VISA Forges New Connection Between Fiat And Cryptocurrency

Payments giant and credit card company VISA, have announced they are providing support for cryptocurrency payments using the USDC stablecoin starting with partner Crypto.com. USDC is an ERC-20 token that runs on top of the Ethereum blockchain network. This makes use of a stablecoin to settle payments using VISA payment products through their partners. At the moment VISA will pilot the payment system with Crypto.com, a cryptocurrency platform and digital exchange, with plans to offer the service to other partners. VISA is going to make using cryptocurrency much more available for payments. This legitimizes cryptocurrency payments for goods and services, since VISA is a financially regulated entity.

This is a bridge between traditional finance with emerging fintechs involved with cryptocurrency and digital assets. VISA had tried to bridge cryptocurrency payments before, but plans fell through. Perhaps VISA is now ready to provide the service with more knowledge and understanding of cryptocurrency. This allows VISA to better understand the new space fintechs are operating from, which involves innovative products that implement digital currency and blockchain technology. Perhaps it is a sign that changes are coming to traditional financial systems. VISA has been warming up to cryptocurrency and other digital currency (non-crypto) as evident from their more recent postings.

Before VISA, payments processors like PayPal and Square have provided support for cryptocurrency. PayPal has paved the way for users to buy cryptocurrency like Bitcoin through their app. Square allows their customers to buy, hold and sell cryptocurrency through their platform, including the Cash app. Prior to that, there were not many mainstream apps other than those provided by digital exchanges like Coinbase that allow their users to purchase cryptocurrency. VISA is different in that it is providing a way for customers to make payments with the cryptocurrency they hold. This is a layer that has been missing and it could accelerate utility of cryptocurrency as a payment method. Using the blockchain may also provide faster settlements compared to the current system, but scaling remains to be seen on blockchain networks like that of Ethereum.

While the purpose of cryptocurrency is for open direct payments system (Peer to Peer), VISA is not exactly that type of platform. It still operates under the traditional financial system, which is highly centralized and permissioned. That means VISA is not exactly an open network, it requires a membership for its customers. That is why the product they offer is more of a bridge between the traditional fiat system and cryptocurrency. The decentralized aspect of a transaction still falls under the blockchain layer, but through a VISA payment gateway. In the case of USDC, the payment is from a user’s digital wallet on the Ethereum blockchain or even a custodial wallet that supports USDC. What VISA provides is a way to make that payment possible to retailers who will accept the transaction. VISA has so many partners in the retail space that they work with, this opens opportunities for cryptocurrency companies like Crypto.com to have access to more traditional financial markets.

VISA could also open another bridge, this time to the DeFI space of the blockchain. Most platforms in DeFi run over the Ethereum network, but other platforms like Binance, Polkadot and Cardano offer their own ecosystems that provide DeFi apps. If there is integration to support VISA, that can bring more users to the DeFi space who are using VISA credit cards or payment applications supported by the VISA network. At the moment, VISA and other credit card companies do allow customers to purchase cryptocurrency from digital exchanges. Opening up to support decentralized exchanges in the DeFi space are more challenging due to regulatory compliance. If this can be resolved, it opens up the space to allow interoperability of dissimilar payment networks to become possible.

This is overall good for the Ethereum network. VISA will not only need to have USDC, but also Ethereum’s native token ETH (ether). In order to process transactions using USDC, small denominations of ETH are used to pay for costs called “gas” which are part of the transaction fees paid to the network. This is for processing transactions that have to be verified and secured on the blockchain. It may also be likely that it will be VISA’s partners who hold the USDC and ETH, while VISA just helps bridge the retail merchants with the cryptocurrency payment as the settlement layer. The main issue with Ethereum has been scaling, but the development community is fast tracking efforts to scale the network.

With VISA’s announcement, other payment companies like Mastercard and American Express should take notice. This introduces a business model that brings cryptocurrency native platforms with the traditional retail space. The predominant form of payment in the VISA network is by credit and debit card. By integrating a cryptocurrency method into the network, it opens up new channels for making payments. The choice of using a stablecoin also makes plenty of sense given that cryptocurrency is very volatile. This changes the narrative that cryptocurrency is trying to replace traditional finance. Before that can happen, it must have greater utility. Perhaps VISA can help bring it to more mainstream adoption, to the point where we can buy toilet paper with cryptocurrency.

(Image Credit: Photo by Tom Fisk)

Live Peer – Moving Production Workflows To The Blockchain-based Cloud

When it comes to transcoding video or audio, it was normally done through equipment in an office environment utilizing expensive hardware for commercial quality production. You need to have your own equipment besides the computer in order to transcode. The complexities of the process have been simplified in the age of cloud computing. There are providers who offer transcoding as a service on their platform over the cloud. While this provides convenience to editors and producers, it comes at a cost. Another issue is that if the provider’s service is down, the transcoding service will not be available. Users would surely want reliability and quality for the service they are paying for.

LivePeer is a project that builds on the cloud provisioning service for transcoding, but is also blockchain-based. It provides a decentralized network of nodes that provide their GPU to help transcode data on the network. Decentralization aims to guarantee up time. A user who needs to transcode can then send the job to the Livepeer network and pay the fees in Livepeer’s own ERC-20 token called LPT. The LPT token is also the reward given to “video miners” who help transcode and secure the network.

The LPT Token is:

ERC-20 token built on the Ethereum blockchain

Originally distributed via a “Merkle Mine”, an algorithm for decentralized distribution of token during the genesis state

Inflationary according to algorithmically programmed issuance over time

LPT is available from digital exchanges, including DEXes like Uniswap. Token holders have the following capabilities when using LPT:

Earn the right to perform or delegate work on the Livepeer network and vote on protocol proposals
Routes work through the network in proportion to the amount of staked and delegated token, serving as a coordination mechanism
Secures the network against a number of attacks via slashing that occurs due to protocol violation

Why transcode over the cloud?

When streaming video online, as is with OTT, various formats need conversion. The original format is the highest quality, often uncompressed and very large when it comes to file size. That is a problem when delivering the content to viewers. The format needs to be changed or transcoded to a smaller sized format that preserves most of the quality of the original. The formats can be made available in different quality and bit rates, depending on the service level. Since it can also be adaptive, the bit rate (adaptive bit rate) can change depending on the Internet connection of a viewer. The cloud can streamline the process efficiently, allowing producers and content creators full transcoding service.

Why use a blockchain?

It has nothing to do with speed. It is more about setting up a system that makes use of a decentralized network that is market driven and incentive based. There are users who want to transcode video/audio so there will be providers willing to transcode for a fee. The LPT token is used to pay for transactions and the records (not the content of the transcoding) are stored on the blockchain as verification of the process. This proves that a transcoding was performed to assure service fulfillment to a customer. The network will make sure that there is more than 1 transcoding service available. The blockchain is there to record the transaction and act as platform to enable trust between two parties that do not need to know each other.

For example you do not need to personally know who is transcoding your video. How can you trust them? That is where the blockchain comes in. It makes sure that the service fulfills its duty to process your job request. Conditions written in smart contract can make sure that the job is fulfilled or else there will be no payment made to the provider (i.e. Livepeer). The blockchain also prevents any form of cheating, so that once content has been transcoded, the system prevents a user from trying to get their payment back or canceling the payment. Once completed, a transaction is final when both parties are satisfied.

Synopsis

How Livepeer will change the broadcasting and production world is through a decentralized architecture that uses a blockchain. As streaming OTT content continue to gain a larger market, the demand will be there for transcoding service over the cloud. Average Internet speeds are also increasing, and with the implementation of high bandwidth networks like 5G and Gigabit Internet, more demand for high quality streaming will be there. This will push the demand for transcoding services as well, and there are many players available, but if they are too centralized they may not be able to provide guaranteed up time.

Users who need to stream video, online gaming, coding, entertainment, education content and other types of content can use Livepeer applications. Broadcasters can also use Livepeer to decrease infrastructure costs when it comes to delivering content. The use of a token to provide service records it on a blockchain. It makes it secure, protecting the transaction’s integrity. This allows users to know that they are using a safe and reliable network when it comes to transcoding requirements.

EIP 1559 And Ethereum As A Deflationary Currency

An issue with Ethereum is about to be addressed regarding its non-capped supply of ETH (Ether) with EIP 1559. The proposal aims to introduce a new protocol for addressing the transaction fees on the network targeted for release in July/August 2021. In the proposed change, during a transaction a small amount of Ether (ETH) is “burned” every time it is used to pay for gas fees. This token burn can somehow control the circulating supply of ETH as well, leading to a more deflationary money supply. The burned tokens are removed from circulation forever but new ones can still be created. Overall, this can add some controls on the amount of ETH being put out in circulation as form of inflation control.

Transaction fees are not consistent on the Ethereum network. They fluctuate every so often, but when there is high network demand the fees surge to sometimes ridiculous levels. For the seasoned trader it may not matter, but for retail and new traders it can be too much for smaller sized transactions. More experienced traders may deal with large transactions where the cost of gas does not matter as much. The prices are still high and there needs to be some improvement in which issues like scaling and layer 2 solutions aim to resolve.

TxFee = Total Gas Used * Gas Price Paid

As of March 7, 2021, the average cost of a transaction is $15.53. Just a few months earlier on January 17, 2021 the transaction fee was only $5.41. That goes to show a sudden increase of 187%, which could have been worth at least 2 transactions back in January or earlier in 2021. The demand for ETH in the DeFi space and hodling portfolios due to the good news coming out about ETH2.0 is helping to drive prices and at the same time increasing network activity. The congestion is expected, as the same thing happened back during the cryptokitties and ICO era. This puts plenty of strain on the network, but it has problems scaling since it can do at most 15 tps (transactions per second). The promise of ETH2.0 is a bring faster consensus with more efficiency through a staking protocol (i.e. Proof-of-Stake) to scale the network.

EIP 1559 is an improvement proposal to help make transaction fees more consistent and prevent it from getting to such high levels that many are not willing to pay. Currently with Proof-of-Work, the miners can determine the fees and increase it in order to prioritize a transaction. Nodes called miners set the price of gas used to process transactions, based on the supply and demand of computational resources available from the network. It is in units called Wei or Gwei, just smaller denominations of ETH. The proposal is to use what is called a BASEFEE, that is set based on the network’s level of transactions. What it aims to provide is a market rate rather than a reference based on prices that users are paying for. This structure eliminates the guess work often involved in calculating the transaction fees.

Some see this as adding deflationary measures because of the token burning feature. As tokens are created, they are also destroyed. That keeps the circulating supply in check and prevents any inflationary pressure, according to some analysts. This form of negative inflation could lead to less ETH in circulation, thus increasing market price. While this looks good to traders and core developers, some miners don’t exactly agree with the proposal. They don’t derive the same benefit as much since the token burn benefits token holders more than miners. The miners lose out on their profits that would have been the burned tokens.

The outcome may push for EIP 1559 despite the protests. Ethereum plans on moving away from mining and into staking, so it does make more sense to implement the protocol rather than continue with the current system. Mining will also become more difficult as specified in the protocol for ETH2.0 (e.g. difficulty bomb), that nodes would rather switch to staking since mining will be less profitable until it is totally no longer possible due to the increase in difficulty level. That leads to questions about whether the miners will hard fork Ethereum, but that may be a horrible idea. If no one supports the fork then the miners have a lot to lose, while the mainnet remains profitable with new nodes entering the network. EIP 1559 will surely be activated with > 50% consensus, but the miners can signal a no to the network and not activate it. What is important that still needs to be addressed are the high transaction fees, The hopeful resolution is that the miners and developers come to some agreement to determine transaction fees which really needs to be addressed to further the momentum of growth on the network.

Bitcoin Wrapped In Ether – Yummy!

You can take two good things and combine them together to get the best of both. In LA’s streets you can get what some would consider one of the city’s iconic sandwiches. It is the hotdog wrapped in bacon. It brings you the meaty flavor of a hotdog with the greasy goodness of bacon. Now think about the top digital asset Bitcoin (BTC). What would you wrap it with if you were to compare it to a hotdog wrapped in bacon? How about Ether (ETH), the Ethereum blockchain’s token. BTC is your hotdog, while ETH is your bacon. It actually exists and it is called Wrapped Bitcoin (WBTC).

Wrapping one cryptocurrency with another uses the hotdog wrapped in bacon example as a simpler way to illustrate an analogy. Wrapping in this sense means to create a protocol to represent one cryptocurrency on another cryptocurrency’s blockchain. BTC can be represented on the Ethereum blockchain by issuing an ERC-20 token called WBTC. This allows BTC integration with smart contracts that can be traded on the Ethereum network using the ERC-20 standard.

In Wrapped Bitcoin, BTC is locked into a smart contract and issued as WBTC. This allows BTC holders to access DeFi systems on the Ethereum blockchain. It is as good in value as BTC which is verified by a Proof-of-Reserve system. This ensures a 1:1 peg between the issued or minted WBTC tokens and BTC. The actual BTC is still on the Bitcoin blockchain since you cannot store it on the Ethereum blockchain. The BTC is taken under the custody of the WBTC token issuer, so it is not directly with the WBTC token holder. It is maintained by a group called the WBTC DAO, who are the custodians of the BTC. The group’s members include blockchain-based organizations like BitGo, Ren and Kyber.

What is the purpose of WBTC?

As mentioned earlier, it is primarily for giving BTC holders a way to gain access to the DeFi markets. A large portion of the DeFi space uses the Ethereum blockchain and BTC is not directly compatible with it. It is a bridge that allows BTC holders to use DeFi protocols to provide liquidity or participate in other services that yield returns. WBTC is a way to bring the value from BTC into the DeFi space without having to convert BTC to ETH. BTC (as of 2020) has the largest cryptocurrency market cap and this is crucial in helping bring liquidity to the DeFi space as well as expanding on the collateral types available.

This is a great way for BTC holders to take part in the DeFi markets. Many BTC holders have plenty of value stored, but are not able to use it if they are HODLing. DeFi provides ways for cryptocurrency to earn even while HODLing, using decentralized protocols like Uniswap, Curve and Yearn. Most DeFi protocols will only support ERC-20 or ETH since they execute from smart contracts on the Ethereum blockchain. WBTC is a protocol that allows BTC to be wrapped in an Ethereum ERC-20 token. Holders would not need to convert their BTC to ETH during this process.

Minting WBTC

To enter the DeFi space, Bitcoin holders would have to deposit their BTC into a smart contract of a WBTC issuer (e.g. BitGo, Coinsquare, etc.). This can be a digital exchange or DEX (Decentralized Exchange) that accepts BTC. Once the BTC has been deposited, WBTC tokens are minted that have a 1:1 value to the BTC that was deposited. Once the holder receives their WBTC, they can now use it for loan collateral, providing liquidity and swapping for other tokens. Digital exchanges will most likely require a KYC (Know Your Customer) in compliance with the law before the WBTC can be issued. On a DEX or over-the-counter it is not required (check with the exchange requirements always). The WBTC can be cashed out to either BTC or ETH.

Another way to get WBTC is through a DEX like Uniswap. Instead of depositing BTC into a smart contract, anyone who holds ETH can purchase WBTC. It requires connecting a digital wallet like Metamask to perform the transaction with ETH. The WBTC is already available in the market and it does not require BTC for purchase in this case. Since WBTC is an ERC-20 token, it can be purchased with ETH very easily.

Other Uses For WBTC

WBTC can be put to use in DeFi yield farming protocols. This allows WBTC holders to put their digital asset for lending and trading purposes. In return, the WBTC holders earn yields as a their return on investment. These yields are fees collected from the transactions. Rewards can be issued in the form of governance tokens, which allow the holders to participate in digital governance through voting. This provides holders a way of participating in decisions that govern these protocols.

Yield farming requires the holders to deposit their WBTC. In return, they are issued another token. Examples of these tokens include SNX (Synthetix token), REN (Ren Project token) and BAL (Balancer token). The tokens are specific to which protocol is used by the yield provider. To learn more about yield farming, there is an article on Coindesk that explains it a little bit further. (Link here)

The Best Of Both

Wrapped Bitcoin brings the best of two blockchains. It is a way to interoperate between two digital assets at the protocol layer. The value of Bitcoin and the decentralized applications on Ethereum. BTC is the digital asset while ETH is the protocol that utilizes it for liquidity, trades and financing. The Ethereum blockchain is serving as a transaction layer that can bring more capital into diverse markets. Bitcoin can provide the capital, as institutional investment grows in the digital asset. WBTC provides a way for investors to bring capital for yielding returns using the Ethereum blockchain.

Disclaimer: This is not financial advice, just reference. Do your own research always to verify information.

Ethereum 2.0 – The Path To Serenity

The Ethereum blockchain has undergone significant updates in preparation to a new version. The following software updates have been made since the project first started:

Frontier (July 2015)
Homestead (March 2016)
Metropolis (Byzantium in October 2017 and Constantinople in February 2019)
Istanbul (December 2019)

The next iteration is Eth2 or Ethereum 2.0 which will introduce the Serenity update. It is set to begin in late 2020 and deploy in phases. (Learn more at Ethereum.org)

It will change the Ethereum protocol, moving away from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). It will launch in multiple phases, as developers begin deploying the necessary changes to the Ethereum blockchain. The main purpose for this transition is to bring more efficiency and scalability to the network, to process more transactions and operate with more efficiency and stability. Scaling has long been a problem of blockchain-based networks, because they have to rely on decentralization which doesn’t process transactions as efficiently at the rate of commercial business applications. That is part of a tradeoff with scalability, since blockchains are more decentralized and secure.

Eth2 will still be decentralized, but improve their consensus mechanism from mining to staking. This will allow validators to contribute based on their proportion of ETH (ether) on the network rather than providing compute resources. There is no more need to solve random puzzles using hash power. Instead the staking method allows validators of blocks to commit a portion or all of their ETH to validate transactions. Their incentive will be based on the amount they staked. It is more energy efficient as well, not requiring expending large amounts of energy to produce one block. Eth2 randomly selects validators in a fair and decentralized manner.

At present, the Ethereum network can process between 15 to 30 tps (Transactions Per Second). With Eth2 it will increase the transaction velocity up to 100,000 tps. This would be possible (in theory) with the implementation of the Ethereum 2.0 upgrades. Even if in the real world it isn’t exactly 100,000 tps, a higher transaction velocity is still the best outcome. The underlying element to increase the number of transactions involves the use of shard chains (sharding will be explained later).

Among other changes to the network, the beacon chain and sharding will also be deployed as part of the EIP (Ethereum Improvement Proposals). Beacon chain is a feature that coordinates the PoS implementation on the Ethereum blockchain. Sharding aims to improve the storage of data on the network, to scale to higher capacity and faster access to data. Rather than to have all nodes on the network storing the blockchain state, shards are created to store system state in a distributed and decentralized manner for more efficient operations. If all nodes had to keep store of the world state of the blockchain, it certainly slows down the network since each node has to perform updates whenever there are changes. That can take plenty of time when you have many nodes.

The idea is to keep the network open to all who want to stake without barriers in order to maintain a decentralized network. Ethereum 2.0 will require 16,384 validators, which means a more decentralized and secure network. The more nodes there are, the more security to the network through coordinated participation of each node. This is because those who have staked their ETH face losing what they staked if they do not cooperate with other nodes or if they attempt to attack the network. It is a coordinated game theory example of contributing resources for the greater good. However, there are also consequences and not just incentives.

Despite all the efforts by developers, the project has been facing delays. This is not a major setback, but has been expected due to the complex nature of the system. It has been in development for years and it could still take longer to deploy and implement. It does keep the momentum for driving the value of ETH higher, along with the surge in the DeFi (Decentralized Finance) space which is based on Ethereum’s ERC20 token standard. As transaction volume increases and ETH gas costs decrease, the value of ETH would show a likely bullish trend. The market is so volatile though, nothing is certain. The transition to Ethereum 2.0 will be undergoing phases, so they won’t happen over night. It is best to keep an eye out on the developments, because any progress would surely be a good signal to the rest of the market.

Ethereum 2.0 Spadina Testnet Is Set To Launch

The Ethereum 2.0 or ETH 2.0 journey continues with the Spadina Testnet launch. This is part of the Ethereum 2.0 roadmap to improve scalability, security and programmability. Spadina will run in parallel alongside the Medalla Testnet. Developers can use both networks to test Ethereum 2.0 features. This paves the way to ETH 2.0 which is expected to launch later this year, but this is not always certain. Many factors (e.g. bugs, divergence in viewpoint, etc.) can arise that could lead to delays, as often happens with the development community.

The genesis for the Spadina testnet has been set to September 29, 2020 (“dress rehearsal” v0.12.2 Ethereum 2.0 multi-client testnet “Spadina v0.12”) with a genesis time of 1601380800 (12 PM UTC). Once the testnet is up, developers can begin testing deposits and beacon nodes on the network. The testnet uses only 1,024 validators which is far less than what would be required on the mainnet (16,384 validators).

The purpose for Spadina is further test the crucial features for ETH 2.0 Serenity Phase 0. This includes deploying smart contracts for making deposits and generating the genesis block on the network. Depending on how successful and confident developers are during the testing, it can very well continue into 2021 or lead to the release of ETH 2.0 much sooner. This requires more understanding and participation from the community to determine if the upgrade can be implemented on the Ethereum mainnet.

ETH 2.0 introduces the Beacon Chain with sharding and the Proof-of-Stake (PoS) consensus mechanism. These are upgrades that address scalability problems in the Ethereum protocol. The target is 100,000 transaction per second (TPS). The challenge is to scale without sacrificing too much security and decentralization. With PoS, mining will be replaced by staking, introducing a new incentive system to reward nodes that contribute to the security and efficiency of the Ethereum blockchain.

The Summer When “Sushi” And “Hotdog” Burnt The Noobs

The DeFi space is notorious for copycat blockchain projects which don’t really deliver anything useful other than a quick pump and dump. Those who get in first benefit, dumping on those who come much later in the anticipation of ginormous returns. It just is not going to happen, unless you aren’t the “fool” (e.g. Greater Fool Theory). The problem is due to human nature. Many are looking at these DeFi projects as “get rich quick” schemes as they try to get in early and exit early with profits while leaving those who followed nothing.

It all started when developers followed the success of projects like Uniswap and Yearn.Finance. Since the code is open source, and there are plenty of resources available from GitHub among other places, developers can just copy and paste the code and create their own fork of the software. It has worked well in fact that we have Uniswap clones with catchy names like SushiSwap and HotDogSwap. They may sound like the next big thing in the crypto space, but that is not the case.

These copycat projects offer high yield products, that just seem out of this world. You must be in another dimension to expect 1,000,000x (1 million times) returns on a token. This reminds me of scamcoins like Bitconnect, but only more technical and neatly packaged for those who think they are on to quick gains in the crypto space. None of these tokens are sustainable if every holder ahead of you dumps and there is no further liquidity to maintain the liquidity pool. They were illiquid to begin with and have no other purpose other than speculation.

A developer who goes by the name of “Chef Nomi” has become well known for the SushiSwap token. It is another clone of Uniswap that issues its own token for Liquidity Providers to lock their digital assets. Despite its relatively short existence, it suddenly surged after August 30, 2020 with huge gains for those who hold the token. All they did was launch a new liquidity pool provider using “vampire mining” methods to siphon off tokens from Uniswap. At this point some holders were thinking things were going well, until SushiSwap dumped and Chef Nomi exited the project taking $14M (which he would later return). Later Chef Nomi apologized, stating the reason for exiting the project was more due to turning it over to the community. It was just that the way he left was not in a genuine way to assure the community that things will be all right. Actually, what does Chef Nomi care since no one should be in control of the platform. It is a decentralized protocol that no one, not even its developer should be able to control.

SushiSwap was eventually saved by Sam Bankman-Fried, head of startup Alameda Research and trading platform FTX. Perhaps SushiSwap was worth saving. If you look at the code, it was not just a clone of Uniswap. The project also added governance features for the community. At least things ended well with SushiSwap but not for the Yam project. Yam, a clone of YFI or Yearn.Finance token, became one of the hottest “Yield Farming” projects in DeFi in August 2020. Many people fell for the hype and soon many were putting their tokens to gain huge yields. However, the code was never subjected to an audit and it had a serious bug that would affect its operation. The bug has permanently affected the platform with $750,000 worth of Curve tokens locked. Perhaps this should be the DeFi example of who not to follow when launching a new project.

Following the heels of SushiSwap is another project called HotDogSwap. Once again the hype brought in a huge pump in its initial release in September 2. The token was valued at $5,000 at some point before crashing to less than $1.00. The value has since plummeted further below $1.00 as of this posting and it may not recover again, unless it has real liquidity and actual use cases. That cannot be stressed enough. Utility is what makes a token a GPT (General Purpose Technology). One of the failures of HotDogSwap is a lack of community governance that could have prevented large dumps through improvement proposal protocols (e.g. like EIP or Ethereum Improvement Proposal). Otherwise, there is no way to stop “Degenerate Farmers” who pump to push prices up and then cash in when the FOMO begins.

Perhaps the DeFi space needs to keep an eye out for regulators. With all the money being generated in this space, it will begin to catch the attention of regulators like the US SEC and tax authorities like the IRS. Compliance can be circumvented because these platforms are decentralized, but we shall see just how decentralized a platform is. If they use a form of on-ramp with fiat or digital exchanges, it could lead to requirements for users to submit personal KYC data. The use of CeFi (Centralized Finance) exchanges like Binance can provide the compliance requirements to some of these DeFi projects using a CeDeFi bridge.

Between Yam and HotDogSwap, users have lost plenty of money. These copycat projects are burning those who FOMO into the project with the expectation of high yield returns. The failed DeFi projects can serve as a cautionary tale to those who dare get into this space. These projects are digital ponzi schemes, and even much worse. With ponzi schemes you have a chance to recover your funds. With smart contracts and the blockchain, the problem is the immutability of data means there is no backdoor or master key that can unlock these funds. It is locked in the blockchain forever, thanks to reckless developers.

Ethereum Needs The LINK Marines

Ethereum is surging as DeFi is bringing in more liquidity into the decentralized platform. A vital part of this push includes Chainlink, a decentralized oracle network. Chainlink provides a solution for providing information to smart contracts, many of which run on the Ethereum platform. Blockchains are evolving to third and fourth generation networks that introduce new features that extend the capabilities of smart contracts. It is significant to the Ethereum blockchain when it comes to use case.

Decentralized Oracles

Chainlink provides an API for connecting smart contracts to real world data. This information can be processed form databases which feed the data to smart contracts in real time. What separates Chainlink from other oracles is its decentralized BFT (Byzantine Fault Tolerant) network architecture which is not under the control of any entity or organization. This prevents bias, data tampering, manipulation and single points of failure. Downtime can be costly when data is not received in time. This can affect business decisions like when to sell stocks or coins.

One of the main applications for Chainlink is connecting smart contracts to real time price feeds. By design, Chainlink was developed to bring off-chain data sources to on-chain smart contracts. The previous problem with smart contracts is they could not get data on their own. Chainlink provides a type of middleware to connect external data to the smart contract to execute on any blockchain.

LINK Token

To ensure that nodes on the Chainlink network are feeding accurate data to smart contracts, a token is used called LINK. It is an incentive to the oracles who provide data and help secure the network. Bad actors are removed from the system while those who are honest receive the incentives. There are consequences for dishonest nodes who try to tamper with the data. It is a type of reputation system so bad actors will be discouraged from malicious intents on the blockchain. This includes nodes that neglect providing data, falsifying data and attacking other nodes among other things. This provides an open market that is merit-based to provide reliable and trustworthy data.

Blockchain Agnostic

Although built using the Ethereum ERC20 token standard, Chainlink is actually blockchain agnostic. This means that Chainlink was meant to work with other blockchains like Icon and even Hyperledger. Although it is an ERC20 token on the Ethereum main network, it is not exclusive to it. Chainlink’s LINK token can survive on other blockchains through distribution. Blockchains that need real time data can use Chainlink through an API.

Benefits To Ethereum

Prior to Chainlink, oracles could not directly feed data to smart contracts in real time. The data from oracles can be coded by developers, but they could not do it automatically until the Chainlink API came along. A smart contract can get external data feeds from various data sources via Chainlink’s nodes that handle data requests. They also return the results back to the smart contract to fulfill the request.

The importance of Chainlink is the way it provides real world data. For practical application use cases, oracles like Chainlink can provide data as they occur and not from a previous time. Smart contracts that are able to get data in real time to process transactions are more accurate and reliable. This can improve systems that rely on constantly changing data like on monetary exchanges. This means a trader will get the actual value of their trade as it is happening in the market.

The potential is huge for Ethereum. It provides an actual service that has a use case to benefit users. It is also decentralized so there should be no point of failure or downtime. These oracles perform non-stop even if one node is down since there will be others to take its place. This can help extend smart contract capabilities on Ethereum to become truly reliable for business and finance.

The Ethereum ERC-20 Token Specification

The Ethereum Request For Comment ERC are defined technical protocols from an EIP (Ethereum Improvement Proposal) request to the Ethereum development community. Once the EIP has been approved, it becomes an ERC, and can be implemented on the blockchain. The ERC-20 token was a specification that allowed projects to use the Ethereum blockchain as a source for funding. It became very significant when ICOs (Initial Coin Offering) became popular between 2015 and 2017. That was until financial and trading compliance issues affected the continuation of ICOs due to lack of regulatory clarity. Certain projects will be under scrutiny to participating in ICO if they have not passed the statutes of limitation for the issuance of an unregistered “security”. This falls under the SEC (Securities and Exchange Commission) for most jurisdictions and have since discouraged new projects from issuing an ICO.

Since many projects are already using this as a standard on the Ethereum blockchain, the number of ERC-20 token contracts has grown. By mid-2017, there were around 5,500 ERC-20 smart contracts on the Ethereum network. It grew past 40,000 in 2018 and are further increasing. ERC-20 is not just a technical specification for creating tokens, but it also provides a guideline for how to interact with other wallets, smart contracts and digital marketplaces within the Ethereum ecosystem.

The ERC-20 became a standard on the Ethereum platform not only for funding, but for the issuance of tokens. Several cryptocurrency projects started out as ICO with tokens (e.g. EOS, Tron, OmiseGo). These projects used the Ethereum blockchain to fund their own coins as issued tokens which can later be exchanged for the native cryptocurrency asset once the main network is running. The ERC-20 tokens were temporarily locked into smart contracts that hold a certain amount of Ether. Once the projects were able to build their blockchain, the ERC-20 tokens from the smart contract could be exchanged for the native asset for that blockchain.

As a standard, ERC-20 provides uniformity of technical and protocol standard. This allows developers to follow a procedure, much like how developers create API for their application to communicate with other applications. This reduces complexity of understanding each type of token implementation. A tremendous benefit it brings to the Ethereum blockchain is enhanced liquidity, since Ether or ETH is required to purchase the tokens. That can affect the price of ETH in terms of market cap.

The structure of an ERC-20 token contains 6 functions, 2 events, and 3 token information functions. These functions are invoked and can be be called within a smart contract. From the ERC-20 specification, the following are the 6 functions:

1. totalSupply(): Total supply of Token.

2. balanceOf(address _owner): The balance in the _owner address.

3. Transfer(address _to, uint256 _value): Sends a token of _value to address_to, triggering the Transfer event.

4. transferFrom(address _from, address _to, uint256 _value): Sends a pass from the address_from _value to address_to, triggering the Transfer event.

5. Approve (address _spender, uint256 _value): Approve _spender to extract a certain amount of money.

6. Allowance(address _owner, address _spender): Returns the amount that _spender extracted from _owner.

Decentralized Apps or DApps also support ERC-20. These apps run on top of the Ethereum blockchain. The DApp can be used to query information or even to execute a smart contract. Developers can use the functions when dealing with digital tokens created on the Ethereum blockchain.

The following are the 2 events that are triggered by the functions:

1. Transfer(address indexed _from, address indexed _to, uint256 _value): Triggered when the token is transferred.

2. Approval(address indexed _owner, addressindexed _spender, uint256 _value): Triggered when the approve method is successfully called.

The token also needs to be set with any of these 3 types of token information:

1. Name: Name of the issued Token.

2. Symbol: The name of the Token issued. For example, EtherCent token or ECT on https://rinkeby.etherscan.io/token/0x8caca3dbb57ecb058a82209effde5bf647459771

3. Decimals: Set how many digits this token can reach after the small digits. Generally, the set value is 18, which means that it can reach 18 digits after the decimal point.

The following is an example ERC-20 token created on the Rinkeby test network.

Since Ether (ETH) was released prior to the ERC-20 standard, it does not actually comply with the specification. As a result, this led to the creation of Wrapped Ether (WETH). This is an ERC-20 token that represents Ether at a 1:1 ratio (1 WETH = 1 ETH) which can be exchanged for other ERC-20 tokens.

Since the popularity of ICOs have waned in 2020, ERC-20 tokens are not as common. They are still in use mainly by projects that have not yet released their own native tokens or by new projects that are testing token development (usually on a test network). By keeping their ERC-20 tokens locked with ETH, they are providing a sort of promise to their holders that they can convert it for more value in the future. The converted tokens can then be used within those blockchain projects as a medium of exchange or store of value.

Ethereum Denominations Explained

Ethereum’s digital asset is Ether (ETH). It is a cryptocurrency whose fiat counterpart would be the Dollar, Euro or Yen. Ether can be spent on electronic payment systems, just like a form of digital medium of exchange. Its balance is then updated on a blockchain, where a digital wallet’s history is maintained that logs all transactions from the beginning to the present. Just like the Dollar, Ether can also be broken down into smaller denominations or fractions of the digital asset. The Dollar can be divided into cents, with denomination in penny (1 Cent), nickel (5 Cent), dime (10 Cent) and quarter (25 Cent). Ethereum also has its own denominations that are a fraction of Ether. Even Bitcoin (BTC) has smaller denominations called Satoshis.

The following table lists the various denominations of Ether, starting with its lowest unit called Wei. The table lists the values in Wei and Ether.

The units are expressed with nicknames taken from pioneers in computing (Ada Lovelace, Charles Babbage, Claude Shannon, Nick Szabo, Hal Finney, Wei Dai) and Ethereum’s co-founder (Vitalik Buterin). The smallest denomination is Wei, which would be written as 0.000000000000000001 Ether for 1 Wei. That is 10 to the negative 18 in exponential form. The more commonly used denomination is Gwei, which is a billionth of a Wei or 10 to the negative 9 in Ether.

To get a better understanding of denominations, here are the values of 1 for each unit in Ether.

1 Wei = 0.000000000000000001

1 Kwei = 0.000000000000001

1 Mwei = 0.000000000001

1 Gwei = 0.000000001

1 Twei = 0.000001

1 Pwei = 0.001

When calculating gas, which is the unit of computation on the Ethereum blockchain, an entire Ether would be too much value. Therefore, like the way a Dollar can be divided into cents or a fraction of the currency, Ether can be denominated into smaller values. That way the cost of computation is kept low for transaction fees that occur during smart contract execution. The default maximum gas value is set to 21,000 gas units, which is in the denomination of Gwei. That would be worth 0.000021 Ether.

Denominations or fractions of a currency are a more fundamental way of dividing into more logical units of cost. Rather than a whole Ether to spend, a smaller denomination can be used as charges for a transaction. This lowers fees, making the system usable for payments and transfers.