Monday, October 25, 2021

Meme Coins

Dogecoin, the first meme-coin, launched in 2013, was once considered an ironic gimmick and has now gained quite a reputation, becoming the 10th largest cryptocurrency with a $32.54 billion market capital on October 19, according to CoinMarketCap.

However, the pioneering meme currency has faced stiff competition from Shiba Inu and other floki-themed coins. So what's the fuss about these new floki coins? But first, let's understand what meme coins are.

Meme coins are cryptocurrencies, inspired by popular social media jokes, sarcasms and puns.

Currently there are about 124 meme coins, according to the Coinmarketcap website. Dogecoin's success in 2021 burgeoned the birth of many more meme coins imitating Doge.

* Meme coins are created with no specific use or inherent value, to gain quick high profits. In comparison, mainstream cryptocurrencies like Bitcoin are created with specific technology to boost trading and transactions in the crypto market.

* They are way more volatile than other cryptocurrencies as whales can lead to sudden rise and fall in their prices.

* For instance, Shiba Inu rose 230 per cent in 7 days following the sale of 6.3 trillion Shib tokens in the first 2 days of October.

* Their performance and fame are mostly linked with social media support and hype created by their influencers and they are highly community-driven.

* Many meme coins have unlimited stock that have a long-term impact on their prices.

* These coins are launched quickly, meaning they can be lost in the long term.

* According to the CoinMarketCap website, DogelonMars, MonaCoin and HogeFinance are among the top 10 cryptocurrencies in terms of market capital after Dogecoin and Shiba Inu on October 19.

Floki-themed cryptocurrencies

Floki- themed cryptocurrencies are dog-meme coins with the name Floki created after Elon Musk tweeted to name his Shiba Inu dog Flokifrunk on June 25. Some of the floki-themed coins include Shiba Floki, Floki Shiba, Flokinomics, Floki Inu and Baby Floki Inu.

Dogecoin-killer

Shiba Inu was launched in 2020 as a self-proclaimed killer of Dogecoin and aims to become an Ethereum-based substitute of Doge.

* Shiba Inu was created by a pseudonymous founder Ryoshi Inu.

* The meme coin was created to capitalize on the soaring popularity of the leading Dogecoin.

* The meme-coin has the second highest market capital of $11.12 billion after Dogecoin on October 19, according to CoinMarketCsp.

* It has three tokens namely Leash, Bone and Shib and it's retail demand has increased since the initial listing.

Shiba Inu was recently listed on India's oldest crypto exchange ZebPay on October 13 for trading and investing.

The triggering effect of the tweets

Though tweets are not meant to be taken as a price determinant for cryptos, Musk's tweets have been seen to trigger the prices of the meme coins since the Dogecoin days.

* The very famous tweet of sending SpaceX satellite Doge-1 to the moon on May 10, 2021 helped gain Dogecoin billions of dollars.

* Musk's tweet on May 19 2021– 'How much is that Dogecoin on the window'-- almost doubled the price of Dogecoin from $ 0.29 to $0.40 and Bitcoin fell below $40, 000 on the same day following the frantic sale of Doge.

* Musk's September 13 tweet 'Floki has arrived' with the pic of his Shiba Inu puppy, surged the price of Shiba Floki coins to nearly 958.9 and Floki Inu rose 60 per cent in 24 hours.

* The recent tweet on October 4, with a picture of Musk's puppy Floki on the hood of his Tesla car shot up the prices of Shib coins to 55 per cent and 22.13 per cent increase in Floki Inu's price.

Shiba Inu Coin (SHIB)

 Shiba inu (SHIB) is an Ethereum-based ERC-20 token that has risen in popularity this year, largely because of its dog-themed ecosystem, speculation on its price by retail investors and strong community engagement. The official Shib Twitter account, for example, has over 1.2 million followers – more than leading crypto companies such as Cardano, Kraken and Solana.

The digital asset was inspired by the Japanese breed of dog of the same name, which sparked a viral meme trend in 2013 and subsequently led to the creation of the infamous dogecoin cryptocurrency. Shiba inu, along with dogecoin and the hundreds of other pet-inspired digital assets, have become collectively known in the industry as “meme coins.”

Ordinarily, a meme coin offers owners little to no utility compared with more established cryptocurrencies such as bitcoin and ether. In the case of shiba inu, however, there seems to be a legitimate attempt by the development team to provide more value to SHIB holders, including launching a decentralized exchange in July.

Notably, the desire to provide more utility to users has seen the self-proclaimed “doge killer” become the second-most popular meme coin in the market. And although the market capitalization of dogecoin is three times that of shiba inu at press time, the underdog project has managed to create and build up a large community in less than two years.

Key features of shiba inu

So other than being another doggy-themed cryptocurrency, what is the shib coin all about?

The first notable thing about Shiba Inu is its total supply. A total of 1 quadrillion SHIB tokens were minted during its official launch in 2020. A quadrillion is a number followed by 15 zeros. Some 50% of the supply of shiba inu was locked in Uniswap SHIB/ETH liquidity pool – a decentralized exchange where users deposit pairs of assets into liquidity pools that other investors can trade against. That is known as an automated market maker system.

The other 50% of shib token’s supply was donated to Ethereum’s founder, Vitalik Buterin, who burned a vast majority of them by sending the tokens to a dead crypto wallet address. The remaining tokens (worth $1.2 billion at the time) were donated to an Indian COVID-19 relief cause and other charities.

The Shiba Inu universe also consists of a decentralized exchange, called Shibaswap, and two other tokens, “LEASH” and “BONE,”

Finally, the community is also championing a rescue campaign for Shiba Inu dogs. All you need to do is make purchases on Amazon through smile.amazon.com and select Shiba Inu Rescue Association (a 501(c)3 as your preferred nongovernmental organization). This will allow a percentage of your purchase to be donated to a cause focusing on helping Shiba Inu dogs in need.

Thursday, October 21, 2021

Wednesday, October 20, 2021

What is NFT?

 

What is NFT?

NFT, or Non-Fungible Token, is a concept that is related to fungible tokens. If we compare it to the real world, fungible tokens are like currency: if you have $500 USD, you can divide it up, spend it in parts, get spare change, and continue to make more purchases with the change you receive. On the other hand, non-fungible tokens are unique and indivisible. Some examples could be: artworks, treasures in videogames, property deeds, or even certificates to prove wine provenance. When you trade a non-fungible token, you no longer own it, and since it is indivisible, there is no concept of spare change.

NFTs are issued on distributed ledgers on the blockchain. As such, as long as the ledger and the chain still exist, the record stating your NFT ownership will be intact. It will not be tampered with, removed, or disappear. When an NFT is issued, the contract will contain identifying information of the token including: the ID of the token, and a way to link to the assets it represents. These are the 2 main reasons why NFTs are optimal to prove a person’s ownership of an asset:

  1. The information is unalterable once it is on the blockchain
  2. NFT tokens are intrinsically unique, immutable, and indivisible

Similarly, NFT’s unique properties allow for it to be used in videogames to represent treasures or characters in the game. The most prominent example would be that of CryptoKitties. CryptoKitties is a blockchain game on Ethereum that allows players to buy, breed, collect and sell virtual cats. In the art world, NFTs can be applied to paintings, music copyrights, and various collectibles. A notable example would be encryption artist Beeple’s sale of their work: EVERYDAYS: THE FIRST 5000 DAYS, that was auctioned off for $69.34 million USD. NFTs are also commonly used in other industries in the form of digital certificates, identity authentication, and domain names.

So, how did the concept of NFTs come about? It started towards the end of 2017 when Dieter Shirley, CTO of CryptoKitties, released EIP-721 (Ethereum Implementation Proposal 721.) EIP-721 was different from ERC20 standard, which was very popular at the time and had highly sought-after ICO tokens. EIP-721 proposed, for the first time, tokens that were not interchangeable. Soon after, the concept of NFTs started to gain traction in different applications, including CryptoKitties. Nowadays, it is increasingly common to see NFT auctions hitting record numbers in the news.

Sunday, November 8, 2020

How to Calculate Return on Investment (ROI)

 

How to Calculate Return on Investment (ROI)

ROI is a way to measure an investment's performance. As you'd expect, it's also a great way to compare the profitability of different investments. Naturally, an investment with a higher ROI is better than an investment with a lower (or negative) ROI. Curious how to measure this for your own portfolio? Let's read on.

 

Introduction

Whether you're day trading, swing trading, or a long-term investor, you should always measure your performance. Otherwise, how would you know if you're doing well? One of the great benefits of trading is that you can rigorously measure how you're doing with objective metrics. This can greatly help eliminate emotional and cognitive biases. 

So, how is this useful? Well, the human mind tends to build narratives around everything as it tries to make sense of the world. However, you can't "hide" from numbers. If you're producing negative returns, something should be changed in your strategy. Similarly, if you feel like you're doing well but the numbers aren't reflecting that, you're probably a victim of your biases.

We've discussed risk managementposition sizing, and setting a stop-loss. But how do you measure the performance of your investments? And how can you compare the performance of multiple investments? This is where the ROI calculation comes in handy. In this article, we'll discuss how to calculate return on investment (ROI).

 

What is return on investment (ROI)?

Return on investment (ROI) is a way to measure an investment's performance. It also can be used to compare different investments.

There are multiple ways to calculate returns, and we'll cover some of them in the next chapter. For now, though, it's enough to understand that ROI measures the gains or losses compared to the initial investment. In other words, it's an approximation of an investment's profitability. Compared to the original investment, a positive ROI means profits, and a negative ROI means losses.

ROI calculation applies to not just trading or investment, but any kind of business or purchase. If you plan to open or buy a restaurant, you should do some number crunching first. Would opening it make sense from a financial perspective? Calculating an estimated ROI based on all your projected expenses and returns may help you make a better business decision. If it seems like the business would turn a profit in the end (i.e., have a positive ROI), it may be worth getting it started.

Also, ROI can help evaluate the results of transactions that already happened. For example, let's say you buy an old exotic car for $200,000. You then use it for two years and spend $50,000 on it. Now suppose that the car's price goes up on the market and you can now sell it for $300,000. Not only did you enjoy this car for two years, but it also brought you a sizable return on your investment. How much would that be exactly? Let's find out.

 

How to calculate return on investment (ROI)

The ROI formula is quite simple. You take the current value of the investment and subtract the original investment cost. Then, you divide this sum by the original cost of the investment.

ROI = (current value - original cost) / original cost

So, how much profit would you make by selling the exotic car?

ROI = (300,000 - 200,000) / 200,000 = 0.5

Your ROI is 0.5. If you multiply it by 100, you get the rate of return (ROR).

0.5 x 100 = 50

This means that you made a 50% gain on your original investment. However, you need to take into account how much was spent on the car to get the full picture. So, let's subtract that from the current value of the car:

300,000 - 50,000 = 250,000

Now, you can calculate ROI while taking into account the expenses:

ROI = (250,000 - 200,000) / 200,000 = 0.25

Your ROI is 0.25 (or 25%). This means that if we multiply your cost of investment ($200,000) by your ROI (0.25), we can find the net profit, which is $50,000.

200,000 x 0.25 = 50,000

 

The limitations of ROI

So, ROI is very easy to understand and brings a universal measure of profitability. Are there any limitations? Sure.

One of the biggest limitations of ROI is that it doesn't take into account the time period. Why does this matter? Well, time is a crucial factor for investments. There could be other considerations (like liquidity and security), but if an investment brings 0.5 ROI in a year, that's better than 0.5 ROI in five years. This is why you may see some talking about annualized ROI, which represents the investment returns (gains) you could expect over the course of a year.

Still, ROI won't take into account other aspects of an investment. A higher ROI doesn't necessarily mean a better investment. What if you can't find anyone willing to buy your investment and get stuck with it for a long period of time? What if the underlying investment has poor liquidity?

Another factor to consider is risk. An investment might have a very high prospective ROI, but at what cost? If there's a high chance that it goes to zero, or that your funds become inaccessible, then the prospective ROI isn't all that important. Why? The risk of holding this asset for a long time is very high. Sure, the potential reward could also be high, but losing the entire original investment is certainly not what you want.

Just purely looking at ROI won't give you insights into its safety, so you should consider other metrics as well. You could start by calculating the risk/reward ratio for each trade and investment. This way, you can get a better picture of the quality of each bet. In addition, some stock market analysts may also consider other factors when evaluating potential investments. These can include cash flows, interest rates, capital gains tax, return on equity (ROE), and more.

Thursday, September 24, 2020

The Complete Beginner's Guide to Decentralized Finance (DeFi)

What is Decentralized Finance (DeFi)?

Decentralized Finance (or simply DeFi) refers to an ecosystem of financial applications that are built on top of blockchain networks. 

More specifically, the term Decentralized Finance may refer to a movement that aims to create an open-source, permissionless, and transparent financial service ecosystem that is available to everyone and operates without any central authority. The users would maintain full control over their assets and interact with this ecosystem through peer-to-peer (P2P)decentralized applications (dapps).

The core benefit of DeFi is easy access to financial services, especially for those who are isolated from the current financial system. Another potential advantage of DeFi is the modular framework it is built upon - interoperable DeFi applications on public blockchains will potentially create entirely new financial markets, products, and services. 

This article will provide an introductory dive into DeFi, its potential applications, promises, limitations, and more.

 

What are the main advantages of DeFi?

Traditional finance relies on institutions such as banks to act as intermediaries, and courts to provide arbitration. 

DeFi applications do not need any intermediaries or arbitrators. The code specifies the resolution of every possible dispute, and the users maintain control over their funds at all times. This reduces the costs associated with providing and using these products and allows for a more frictionless financial system.

As these new financial services are deployed on top of blockchains, single points of failure are eliminated. The data is recorded on the blockchain and spread across thousands of nodes, making censorship or the potential shutdown of a service a complicated undertaking. 

Since the frameworks for DeFi applications can be built in advance, deploying one becomes much less complicated and much more secure.

Another significant advantage of such an open ecosystem is the ease of access for individuals who otherwise wouldn’t have access to any financial services. Since the traditional financial system relies on the intermediaries making a profit, their services are typically absent from locations with low-income communities. However, with DeFi, the costs are significantly reduced, and low-income individuals can also benefit from a broader range of financial services.

 

What are the potential use cases for DeFi?

Borrowing & Lending

Open lending protocols are one of the most popular types of applications that are part of the DeFi ecosystem. Open, decentralized borrowing and lending have many advantages over the traditional credit system. These include instant transaction settlement, the ability to collateralize digital assets, no credit checks, and potential standardization in the future. 

Since these lending services are built on public blockchains, they minimize the amount of trust required and have the assurance of cryptographic verification methods. Lending marketplaces on the blockchain reduce counterparty risk, make borrowing and lending cheaper, faster, and available to more people.

 

Monetary banking services

As DeFi applications are, by definition, financial applications, monetary banking services are an obvious use case for them. These can include the issuance of stablecoins, mortgages, and insurance.

As the blockchain industry is maturing, there is an increased focus on the creation of stablecoins. They are a type of cryptoasset that is usually pegged to a real-world asset but can be transferred digitally with relative ease. As cryptocurrency prices can fluctuate rapidly at times, decentralized stablecoins could be adopted for everyday use as digital cash that is not issued and monitored by a central authority. 

Largely because of the number of intermediaries needing to be involved, the process of getting a mortgage is expensive and time-consuming. With the use of smart contracts, underwriting and legal fees may be reduced significantly.

Insurance on the blockchain could eliminate the need for intermediaries and allow the distribution of risk between many participants. This could result in lower premiums with the same quality of service. 

If you’d like to read more on the subject of blockchain and banking, we recommend reading our article How Blockchain Technology Will Impact the Banking Industry.

 

Decentralized Marketplaces

This category of applications can be challenging to assess, as it is the segment of DeFi that gives the most room for financial innovation. 

Arguably, some of the most crucial DeFi applications are decentralized exchanges (DEXes). These platforms allow users to trade digital assets without the need for a trusted intermediary (the exchange) to hold their funds. The trades are made directly between user wallets with the help of smart contracts. 

Since they require much less maintenance work, decentralized exchanges typically have lower trading fees than centralized exchanges. 

Blockchain technology may also be used to issue and allow ownership of a wide range of conventional financial instruments. These applications would work in a decentralized way that cuts out custodians and eliminates single points of failure.

Security token issuance platforms, for example, may provide the tools and resources for issuers to launch tokenized securities on the blockchain with customizable parameters.  

Other projects may allow the creation of derivatives, synthetic assets, decentralized prediction markets, and many more.

 

What role do smart contracts have in DeFi?

Most of the existing and potential applications of Decentralized Finance involve the creation and execution of smart contracts. While a usual contract uses legal terminology to specify the terms of the relationship between the entities entering the contract, a smart contract uses computer code.

Since their terms are written in computer code, smart contracts have the unique ability also to enforce those terms through computer code. This enables the reliable execution and automation of a large number of business processes that currently require manual supervision.

Using smart contracts is faster, easier, and reduces risk for both parties. On the other hand, smart contracts also introduce new types of risks. As computer code is prone to have bugs and vulnerabilities, the value and confidential information locked in smart contracts are at risk.

 

What challenges does DeFi face?

·       Poor performance: Blockchains are inherently slower than their centralized counterparts, and this translates to the applications built on top of them. The developers of DeFi applications need to take these limitations into account and optimize their products accordingly.

·       High risk of user error: DeFi applications transfer the responsibility from the intermediaries to the user. This can be a negative aspect for many. Designing products that minimize the risk of user error is a particularly difficult challenge when the products are deployed on top of immutable blockchains.

·       Bad user experience: Currently, using DeFi applications requires extra effort on the user’s part. For DeFi applications to be a core element of the global financial system, they must provide a tangible benefit that incentivizes users to switch over from the traditional system.

·       Cluttered ecosystem: It can be a daunting task to find the application that is the most suitable for a specific use case, and users must have the ability to find the best choices. The challenge is not only building the applications but also thinking about how they fit into the broader DeFi ecosystem.

 

What is the difference between DeFi and open banking?

Open banking refers to a banking system where third-party financial service providers are given secure access to financial data through APIs. This enables the networking of accounts and data between banks and non-bank financial institutions. Essentially, it allows new types of products and services within the traditional financial system. 

DeFi, however, proposes an entirely new financial system that is independent of the current infrastructure. DeFi is sometimes also referred to as open finance.

For example, open banking could allow the management of all traditional financial instruments in one application by drawing data from several banks and institutions securely. 

Decentralized Finance, on the other hand, could allow the management of entirely new financial instruments and new ways of interacting with them.

  

Tuesday, July 28, 2020

Proof of Stake Explained

What is Proof of Stake?

The Proof of Stake consensus algorithm was introduced back in 2011 on the Bitcointalk forum to solve the problems of the current most popular algorithm in use - Proof of Work. While they both share the same goal of reaching consensus in the blockchain, the process to reach the goal is quite different.

How does it work?

The Proof Of Stake algorithm uses a pseudo-random election process to select a node to be the validator of the next block, based on a combination of factors that could include the staking age, randomization, and the node’s wealth.
It’s good to note that in Proof of Stake systems, blocks are said to be ‘forged’ rather than mined. Cryptocurrencies using Proof of Stake often start by selling pre-mined coins or they launch with the Proof of Work algorithm and later switch over to Proof of Stake.
Where in Proof of Work-based systems more and more cryptocurrency is created as rewards for miners, the Proof-of-Stake system usually uses transaction fees as a reward.
Users who want to participate in the forging process, are required to lock a certain amount of coins into the network as their stake. The size of the stake determines the chances for a node to be selected as the next validator to forge the next block - the bigger the stake, the bigger the chances. In order for the process not to favor only the wealthiest nodes in the network, more unique methods are added into the selection process. The two most commonly used methods are ‘Randomized Block Selection’ and ‘Coin Age Selection’.
In the Randomized Block Selection method the validators are selected by looking for nodes with a combination of the lowest hash value and the highest stake and since the size of stakes are public, the next forger can usually be predicted by other nodes.
The Coin Age Selection method chooses nodes based on how long their tokens have been staked for. Coin age is calculated by multiplying the number of days the coins have been held as stake by the number of coins that are staked. Once a node has forged a block, their coin age is reset to zero and they must wait a certain period of time to be able to forge another block - this prevents large stake nodes from dominating the blockchain.
Each cryptocurrency using Proof of Stake algorithm has their own set of rules and methods combined for what they think is the best possible combination for them and their users.
When a node gets chosen to forge the next block, it will check if the transactions in the block are valid, signs the block and adds it to the blockchain. As a reward, the node receives the transaction fees that are associated with the transactions in the block.
If a node wants to stop being a forger, its stake along with the earned rewards will be released after a certain period of time, giving the network time to verify that there are no fraudulent blocks added to the blockchain by the node.

Security

The stake works as a financial motivator for the forger node not to validate or create fraudulent transactions. If the network detects a fraudulent transaction, the forger node will lose a part of its stake and its right to participate as a forger in the future. So as long as the stake is higher than the reward, the validator would lose more coins than it would gain in case of attempting fraud.
In order to effectively control the network and approve fraudulent transactions, a node would have to own a majority stake in the network, also known as the 51% attack. Depending on the value of a cryptocurrency, this would be very impractical as in order to gain control of the network you would need to acquire 51% of the circulating supply.
The main advantages of the Proof of Stake algorithm are energy efficiency and security.
A greater number of users are encouraged to run nodes since it’s easy and affordable. This along with the randomization process also makes the network more decentralized, since mining pools are no longer needed to mine the blocks. And since there is less of a need to release many new coins for a reward, this helps the price of a particular coin stay more stable.
It’s good to remember that the cryptocurrency industry is rapidly changing and evolving and there are also several other algorithms and methods being developed and experimented with.