source proposes a contract called „Service Level Agreement (SLA)“ that specifies a set of requirements and criteria the data must meet. Chainlink will then use this SLA to assign the applicant the most appropriate Oracle using a reputational contract that can provide the data based on its specifications. After setting and matching the parameters, the user confirms, sends the SLA, and inserts the Chainlink (LINK) cryptocurrency into the „Order-Matching Contract“.
  • Step 2: Data reporting – In this step, Oracle actually connects with external data sources to obtain the data required in the SLA for a specific entity. The data collection from external systems takes place off-chain. The data is then processed and transformed by the individual Oracles into a form that can be sent back to the blockchain using the Chainlink service.
  • Step 3: Result Aggregation – The last step in this process is to add up the results of the data collected through Oracles and return them to the aggregation contract. The Aggregation Contract takes over this data, assesses the validity and integrity of each, and returns the weighted score to the user using the sum of all data received into the client contract.
Source: Medium

When performing these operations, Chainlink must also communicate with Oracles that operate off-chain, i.e. outside the Chainlink blockchain. 

The entire off-chain architecture stands on two basic kinds of software:

  • Chainlink Core – This is open-source software on which nodes with Oracles functionalities operate. Chainlink Core is responsible for reading newly submitted SLAs, redirecting them, and assigning them to the Chainlink Adapter.
  • Chainlink Adapter – Acts as a bridge between the node and external data. The adapter can read and process data and write it to the blockchain.

As part of off-chain operations happens the actual collection of data and information from external systems and their transformation into a form that individual nodes can process and send back to the blockchain. The nodes are then rewarded in LINK tokens for performing these tasks.

Source: Coincentral

Chainlink Ecosystem

Chainlink currently has a very strong market position due to several significant partnerships extending beyond the cryptoasset ecosystem. Chainlink’s strongest partners include:

  • SWIFT – The cooperation between Chainlink and SWIFT is an important step towards integrating the LINK token into the traditional international banking system. LINK also has a good reputation in the mainstream thanks to this cooperation.
  • Google Cloud – Chainlink and Google Cloud collaborate to make it easier for developers to develop technology by giving them access to cloud data on public blockchains through Oracle.
  • Dapps Inc. – Chainlink and Dapps Inc. have announced a partnership that will enable users of Salesforce, a cloud-based business software, to obtain accurate, real-time data for smart contracts.
  • Binance – Chainlink is helping Binance, the largest cryptocurrency exchange, share its crypto data with other blockchain platforms.

Chainlink also works with several blockchain networks, such as Cardano, PolkaDot, Polygon and Tezos.

Native Network Token – LINK

The native network token LINK is built directly into the network and is the only token that can be used to perform key network operations.

LINK originated as an ERC-20 token on the Ethereum network and went into circulation through an initial coin offer (ICO), during which up to 350,000,000 million tokens (35%) of the total 1,000,000,000 were sold. As LINK tokens are used as the currency on this platform, the more Chainlink’s services are used, the greater the demand for this asset.

LINK is used in the Chainlink network to pay individual network operators for their data acquisition services from external data sources, converting them into a blockchain readable format and delivering them to the blockchain.

As part of the innovation, the ERC677 interface is also implemented in the LINK token agreement. ERC677 is an extension of the ERC20 standard, which has all the advantages of ERC20 and, at the same time, addresses its limitations. It is more advanced and allows more functions. It is fully compatible with the ERC20 and Ethereum mainnet infrastructure and tools while offering lower transaction costs.

ERC677 offers a solution called transferAndCall, in which the user can send tokens to the contract, and the receiving contract can receive these tokens in one transaction.

Take Advantage of the Potential of This Cryptocurrency

Over the years, Chainlink has gained immense popularity among investors worldwide. As the market for cryptocurrencies and decentralised finance continues to evolve, the amount of financial capital is shifting to the functional, scalable, and secure networks of the new, innovative Web 3.0.

Many experts now consider Chainlink a relatively underrated cryptocurrency with great potential, working on several new technological improvements and tokenomics over 2022.

Chainlink is also an integral part of our Fumbi Index Portfolio. We perceive this cryptocurrency’s greatest potential in its usefulness and utilisation not only in the ecosystem of cryptocurrencies but also outside the sphere of cryptoassets. An example is cooperation with several companies from the traditional world, including Google, that use Chainlink to develop hybrid blockchain applications.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary.

Juraj Forgacs

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Pax Gold – Cryptocurrency Backed by Gold

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Investing in cryptocurrencies through our Fumbi Index Portfolio represents an investment in a dynamically rebalanced portfolio composed of TOP cryptocurrencies on the market. This ensures that the investment evolves according to market movements and eliminates the risk of making a wrong choice which can occur when trading individual cryptocurrencies.


However, the following blog will introduce a cryptocurrency from a different product of ours – Fumbi Bitcoin and Gold. The cryptocurrency in question is PAX Gold.

What is PAX Gold?

PAX Gold is a type of digital asset in which one PAX token represents one troy ounce of gold in the form of a gold bar adhering to the rules of London Good Delivery. London Good Delivery is a set of rules issued by the London Bullion Market Association that describe the physical properties of gold.

You could say that anyone who owns a PAX Gold token owns the physical gold stored by Paxos.

The PAX Gold token is built on Ethereum according to the ERC-20 technical standard, thanks to which it is compatible with all Ethereum wallets that support ERC-20 tokens. Because all transactions operate on the principle of smart contracts, they eliminate human error. 

PAX Gold is available anytime and anywhere, unlike the physical gold – which can only be manipulated on business days.

Key Features of Pax Gold

  • Transferability – PAX Gold is transferable in several ways, unlike other gold products that currently exist. Clients can exchange their PAX Gold token for physical gold or cash. Through the company’s official website, clients can request the transfer of tokens for physical gold in the form of a gold bar – it is necessary to own at least 350 PAX Gold tokens.
  • Physical Allocation – The PAX Gold Token is backed by physical gold, with each gold bar having its own serial number. Thanks to operating on the Ethereum network, token transferability is simple, fast and secure.
  • Availability – The minimum investment amount for a PAX Gold token starts at 0.01 PAXG (approximately $20), with a fixed entry conversion fee of 0.02 PAXG ($40). As a result, PAX Gold opens up the opportunity to invest in gold not only for institutional investors but also for regular retail clients.
  • Low fees – PAX Gold fees are lower compared to other gold products. Paxos does not charge any storage fees. Transactions with PAXG tokens within the Ethereum network have a transaction fee of 0.02%.

There have been several attempts to digitise gold in the past, but none have seen significant market success. An example is the DGT (Digix Gold Token) token, which, like PAX, is backed by gold. However, the Digital Gold Token is backed at a rate of one token per gram of gold, while PAX Gold is backed at one token per troy ounce of gold. One troy ounce of gold equals 31.1 grams.

Another competitor is, for example, PMGT (Perth Mint Gold Token). This project was created in 2018. It is an ERC-20 token from InfiniGold. In this case, similar to PAX Gold, each token is backed by one troy ounce of gold.

Despite competing projects, PAX Gold has become one of the most popular tokens backed by physical gold through obtaining all the necessary licences and undergoing independent audits.

Gold Price Development

Gold became increasingly used as a refuge for investors during the coronavirus crisis. Several experts predict a rise in the price of gold because, unlike traditional money, it cannot be printed indefinitely. Bank of America predicts an increase in the price of gold over a period of 18 months to the level of 3,000 USD.

Currently, the price per troy ounce of gold is around 1,750 – 1,850 USD. Gold has the highest market capitalisation of all assets in the world. At present, its market capitalisation is estimated at almost 11.8 trillion US dollars. 

Gold price development chart for the last five years (troy ounce)

Source: TradingView

Risks associated with PAX Gold

  • Ethereum protocol risk – Ethereum blockchain itself is still in a state of constant development. It is currently undergoing a demanding transition to the Proof-of-Stake algorithm as well as many other changes. These changes can significantly improve the functionality of this protocol, but they can also lead to fatal errors and failures.
  • „Breaking the peg“ – This poses a risk based on the theoretical assumption that the PAX Gold token would not be backed by sufficient gold in the future. This could be the case, for example, if an audit showed that a company has lower gold reserves than the number of PAX Gold tokens in circulation. This risk is minimal since the company is regulated by the New York Treasury Department and conducts regular independent audits.
  • Theft risk – The risk associated with stealing gold reserves backing the company’s tokens. Should the gold be stolen, the PAX Gold token would lose its character of convertibility into physical gold and thus its collateral, which could lead to total devaluation of the token.

PAX Gold Today

Among all crypto assets, PAX Gold currently ranks 266th with a market capitalisation of more than $106 million. There are currently 60,161 PAXG tokens in circulation. As it is an ERC-20 token, it can be purchased on multiple exchanges and stored in a wide range of crypto wallets. 

The most well-known platforms on which PAX Gold is traded include Binance, Gemini, Kraken, and FTX.

About Paxos

Paxos is a regulated financial institution that aims to create an infrastructure that allows transfers and transactions between digital and physical assets. The goal of this company is to achieve a system in which all assets (money, stocks, commodities) will be fully digitised and controllable at any time.

Paxos is currently licensed, regulated and supervised by the New York Treasury Department (NYDFS). In July 2019, the NYDFS Treasury granted Paxos permission to issue its own gold-covered PAX Gold token. 

Furthermore, Paxos has successfully passed financial audits and audits of smart contracts carried out by independent third parties.

Partners

Paxos has accounts with Brink’s bullion vaults in London, one of London’s six gold vaults. Gold stored in this vault corresponds to the value of the issued PAX Gold tokens.

Paxos also has an account with INTL FCStone, a gold-trading company. This company arranges for the purchase and sale of gold from Paxos as needed, whether to issue or sell tokens.

Fumbi Bitcoin and Gold

The unique product Fumbi Bitcoin and Gold monitors the value of Bitcoin and PAX Gold so that your finances are distributed in a 50:50 ratio. The algorithm intelligently buys the cryptocurrency that has fallen and sells the one that has risen. Thanks to this combination, you can save your future easily and stress-free. 

What are the main benefits of this product?

  • Ongoing rebalancing – Your investment will always be evenly distributed between bitcoin and pax gold. As the bitcoin value increases, some will be sold, and gold will be bought to bring your portfolio back to 50:50 and vice versa. As a result, you will always buy and sell when it is convenient.
  • Lower volatility – Now, you can anchor your cryptocurrency investments with gold. You get both the potential of a fast-growing industry and the stability of gold.
  • Cryptocurrency backed by real gold – Cryptocurrency pax gold is backed by real gold, so it mirrors its true value. As a result, it brings you similar investment benefits as traditional gold investing.
  • Double protection against inflation – Forecasts say that both bitcoin and gold will grow, so you can now comfortably and easily invest in them to protect your finances from inflation.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary

Juraj Forgacs

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Polygon – An Innovative Second Layer Solution

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The following blog will introduce another cryptoasset from our dynamic portfolio – Polygon. Polygon is a scalability protocol whose main goal is to increase the speed and reduce the costs associated with transactions within the Ethereum network.

History

The beginnings of the Polygon protocol, formerly known as the Matic Network, date back to 2017. At that time, three Indian experts identified the scalability problem of Ethereum, which they decided to solve together.

The original idea for the development of the protocol came from Jaynti Kanani, the current CEO of Polygon, who first noticed the problem of scalability and high congestion in the Ethereum network thanks to the then-popular NFT project Crypto Kitties.

Kanini decided to work with Sandeep Nailwal, an Indian blockchain developer, and Anuraga Arjun, a business consultant with whom he had previously met. Three top experts from their fields joined forces and began working together on a start-up called MATIC, based in Mumbai.

Traditional blockchains such as Ethereum often fail to scale optimally under heavy load, which is associated with a continuous increase in transaction fees. These issues can hinder programmable blockchain platforms‘ progress towards global adoption and optimal technological efficiency. The second tier scaling solution can act as a load balancer for networks that fail to scale continuously with increasing user activity.

MATIC was rebranded in 2021 and changed its official name to Polygon because, according to its developers, Polygon aims to become the „internet of blockchains.“ Besides the name change, the rebranding also included an extension of the original scope and mission of the project.

What is Polygon?

Polygon is a framework for creating interconnected blockchain networks compatible with the Ethereum network. Polygon is a response to some of the main challenges currently facing the Ethereum network, such as high fees, poor user experience and low transaction throughput. Polygon uses secondary blockchain technology to address these challenges and relieve the main chain of the Ethereum network.

The protocol’s main goal is to create the „internet of blockchains“ on the Ethereum network – this means that Polygon is trying to create a multi-chain ecosystem of blockchains that will be compatible with Ethereum itself.

Since Polygon supports Ethereum Virtual Machine (EVM), existing applications can be easily transferred to it. As a result, these applications work the same way on Polygon as on Ethereum itself, only with higher scalability and lower fees.

How does Polygon Work?

Polygon offers developers a wide range of modules that blockchain developers can use to configure their own blockchain. These include, for example, consensus and management modules or a virtual machine implementation module.

Blockchains created with Polygon modules are configured to take advantage of the Matic Proof-of-Stake sidechain, which uses network validators to speed up transactions and keep fees to a minimum. At the same time, all major operations are being completed on the Ethereum chain.

Matic PoS is a sidechain compatible with Ethereum Virtual Machine (EVM). This blockchain is secured by a set of Proof-of-Stake consensus validators and checkpoints, which are sent to the Ethereum blockchain itself.

A sidechain is a semi-independent blockchain that works in conjunction with an associated „main chain“ – usually to increase its speed. The MATIC sidechain is an important part of the currently growing Ethereum ecosystem. It offers its users the opportunity to convert any decentralised application built on the Ethereum network to the MATIC side chain, mainly to improve user environment assessment.

Polygon Base Layers

The Polygon protocol architecture can be defined as a four-tier system, with each tier performing its own specific function:

  • Ethereum layer – The Ethereum layer is a set of smart contracts implemented in the Ethereum system. These contracts provide various functions, from transaction finalisation and staking to ensuring communication between the Ethereum network and the Polygon chains.
  • Security layer – The security layer is a layer based on voluntariness. This layer provides the ability to use „validator services“ to secure blockchains operating on Polygon. Blockchains can thus increase their security with an additional layer of security.
  • Polygon Network Layer – A layer consisting of the entire blockchain network ecosystem built on Polygon. However, each blockchain operating on Polygon has its own community and is responsible for the operation of its own network.
  • Execution layer – The execution layer performs the agreed operations included in the Polygon chains. The Ethereum Virtual Machine is implemented in the execution layer and is used to perform these operations.

Scaling Support

The Polygon concept was created to ensure that in the future, there is an ecosystem in which the various blockchains will not function as separate entities but will be part of a broader, interoperable environment.

The Polygon protocol is designed to support a wide range of blockchain scalability mechanisms, including Plasma chains, zk-Rollups, Optimistic rollups and POS chains. All of these technologies are designed to increase the throughput of associated blockchains in the best possible way without the need for loss of decentralisation or security.

Polygon uses the following technologies to achieve its vision:

  • Plasma Chains – Polygon uses scaling technology known as plasma to move assets between the main chain and the subchain using so-called plasma bridges.
  • ZK-rollups – An alternative scaling solution used to group a large number of off-chain transactions into a single transaction using zero-knowledge proofs for the final public record on the Ethereum main chain. In November, Polygon introduced a protocol called Polygon Miden, which uses zero-knowledge proof to offer users greater privacy and EVM compatibility.
  • Optimistic rollups A solution that runs on top of Ethereum to enable near-instantaneous transactions through so-called „fraud proofs.“
  • POS Chain – The main chain of the MATIC PoS polygon is also a side chain of the Ethereum network, which supplies the Proof-of-Stake (POS) security layer to the blockchains running on the Polygon.
Source: Smart Liquidity Network

Polygon Ecosystem

The most notable projects that are part of the Polygon ecosystem include:

  • Polymarket – One of the most popular prediction markets in the blockchain space. Polymarket has become popular mainly due to its friendly user interface.
  • Aavegotchi – A crypto collector’s game from the decentralised finance sector – players in this game put the NFT into a protocol and generate interest.
  • Easyfi – Easify is a hard fork of the Compound project, which brings together a huge number of products from the DeFi sector in one place.
  • SportX – Blockchain betting platform.

Besides these, many other popular DeFI and NFT projects, such as Aave, Cream Finance, Chainlink and OpenSea, operate within the Polygon ecosystem.

Native Network Token – MATIC

The native token of the Polygon protocol is the $MATIC token, which is the basic functional tool of the whole system. Besides being used for payments between users, this token also serves as a security tool for the Polygon network. MATIC token holders who want to support the network consensus mechanism can lock their tokens in the network and collect rewards for it.

In addition, the MATIC token in the Polygon ecosystem is also used for various other purposes, including participating in network management by voting on network improvement proposals (PIPs) or paying gas fees in relation to smart contracts.

Final Thoughts

Polygon has brought a new, innovative set of tools to the entire blockchain ecosystem. It seeks to alleviate the challenges facing the Ethereum network. Polygon also wants to use its innovation to predefine a future prototype in which the scalability and interoperability of independent blockchains become routine.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary.

Juraj Forgacs

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Uniswap – Decentralised Exchange Without Borders

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The following blog will introduce you to another cryptoasset from our dynamic portfolio – the decentralised Uniswap exchange. Uniswap, built on top of the Ethereum network, is currently the most popular decentralised exchange.

The Birth of Uniswap

The concept of the decentralised stock exchange Uniswap was born from the idea presented in 2016 by Vitalik Buterin, the founder of the smart contract platform Ethereum. Buterin proposed creating a decentralised exchange at the top of another blockchain network that would use the automated market maker (AMM) method with certain unique features, replacing traditional order books.

A year later, the founder of Uniswap, Hayden Adams, took the idea into his own hands and began working to transform it into a functioning decentralised protocol. After receiving various grants and a $100,000 donation from the Ethereum Foundation, Adams officially launched the Uniswap decentralised exchange in November 2018.

Adams was initially concerned not only about the basic security of the project but also about relationships with potential investors – he feared it might not be possible to persuade people to trade only with smart contracts without third-party interaction.

However, Uniswap has quickly become popular with traders worldwide due to its unique solution to the problem of high spreads for illiquid assets. Hundreds of millions of dollars are traded daily on the platform, with a total locked asset value of more than $5.9 billion.

What Is Uniswap?

Uniswap is a decentralised open-source protocol built on top of Ethereum and focused on the exchange of liquid and less liquid assets. Execution of trades through this protocol does not rely on traditional stock exchange order books or any centralised entities. The main advantage of decentralised exchanges is that they do not require identity verification (KYC) from their users.

Uniswap relies for its trades on a decentralised model in which market participants pool their free assets in so-called liquidity funds (LPs). Based on liquidity funds, this decentralised model creates an automatic pricing mechanism depending on the amount of assets available in the fund.

As Uniswap is a decentralised exchange, no central approval process is required to add a new token for trading. In principle, any ERC-20 token can be listed on Uniswap if it can be traded when a liquidity fund exists. This makes Uniswap the ideal place to trade start-ups and less liquid tokens.

How Does Uniswap Work?

There are currently two main types of exchanges in the cryptocurrency market: centralised and decentralised exchanges.

Centralised exchanges act as an intermediary for purchasing and selling cryptoassets. Most of these exchanges require Know-Your-Customer (KYC) verification, which means that users must verify their identity before making any trade. These exchanges also provide custody services. Therefore, many investors leave their assets directly on the stock exchange and are thus exposed to various risks.

On the other hand, decentralised stock exchanges like Uniswap have no central intermediary. All trades are carried out by traders with each other using smart contracts. The whole concept of a decentralised stock exchange is to replace the traditional stock exchange architecture with a design called Automated Market Maker (AMM).

Automated market makers (AMMs) are represented through smart contracts managing liquidity funds that traders can trade. AMM determines the price of any asset that is traded on a decentralised exchange based on the demand and supply for that asset using sophisticated computer algorithms.

Liquidity funds contain various types of tradable cryptoassets. Any investor can deposit, for example, Ethereum (ETH) and Uniswap (UNI) in the protocol and collect passive income from business fees every time someone exchanges ETH for UNI or UNI for ETH.

The Main Advantages of Uniswap

The main reasons for the growing popularity of the decentralised Uniswap exchange include:

  • Non-custodial– Unlike centralised exchanges, Uniswap is based on the fact that the owners themselves have complete responsibility for managing their assets. Traders interact with the protocol through external wallets over which they have full control.
  • Elimination of KYC: Uniswap is the ideal choice for those who do not want to verify on the stock exchanges and are trying to protect their privacy. Uniswap does not require any identification by ID card, driver’s licence or passport.
  • Access to new cryptoassets – Since adding new tokens on Uniswap is not subject to any lengthy selection process, new cryptoassets with high growth potential will hit the stock exchange almost immediately.
  • Low fees – Uniswap has significantly lower fees than most centralised exchange entities. Currently, the fees on the protocol are 0.3%. Although in reality, these fees are considerably higher, mainly due to gas fees in the Ethereum network. However, this problem could be solved in the future by the second layer protocols of Uniswap on the Ethereum network or the transition of Etherum to its upgraded version Ethereum 2.0.
  • Friendly user interface – Uniswap is visually one of the most straightforward and most transparent stock exchanges on the market. Uniswap does not require the creation of orders or a complicated setup of trading orders.

Liquidity Funds and Liquidity Providers

Each Uniswap liquidity fund is a trading venue for a pair of tradable ERC-20 tokens. Whenever a new liquidity fund agreement is created, the initial value of the fund is 0 – there are no assets in the fund. Because Uniswap is an open-source protocol, anyone can become a liquidity provider on this protocol.

The main challenge of decentralised protocols, such as Uniswap, lies in liquidity crowdsourcing. Liquidity providers play an important role in these platforms by investing their assets in funds. Liquidity providers insert two types of tokens of equivalent value (e.g. ETH-ERC20 token or two ERC-20 tokens) into smart contracts, which manage liquidity funds.

In return, the smart contract issues a liquidity token to the liquidity provider, representing his share in the total liquidity fund. These liquidity tokens can be exchanged back for their share in the liquidity fund at any time.

Suppose traders want to trade a certain currency pair. They pay a fee for access to the liquidity fund, which is distributed among the liquidity providers based on their share in relation to the fund’s total value. As a result, liquidity providers collect passive income for depositing their assets in funds.

Pricing on Uniswap

Uniswap uses a tool called „Pricing Oracle“ to obtain transaction data and aggregate prices for individual trading pairs. Pricing Oracle is a decentralised system fully resistant to price manipulation by external entities.

For example, if a trader wants to buy ETH for USDT, he must apply for access to the ETH/USDT liquidity fund to trade. It should be noted that the liquidity fund is designed to maintain equivalent ETH and USDT values and to ensure a constant balance. If a certain amount of ETH is withdrawn from the liquidity fund, this will cause a decrease in the total ETH supply in a given trading pair – which in turn will cause an increase in the price of ETH to USDT.

Pricing Oracles collects all this transaction data and aggregates it to obtain the price of each trading pair available on the Uniswap platform.

Potential Risks

The following risks are also associated with the use of decentralised exchanges:

  • Fraudulent projects – Although access to new assets with low market capitalization can sometimes be advantageous, it is not always the case. Since almost any ERC-20 token can reach Uniswap, there is a high probability of some fraudulent projects on the platform. That is why you need to be careful when trading new tokens and look for more information about the given token.
  • Transaction failure: Transaction failure is one of the undesirable phenomena that accompanies decentralised exchanges. The transaction may fail, for example, if the gas fee related to the execution of the smart contract is set so low that it is simply unprofitable for the miners as they can decide not to process the transaction. The problem of transaction failure may also be related to a lack of liquidity in liquidity funds. However, this problem mainly affects tokens with a small market capitalization.
  • Regulatory concerns: The potential risk of decentralised stock exchanges in the future may be posed by regulators who may try to make the use of decentralised stock exchanges illegal.

Native Network Token – UNI

The $UNI token is a native Uniswap protocol token that provides its holders with various benefits. For example, UNI token holders have the right to vote on changes to the protocol.

At the protocol’s inception, 1 billion tokens were issued, 60% of which are distributed to existing community members, and another 40% will be available to team members, investors, and other stakeholders over the next four years.

Final Thoughts

Uniswap is still a relatively new but innovative exchange protocol that allows virtually anyone with an Ethereum-enabled wallet to exchange tokens without interacting with central entities.

Although Uniswap still has its shortcomings and limitations, decentralised exchange technology may have a major impact on token exchange in the cryptocurrency world in the future.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary.

Juraj Forgacs

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Terra – Money of the Future

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The following article will introduce another cryptoasset from our dynamic portfolio – the Terra platform. Terra is an algorithmic blockchain platform that uses stablecoins tied to the money from the traditional world to create a price-stable global payment system.

History

The concept of Terra was created in January 2018 with a vision to facilitate the mass adoption of cryptocurrencies by creating digital assets using blockchain infrastructure that is price-stable against the world’s most important fiat currencies. Blockchain Terra was created by the Korean blockchain company Terraform Labs with the help of the Terra Alliance, supported by 15 Asian e-commerce companies with a total of more than 45 million users.

Terraform Labs was founded by Daniel Shin and Do Kwon, who have extensive experience in e-commerce and finance. Daniel Shin is a graduate of the Wharton School of Economics and has founded several other successful companies in various industries. These include the Chai payment application, the TMON eCommerce platform, and the Fast Track Asia startup company.

What Is Terra?

Terra is a decentralised blockchain infrastructure that uses stablecoins to create an alternative stable monetary system. The Terra network has its native LUNA token while also using Oracle systems and smart contracts to enable users to use programmable internet money in real life. 

The price stability of individual stablecoins is ensured by a price stability algorithm. This algorithm ensures that the money supply of individual stablecoins is regularly updated to preserve their value. Using this algorithm, Terra strives to provide its network users with the lowest possible fees, maximum stability of individual stablecoins and their trouble-free use.

Terra Blockchain was created using Cosmos development tools and the Tendermint Proof-of-Stake consensus algorithm. Cosmos development tools are optimised to allow developers to quickly and efficiently create and run interoperable blockchain applications.

Terra blockchain transactions are settled within seconds. Furthermore, the transaction fees for the execution of smart contracts (so-called gas fees) are significantly lower on Terra blockchain than on, for example, Ethereum blockchain.

Key Characteristics of the Terra Network

The decentralised nature of the Terra blockchain makes it ideal for creating an innovative digital economy. 

Key features of Terra blockchain include:

  • Interoperability: Interoperability is the Terra blockchain’s basic and most important feature. The Terra network is designed to work and collaborate with other blockchains thanks to being part of the Cosmos ecosystem. TerraUSD currently operates, for example, on the Ethereum and Solana platforms. However, the developers of this platform continue to work hard to expand the protocol to other popular blockchains.
  • Programmability: Terra allows programmers to create smart contracts in Rust, Go, or AssemblyScript languages. Using Oracles, developers can also add additional features to their decentralised applications.
  • Financial efficiency: The main mission of the Terra network is to build a transparent financial ecosystem. For example, Terra seeks to reduce or eliminate the need to use credit cards, banks and payment gateways through a single-tiered blockchain.

Terra Stablecoins

Terra partners use Terra stablecoins to enable the use of the Terra network for retail payment services. Stablecoins are a cryptographic version of conventional fiat currencies tied to the value of real-world money. Stablecoins serve as a store of value in the volatile environment of cryptocurrencies.

Terra has launched several stablecoins that are value-linked to traditional money. The most well-known stablecoins issued by Terra include: TerraUSD (UST), TerraCNY, TerraJPY, TerraGBP, TerraKRW, TerraEUR and Terra SDR

Terra stablecoins serve as an innovative digital means of exchange between anyone and anywhere while maintaining the principle of immediate settlement and low fees.

Many Terra business partners use the Terra Station wallet to access the Terra blockchain. Terra Station supports Terra’s native token (LUNA) as well as all of its stablecoins.

Stablecoin UST and the Balancing Mechanism

TerraUSD (UST) is the best known and most powerful stablecoin built on the Terra blockchain. Following its successful launch, UST issuance began in September 2020. UST stablecoin is value-linked at a 1:1 ratio to the US dollar. There is no specific entity or firm behind the UST issue, as the UST monetary stock is controlled algorithmically, with the UST stablecoin market offering being determined by issuing or burning the LUNA token.

UST achieves price stability by algorithmically adjusting its supply according to fluctuations in demand. The increase in demand for UST will be reflected in an increase in the volume of UST’s trades and an increase in its price. As a result, Terra must develop a certain compensatory response to ensure that the price of UST remains stable. In this scenario, UST supply must be increased to compensate for the excess demand. This process is also known as expansion.

The protocol must therefore issue new USTs. Terra achieves this with naturally efficient market forces through the opportunism of individual network entities that can make a simple and risk-free profit by purchasing newly issued TerraUST (worth more than $1) for 1 UST worth the burned LUNA token. In this case, LUNA tokens are burned, and new USTs are issued, which algorithmically strikes a balance between UST supply and demand.

In the opposite scenario, a decrease in demand for UST results in a decrease in transaction activity and a decrease in the price of stablecoin UST below its equilibrium level. In this case, the UST bid needs to be reduced to keep the UST price at $1. This process in the network is called contraction.
Again, individual network users are incorporated into this process. In this case, new LUNA tokens are issued and circulating UST supply is reduced, again striking a balance between UST supply and demand.

Source: Medium

Achieving balance and price stability of individual stablecoins is therefore based on an elastic monetary policy, which, in the event of price deviations, stimulates the entities in the network to arbitrate and profit from instability.

Native Token Luna

Luna is a native token of the Terra ecosystem. LUNA is a crucial part of the ecosystem in terms of importance. The LUNA token is primarily used for the operation of security mechanisms that determine the price stability of stablecoins in the network. In addition, the LUNA token is used as a staking tool for Terra network validators through the Proof-of-Stake consensus mechanism.

Terra uses the Proof-of-Stake consensus protocol. In practice, this means that validators in the network approve new transactions and add new blocks to the blockchain. They are rewarded for these activities with the LUNA token. However, becoming a validator in the Terra network is not that easy, as the network has a limited maximum of 100 validators. In this respect, if an entity wants to become a validator, it must have a huge number of LUNA tokens. Other entities in the network can delegate their LUNA tokens to the validator and thus participate in the operation of the network and obtain passive income from it.

The governance model of the Terra network is based on community governance. This means that network validators have the right to vote on important changes and updates in the network. These updates may include, for example, various technical changes, upgrades, or changes in the fee structure. Community governance models are ideal because they provide consensual support for proposals. In addition, any validator can submit proposals for the community to vote on.

Chai

Chai is the fastest growing e-wallet in Korea operating on Terra blockchain, with more than 2.4 million active users. Chai is currently widely integrated by leading traders in Korea and also operating in an offline version by recharging Chai’s debit card and through offline retail integrations. Chai has already integrated 14 of the 15 strongest banks in Korea.

Source: Chaiscan

Mirror Protocol

One of the decentralised applications that use TerraUSD is Mirror Protocol. This protocol makes it possible to issue synthetic assets on the blockchain, replicating asset prices in real-time. This allows users, for example, to trade in synthetic assets, such as the shares of a company, without the user having to actually own them.

Source: Mirror Protocol

This protocol was designed to support the implementation of true stock exchange tradable assets on the blockchain.

The issuance of a synthetic asset requires the issuer of the asset to lock 150% of the value of the issued synthetic asset in the form of security through TerraUSD. If the price of the synthetic asset exceeds the value of the locked collateral, it will be liquidated. The price of synthetic assets is determined through oracles, which monitor stock exchange asset prices in real-time.

Anchor Protocol

Anchor protocol is another decentralised application running on the Terra blockchain. This protocol is more aimed at crypto beginners. With the Anchor Protocol, entities can use savings products from decentralised finance safely and easily.

Source: Anchor protocol

The Anchor protocol offers users low-volatility returns on Terra stablecoin deposits. This return is defined by the relationship between a lender seeking to achieve stable returns on their stablecoins and a borrower seeking to borrow stablecoins. For a borrower to borrow stablecoins, they must set up the so-called tied assets (bAssets) as collateral. After setting up the collateral, they will borrow stablecoins based on the LTV loan ratio (Loan-To-Value ratio).

Stored stablecoins are called Anchor Terra (aTerra). ATerra tokens are exchangeable for the initial deposit (initially deposited stablecoins) and the accrued interest over time, allowing users to collect interest only by depositing their free funds in the log.

Smart Money – The Money of the Future

Terra’s algorithmic money supply mechanisms are a unique and innovative asset in the cryptocurrency industry. Also, the Terra blockchain concept is inherently unique and innovative, delivering the true realisation of the essence of decentralised finance.

Terra is already very popular with traders in Korea, but it is also gaining prominence on a global scale. We can therefore expect to hear more and more about this innovative project. In addition, Terra blockchain developers plan to expand the number of blockchains on which Terra will operate. It’s already live on Ethereum and Solana, and other top-performing blockchains should be added soon.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks. 

You can start with a deposit of just €50.

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Aave – Decentralised Loan System

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The following blog will introduce you to another cryptoasset from our dynamic portfolio – the Aave protocol. Aave is a decentralised money market protocol that allows individual users to borrow money without the need for trust in another economic entity. Aave offers a wide range of cryptocurrencies with variable and stable interest rates.

History

The origins of the Aave protocol date back to 2017, when Finnish developer Stani Kulechov and his team of developers jointly launched the peer-to-peer lending platform ETHLend through an initial coin offering (ICO). The goal was to create a modern lending concept where users can borrow cryptocurrencies from each other.

Although ETHLend was a new and innovative idea in the world of finance, the platform and its $LEND token have declined since 2018 due to the bear market. The main reason for the collapse of this platform was the lack of liquidity caused by the massive outflow of capital from the market. Furthermore, the platform experienced increasing problems with matching supply and demand for loans due to declining liquidity.

Due to the bearish period in the cryptocurrency market, the ETHLend team developed the concept of their new product and, in 2020, launched an innovative decentralised protocol called Aave.

Kulechov himself later admitted that the arrival of the bear market was one of the best things that could have happened to him and his team. According to Kulechov, this was a sign and a „second chance“ to rework the concept of decentralised loans in cryptocurrencies. This second chance led to the Aave Protocol, which is currently the largest protocol in decentralised finance.

What is Aave?

Aave is a money market based on the Ethereum blockchain. On one side, there are entities that lend their free funds and collect interest, and on the other side are the entities that borrow these funds at a certain, pre-arranged (fixed) or variable interest rate.

The new and improved Aave concept brought with it algorithmic loan processing. In practice, loans are obtained from liquidity pools instead of being individually matched to individual creditors and borrowers peer-to-peer.
Aave makes it easy to lend via stablecoins and various other altcoins. However, under the system of algorithmic loan pooling, borrowers must enter collateral in the protocol that is higher than the amount they borrow.

Source: Aave

If a borrower applies for an Ether loan worth $10, he must enter collateral worth more than $10 in another cryptocurrency. To account for the volatility of crypto markets, the protocol has an Aave algorithm that automatically liquidates the debtor’s collateral if its value falls below a specified ratio. Each loan in the network is managed by a smart contract whose functionality and source code are verified by an independent third-party audit.

Key Features of Aave

  • Open-source – The Aave protocol is open source. It means that anyone can see, use, or implement the original source code created by the Aave team.
  • Non-Custodial – The Aave protocol is a non-custodial protocol, which means that the Aave platform itself never holds or otherwise owns your cryptoassets. Maintaining full ownership and control of your cryptoassets is an essential and key part of truly decentralised finance.
  • Trustless – The Aave protocol allows you to borrow funds without having to trust another person or institution.

How Does Aave Work?

Using the Aave protocol, entities with free funds can collect passive interest on their digital assets. 

Lenders can deposit their tokens in liquidity funds and receive secondary interest tokens, also known as aTokens. For example, if a user enters USDC into the stablecoin protocol, he collects a secondary token, aUSDC, in return. These secondary tokens are always issued upon deposit and liquidated when the original asset is withdrawn from the protocol. The aTokes are issued in a 1:1 ratio to the underlying asset, which the creditor enters in the protocol.

The interest earned through aTokens is variable and varies depending on the basic principle of the market mechanism – demand and supply. As creditors‘ deposits operate in a „global liquidity market“, the interest rates naturally increase when demand for loans is high. The protocol seeks to attract liquidity providers with high interest rates to inject more capital. On the other hand, if there is excess liquidity in the pool, interest rates are low, which motivates entities to take a cheap loan.

The Aave protocol offers users two types of interest rates for both the lender and the borrower:

  • Variable interest rates – An interest rate calculated algorithmically based on the demand and supply of assets deposited in a liquidity pool.
  • Fixed interest rates – An interest rate that represents the 30-day interest average of an asset.

A key factor in decentralised loans through Aave is that the protocol does not require any personal identification. The protocol does not care about your credit history, does not deny you a loan if you have enough collateral, and does not take into account any ethnic, racial or other prejudices.

How to Borrow Through Aave

To borrow through the Aave protocol, it is first necessary to secure a loan with sufficient collateral. For decentralised loans, the amount locked must always be greater than the amount borrowed. For Aave, the loan amount is determined using the Loan-To-Value (LTV) indicator, which determines how much can be borrowed against the collateral provided. Currently, the loan amount ranges from 50% to 75% of locked collateral, depending on the asset. 

For example, if a user wants to borrow Ethereum, which has an LTV of 75%, and locks in collateral worth 1 ETH, they can borrow a maximum of 0.75 ETH.

The guarantee of repayment of crypto loans is secured in the system through locked collateral. Suppose the borrower decides not to repay their loan. In that case, its credit position will be liquidated, and the collateral will be automatically sold based on an operation through a smart contract. The sold collateral will then cover all processes and costs related to this loan.

Aave has hedge liquidity pools on the Balancer and Uniswap protocols, designed to address liquidity risk. In this way, the protocol seeks to ensure that users can withdraw their funds at virtually any time. In addition, Aave uses an Oracle system Chainlink to collect and update the prices of individual assets.

Flash Loans

Quick loans are the first option for an uncollateralized loan in the DeFi ecosystem. Quick loans are designed so that the user can borrow immediately and easily without entering collateral, provided that the loan is repaid within a single transaction block.

If the loan is not repaid within the transaction block, the entire transaction will be cancelled, and the funds will be returned to the liquidity pool. 

The Aave Flash Loan process takes place within a single transaction on the Ethereum blockchain. It relies on the fact that transactions on Ethereum can be returned, thus cancelling all orders if the borrowed capital is not repaid.

Aave Flash Loan consists of three steps:

  • The user borrows tokens from one of the Aave loan funds 
  • The loan parameters are defined and executed on the Ethereum blockchain
  • The user must repay the borrowed amount + a fee of 0.09% of the borrowed amount

If the last condition is met, the entire transaction passes and is permanently added to the Ethereum blockchain. If the last condition is not met, the entire transaction is rejected, and all network orders are cancelled (including the first step, where the user borrows from Aave) as if no transaction had ever taken place.

These quick loans are most often used by arbitrage traders to take advantage of short-term price differences of assets on individual stock exchanges and platforms.

Flash loans are a futuristic idea in the decentralised finance sector. These loans are perhaps the greatest invention and benefit of the Aave protocol with enormous potential. Because the code for these loans is open source, other developers can be expected to use it on their alternative platforms in the future.

Aave Arc

In January, the Aave Protocol launched Aave Arc, aimed at institutional investors.

Source: AAVE

Aave Arc’s goal is to provide institutional investors facing strict regulatory requirements with access to decentralized finance. The Aave Arc protocol uses private liquidity pools to provide institutional investors with direct access to decentralized markets. These pools are separated from the existing liquidity groups on Aave.

The launch of this version for institutional investors has marked a breakthrough in the decentralised finance sector.

„Aave Arc allows institutions to interact with the Aave Protocol the same way any other user would, but on their own separate and permissioned liquidity pool where every user has been verified,“ said Stani Kulechov, founder & CEO of Aave for Blockworks.

Native Network Token – Aave

The Aave protocol has its own native token called AAVE. The ETHLend project first sold $LEND tokens through an initial coin offer (ICO), totalling more than $16 million. In October 2020, these tokens were exchanged for current native AAVE tokens at a ratio of 1 AAVE = 100 LEND. At present, the value of one token is more than $90, and the total market capitalization of the tokens exceeds $1.2 billion.

The AAVE token is an Ethereum-based ERC-20 token. There are several powers associated with the ownership of this token. For example, the owners of these tokens have the right to vote on changes and proposals to the Aave Protocol. One token represents one vote.

Aave token can be staked, which means that the storage of the token in the so-called „Safety Module“ on the basis of a smart contract ensures an increase in the security and liquidity of the entire protocol. This module works as a kind of decentralised insurance fund, which is designed to secure the protocol against any risky events. For locking these tokens, their owners collect rewards in the form of additional Aave tokens. The remuneration is around the level of 6% p.a.

The Aave token is used to pay fees within the protocol and burned after being used to pay the fees.

The maximum offer of Aave tokens is set at 16 million tokens, while 13.7 million tokens are already in circulation.

Aave – King of DeFi?

Features such as fast loans, switching between variable and fixed interest rates, or a simple and friendly user environment make the Aave protocol the most popular DeFi lending platform today. After all, no government or institution has crowned Aave as such but the users themselves, who have now locked more than $8 billion into the protocol.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.

Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary.

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Polkadot – Decentralised Web 3.0

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This series will introduce you to all cryptocurrencies that are a part of our dynamic portfolio. The following article will introduce you to Polkadot – a cryptocurrency whose popularity is growing each day, especially due to its great innovative potential and the possibility of becoming a true and respected competitor of Ethereum.

History

Behind Polkadot stands a trio of founders headed by Dr Gavin Wood, one of the important figures of Ethereum’s early stages. Wood was not only a co-founder of Ethereum but also its CTO and lead developer. He invented the Solidity language, which is still used to write smart contracts.

The whitepaper of this cryptocurrency was published back in October 2016. However, the company didn’t organise a public offering of tokens until 2017 during the ICO fewer. The founders managed to raise an incredible $144.63 million via the ICO (Initial Coin Offering).

In terms of the amount of capital raised in the initial phase, this is one of the most successful projects in history. Subsequently, two more investment rounds took place in 2019 and 2020, where investors managed to raise an additional $43 million, which enabled the official launch of Polkadot. The Genesis block network was established on 26 May 2020, when the network was officially launched.

What Is Polkadot?

Polkadot is a network protocol that allows the transmission of any data (not only tokens) through blockchains. It is a new generation of blockchain that enables cross-communication (interoperability) by connecting multiple blockchains into a single network. The basis of the whole ecosystem is the optimisation of a solution in which several blockchains will be able to operate on a single common foundation. At the same time, each of these blockchains will be able to focus on solving a specific problem for which it will be optimised.

The Polkadot cryptocurrency ecosystem is expanding every day as developers all over the world become increasingly aware of the benefits of this flexible, efficient, and secure network. Combining several specialised blockchains dedicated to solving a specific problem into one highly scalable interconnected network will enable each blockchain to reach its full potential.

On the Polkadot platform, projects no longer have to compete with each other. Blockchains in the Polkadot network can cooperate and prepare together for independence from the centralised world.

Relay Chain

The relay chain is the main chain of the Polkadot network. We can consider it a building block of the whole ecosystem. Polkadot uses the NPoS (Nominated Proof-of-stake) consensus mechanism. Therefore, all validators in the network stake DOT tokens directly through the Relay Chain and thus participate in its validation and security. Relay Chain enables fast real-time transactions throughout the network and is a kind of communication „node“ between the parachains in the Polkadot network. However, the Relay Chain itself does not have the functionality of smart contracts.

Source : Polkadot.network

Substrate Framework

An important functionality of the Polkadot network is the Substrate framework developed by Parity. Its task is to significantly simplify creating, deploying, upgrading and experimenting with different types of blockchains aimed at solving a specific problem. 

Running your own blockchain was disproportionately difficult and costly in the past, and several projects failed on this issue. The Substrate framework’s main task is to facilitate the accompanying processes and enable decentralised applications developers to focus more on innovation and development than on building and maintaining the blockchain itself. Edgeware is an example of a project built on the Substrate framework.

Parachain and Parathreads

Parachains are independent blockchains that run on Relay Chaine, providing various network-specific functions for the Polkadot network. Each parachain within the network may have a different function – one may provide an environment for smart contracts, another may provide payments between blockchains, for example, through its own stablecoins, and another may be security and anonymity oriented. Thus, different parachains may arise on Polkadot, and each will deal with its own specific problem.

Parachain usually has its own management and team of developers. Any parachain that wants to be part of the Relay Chain must first win the auction in the Polkadot ecosystem. The winner of the auction will always be the parachain with the largest number of DOT tokens in the given auction.

The trick is that the project must either purchase the tokens (which positively affects the price) or rent them from DOT community users who see potential in the project. The reward for the lessors can then be an interest income or newly created tokens of that particular winning parachain.

Parathreads work on a very similar principle to parachains. The main difference between them lies in their economic-operational nature. Parathreads are more advantageous for projects and solutions that don’t require a constant connection to the network. For example, Parathread can be used for a one-time network connection to obtain the necessary data.

What Is the Purpose of Bridges? 

The basic technology of interoperability of each blockchain is the construction of the so-called bridges. An important part of Polkadot is also the focus on possible communication with blockchains that operate outside the Polkadot ecosystem. Polkadot tries to solve this problem by implementing parachains focused on interoperability solutions. The essence of the whole dilemma is for the Polkadot network to be able to communicate with other blockchains in the future, such as Ethereum or Cardano.

The Forkless Upgrade Technology

The „forkless upgrade“ technology is one of the most significant technological changes that Polkadot brings to the world of cryptocurrencies. It is a technology that eliminates the need for forks through a special governance model built directly into the Relay Chain and implemented by a transparent network mechanism.

Under this mechanism, network participants will be able to decide on any changes regarding the development of this cryptocurrency. Also, each of the blockchains operating on Polkadot will have the opportunity to create their own governance voting model, allowing each blockchain to solve the problems through internal decision-making mechanism. Therefore, the entire network will not need to be forked.

Kusama and Polkadot

Kusama, also known as the „Polkadot Canary“, is a sister network of Polkadot built on the same principle as Polkadot itself. While Polkadot is based on flawlessness, Kusama acts as a quasi- „testnet“ of the Polkadot network.

Source : Polkadot.network

Kusama provides an optimised environment for testing innovations and changes before their direct implementation on Polkadot itself. It also acts as a blockchain to which various interesting projects can join, as is the case with Polkadot. Kusama may be a cheaper and more convenient alternative for individual parachains in the future.

DOT Token

DOT is a native Polkadot token. For example, ETH is a native Ethereum token, or ADA is a native Cardano token. The Polkadot token performs three basic functions:

  • Governance : DOT token holders have full control over the network protocol and can vote on protocol’s future. They can decide, for example, the dynamics of auctions or the amount of network fees.
  • Staking : Because Polkadot uses Proof-of-Stake as a consensus mechanism, the DOT token is held by various groups of investors who want to be part of the network and thus participate in development and decision-making. Investors can stake the DOT tokens and collect rewards for it.
  • Bonding : DOT tokens will be used for adding new parachains. If a new parachain joins the Polkadot ecosystem, its DOT tokens will be locked until the parachain is no longer used.

DOT Token’s Inflationary Character

Polkadot tokens are not deflationary. This means that they do not have a predetermined amount in circulation such as Bitcoin, Litecoin, or Cardano. From this point of view, we can classify Polkadot into inflationary cryptocurrencies, including Ethereum, Solana, or IOTA. Current token inflation is at the level of 10% per year, while staking of tokens brings validators an average annual yield of up to 13%.

Current Stage: Polkadot Rollout and Slot Auctions

Polkadot is currently running slot auctions as new projects are securing their slots. The first five parachains went live in December 2021: Acala, Moonbeam, Parallel Finance, Astar, and Clover. They were joined by another six in March, bringing their total to 11. This time next year, Polkadot will be home to over 40 individual blockchains. Presently, the Relay Chain can support anywhere from 100 to 250 blockchains, so there is plenty of room for the many projects waiting to join its ecosystem. Kusama already has over 30 parachains up and running. Gavin Wood’s vision of the vast interconnected network of cooperating blockchains is becoming a reality.

Invest With Fumbi Today

If you are considering investing in cryptocurrencies, Fumbi is here for you. Our algorithm-administered portfolio accurately tracks the growth of the entire cryptocurrency market.
Fumbi is the first of its kind to offer cryptocurrencies to the general public, even at small deposits. Investing in cryptocurrencies through Fumbi is very easy and minimises risks. You can also invest in the cryptocurrency Polkadot individually through our Fumbi Custom product.

You can start with a deposit of just €50.

INVEST WITH FUMBI

Did you come across a term you didn’t understand? Don’t worry. All essential terms regarding cryptocurrencies are in our Fumbi Dictionary.

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