Blockchain Explained – Part 4 - RegInsights - Learn more about Blockchain

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In the first part of this series, you were introduced to databases and the blockchain. We introduced Bitcoin as a cryptocurrency, and we defined money.

Secondly, we illustrated the drivers behind the value of cryptocurrencies and brought you the experts’ opinions on whether you should buy Bitcoin.

Thirdly, we discussed current regulations (or rather the lack thereof) and the potential impact on monetary systems in future.

Please read here in case you missed the previous editions: Part 1, Part 2, and Part 3.  

In this final part of our series, we will define fungible tokens vs non-fungible tokens and discuss the Ethereum blockchain. We will introduce you to yield farming and staking and conclude with our panellists’ final comments regarding blockchain technology.

Fungible vs non-fungible tokens

Fungible tokens are similar units of exchange, i.e. Kruger Rands, South African Rands and even Bitcoin. Non-fungible tokens (NFT’s) are dissimilar and unique units that contain information regarding the items’ ownership and copyright.

Ethereum blockchain and application of non-fungible tokens

The Ethereum blockchain currently holds non-fungible tokens, wherein unique bits of information are captured with regards to these tokens. They then become tradeable over the Ethereum blockchain, which acts as a settlement layer.

At present, the market is experimenting with digital native assets, i.e. “digital artwork” that gets “tokenised” and recorded on the Ethereum blockchain. Read more on the application of decentralised gaming.

Entrepreneurs are experimenting with in-gaming assets, for example, different “skins” in online games, choosing different avatars and swords for players. These assets can be moved across gaming applications and be traded on the Ethereum blockchain. Trending at present in the gaming environment, are smart contracts on the Ethereum blockchain, where fleets of digital assets are being held (i.e. spaceships or battleships used in gaming applications) for rental to others.

It is expected that these digital assets may soon come to the “real world”.  It is already possible to purchase a “portion” of commercial property and earn monthly dividends on its performance.

Blockchain Explained – Part 4Earning revenue through yield farming and staking

Yield farming and staking provide investors in cryptocurrencies to earn a form of revenue, by merely acquiring cryptocurrency. Yield farming is also known as liquidity mining and may be compared to traditional lending in the crypto space.

Investors are incentivised to purchase and lock up cryptocurrency pairs in liquidity pools.  In return for providing liquidity, investors are rewarded with additional rewards exceeding normal interest rates. Yield farmers “lock in” the value of NFT’s, in exchange for fees.

Read further on the process of yield farming.

Crypto staking refers to the “locking up” of crypto holdings to obtain rewards or earn interest. When cryptocurrencies are bought using blockchain technology, these transactions are verified, and the data is stored on the blockchain.

Staking describes validating these transactions on a blockchain. These validation processes are called “proof-of-stake” or “proof-of-work”. Both these processes assist crypto networks to achieve consensus or confirm that the transaction data adds up to what it should.

Participants who actively hold onto or lock up their crypto holdings in their digital wallets are participating in the consensus-taking processes of these networks.  Stakers can therefore be seen as approving and verifying transactions on the blockchain. These verifications are being awarded by the networks with returns equal to earning interest on a fixed deposit.

Read further on the process of staking.

Scalability of blockchain technology networks

When we refer to a “scalable” blockchain, we refer to a blockchain that can achieve a high TPS (transaction per second).

  • Bitcoin blockchain: Bitcoin was not built to be very scalable but was built to be ultra-scarce and a secure digital asset. Bitcoin has added a second layer to its network called “Lightning Network”, designed to speed up TPS and decreases the associated costs of the Bitcoin blockchain.
  • Ethereum blockchain: Ethereum is designed as a work computer and acts more as a settlement system. The settlement system built on top of the Ethereum blockchain facilitates fast and free micropayments but is less secure than the main blockchain.  Ethereum is still seen as the leading settlement layer.

Conclusion by our panellists

The earliest discovery of the concept of private property rights brought about the creation of value to both parties in an exchange transaction, leaving both parties in a better position than before.

The discovery of money and the evolution thereof over time made the action of trading easier. Today, we are seeing the further evolution of the future of money, making it easier to trade with one another. The changes which are happening in front of our eyes open a world where cryptocurrencies may unite people, further intercontinental trade and allow for trading beyond national borders.

This new technology provides a unique, exciting opportunity to re-imagine a new financial system. Amidst the decline in trust towards institutions, people may advance to take control of their own money.

The message is clear that we should not panic if we have not yet embraced the change, it is still early days and the future is exciting!

Empower yourself through knowledge. Study and understand the new technology and take control of your financial freedom.

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