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crypto

Hot Vs. Cold Wallets: A Detailed Overview of Cryptocurrency Storage Methods

The number of people holding cryptocurrencies today is higher than ever before. For instance, Blockchain.com’s wallet usage reached 81 million in 2022. Similar service providers are recording equally impressive numbers.

Cryptocurrencies, especially bitcoin, increased in popularity during the coronavirus pandemic as people sought alternative means to beat inflation. Accordingly, demand for crypto wallets grew – because people have to keep the coins somewhere safe.

While knowledge of crypto is improving worldwide, few people understand related aspects, such as crypto wallets. If you’re reading this, count yourself a part of the growing population whose crypto-sophistication level is improving. This article goes under the hood to explain and describe crypto wallets with a particular focus on the difference between hot and cold wallets.

What is a cryptocurrency wallet?

In the traditional sense, a wallet is a bag or case for holding money. Note that, in this case, the wallet is a ‘thing’ because it holds physical money – banknotes, coins, or bank cards. But what does it become when the money ceases to be a thing?

Cryptocurrency is a digital asset domiciled on a blockchain platform. Accordingly, a crypto wallet is a software that allows you to store and transfer cryptocurrency. The wallet could be a device, such as a flash drive or a mobile or desktop platform program. But the differences with physical wallets do not end there.

For example, crypto wallets do not carry the actual coins, even in their digital form. Instead, the device or program merely holds the keys to your coins. Let’s explain further:

Cryptocurrency is digital money used in a centralized or peer-to-peer system to transfer value, such as Bitcoin. Technically, crypto is encrypted data hosted on a blockchain network. To move or alter the data, one must have the proper credentials and permissions; otherwise, the process will not succeed.

This is where the concept of keys comes in. In cryptography, a key is a technology that validates the authenticity of data through encryption and decryption. When transacting in the cryptocurrency ecosystem, you’ll come across two keys – public and private keys.

  • Public key – this works similarly to an address that identifies you when transacting with crypto. Think of it as a bank account number or an email address that enables you to send and receive messages. As such, the key is sharable.
  • A private key is a string of numbers and letters that should be kept secret. If the public key is the bank account/email address, the private key is the password that gives you access to the account. When sending or receiving crypto coins, the private key identifies you as the rightful owner of the crypto wallet, and the transaction should proceed.

What about hot and cold wallets?

We know that crypto wallets do not store actual coins, but instead, they hold the keys to the assets. The wallets merely facilitate your interaction with the blockchain that hosts the cryptocurrency. Specifically, they let you move coins elsewhere and allow others to see the balance in your wallet, and vice versa.

As you interact with crypto wallets further, you’ll notice variations. For example, we already mentioned that the wallet could be software installed on a desktop computer or smartphone or a device such as a flash drive. Consequently, one can place crypto wallets into two broad categories: hardware and software wallets.

  • Hardware wallets include wallets that are physical devices that users can plug into a computer to complete transactions.
  • Software wallets are pieces of software installed on a smartphone or desktop.

But what about hot and cold wallets? A hot wallet is one that users can access if only there is internet access. The holder’s keys are held in a secure web server accessible online. Also, the hot wallet can fall into either of the two broad categories of crypto wallets.

On the other hand, a cold wallet is what you might have already guessed, a crypto wallet accessible offline. The holder’s keys are stored locally, on the desktop, smartphone, a flash drive, or even a piece of paper. A typical cold wallet falls under the hardware crypto wallet category.

Hot vs. cold wallets

Besides accessibility online or offline, hot and cold wallets differ in many other ways that we will explore here.

Hot crypto wallets

Hot wallets are sometimes called web-based wallets, and they are also the most common. To understand why they are familiar, let’s consider an illustration.

Suppose you sign up for an account on a crypto exchange, such as Coinbase. Usually, most crypto exchanges offer to store the coins for you in custodial wallets. But let’s say you download a desktop wallet on your computer or an app on your smartphone because it is fast and straightforward to set up – you’ll be setting up a hot wallet.

Pros of hot wallets

  • Hot wallets are always connected to the internet, thus easy to use. For example, some hot wallet service providers offer them as browser extensions, making access a tap or click away.
  • Also, hot wallets are easily accessible and convenient. Think of the smartphone application. You always carry your mobile phone around, and there is no chance you’ll need to access your wallet only to realize that you left the phone at home.

Cons of hot wallets

  • Hot wallets are not ideal for holding large amounts of crypto because of an elevated risk of hacking. The fact that hot wallets are always online means hackers have the time to fiddle around for unauthorized access.
  • To some extent, users do not have complete control over their coins. We know that hot wallets store users’ private keys on a secure web server operated by a hot wallet service provider. If bad actors hijack the service provider’s equipment, users are likely to lose their keys.

Cold crypto wallets

A cold wallet is anything where you can access your keys without internet access. It includes a piece of paper with your public and private keys written on it.

Suppose you buy Bitcoins from your favorite exchange and, instead of downloading a browser extension for storing the coins, you order a USB stick, such as Ledger, from Amazon. You’ll then hook the device to your computer and complete the transfer of the coins. While at it, you’ll notice that the device will ask for a passcode before giving you access. Thus, you must have the physical device in hand and the passcode to use the cold wallet.

Pros of cold wallets

  • Security is cold crypto wallets’ strongest suit. We saw that they are accessible offline, hence unsusceptible to internet-based bad actors. Also, there is an extra layer of security, the passcode. Your coins are entirely safe if you can keep the passcode secret.
  • Cold wallets give you complete control over your keys and the coins because everything is stored locally.
  • Because of the solid security, cold wallets are ideal for storing a massive amount of crypto. In fact, this is the preferred storage method for many crypto-related businesses, such as exchanges.

Cons of cold wallets

  • Cold wallets are inconvenient and almost impractical for everyday usage. A typical crypto holder wants to take advantage of price swings in the market. However, the cumbersome nature of moving coins from a cold wallet impairs users’ ability to exploit the full potential of crypto price fluctuations.
  • Users have greater responsibility to guard the coins. If anything goes wrong, say you lose the passcode to the USB stick or recovery phrase, you assume 100% liability. On the contrary, hot wallet service providers might refund users if hackers compromise their webservers.

Which wallet should you choose?

Your choice of an ideal crypto wallet heavily depends on various factors. For example, what is the goal for buying crypto?

A cold wallet seems appropriate if you acquire the coins to ‘HODL.’ HODLing (short for Hold On Dear Life) is a cryptocurrency investment strategy where investors sit on their coins through various cycles – recession and appreciation – and would only sell at a price that generates sufficient returns. In such a case, there is no immediate need to transfer the coins, which makes sense to store them in a cold wallet.

However, a hot wallet would be ideal if you intend to play the market volatility. This investment strategy involves frequent buying and selling the given crypto to cash in on the fluctuating prices. Thus, you’ll need easy access to the coins because sometimes you might need to make several transactions in a day.

Conclusion

Is it possible to get the best of both worlds? So far, the market does not have wallets with both hot and cold characteristics, and perhaps it is because such a feat would be impossible. A wallet is either hot or cold; no two ways about it.

Nevertheless, people have developed ingenious tricks to achieve the impossible. A great example would be to use a dedicated mobile phone as a crypto wallet. You’d download a hot wallet onto the phone and only turn it on when it is time to make a transaction. So, the wallet is cold when the phone is off and becomes hot when you switch on the phone and connect it to the internet. Genius.

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crypto

CBDCs and The Future of Money: All you Need to Know About Central Bank Digital Currencies

Aiming for global asset class status, crypto or digital tokens owe their development to Satoshi Nakamoto, who introduced the world to new peer-to-peer payment methods without a central authority to oversee them in 2009 during the creation of the Bitcoin blockchain.

In recent years, and mainly since the onset of COVID-19, these tokens have evolved into an investment tool, increasing the global appetite for cryptocurrency. This is due to the advanced security, transparency, and inflation protection cryptocurrencies provide.

However, because digital currencies like Bitcoin (BTC) threaten governments’ ability to manage their economies, various central banks are currently trialing their own sovereign-backed virtual currencies known as Central Bank Digital Currencies (CBDCs) using Blockchain technology.

In their latest report, the Bank for International Settlements said that 85% of all central banks worldwide are currently studying or piloting CBDCs. So, what are CBDCs, and how might they impact the future of money? Read on to discover everything you require to know about CBDCs.

What is CBDC?

Central bank digital currency (CBDC) is a blockchain-based digital currency controlled directly by the country’s central bank and supported by national credit and government authority. Few technocrats regard the CBDC as a digital form of sovereign money in which the central bank determines the monetary policies.

In the most simple terms, CBDC is an electronic form of central bank money that can store value and make digital payments quickly and easily.

CBDCs use new payment technologies, typically a blockchain, to increase payment efficiency and lower costs, making them distinct from established currencies like the US dollar.

A centralized database makes CBDCs more efficient than other digital payment systems, like Bitcoin or Ethereum, which use a decentralized ledger.

Each country considering a CBDC has its approach. The blockchain technology and general principles used by various CBDCs are similar to those used in Bitcoin, the original cryptocurrency.

Several countries are experimenting with CBDCs based on blockchain technology. Venezuela took the lead in this area, introducing its cryptocurrency, the petro, in 2018.

However, Petro is afflicted by numerous problems, and there are very few Venezuelans who use it. Besides Venezuela, the Chinese government is probably the most advanced in creating a CBDC.

The Federal Reserve Bank of Boston is in collaboration with the highly regarded Massachusetts Institute of Technology (MIT) on a digital dollar experiment.

The European Central Bank (ECB) has also been researching the possibility of introducing a digital euro.

The development of this new type of currency is still in its infancy, so it’s hard to predict how CBDCs will be used in the future.

However, some believe that CBDCs could eventually replace cash and become the primary form of currency in a country.

The Goal of Central Bank Digital Currencies

Numerous people living in the US and other countries lack access to financial services. In the United States, 5% of adults do not have a bank account. Another 13% of US adults have bank accounts but use more expensive alternatives like money orders, payday loans, and check cashing services.

As a result, CBDCs aim to provide businesses and consumers transferability, privacy, accessibility, convenience, and financial security. Additionally, CBDCs could decrease maintenance costs, reduce cross-border transaction costs, and provide lower-cost alternatives to those using alternative money transfer methods.

Moreover, the CBDC provides a country’s central bank with tools to implement monetary policies to keep the economy stable, control growth, and keep inflation under control.

Cryptocurrencies’ value constantly fluctuates, making them highly volatile assets. This volatility may cause severe financial stress in many households and negatively affect the economy.

CBDCs could help to reduce this volatility by providing a more stable alternative. For instance, government-backed and central bank-controlled CDCs would provide households, businesses, and consumers with stable methods for exchanging digital currency.

The Common CBDC Features

CBDCs are still in their early stages, so it’s unclear what more features they’ll eventually have – assuming they’re ever rolled out.

A CBDC is a cross between Bitcoin and a government-issued currency. The resulting CBDC creature incorporates characteristics from each, and specific features may include the following:

Distributed Ledger Technology

The world we live in is exceedingly digital, and our money is digital for the most part. Using our smartphones, we can peek at our balances or use our credit cards to make a payment. So, how is CBDC different?

The CBSC is digital, but its technological makeup is different. The idea is to reengineer money from scratch, with many borrowing from Bitcoin’s underlying technology with distributed ledger technology (DLT).

A bank’s ledger stores financial records to track records, such as how much money a person has and what transactions they’ve made. As opposed to a single database that holds all the financial records of an individual, the distributed ledger technology consists of multiple copies of these transactions, each managed and stored by a separate financial institution, usually by the country’s central bank.

We call this a permissioned blockchain because only a few select entities can access or alter it. Additionally, central entities control who has access to the blockchain and what they can do with it.

In contrast, a permissionless blockchain, such as Bitcoin, allows anyone to run the software and participate in sending transactions on the network.

Lower Costs

With a CBDC, there would theoretically be no or meager transaction costs. Advocates claim that they could reduce the cost of transferring money due to the structured hood of CBDC. The idea is that with a CBDC, all financial entities are more connected, ensuring a smoother flow of funds.

For context, the current system often involves an intermediary – think PayPal or a bank – to process transactions. With a CBDC in place, users would no longer require this middleman, as the CBDC would act as the intermediary. This could theoretically reduce or remove transaction fees.

Faster Transactions

Another potential benefit of a CBDC is that it would enable faster transactions. When you make a bank transfer in our current system, the receiving bank must wait for the funds to clear. With a CBDC, this wouldn’t be an issue because the settlement would happen in real-time.

This is because a CBDC is built on a blockchain, which would allow for the near-instantaneous processing of transactions.

Tracking Payments

DLTs provide a complete record of all transactions. Those governments known for their extensive surveillance apparatus may want to use this information to keep close tabs on their citizens.

It could have both positive and negative applications. How? It would allow the government to track down and prevent crime. On the other hand, the government could use it to infringe on the privacy of individuals.

Different governments have different policies in this regard. The Federal Reserve, for example, seems more interested in protecting the privacy of US citizens if it adopts a CBDC.

Centralized Control

Perhaps the most controversial aspect of a CBDC is under centralized control. But, there is a reason CBDCs use this permissioned blockchain. Many governments choose DLT technology because it allows them to maintain control over certain aspects, such as:

  • The Supply– Bitcoin has a built-in limit of 21 million bitcoins, which is extremely difficult, if not impossible, to change. On the other hand, governments each have a central bank in charge of the country’s money supply. These powerful banks decide when to remove or add money to the supply, such as stimulating the economy in difficult times, and setting national interest rates.
  • Who’s in Charge– It will be up to a central entity to decide which financial institutions participate in the distributed ledger. In other words, the government will be in charge of who can and cannot access the network.
  • What Transactions are Allowed– Governments maintain control by deciding which transactions are valid and invalid. For example, most governments banned cryptocurrency for certain activities, such as financing terrorist activities.

In short, a CBDC gives the government more power, not less. They can control the money supply and track financial activity more than with fiat currency.

This centralized control is one of the main reasons some people are against CBDCs. They argue that it takes away the freedom of decentralized cryptocurrencies, such as Bitcoin.

The Future of CBDCs

The finance world is in a new chapter of the history of money. And most countries seek to preserve key aspects of their old monetary and financial systems while experimenting with new digital forms of money.

For those experiments to succeed, policymakers must grapple with many open questions, technical obstacles, and tradeoffs.

Despite the challenges, over 100 countries are actively researching and testing CBDCs. For instance, more than a year has been since the Bahamas issued its currency, the Sand Dollar, known as the local CBDC.

China is leading the way among the biggest economies in trialing Central Bank Digital Currency (CBDC). There are more than a hundred million individual users and billions of transactions in China’s digital renminbi [called e-CNY].

The US is also looking into CBDC. In February, the Federal Reserve released a report stating that a CBDC could fundamentally alter the US financial system.

All eyes are now on Jamaica since it’s set to roll out its national digital currency in the coming months. This is after pilot-testing the project in 2021, issuing 230 million Jamaican dollars (US$1.5 million) of digital money.

The list goes on. It is clear that central banks are taking the idea of a CBDC seriously and are actively researching and testing them.

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crypto

Crypto Donations: How Cryptocurrency is Changing the Face of Philanthropy

The growing interest in Bitcoin and other digital currencies has focused on getting than giving. But behind the scenes is a promising trend leveraging cryptocurrency for philanthropy. Like cryptocurrency, the foundation for effective charities is transparency, immutability, and traceability.

Traditional philanthropy differs significantly from crypto philanthropy. The most notable difference is how donors give. The demographics of donors, funding models, and even the reasons for giving are changing with crypto philanthropy.

There is growing evidence that crypto donations will play a lasting role within non-profits, perhaps even reshaping philanthropy.

Giving using crypto has already encouraged waves of young people to consider philanthropy and helped smaller charities compete for donations, but this may only be the first step as digital assets become more embedded in our lives.

How Did Crypto Donations Start, and How is it Going?

Towards the end of 2017, an anonymous post on Reddit read, “I’m donating the majority of my bitcoins to charitable causes.”. There has never been any revelation of the donor’s identity – they are only known as Pineapple Fund. The Pineapple Fund donated 5,104 bitcoins worth over $55 million to 60 charitable organizations (2017).

In 2017, non-profits encountered cryptocurrency for the first time, but the necessity of understanding how to move digital money in philanthropy has since increased.

Five years after introducing cryptocurrency donations, non-profit organizations are still struggling with the idea– the concept is still unfamiliar and challenging to comprehend. Cryptocurrencies can be volatile, the technology behind them can be confusing, and they are constantly evolving.

Despite these challenges, more non-profits are beginning to explore cryptocurrency philanthropy and its potential benefits.

A new group of donors who made money quickly in the crypto market has emerged in the sector in a big way. Contributions to donor-advised funds (DAFs) at Fidelity Charitable Trust (2021) increased from $13 million in 2019 to $28 million in 2020.

The average contribution size also increased, from $33,000 to $47,500. The Giving Block reports that the value of cryptocurrency donations is now over $300 million annually and is only expected to increase.

The Progress of Crypto Donations

Charitable organizations can now have global donors thanks to the ease of transferring cryptos. And there are now many international charity organizations that accept cryptocurrency donations. To deal with cryptocurrencies, UNICEF launched a new financial vehicle, CryptoFund. As a result, many organizations, including the Red Cross and Greenpeace, now accept cryptocurrency.

Government restrictions make it difficult for non-profits to get funding, which crypto donations alleviate. For instance, the U.S. blacklisted WikiLeaks, a non-profit organization that published news leaks in 2010. On the other hand, a block on its funding came from Visa (V), Mastercard (M.A.), and PayPal (PYPL).

Today, WikiLeaks receives millions of dollars in crypto donations. While cryptocurrency philanthropy has reached unprecedented levels of growth, it remains a niche form of giving and differs from traditional methods to a great extent.

Compared to traditional philanthropists, the pool of cryptocurrency users tends to be much younger. More than 60% of cryptocurrency users are under 40 years old. According to the U.S. Census Bureau, crypto users are 38 years old, while the average age of donors is 64 years old.

Young, tech-savvy adults donate most cryptocurrency to causes that receive more attention online. Some donors may bond emotionally to particular events after reading heartfelt stories. Narratives shared on Twitter about the Russia-Ukraine war, for example, led to about $100 million in cryptocurrency donations for Ukraine.

In the same vein, social media served as a global COVID-19 helpline with global reach when India got hit by the 2nd wave of the pandemic, which also led to crypto donations. As part of the relief effort, Ethereum co-founder Vitalik Buterin contributed around $1 billion to India’s COVID-19 relief program in Shiba Inu (SHIB) tokens when they were soaring in value.

The Tor Project, a non-profit dedicated to internet freedom and privacy, received 58% of its donations in cryptocurrencies in 2021. The organization said it received donations from over 100 countries, with the US, Germany, and France topping the list.

Cryptocurrency: Why Philanthropy is Giving it Attention

In a blockchain-based digital payment network, cryptocurrency is the unit of account. Any central bank or government doesn’t regulate the crypto market, and the cryptocurrency market isn’t intrinsically valuable beyond what people collectively agree upon.

Cryptocurrency acts as a borderless currency, making international transactions cheaper and more manageable since international financial regulations and exchange rates are not involved. More than 7,000 cryptocurrencies exist, including Bitcoin, Ethereum, and Dogecoin, whose price and popularity soared in early 2021.

Philanthropic organizations face new challenges and opportunities due to the advent of this digital, online market. The following are two particular benefits of cryptocurrency gifts:

  • Taxes

 Cryptocurrencies are like any appreciated asset, including securities and real estate, regarding U.S. taxation. When donated to charity, these assets don’t attract capital gains taxes, resulting in more significant gifts to non-profits.

Converting crypto to fiat, however, can trigger capital gains taxes. When an investor donates an appreciated long-term asset directly, the investor can debit the fair market value of the crypto during the time of the donation.

  • Cost and Speed

Blockchain technology offers greater efficiency and transparency. Completing international transactions can take just minutes and cost a few dollars. Crypto donations have lower transaction costs than credit cards or debit cards, which were the most popular giving methods for 63% of donors worldwide, according to the 2020 “Global Trends in Giving Report.”

The processing wage on credit card transactions – a deduction made directly from the charity amount – ranges from 2.2% to 7.5%, according to Charity Navigator. An ordinary wire transfer of $2,000 from the U.S. to India may cost between $30 and $50 more in transaction fees. When transferring the same amount through the Ethereum blockchain, gas fees can range from $10 to $15.

Additionally, transacting in crypto only takes a few seconds or minutes, whereas transacting in fiat currency requires hours or even days

  • Anonymity

It is easier for non-profits to target existing donors than find new ones. Therefore, donors increasingly prefer to remain anonymous as the pressure to donate rises.

 Additionally, large donations may need the completion of a know-your-customer (KYC) and several personal identification requirements. While donating millions of dollars, donors can maintain their anonymity by using cryptographic donations.

  • Private Funding

Cryptocurrency donations are increasing in areas where traditional giving is impossible, or federal policy is still catching up. For instance, to support its clinical research into the effects of cannabis, the University of New Mexico Medical Cannabis Research Fund, for example, heavily relies on donations.

Cannabis research is primarily excluded from federal funding, and banks are prohibited from facilitating cannabis-related transactions under federal law. 420coin, for example, uses bitcoin’s market independence to circumvent these restrictions to fund research at the University of New Mexico.

What Non-profit Organisations Should do With Crypto Donations

In this space, non-profits must decide whether to sell cryptocurrencies immediately, hold them indefinitely, or diversify their donations. There is value in each strategy.

UNICEF launched the CryptoFund in October 2019, letting it receive, hold, and disburse cryptocurrency while learning more about digital assets. CryptoFund’s first year saw twelve investments in eight countries. UNICEF realized that by keeping crypto in its native form, it could track where funds go and how they get spent.

Non-profits who need to convert crypto donations into cash immediately to pay for operational expenses have third-party intermediaries step in to help them. The Endaoment is an example of a crypto public charity that sponsors DAFs and accepts over 150 different cryptocurrencies.

Robbie Heeger started Endaoment to make giving cryptocurrency easy without first selling it and make it possible for non-profits in the United States to accept it as cash. Heeger built Endaoment on the Ethereum blockchain.

When a donor sends cryptocurrency to an organization’s unique address, the funds are held in a smart contract. When the non-profit is ready, they can convert the cryptocurrency into cash with one click.

The Risks of Crypto Philanthropy

Challenges persist as philanthropy learns how to use cryptocurrency for the public good. Despite being transparent, crypto donations recorded on blockchain can be anonymous, limiting organizations’ ability to cultivate relationships with supporters.

The recipients of crypto-contributions can also be exposed to significant risks if the source of the donations is questionable – reputational damage is possible if the donations are tainted or financial ruin if non-profits receive laundered money.

Volatility and the unregulated nature of the asset present additional challenges- a crash in the cryptocurrency market could have severe consequences for non-profit crypto holders. Federal regulations and tax laws related to the crypto market currently lag behind other assets, and they are still in the process of catching up.

Conclusion

Cryptocurrency philanthropy has the potential to upend how we think about giving. Cryptocurrencies’ borderless, digital nature presents new opportunities for donors and organizations alike. For donors, crypto philanthropy offers a way to support causes they care about without going through traditional channels. For organizations, crypto donations provide a way to receive funding from a global pool of donors.

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crypto

Why Crypto Exchanges Get Hacked so Often

Cryptocurrencies have been around for more than decade, and with their popularity comes an inevitable rise in scams and hacks. While some of these attacks are more sophisticated than others, they all share one common goal: to steal your money.

Some hackers break into your wallets and steal your funds, while others promise to love but later cheat you out of your coins. Others target your exchanges, and some are so sneaky you barely even notice that your device has been compromised.

The crypto world isn’t new to security incidents like this. Still, the size of these hacks appears to be increasing as cryptocurrency prices have risen over the past year, attracting more attention from mainstream media.

So why do exchanges get hacked so often? This article will explore some possible reasons, but let’s first understand the crypto exchanges.

Understanding Crypto Exchanges

Cryptocurrency exchanges are platforms where traders can buy and sell cryptos, derivatives, and other crypto-related assets. Some exchanges only offer crypto-to-crypto trading, while others provide fiat-to-crypto or crypto-to-fiat pairs.

Like stock markets, cryptocurrency exchanges continuously update the value of cryptos with popular fiat currencies, mainly the U.S dollar. By using your bank account, you can purchase crypto and have it deposited in a ‘wallet,’ which is essentially a cryptocurrency bank account.

There are three main types of exchanges:

Centralized Exchanges: A centralized market is a platform for cryptocurrency trading that functions like traditional stock exchanges. A centralized trading platform gets controlled by entities that maintain complete control over all transactions and user account portfolios. Trading is fast and easy on these exchanges because of their high liquidity, but they are also vulnerable to government regulation and hacks. Binance, Coinbase, and Kraken are some of the most popular centralized exchanges.

Decentralized Exchanges: A decentralized exchange is a peer-to-peer network that allows users to trade instantly with each other without the necessity for an intermediary. These exchanges are automated and operate differently from CEXs. They are often built on top of decentralized protocols like the Ethereum blockchain. The most popular DEX is IDEX. DEXs are still very nascent, and there is a possibility that new attacks could emerge at any time.

Hybrid Exchanges: A hybrid exchange is a platform that offers both centralized and decentralized trading features. These exchanges provide the best of both worlds: the security of a DEX with the liquidity of a CEX. In most cases, hybrid exchanges use an escrow system to hold users’ funds until the trade is completed. The most popular hybrid exchange is Binance DEX.

Why Are Crypto Exchanges Under Cyber Attacks?

Crypto exchanges are the most attractive to hacks because of their hierarchical security. When dealing with cryptocurrencies, your security is primarily based on the protocol’s security. Crypto exchanges have three layers of security; coins or tokens, exchanges, and wallets.

  • Coins or Tokens

Each coin consists of either an independent protocol or a copy (aka fork) of one of the protocols. In most cases, all the tokens are based on a smart-contract feature of some of the coins, which means their security and trust are tied to the parent cryptocurrency first and only later to the smart contract code. For instance, all tokens (ICO coins) utilize Ethereum as their base, while only a few tokens based on smart contracts issued in other cryptocurrencies (like MOBI) utilize Stellar.

The security of each protocol is dependent on the developers and the community. In an effort to not scare you, it’s important to point out that Ethereum was hacked a few years back as a result of the DAO protocol hack and then hard forked, rolling back its state.

  • Exchanges

The security of exchanges is based on the technology they use and how they implement it. To understand how exchanges work, you must realize that they use custom code with infrastructure security, which has nothing to do with blockchain.

The most important part of an exchange’s security is the code that handles the order book and money transfers. If this code is not secure, hackers can quickly attack the exchange and steal funds.

It’s also important to note that most exchanges are not decentralized, making them more vulnerable to hacks.

  • Wallets

The most important part of a wallet’s security is the private key, a string of numbers that allows you to spend your coins.

If you lose this key, a thief can quickly empty your wallet. That’s why it’s important to never store your private key on an exchange or online wallet. The most secure way to hold your private key is by using a hardware wallet like the Ledger Nano S, a cold wallet.

Consequently, if you have an issue at the coin protocol layer, you will be compromised, regardless of how secure the second and third layers are. Meanwhile, the complexity of the protocol layer means that it’s harder to find a vulnerability at the protocol level than at lower layers, like exchanges and wallets.

Hackers are attracted to exchanges because it’s the most effective way to steal money since they are the weakest link in the cryptocurrency ecosystem. Cryptographic protocols are hard to crack, and digital wallets are too widely dispersed.

Why Are Crypto Exchanges Hackable?

The very nature of crypto exchanges is centralized, making them inherently vulnerable. As a centralized web application with functions for executing transactions and one or a few crypto wallets inside, exchanges are subject to the same security risks that other websites are susceptible to.

But that’s not all. In addition to being susceptible to the same risks as other web applications, crypto exchanges are also attractive targets for hackers because they handle large amounts of money and have high-profile names.

Crypto exchange security problems can be classified into the following buckets: client-side and server-side.

  • Client-side: XSS, or cross-site scripting, is the most common client-side vulnerability that allows attackers to hijack your browser. Vulnerable servers can inject malicious HTML and JS code into web pages.
  • Server-side: Injection flaws, such as SQL injection, are the most common server-side vulnerabilities. SQL injection is a form of attack where malicious code gets inserted into strings passed to a case of SQL Server for parsing and execution. To prevent these kinds of attacks, it’s essential to keep your software up to date and use secure coding practices. The authentification issue is also a big problem for exchanges. Reusing passwords across multiple accounts is also a significant security issue. If one account gets jeopardized, all of the others are as well. That’s why it’s essential to use a different password for every account.

How to Prevent Crypto Exchanges Hacks?

As old age says, “better safe than sorry,” so make sure your crypto assets are safe and secure by following these tips.

  • Use Reputable Exchanges– You must first find a reliable exchange to buy from and set up a secure private wallet to store your coins if you are new to crypto. The best exchanges will have strict verification rules (like CEX.io) and support various currencies.
  • Use a Hardware Wallet– A hardware wallet is the most secure way to store your private keys offline. If your wallet is reliable, you will find that it uses the HD method to generate a new address whenever you access it. The best wallets on the market are the Ledger Nano S and the Trezor. The paper wallet is also reliable in security, but it is limited to one-time use.
  • Don’t Reuse Passwords– When creating a password, use a combination of letters, numbers, and symbols. Avoid using easily guessed words like your name or birthday. In addition, don’t use the same password for all of your accounts. If one account gets hacked, all of your other accounts are also vulnerable.
  • Enable Two-Factor Authentication– Two-factor authentication is an extra layer of security used to protect your accounts. Two-factor authentication works by needing two pieces of information to log in: something you know, like a strong password, and something you have, like your phone.
  • Keep Your Software Up to Date– One of the best ways to prevent attacks is to keep your software up to date. By installing the latest security updates, you can patch known vulnerabilities in your system and make it challenging for attackers to take advantage of them.
  • Back-Up Your Wallet– If your wallet is lost or stolen, you will need a backup to recover your funds. Keep multiple backups in different locations, such as on a USB drive, an external hard drive, or the cloud.
  • Be Careful What You Download– Be careful what you download, as malicious software can get disguised as legitimate programs. Only download software from trusted sources, and verify that a digital signature signs the file you’re downloading.
  • Be Wary of Phishing Emails– One of the most common ways hackers try to steal your information is by sending phishing emails. These emails look like they’re from a legitimate company but are malicious. Please do not click on links or attachments that look suspicious. Instead, contact the company directly to verify that the email is legitimate.
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crypto

How to Protect your Cryptocurrency from Hacking

Crypto Head, which tracks information on the crypto market, conducted an analysis and found that the number of cases reported of cryptocurrency hacking and theft increased by more than 40 percent in 2021.

Hacking has been around since the fathers of technology invented access control for computing technologies. Even before widespread internet use, some geniuses were exploiting password-protected computers.

In 1965, MIT researchers discovered an exploit in time-sharing software that allowed anyone trying to access an editor to see everyone else’s passwords. When multiple users attempted to access the editor, the system — only designed for a single user at a time — would randomly swap the password file, allowing access by those who already knew the password.

However, hacks in the cryptocurrency space are problematic because transactions are irreversible. A decentralized and trustless network cannot distinguish between transactions with stolen coins and legitimate ones since it is decentralized. This means that the protections around preventing illegitimate transactions are fundamental.

How Much has Crypto Lost to Hackers

There is a lot of coverage about high-profile hacks since they make for good headlines. The crypto security forum at Unify reports that hackers have made off with $1.2 billion so far this year. Consequently, this amount of money is almost eight times higher than the $154 million lost in the first quarter of 2021. Now, I will mention the five largest hacks in the history of cryptocurrency for illustration’s sake.

  • Ronin Network– In one of the largest crypto heists on record, the Ronin blockchain project announced last month that hackers exploited its systems and stole cryptocurrency worth $615m.The project reported that unidentified hackers stole 173,600 ether tokens and 25.5 million USD coin tokens on March 23rd. Axie Infinity uses Ronin to power its popular online game. It has the most extensive collection of non-fungible tokens (NFTs) by all-time sales volume, according to the NFT market tracker CryptoSlam.
  • Poly Network– Poly Network tokens worth $611m were transferred to three wallets controlled by a hacker on August 10th, 2021. A security researcher Mudit Gupta discovered that the attacker could ‘unlock’ (buy) tokens on Poly Network without having to ‘lock’ (sell) the corresponding tokens on other blockchains. The Poly Network is a platform for exchanging tokens between blockchains other than Bitcoin and Ethereum, such as Ethereum and Bitcoin.
  • Coincheck– Coincheck, a Japanese crypto exchange, revealed to the public that $547m worth of lesser-known cryptocurrency NEM had been stolen in January 2018. The firm admitted to storing the assets in a ‘hot wallet,’ meaning cryptocurrency storage connected to the internet, making it vulnerable to cyber-attacks. Coincheck was one of the most prominent exchanges in Japan at the time of the attack, which was one of the biggest markets for cryptocurrency trading.
  • KuCoin– Singapore-based crypto exchange KuCoin announced in September 2020 that $275 million worth of cryptocurrency had been stolen, including $127 million in ERC20 tokens used in Ethereum smart contracts. Chief executive Johnny Lyu revealed that hackers gained access to the exchange’s ‘hot wallets.’
  • Mt. Gox– One of the most well-known crypto heists was the theft of $480m from another Japanese exchange, Mt. Gox, in 2014. Around 7% of all Bitcoins were in circulation at the time, making the haul worth $480m. It would be worth more than $35 billion today.

According to investigations, wallet and exchange breaches are the most common, with 126 outpacing attacks and fraud involving DeFi, or decentralized finance, at 41 each during the last ten years. These hacks are a wake-up call for the industry to improve its security posture. Meanwhile, you as an individual can take steps to protect your cryptocurrency from being hacked.

How Can you Protect Your Cryptocurrency from Hackers?

Since the digital currency has virtually no regulations backing it, investors cannot find their way out of cyber-attacks because there is no involvement of centralized authority. So, how do you get to safeguard your cryptocurrency investment? This article gives you a few suggestions;

Use Cold Wallets

Online wallets have gained incredible popularity in recent years, becoming a prime target for hackers. While online wallets are convenient, they also present a greater risk than cold or offline wallets. Terence Jackson, a chief information security officer, recommends that most consumers keep their cryptocurrencies in offline or cold wallets since it’s less vulnerable to cyber-attacks online.

As for hardware wallets, these devices can get lost or stolen, so it is essential to have a backup stored in a deposit box. Additionally, public and private keys should never be identical to prevent hacking.

Despite their tremendous effectiveness against digital thieves, hardware wallets also pose a risk: Lose your password key, and you’ll never be able to recover your funds.

Passwords and PINs

It is essential to have strong passwords unique to each account and not used for any other purpose. A user should never choose the same password for more than one account to eliminate the risk of cyber-crime.

Several crypto experts propose this idea and consider it one of the safest methods for securing digital accounts. Two or more factors of authentication can help in this matter, as can a diverse and robust password for every account.

Web Security

To keep your online wallets secure, it is crucial to have strong password hygiene and two-factor authentication (or even better, three-factor authentication). Furthermore, avoid using public Wi-Fi to conduct any cryptocurrency transactions since it is easy for hackers to set up a rogue access point and steal your information. According to David Maimon, assistant professor at the University of Maryland’s department of criminology and criminal justice, public Wi-Fi is risky in three specific ways:

  • Wi-Fi sniffing
  • Man-in-middle attacks
  • Malware

Don’t let your Wi-Fi search and connect to public Wi-Fi connections if you want to avoid cyber attacks. Please turn it off and carry an internet dongle for private connections instead. You can protect your assets by purchasing a $10 internet dongle. Depending on your data plan, you can also use your cell phone as a hotspot.

Use Two-factor Authentication

Two-factor authentication adds an extra layer of security to your accounts by requiring a second code from a device you own to log in. This makes it much harder for hackers to access your accounts since they need your password and access to your physical device.

Wallets that support two-factor authentication are a good investment. For example, if someone had access to your login details, they would also need your phone to get the 2FA code. The disadvantage of text and email 2FA is that they are easily intercepted if someone has access to your email account or if you port your phone number from one device to another.

According to PolySwarm CTO Paul Makowski, the best 2FA options, from most secure to least secure, are as follows:

  • Hardware dongle, available at: https://landing.google.com/advancedprotection/
  • A phone app that does not sync your secrets anywhere (e.g., Google authenticator)
  • A phone app that allows you to sync (e.g., Authy)
  • Email-based
  • SMS-based communication

Two-factor authentication is not foolproof, however. In 2018, Google’s Advanced Protection program was fooled by a phishing attack that resulted in the theft of $120,000 worth of Ethereum from a user’s account. The best way to protect your accounts is to use a hardware dongle in addition to two-factor authentication.

Use a Reputable Crypto Exchanges

When you are ready to purchase cryptocurrency, make sure to do so through a reputable exchange. Some exchanges have been around for a while and have implemented strong security measures to protect their users’ assets.

Reputable exchanges will also have insurance if their platform gets hacked and users’ funds stolen. Make sure to check if an exchange has insurance before using it.

Be Careful with What you Download

Malware can be attached to files, and once on your device, it can perform a variety of sinister commands. A person racking up your phone bill or using all your data is no longer the biggest concern. Now you need to worry about malware reading keystrokes, giving hackers access to your accounts, and even reading the screen on your phone.

Remember, the crypto world is full of clever people, and as you browse communities, Telegram, Facebook, Reddit, Bitcoin Talk, etc., you’ll find posted files. It may be tempting to click them, but be aware that they could be bait.

It’s not just about being careful with what you download but also about keeping your devices updated. Software updates often include security patches that close vulnerabilities in your system. Outdated software is one of the easiest ways for hackers to access your device.

When in Doubt, Don’t Click it

If you’re not sure about a file, don’t download it. If you’re not sure about a link, don’t click it. When in doubt, don’t do anything. This may seem like common sense, but we often overlook things when we’re in a hurry or not paying attention.

Be extra careful when you’re online and take the time to verify that everything is legitimate before taking any actions. A few extra seconds of caution could save you a lot of headaches down the road.

Conclusion

Hacks are inevitable, but you can take some steps to protect your assets. By following the tips in this article, you can make it harder for hackers to target you and your cryptocurrency. However, no security measure is perfect, so it is essential always to be vigilant and stay up to date on the latest security threats.

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crypto

The Sifu-Danielle Sestagalli Saga Continues: What’s Next for Wonderland?

Over the past few weeks, it’s been a wild ride in the Crypto Twitter and DeFi communities. The rollercoaster started when CoinDesk disclosed that one of the co-founders of the famous Avalanche-based automated money market (AMM) Wonderland, pseudonymous “Sifu,” was Michael Patryn.

Despite Patryn’s shady past, prominent co-founder Daniele Sestagalli knew who “Sifu” was but chose to offer him a “second” chance. But, members of the Wonderland community on Twitter did not share the same sentiment as Sestagalli.

As a result, Sestagalli’s reputation has taken a significant hit in the past week. And upon further investigation into his background, things only look worse for the embattled co-founder. This leaves us with the question: What’s next for Wonderland? Before we dig into Wonderland’s future, let’s take a look at Danielle Sestagalli.

Who is Danielle Sestagalli?

Daniele Sestagalli, also known as Danielle Sesta, has extensive experience in the blockchain industry. In several interviews, he has indicated that he began using Bitcoin in 2011. The crypto world didn’t know much about him, but his Zulu Republic project impacted the crypto industry in 2018. It was one of the first airdrops, giving around $30 million to over 500,000 people. The project’s website is now defunct.

The Zulu Republic is a digital ecosystem based on the Ethereum blockchain, focused on believing that decentralized finance is the future human protocol. With an emphasis on unrivaled user experience, the objective was to make it easier for people to join the cryptocurrency revolution, empowering them to take control of their own financial lives. There have been no updates on the projects pages since 2018.

Sestagalli ‘s Linkedin profile shows that he also was an advisor to Bancor from July 2017 to September 2018. Bancor is a decentralized liquidity network that allows you to hold any blockchain asset and convert it to any other asset in the network, with no counterparty, at an automatically calculated price, using a simple web wallet.

In July 2017, Bancor completed one of the most significant token sales, raising $153 million. The project was met with a lot of hype and excitement but failed to live up to the expectations.

By the beginning of 2021, Daniele Sesta appeared busy creating a music industry model that would benefit musicians and the industry. The aim was to establish a blockchain foundation for everyone working in the music industry.

The Utopia Genesis Basis was to carry the blockchain to the music industry. The idea behind it was to empower artists by a platform that permitted them to subject their tokens without intermediaries.

However, it is not clear how much progress was made on this project as there is no website or social media presence for Utopia Genesis Basis.

But, all of a sudden, Daniele Sestagalli diverted his attention elsewhere and re-appeared with three items that changed the blockchain sector; Popsicle Finance, Abracadabra, and Wonderland entirely.

Unknown people hacked Popsicle Finance for tokens worth more than $25,000,000 at the beginning of August 2021. It was a major hack, and the price of the $ICE token crashed as a result.

Abracadabra is a DeFi yield farm that allows you to stake your cryptocurrency and earn interest on it. The protocol has been live, having over $200 million worth of value locked in it.

In September, Sestagalli founded Wonderland. According to a November interview, Sestagalli originally envisioned Wonderland as a perpetual, “mega-ICO,” giving tokens to holders over time and developing a treasury, as an Olympus fork DAO — an infamous, sky-high APY rebasing project commonly criticized as unsustainable.

Wonderland eventually overtook Olympus in market capitalization and treasury size.

The Fallout of Wonderland

In January 2022, blockchain sleuths reported “Sifu” as Michael Patryn. According to the report, Michael Patryn is allegedly a skilled serial scammer, with a sentence and deportation on his record. Patryn was the co-founder of QuadrigaCX, a failed Canadian cryptocurrency exchange.

QuadrigaCX, a crypto exchange created by Gerald Cotten and Michael Patryn in 2013, quickly grew to become one of Canada’s largest crypto exchanges by trading volume. According to sources, Cotten died in December 2018 during a trip to India, after which over $190 million in cryptocurrency owed to 115,000 consumers went missing.

Officials at QuadrigaCX claimed that only Cotten had access to the secret keys containing millions of dollars worth of client cash. However, crypto circles quickly labeled the entire incident as an exit scam.

Patryn had remained under the radar since then, until a few weeks ago, when he was discovered to be one of Wonderland’s architects.

“Sifu,” a co-founder of the Olympus, made the DeFi project, Wonderland, what it is today.

With the wonderland team’s help, including his partner Danielle Sesta, Michael Patryn (Sifu) made seed investments in the Olympus project making significant, unilateral investments. Wonderland being the fork of Olympus, overtook it in every aspect.

In particular, the wonderland co-founder, Sestagalli, popularized the idea that Frog Nation investors will someday compete with and replace “the suits,” a term that refers to established investment funds.

However, the Olympus project has come under fire in recent weeks due to the wonderland saga. There is a devastating drop in both the original project and its forks. Wonderland dropped by as much as 40% in 24 hours after Sifu’s unmasking as Patryn, tumbling as far as 95% from its all-time high.

With Patryn’s revelation, the already weak price action suffered another blow after Sestagalli stated that he had known Patryn’s identity and connections to QuadrigaCX but opted to work with him as the treasury manager nevertheless. The dynamic caused wonderland investors to lose faith in the project.

A few days later, the “frog nation” leader, Sestagalli, stated the path forward; “Do we wind down or continue to fight for the aspect of an investment DAO [decentralized autonomous organization] being a revolutionary new organization? For the option that I am for, which is to fight and replace Patryn with someone new and experienced to manage the treasury.”

The information caused a lot of commotion with community members who refer to themselves as the “Frog Nation.” Although Patryn was relieved of his duties, the question remains; what will become of Wonderland’s treasury?

What’s Next for Wonderland?

In light of the recent revelations, what will happen to Wonderland is unclear. The crypto community is up in arms, and wonderland investors doubt the wonderland treasury.

Although Danielle Sestagalli actively worked with a convicted felon, a community vote to shut down Wonderland and distribute the treasury to investors failed to pass a few days ago.

The outcome of votes may programmatically and automatically prompt actions on-chain, such as changing the code for a protocol or triggering treasury payments, depending on the decentralized autonomous organization (DAO) governance model.

Wonderland’s developers designed the protocol of DAO to protect against a single bad actor. However, in this situation, the majority of the community desires that the Wonderland team can hypothetically choose whether or not to enact.

This scenario heightened tensions in the crypto community when Sestagalli appeared to imply that Wonderland would close regardless of the outcome of the “Wind down Wonderland” vote.

A few days later, the vote concluded with 55 percent of the token weight in favor of the project moving on. Also, time token holders agreed to give the team a chance to make some changes in the project.

It was possibly the most active governance proposal in DeFi history, with over an overwhelming majority voting to continue the project, defeating a considerably smaller number of opposing addresses. Danielle Sestagalli, in turn, wrote in discord that the wonderland team was taking time to “compile suggestions, and determine the best path forward.”

The problems at Wonderland and the consequences show the fundamental flaws with the DeFi administration, which frequently relies on anonymous or pseudonymous oversight from a small number of critical people. Though smart contracts automatically execute various decisions when certain circumstances arrive, the financing of such projects is typically left in the hands of people with little checks and balances.

However, DeFi supporters should use this opportunity to reflect on how to prevent anything this egregiously audacious from happening again. Wonderland DAO agrees!

What’s Left of Danielle Sestagalli’s Name?

In the decentralized financial world, Daniele Sestagalli made a name for himself through his work. He is the brains behind three of the most successful DeFi initiatives, with a combined market worth of 6.5 billion dollars (including MIM) and a total value of 6.7 billion dollars. By market capitalization, MIM is also the 6th largest stablecoin in the Sestagalli ecosystem.

The recent news has taken away a big part of Sesta’s success. Sestagalli’s reputation has taken a significant blow, regardless of what happens to Wonderland. His noble associations with a convicted felon who faced financial crimes will not help him salvage his name.

Michael Patryn is dragging Danielle Sestagalli’s name in the mud, and it doesn’t look like it’s going to get any better from here. Can the crypto community trust Sestagalli to lead any future projects?

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crypto

What is Staking? Understanding Cryptocurrency’s Rewards and Incentive Program

Following a massive rally over the last few years, no one can deny that cryptocurrency is a legitimate contender in the financial markets. The crypto concept is more than just a fad or a pump and dump scheme when viewed as a whole.

While the value of cryptocurrency is obvious, it does not change the fact that it is a complicated system to invest in. Fortunately, one new evolution in the crypto world is making it easier for ordinary investors to tap into the crypto world’s growing wealth.

One new development in the crypto world that has been gaining traction in recent years is staking. This article will explore what staking is and how it works and help you understand crypto rewards and incentive programs.

What is Staking?

Staking is an investment strategy that allows investors to earn rewards for holding onto their cryptocurrency. Users can lock or hold their funds in a cryptocurrency wallet to maintain the operations of a proof-of-stake (PoS)-based blockchain system. Similar to crypto mining, it assists a network in coming to consensus and rewards participants in the process.

The legitimacy to validate transactions is baked into the number of coins “locked” inside a wallet during staking. However, just like mining on a PoW platform, stakers are encouraged to find a new block or add a transaction on a blockchain. The more coins an investor commits, the higher the chances of being selected to validate a block and earn rewards.

Apart from incentives, PoS blockchain platforms are scalable and have high transaction speeds. In addition to incentives, PoS blockchain platforms are configurable and have fast transaction speeds. For these reasons, staking has become a popular investment strategy for crypto investors.

By staking their crypto, investors can earn a share of the profits generated by the crypto project. In other words, staking is a way to earn passive income from your cryptocurrency holdings.

How Staking Works

To understand how staking works, we first need to understand the concept of proof-of-stake.

The proof-of-stake (PoS) consensus mechanism uses validators to verify transactions and maintain consensus in a blockchain network. By running validator nodes and staking their coins, users contribute to securing the network and earning interest on their stakes.

Under this consensus algorithm, instead of miners solving complex cryptographic puzzles to validate transactions and add new blocks, validators are chosen randomly to the number of coins they stake.

The validator then checks the authenticity of the transactions. The validator adds the block to the ledger and gets the block rewards and transaction fees if everything is correct. However, if a validator adds a block with incorrect data, its staked holdings will be penalized.

PoS is known for being more energy-efficient, having lower entry barriers, and being more scalable than PoW. Indeed, the Ethereum PoS model provides improved support for shard chains, one of the most promising scaling solutions.

Back to how staking works.

The process of staking works as follows:

Participants must first pledge their coins to the cryptocurrency protocol. The protocol selects validators from among these participants to confirm blocks of transactions. The more coins you commit, the more likely you will be chosen as a validator.

New cryptocurrency coins are minted upon adding a new block to the blockchain and given as staking rewards to each block’s validator. Most of the time, participants receive the same type of cryptocurrency they stake. Specific blockchains, however, use a different type of cryptocurrency as a reward.

You must first own a cryptocurrency that employs the proof-of-stake model to stake cryptocurrency. Then you can decide how much you want to invest. After that, you must find a staking pool or set up your validator node.

When you stake your coins, they remain in your possession. You’re putting those staked coins to work, and you can always unstake them later if you want to trade them. The unstaking process may take some time; some cryptocurrencies require you to stake coins for a set period.

Staking is not available for all types of cryptocurrency. It is only available for coins that use the proof-of-stake model. The most popular cryptocurrencies that use PoS are Ethereum, NEO, and EOS.

To add blocks to their blockchains, some cryptocurrencies employ the proof-of-work model. The intricacy with proof of work is that it needs significant computing power. As a result, cryptocurrencies that use proof of work consume a lot of energy. In particular, Bitcoin (CRYPTO: BTC) has been rebuked for its environmental impact.

On the other hand, proof of stake doesn’t necessarily require nearly the same time and energy. This also makes it a more expandable option capable of handling larger volumes of transactions.

The key difference between the two models is that proof of stake rewards users based on how many coins they hold, while proof of work rewards users based on how much computing power they contribute.

The main benefit of staking is that it allows users to earn a Passive Income from their cryptocurrency holdings. They can earn rewards in new coins, transaction fees, or interest by staking their coins.

What is Incentive in Staking?

Staking incentive examines the staking participation rate and the most efficient ways to design a proof-of-stake network. Staking rates impact the security and strength of the chain, making it an important metric to monitor over time.

The incentive to stake is twofold. First, stakers earn rewards in the form of new cryptocurrency coins. Second, staking helps secure the network and contributes to its overall health.

Validators earn various types of revenue depending on the stake pool they join and the specific cryptocurrency they are validating. The most common forms of revenue are staking rewards and transaction fees.

Staking rewards is a ratio obtained by dividing the inflation rate by the stake ratio. You can compare inflation to a pie: the newly-minted NOM is the size of that pie. As a staker, you sit at a table where new NOM gets served.

Validators split the pie proportionally with everyone else at their table, so the more people join, the smaller the pie you get. The larger the pie, the greater the rewards for everyone who stakes. The total stake rewards are divided among validators according to their weight in the staking pool. Their rewards are then distributed to delegators in proportion to their stake.

You should note that validators may charge a commission on their delegates before distributing the rewards.

Validator’s Commission

The revenue generated by a validator’s pool gets divided among the validator and their delegators. A validator may charge a commission on the portion of revenue distributed to its delegators. This fee gets calculated as a percentage.

Each validator has the option of determining its initial commission, maximum daily commission change rate, and maximum commission. The parameters that the mainnet enforces each validator sets. These parameters can only be defined when declaring candidacy for the first time, and they can only be constrained further after that.

The Incentive to Run a Validator

Validators make more money than their delegated earn through commission fees. They also get to keep a portion of the rewards that their delegators earn.

  • Staking rewards: Validators earn more revenue when more people stake with them.
  • Product rewards: Each Onomy Exchange, Onomy Reserve, and Onomy Bridge Hub has its own set of additional rewards for validators in addition to staking rewards.
  • Transaction fees– Validators can set minimum gas fees for transactions included in their mempool to prevent spamming. At the end of each block, compute fees get distributed to validators in proportion to their stake.

So, what is the incentive for a user to run a validator? The answer is simple: more money.

Where Can You Stake?

Staking opportunities are galore in 2022, both on crypto exchanges like Binance, FTX, and Coinbase and directly on specific blockchain’s native wallets or dedicated hardware wallets.

Here are some of the best—however, many other options to consider, such as Fantom, Solana, and Avalanche.

  • Polkadot staking– As its consensus algorithm, Polkadot uses nominated proof-of-stake (NPoS). Nominators entrust their stakes to multiple validators they believe to be of good behavior. Regardless of the type of staker, they earn a reward for locking their tokens as collateral. Note that a nominator will incur a loss if they support a malicious validator.
  • Ethereum staking– At the moment, there are two types of Ethereum validators: miners and stakers. Miners validate transactions on the execution layer (formerly known as Eth1), while stakers verify blocks on the consensus layer (previously called Eth2). This means that Ethereum stakers will need to move their ETH from the execution layer to the consensus layer before they can stake. Furthermore, you can’t withdraw your ETH until the Ethereum mainnet merges with the Beacon Chain.
  • Terra Luna Staking– Users can earn interest on their LUNA coins by staking them on supported wallets like Terra Station. You need to create a wallet, transfer your LUNA, select a validator, and stake your LUNA. There is, however, another way to earn even more money: farming.

Conclusion

When it comes to staking rewards, the number of new coins earned depends on several factors. These include the staking pool’s reward structure, the validator’s stake size, and the network’s overall health.

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crypto

President Joe Biden’s Crypto Regulations: Crucial Step in Digital Currencies Adoption

On March 9, 2022, President Joe Biden signed an executive order to mobilize the federal government to create a strategy for digital assets like cryptocurrencies that promote innovation in the industry while minimizing risks to Americans and the global financial system.

Wednesday’s executive Orde tasks federal agencies with researching and developing policy recommendations on cryptocurrencies. It might seem like an insignificant step, but it’s crucial in digital-currency adoption.

The adoption will help cryptocurrencies like ether and bitcoin pare recent losses. The value of all cryptocurrencies was $1.9 trillion on March 9, 2022, down roughly 36% from an all-time high above $3 trillion in November. The market cap of bitcoin was $745,565,932,766 on March 09, 2022, down more than 50% from its all-time high above $300 billion in 2021.

A Glossary to Help you Make Sense Of Biden’s Executive Order

The institution’s adoption lifted cryptocurrencies to meteoric highs last year. But the absence of centralized governance became a source of concern for numerous top U.S. officials. The concerns aren’t new in the industry since the harsh government regulations have previously rocked the immature market.

Despite the lack of regulation, SEC Chairman Gary Gensler has repeatedly stated that cryptocurrencies demand more official investigation, mainly because they can implicate securities, commodities, and banking laws.

Last year, Gary urged Congress to strengthen its regulations in the bitcoin industry. “We simply don’t have enough investment protection in crypto right now,” he stated. “To be honest, it’s more like the Wild West right now.”

For the past few months, the White House has been looking into the matter, and on Wednesday, President Biden took a significant step toward regulating cryptocurrency. It’s a move that some experts described as ‘long overdue.’

“In my opinion, it is long overdue. The U.S. is lagging behind most of the western world in developing a regulatory and legislative framework for blockchain in general and crypto specifically. There has been significant interest from regulators like the SEC, the Treasury, and the Commodity Futures Trading Commission in regulating the space. However, there’s a lack of clarity and understanding of what is in whose jurisdiction to regulate and even how to approach cryptocurrency.” the founder of SPiCE VC, Tal Elyashiv, said.

The Key Crypto Regulations Addressed in Biden’s Executive Order

Wednesday’s executive Order, which was expected since October 2021, will establish “key regulations” for the administration that will help assess digital assets and the global economy. The regulations are;

Protect Crypto Investors

An administration official noted crypto’s volatility as one concern that might affect investors, noting that bitcoin’s (BTC) price during the beginning of the COVID-19 epidemic was roughly $10,300. The price reached a high of almost $70,000 in November before dropping in the fall of 2021 and the beginning of 2022.

The official stated that investor protection is a top priority since several high-profile investors have been burned by cryptocurrency in recent years. Understanding the technology that underpins digital assets will be a part of this endeavor. Another aspect will be comprehending the current financial system’s flaws and which regions do not serve all consumers.

According to Biden’s crypto regulations, the Department of the Treasury and other agency partners should review and create policy recommendations to address the effects of the expanding digital asset sector and changes in financial markets for consumers, investors, businesses, and modest economic growth.

The white house order also encourages regulators to maintain adequate control and protect against any systemic financial risks that digital assets may pose.

Protect The National Security

The (FBI) Federal Bureau of Investigation and the U.S. Department of Justice have relatively young departments dedicated to cryptocurrency crimes. According to the press release, the departments will focus on crypto exchanges, mixers, tumblers, and other digital asset infrastructure providers that could enable “criminal exploitation of cryptocurrencies.”

The developers of most cryptocurrency networks theoretically design their systems to make identification more complex and more decentralized. It means that the government cannot track funds making it easier for illegal transactions. To address this, the presidential order “represents a continuation” of the United States’ development efforts to establish international financial and technology standards.

Biden’s Order also instructs agencies to collaborate with the U.S. allies and partners to ensure that international frameworks, capabilities, and relationships are coordinated and responsive to national security risks posed by the illicit use of digital currencies.

Look into the U.S. Central Bank Digital Currency (CBDC)

More than a hundred countries are already looking into Central Bank Digital Currency (CBDC), with use cases encompassing local and international transactions.

Biden’s crypto regulations placed an urgency on researching and developing a potential United States CBDC, should issuance be deemed in the national interest.

The directive aligns with the Federal Reserve’s continuing research into digital dollar issuance. The central bank’s branches have released several reports in recent months, examining the regulatory and technological issues that must be addressed before the central bank digital currencies (CBDC) are created.

The regulations orders the U.S. government to analyze the technological infrastructure and capacity requirements for a prospective US CBDC in a way that preserves the interests of Americans.

With implications of the U.S. Dollar in the global financial system, Biden’s crypto regulations will ensure that the U.S government has a leadership role and a seat at the crypto table.

Protect Global Financial Stability

One of the top priorities is to protect global financial stability. The executive Order encouraged the Financial Stability Oversight Council to identify and manage global economy financial risks presented by digital assets and provide suitable policy proposals to fill any regulatory gaps.

 The Order tasked agencies to study how people use cryptocurrencies and whether they pose a risk to the stability of the American and global financial systems.

Prevent Illicit Finance Uses

The president’s Order comes as global regulators scrutinize cryptocurrencies used to finance everything from drug sales to terrorist attacks.

In the U.S, Treasury Secretary Janet Yellen has called for tighter digital currencies regulations to prevent their use in criminal activity. The Justice Department is also investigating several high-profile cases involving cryptocurrency fraud.

Promote American Innovation and Leadership

The Order asks agencies to identify gaps in digital assets’ research and development then recommend policy actions to fill those gaps. It also directs agencies to work with the private sector to develop best practices for using, trading, and protecting cryptocurrencies.

Biden crypto regulations urge government agencies to establish policies against risks and guide responsible innovation with U.S. partners and allies. This is to develop aligned international capabilities that respond to national security risks and with the private sector to study and support technological advances in digital assets.

The president’s Order will promote American innovation in an area where China has taken the lead. Beijing has been aggressively promoting blockchain technology and has even developed its own digital currency, the e-yuan.

Ensure Proper Consumer Protection

The Order asks agencies to develop a plan to educate investors about the risks of digital assets and protect Americans from fraud and other crimes related to cryptocurrencies.

Biden also instructed the U.S. government to investigate and assist technological advancements in the responsible development and implementation of digital asset systems, focusing on privacy security, preventing criminal exploitation, and mitigating negative climate impacts.

The Biden crypto regulations also direct the Treasury Department to develop guidance on how federal consumer protection laws apply to digital assets.

The Consumer Financial Protection Bureau has already taken action against several cryptocurrency-related schemes, including an alleged $600 million Ponzi scheme.

Develop Safe and Affordable Financial Services.

The crucial need for secure, affordable, and accessible financial services is a critical national interest in the United States. The Order instructs agencies to identify opportunities for digital assets to provide such services.

Cryptocurrencies hold the promise of reducing costs and expanding access to financial services, particularly in developing countries. It is envisioned that agencies will research implications of distributed ledger technology on consumer protection, anti-money laundering safeguards, and other areas related to safety and soundness.

In collaboration with other agencies, the Secretary of the Treasury will produce a report on the future of money and payment systems. This will include implications for economic growth, financial growth and inclusion, national security, and the extent to which technological innovation may influence that future.

Crypto is Here to Stay; What Does it Mean for Everyone?

The Executive Order’s release means that cryptocurrency is here to stay. The United States is taking it seriously as an asset class and a potential disruptor to the financial system.

It’s a massive relief that the U.S. government is taking a more cautious approach and generally accepting digital assets as the cornerstone of the future financial system. For a reason, the executive Order sparked a massive rally in the crypto markets: regulatory clarity on digital assets would be highly beneficial to the business.

Investors have seen a change since the White House announced that president Biden would sign an executive order on crypto.  Bitcoin climbed up 9%, above $40,000, and Ethereum’s price saw an immediate boost as well.

The administration’s move may cause some disruption and volatility in the cryptocurrency market in the short term.

Fundamentally, an American approach to digital assets supports innovation while minimizing risks to consumers, investors, and enterprises, a broader financial system, as well as more extensive financial stability and environmental concerns.

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crypto

Non-Fungible Tokens: A Detailed Overview of the Top 5 NFT Marketplaces

On March 11, 2021, Christie’s auction house sold its first NFT. Although the sale was a historic first for an emerging sector, the $69 million price tag was the highlight of the moment. About ten months later, interest in the term ‘NFT’ peaked, according to Google Trends.

NFT is short for Non-Fungible Token. The story of NFTs is just one of the many offshoots of blockchain technology – others include decentralized finance (DeFi). But this story is not all about glory and money. NFTs have become increasingly ingrained in popular culture, and numerous digital platforms have come up to facilitate their sale.

It would be a serious disservice to you if we launched straight into the discussion of the top NFT marketplaces without explaining NFTs and why they are popular. So, read on for a short description of NFTs and why they are revolutionizing the world of art, sport, and more.

Non-fungible tokens, in simple terms

A non-fungible token is a unit of data linked to a piece of art stored on a blockchain. The data has markers that certify the digital asset’s uniqueness, making it uninterchangeable or non-fungible.

Let’s use an example for a better understanding. Suppose you want the original copy of J.K. Rowling’s Harry Potter and the Philosopher’s Stone, and you know a friend who has it. This is a unique piece of literature, and only one exists. If your friend asks for the book back and you return a similar item but not the original one, the friend will be furious. The friend will be upset because the returned book lacks the original item’s value. In other words, it is impossible to interchange a collector’s item with intrinsic value.

Similarly, the fact that NFTs are uninterchangeable enables them to hold onto their value. Thankfully, the fundamental design of blockchain technology enforces the non-fungible nature of NFTs.

The inventors of NFTs – Kevin McCoy and Anil Dash – intended for NFTs to “empower artists to sell digital works.” But this was back in 2014 when the concept was still alien to many. As of this writing, there are four main types of NFTs. They are:

  • Digital art – this is the original NFT. It is also the most common use of the technology. For example, the NFT that fetched $69 million at Christie’s auction last year was digital art by Beeple.
  • Music – some artists pre-release their albums on NFT marketplaces before launching on traditional media. The NFT grants the buyer a share in the album, and the returns are realized when the album starts selling on traditional streaming platforms. For example, Kings of Leon sold multiple NFTs representing a share of the album ‘When You See Yourself’ in March 2021.
  • Collectibles – together with digital art (artworks), collectibles were the pioneers of the NFT niche. NFT collectibles are similar to traditional collectibles, only that the former is represented by units of data stored on blockchains. Some NFT collectibles already launched include Cat Colony, Bored Ape Yacht, Curio Cards, and more.
  • Video game and virtual land assets – these are the latest craze in the NFT ecosystem. The NFTs became popular, particularly after giant tech companies like Facebook (now called Meta) consummated their interest in the metaverse. Also, NFT-based video games are in vogue. One of the significant players in this sector includes Axie Infinity with games like Sorare and CryptoKitties.

There are many more types of NFTs that we can exhaust, and the list is growing every waking moment.

According to a Reuters report, NFTs sales volume skyrocketed in 2021 to $24.9 billion, against $94.9 million the previous year. One of the primary reasons for the upsurge is a better organization in the ecosystem – there are more organized platforms for buyers to snap up the NFTs. Let us discuss some of the top marketplaces powering the NFT wave.

OpenSea

OpenSea is the largest NFT marketplace by all accounts. At writing, the platform had recorded $23.5 billion in sales volume since its inception in 2017, with 1.4 million traders.

Catherine Sison Pariño, Alex Atallah, and Devin Finzer founded the company in 2017 and unveiled it in a December 29, 2017, press release. From the onset, they set out to create a marketplace where users would sell NFTs “directly at a fixed price, or through an auction, based on the Ethereum ERC-721 standard and the layer-2 scaling solution for Ethereum Polygon.”

According to the founders, the space and time for OpenSea were ripe, given that major NFT collections like CryptoKitties and Decentraland were already in the picture. As such, the marketplace arose to fulfill a need – the need for a central place for enthusiasts to indulge in the NFT wave.

The New York-based company enables users to collect, sell, and even discover NFTs from various collections. Users can sign up for free and browse the vast collection. The web platform also includes educational material to guide creators and artists who wish to create (or mint) NFTs.

OpenSea supports more than 150 payment tokens, including WHALE and Uni Coin (UNI), although the core currencies are USD Coin (USDC), Dai (DAI), and Ethereum (ETH). Unfortunately, you won’t be able to trade on OpenSea with fiat currencies like the US dollar (USD) or the euro (EUR).

Axie Infinity

Trung Ngyugen, Aleksander Larsen, and Jeff Zirlin founded Axie Infinity in 2017. The three created a development team called Sky Mavis that built Axie Infinity on the Ethereum blockchain.

According to the founders, the vision behind Axie Infinity was to create a game like Pokemon on the blockchain. As such, the platform was initially a game.

However, the game’s popularity grew spontaneously, notably because players earned tokens for the playtime. The economic opportunities present in the game attracted even more players from all corners of the world.

Initially, Axie Infinity was a pet community. The game’s developers built fantasy creatures called Axie that players could collect, train, raise, and battle. Furthermore, they built unique genetic data linked to each Axie and stored on the blockchain. Even better, players have complete control over their game assets.

In 2021, Axie Infinity ruled the gaming sector of the NFT universe, generating more than $3.5 billion in sales volume. At writing, the marketplace boasted $4.17 billion in sales volume since its founding, highlighting the extraordinary year 2021 was to the platform.

Because of the overwhelming popularity in 2021, the AXS token – Axie Infinity’s native cryptocurrency – surged 18,000% year over year. Also, the platform claims 2.8 million daily active players at present.

CryptoPunks

CryptoPunks began as an NFT project under Larva Labs. In 2017, Larva Labs gave away all the 10,000 punks to anyone with an Ethereum wallet. However, the owners started selling the punks on secondary markets and among themselves, giving rise to the CryptoPunks NFT marketplace.

A Punk is an algorithmically generated 24×24 pixel art image of guys and girls looking punky. There are also Zombies, Apes, and other odd-looking aliens. Every punk’s code is hosted on the Ethereum blockchain, which is unalterable.

CryptoPunks is one of the largest NFT marketplaces by sales volume, having raked in over $2 billion since its founding. In 2022, Larva Labs sold CryptoPunks to Yuga Labs. Furthermore, all NFTs on the platform are sold out, although interested buyers can bid on them through third-party marketplaces.

Rarible

Rarible is a Moscow-based company with Alexei Falin and Alex Salnikov as the founders. The NFT marketplace is built on Ethereum and has a native token called RARI that facilitates value exchange.

Unlike other popular marketplaces like OpenSea and CryptoPunks, Rarible users must use the RARI token to complete transactions. Some of the NFTs you can find on the marketplace include virtual land, memes, and digital artwork.

Additionally, Rarible has built-in software that enables users to mint new NFTs and list them. The software then leverages the Ethereum blockchain to create new tokens. Users can then transfer the tokens to preferred wallets. However, one should note that Rarible collects transaction fees every time one uses the Rarible software to transfer tokens.

NBA TopShot

NBA TopShot is a digital platform that is a product of a collaboration between Dapper Labs and the US National Basketball Association (NBA). The platform went live in October 2020, intending to provide a landscape for trading sports collectibles. Essentially, NBA TopShot is an NFT marketplace where users can trade popular NBA images called Moments. By April 2021, the marketplace had over 800,000 users and a $500 million sales volume.

The platform’s primary objective is to pair NFTs with real-life experiences. Thus, the NFT ecosystem will likely extend into video highlights and virtual tickets. Unlike most NFT marketplaces, NBA TopShot is closed – users cannot trade assets across marketplaces. Also, the primary currency is the US dollar.

Conclusion

Beyond the attention-grabbing sales and FUD, the future of NFT seems brighter than ever. Specifically, more marketplaces are emerging, focusing more on improving user experience and solving security challenges encountered so far. Also, more choices for users will eventually weed out the unpleasant players, increasing the NFT ecosystem’s potential to evolve into something bigger.

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crypto

Top 6 Practical Applications of NFTs

According to a Reuters report in early January 2022, global NFT sales in 2021 topped $25 billion. If anything, the sales volume indicates the massive potential that blockchain technology, mainly the non-fungible token (NFT) ecosystem, offers. But the report further details that digital art comprised a disproportionate share of the sales.

Many will ready their wallets to plunge into the NFT ecosystem on seeing the figures in the report. However, others might wonder whether NFTs have such a narrow scope of practical applications.

But non-fungible tokens are an up-and-coming aspect of blockchain technology, whose practical applications are still expanding. Besides digital art, enthusiasts can acquire a variety of NFTs spread over many industries. This article offers a granular overview of the top 10 practical applications of NFTs.

1.   Tracking artwork

Most of the notable NFTs sales so far are in the art segment. For example, Beeple’s Everydays: The First 5000 Days fetched over $69 million in March 2021, marking a turning point in the NFT ecosystem.

In fact, an Art Basel & UBS Global Art Market Report released in March 2022 stated that international art sales recovered strongly in 2021. Sales grew 29% to $65.1 billion compared to 2020 – but the report’s highlight is the sizable contribution of NFTs to the revenue jump.

However, the smart contracts built on blockchain technology have more practical applications in the global artwork sector. For starters, a non-fungible token is a unit of data stored on a blockchain network capable of representing a physical or virtual asset. The data is unalterable once recorded on the blockchain.

The traditional artwork industry can leverage the NFTs to tag pieces of art for tracking and, of course, to combat counterfeits. Artists and other players can track the originality of a particular piece to ensure nobody buys an inauthentic property.

2.   Gaming

Art is essential to the NFT ecosystem, but it is not the sector where the NFT technology has found relevance. Gaming is one of the sectors that could evolve to a higher dimension if stakeholders adopt the full potential of blockchain and smart contracts.

Take, for instance, Axie Infinity. The online gaming company has built a virtual universe where players can collect, breed, and battle virtual pets – also called Axies.  What sets Axie Infinity apart is how it built synergy between regular online gaming and blockchain technology. Also, players can own their virtual assets.

The best part is that Axie Infinity is built on a blockchain and that an NFT represents each in-game asset. As mentioned earlier, NFTs are cryptographically unique, which enables the players to exchange the game characters for fiat currency like US dollars (USD).

Thanks to the ingenious business model, Axie Infinity boasts $4.17 billion in sales volume since its launch in late 2017. Furthermore, DappRadar data indicates Axie Infinity has sold more NFTs worldwide, just under a million less than NBA TopShot, the leading NFT collection in the market.

The point here is that online gaming is the natural home of NFTs. Unlike other industries, gamers are nearest to the virtual world, where NFTs thrive, and, already, the value addition of the technology is apparent.

3.   Metaverse

There was a rush of explanations and ‘ultimate guides’ to the metaverse in global media after Facebook unveiled its new name on October 28, 2021. Although knowledgeable observers argued that the name change was a necessary face-saving PR stunt for a beleaguered tech giant, CEO Mark Zuckerberg explained that the new company name, Meta, indicated the shift in priority.

The new priority was the virtual world, where today’s online social experiences are expanded into three dimensions or projected into the physical world. In other words, Zuckerberg was referring to the metaverse.

According to Wired, the metaverse is a lot of things. Still, to put it simply, it is a computer-generated virtual-reality space where users can have real-world interactions and even run a thriving digital economy.

Seeing that NFTs are already transforming online gaming, there is little doubt that the technology is a game-changer for the metaverse. For instance, users can store and appreciate digital art in ways not possible before.

4.   Real estate

Zuckerberg might have steered his company towards the metaverse because he believes the future of social media is headed in that direction. However, he could have missed another critical aspect of the virtual-reality environment – it is attracting virtual land prospectors.

On March 23, 2022, Forbes ran an article describing the typical process for buying virtual land in the metaverse. Less than two weeks later, it emerged that virtual land was one of the hottest NFTs on Decentraland, an NFT marketplace. The report came in the wake of Decentraland’s hugely successful virtual-reality Fashion Week.

It could be that the rising interest in virtual land is driven by buyers’ trust in the cryptographic power of NFTs. However, it could also be due to the fact that most virtual worlds have a hard cap on their real estate. Therefore, the resulting finite supply implies the asset’s price will soar if demand increases.

If people in the real world can profit from land in a virtual space, the possibilities of virtual real estate are immense.

Furthermore, NFTs can extend their usefulness to the real world of real estate. The traditional real estate market involves lots of paperwork, including proof of ownership paperwork and transfer deeds. Indeed, stakeholders could vastly benefit from the ability of NFTs to keep track of property via the blockchain.

For example, software developers could link each property to a smart contract that tracks its value over time and simplify and expedite transactions. The technology could also enable the creation of decentralized home rental services – significantly reducing expenses for buyers and sellers.

5.   Documentation and digital identity

There has never been a period when technology reined supreme as today. But its ubiquity has made technology complicit in many of the crimes taking place in many places worldwide. For example, identity thieves are wrecking families by destroying their financial lives.

Fortunately, it turns out NFTs could unlock the door to secure digital identities. One aspect of NFTs is self-sovereign identity, an integral technology in the blockchain architecture.

Self-sovereign identity or SSI is a technology that leverages the blockchain to enable people to manage their identities without the need for centrally managed databases. This technology allows users to self-manage their digital identities without depending on third-party providers to store and centrally manage the data.

The technology is akin to a digital passport that proves your identity easily and securely. Plus, one instance of your information is acceptable everywhere on the internet. What’s more, users have complete ownership of their data.

Based on SSI, developers can create utility NFTs – not exchangeable for money – that help owners prove ownership of an item or information.

Besides digital identity, such utility NFTs can help authenticate documents like college diplomas. Accordingly, employers and academic institutions can verify critical documents speedily and with zero chance of giving frauds a free pass.

To demonstrate the promise of NFTs in this sector, San Marino partnered with VeChain, a blockchain company, in 2021 to digitize coronavirus vaccine passports. According to one of the officials involved in the project, the technology created a proof of vaccination status that was “immutable, secure, and seamless.”

6.   Combating counterfeit products

If NFTs can weed out fake diplomas, the technology should indeed ensure the authenticity of products in the supply chain. According to William Quigley, co-executive of the Tether crypto project, NFTs could operate as digital certificates of authenticity for nearly every physical product within a decade.

Interestingly, some industries are already busy at work creating digital twins for their products. For example, fashion brands Prada, Cartier, and LVMH are working on a blockchain solution, Aura Blockchain, “for customers seeking greater authenticity.”

Aura Blockchain will provide encrypted certificates of guarantee for every product the brands produce. Additionally, the certificate enables better traceability and makes it easy for luxury goods consumers to sell their items on the secondary market.

Other sectors that could vastly benefit from the technology are food and medicine. They could prevent counterfeit medicines and food products from circulating in the global supply chain by leveraging the immutability and traceability aspects of NFTs.

Imagine if a manufacturer places a QR code on a product on the factory floor, and scanning the code provides you with all the details of the product’s journey since leaving the floor.

In this case, manufacturers will be better protected against erroneous claims by unscrupulous consumers or others who might have been conned. Also, customers will have previously inaccessible insight into the products/services they are spending their hard-earned funds on. In the end, an efficient and transparent supply chain will benefit everyone.

Conclusion

There is already a lot of hype about NFTs, but many might only have heard of the part where the technology is revolutionizing the art sector. However, the technology has immense potential to smoothen operations in many other sectors. It could be too bold a statement, but there isn’t denying that all forms of value will have an NFT twin soon.