How to DYOR with Crypto Fundamental Analysis

Fundamental Analysis Crypto


Key Takeaways:

  • Fundamental analysis is the process of evaluating an asset to judge its potential as an investment.

  • To evaluate a project, an investor considers internal and external factors that could contribute to the performance of the projects in the future.

  • These include the project’s management team, the resources available to the project, along with economic factors such as token supply and distribution. Other factors that affect the token’s demand and supply such as the token’s utility should also be considered. 


Before deciding to invest in a cryptocurrency, it’s best to start by doing careful research into all of the project’s available metrics. Through a mix of qualitative and quantitative factors, including the token’s purpose, tokenomics, team, use cases, and community, an investor is better placed to understand if the token is undervalued or overvalued by the market.

Regardless of whether you’re considering established cryptocurrencies or newer tokens, it’s important to understand what you’re investing in. In this article, we’ll look at how to do your own research through fundamental crypto analysis, along with an in-depth look into the different quantitative and qualitative factors to consider. 

Before that, let’s start by looking at how fundamental analysis in crypto differs from traditional finance.

Fundamental Analysis in Crypto Vs. TradFi

Traditionally, the fundamental financial analysis relies on data like the state of the economy, the company’s quarterly and annual reports, and other publicly available financial data that could influence its future price.

Company shares or bond issuance can be compared to token supply and distribution in the crypto space. However, while companies can issue new shares in a future round of investment after top-down approval from its board of directors, the decentralized nature of crypto adopts a bottom-up approach, where the community votes to decide whether or not changes should be made to a project’s tokenomics and supply distribution, such as increasing the maximum token supply.  

Shares and bonds are also solely issued by a company under the regulation of a securities commission. In contrast, token distribution by cryptocurrency projects is comparatively underregulated, where tokens can be distributed via airdrops, staking programs, or on-chain token generation activities like mining and staking.

With the above differences in mind, let’s look at how to do your own research with fundamental analysis when evaluating a cryptocurrency’s investment potential. 

Financial Metrics

A project’s financial metrics include data on the traded asset, liquidity, and supply mechanisms. You can use a platform like CoinGecko to do research on a project’s financial metrics, with all the necessary information in one place.

Market Capitalization

CoinGecko Token Overview

Market capitalization shows a cryptocurrency’s total value at a point in time. It is calculated by multiplying the current price per token and the circulating supply. Asset tracking platforms like CoinGecko provide you with an overview of the token in circulation, its current price, and the total market cap.

On CoinGecko, you’ll also be able to view the token’s Fully Diluted Valuation (FDV), which looks at the total token supply and calculates what the project’s valuation would be if these tokens were in circulation. 

By taking into account the project’s FDV and market cap, an investor can decide whether the token is likely to grow past the current level. On CoinGecko, you can compare the market cap and FDV of similar projects as a way of getting a hint of the valuation a project truly deserves.

Trading Volume and Liquidity

CoinGecko 24 hr trading vol

An asset’s trading record is a good gauge of its financial viability, so another key metric to look at is its 24 hour trading volume. 

The trading volume of an asset shows the collective value of the asset bought and sold over a period of time. Beyond the overall 24 hour trading volume, you can also look into the 24 hour volume of specific asset pairs on individual exchanges listed on CoinGecko. 

A consistently high trading volume suggests a thriving project, and investors look out for this as proof of sufficient demand and liquidity as well. 

Liquidity measures how easy it is to buy and sell an asset. If it can be bought and sold quickly without major fluctuations in the market value, the project has strong liquidity. However, if the market is illiquid, it becomes difficult to trade assets at a competitive price. 

Knowing the importance of this data to investors, shady cryptocurrency projects have devised a means to create fake volume and liquidity for their assets. This tricks investors into believing in the viability of the asset. This is known as a Honeypot scam. Honeypot projects create fake buy and sell orders to trick investors into believing that the asset can be easily bought and sold. 

Unfortunately, investors who buy into this trick will have a hard time selling the asset as the presented liquidity doesn’t exist. This practice is more prevalent in projects listed on decentralized exchanges. 

You can use a website like Honeypots.is to help you detect honeypot scams using the asset’s contract address. To use this tool, visit the website, input the asset’s contract address in the search bar and click the ‘Is it Honeypot?’ to check if the token is a honeypot.

Token Supply Economics

CoinGecko Token supply

Token supply economics is generally referred to as ‘tokenomics’, encompassing everything about the mechanics of the crypto coin, from its supply, token distribution, and utility of the tokens with regards to supply and demand. This defines how tokens are brought into circulation, and how these tokens are managed for project growth. For select tokens, CoinGecko’s tokenomics feature displays this data for each tracked asset.

Chainlink tokenomics on CoinGecko

Tokenomics data details how the tokens and allocations (if applicable) are scheduled. For smart contract tokens, the tokenomics data shows the number of tokens released at launch, whom they were allocated to (or what they were allocated for), and information about vested tokens. This includes the amount vested, the reason for vesting, and release schedules.

For native coins like bitcoin, Ethereum, and Fantom, information like the number of coins issued to miners or validators per block and the maximum number of coins that can be mined should also be considered.

The rate at which new coins or tokens are released and sold into the market also affects price development. In the absence of sufficient demand to override the supply rate, this could damage the asset’s profitability.

Exchanges Listed On

Exchanges a token is listed on how to check coingecko

Another important consideration when doing your research is to look into the trading platforms on which the asset is listed. 

When a major exchange lists an asset, there is the implication that there is trust in a project and its related digital asset, especially when it is listed on a major exchange. To qualify for an exchange listing, reputable cryptocurrency exchanges may require complete identification of project team members and their project roadmap. 

Also, by listing it as a trading pair with BTC, or one of the other major exchange pairs like ETH or BNB, this indicates that there is sufficient liquidity for an accurate price discovery to take place. 

You can also look at acquiring tokens that have not been listed on an exchange yet if you believe it meets your qualitative and quantitative standards. It’s possible for prices to rise rapidly after listing, but this usually happens for a very short interval of time while price discovery is taking place. 

In this instance, a good way to estimate how much a cryptocurrency project’s technology and token are gaining traction is through looking at its on-chain metrics.

On-Chain Metrics

On-chain metrics are data obtained from the project’s records on the decentralized ledger that showcases user growth and adoption. Some of the popular on-chain metrics to consider while doing your research includes:

Number of Transactions

The blockchain records every transaction conducted by each user. These records are available to anyone who wishes to access them. Data stored on the blockchain are mainly records of transactions involving the native coin and tokens in a smart contract blockchain. To assess how much a blockchain is being used, the number of transactions executed at a period of time is a good way to start.

Certain analytical tools like blockchain explorers can collate these transactions and record them in set periods like 24 hours, 2 days, and so on, while providing a graph to illustrate the trends. At a glance, an investor can evaluate how active the project is through the number of unique transactions and how they have improved over time.

Transaction Value

Transaction value differs from trading volumes as these are the transactions tracked on the blockchain. 

This can also give you an idea of how much other investors are committing to a project. This suggests how confident they are in their investment and also gives a hint of the impression the project has had on other investors. 

Huge buys, if not manipulated, are indicative of strong conviction and high expectations. Low-value buys might indicate that investors are taking precautions as they are unsure of what to expect from the project. A large number of sales may be an indication of exits.

This data should always be used together with other metrics such as the current state of the crypto market and some events particular to the project. 

New and Active Addresses

How many people are transacting using a coin or a token and how many more users have it gained in the past week? This information can be easily obtained from the blockchain. The number of active addresses is a reliable usage statistic. For projects with special utilities, it gives a hint of how many people are adopting the technology being propagated by the project. For blockchain-based payment solutions like bitcoin, it shows how many people are transacting with the decentralized electronic currency.

New users will also need to create a wallet on the chain or transfer the smart contract token to their wallet. When any of this is done, it reflects on the chain as a new address. ‘New address’ data can be used to assess how many new investors and adopters the project has gained in a period of time.

This data can be used to ascertain the number of people being served by the project and if this adoption rate is comparable to the current valuation. A high adoption rate and a comparatively low valuation are usually a show of undervaluation, and the asset is a prospect for price growth. If it’s the other way around, the project is probably overvalued.

Hash Rates in Proof-of-Work

In a Proof-of-Work blockchain, participants of the network are required to run a node and contribute to the security and decentralization of the network. Community members who participate in this way benefit from the coin generation process through receiving miners’ rewards.  The ease with which the miners earn this reward is determined by the network’s hash rate. The hash rate of a blockchain network varies with the amount of computational power committed to the network. This is also determined by the number of devices setting up a mining node.

As more miners join the network, the hash rate increases and the coins become harder to mine; however, the network becomes more secure and decentralized. The reverse is the case when miners leave the network. As an investor, the network usage and security can be evaluated using hash rate data.

Bitcoin’s value has a history of a proportional relationship with its hash rates. Generally, bitcoin’s value tends to improve when the hash rate and mining difficulty increase.

Fees Paid

Like other on-chain metrics, the cumulative fee paid by users is another way to gauge the usage of a blockchain. 

To verify a transaction, users will need to pay a fee in the native coin of the blockchain. This fee is usually within a known range. An increase in the fees paid is usually an indication of increased usage.

Apart from blockchain networks, decentralized applications like DeFi projects and projects trading on decentralized exchanges charge a fee for liquidity provision and other services. Some projects channel this fee into further development as a source of revenue. For projects like this, the fee paid, in addition to being a usage metric, is also used to evaluate the financial condition of the project as more fees mean more funds for development or token buyback as the case may be.

To complete research on the project you wish to invest in, another factor to consider is the project’s profile and a closer look into the project’s management. This is done by evaluating the project’s materials and personnel data. We will collectively call these project metrics.

Project Metrics

Now that we’ve studied the current state of the project by looking at the project data available, it’s time to look into qualitative considerations like the project’s plan for the future and how they line up against their competitors.

The Project’s White Paper

A white paper is an official informational document that outlines the features and goals of a project. It describes the initial design of the technology, the project team, and their vision, focusing on presenting a detailed explanation of the core design of the project and the system put in place to actualize this design. The whitepaper can also contain a breakdown of the tokenomics and the project’s roadmap.

The white paper is a must-read document for every investor doing their due diligence. If the project is already live, investors should compare the product presented on the white paper with what the project has put in place. If the project is already deviating from the initial design without a good reason, investors might want to reconsider their investment plans.            

Where to find whitepaper CoinGecko

CoinGecko makes it easy   for investors to access projects’ white papers through the Whitepaper feature on the platform. To view a project’s white paper, click on Whitepaper on the asset page.

The Team, Partnerships, and Social Media Channels

Who is behind the project, what external parties are involved in the project and how is the project communicating with their community? 

Evaluate the core members of the project’s team, their past involvements in the space, and the role they played in these. Past projects can fail for many reasons, but if a key team member has been repeatedly involved in rug pulls, this could be a sign for caution. 

Also extend your analysis to the project’s partners, their background, and the role they play in the project.

Tokenomics and Initial Distribution of Tokens

Beyond what was discussed earlier with regards to tokenomics, remember to look at the vesting period and the unlock schedule of coins. The vesting period prevents token holders such as employees and other early investors from selling all their tokens at once, causing an oversupply and potential crash in the coin’s value. 

Project’s Roadmap

A roadmap is a presentation of a project’s plans for the future. Roadmaps usually contain projections and what the project plans to achieve at a stated time in the future. A project’s roadmap could extend deep into the future (like 5 years or more) or just state plans for the near future (like a year or less).

Roadmaps outline the desired financial and technological heights a project hopes to attain. If you’re planning to adopt a hodl approach to your crypto investment, this is essential data to consider. The roadmap also serves as a way to measure the project’s achievement of its milestones. 

Competitors

What other projects have similar technology to the project you wish to invest in? Understanding these projects will aid your investment decision. How does your project measure up against the competitors? Does it have better technology, a more experienced team, a more reliable plan for the future, or do they just have a better marketing team?

If it is a developing project, your project of interest might face stiff competition from older, more established, and more financially stable projects.

Final Thoughts

When investing in a volatile asset like cryptocurrency, it’s important to take your risk appetite into account. Doing your own research and looking into the project specifics outlined above will help you avoid pitfalls like obvious rug pulls and honeypot scams, but the likelihood of extreme price swings remains, even in the case of so-called blue chips like bitcoin and ether. 

Finally, when storing cryptocurrency, remember to use non-custodial wallets to maintain full control of your funds – not your keys, not your coins! 

Note: Every piece of information contained in this article is purely educational and no part of this content was designed to be financial advice.

What is Bitcoin.com’s VERSE Token?

What is Bitcoin.com's VERSE


Key Takeaways:

  • The VERSE token is the native token of the Bitcoin.com ecosystem.

  • Bitcoin.com is a digital ecosystem and secure self-custody platform where users can safely and easily interact with cryptocurrencies and digital assets. The multichain Bitcoin.com Wallet has over 35 million self-custody wallets created and Bitcoin.com’s monthly active user base exceeds 5 million.

  • The VERSE token will be used to foster further development of the Bitcoin.com ecosystem, reward existing users of Bitcoin.com’s products, and fund educational and relief programs organized by Bitcoin.com including the recently announced CEX Education Program.


Issued by cryptocurrency company Bitcoin.com and running on the Ethereum blockchain, VERSE is intended to be a utility and rewards token for their community, and a gateway for newcomers to DeFi. Users will be able to earn VERSE by providing liquidity to the Verse DEX, stake VERSE for rewards, earn cashback in VERSE, and more.

The VERSE token is expected to go live once the token presale program is completed. Before that, read on to find out more about VERSE and what you can do with it. 

What is Bitcoin.com

Bitcoin.com’s products include an easy-to-use self-custody wallet and an award-winning cryptocurrency media platform. To date, Bitcoin.com’s products have served millions of cryptocurrency users in different ways, offering each a personalized experience based on their individual preferences. These solutions are integrated into the Bitcoin.com app, which is available for Android and iOS devices.

Bitcoin.com Wallet

The Bitcoin.com Wallet currently supports the Bitcoin, Bitcoin Cash, Ethereum, Avalanche, and Polygon blockchains. The team has shared its plans to extend this support to additional low-fee EVM-compatible blockchains. Investors can store supported cryptocurrencies and perform p2p transactions via the Bitcoin.com Wallet. The Bitcoin.com Wallet supports wallet naming services like ENS and Unstoppable Domains, which means people can send supported cryptocurrencies to your human-readable wallet address instead of having to enter your alphanumeric Bitcoin and Ethereum wallet addresses.

The Bitcoin.com Wallet is well-adapted for decentralized finance; users can connect to decentralized applications through the WalletConnect function integrated into the wallet. They can also exchange assets from the comfort of their wallets or purchase cryptocurrency with fiat through Bitcoin.com’s swap and on-ramp service respectively.

Statistics published by the team claim that over 35 million cryptocurrency wallets have been created via the Bitcoin.com Wallet and an estimated 5 million people use the wallet every month. 

Bitcoin.com News

Bitcoin.com’s news platform is up to date with developments around the crypto space, providing its readers with comprehensive updates and educational content. Bitcoin.com reports that its news media recorded an average of 2.5 million readers in every month of 2021. Bitcoin.com News is currently #1 by Feedspot in the Bitcoin category and #11 in the broader cryptocurrency category.

At the time of this writing, Bitcoin.com’s social media outlets have a collective followership of over 2.7 million.

The Bitcoin.com Team

The Bitcoin.com team is led by CEO Dennis Jarvis with experience from Apple Management and as a Senior Product Manager at Rakuten. Other senior members at Bitcoin.com have experience with notable firms including Kyash, WISE, and CyberAgent.

Bitcoin.com is extending its reach in the crypto space. In addition to its current utilities and programs, it is working towards adding even more applications to its ecosystem to speed up the adoption of decentralized solutions and improve general cryptocurrency knowledge. With its ecosystem set for more growth; it is launching a token to power and grow alongside the Bitcoin.com ecosystem. This token is The VERSE token.

What is VERSE?

VERSE will be the key to the Bitcoin.com ecosystem. The team is building a core decentralized financial utility that will incorporate the token in order to grow the Bitcoin.com ecosystem, strengthen the platform’s economy, and reward existing users and every holder of the token. VERSE is an ERC-20 token issued on the Ethereum blockchain; the team, however, hints at plans to bridge to other EVM-compatible networks. Bridging the VERSE token to other EVM blockchains with a relatively low-fee structure will not only allow holders to enjoy a low-fee way to access the utility the token enables, but will also expose the token to an even wider crypto audience.

As the VERSE token will be tied to Bitcoin.com, the property’s past developments and future facilities will create use cases for the token, similar to other exchanges like Binance and Crypto.com

In addition to what these similar tokens offer, VERSE goes further to drive community engagement and onboarding programs, supporting other ventures that make cryptocurrency attractive to the common investor.

The Bitcoin.com team has announced several prospective utilities for the VERSE token, spread across incentivization, platform and application access, and investors’ empowerment. Bitcoin.com’s suite of decentralized applications creates similar utilities for the VERSE token as DeFi tokens like Trader JOE.

In addition to the VERSE token’s utility, the team will also hope to drive a healthy growth pattern through sustainable token economics that keeps the token distribution in control and maintains demand for the VERSE token, beginning from the token issuance stage.

Verse Tokenomics

According to published data, 210 billion VERSE tokens will be issued by Bitcoin.com with distribution spread across a span of seven years. The VERSE token emission schedule will mimic native coins’ distribution pattern in the sense that vested tokens will be released per block, starting from the day it is fully launched. Pre-sale investors and other parties eligible to receive the VERSE token will be able to claim allocated tokens in split portions per block.

Tokens can be claimed by interacting with the claiming smart contract. Here’s a guide on how and when to claim the Verse token.

This approach, according to the team, will prevent negative effects on demand and value development caused by an abrupt increase in circulating tokens. The supply shock scenario will be averted by the gradual and uniform increase in circulating tokens against a prospective exponential increase in demand from the rest of the cryptocurrency community who wish to access applications in the VERSE ecosystem. 

To maintain a regular demand for the VERSE token, the team has shared plans for a sustained token buyback and burn program. According to the team, a portion of all fees generated from applications in the ecosystem will be dedicated to the buyback program which is committed to constantly reducing the number of tokens in circulation by burning these tokens.

Thanks to the buyback and burn program, the VERSE token attains a deflationary architecture. The deflation rate will depend on the amount generated from fees and the percentage the team is willing to commit to this program.

Regarding token allocation, the team has reserved portions of the total supply for development programs and allocations for different external and internal parties. These reserves and allocations will be available for gradual claiming (as explained earlier) once the token is fully launched.

According to information provided by the team, 34% of the total VERSE supply will be allocated to ecosystem incentives and rewards. This portion of the token will be used to power upcoming incentivized programs and passive income programs in the ecosystem, including an airdrop program as hinted by the team. Through the airdrop program, the team hopes to reward existing users of the Bitcoin.com application and also plans to extend this reward to some noteworthy cryptocurrency communities.

The core Bitcoin.com team will also receive 15% of the total supply, although the vesting structure for team allocation is 4 years versus the 1- or 1.5-year vesting scheduled for token sale participants.

34% of the total supply is reserved for further development of the Verse ecosystem. The development fund allocation will be used to fund development proposals, strategic partnerships, and other progressive ventures. 16% of the token supply will be dedicated to fundraising for the Verse project through the token pre-sale events. This is split into 10% and 6% for Verse Sale A and Verse Sale B respectively. Sale A tokens will be unlocked per block over a period of one year while Sale B tokens will be fully unlocked in one and a half years.

VERSE Token Utility

The VERSE token is being integrated into Bitcoin.com’s applications. In every application, it plays a unique role geared towards incentivizing cryptocurrency investors to embrace these solutions. These roles are structured to empower users, grow the VERSE token, and strengthen the Verse ecosystem economically. Here’s how VERSE fills these roles.

The Verse DEX

The Verse DEX is a platform for investors to perform routine financial transactions from the comfort and security of their wallets. Liquidity providers to the DEX’s Automated Market Maker protocol will receive a portion of the trading fees generated by the trading pair for which they provided liquidity. The Verse DEX liquidity pool token can be redeemed for VERSE tokens or used in yield farms to receive additional VERSE token rewards.

VERSE holders who commit their tokens to lending pools, borrow VERSE from pools, or use VERSE as collateral will also receive rewards in VERSE.

In-Platform and Merchandise Payments

VERSE will be used to make payments on the Bitcoin.com app and purchase Bitcoin.com merchandise. Users will also receive VERSE token rewards and cashback when they make payments using VERSE and use the Bitcoin.com swap feature to trade their crypto assets. Companies can also pay for advertisements or publications on the Bitcoin.com news media using the VERSE token.

Bitcoin.com Card

When launched, the Bitcoin.com card will allow holders to spend in crypto on supported platforms and accredited merchant stores. The card will be connected to the Bitcoin.com Wallet to enable wallet users to spend their crypto anywhere. Investors will be eligible for rewards in VERSE when they make payments using the card. VERSE holders can also obtain the premium card and enjoy several extra benefits such as lower transaction charges and other benefits.

NFT Marketplace

Bitcoin.com is incorporating notable NFT marketplaces into its application. Through this integration, users of the application can trade NFTs from their accounts by connecting to the marketplace. NFT enthusiasts who trade their NFTs on these linked marketplaces from their wallets will receive extra rewards in VERSE.

User Incentives

The Bitcoin.com news and content platform will be using VERSE as well to reward community members who contribute quality educational content to the platform. The bounty program is meant to incentivize the general cryptocurrency community to contribute to building an efficient store of blockchain and cryptocurrency-related information for the educational platform.

VERSE holders will also gain exclusive access to special market insights, reports, and other handy data.

VERSE Staking Program and Referrals

The VERSE staking program will reward VERSE holders for staking their tokens in the staking contract. The reward received is dependent on the number of tokens staked and the duration of the staking. Staking rewards will be paid in VERSE.

Bitcoin.com app users can also earn rewards through referrals. Rewards in VERSE will be earned when the invited user makes their first fiat-to-crypto purchase from the application.

The CEX Education Program

The 2022 crypto winter has been worsened by a series of unfortunate events, mostly due to poor handling of investors’ assets by custodial institutions. The results of these mishaps are the loss of a part or whole of users’ assets in custody, price crashes due to negative news, and a smear in the reputation of the crypto space as a whole.

These losses could have been averted or lessened to some extent if these investors used self-custody cryptocurrency applications and platforms such as cold wallets, decentralized exchanges, and other decentralized finance (DeFi) applications.

Bitcoin.com is looking to address the need to introduce affected (and unaffected) investors to more secure ways of interacting with the blockchain and using cryptocurrency. Bitcoin.com also plans to assist victims of failed centralized entities through strategic rewards offered in the CEX Education Program.

The VERSE token powers the CEX Education Program. 5% of the total VERSE supply has been dedicated to the program. Cryptocurrency investors affected by any of the recent accidents can sign up for the education program at Getverse.com

Where to Buy VERSE

The VERSE token is yet to launch on exchanges; regardless, you can still get a hold of the token through the public sale program. As mentioned above, 16% of the token supply has been dedicated to raising funds through the public sale of the VERSE token. The token sale is live on Getverse.com. Interested investors can sign up on the platform and complete KYC requirements to be able to purchase the VERSE token beforehand. The token sale is currently not available for residents of the United States, Japan, and other restricted jurisdictions.

The VERSE token sale is priced dynamically such that the more money contributed to the sale, the higher the price per token for all buyers up to a maximum of $0.0024/token. This design, according to Bitcoin.com, is fair, as early and inside buyers are not given an undue advantage over public sale buyers. In fact, as of 2022-11-29 at 0:00 UTC (exactly 48 hours before the sale closes) the dynamic price was just $0.00013/token, which is 11.7x cheaper than the price per token paid by first-round private sale buyers.  Learn more about Verse token dynamic pricing.

Sign up for the Verse token presale.

Read the Verse whitepaper for more information.

Zero Knowledge Proofs and ZK-Rollups: Everything You Need to Know

What is ZKP


Key Takeaways:

  • Zero-knowledge proof helps to prove that one party (the prover) know an information is true to another party (the verifier) without revealing any additional information.

  • There are two types of Zero-knowledge proofs being used on the blockchain currently, ZK-SNARK and ZK-STARK.

  • StarkWare is an L2 network that uses ZK-STARK and is not only cheap and fast, but also private and decentralized as well.

  • zkSync is an L2 network that uses ZK-SNARK and is also cheap and fast, but requires a trusted setup environment.

  • Optimistic rollups such as Arbitrum and Optimism are currently more popular but in the future ZK-rollups may win as the technology evolves.

  • Zero-knowledge proof may help to bring in the wave of users thanks to its privacy features which are likely important to businesses and users.


The growth in popularity of free internet applications used by billions of people worldwide has resulted in most user information and data being controlled by large technology companies, often resulting in an abuse of users’ privacy

Blockchain technology, like Ethereum, was created to bring control back to the users where a user data is owned by them as well. However, apart from being pseudo anonymous, it does not have many ways to protect the privacy of users. 

For example, if a user purchases something from someone with his wallet address, his wallet address is now known by that someone, and he will know everything that the user did in the past and the future, including what else he bought, or how much he has, etc, creating a real privacy concern for real-world adoption. 

To combat this, Ethereum is looking to implement zero-knowledge (ZK) proofs to improve privacy for users. 

In this article, we will dive into zero-knowledge proofs, how it works, and how it can help us. 

What is Zero-Knowledge Proof?

Simply put, zero-knowledge proofs (ZKP) uses encryption to prove something is true without revealing more than necessary, greatly improving privacy. 

ZKP was invented in 1985 and is popularly defined as “A zero-knowledge protocol is a method by which one party (the prover) can prove to another party (the verifier) that something is true, without revealing any information apart from the fact that this specific statement is true.”

There are two main types of zero-knowledge proofs, interactive and non-interactive. We will provide some examples of ZKP later to make it easier to understand. 

With the growing popularity of blockchains, ZKP is becoming popular due to the great benefits it brings when implemented together with blockchain technology as it will improve privacy, speed, and security, without impacting decentralization. 

But how effective is it in real life and could it be the answer to our data privacy issues?

ZKP is a type of cryptographic evidence that allows a “prover” to demonstrate to a “verifier” if the prover is aware of certain values, without disclosing the actual answer to the verifier.

The zero-knowledge as a concept comes from the fact that no information is provided by the prover but still able to convince the verifier that the truth is being told. This secures your communication so that no one else can see what you are talking about or what files you’re exchanging.

Since ZKPs make it possible to verify a computational assertion, there are many use cases for it such as, a lender can use ZKP techniques to confirm that the borrower has a sufficient amount in their bank account to eventually return the money without learning further information about their balance. This takes away the need to reveal information or have a witness to prove the validity of any claims.

How Does Zero-Knowledge Proof Work?

Zero-knowledge proofs allow users to prove something is true without giving away any other information. To achieve this, it uses algorithms that accept certain data as input and produce “true” or “false” as output to show the validity of claims made by the prover.

The following requirements must be met by a zero-knowledge protocol:

1. Completeness
If the statement is really true and both users are honest, the verifier would be convinced without any additional help.

2. Soundness
If the statement is false, a lying prover should not be able to trick an honest verifier into believing an invalid statement is valid.

3. Zero-knowledge
The verifier is not able to learn anything about the statement beyond its validity (true of false) which means they would have no knowledge of the statement. This keeps the verifier from being able to figure out what the original input was based on the proof.

There are three components that make up a zero-knowledge proof: 

  1. Witness: To demonstrate knowledge of some secret information, the prover uses a zero-knowledge proof. The “witness” to the proof is the secret information, and the prover’s assumption that the witness is aware of the evidence creates a series of questions that can only be addressed by a party with access to the information. Therefore, the prover selects a question at random, computes the response, and then sends it to the verifier to begin the proving process.

  2. Challenge: Another question from the set is chosen at random by the verifier, who then asks the prover to respond.

  3. Response: The question is accepted by the prover, who then determines the answer and gives it back to the verifier. The verifier can determine whether the prover actually has access to the witness based on the prover’s response. The verifier chooses additional questions to ask in order to make sure the prover isn’t just guessing and arriving at the right answers by accident. The likelihood of the prover falsifying knowledge of the witness decreases significantly if this interaction is repeated numerous times until the verifier is satisfied.

The structure of an “interactive zero-knowledge proof” is described above. Early zero-knowledge protocols used a method called “interactive proving,” in which the person making a claim and the person checking it had to talk back and forth in order to make sure it was true.

Types of Zero-Knowledge Proofs

There are two main types of zero-knowledge proofs, interactive and non-interactive. 

Interactive Zero-Knowledge Proofs

Interactive ZKPs allow the prover and the verifier to interact several times. The verifier challenges the prover, who provides replies to these challenges until the verifier is convinced.

A famous example of non-interactive zero-knowledge proof is “The Ali Baba Cave”. 

In the story, there is a cave with a magic locked door. Peggy (the prover) wants to prove to Victor (the verifier) that she knows the secret phrase to open the magic door in the cave without revealing the phrase. Both of them know that this cave has a circular path with a single entrance and exit and the magical door is at the end blocking the path in the middle and the only way to open it is by saying the magic phrase. 

non-interactive zero-knowledge proof
Image taken from Wikipedia

How can Peggy prove to Victor that she knows the magic phrase without telling him what the phrase is?

They label paths A and B from the entrance, and Victor waits outside the cave as Peggy goes in. Peggy can either take path A or B, but Victor is not allowed to see which path she takes. Victor can then shout which side of the path he wants her to use to return randomly. If Peggy really does know the magic word, this would be easy, as she will be able to open the door and return along the chosen path.

However, if Peggy does not know the magic phrase, she has a 50% chance of exiting via the path Victor chose. By repeating the test, her chances of tricking Victor would become exponentially slimmer, and the only way to guarantee that she always takes the correct path is by knowing the magic phrase. After a few attempts, the probability that Peggy really knows the magic phrase approaches 100%. Although it can never be 100%, the idea is to minimize the chances that someone is lying to you. 

In summary, interactive ZKPs, as the name suggests, require interaction with the prover and verifier. For example, Victor uses interactive ZKPs to verify the validity of Peggy’s statement through back-and-forth communication between provers and verifiers.

However, interactive ZKPs have limited utility and transferability as it relies on the interaction between two parties and the proof would be unavailable for a third party to verify. 

If Peggy brings another friend to the cave, she would have to go through the entire process to proof again, which is time-consuming and not scalable. 

Non-Interactive Zero-Knowledge Proofs

Non-interactive ZKPs were created to show that the prover is aware of certain information without really revealing it. 

A popular example of non-interactive proof uses the game ‘Where’s Wally’. 

Imagine a competition of ‘Where’s Wally’, even the organizers do not know where Wally is. Whoever can prove that Wally exists receives a prize. You found Wally but you do not want to point him out with your finger because that would show the location of Wally to everyone and end the competition immediately. 

interactive zero-knowledge proof example
Image taken from moonflowerdragon

To prove that you know where Wally is and that he really does exist, you take a giant piece of paper, many times the size of the Wally photo, and cut a small hole in it. You then place the small hole on top of Wally. This shows that Wally does exist, but because the big piece of paper blocks all other context information, Wally’s location has not been revealed and is still a mystery. 

In summary, the above example is just an analogy for non-interactive ZKPs, but it showcases how they are non-interactive, as anyone that sees the hole showing Wally will agree that it is enough proof that Wally exists without you having to repeat any action, unlike in interactive ZKPs.

In reality, a non-interactive zero-knowledge proof is made by putting the secret data into a certain algorithm and running it. When the verifier gets this proof, he or she uses a different method to make sure that the prover knows the secret information.

Non-interactive ZKPs also make the prover and verifier share a key so that verification can be done by someone other than the prover and verifier.

Since the verifier can only check the information once at any given time, this takes more processing power than interactive ZKPs. 

Zero-Knowledge Proofs in Blockchain Applications

There are two popular blockchain applications that utilize zero-knowledge proofs: ZkSync and StarkNet. They are ZK-rollups that uses zero-knowledge proofs that help to scale the Ethereum network. The key difference is that zkSync uses ZK-SNARK proofs while StarkNet uses ZK-STARK proofs.  

zkSync: ZK-SNARK

MatterLabs released zkSync V1, a SNARK proof rollup protocol, to the Ethereum Mainnet in June 2020. In February 2022, MatterLabs released zkSync V2, the first ZK-rollup that was EVM-compatible. The ZK-SNARK acronym stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” 

The following characteristics describe the ZK-SNARK protocol:

  • Zero-knowledge: A verifier can confirm the truthfulness of a statement without being aware of any other information about it. The verifier’s only understanding of the statement is if it is true or false.

  • Succinct: The zero-knowledge proof is quicker to verify and smaller than the witness.

  • Non-interactive: Unlike interactive proofs, which necessitate numerous rounds of interactions, the prover and verifier only exchange information once in the non-interactive proof.

  • Argument: Since the proof complies with the “soundness” criteria, cheating is highly improbable.

  • (Of) Knowledge: Without having access to the confidential information, it is impossible to create the zero-knowledge proof (witness). For a prover without the witness, it is challenging, if not impossible, to compute a reliable zero-knowledge proof.

The term “shared key” refers to a set of open parameters that the prover and verifier agree to use when creating and validating proofs. Creating the public parameters, which together are called the Common Reference String (CRS), is a sensitive job because it is important to the security of the protocol. If a dishonest prover has access to the randomness that was used to make the CRS, they can make fake proofs.

Using multi-party computation (MPC), one can lower the dangers associated with creating public parameters. In a trustworthy setup process involving several parties, the CRS is generated using some random values provided by each participant. The ZK-SNARK protocol keeps computations safe as long as one honest party gets rid of their part of the randomness.

Users must have faith in and trust the people who are generating the parameters for trusted settings. However, the development of ZK-STARKs has made it possible to prove the protocols’ ability to operate in an untrusted environment.

Zigzag, a decentralized exchange using zero-knowledge proof and ZK roll-up technology, is already live on zkSync for traders to trade with low fees. 

StarkNet: ZK-STARK

StarkNet, an L2 scaling network on Ethereum, utilizes ZK-STARK to enable cheap, fast, and private transactions without compromising on decentralization. ZK-STARK and StarkNet was invented in 2018 by StarkWare, and StarkNet went live on November 2021. The acronym ZK-STARK stands for “Zero-Knowledge Scalable Transparent Argument of Knowledge.”

The following characteristics describe the ZK-STARK protocol:

Scalable: When the size of the witness is larger, ZK-STARK generates and verifies proofs more quickly than ZK-SNARK. As the witness gets bigger, STARK proofs only see a modest rise in prover and verification times (SNARK prover and verifier times increase linearly with witness size).

Transparent: ZK-STARK generates public parameters for proving and verification using verifiable randomization rather than a trusted setup. Therefore, they are more transparent than ZK-SNARKs.

ZK-SNARK vs. ZK-STARK

zkstark vs zksnark
Image taken from Consensys

In summary, ZK-STARKs are more trustless than ZK-SNARKs, but they generate larger proofs than ZK-SNARKs, resulting in typically higher verification costs. However, in some circumstances, such as when proving large datasets, ZK-STARKs may be more cost-effective than ZK-SNARKs.

Although both technology are supported by Ethereum developers, the Ethereum foundation has given StarkWare a $12 million grant, showing support for trustless technology.

ZK-Rollups vs. Optimistic Rollups

Now that we have a better understanding of ZK rollups, let’s compare them with optimistic rollups, the currently leading Ethereum scaling solution. Below is a table highlighting the differences between Optimistic and ZK-rollups. 

optimistic vs zk rollups
Image taken from Tokeninsight

Compared to optimistic rollups, ZK-rollups can have a much smaller withdrawal delay and a higher level of security because there is no need to wait for the transaction validators to be trustworthy or wait for the fraud-proof window to close.

In addition, ZK-rollups may in the future make private transactions possible. zkSync has openly stated its intention to make future transactions private, and projects like Zcash and Aztec Network have implemented ZK-proof enabled privacy features.

ZK-rollups outperform Optimistic rollups in terms of theoretical transaction-per-second (TPS) cap, transaction finality time, and security. They fall short, though, in terms of EVM compatibility, which is why most developers are deploying on optimistic rollups first as they can reuse EVM code.

However, although Optimistic rollups such as Arbitrum and Optimism are currently more popular, as ZK technology continue to evolve, ZK-rollups may be a better solution for all types of applications in the future.

Use Cases of Zero-Knowledge Proofs

Anonymous Payments

As mentioned at the start of the article, making payments on the blockchain would make your transaction and wallet known to multiple parties, from the business, payment provider to the banks. Although financial surveillance is useful for preventing illegal financial activity, it can be abused and also compromise the privacy of ordinary citizens. 

On public blockchains, zero-knowledge proofs are also being used to anonymize transactions. Tornado Cash is an example of a decentralized, non-custodial service that enables users to conduct private Ethereum transactions by employing zero-knowledge proofs to conceal transaction details and ensure financial anonymity. Because these are “opt-in” privacy tools, they are unfortunately associated with illegal activity. To overcome this, privacy must become the default setting on public blockchains, which is being done on StarkNet.

Identity Security

Existing identity management solutions put sensitive data at risk. Zero-knowledge proofs can assist individuals in validating their identities while safeguarding sensitive information.

In the context of decentralized identification, zero-knowledge proofs are very useful. People who have decentralized identification, also called “self-sovereign identity,” can control who can see their personal identifiers. One great example of decentralized identity is being able to prove citizenship without sharing your ID using ZKPs.

Authentication

Using internet services requires establishing one’s identification and access rights. Most of the time, this means giving personal information like names, email addresses, birth dates, etc. Additionally, you may have to memorize lengthy passwords or risk losing access.

However, zero-knowledge proofs can simplify authentication for platforms and users alike. Once a ZK-proof has been made using both public (e.g., data that proves the user is a member of the platform) and private (e.g., the user’s details) information, the user can easily send it to the service when they need to prove who they are. This improves the user experience and eliminates the need for companies to keep vast volumes of user data. 

Another useful example would be when a user is applying for a house mortgage which requires the bank to know that the user has the income or net worth capable of paying the monthly payments. Using ZKPs, the user can prove that their salary or networth falls within their acceptable range without revealing their exact salary or net worth. 

Zero-knowledge Password Proof

Zero-knowledge proof is also applicable to passwords. It enables one party (the prover) to demonstrate to another party (the verifier) that it knows a password without revealing anything to the verifier other than the fact that the prover knows the password.

Verifiable Computation

Another use case for ZKP to improve blockchain technology is verifiable computation. It enables the outsourcing of computation while keeping verifiable results. The entity submits the result alongside a proof that the program was correctly executed. This is crucial for increasing blockchain processing speeds without compromising security. 

On-chain scaling options, like sharding, necessitate significant alterations to the blockchain’s foundation layer. This approach is complicated, and implementation flaws can compromise Ethereum’s security mechanism. 

Hence off-chain scaling solutions are being explored as they do not need to rewrite Ethereum’s code. To boost throughput on Ethereum’s foundation layer, they outsource the computational execution to a separate chain which then returns the results to Ethereum. 

This means Ethereum does not do the execution which decreases network congestion and accelerates transaction processing (off-chain protocols are optimized for faster execution). However, the chain needs to validate off-chain transactions without re-computing them or else it defeats the purpose. 

Verifiable computation comes into play at this point. When a node executes a transaction off-chain, it submits a zero-knowledge proof to demonstrate the transaction’s validity. This proof (known as a validity proof) ensures that a transaction is genuine, allowing Ethereum to immediately apply the outcome to its state without waiting for anyone to contest it.

Zero-knowledge rollups and validiums are two off-chain scaling techniques that allow secure scalability through the use of validity proofs. These protocols do thousands of transactions off-chain and submit proofs for Ethereum’s verification allowing Ethereum to handle more transactions without increasing computation on the foundation layer.

Challenges of Zero-knowledge Proofs

While ZKPs seem like a great solution for privacy on the blockchain, they do come with several challenges that we will discuss below.

Verification Not Guaranteed

ZKPs do not provide 100% assurance that the claim is true, even though the likelihood of verification while the prover is lying might be very low. The likelihood of a prover lying gets smaller with each ball-picking cycle but will never go to zero.

Computation Intensity

Both interactive and non-interactive ZKPs between the prover and the verifier have algorithms that require a lot of computing power. This means that the prover and the verifier would have to pay more fees when using devices with more computing power. For example, ZK-rollups pay 500,000 gas to verify a single ZK-SNARK proof on Ethereum, with ZK-STARKs requiring even higher fees.

Expensive Hardware

Due to the extremely difficult computations required to generate ZKPs, devices that are able to run these protocols are more expensive, and not everyone can afford them. Applications that intend to use zero-knowledge technology must also account for hardware costs, which could also raise prices for users.

Quantum Computing Threats

For encryption, ZK-SNARK employs elliptic curve cryptography (ECDSA). Even though the ECDSA algorithm is secure at the moment, the development of quantum computers in the future could make it less safe.

Using collision-resistant hashes for encryption, ZK-STARK is considered immune to the threat posed by quantum computing. Collision-resistant hashing is harder to break with quantum computing algorithms than it is with the public-private key pairs used in elliptic curve cryptography.

Conclusion

Privacy is incredibly important for businesses and organizations to stay competitive. Blockchain’s open nature and lack of easy to use privacy features could be one of the main reasons why blockchain technology has not yet been widely adopted. 

The creation of privacy-enabled blockchain solutions powered by zero-knowledge proofs, such as StarkNet and zkSync, has enabled blockchains that are cheap and fast to use while still being decentralized. It is possible that the next wave of mass adoption of cryptocurrencies could begin, driven by real-world demand for the convenience that zero-knowledge technology can give to both users and businesses.

What is the Ethereum Virtual Machine (EVM), and How it Works

What is evm

 


Key Takeaways:

  • Ethereum Virtual Machine is a computation engine that implements smart contracts and updates the state of the Ethereum blockchain after a block is added.

  • EVM compatibility is the ability to write and run a smart contract code compatible with the EVM; thus, it can be interpreted by the Ethereum nodes.

  • ERC20 tokens, DEXs, DAOs, and NFTs are the common use case of the EVM.


Bitcoin (BTC), the biggest cryptocurrency by market cap, introduced the world to crypto in 2008. However, most people felt Ethereum’s practical application of smart contracts in 2015 was the most important step towards perfecting Bitcoin’s formula. Essentially, smart contracts enable developers to store on-chain activities by programming them. To understand smart contracts properly, you should learn about the Ethereum Virtual Machine (EVM), which is the engine that facilitates the creation and deployment of smart contracts. Bitcoin also has its own smart contracts, albeit not as complex as Ethereum’s.

This article takes a closer look at EVM, what it is, how it works, the differences between state machines and distributed ledgers, the importance of EVM compatibility, and EVM use cases.   

What is the Ethereum Virtual Machine (EVM)?

We can think of the Ethereum Virtual Machine as a software piece built on the hardware/node infrastructure of the Ethereum network. This software piece fulfills essential roles like running and maintaining smart contract code.

How EVM works

Source: Ethereum illustrated

The illustration shows that EVM is both a virtual and state machine. But what does that mean?

EVM as a Virtual Machine

EVM is a Turing-complete virtual machine you can access from any part of the world via a network node. The point proves EVM’s Turing completeness that it can deploy any computer program. Basically, Ethereum developers can’t run decentralized applications (dApps) that power decentralized finance (DeFi) without EVM.  

It’s important to note that virtual machines are not tied to specific physical gadgets, nor do they have interfaces and hardware. They leverage the computing power of various participants (nodes) to create a runtime environment for creating and deploying smart contracts. Unlike physical computers, virtual machines are not limited to one operating system or geographical location. Participants across the world can use them regardless of their jurisdictions and hardware devices.  

EVM as a State Machine

A state machine is a computation engine that changes across states. When you send a transaction request to a smart contract, the EVM switches Ethereum’s state to respond to your call. The ability to interpret and implement smart contract requests distinguishes Ethereum from other networks, such as Bitcoin. According to smart contract input data, EVM’s state-switching ability enables Ethereum to keep up with other states from block to block.  

EVM can deploy any smart contract program. But more intricate smart contracts require more gas fees to run. While gas fees have become a contagious issue in crypto, they are a core aspect of the EVM. A line from the Ethereum yellow paper reads: “the computation is intrinsically bounded through a parameter, gas, which limits the total amount of computation done.” The gas and gas limits help the EVM mitigate network abuse. 

How Does EVM Work?

The EVM utilizes a stack-based architecture and a word size of 256 bits. The word size enables EVM to handle native hashing and elliptic curve processes, ensuring the rightful owners spend assets. Though Solidity is the most common smart contract language, the EVM supports other languages like Vyper. Developers use programming languages to code smart contracts, which are compiled into bytecodes. Runtime bytecodes are bytecodes stored on-chain. They are also converted into opcodes that the EVM interprets to perform requests.   

The EVM is loaded with details when a transaction request initiates a smart contract. The other variable necessary for implementing smart contracts is the gas supply, which relates to the gas fee users pay. The gas supply decreases as the transaction progresses, and if the supply hits zero, the transaction is discarded. Discarded transactions are not included in the network blocks since they are considered invalid. However, the block verifier is compensated for offering resources up to the abandoning stage.     

Smart Contracts and the EVM 

Smart contracts, or the “App of the EVM,” are EVM-compatible code lines for interacting between parties without needing an intermediary. These contracts are loaded with pre-defined activities implemented when the conditions are met. These activities range from asset transfer to developing new contracts and the interaction between existing ones.  

Ethereum grabbed the Bitcoin concept and built upon it by enabling developers to create and run smart contracts on the network. The most important step was establishing an EVM environment where smart contracts could live and operate.  

Why is Gas Needed for the EVM?

Gas is the fuel that powers the EVM. When you interact with smart contracts (like sending crypto to another wallet or borrowing in a lending protocol), you must pay gas for the network validators to verify your transaction. Moreover, gas acts as a computation fee for implementing smart contracts. 

Opcodes are the part of machine language instruction that specifies the operation that needs to be performed. Every opcode is allocated a gas fee, and the more complicated the opcode, the higher the gas. Gas fees are used to reward validators for providing the much-needed resources to verify transactions. Besides, gas fees monetarily prevent Distributed Denial of Service (DDoS) attacks and keep the blockchain secure and running. 

What are the Differences Between State Machines and Distributed Ledgers?

Often, people use the analogy of decentralized ledgers to refer to blockchains like Bitcoin, which facilitates a distributed digital currency through core cryptography tools. Essentially, the ledger maintains an activity account that follows a set of rules that control what users can and cannot do with it. For instance, your Bitcoin wallet can’t spend more coins than its balance. Such rules reinforce Bitcoin transactions and many other networks. 

Though Ethereum has its native currency, Ether (ETH), which complies with almost similar pre-defined rules, it also has a much more powerful feature – smart contracts. This powerful feature calls for a sophisticated analogy. As such, Ethereum is a state machine – an extensive data structure that maintains accounts and balances and can change from block to block according to the set rules – where the Ethereum Virtual Machine (EVM) defines the rules of switching block states. 

A state machine’s ability to interpret and implement smart contract requests distinguishes it from distributed ledgers like Bitcoin. Unlike Bitcoin, Ethereum’s state changes enable developers to build custom cryptocurrencies and Non-Fungible Tokens (NFTs), signify ownership of underlying physical assets, develop domain names, and build fully-functioning DeFi apps. 

Why is EVM Compatibility Important?

EVM compatibility is the ability to write and run a smart contract code compatible with the EVM; thus, it can be interpreted by the Ethereum nodes. EVM compatibility has allowed the most popular Layer 1 (L1) chains, like BNB Smart Chain, Avalanche, Polygon, and Solana, to be highly effective. This also minimizes the entry barriers for app developers to run Ethereum smart contracts on multiple chains.    

As mentioned earlier, the EVM converts various smart contracts into a bytecode – a standard format decipherable by the Ethereum blockchain. This allows developers to flawlessly run Ethereum codes on EVM-compatible chains, eliminating costly and time-consuming contract audits. The “Plug and Play” function makes the chains appealing to developers as they take minimal time to deploy dApps. 

From a user’s point of view, it’s advantageous to use EVM-compatible networks as they enable users to become early adopters of newly launched products and services. This often includes airdrops, where projects give cryptocurrency tokens away in exchange for meeting certain criteria. New projects also offer early adopters better returns on their staking and liquidity pool investments. 

EVM compatibility is also important in building cross-chain bridges that unlock value transfer across chains. For example, much of the success of the BNB Smart Chain resulted from the ease with which Ethereum ecosystem users could move their assets to a new blockchain through the Binance bridge. Other cross-chain bridges like the Avalanche and Spookyswap have replicated the success of the Binance bridge and accelerated the growth of their respective ecosystems. 

Just like how towns expand when they have bridges that facilitate the easy movement of goods in and out, unlocking new customer bases for local businesses and helping the town council to increase its tax revenues, blockchains need to be seamlessly integrated with others to benefit from the network impacts of the free movement of data and value across chains. Examples of EVM-compatible chains include BNB Smart Chain, Avalanche, Fantom,  Cardano, Solana, Polygon, etc.

EVM and MetaMask

MetaMask is a popular hot wallet that anyone can access. It’s known for its ease of use and support for desktop and mobile devices. Moreover, you can swap, send, and receive digital assets and collect NFTs from various marketplaces. It runs and supports EVM-compatible networks and ERC20 tokens that live on multiple native chains. MetaMask serves more than 30M monthly active users and is linked to almost 17,000 DeFi protocols and apps.  

Apart from its ease of use, crypto users love MetaMask for its anonymity functionality. To start using MetaMask, you download the desktop or mobile app without providing personal information, such as email address, physical address, or identity number. Besides, MetaMask is a non-custodial wallet, implying it doesn’t have a centralized database, nor does it collect user information.

Looking to get started on MetaMask? We have dedicated guides on BNB Smart Chain, Polygon Network, Avalanche, and Arbitrum.

EVM Use Cases

These are the top use cases of EVM:

ERC20 Tokens

ERC20 tokens are minted using smart contracts and defined data structures. The structure facilitates the naming, supply and tracking of the tokens. ERC20 tokens have more utility than ERC721 tokens since they are fungible digital currencies that you can easily exchange for other assets. For example, Nexus Mutual, which offers insurance services on smart contracts, uses the NXM ERC20 token to enable its users to make claims and buy coverage. 

Another example is Livepeer, a decentralized video streaming platform. It leverages the LPT ERC20 token to reward users for supplying the ecosystem with resources.

Decentralized Exchanges (DEXs)

DEXs facilitate ERC20 token swaps via smart contracts. The contracts allow users to exploit liquidity pools without the involvement of custodians, handing them the title of automated market makers (AMMs). Uniswap and Sushiswap are popular examples of EVM-compatible DEXs. 

NFTs    

NFT developers use smart contracts to mint ERC721 tokens with exclusive features across the Ethereum ecosystem. Apart from the art market, gaming projects like the Axie Infinity and Gods Unchained use ERC721 tokens for in-game items and collectables.  

DAOs

A decentralized autonomous organization (DAO) governs the EVM. Basically, a DAO is a community project without a central authority, giving the members total control of the project. Besides being autonomous, DAOs are transparent. Smart contracts stipulate the guidelines and implement policies based on the coded instructions. Since DAO activities are accessible, verifiable, and open to public audit, the participants can learn how the protocol runs. 

Conclusion

This article has traversed the Ethereum Virtual Machine, how it works, the differences between state machines and distributed ledgers, and why gas is needed for the EVM. It also dived deep into the importance of EVM compatibility, EVM-compatible blockchains, and EVM use cases. Generally, EVMs are the core pillars of the creation and deployment of smart contracts. A proper understanding of the EVM is important for anyone looking to develop or interact with dApps.

What is Etherscan and How to Use It

How to use Etherscan


Key Takeaways:

  • Etherscan offers a user-friendly interface to look at activities on the blockchain, such as viewing transactions, interacting with smart contracts, tracking gas fees, and reviewing token approvals.

  • You can read and edit smart contracts using Etherscan’s “Read” and “Write” contract features, which also gives you the option of minting NFTs from smart contracts when applicable.

  • When minting NFTs from smart contracts, double check the address and amounts, and ensure that you are using the correct functions as smart contracts are irreversible once executed.


Blockchains are open databases that are transparent, where anything that happens on-chain is published. That said, directly querying the blockchain is difficult. This is where blockchain explorers like Etherscan and BscScan abstract the complexity and provide a simple interface to look at activities on the blockchain. 

What is Etherscan?

Etherscan is a blockchain explorer – a software for visualizing data within the blockchain network. It is an essential tool for blockchain research that is focused on the Ethereum chain. It’s also a way for people to track transactions that are recorded on the chain, which is handy if their transferred funds haven’t appeared in their wallets.

Anyone may use Etherscan to search for, confirm, and validate Ethereum transactions. This includes:

  • Searching for and view transactions and wallets

  • Interacting with smart contracts

  • Tracking gas fees

  • Reviewing and revoking your token approvals

However, while you can find your Ethereum wallet and track your transactions on Etherscan, it is not a wallet. To use ETH or enter a transaction, you’ll need to use your crypto exchange or wallet.

If you’re looking to set up a crypto wallet, check out our Beginner’s guide to MetaMask.

Looking Up Transactions on Etherscan

Etherscan comes with many valuable features to surface activity on the blockchain. Anyone can search for transactions and verify that transactions have taken place. There are two ways to go about it. One is to enter a transaction hash, which is an identifier for that particular transaction. The other is to enter a wallet address and look for the transaction. 

How to search on etherscan

The search box is where you enter either an address or the transaction hash.

How to Read Etherscan Transactions

On the 27th September 2021, Rhino.fi (previously Deversifi) spent 1.7K ETH ($23m) in fees on a $100k transaction. It was a result of accidentally adjusting the tipping feature on the EIP-1559 gas feature. If someone would like to look at what happened in the case of Rhino.fi, they would just have to enter its transaction hash on Etherscan. The transaction details can be viewed here on Etherscan.

Using this transaction as an example, there are several pieces of information that a transaction provides. 

How to read etherscan transaction

  1. ‘Transaction hash’ is the transaction identifier attached to this transaction.

  2. ‘Status’ shows whether the transaction is successful, pending, or failed.

  3. ‘Timestamp’ is when the transaction was confirmed and mined.

  4. ‘From’ shows who sent the transaction.

  5. ‘Interacted with (To)’ shows who received the transaction.

  6. ‘Tokens transferred’ shows us what was being transferred along with the value of the tokens.

  7. ‘Transaction Fee’ shows the cost for the transaction.

  8. ‘Gas Price’ shows how much gas fee was paid and tells us about network conditions at that time.

Fortunately, the fee blunder of Rhino.fi has since been resolved, and the miner has refunded the amount.

Viewing a Wallet on Etherscan

Wallet addresses contain information about token holdings and transactions. As an example, below is the wallet address that houses Aave’s ecosystem reserve. We can see that it owns $136.9 million worth of assets on 18 different tokens at the time of writing. It has made a total of 7 separate transactions evident under the ‘Transactions’ list. We can also see that this address last made a transaction over 47 days ago.

The token section also categorizes tokens according to their respective standards. An NFT would fall into the ERC-721 category and show up under that.

How to view wallet on etherscan

Review and Revoke Your Token Approvals

Scams are abound in the cryptocurrency world. When you interact with a DeFi protocol, you have to approve smart contracts to spend your tokens. Usually, the default amount of token to approve is set to infinity. This is beneficial since it saves time and money on gas fees. However, this presents an opportunity for malicious actors to take advantage of users by draining tokens from their wallets. To avoid this terrifying hack, Etherscan provides a helpful tool to review and revoke tokens by giving users the option to adjust the amount of approved tokens.

To navigate to token approvals, head to ‘More’ on the menu bar, and under ‘Tools’, look for ‘Token Approvals’. This tool also shows the amount of risk that a wallet is exposed to. In this case, this particular wallet has ~$7k of tokens at risk. Click ‘revoke’ to adjust the number of tokens set for approval or revoke entirely.

How to adjust token approvals etherscan

Etherscan Gas Tracker

Gas prices inform us of current network conditions. As the demand for block space increases, gas prices rise due to users wanting transactions to confirm quicker. Etherscan shows an estimated amount of gas prices to set for transactions to be confirmed. It also provides a good overview of which contracts use the most gas, along with what the gas price was for the last 1000 blocks.

How to check gas etherscan

Interacting with Smart Contracts

Etherscan lets users read and edit smart contracts by using its “Read Contract” and “Write Contract” features. Reading smart contracts allows us to uncover what’s beneath the surface of transactions.

Another use case is minting NFTs from smart contracts. Contracts that feature a checkmark indicate that it is verified. If the contract is not verified, you may not be able to interact with it unless you have access to its application binary interface. 

When you are minting NFTs from smart contracts, remember to confirm the address and amounts, and ensure that you are using the correct functions, as smart contracts are irreversible once executed.

How to Mint NFT from Smart Contracts

To mint NFTs from smart contracts, you need to refer to the “Write” portion of the smart contract, which is viewable on a block explorer like Etherscan.

Take ‘Realms (for Adventurers)’ NFT smart contract for example:

1.    Copy the contract address (“0x7afe30cb3e53dba6801aa0ea647a0ecea7cbe18d”) into Etherscan’s search tab.

2.    Head to the contract tab under “Write Contract” and connect your wallet by clicking “Connect to Web3”.How to write contract etherscan

3.    Check if the contract is open to the public or just Loot holders. If it’s the former, pay the cost of the derivative and enter an available “lootId”.How to write etherscan contract

4.    If the fees are too high, that means that the NFT has been claimed. Do try with another ID.

If the gas fees are exceedingly high, double check with current gas prices to know what you are expected to pay to mint the NFT.

Conclusion

Above are some of the main features that Etherscan offers. There are many more, such as allowing users to set alerts for addresses, looking into token supply and its holders, and for developers to build applications on its APIs. It also has a list where anyone can view the ERC-20 and ERC-721 token transfers taking place. 

On the analytics side, they also provide statistics and charts on the markets, blockchains, and networks. One final thing of note is that although Etherscan is a centralized platform, it only gives a visualization of the current state of the blockchain such as transaction status, but has no control over any transactions. Without a doubt, Etherscan is an indispensable tool for anyone that uses the Ethereum network. Most importantly, all the features explained above are free to use! 

Exploring the Arbitrum Ecosystem, Bridge, and Airdrop

What is Arbitrum


Key Takeaways:

  • Arbitrum is the leading Ethereum layer-two optimistic rollup scaling solution with a growing number of TVL, users, developers and dApps.

  • Arbitrum offers up to 65,000 transactions per second and transactions costing an average of $0.10 to $0.60, significantly faster and cheaper than Ethereum.

  • The speed and cheapness of Arbitrum is done by rolling up multiple transactions on Arbitrum onto a single transaction onto Ethereum.

  • It is not only cheap and fast, but it is also trustless and safe as it is economically secured by validators.


The Ethereum network resulted in the birth of many innovative technologies that attracted many users, however Ethereum was not scalable as the maximum supported transactions per second (TPS) is 25, which is very low compared to other networks. 

Whenever there is a surge in activity, such as during 2021’s DeFi and NFT mania, the network will congest, increasing transaction fees to over $2,000 per transaction at times and taking as long as 30 minutes and more for transactions to go through. What’s worse is that the high fees are paid even if the transactions fail, causing a poor user experience for most users. 

Ethereum was not meant for such activities and was turning many regular users away due to the high fees and slow transactions. An Ethereum scaling solution was required. 

Arbitrum is one of the few scaling solutions that was created to help Ethereum to scale, but what is Arbitrum? 

What is Arbitrum?

Arbitrum was developed by Offchain Labs and is a layer-two scaling solution that uses optimistic roll-up technology to offer high-speed transactions and lower fees for users. 

It was created to help tackle the high transaction fees and slow transaction speed of the Ethereum network, offering a more scalable and cost-effective solution to DeFi users.

Even after Ethereum’s Merge upgrade in September 2022, speed and costs are still not comparable to transacting on Arbitrum, which has led to users and developers flocking over to this L2 ecosystem, and the total value locked (TVL) even reached a high of $3.2 billion in November 2021. The TVL currently sits at around $900 million as of this writing and is the highest TVL across all other Layer 2 ecosystems. 

Arbitrum continues to be developed further, and there are actually two Arbitrum networks, One and Nova, which serve different purposes. For this article we’re focusing on Arbitrum One which is where most DeFi activities are occurring at the moment. 

Arbitrum TVL

Source: DeFiLlama

How Does Arbitrum Work?

Arbitrum uses a roll up technology that enables smart contract transactions to be done on Arbitrum and rolled up into a message that will later be sent to Ethereum to be processed. 

In simpler terms, it rolls up multiple smart contract transactions into one smart contract message and sends it to Ethereum for bulk processing, hence the name ‘roll up’. 

This resulted in fees on Arbitrum being up to 50 times cheaper than the fees on Ethereum, and can process up to 65,000 TPS, a giant leap compared to Ethereum’s under 30 TPS, making Arbitrum attractive for users and developers alike.

With so much activity and money flowing in but exploits and hacks being a common thing in crypto, is it safe to use? 

Arbitrum was not just designed with high speed and low costs in mind, it was also designed to be secure. 

Firstly, Arbitrum is secured by the security of Ethereum as the transactions are directly written on Ethereum while the computation and storage of the smart contracts are done on Arbitrum. Validators would package all transactions into a roll-up block as a transaction onEthereum, also known as an assertion. 

Secondly, Arbitrum uses a validator and slashing system. Validators need to stake Ether to be a validator. If a validator acts dishonestly, they may lose their staked funds, aka getting slashed. 

Thirdly, when an Arbitrum assertion is posted onto Ethereum, there is a 7 days window for anyone to challenge this assertion, known as the challenge window. This gives anyone 7 days to challenge any suspicious assertions. 

These are just a few of the many security mechanisms in place to keep the Arbitrum network safe.

How to Bridge Assets to Arbitrum

There are many ways to bridge assets to the Arbitrum network, let’s explore some of them. 

How to use the Arbitrum Bridge

The official way is to use the Arbitrum Bridge, which requires a non-custodial crypto wallet such as Metamask

Bridging Arbitrum Metamask

Once you’ve connected, you will be able to send ETH and other ERC20 tokens like USDC from Ethereum to Arbitrum One, double check that it is not Arbitrum Nova. 

Select the ERC20 token and the amount that you wish to send, and click “Move funds to Arbitrum One” to begin the transfer. Metamask will pop up a transaction screen and once you’ve verified that the details are correct, you will click ‘Confirm’. 

Do take note that there will be some gas fees ranging from $1-$5 that you will have to pay. Once the transaction is submitted, your tokens will arrive on Arbitrum in about 10 to 60 minutes depending on the network traffic. 

Move eth to arbitrum metamask

Alternatively, if you do not have a crypto wallet, you can also send ETH and some ERC20 tokens like USDC from supported centralized exchanges, like Binance, directly to Arbitrum. Although if you are hunting for the Arbitrum airdrop which we will discuss later in this article, it is recommended to use the official Arbitrum bridge! 

Connecting to Arbitrum

Once you’ve tokens on Arbitrum, you will need to connect your non-custodial wallet like Metamask to Arbitrum to interact with your tokens and other Arbitrum dApps. 

You can do this by clicking on the Ethereum Mainnet button to view a dropdown list of “Arbitrum One” and “Arbitrum Nova”. For this example, we will click on “Arbitrum One” and Metamask will pop up a message asking you to add the Arbitrum network. Once you approve, the Arbitrum network will be added to your Metamask and they will ask you to switch to Arbitrum as well.   

Add Arbitrum to Metamask

If done correctly, you will be able to see “Arbitrum One” when you click on the Networks button at the top of your Metamask. 

Add Arbitrum One success metamask

If that does not work, you can visit chainlist.org and search Arbitrum and try to connect to a few different RPC addresses until one of them works. It is possible for an RPC to freeze occasionally so you may be switching with multiple Arbitrum RPCs. 

Alternative RPCs Arbitrum
Image taken from Chainlist

Withdrawing tokens from Arbitrum to Ethereum

How about withdrawing funds back to Ethereum? There are two ways to withdraw ETH and ERC20 tokens from Arbitrum to Ethereum. 

The fast way is to use a third-party bridge which can be done in under 30 minutes. As there are many options, a bridge aggregator such as Rango is a convenient way to get the best prices as it finds the best prices and fees between many bridges. 

Use third party bridge

The official and safer way is to use the same Arbitrum bridge, however, this method is slower and funds will take about 7-8 days to be received. There will be a countdown stating that your deposit will be received in 7-8 days and you can check the status of your withdrawal and claim when it’s ready by clicking on your profile on the top right. 

8 days waiting period using Arbitrum bridge

The Arbitrum Ecosystem

Since Arbitrum started, there has been a growing number of dApps on Arbitrum, and it is now a vibrant and thriving ecosystem as the leading L2 ecosystem with over 100 protocols. 

Let’s go through some of these interesting protocols such as Uniswap, GMX, Dopex, Vesta Finance, and Treasure DAO. 

Uniswap

Uniswap Arbitrum

Uniswap is a decentralized exchange (DEX) protocol where users can swap assets and provide liquidity permissionlessly. 

UniswapV3 introduced concentrated liquidity, where a user can concentrate all their liquidity into their specified price range instead of from 0 to infinity. This allows for greater liquidity while the token price is trading within the price range. 

Greater liquidity creates lower slippage for traders, attracting greater trade volume, which is why Uniswap is one of the most widely traded DEX in DeFi, including on Arbitrum which ranks top 8 in volume traded on CoinGecko. 

More trade volume means more fees are generated for liquidity providers as well, attracting more liquidity providers to provide liquidity and earn trading fees, allowing Uniswap to be the 4th largest protocol by TVL on Arbitrum. It currently has a market cap of $4.45 billion, ranking top 18 in market cap. 

TVL Rank Arbitrum
Image taken from DeFiLlama

To find out more information about Uniswap, you can visit their docs here.

GMX

GMX Arbitrum

GMX is a decentralized spot and perpetual exchange with low swap fees and zero slippage where users can place market, limit, or trigger orders with up to 30x leverage. As GMX is one of the most popular protocols in the Arbitrum ecosystem, we will expand a little more on them. 

What makes GMX unique compared to other perpetual exchanges is its zero-slippage swaps and this is thanks to using oracle price feeds and their index token, GLP, which is the liquidity provider token of GMX that traders would trade against, and it also accrues 70% of all generated fees on the platform. 

On Arbitrum, the GLP basket includes assets like ETH, BTC, LINK, UNI, USDC, USDT and DAI with different weightings, equally balanced between volatile assets and stablecoins. This 50-50 basket has proven attractive to users, especially in a bearish or volatile market where they seek a more defensive portfolio. 

GMX Trading ETH USD

Users can obtain this index token by minting with any underlying index asset, providing liquidity for traders to trade against. On top of that, GLP holders also earn a profit when traders lose money, but lose money when traders earn a profit, as GLP holders provide liquidity and are essentially acting as ‘the house’ in a casino. 

Fortunately, the net PnL of traders overtime is trending downwards, meaning GLP holders are actually earning from traders who are net losing money, making GLP an even more attractive token for users to mint and hold. This increases the liquidity of GLP, attracting even more traders and creating a positive flywheel effect. 

Traders Net PnL GMX
Image taken from GMX

The protocol balances the weightage of an asset through GLP minting fees. It does not auto rebalance which means that there is no standard impermanent loss.

If an asset is above its targeted weight, the cost to mint GLP with that asset would be higher. Likewise, if an asset is below its targeted weight, the cost to mint GLP would be lower or even free. 

These features have made it one of the most popular protocols on Arbitrum, with over 140,000 users, and it has seen an increase in users during the fallout of FTX as some traders flock to GMX as an alternative to centralized derivative exchanges. 

With a current market cap of $327 million, GMX ranks 1st on Arbitrum in TVL with a total of $370 million and over $65.3 billion of trading volume starting from 1st Sep 2021.

This information can be seen on their stats page.

GMX Stats
GMX is the utility and governance token that also accrues 30% of fees generated from swaps and leveraged trades. For more information about GMX, GMX token and how the platform works, you can visit their docs here.

Dopex

Dopex Options Protocol Arbitrum

Dopex is an options protocol that aims to provide maximum liquidity and minimal exposure for options traders.

With a current market cap of $36.6 million, Dopex ranks 11 on Arbitrum with a TVL of $17 million.

Similar to most option platforms, Dopex offers call and put options at strikes ranging from near to far out of the money with weekly, monthly, and quarterly expiry for ETH options. It also offers some exotics options such as GMX, GOHM, CRV, and even for its own tokens, DPX and rDPX

What makes Dopex interesting is their Single Staking Option Vaults (SSoV) which allow users to earn a non-risk-free passive yield by depositing accepted assets as liquidity for users who wish to buy call and put options on these assets. This is essentially writing calls and puts which can result in losses if the market is volatile.

SSOV Dopex Arbitrum

Image taken from Dopex

These structured option vaults can be a popular way to earn passive yield with different strategies that perform better depending on the market movement, whether it is trending or sideways, but generally do not do well during overly volatile periods.

Dopex uses a dual-token model. DPX is the governance token with value accrual. rDPX is distributed as rebate tokens to the option pool participants in case losses are incurred by the pool. veDPX is locked and staked DPX which gives users value accrual through allocations of protocol fees, staking rewards, etc. 

For more information about Dopex, its token model, and how the platform works, you can visit their docs here.

Vesta Finance

Vesta Finance Arbitrum

Vesta Finance is a lending protocol on Arbitrum that allows users to borrow a collateralized stablecoin, VST, against a variety of collateral with a minting fee but no interest fee, in order to obtain higher capital efficiency.

With a current market cap of $6.48 million, Vesta ranks 13th on Arbitrum with a TVL of $57.55 million.

Using ETH as an example, users will be able to borrow against ETH on Vesta Finance at 110% minimum collateralization ratio at zero interest. This means you will be able to mint up to $90.9 worth of VST with every $100 worth of collateral.

VST Staking

Vesta also allows users to earn VSTA for providing VST liquidity on their platform which is used to instantly liquidate any vaults that are under the minimum collateralization ratio. This liquidation process can be initiated by anyone and provides a return for people who deposit into the stability pools.

For more details about the protocol features and tokenomics, you can visit their docs here.

Treasure DAO

Treasure DAO Arbitrum

Treasure is a decentralized NFT ecosystem on the Arbitrum ecosystem that is built specifically for metaverse projects. 

Treasure has a current market cap of $56 million, ranking 9th on Arbitrum with a TVL of $25.7 million.

One of these projects is Bridgeworld, a P2E game built within the Treasure ecosystem. The game works around strategic trade and land control by farming key resources. It also allows the formation of guilds and DAOs, enabling strategies around farming optimization.

Trove is the main NFT marketplace in the Treasure ecosystem. Trove allows transactions in both ETH and MAGIC for ease of convenience. It will implement user levels and achievement systems to provide a gamified NFT collectors’ experience.

Trove nft marketplace Treasure

MAGIC is the sole currency around the Treasure ecosystem and can be staked to earn rewards and used to purchase NFTs on Trove. Besides marketplace transactions, it also acts as the reserve currency for metaverses under the Treasure umbrella. 

For more details on TreasureDAO, Bridgeworld, Trove, and MAGIC, you can read them on their docs here.

Arbitrum vs. Optimism

Arbitrum and Optimism are both optimistic roll-ups and appear similar on the surface, however, they have a different dispute resolution frameworks when it comes to validating transactions onto Ethereum. 

Optimism utilizes single-round fraud proofs that are executed on Ethereum, whereas Arbitrum utilizes a more sophisticated technique known as multi-round fraud proofs that are executed off-chain which is more efficient and cost-effective than Optimism’s single-round proofing. 

Compared to Optimism which has under 100 protocols, Arbitrum has well over 130 protocols, and the total TVL of Arbitrum is about 60% more than Optimism.  

Arbitrum vs Optimism

Additionally, as if Arbitrum wasn’t fast and cheap enough, there is another separate network known as Arbitrum Nova which is even faster and cheaper and is meant for social and gaming transactions. 

There have been significant rumors surrounding an airdrop of Arbitrum tokens, particularly following the Optimism airdrop. Let’s talk about how you can potentially get it as a free airdrop! 

The Arbitrum Airdrop

Airdrops are a way to encourage users to interact with the protocol by rewarding users who have fulfilled certain requirements with a token that is dropped directly into their wallets. 

Arbitrum is the most hyped protocol right now for airdrop hunters as they have repeatedly hinted about their airdrops. Here are some ways you can get yourself eligible. Although there’s no guarantee as the requirements are not known, it is certainly worth trying as these airdrops can sometimes be worth a lot, up to even $50k!

Here are some potential eligibility criteria: 

  1. Interact with Arbitrum dApps

  2. Obtain Guild roles on Discord 

The first step is to interact with Arbitrum dApps, and that should start with none other than the Arbitrum bridge. If you haven’t already bridged assets over, the possibility of a lucrative airdrop should be enough of an incentive for you! 

After you’ve bridged funds over, interact with the various dApps we talked about, from GMX to Dopex! Arbitrum even created a gu​​ild page where you can collect discord roles by accomplishing certain tasks, so make sure you check that out! Most of these tokens can be purchased by going to 1inch and will need about $10 to finish these steps (including gas fees). 

Lastly, Arbitrum Odyssey lasted briefly as gas fees skyrocketed above ETH’s fees, and users that interacted with it got an Arbitrum Odyssey NFT, if you missed out on this, you can purchase the NFT here, which will also help you get one of the roles on Discord! 

Additionally, it also helps if you have participated in ETH and other L2 networks like donating to Gitcoin Grants on L1, being a DAO voter, being a Multi-sig signer, which can be done on Gnosis Safe, as well as being a repeated Optimism network user

Optimism doubled their TVL after their airdrop, increasing their rank from 5th to 2nd place, and rewarded users with over $10k in value, so the Arbitrum token may not be easy to get, but it is likely going to be worth it! 

Conclusion

Ethereum is facing scalability challenges, and layer-two solutions like Arbitrum are a great way to scale the Ethereum ecosystem, allowing the average user to have a much better user experience, while still maintaining security and self-custody over the user’s own funds. 

With the high transaction speed and low fees, it is possible that one day, mass adoption for DeFi comes through massive growth in a layer-two network like Arbitrum rather than Ethereum directly.

What Are Rug Pulls in Crypto and How to Avoid Them

Top Rug Pulls


Key Takeaways:

  • Rug pulls happen when developers create a token paired with standard cryptos like USDT, list the token on a DEX, and pull all the funds out after investors’ buy-in.

  • The common signs of identifying rug pulls include unlocked liquidity, irregular token allocation, and lack of audits.

  • You can protect yourself against rug pulls by doing your due diligence and being maintaining a healthy level of scepticism for projects that sound too good to be true, especially when coupled with spikes in token value.


Since its invention, the cryptocurrency space has experienced tremendous growth. Indeed, investing in crypto has proven to generate more returns than most investments in the long run. However, as an investor, you must keep an eye on the multiple frauds and scams common in the space. A new type of scam known as a rug pull has taken root in the hype-filled crypto industry.  

Over $10 billion were lost in crypto and theft in 2021, an 81% increase from 2020, and rug pulls accounted for nearly 35% of the cryptocurrency scam revenue. That is according to recent findings from Elliptic. From the findings, though there are several crypto scams, rug pulls are becoming the most notorious. So, what are rug pulls, and how do they work? 

This article explains what rug pulls are, how they work, and how to avoid them. Besides, it unearths the tell-tale indicators of rug pulls to help you avoid falling prey. 

What Are Rug Pulls in Crypto? 

Rug pulls derive their name from the expression “pulling the rug out.” They occur when developers create a token paired with standard cryptos like ETH or USDT, list the token on a decentralized exchange (DEX), and pull all the funds out after investors’ buy-in. Rug pulls assume several personas, including exit scams, pump and dump, cryptocurrency maneuvers, and many more. While these personas differ, they are all designed to steal from investors.   

Rug pulls are common with decentralized finance (DeFi) since anyone can create their application. Essentially, the freedom of free use makes DeFi more prone to these crypto scams. Besides, DeFi transactions are anonymous and lack intermediaries, making it even more challenging to retrieve lost funds. While crypto rug pulls have become more prevalent recently, they form part of an extensive history of investment schemes. 

“This isn’t a crypto-only phenomenon. This is a people phenomenon. Crypto is just the latest way to do it,” says Adam Blumberg, a Houston-based financial planner specializing in cryptocurrencies. But digital currencies have become a hot target of rug pulls because of weak fundraising guidelines and emphasis on decentralizing finance. Non-Fungible Tokens (NFTs), which offer digital ownership rights of art and other creative works, have also been heavily involved in rug pulls.  

DeFi projects often leverage smart contracts, agreements run by computer codes instead of legal systems. While this setup minimizes transaction costs and human errors, it leaves some recourse for bad actors to pull the trigger. However, this doesn’t imply rug pulls, and other crypto scams cannot be mitigated with a restrained investment strategy and due diligence. Let’s see how rug pulls work before diving into how to identify a rug pull.

How Do Rug Pulls Work?

As mentioned, crypto rug pulls are carried out in DEXs, where project founders pull funds from a liquidity pool. To better understand this, let’s briefly check how liquidity pools work. Simply put, a liquidity pool is a practical market maker for DEXs that offers buy and sell orders for specific tokens. Since there is no centralized entity for processing trades, DEXs need a way to sustain their order flows. Again, listing assets on a DEX is easy as there is no intermediary to regulate and audit listing requests. 

Basically, a liquidity pool is a collection of investor funds locked in token pairs to facilitate trades between various digital assets. Token pairs typically include popular crypto, like USDT, BNB, and ETH, since they are well-established crypto assets with high utility and liquidity. To entice investors to lock their assets and act as liquidity providers (LPs), DEXs charge trading fees on transactions. LPs are awarded a certain percentage of the trading fees in return for providing liquidity. The more the amount locked, the more rewards an LP generates. 

Liquidity pool creators attract more investors by promising higher percentage yields. After they have amassed adequate funds in the pools, they pull out or withdraw them to other addresses. The funds are then changed hands in other exchanges and made undetectable to the victims. Since USDT, ETH, and BNB are actively traded in almost all marketplaces, it is easy to transfer to other wallets and “distance” from the source. This withdraws all the pooled assets, leaving the pool empty and LPs with nothing but distress. 

How to Identify a Rug Pull

The best way to prevent rug pulls is to be aware of the warning signs. Though the “it is too good to be true” test applies to all investments, there are multiple specific indicators you should watch out for to detect potential rug pulls and avoid falling prey. Importantly, it would be best if you took time to step back during a time of excitement to establish the reality without FOMOing (fear of missing out)

Some of the common signs of identifying rug pulls include:

Unlocked Liquidity 

To create trust and boost the public view of their validity, owners of notable crypto projects often relinquish control of liquidity pools by locking them in a reputable blockchain or with a trusted intermediary. The process is referred to as locked liquidity, and it stops project owners from withdrawing any of the assets in the pool, making it impossible to pull out. The longer the liquidity pool remains locked, the fewer the chances of a rug pull. 

On the contrary, if the liquidity remains open, nothing hinders the owners from draining it and making the project useless. Ascertaining whether a liquidity pool is locked is an easy process:

First, find the token contract through a blockchain explorer or social media accounts of that token. Suppose the token you are interested in is a BSC token; visit bscscan.com to find out its contract. You can learn how to use BscScan here. If it’s an ERC20 token (Ethereum token), visit etherscan.io and refer to our guide on how to use it. 

After finding the contract, visit the respective blockchain scanner and paste the contract into the search bar. Under the transfer section, proceed to page 1 or any page that contains the liquidity addition (mainly, the first interaction with DEXs like Pancakeswap and Uniswap are router contracts).  

Thirdly, click on the TX hash, and scroll down until you find the liquidity pool tokens transferred to the dev wallet. 

Finally, click the wallet to find the LP holdings. If the wallet contains 0 holdings, then visit the transfer section to confirm if the wallet has sent LP tokens to burn addresses. If not, then the wallet owner has open liquidity. A burn address is one to which no one has access. Therefore, if liquidity is not burned or locked for a lengthy period, it can be pulled out from the pool anytime. 

Irregular Token Allocation

Checking the token allocation on blockchain explorers will help you know who holds the most significant amount of coins and how coins are allocated. If a few wallets hold big amounts of the coin supply, dumping the tokens quickly is easy, amplifying the risks of price manipulations and rug pulls. Thus, the more distributed a token is, the safer it’s to invest.  

Lack of Audits 

Reputable crypto projects often allow independent security audits or financial transparency reports to advance their authenticity. For example, Cardano went through several audits and an independent source code audit to boost investor confidence. Nevertheless, a crypto project without an external audit report isn’t automatically fraudulent. It simply means you should do more research about the project before investing your hard-earned money in it.   

List of Infamous Rug Pull Crypto Projects 

Now that we’ve looked at what rug pulls are, it’s time to look at a list of some of the most infamous rug pulls.

Animoon

Animoon was positioned as an NFT collection of 9,999 NFTS at 0.2 ETH. It claimed to have links with official Pokémon partners TopDeck, offering recolored versions of Pokémons. They offered play-to-earn games, real-world travel, comics, and even a secret Netflix project. All these were topped off with 15 Legendary card NFTs that promised to generate their holders fixed income monthly for the rest of their lives. The team started to distance themselves from the project shortly after launch, offering only sporadic updates, and it ended in a $6.3 million rug pull. 

Squid Game 

Squid Game (SQUID) was one of the popular cryptocurrencies in October 2021. SQUID was a meme token drawing on the popular Netflix series Squid Game, though it was not directly related to the series. After its launch, SQUID’s price skyrocketed since the token was hyped across social media websites, and most people thought it was the Netflix Squid game. From October 26 to November 1, SQUID’s price gained by almost 23 million percent – from a few cents to $2,861.80. The developers then pulled the rug by selling tokens worth $3.3 million. The moment was captured live by the Twitter user @imBagsy. 

OneCoin

OneCoin was fundamentally a massive Ponzi scheme, which now stands out as the biggest cryptocurrency scam – almost $25 billion in investor funds were lost. Although law enforcers unearthed the OneCoin scam and even arrested its managers in 2017, most of its core members disappeared into thin air.  

The project sold crypto education courses attached to tokens that could supposedly “mine” the OneCoin crypto. Users were rewarded for referring new users to the platform, and so on. Nonetheless, it turned out that OneCoin was never publicly traded and could only ever be sold on the OneCoin Exchange with strict trading limits. 

Luna Yield

After Luna Yield’s website, Twitter, Telegram, and other social media channels went dark in August 2021, investors feared that the developers might have pulled the rug on them. They confirmed their fears after they failed to unstake their funds from the Luna liquidity pools since the developers had drained them. The investors incurred a total loss of almost $10 million, making Luna Yield the biggest rug pull on the Solana blockchain. 

Evolved Ape 

Evolved Apes was a popular NFT project whose initial drops sold out in under 10 minutes. In September 2021, one week after the launch, “Evil Ape,” the project owner, pulled 798 ETH (worth $2.7 million then) of investor funds. In a series of transactions, the owner withdrew funds for project-based expenses, like paying artists, marketing, creating the much-hyped fighting game, and more. The founder also took down the project’s website and social media pages as part of the game. 

Are Crypto Rug Pulls Illegal?

Crypto rug pulls are illegal worldwide, and law enforcers would act if they smoked out the offenders in their jurisdictions. For example, the Greater Manchester Police in the UK detained a 23-year-old male and a 25-year-old female linked with the StableMagnet rug pull in 2021. The enforcers seized $22.25 million in ETH after obtaining intelligence, which led them to hardware wallets containing the assets. 

Regarding the OneCoin rug pull, global police descended hard on some of the leaders. According to South China Morning Post, Chinese regulators prosecuted 98 people linked with the project and seized $267.5 million in crypto. 

4 Tips to Avoid Rug Pulls

Now that you are aware of how rug pulls work and how to identify them, here are four tips to avoid rug pulls:

Do Your Due Diligence 

In the crypto space, it’s normal for participants to stay anonymous. However, most reputable projects have dedicated sites and references where users can check their credibility. However, this is not a total guarantee of project success.  

Besides, most crypto projects rely on the legitimacy of their smart contract codes. You don’t need a tech nerd to understand how a project works. Before investing in any project, check whether an independent entity has audited it. Projects that have passed auditing often publish their reports to boost investor confidence. 

Be Careful of FOMO

Always strive to reduce your fear of missing out. Bad actors often over-hype their projects to make investors FOMO before pulling the rug on them. Luckily, multiple online tools help you quickly detect a scam, such as Token Sniffer, Rug Doctor, and blockchain explorers. 

Suspicious Spikes in Token Value  

Like pumps and dumps, you should be cautious with tokens whose prices rise sharply within a few hours or days. If you see an asset skyrocket in value, try to find out the drive behind it. If you can’t find any new partnership, listing, major partnership, or significant product announcement, it may be an attempt to entice you to FOMO into the project. 

Check the Project’s Online Presence   

GitHub is the code base for most crypto projects, typically showcasing their development activities. It is also essential to watch the project’s social media websites like Telegram, Twitter, Facebook, Instagram, and more. If the project is experiencing a dormant phase of activities and is a fork of another project, thread cautiously.  

Final Thoughts

Like the ICO craze of 2017, the explosion of DeFi and NFTs has made scammers chase the bag. Certain characteristics of the DeFi space, such as the convenience of issuing and listing new coins, have made it easier for bad actors to scam investors than before. As DeFi has opened financial services to a global pool of investors, it has also unlocked a broad group of potential victims to bad actors. 

Rug pulls accounted for almost 35% of the cryptocurrency scam revenue in 2021. Luckily, there are multiple red flags you can watch out for to identify potential rug pulls. Furthermore, you can use the tips discussed in this article to stay safe online and avoid rug pulls. By considering these preventive measures and tips, you can dodge being the next crypto rug pull victim.

Canto: A DeFi-Centric Layer 1 Blockchain

What is Canto crypto


Key Takeaways:

  • Canto is a permissionless Layer 1 blockchain developed with the Cosmos Software Development Kit (SDK) and Tendermint Core.

  • Canto’s mission is to offer the primary tools of DeFi (DEX, lending protocol, and decentralized stablecoin) as a Free Public Infrastructure (FPI).

  • It returns power to users by advocating for an environment free of the rent-seeking behavior of most DeFi applications.  


Canto’s core focus is on its Free Public Infrastructure (FPI), which advocates for DeFi primitives (DEX, lending protocol, and units of account) to be provided as free-to-use public utilities.

Canto is an experimental network with a grassroots ethos. The network did not launch with a foundation, VC funding, pre-sale, or vesting.

With decentralization at its core, Canto launched with the help of a loose organization of contributors – native DeFi builders – all of whom are interested in delivering on the promise of DeFi.

Prior to the current market turmoil in November 2022, Canto’s TVL was experiencing steady growth, with a peak of $163.46M in Total Value Locked. 

Canto TVL Nov 2022

Source: DefiLlama

So what makes Canto so appealing? Follow along as we dive deeper into Canto, how it works, the Canto lending market, Canto DEX, and liquidity pool, how to bridge assets to Canto, how to add Canto to MetaMask, how to stake CANTO, and projects on Canto.

What is Canto?

Canto is a permissionless Layer 1 blockchain compatible with the Ethereum Virtual Machine (EVM). It’s designed to deliver on the decentralized finance (DeFi) promise – that new models will be easily accessible, completely transparent, decentralized, and free via a post-traditional financial drive. Canto launched with no core foundation, presale, vesting, or venture backers to be completely decentralized. As of time of writing, Canto’s total value locked (TVL) stands at $109.03m, with most of these locked in its DEX and lending protocols.

At its core, Canto leverages the Tendermint Consensus and the Cosmos Software Development Kit (SDK) and is secured by Canto validators. It achieves EVM compatibility through the Ethermint system, which enables an EVM execution environment, further facilitating the deployment of Ethereum smart contracts. These tools include the Canto Decentralized Exchange (DEX), Canto Lending Market (CLM), and NOTE. Canto aims to become the “best execution layer for original work” through the execution of:

  • Zero fees for liquidity providers (LPs) – protocol users, traders, and arbitrageurs can access liquidity freely. 

  • Rent extraction resistance – Canto believes primary decentralized applications (dApps) like DEXs and lending protocols should have no governance tokens to offer FPI.  

  • Minimally reasonable customer capture – Primary public primitives lack customer interfaces to enable customer acquisition for Canto protocols. 

The Team Behind Canto

Scott Lewis, co-founder of DeFi Pulse and Slingshot Crypto is a contributor and leading force in Canto. The Plex team is another group of contributors, responsible for the development of the network, its Free Public Infrastructure, and the canto.io frontend.  A DAO proposal was also recently passed to bring on the B-Harvest team, an established team within the Cosmos ecosystem, as core developers for Canto.

Another notable contributor is NeoBase, who steward the Canto EVM blockchain explorer, and have developed a Canto analytics dashboard featuring details of the protocol including the lending market, as well as covering the Canto DEX and Forteswap.

How Does Canto Work?

The Canto team has identified three core primitives that anchor healthy DeFi ecosystems: Decentralized exchanges (such as Uniswap), lending markets (like Aave), and decentralized units of account (such as DAI). While most of these launch a governance token that extracts “rent” from future users, Canto has launched these as public utility protocols (also known as Free Public Infrastructure – FPI). 

This means that Canto lets users engage with its offerings for free, leaving governance to the chain. The Canto DEX will remain ungoverned, and cannot launch a token or implement additional fees. Meanwhile the Canto Lending Market is governed by stakers, who are focused on the growth of the ecosystem and creating an environment that works for developers and DeFi users. Finally, in the case of NOTE, its algorithm that adjusts the interest rate is designed to focus on promoting a less volatile value instead of maximizing revenues, though the interest charged through borrowing NOTE in the CLM is collected by the protocol to further fund public goods.

That said, as Canto is doing a lot of things for the first time, remember to do your own research and limit your financial risk based on your risk appetite. 

What Can You Do On Canto?

As mentioned above, Canto has outlined three financial primitives designed to support the Free Public Infrastructure (FPI) that is crucial to its mission of developing new systems that are accessible, transparent, decentralized and rent-free. We’ll now take a closer look at these three primitives:

Canto Lending Market

Canto Lending Market (CLM) is a mutual pooled lending Compound v2 fork governed by CANTO stakers. The stakers play a vital role in the growth of the Canto ecosystem by creating an ideal environment for developers and users. One way of fostering an ideal ecosystem is eliminating rent extraction at the application layer. CLM accepts liquidity tokens from the Canto DEX as collateral. Users deposit the collateral in a lending protocol as supply, but they are prohibited from borrowing LP assets. 

Canto DEX and Liquidity Pool

Because the Canto DEX can’t be upgraded or governed, operating on Canto in perpetuity without the ability to launch a token or execute extra fees with time, it prohibits the likelihood of a greedy progression toward rent-seeking behaviors. Essentially, Canto DEX leverages an Automated Market Maker (AMM) mechanism to source liquidity from trading pairs created by LPs. The creators are rewarded with liquidity pool tokens, which they can further collateralize and borrow against. 

Canto has put in place a liquidity mining program that issues tokens linearly per block to LPs. Since its launch, the program has ensured adequate liquidity by dividing the genesis block into groups of liquidity mining incentives. The initial token block provided incentives for LPs for the first six months, while the second block served a longer-term period. 

NOTE (Canto Unit of Account)

NOTE is an ERC20 token that acts as Canto’s unit of account. Initially, the entire supply of NOTE was issued and locked in the CLM’s Accountant contract. NOTE is fully backed by collateral lent to CLM, and you can use CANTO, ETH, ATOM, or Canto LP tokens as collateral to borrow NOTE. Besides, automated smart contracts (such as CLM’s Accountant contract) regulate the supply of NOTE by lending the collateral (assets that users deposit when minting NOTE) to other borrowers.  This is also how NOTE maintains its value, which is centered around US$1. 

NOTE is not a stablecoin as it is not pegged to the dollar and can have its own volatility.

CANTO Tokenomics

CANTO is a utility token that facilitates liquidity mining and staking activities on the Canto blockchain. It has a circulating supply of 322M, a total supply of 1B tokens, and a market cap of $109M. The distribution of CANTO (CANTO) is as follows:

  • 13.00% is allocated to Contributors

  • 2.00% is allocated to Settlers of Canto

  • 5.00% is allocated to Future Grants

  • 35.00% is allocated to Medium-Term Liquidity Mining

  • 45.00% is allocated to Long-Term Liquidity Mining

Canto token allocation

Some active markets where you can trade CANTO include Canto DEX, Bitget, and MEXC Global.

How to Add MetaMask to Canto

You can add the Canto blockchain to your MetaMask wallet since it’s compatible with EVM. Assuming you have downloaded and installed MetaMask into your browser, you can add MetaMask to Canto manually through MetaMask or automatically through Canto DEX:

Manually Through MetaMask

  1. Log into your MetaMask account.

  2. At the upper right hand side of the screen, click on the network dropdown menu you are connected to (it should be Ethereum Mainnet by default).

  3. Click “Add Network.”

Add Canto to Metamask

  1. Copy and paste these RPC details into their respective search bars.

Network Name: CANTO

New RPC URL: https://mainnode.plexnode.org:8545

Chain ID: 7700

Currency Symbol: CANTO

Block Explorer URL: https://evm.explorer.canto.io/

After saving your entries, you can connect to the Canto network anytime through the dropdown menu. 

Automatically Through the Canto DEX

  1. Go to Canto DEX.

  2. Click the “Connect Wallet” tab to link your MetaMask wallet.

  3. Follow the prompts to add the Canto blockchain automatically. 

You can cross-check Canto’s RPC details with the one above.

How to Bridge Assets to Canto

After adding MetaMask to Canto, you can bridge tokens across to start interacting with various dApps on the Canto ecosystem. Follow these steps to bridge Ethereum assets to Canto:

  1. Visit the Canto Bridge to create a public key for your MetaMask address. Click “Generate a Public Key” to initiate the process.

  2. After clicking the tab, MetaMask will request you to sign a message to confirm the key creation request.

  3. Afterward, you can bridge assets from Ethereum to Canto through the Canto Bridge. 

How to Stake CANTO

You can stake CANTO through the Canto Staking website. Before staking your tokens, you must connect your web3 wallet and generate a public key. The Canto system will send you an alert if you haven’t created a public key. The system charges 0.08 CANTO when staking and 1 CANTO when claiming rewards. It distributes rewards every 24 hours.    

Projects on Canto

The Canto team has held a couple of hackathons to encourage projects to launch on the Canto network. While Canto is dominated by the Canto DEX and lending protocols, some other projects have surfaced on the platform and are gradually gaining traction within the community. Do note that this article is for educational and informational purposes, and that covering the below projects does not constitute recommendations or financial advice. 

Canto Longnecks

Canto Longnecks is an NFT project on the Canto ecosystem featuring unique animated NFT collections. The collections are inspired by emu images and pixelated art and consist of exclusive motivations with a decentralized minting platform. Canto Longnecks’ community-based approach shows a user-centric project with customer satisfaction at its core.     

The first 100 Longnecks minters received free NFTs, which are tradable at NFT marketplaces like Provenant.art and Alto Market

Slingshot

Slingshot is a web3 trading platform that strives to solve most of the problems crypto traders encounter today while enabling them to get the maximum value of their trades through positive slippage. Essentially, Slingshot aggregates multiple liquidity protocols to offer traders the best market options based on the trading pair they are interested in. Besides, it gives users any positive slippage experienced during the trades, meaning they receive better deals when using Slingshot than on other platforms. Canto users can swap CANTO assets on Slingshot. 

Y2R Finance

Y2R Finance is a DeFi Yield Optimizer that enables users to increase their LP assets locked in the CLM. It presents the magic power of auto-compounding with amazing Annual Percentage Yields (APY).

Forteswap

Forteswap is a DEX built on the Conte ecosystem. Users only need to connect their web wallets to swap various Conte assets.  

Conclusion

Canto’s key differentiating value proposition is its dedication to maintaining a Free Public Infrastructure (FPI) and ensuring it remains rent-free with no governance token or fees instead of maximizing revenue. This is in line with the promise of DeFi, where financial systems are rendered decentralized, accessible, transparent and free.

Helium (HNT): From IoT to Mobile Virtual Network Operator

What is Helium HNT


Key Takeaways:

  • Helium’s original aim was to build a decentralized wireless network for Internet of Things (IoT) devices. In its latest iteration, Helium aims to provide wireless network coverage to locations with poor Internet connection.

  • Mining HNT tokens requires Helium-specialized hardware called Helium hotspots.

  • Helium is currently operating on its own blockchain, but the community has voted to migrate to Solana


Helium made bigger splashes and more waves than a busy kiddie pool during the last bull run. And the company seemingly came out of left field for a lot of people. So you’d be surprised to learn that Helium has actually been around since 2013.

Sure, it wasn’t involved in blockchains just yet. But one can argue that its mission today has been fairly consistent throughout its many iterations.

And what is that mission?

To bring Internet of Things (IoT) connectivity everywhere. Unfortunately, the plan didn’t pan out, and they were running low on funds in 2017. And that’s when someone proposed incentivizing its Helium community with tokens. 

Then came the switch to blockchains.

Almost 1 year post-launch, Helium claims to have hotspots sprawled across more than 1,000 cities in North America. The Helium project, rebranded as Nova Labs, has received $200 million in its latest funding round. Investors included Andreessen Horowitz and Tiger Global Management. (Previous funding rounds featured the likes of Multicoin Capital and Khosla Ventures. No small potatoes.) 

Still, Helium has also been mired in its fair share of controversies. So where is the company now?

Below, we take a look at the good, as well as the not so good, to provide you with an accurate assessment of the state of Helium. Let’s take a deep breath, inhale, and have some fun reading this guide!

What is Helium (HNT)?

What Helium offers users

Source: Helium

Helium is a company that aims to build a decentralized wireless network for Internet of Things (IoT) devices. It was only recently that they incorporated blockchain technology. Although the company had built its own blockchain, it has since voted to migrate to Solana. (More on that in a later section.)

In its latest iteration, Helium Mobile aims to provide wireless network coverage to locations where Internet availability is spotty or unavailable. In its recent past, though, the company aimed to provide data packet transfer services for IoT devices. 

How Does Helium Work?

Helium nodes

Source: Helium

Helium works by leaning on its community of node operators. These node operators run what are called hotspots. Hotspots are basically hardware miners that mine HNT tokens in exchange for helping secure the network. This consensus mechanism is called Proof-of-Coverage (PoC), which helps secure the Helium blockchain.

The mining equipment is based on LoraWAN, which is a cloud-based open-source protocol used for connecting IoT devices. Because of their ability for low power consumption, they’re ideal for IoT devices. And since LoraWAN uses radio frequency, the range is much longer than offered by WiFi. (It does sacrifice data packet sizes though.) 

Here, we should take a moment to differentiate between Lora and LoraWAN. LoraWAN is everything that Lora offers, and more. The “more” includes a networking component, combined with additional data security and encryption. As you can probably tell, this technology has some amazing potential to change the world. 

Now let’s take a look at Helium’s tokenomics.

Helium Tokenomics

Source: CoinGecko

The total supply of the Helium token (HNT) is 223,000,000, with a circulating supply of 129,480,610 at the time of writing. Of the whole pie, 35% is allocated to the development and support of the hotspot infrastructure. Another 35% is reserved for Helium and its investors. The remaining 30% is to be allotted to support the costs of network data transfer.  

The Helium issuance proposal recommends halving the net HNT issuance every 2 years after the genesis block. The first halving took place on August 1, 2021, and the net HNT issuance was reduced to 2.5 million HNT per month.

The split for HNT miners did not change from the proposed schedule. This condition leads to a theoretical maximum supply of 240 million HNT. But thanks to the slow block times in Year 1 post-genesis, fewer HNT were minted than the planned 60 million. This thus leads to a reduction of roughly 17 million HNT, thus leaving us with the true max supply of 223 million. 

Now let’s look at the tokenomics surrounding HNT mining:

How much HNT a miner earns is dependent on the type of work they perform. Helium’s got an interesting design for its consensus mechanism. It’s called Proof-of-Coverage (PoC), and it works like this.

PoC secures the network by qualifying the type of mining you do. As mentioned, your rewards are dependent on how much value you accrue for the network (aka the type of work). 

There are three types of work:

1. Challengee

2. Witness

3. Network data transfer

Of the three, work involving network data transfers pays out the most, with an allocation of 37.5%. Witnesses, who monitor and report on the PoC activity of other hotspots, receive 18.92% of the pie. The remainder (4.73%) is reserved for challengees. This work involves validating other hotspots’ wireless coverage.

Where Can You Trade Helium?

You can trade Helium on Gate.io, Bitget, and Binance US. However, Binance has removed and ceased trading on HNT/BTC and HNT/USDT

In a statement to Forbes on the delisting of HNT, Binance stated that they conduct periodic reviews to “ensure that it [Binance] continues to meet a high level of standard. When a coin or token no longer meets this standard or there are changes in the industry, we conduct a more in-depth review and potentially delist it in order to protect our users.”

The exact details of why HNT was delisted wasn’t covered, with speculators suggesting it could be anything from an upcoming investigation from the SEC (Securities and Exchange Commission) to Binance’s threatened HNT liquidity after a mistaken classification caused the exchange to lose around $19 million.

What is the Helium Network Used For?

Helium Utility

Source: Helium

Let’s talk about utility real quick. The Helium network’s use cases have been interesting experiments. Out of the myriad crypto projects out there, Helium seemed to offer actual utility—in real life! 

Sure, miners can earn HNT by securing the network. But simply securing a network does not provide any actual utility. So where does the utility actually come from? 

From facilitating the transfer of data packets. In theory, this would help companies that need to keep track of data for their devices. For instance, a company may be able to track e-scooter rentals throughout the city. (Lime was rumored to have tested out the Helium network specifically for this purpose.)  

Recently, Helium seems to have shifted from this approach. The project is now focusing on bringing Internet connectivity to areas with little to no access to the Internet. We’ll take a closer look at this toward the end of our guide.

But for now, let’s take a look at how to mine HNT tokens.

How to Mine Helium

Helium Hotspots

Source: Helium

To start mining Helium, you need Helium-specialized hardware called Helium hotspots. You can purchase one from several of the official third-party suppliers. 

Nearly a year ago, when I was looking to pick up a few hotspots, there was a long waiting period of up to several months. Now that we’re in a bear market, waiting times have shrunk considerably. For instance, the Bobcat Miner ships within 1 week. 

Being a hotspot owner isn’t easy these days, but we invest in the future, right? If you think Helium’s got potential, then using Helium hotspots to mine tokens is actually one of the easiest ways to get set up and running.  

Simply visit this link on the official Helium website, where you’re presented with a long list of hotspots. The list can get overwhelming, so when I was considering purchasing a few miners, I looked at the Bobcat Miner 300. (By the way, any mention of the Bobcat Miner throughout this article is in no way meant to be interpreted as an endorsement or recommendation.)

Keep in mind that these miners are region-specific, so you’ve got to pick your region, or the one closest to you. This is due to the available radio frequencies in each location.

How Much Does a Helium Miner Make?

Source: Helium

How much can you actually make as a Helium miner? The answer: It depends on several factors, the first of which is timing. When did you buy in? As with any nascent industry, the best time to get in was yesterday.

Second, unfortunately a major factor, is based on a Forbes investigative report. The report indicated that within 6 months, “more than a quarter of all HNT had been mined by insiders.” 

Third, how many hotspots do you have, and where are they situated? One issue Helium faced was with what they call “closet clusters”, which are created to cheat the system.

To secure more rewards for themselves, these cheaters would purchase numerous miners. Then, they’d switch up their locations to make it look like the miners were spread across a large area, when, in actuality, they all sat in a single location.

By the way, the ROI for mining is currently a net negative across the board, and sad Hotspot owners are unfortunately not the exception. 

Setting up a Helium Wallet

Helium Wallet

Source: Helium

In this section, let’s quickly go over how to get you set up with a Helium Wallet. 

How to Get a Helium Wallet

1. Open the App Store on your iOS device and search for “Helium Hotspot”. (That’s the Google Play Store for you Android heads!)

2. Once you download the app, open it.

3. Create an account and secure it by generating your 12-word seed phrase. 

4. Write down all 12 words in a safe place. (We strongly recommend that you write it down somewhere for safekeeping offline. This isn’t the time to take screenshots. Write it down in your journal.) 

5. Once you’ve done so, click on “I have written these down”. (And don’t lie. Because the next step will check that you did note these words down.)

6. Once prompted, confirm your words by inputting them in the correct sequence. 

7. Set and repeat your pin code. 

Once the interface pops up, you’ll notice that it’s asking if you’re a miner or a validator. Don’t worry. You can safely ignore this prompt. Instead, once you’re inside, you’ll find four tabs at the bottom of your screen. The second one from the left is your wallet. 

Voilà! Now you can send and receive HNT tokens.

What Wallet Supports Helium

Helium Supported Wallets

Source: Helium

Currently, the main wallet supporting HNT is the Helium Hotspot App. That’s why we showed you how to get yours set up in the previous section. 

By the way, this wallet won’t be available during Helium’s migration to Solana. But upon successful migration, the Helium Hotspot wallet will be available once more. All you’ve got to do to access your sweet digital assets is to update your wallet. Afterward, you’ll be able to view your newly migrated assets on Solana.

And you won’t be limited to the Helium wallet app either. Once on Solana, the chain’s most popular wallets like Phantom and Solflare will support HNT.  

Can HNT be Added to MetaMask?

As Helium is not EVM-compatible, you won’t be able to send HNT to non-custodial networks like MetaMask. 

Before we close, let’s take a look at Helium’s Solana migration, as well as its new direction.

Helium’s Solana Migration

The move to Solana wasn’t a unilateral action taken by the company. Instead, the Helium community voted overwhelmingly (80%+) to migrate Helium from its own blockchain to Solana (!). The Helium blockchain itself will remain publicly accessible. 

Scott Sigel, CEO of the Helium Foundation, offered some insight behind the move. “Moving to the Solana blockchain allows us to focus our efforts on scaling the network as opposed to managing the blockchain itself.” 

This is a fair take. After all, Helium also outsources the production of its miners to third parties. That way, they can focus on scaling the network. 

But why Solana? Why not another blockchain?

It turns out that the private keys to Helium’s wallets are compatible with Solana. The other main reason the team chose Solana? Its unparalleled speed, which would help them scale much faster than, say, Ethereum.

Helium Mobile: Act II?

Helium Mobile

Source: Helium

Although many are calling Helium’s most recent shift to focusing on 5G network connectivity as “Act II”, I like to think of it more as the third or fourth act. After all, Helium has undergone several iterations, with many highs and embattled lows.

With its new 5G network, for which it’s partnered with T-Mobile, Helium is assuming a role as a mobile virtual network operator (MVNO). By the way, Helium is introducing a new token for its 5G miners: the MOBILE token. The token should be more profitable compared to HNT, but project viability remains to be seen. 

The MOBILE token is an optional reward, though. You can opt into Helium Mobile should you choose to provide anonymized data on your network usage. You already give your data up for free in web2. So why not get paid for it?

Regardless of project viability at present, we’ve got a couple things we’ve got to acknowledge when it comes to Helium. Their ability to pivot during hard times has demonstrated remarkable resilience. Moreover, they’re adventurers who aim to bring actual value to the real world by building on blockchain technology. 

After all, isn’t that what we’re here for?

What is a Blockchain and How Does It Work?

What is blockchain


Key Takeaways:

  • Blockchain technology is an approach to data management that explores flexible data storage and utilization means that preserve the authenticity of data and resists internal and external modification attempts.

  • The blockchain is a uni-directional chain of data stored in batches known as blocks. The blocks are identified using unique hash codes that reference other blocks in the chain in such a way that a single hash code can only be changed if every other hash code in the chain is changed.

  • The hash codes are generated and attached to the chains through a consensus between participants of the network.

  • The blockchain is guarded by a network of computers running algorithms that validate data stored in blocks before hashing them into the blockchain.

  • The blockchain can be applied to any concept or sector where immutable data is generated constantly and there is a need to manage this data easily.

  • The most popular use of blockchains is for keeping data of cryptographic token transactions.


When Satoshi Nakamoto published the Bitcoin whitepaper, he shared his mission to develop a “purely peer-to-peer version of electronic cash that would allow online payment to be sent directly from one party to another without going through a financial institution”

This version of electronic cash will be built on a peer-to-peer network that timestamps transactions by hashing them into an ongoing chain of hash-based Proof-of-Work, forming a record that cannot be changed without redoing the Proof-of-Work.

Satoshi’s abstract provided the most basic definition of a blockchain and the relationship it shares with cryptocurrency which in this case is the ‘electronic cash’ while the blockchain is the network.

So what exactly is a blockchain and how does it work?

What is a Blockchain?

Modern blockchains are structured to create a similar relationship between the network and other entities that isn’t limited to electronic currencies. But the network itself has retained its basic mode of operation.

A consensus algorithm, hashing system, and an ongoing chain are the basic components of a blockchain. These components work in synergy to develop a tamper-proof but flexible data management system. The system is flexible in the sense that it can be modified to store just about any data and also make these data readily accessible, but very hard or impossible to modify once stored.

As the name suggests, the blockchain is literally a chain of blocks. A ‘block’ is a collection of data. It is a digital record of transactions or activities across the network. These transactions could involve the electronic currencies or any participants of the network. Each block is identified with a unique code, which are known as Hash Codes. Each new block extends the hash of the preceding block in such a way that they are connected and form a continuous chain.

The hash is given to the blocks through the consensus algorithm.

What Is A Consensus Algorithm?

A consensus algorithm is a system through which participants in a blockchain network confirm the validity of data contained in a block. This ensures that the network doesn’t store erroneous or malicious data. Consensus algorithms are designed with proof systems to check the legitimacy of the participants and also evidence that they have validated the information in the block.

This process is packaged in the consensus algorithm and simplified for participants in such a way that anyone, regardless of their understanding of complex computing, can participate in the network by running a blockchain node and validating a block.

Most blockchains reward participants for this role. However, it is important to note that this is not compulsory. The two most popular consensus algorithms are the Proof-of-Work and Proof-of-Stake consensus algorithms.

Proof-of-Work algorithm is one of the earliest consensus algorithms, used notably by the bitcoin blockchain and formerly by Ethereum blockchain. Newer blockchains are showing a preference for Proof of Stake. Other consensus algorithms have emerged. Some of these include Proof-of-History used by Solana blockchain and Proof-of-Authority used by VeChain.

Learn more about other consensus algorithms here.

Consensus algorithms play a major role in tamper-proofing the blockchain network. For an attacker to modify the data on the network, they will need to rework the proofs for all the blocks in the network. To stand a chance of doing this successfully, the attacker must possess at least 51% of the computing powers in the network for Proof-of-Work blockchains or 51% of the assets staked on the network for Proof-of-Stake blockchains. This is known as a 51% attack.

What Is The Purpose Of A Blockchain?

The purpose of a blockchain is simple; a system to store data in such a way that data cannot be modified and at the same time be flexible. The blockchain was developed for easy storage of data, easy access to data, and rigid end-to-end resistance to modification attempts.

Interlinked blocks

Like cloud computing, the blockchain is basically a way to store and use data. In contrast to cloud storage, however, the blockchain network is owned by every member of the network.

Instead of a single control point, the blockchain network is dispersed across every participating device. Everyone owns a piece of the blockchain, but no one controls it.

What You Can Do On The Blockchain

Before spending the end of your first 24 hours in the crypto space, you’ve certainly used the blockchain in at least two ways. Either you created a cryptocurrency wallet or you’ve sent a cryptocurrency to a friend or from an exchange to your wallet. The higher chance is that you did both.

In each of these, you’ve used the blockchain for different purposes, but in the same way. By creating a wallet, you’ve successfully registered an account on the decentralized ledger. By completing an asset transfer or receiving an asset, you’ve recorded a set of data on the ledger and under your account. This data can be easily accessed and used, but cannot be modified. 

There are other ways to utilize this ability, such as:

Decentralized Applications

Google and Amazon cloud holds the database of most applications we use. Developers use these platforms to store and serve data to the application users. These applications are centralized, not only because the database is controlled by a single entity but also because the developers have first-hand control over what is stored and served.

Data generated by users are controlled by database managers and cloud service providers. Developers are currently resorting to blockchain networks as a more secure way of managing users’ data through an immutable ledger system; users are also craving for applications where their data are ‘untouchable’. 

Applications built on the blockchain are known as decentralized applications and they cut across areas such as:

Gaming

GameFi’ projects swept the crypto space by its feet throughout the last quarter of 2021. Decentralized gaming applications are built on the blockchain and serve users’ data from the network. A huge advantage they have over centralized games is that gamers can lay claim to their gaming assets. These assets can be NFTs or in-game tokens.

Decentralized Finance

Blockchain-based applications can handle core financial transactions. These are popularly known as DeFi applications. DeFi is currently a crypto-centric term, but mainstream financial institutions are also exploring ways to utilize the blockchain in running core financial transactions like lending, fundraisers, and fixed deposits.

A similar concept to banking fixed deposits in DeFi is Yield Farming. These two programs are related. Yield farming is popular amongst cryptocurrency communities.

Blockchain projects like AllianceBlock are building a decentralized asset market where companies can issue and trade stocks, distribute dividends and raise funds.

Decentralized Media

Projects like Steemit have developed a proper blogging platform that runs on the blockchain. Users’ posts, accounts, and history are stored on the blockchain. By this, these posts cannot be censored, the blockchain also handles users’ rewards and manages users’ financial records. Thanks to the rising issue of media censorship, mainstream content creators are switching to similar systems.

Digital Signature

The word ‘NFTs’ has been used once in this article. It is a household term in the crypto space and the world outside it. NFTs are a way of creating proof of ownership on the blockchain. Through Non-Fungible token technology, asset owners can create an indelible proof of ownership on the decentralized ledger.

This proof is represented by cryptographic tokens stored on the blockchain that points to the physical or virtual asset(s). Artists and media creators have used this technology extensively and explored the financial applications of their signatures.

Payment Solutions

You’d expect this to come first. The earliest blockchains had this as their principal purpose. The bitcoin blockchain specifically handles payment requests through its electronic cash system represented by the bitcoin coin. Other blockchains like the LiteCoin blockchain have a similar structure.

But blockchain as a payment solution has gone beyond this. 

Visa in 2021 announced its plans to start processing international payments through the Ethereum blockchain. Sovereign nations are trying out Central Bank-backed Digital Currencies (CBDCs). CBDCs are electronic versions of fiat currencies built on the blockchain. China (digital Yuan) and Nigeria (E-Naira) are some of the notable nations that have already implemented this system.

Mainstream payment firms including Mastercard are rapidly embracing blockchain as a payment solution.

Data Management

The applications mentioned above are in fact, high-level data management approaches using the blockchain. In addition to these, the blockchain can be used solely for data storage and access. The immutable technology means that these data stay preserved in their original form. The flexible technology ensures that they can be easily accessed. 

This can be applied in any system where a huge amount of data is generated routinely. Such systems can be seen in the medical sector and sports as well. The blockchain works well in these cases.

Governance

Decentralized Autonomous Organizations (DAOs) are emerging. Many cryptocurrency projects have developed this system of administration.

DAOs are a systemic design, structured to ensure the general and undiluted participation of the members of the organization. In cryptocurrency communities, rights to this participation are tokenized and every token holder is considered a member of the DAO. Through voting portals, members of the DAO can vote on proposals and also submit their improvement suggestions to be voted on by the rest of the holders.

Systems like these simplify community consensus while ensuring that everyone takes part in the political process. Community decisions are recorded on the blockchain as DAO members make a tokenized statement. The decision made is recorded on the blockchain. With DAOs, both the decision-making process and decisions made are transparent to every member of the organization

Check out top cryptocurrency DAOs.

Benefits of Using Blockchains

Using systems built on the blockchain or developing a blockchain-based solution for yourself or your organization gives you certain edges. These advantages are drawn from true ownership of your data and the responsiveness of your data store. 

Here are some benefits of using blockchain:

Censorship Resistance

“History is written by the victors.” Administrators of centralized media and other authorities in charge of information dissemination have a final say on what goes out to the public. 

However, in an ideal scenario, information should be free of censorship in most situations, but this is currently not obtainable with centralized media solutions but is easily achievable with the blockchain.

Data stored on the blockchain is not only immutable but also everlasting. Media facilities built on the blockchain are resistant to censorship attempts to modify its content. 

Data Security

The importance of censorship-resistant data storage technology extends beyond the longevity of personal and institutional data; it also ensures the security of data. In blockchain-based payment solutions, account owners are assured of the safety of their electronic currencies as long as they retain ownership of their accounts. Other assets or data running on the blockchain share this benefit as well.

Easy Access

The blockchain is a flexible ledger with a simplified data storage, sorting, and presentation procedure. Data can be easily generated and stored on the blockchain. Obtaining stored data is even easier. Users can easily obtain desired data by using hashcodes or any other specific identifiers. 

A majority of present-day blockchains are public. Systems like this allow anyone to create an account or store information. Information stored can be easily sorted at will, regardless of when the information was entered into the ledger. Explorers such as Etherscan and BscScan offer users an easy way to track transactions and inspect wallets on Ethereum and BNB respectively.

Cost and Time Saving

Decentralized finance applications and other solutions built on the blockchain are relatively ‘cheap’. Compared to traditional solutions with custodial administrational systems, blockchain-based solutions are permissionless and this feature only could save users a great deal of time, and cost. The time spent on going through rigorous procedures and stages is trimmed and the cost of these procedures is also saved.

Universality

Peers on a blockchain network can easily exchange data between themselves. Regardless of the location and legal stipulations, data, including valuable virtual assets can be transacted between members of a blockchain network. This is a major benefit of using blockchain-based payment solutions.

Disadvantages of Blockchains

We could go on with enumerating the benefits of using the blockchain, but it is equally important to reflect on some of the detriments of using blockchain-based solutions. Here are some disadvantages of using applications built on the blockchain.

Rigid Data Management Structure

Immutable data is essential for data security and censorship resistance, but some occasions require that certain data be edited. Blockchains are uni-directional and thus this is not (easily) possible. This results in a dilemma, where blockchain users will have to choose between data security and the ability to easily modify the data they store. The latter cannot be obtained while using a blockchain.

The fact that a central authority cannot modify data stored on the blockchain also makes for a general misuse scenario. Users of blockchain-based media can put out toxic or false messages. This message will go on to circulate as no single point of control is able to put them away or edit them.

Scalability and Memory Capacity

Blockchain technology is a high-capacity computing procedure. It requires certain high-end computing resources for users’ devices and this might also include the device memory, especially when the user is running a blockchain node. Blockchain applications could grow to several hundred megabytes or gigabytes. Depending on the device, this could consume resources meant for other applications. Many blockchains aren’t scalable. They are unable to handle increasing usage pressure without making huge adjustments.

Privacy

When using a public blockchain, users’ data can be easily accessed. Even though they can’t be modified, anyone can easily view them. Data accessed in this manner can include users’ electronic cash transactions. It is therefore not easy to achieve transaction privacy while using (public) blockchain systems like this.

Can The Blockchain Be Hacked?

Billions of dollars worth of electronic assets have been lost in cryptocurrency hacks. Incidents like these raise questions about the hack-proof technology the blockchain was thought to offer. Post-mortem reports on these cases reveal the actual causes and it has never been a direct breach on the blockchain network.

The blockchain despite being a ‘closed end’ system can be manipulated without itself being affected. Scammers can steer their way into personal accounts on a decentralized ledger and interact with individual records without breaking the whole network. Breaking the whole network is in fact, not (currently) possible.

Most mishaps that occur in blockchain-based applications are either due to;

·        Phishing or other social engineering techniques used to gain personal account passwords.

·        Exploitation of smart contract vulnerabilities

·        Common scams

In any of these cases, the blockchain remains intact and only the victim(s) accounts are affected. Modifying a whole proof-of-work blockchain network will need extremely high computing power, one more powerful than the 50% of the computing powers in the network put together. Devices with this ability are yet to exist. 

A similar requirement applies to Proof-of-Stake blockchains. It is worth mentioning that this doesn’t still guarantee a successful modification of a blockchain network.

What are the Different Types of Blockchains?

Many outlets have attempted to classify blockchains according to several subjects, popular classifications are based on Purpose of use, Accessibility, and Phase of development. A more convenient and widely acknowledged classification is according to accessibility, but other taxonomies are also worthy of note.

According to the Purpose of use; blockchains are either Multi-purpose or Single-use.

Single-Use Blockchains

Single-use blockchains are designed to focus on a single application. Older blockchains were mainly designed to handle electronic currency transactions. Institutions outside the crypto space are also exploring ways to use blockchain technology to optimize their services, and they usually resort to developing single-purpose blockchains that solve a particular problem for them.

Multi-Purpose Blockchains

Majority of contemporary blockchains are multi-purpose. Each one serves a number of uses. Blockchain networks like the Ethereum network can process electronic cash transactions and also power decentralized applications that cut across many mainstream sectors. Multipurpose blockchains are also able to run governance operations. They basically develop several ways to leverage the data management system of blockchain technology.

When it comes to matters of accessibility, blockchains are either private, public, or a modified hybrid.

Public blockchains

Public blockchains are open to everyone. Anyone, regardless of demographics and knowledge level can create an account on the ledger and create storable data on the blockchain. In addition, anyone can create a node on the blockchain and participate in the blockchain consensus.

Private Blockchains

Private blockchains are closed networks. While the basics remain the same with any other blockchain, there are limits to who can be an active part of the network. They are ‘gated’ and only open to selected parties. Private blockchains are more popular among custodial institutions. Access is only limited to confirmed members of the organization.

Hybrid Blockchains

Blockchains that operate a mixed permission system are known as hybrid blockchains. They feature a partly ‘gated’ and partly open system. Designated individuals control the gated parts. Participation is only open to selected persons and data generated from these parts are rarely public. The open parts are permissionless and free of central regulation.

Federated blockchains

Federated blockchains are owned by institutions and are specially developed to suit the needs of that particular institution. They are also known as consortium blockchains and can be private, public, or a mixture of both. Their structure and mode of operation are totally determined by the organization.

Another convenient way to classify blockchains is according to the phase of blockchain evolution. But blockchains are in constant evolution and this method of classification would require constant revisions. 

However, given the current stage of blockchain development, blockchains can be classified into;

First-Generation Blockchains

First-generation blockchains are mainly focused on creating an efficient Peer-to-peer medium of transaction. The network upholds a cryptographic token that can be transacted amongst peers. Records of electronic cash transactions are kept on the distributed public ledger. The Proof-of-Work algorithm prevents modification of transaction records and double-spending. The Bitcoin blockchain is a first-generation blockchain.

Second-Generation Blockchains

Second-generation blockchains extend the technology and attempt to exploit it in several interesting ways. A huge figure in this phase is the Ethereum blockchain. Ethereum blockchain featured a state machine capable of reading a series of codes and translating them into machine languages than can be understood by the blockchain. The state machine is known as Ethereum Virtual Machine (EVM) and the codes are known as smart contracts. Smart contracts automate transactions and owner-authorized permissions.

Third-Generation Blockchains

Second-generation blockchains were attractive and welcomed tons of users who generated tons of data while using the numerous features of the blockchain. This became a popular problem as these blockchains aren’t well adapted to handle the high frequency of use. This ushered in the next stage of blockchain evolution. Third-generation blockchains are ‘super-optimized’ and focused on scalability and user experience. 

They are notably faster than the first and second-generation blockchains and more scalable. An example of third-generation blockchains includes the Solana, Polkadot, and Aptos.

Fourth-Generation Blockchains.

Fourth-generation blockchains are only speculative currently. Modifications of third-generation blockchains or a new blockchain could fall into this category. Fourth-generation blockchains are expected to be even more economic, scalable and faster than third-generation blockchains. A huge improvement expected in fourth-generation blockchains is interoperability

Fourth-generation blockchains will attempt to develop an effective means of communicating with each other and blockchains from other generations. Several third-generation blockchains are already working on this.

Final thoughts

It is hard to finish a discussion about blockchain and blockchain technology without mentioning the word ‘revolutionary’. This best describes how the blockchain manages data and how this technology has been used to date. Projects working on blockchain-based utilities are rapidly designing efficient alternatives to applications running on centralized systems. Even though these projects are in their baby stage, they have shown huge potential.

The decentralized web and decentralized payment solutions are futuristic. Even if they don’t play the role we currently envision in the future, they are very likely to be a bigger part of our everyday systems. The common blockchain user is fascinated by the ability to perform certain activities without taking permission from central authorities and also by the total control they have over the data they generate.

But blockchain technology is still ‘untapped’, currently. This is considering the tremendous progress made in this aspect. Like cloud computing and the internet put together in one piece, the blockchain is designed to penetrate every system. It holds data security as a huge advantage over these two.