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Cryptocurrency exchange, as the name suggests, is a platform where you can trade between cryptocurrencies based on their current market value. The value of crypto currencies is determined by the demand, the supply and market. It is very similar to a stock exchange where you buy and sell shares of companies. On a cryptocurrency exchange you buy cryptocurrency at a certain price and you sell it when the price increases to make a profit, it is based on the fundamental principle of entering the market and exiting at the right time. Similar to a stock exchange, cryptocurrency exchange also involves transaction charges on the trades done by the trader. In this article, we will explain trading fees levied by cryptocurrency exchanges.

If you are planning to invest in crypto, you should be aware that there are broadly three types of transaction fees involved in crypto trading:

Exchange fees: While trading in cryptocurrency, the first transaction fee that a trader need to be aware of is the exchange fee. Exchange fee is the amount charged by the cryptocurrency exchange to complete a buy or sell order. In India, most of the cryptocurrency exchanges have a fixed fee model but the final cost of transaction depends on the platform you are using to complete the transaction. As a smart trader, you should do good research and find out which crypto exchanges offer lowest transaction fees.

Maker-Taker fee model also exists within crypto exchanges. The maker is the seller of cryptocurrency and taker is the buyer of crypto currency, this model charges a variable fee depending on your amount of trading activity. If you are an active trader or you have transacted a high value over a longer rolling period, you may qualify (as a maker) for a reduced transaction fee. The fees structure under this model is different for centralized and decentralized exchanges.

The exchange fee is the primary source of revenue for the exchanges and forms an integral part of their business model.

Network fees: Network fee is payable to the cryptocurrency miners for the work they do. Cryptocurrency miners are individuals with powerful computers which are dedicated to verifying and validating transactions to be added to a blockchain. In a nutshell, they play an important part in crypto transactions by ensuring that tokens weren’t spent twice and transactions are real and true. The cryptocurrency exchange has no direct control over the network fees and it is payable to the miners/validator of the network. Network fees are driven by demand, when the network becomes crowded, fees may increase. Users are normally allowed to pre-set the transaction fee they are willing to pay for their transactions when they are using a third party wallet but while they are using exchange, it is setup automatically by exchanges itself to avoid any kind of delay in transfers.

ALSO READ | Why Dogecoin is so popular in India and not the desi Matic (Polygon)?

The time taken for the validation of such transactions can vary by network as it depends on miners deciding their own fee and Users choosing whether to accept or not the fee setup by the miners. So the time taken for validating a transaction is inversely proportional to the transaction fee User is willing to pay. Users who are willing to pay the network fee setup by the miners, will see their transactions getting validated quickly. It is important to note that miners are not free loaders but get paid for the electricity cost and vast processing power.

Wallet fees: While trading in cryptocurrency, you store your cryptocurrency in a digital wallet. Digital wallet is like an online bank account where you keep your cryptocurrency safe. The crypto wallet enables you to receive cryptocurrency and store them safely and makes it easier for you to use your cryptocurrency or send to others. Most of the wallets don’t charge any fee on deposits and storage of cryptocurrency but charge a fee on withdrawing/sending cryptocurrency from the wallet which is basically network fees. Crypto wallets offer systematic cryptocurrency buying options and have integrated merchant gateway service through which you can even recharge your smartphones and DTH services.

Most exchanges provide an in-Built wallet functionality where users can store all their crypto at one place and no fees are charged for storing and depositing in the wallet.

Transaction fees and charges are an important part of the financial/investment services sector. The funds collected through such transaction charges are crucial for companies which enable the traders and institutions to invest in cryptocurrency from the comfort of their home through their platform. Every investment service has a team of dedicated professionals working behind the scenes to provide seamless investment experience to the traders and institutions 24×7, 7 days a week and 365 days a year. Cryptocurrency based products and services are capable of providing sustainable economic growth. Cryptocurrency is entering the investment portfolio of Indians very quickly and will emerge as the most secure & lucrative asset class of the 21st century.

(By Shivam Thakral, CEO, BuyUcoin)

(The suggestions/recommendations around cryptocurrencies in this story are by the author. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.)

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At the end of August, Ethereum network gas costs skyrocketed and tapped a high of $59 per transaction on September 7, according to the average transaction fee spent on that day. The median fee for an ether transaction on September 7 was around $20 per transaction. Days later, ether transaction fees have subsided to a degree as the median and average ether fees have been slashed in half since then.

Ethereum Fees Subside, Transfer Costs Less Expensive

One of the biggest complaints people have with digital currencies is how much the transaction fee can cost to send these assets. Critics don’t care for the fact that Layer 1 bitcoin (BTC) and ethereum (ETH) transactions can be quite costly and unpredictable as well. The common answer for bitcoiners is the Layer 2 protocol the Lightning Network, but there are also Layer 2 schemes for ethereum (ETH) transactions.

First off, a Layer 1 transaction that is settled onchain will cost an ethereum user between $3.39 to $18.74 per transaction. The $3.39 quote is for a very low priority transaction according to Etherscan gas tracker statistics and the $18.74 stems from the metrics recorded for an average ethereum transaction, according to bitinfocharts.com. The same website also tracks the median-sized ether fee which is $9.29 at the time of writing. Data from the website l2fees.info indicates that a Layer 2 ethereum fee is currently $4.46 per transaction.

These fees don’t account for smart contract interactions which can be more costly. For instance, Etherscan gas tracker stats show a common ERC20 transfer is $10.48 and using Uniswap can cost a person $32.25 at the time of writing. This means moving a token balance, interacting with a decentralized exchange (dex), or using an NFT marketplace can be more costly than simply moving ethereum from A to B. For this reason, Ethereum network competitors are nipping at the project’s heels.

Layer 2 Fees: Between 46-97% Cheaper to Send Ether

Ethereum proponents have a few defenses when it comes to the subject of high fees, and a large majority of ETH supporters believe the Ethereum 2.0 upgrade will settle the matter. Additionally, there are Layer 2 projects and concepts like “optimistic rollups” and two specific projects Optimism and Arbitrum are leveraging this technology. Moreover, ether gas killers like hermez.io, aztec.network, starkware.co, loopring.org, zksync.io, and fuel.sh also aim to solve the transaction bottleneck and high fees.

Some of these projects are being used today, as Bitcoin.com News reported on Arbitrum’s recent $1.5 billion total-value locked (TVL). The website l2fees.info shows the costs associated with these ether gas killers and while they are lower, some are still much higher than Ethereum network competitors. At the time of writing, a Loopring-based transaction will be around $0.11 according to l2fees.info stats on September 12. Zksync is $0.18 to send a transaction and Polygon Hermez is $0.40 per transaction.

An Arbitrum One send at the time of writing is $1.61 and an Optimism transaction is $2.38. Fees for Ethereum network competitor blockchains are lower than sending a common ether transaction. Stats from Messari.io note that the average transaction fee on September 6 for the crypto asset cardano (ADA) was $0.59 per transaction.

The blockchain Solana (SOL) indicates on the project’s website that the average SOL send is $0.00025 per transaction. Meanwhile, the sister page of l2fees.info, cryptofees.info, shows that $22 million in ether fees were raked in on September 12. On the same day, the dex Uniswap saw $3.3 million in fees and $4.9 million in fees during the last seven days.

Bitcoin (BTC) saw $448K worth of fees and BTC miners gathered $680K in fees over the last week. While Optimism saw $285K during the last day, Avalanche (AVAX) saw around $216,607 in 24-hour average fees. Arbitrum One fees during the last 24 hours were around $90K.

What do you think about Ethereum fees subsiding and the fees tied to Layer 2 solutions? Let us know what you think about this subject in the comments section below.

Elon Musk sent Bitcoin (BTC) reeling on Wednesday, after he announced that Tesla (TSLA) would stop accepting it for car purchases — even though the company continues to hold the digital coin on its books.

In a Twitter post, Musk cited the environmental impact of Bitcoin mining, which has been cited by critics for being energy intensive and a detriment to the climate. 

The move took cryptocurrency enthusiasts by surprise, and drove down the price of Bitcoin after hours, with the volatile digital currency shedding over 13%. Other major crypto units followed suit, as investors moved to discount how the loss of a prominent backer's support would impact the asset class's development.

Musk said in his post that Tesla was "concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel."

"Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at a great cost to the environment," Musk wrote.

Tesla & Bitcoin pic.twitter.com/YSswJmVZhP

— Elon Musk (@elonmusk) May 12, 2021

The development came as a shock to Tesla observers, given that the car company only recently disclosed it had put $1.5 billion worth of Bitcoin on its books, and would begin accepting it for payment. That purchase, disclosed in a regulatory filing in February, has already yielded a "positive impact" of at least $100 million for Tesla, the company said last month.

The move also sparked an immediate furor among Bitcoin investors — many of whom have applauded Musk's embrace of Dogecoin (DOGE). The latter plummeted by 20% after hours, alongside Litecoin (LITE) and Ethereum (ETH), both of which also dived after Musk's announcement.

 In recent weeks, the meme currency has skyrocketed as the billionaire publicly championed its rise — which came back to earth over the weekend after Musk's controversial appearance on "Saturday Night Live," when he referred to the unit as a "hustle."

Still, major investors have been slowly warmed to the crypto sector as its profile has risen in markets. Although legendary investors like Warren Buffett and Charlie Munger are still not fans, major investment banks have begun dipping their toes into cryptocurrency as an investment option.

In fact, Shark Tank investor Kevin O’Leary has given up his jaundiced view of Bitcoin. The chairman of O’Shares ETF told Yahoo Finance Live recently that he’s allocated 3% of his portfolio to the world’s largest cryptocurrency after Canada, and a handful of other countries eased restrictions on institutional buying of the asset.

O’Leary said he now views bitcoin as digital gold and a hedge against inflation that will appreciate over time, but he warns “there’s a big problem brewing” in the crypto space around how and where the coins are mined.

“I don't own random ETFs with blood coin in them,” O’Leary told Yahoo Finance. “The industry has done a poor job in lobbying its case around sustainability.”

Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek

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Block data from Blockchain.com reveals that a colossal Bitcoin (BTC) transaction worth $2 billion was processed on Monday night. Despite the enormous financial value, the unknown wallet holder only paid 0.00001713 BTC fees equivalent to $0.78. 

Although it is unknown what the purpose of this transfer was, or indeed which individual or entity enacted it, what has clearly been showcased is the enormous potential of financial transactions utilizing cryptocurrency and blockchain technologies.

However, this is not the first instance of a transaction of this magnitude with minimal fees. Back in August 2020, a Bitcoin transaction worth $1 billion was recorded with a nominal fee of just $4.

Attempts to transfer money of this value in traditional fiat markets would simply be futile. Anchored to anachronistic models, the financial ecosystem stands as a stark outlier to the instantaneous, largely inclusive, modern information services experience.

An international fiat transfer often takes one to four working days to process and includes a hefty transaction fee of 1%–3%. For a transaction worth $2 billion, this would come at the cost of between $20 million and $60 million.

Alongside this, banks and governments hold central influence over the activity of financial infrastructures, unlike Bitcoin, and as such, arguably threaten the privacy, autonomy and principles of a free market.

According to BitInfoChart, the average price of a transaction fee on Bitcoin’s base-layer blockchain stands at 0.000058 BTC ($2.67). This has been a consistent floor level across the last two months but was not been printed before that since the beginning of the market’s bullish surge in October 2020.

For context purposes, the average transaction fee for the second-largest crypto by market capitalization, Ether (ETH), remains several multiples (770%) higher at 0.0061 ETH ($20.44).

Related: BTC price nears $46K with Bitcoin exchange reserves lower than November 2020

Technical data from Cointelegraph Markets Pro reveals that Bitcoin surmounted a challenge to reestablish $46,000 on Tuesday morning after registering price lows of $43,380 on Bitstamp in the wake of major market volatility.

This bullish sentiment falls in line with an additional data point that reserves of Bitcoin on major cryptocurrency exchanges have recorded new multi-year lows this week — akin to the transaction fees — levels not witnessed since the inception of the bullish surge in October 2020.

In this exercise, our focus is on the incentives we can use to motivate the time and resources spent running a blockchain node. We'll do this in a simple (greedy) way by implementing a selection algorithm for picking transactions to add to the blockchain that maximizes our payoff from transaction/block fees for each block we create.

Setup

Run npm install in this exercise folder to install the dependencies listed in the included package.json file.

Run node generate-keys.js from the command-line to create the keys/ sub-directory which includes a keypair. NOTE: we'll only use the public key for this exercise.

Exercise

We'll create each line as a transaction, but instead of adding each transaction in order to the blockchain right away, we'll add the transactions to a "pool" (an array).

Define addPoem(..) to loop through the lines of the poem and create a new transaction for each, adding each transaction to the transactionPool array. Each transaction should include not only the data (the line of the poem) but also a randomly generated positive integer value between 1 and 10 to use for its transaction fee, as its fee field.

After the poem's lines have been created as transactions in the pool, we'll then process the entire pool by selecting several transactions at a time to add as a single block to the blockchain, and repeating until the pool is empty. Because our selection order will be dependent on the amounts of the transaction fees, the lines of the poem will likely not be added to the blockchain in their chronological order; that's perfectly OK for this exercise.

Define processPool(..) to select transactions from the pool in descending order of their fee value, pulling them out of the transactionPool array for adding to a new block. Each block's list of transactions should start with an object representing the block-fee to be paid for adding this transaction; this object should include a blockFee field equal to the amount in the blockFee constant, as well as an account field with the public key (PUB_KEY_TEXT).

The maximum number of transactions (including the block fee) for each block is specified by maxBlockSize, so make sure not to exceed that count.

Finally, define countMyEarnings(..) that traverses the whole blockchain -- skip the genesis block! -- and adds up all the block fees and transaction fees. Print out your total earnings. NOTE: since transaction fees are randomly generated, this value will change between each run of your program.

BONUS: inspect your blockchain to make sure you added all the transactions to blocks in descending order of their fee.

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Ethereum Improvement Proposal (EIP) 1559 was an integral piece of the London hard fork on Aug. 4. The EIP was aimed at stabilizing the transaction fee market, cementing the economic value of ether (ETH) and combating the inflation rate that comes through miner rewards. Since it was first implemented last month, some 297,000 ETH in base fees – worth over $1billion at the current exchange rate – has been “burned” and permanently removed from the circulating supply.

Six weeks after the hard fork took place, the network is beginning to reap the benefits of the upgrade. While transaction fees are still nearing all-time highs, gas price volatility has narrowed. Gas price is defined as the amount users are willing to pay for a unit of gas, measured in gwei.

There are two kinds of fees that combine to create the Ethereum transaction fee amount: the base fee and the priority fee. The base fee is the mandatory price a user must pay for their transaction to be added in a block; the priority fee, or tip, is discretionary and can be included to incentivize miners to prioritize the transaction.

The fee market upgrade in EIP 1559 implemented a 12.5% base fee increase or decrease per block, depending on the level of demand in the previous block. Post-upgrade, the miners still receive the priority fee; however, all the ether used for the base fee is now “burned” or permanently removed from the network.

Several days have even been net deflationary for the asset as base fees outweigh block rewards, and investors have noted the newfound scarcity. The burn mechanism is on pace to eliminate 2.56 million ETH that would otherwise be inflating the supply over the course of a year. At current prices this is $8.89 billion and nearly 2.2% of Ethereum’s total market capitalization.

An increased demand for “block space,” created by network usage, has been largely the result of the explosion in the non-fungible token (NFT) market. NFT marketplace OpenSea has been responsible for the burn of 42,072 ETH to date, outpacing Uniswap, wallet-to-wallet transactions and NFT trading game Axie Infinity.

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In early August, Ethereum’s long-awaited London upgrade went into effect. It contained a package of Ethereum Improvement Proposals, or EIPs. The most consequential of these was EIP 1559, which changed the core fee logic.

Prior to the change, Ethereum blockspace was auctioned off on a “first price” basis – effectively users would have to make educated guesses regarding the likely clearing price of blockspace. For the sake of guaranteed inclusion, they’d often end up overpaying. That was seen as inefficient.

CoinDesk columnist Nic Carter is partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass. He is also the co-founder of Coin Metrics, a blockchain analytics startup.

Thus, EIP 1559 was proposed: Every transaction in a block would pay the same price. The objective was to simplify fee logic, especially for blockchain developers, increase predictability and reduce the variance of gas prices.

Based on the data we have so far, this looks like it has worked. Fees are indeed less volatile than they were before. They are, however, no cheaper, to the chagrin of some users. Ethereans close to the process insist that the tweak was never intended to cheapen blockspace. Insiders blame the surge in fees mostly on non-fungible token mania. Indeed, a cursory analysis lends some support to that theory.

The latest surge of NFT enthusiasm happened to coincide with the rollout of EIP 1559, so we won’t be able to tease apart the causality until this NFT episode subsides. Early analysis supports the idea that EIP 1559 has instituted a de facto near-term price floor on the price of gas, effectively eliminating periods of downtime (typically at night or on the weekends) when blockspace is cheaper.

Based on a visualization of gas prices post EIP-1559 created by data scientist Takens Theorem, it looks like the change eliminated much of the downside volatility in gas prices but did not eliminate the right tail. Extreme fee spikes during periods of congestion still happen.

Removing the left tail of fees disempowered users who would set low “limit orders” on gas and were happy to wait for it to clear. Effectively, this change homogenized the way users had to bid on gas, pricing out those who were price sensitive and preferred to wait for low gas prices.

And then there’s the fee burning. The base fees are now burned, while miners collect some residual “tips.” This mechanic was included for a couple reasons: first of all, to privilege ether as the sole native currency of Ethereum, similar to the manner in which only USD can extinguish a tax liability in the U.S. Additionally, it eliminates the attack mode in which miners might stuff blocks with high fee transactions to bid up the clearing price of gas and force users to pay extortionate fees. This fee recycling attack doesn’t work when the base fees are burned.

But the fee burning design choice has economic consequences, too. For one, it disadvantages miners, stripping away a good chunk of the revenue they were previously earning. As a consequence of the change, only about a quarter of the fees users pay to access the blockchain today go to miners. Previously, they earned them all.

The remainder are burned, effectively constituting an ongoing “stock buyback” and retirement. This has amounted to more than 300,000 ETH burned in the 41 days since the change, representing a reduction of 2.3% of supply on an annualized basis. During days of high usage, the fee burn has fully sterilized the normal issuance associated with the protocol (in other words: the burn was sufficient to fully offset the new inflation).

If you look at the chart, it’s clear that miners have seen their fee revenue dramatically reduced, with the majority of fees being burned instead.

So the change has reallocated a continuous flow of economic rewards from miners (who eked out a living competing in the thin-margin game) to the existing holders of ether. By burning the fees, Ethereum has also decreased its expenditure on security. While Ethereum appears to be secure, reorganizations on smaller proof-of-work blockchains aren’t unheard of.

Ethereum is likely just fine at this level of security spending, but it’s not worth fully discounting the service that the miners perform. Their job is to create valid, linear blockspace with no forks. Decrease the wages paid to the mercenary army that defends your terrain, and it can more easily be paid off by an attacker. There’s a point where further decreasing miner revenue would put Ethereum at risk; granted, it’s probably at a much lower threshold.

The more serious problem with the fee logic change is that it pits token holders against blockspace consumers

Ethereum insiders are well aware of the effects of this policy on miners, and indeed disempowering miners has long been on the agenda. Miners don’t feature in the long-term plans for Vitalik & Co; in the fully proof-of-stake future that Ethereum is haltingly progressing toward, miners won’t have a role at all. Thus, their interests are not often considered when protocol changes are concerned; they are just near-term contractors and will eventually be discarded.

There’s a few problems with that. If you treat miners as expendable, they won’t maintain a duty of care toward the blockchain. For now, miners still occupy a privileged position in the transactional life cycle, as they control the ordering of transactions in a block. It’s well known that reordering (or selectively including or omitting) transactions offers economic rewards to the entities that control transaction selection.

Some miners have delayed taking advantage of this so-called “miner extractable value” (MEV) – which is hostile to end users – out of principle. Now that they are being squeezed out, they have no reason to seek to maximize the long-term value of the protocol. Indeed, especially as their fee revenue has been dramatically reduced, they are incentivized to seek revenue any way they can, even if it comes at the expense of users. Less direct protocol revenue could mean more MEV-based revenue and more exploitation of end users.

The more serious problem with the fee logic change is that it pits token holders against blockspace consumers. Holders now directly benefit from sustained high fees. The higher fees are, the more units of ether are retired. This is likely accretive to the unit price of ETH. However, it comes at the expense of actual users of the blockchain, who, ceteris paribus, prefer lower fees.

In a world where token holders are users (and vice versa), this isn’t a problem. But as Ethereum matures and seeks to attract mainstream corporate users who may seek to simply transact rather than hold, this apparently extractive relationship with transactors could well make it a tough sell. The analogy I’d draw here would be an electrical utility company raising prices for its consumers to buy back its shares.

The best evidence that Ethereum has entered a new phase of life – from a scrappy upstart, to a mature protocol now extracting rents from consumers of blockspace – is a chart of monthly active users versus the unit price.

For virtually its entire history, the two variables have moved in tandem. That stands to reason: More usage meant more demand for ether itself. But, since July, the relationship has decoupled. Monthly actives have steadily declined, but ether has rallied strongly. Much of that rally is attributable to hype around EIP 1559 and the subsequent high rate of burnt fees. But one wonders how long the rally can last if the fee burning paired with high fees comes to antagonize large consumers of blockspace.

Even if EIP 1559 isn’t directly responsible for high fees, it’s hard to argue that the Ethereum insiders who make these decisions and own significant quantities of ETH are particularly upset about the fees, as they now financially benefit from the more deflationary environment that the change has brought about. If you are a large consumer of blockspace, you may bristle at the fact that your fees are not paying for security, but are instead being redirected to token holders.

This could come to a head in a future conflict over, say, block size. I can easily imagine a faction of transactors lobbying for a higher block size, in an attempt to create more blockspace and push down the clearing price of gas. But will large token holders, benefiting from the deflationary effect of the high fees, want to reduce the size of their user-financed stipend? The fact is that, due to the fee-burning mechanic, which has clearly been quite good for the price of ether, the individuals in control of Ethereum protocol design now have a meaningful incentive to keep fees permanently high.

The arbitrary change to the monetary policy is both short-termist and dangerous in terms of precedent-setting

The arbitrary change to the monetary policy is both short-termist and dangerous in terms of precedent-setting. It is short-termist in that it disempowers transactors, upon whom the entire investment case for ether is built. If you can’t attract firms and users to hold ether as working capital for transacting, that source of reservation demand will ebb away. Speculators are ultimately guessing that the protocol will see sustained future usage. The value of ether is at partly the discounted future expectations of token holders, contingent on future adoption. For those expectations to materialize, they will have to continue to persuade users that Ethereum is a stable and non-rent-seeking transactional venue.

It also sets a troubling precedent. Sure, the price rallied in anticipation of the change, and a good number of ETH have been burned, but the decision is no less arbitrary. Sound monetary policy is about setting monetary rules that cannot be interfered with – creating supra-human institutions that are indifferent to short-term political pressures. That was the objective of the gold standard, an institution that governed for hundreds of years.

Ethereum thus far hasn’t been able to commit to a stable monetary rule. If the issuance can be dialed down after a mere few months of discussion by insiders, the throttle can be opened up at a later date. Ethereum’s policymakers should consider committing to a rule that will guide policy for decades, not months. And given that this policy is redistributive, one wonders what protocol insiders will do next. Certainly, there is an unacknowledged political tinge to all of these decisions that are represented as merely engineering choices.

Against this backdrop, “Ethereum killers” have thrived. Alternative platforms like Algorand, Avalanche, Near and Solana promote themselves on the basis of low fees and fast transactions. Of course, they make (possibly unacceptable) decentralization tradeoffs to get there, and these blockchains are not without their own issues. But their case for an alternative is easier to make if the incumbent smart contract protocol is charging extremely high fees – $500 for a single Uniswap transfer is not uncommon – and arguably extracting rent in the process.

In an environment in which stablecoins are highly portable across chains and investors are eager to finance wallets, infrastructure and decentralized finance (DeFi) applications on novel blockchains, liquidity is less of a moat. It has never been easier for large consumers of blockspace to move their affairs to a new protocol. The fee pressure on Ethereum, which large token holders now perversely benefit from, could well push transactors to seek greener pastures elsewhere. Why choose to transact on a blockchain where you will inevitably face high fees – thus enriching insiders with the burn mechanic – when you could find another blockchain with cheap, or even subsidized blockspace?

EIP 1559 may well have been sound engineering in terms of meeting its core objective of reducing the variance in blockspace pricing. However, its largely unacknowledged externality – the redistribution of fees from miners to token holders – is troublesome. First, it’s an arbitrary decision made by a small number of insiders, and it affects the core economics of the protocol.

Second, it compromises the monetary credibility of the network and resets the monetary “Lindy clock” to 0. If issuance can be engineered downward, it can be raised later on. EIP 1559 also antagonizes miners, who still occupy an important position in the network and are now less disposed toward being fair stewards of the protocol. And lastly, it puts the interests of large token holders against those of current and future blockspace consumers. This could well harm Ethereum in the long run, if its alternatives are able to better align incentives and gain traction.

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On 5th August 2021, the Ethereum London Hard fork, dubbed EIP-1559, went into effect. For many users, the event marks the end of some long-standing issues in the Ethereum Network.

Namely, the unpredictability of gas prices and the inflationary nature of Ethereum's usage cost during peak periods. 

However, one is forced to ask: what potential side defects must Ethereum users now brace themselves for, heading into the future? 

More specifically, what would be the new state of the ERC-20 blockchain in the face of the ever-expanding crypto sub-niches like NFT and DeFi?

Background of the EIP-1559 upgrade

To start in our quest of understanding the potential impact of the network upgrade, let's pull the curtain down on what took place on August 5th. 

EIPs or Ethereum Improvement Proposals are a specific set of documents that describe new protocol standardization programs for Ethereum's platform. 

The network optimization programs are usually implemented as  Hard Forks of the Ethereum chain. Since the launch of Ethereum Virtual Machine, the occasion has been held severally.

In this year alone, the Ethereum community has seen the implementation of two hard fork events, the first of which is the Berlin upgrade which took off on April 15. 

Next comes the London Hard fork which also comprises five EIPs. Most notable among them was the EIP-1559 proposal. 

Aside from introducing a new gas fee structure that will turn Ether into a deflationary asset through some burning mechanisms, the EIP-1559 standard also aims to make transaction fees more stable for users. 

How will the EIP-1559 network upgrade work?

Even though it was received with much excitement, the introduction of the Berlin upgrade did nothing to lower the sky-high valuation of ETH's transaction fees. Gas prices became even more critical when the crypto industry faced a major upheaval during the outbreak of DeFi platforms.

To change all that, Ethereum's developers employed two key components in the implementation of the EIP-1559 standard. First is the introduction of the base fee framework for regulating transaction costs. 

Before now, Ethereum users had their fate left at the hands of mining gigs operators that were allowed the freedom to set the rate. But the new model uses an algorithm to ensure uniform pricing across the chain. 

The base fee is the minimum amount of gas prices that must be provided to mark a transaction okay for processing in a block. An interesting feature of this framework is its flexibility to be high in times of high activities, and vice versa when the market is less busy.

The second core component of the EIP-1559 model is the "inclusion fee" concept. This function allows users to move their transactions up on the waiting queue by including extra incentives for whichever miner picks them.

The benefits of the EIP-1559 standard

For most crypto traders, the most obvious positive impact of EIP-1559 is the recent uptrend in Ether's price. Less than 24 hours after the upgrade's implementation, the price of the token soared to new highs and had more traded volume than Bitcoin. 

However, a deeper look at the event reveals a lot of significant technical changes that institutional investors feel happy about. We will look into them one after the other. 

The effect of the assets burning feature

Before now, investors have been concerned over the design feature that makes Ether a capless asset as it was programmed to have a limitless supply. 

This factor weighed heavily against the use of Ether as a store of value since it was not possible to determine the maximum number of Ethereum that will ever be in circulation.

However, with the introduction of the token burn mechanism, Ethereum's current supply will be on a perpetual gradual reduction process even while new coins are being minted. 

And as you would suspect during peak periods, the amount of Ether taken out of circulation will be higher than the number getting added as the base fee is bound to increase. A good example is the increase in NFT transactions recently.

While a low or negative issuance rate of Ethereum cannot be wholly relied upon to predict its price, it does provide an important tool for investors to analyze the outcome of investing in the coin. 

Increased role for Ethereum

Another interesting upgrade that has caught the attention of investors after EIP-1559, is that Ethereum now has a much bigger role to play on its chain. 

Before now, miners could accept other ERC-20 tokens as optional payment methods for gas fees – instead of Ethereum. In other words, other tokens could take the place of ETH as base fees. 

In the EIP-1559 network change, the base fee must be provided in the form of ETH. A miner looking to receive an altcoin as a reward can do so by prioritizing transactions where the inclusion fee is being paid with other tokens. 

Else, the mining rig operator will need to provide the required ETH. To sum it up, EIP-1559 aims to create an economy where Ethereum is exclusively used as the preferred payment method. 

Thus, as more and more dapps build on its infrastructure, Ethereum will inevitably metamorphose into an astute payment instrument. 

Taken together with Ethereum's reputation of being a robust computing system in the blockchain industry, it is easy to see how well this is going to pan out afterward. 

Tamper-proof against contentious hard forks

Since the advent of Bitcoin, the crypto community has become accustomed to seeing different fork events go bad. This is because the decentralized nature of blockchain networks made it almost impossible to prevent the continued existence of outdated "standards". 

For example, during the Ethereum network fork of 2016, disgruntled miners who were not willing to update to the then latest version of Ether's client software went on to produce "Ethereum Classic". 

After the official announcement of the EIP-1559 standard, the possibility of a similar revolt has never ceased to trail its implementation. That was even the very reason it became a hot subject of discussion.

To avert such a developmental pushback, Ethereum developers designed the EIP-3554 proposal. 

EIP-3554 aims to force miners' migration to the new Ethereum blockchain by increasing the usage difficulty of the older version. It is part of a long-term plan to turn Ethereum into a Proof-of-Stake network (as opposed to the current Proof-of-Work which is energy consuming).

The yet to be tackled issues as users anticipate ETH 2.0

While EIP-1559 comes with a new feature that will increase gas fees predictability as well as stabilize Ethereum's volatility, it still doesn't mean transactions are going to be cheaper. 

However, the fee can only rise and fall by 1.125x per block. That will go a long way to remove uncertainty over Ethereum's transaction cost and strengthen its stability. 

Nevertheless, one other concerning problem unsolved by EIP-1559 is the scalability of the Ethereum blockchain. 

Even in its present condition, Ethereum can only handle a relatively small amount of transactions per time, compared to competitors blockchain such as Solana, Binance Smart Chain, Polkadot, etc. 

It is however expected that the upcoming ETH 2.0 will bring an end to those issues by 2022 when Ethereum will be able to process 100,000 transactions per second (much higher than the current capacity of 30 trans. per second). 

This will be made possible through the use of a sharding mechanism. The implementation of EIP-1559 is only one of many steps towards the final switchover. 

For now, the crypto community should be content with the improved user experience introduced by the new network change. On the other hand, miners must try to make do with "inclusion fee" as their only source of revenue.

More than $1bn worth of Ethereum has now been burned since the inception of network upgrade EIP-1559 amid increased demand for the asset and rising competition from rival Layer-1 blockchains.

According to data from EthBurned and UltraSound.Money, Ethereum is being burned at an incredible rate following the EIP-1559 upgrade.

The data shows that close to 298k ETH has now been burned, which totals more than $1bn at its current price of $3,412.

Data from Ethburned.info

The London Hard fork and subsequent network upgrade EIP-1559 introduced ‘fee burning’ to transactions, which removes ETH base fees paid for transactions made on Ethereum. The base fees are the minimum required for a transaction to be included in an Ethereum block.

The London Hard fork and following upgrades are part of Ethereum’s transition to a proof-of-stake network, which would eliminate Ethereum mining and make the asset more sustainable for future growth. It’s expected that the transition – often referred to as “the merge” or “ETH 2.0” – will drastically reduce gas fees for the blockchain.

Following the introduction of the network upgrade, Ethereum saw a resurgence in interest, demand and price action due to its value to the expanding DeFi and NFT spaces alongside its status as the ‘first-mover’ in blockchains.

The rising demand for Ethereum

The huge amounts of Ethereum burned has coincided with the rise of NFTs and its rampant use of the asset to buy, sell and trade digital artwork.

Data from UltraSound.Money shows that OpenSea has contributed the most, which is no surprise following the platform’s meteoric rise to become the premier NFT marketplace on Ethereum.

The sheer amount of trading volume on OpenSea, which has already reached $1.6bn in September, has been the biggest contributor to fee burning on Ethereum with 42k ETH ($176.4m) burned over a 40-day period. ETH transfers, UniSwap transactions and Tether transfers also contribute to approximately 56k ETH worth of fees burned.

Data from Ultrasound.money

The remainder of the top burners includes Metamask transaction, the bridging of assets through the Axie Infinity Ronin bridge, and swaps made on leading DEX 1Inch.

Data from The Block

Additional data from The Block, highlighting the smart contracts using the most gas over the past thirty days, shows the dominance from OpenSea and its contribution to the demand in Ethereum.

Increased competition from Layer-1s

The high gas fees that accompany Ethereum are the main talking point when it comes to competition as many in the industry feel that Ethereum-based DeFi and NFTs may price out newcomers to the industry.

A spate of blockchains such as Solana, Cardano, Avalanche and Binance Smart Chain (BSC) have all emerged as competitors to the market leader and have attempted to tackle high gas fees through their promise of low fees and faster transaction times. However, despite recent interest in Layer-1 ecosystems, none have yet to match the sheer size and scale of DeFi and NFT protocols that exist on Ethereum.

Ethereum has managed to retain much of its market share due to the number of protocols available on Ethereum and the Total Value Locked (TVL) in the ecosystem. Ethereum also remains largely decentralised and has retained its status as one of the safest and more secure blockchains available.

Data from DeFiLlama shows that Ethereum’s TVL of $127b eclipses that of the competition by at least tenfold, with BSC being closest at $17b TVL. Additionally, Ethereum has 217 protocols listed on DeFiLlama compared to the 87 BSC protocols listed.

Data from DeFiLlama

Third on the list is Solana, a blockchain that many expect will eventually be the leading competitor to Ethereum. Whilst only having $11bn in TVL, the blockchain has seen increased interest in its ecosystem due to its instant transaction finality and greatly reduced gas fees. Solana has also become a hotbed for new NFT releases due to low minting and trading costs.

The optimism surrounding Solana briefly took a hit yesterday when its mainnet-beta had to be restarted following a flood of transactions that prevented the network from operating properly. The issue stemmed from validators not being able to validate transactions, leading to “excessive memory consumption” and causing some validator nodes to go offline.

The downtime lasted for approximately 16 hours and raised fears from the community regarding the network effects and decentralised nature of Solana.

Other blockchains such as Cardano have emerged in recent years as a leading competitor but it has yet to produce any working DeFi platforms that can compete with the vast Ethereum ecosystem.

The emergence of Layer-2 platforms such as Arbitrum and Optimism have also given Ethereum a recent run for its money but are still in the early stages of their lifecycle.

Further growth is expected for Layer-2 platforms and it’s anticipated that when leading Ethereum DeFi platforms like Aave, SushiSwap and UniSwap fully support Layer-2, some assets may be ported over at Layer-1 Ethereum’s expense.

While it no doubt carries many positives, there’s little reason to believe the July 21 Ethereum Classic (CCC:ETC-USD) Magneto upgrade should push prices upward long term. 

Firstly, there’s the simple fact that Ethereum (CCC:ETH-USD) took off following the 2016 hard-fork which separated the two cryptocurrencies. Ethereum Classic did not.

By the numbers, Ethereum carries a market capitalization of $261 billion. The classic version, on the other hand, has a market cap of $6 billion. 

The classic version also lacks the clout that the updated Ethereum has. Ethereum Classic stagnated for years following its users’ choice to run pre-fork software because they believed it should remain immutable indefinitely. To me personally, it seemed overly traditionalist to not change the code given the fact that $60 million of stolen money could be returned by doing so, but I digress.

That slight rant aside, let’s get back to the Magneto upgrades. I think that investors are unlikely to be enticed by the benefits of those Magneto upgrades. 

The Magneto upgrade is being touted for its increased security and lower transaction fees. That is all well and good, but those may not be issues that are particularly relevant to Ethereum Classic’s price. 

It doesn’t appear that security issues are holding ETC prices back. It also appears that there are no explicit security enhancements inherent within the Magneto upgrade. This recent article refers to the optimizations to gas fees and transaction optimizations as having “implied security enhancements important for the network” but does not elaborate on what the direct security impact is. 

Granted, the article was written not by the Ethereum Classic organization. And maybe the security updates are significant. However, given the technical nature of crypto and its opacity, investors want clarity. 

The other purported benefit of the Magneto upgrade is that it will optimize gas fees on the ETC network. 

Recent data from Coindesk indicates that the average transaction fee is roughly two-thirds of a cent when utilizing Ethereum Classic, down from fees earlier this year of 2-3 cents. That seems pretty reasonable, especially when compared to fees on other cryptos. For instance, investors are clearly unhappy with transaction fees of Ethereum, which run over $6 per transaction. 

The point here is, again, that the upgrade’s benefits look to do little in addressing ETC’s relative weakness. Cheaper transaction fees are no doubt a good thing, but I fail to see how this will help Ethereum Classic emerge from the shadow of Ethereum. 

More importantly, the Magneto upgrade shouldn’t move the price of ETC much as fees aren’t a salient issue. 

Ethereum Classic underwent the Thanos hard fork back in November. And the Magneto upgrade is being thrust onto network users as well. That article referenced above spells it out: 

“A hard fork is a change to the underlying Ethereum Classic protocol, creating new rules to improve the system. The protocol changes are activated at a specific block number. All Ethereum Classic clients need to upgrade, otherwise, they will be stuck on an incompatible chain following the old rules.”

This sort of upgrade may be great for people who already see the value in ETC, but it doesn’t feel like enough to push it to the top of new investors’ pile of altcoin options. So I see little from Magneto that should move ETC’s price.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.” 

Article printed from InvestorPlace Media, ldnt-move-etc-long-term/.

©2021 InvestorPlace Media, LLC

Crypto developers have adopted the Ethereum (ETH) 1.0 blockchain for its decentralized applications with offerings, including lending, borrowing, pooling and trading as a service. Unfortunately, increased adoption has become a double-edged sword, resulting in high network congestion, increasing gas fees and slow transaction times. To tackle these concerns, Ethereum 2.0 was proposed.

Ethereum 2.0 is the transition from the 1.0 blockchain to a newer version. In Ethereum 2.0, several interconnected upgrades will be put in place by developers with the intent to make Ethereum more scalable, more secure, and more sustainable by focusing on higher speed, or transactions per second (TPS), greater efficiency and higher security. These proposed upgrades are said to occur in three parts. 

The first in the list of proposed upgrades is the Beacon Chain, having gone live on December 1, 2020. The Beacon Chain, which includes the migration from proof-of-work (PoW) to proof-of-stake (PoS) consensus algorithm, further enhancing security.

The final phase to also occur in 2022 is the introduction of shard chains to further enhance Ethereum's storage capacity and data access. Transaction speeds are believed to help extend the network to 64 blockchains.

In a similar process to mining, staking involves users actively participating in transaction validation on the PoS blockchain. Any user that meets the minimum balance of a cryptocurrency can validate transactions in exchange for staking rewards. On Ethereum 2.0, 32 ETH are required to fully activate the validator software.

Depending on the platform, additional features for “Staking Earn” will allow users to participate indirectly in Ethereum 2.0 through the head-related decentralized finance (DeF)i contract. In addition to receiving part of the ETH lockout bonus, users may be eligible for additional tokens, rewards, fees, income and better liquidity.

On Ethereum 2.0, the PoS-powered blockchain will bundle 32 blocks of transactions during each validation round. Each block bundle is known as an epoch, which are finalized transactions.

During the validation process, also known as "attesting," the Beacon Chain assigns groups of stakers into "committees" of 128, who are then given a shard block. A base reward will determine the issuing rate of Ethereum 2.0. As the number of validators connected to Ethereum 2.0 increases, the lower the base reward will be per validator. This is true since the base reward is inversely proportional to the square root of the balance of Ethereum 2.0 validators.

In comparison, Eth2.0 Staking Earn is a product from Matrixport -- a financial services platform based in Asia. This product enables users to participate in Ethereum 2.0 staking with a lower threshold while benefiting from rewards associated with other DeFi projects.

Eth2.0 Staking Earn strives to provide a greater yield through established DeFi protocols. The team behind Matrixport shares that the platform is "backed by industry-leading staking providers," including Lido, the largest decentralized contract for Ethereum 2.0 staking, with over 540,000 ETH staked and Curve.

By utilizing Curve, users benefit from stable currency exchange services with low slippage and low transaction fees. As a result, Ethereum 2.0 Staking Earn results in yields of between 3 and 10% as a result of the 2.30 %of Ethereum 2.0 staking reward, 6.81% of DeFi mining token revenue and 0.14 transaction fee income.

One of the main reasons for this growth is its willingness to adopt new technological advancements. Many industries remain wary of accepting these changes in fear that they will be detrimental to the future of their business. However, this isn’t the case with online gambling. Known for being the industry to take risks, online casinos and gambling sites constantly adopt new trends to meet the ever-changing demands of the market. 

As Co-Founder at Capitalixe, Lissele Pratt helps companies in high-risk industries obtain the latest financial technology and banking solutions. Here she shares her thoughts on how cryptocurrency is revolutionising the online gambling industry. 

Cryptocurrency & Online Gambling

A recent trend in the online gambling industry has been the adoption of blockchain technology. Bitcoin paved the way for this change as the first blockchain-based currency adopted by casinos in May 2012. This was shortly followed by other popular digital currencies, including XRP Ripple and Ethereum. We’ve recently seen the emergence of new cryptocurrencies, specifically for the online gaming industry, such as CasinoCoin. 

Cryptocurrency casinos allow people to deposit money and withdraw their earnings in digital currencies. These casinos have completely revolutionised the industry as more people are reaping the benefits of their use.

Benefits of Casinos and Players Using Cryptocurrency

Increased Security

Many people who gamble online fear that they may be at risk of their banking information being stolen by fraudsters. This year, Experian found that the surge of online gambling during the global pandemic increased online fraudulent activity. 

Anyone who understands how cryptocurrency works will likely know some of the benefits of blockchain technology. Blockchain can be defined as a database of information that records the provenance of a digital asset in a way that makes it very difficult to change. It is a digital ledger of transactions and provides an open database of every transaction involving value.

This makes using this technology extremely secure. Cryptocurrency is easy to track as each transaction comes with its own unique identifier code. However, it is impossible to manipulate these transactions because all digital currencies are encrypted. This ensures that payments made using blockchain technology are safer than traditional currencies. It also reduces an internet users’ chance of making unauthorised transactions. 

Anonymity 

Blockchain technology also offers users complete anonymity whilst they play. Because no identification is attached to a bitcoin wallet, players can feel secure knowing that nobody can obtain their personal information. Instead, they can focus solely on their games and not have to worry about other users seeing their progress. 

Online gaming also won’t have a negative effect on player’s credit scores or their chances of loaning money. Cryptocurrency will not be visible on any bank statements. When applying for a loan, banks will sometimes look through these statements to better understand spending habits. If they spot any gambling activity, they’re much more likely to refuse this loan. 

Speed 

One of the most frustrating issues a player faces when gambling online is the number of hurdles they must jump through to receive their money. This is especially true when their payouts are made from international businesses. SWIFT payments can take anywhere between 1-5 working days to receive casino payouts, resulting in many players turning to brick-and-mortar stores rather than playing online. 

Playing with cryptocurrencies such as Bitcoin, Ethereum or Litecoin prevents users from waiting long periods of time to receive their winnings. Cryptocurrency winnings are transferred into a player’s digital wallet instantly so players can spend their winnings faster.

Cost-Efficiency 

Because cryptocurrencies are decentralised, they do not have a governing body examining the validity of the transaction. When transactions are made with traditional currency, there are always additional costs and transaction fees required by banks. For example, if you use your credit card for gambling, you will be charged a cash advance. According to Finder, These transactions attract a cash advance fee between 3% and 5% and a high cash advance APR. This fee is considerably higher if it is an international transaction.

These additional costs apply both to the player and the casino. Gambling with cryptocurrency means that these fees are either removed entirely or significantly less. You can also convert this cryptocurrency into fiat currency without having to visit a bank. 

Final Thoughts 

The use of cryptocurrency is still widely debated. Some feel it is too unstable for the average investor; others believe it is the way of the future. But could the integration of cryptocurrency in online gambling be a perfect match? It would seem so.

Offering this payment option to players will allow online casinos to attract new clients and provide additional benefits to existing customers. In Addition, this digital currency appears to solve a lot of the problems facing the online gambling industry. Using cryptocurrency can be a faster, safer and more cost-efficient solution to both players and online casinos. 

Author Polly Jean Harrison

Uniswap is a leading decentralized crypto exchange that runs on the Ethereum blockchain.

The vast majority of crypto trading takes place on centralized exchanges such as Coinbase and Binance. These platforms are governed by a single authority (the company that operates the exchange), require users to place funds under their control and use a traditional order book system to facilitate trading.

Order book-based trading is where buy and sell orders are presented in a list along with the total amount placed in each order. The amount of open buy and sell orders for an asset is known as “market depth.” In order to make a successful trade using this system, a buy order has to be matched with a sell order on the opposite side of the order book for the same amount and price of an asset, and vice versa.

For example, if you wanted to sell one bitcoin (BTC) at a price of $33,000 on a centralized exchange, you’d need to wait for a buyer to appear on the other side of the order book who’s looking to buy an equal or higher amount of bitcoin at that price.

The main problem with this type of system is liquidity, which in this context refers to the depth and number of orders there are on the order book at any given time. If there’s low liquidity, it means traders may not be able to fill their buy or sell orders.

Another way to think of liquidity: Imagine you own a food stall in a street market. If the street market is busy with stall owners selling goods and people buying produce and products, it would be considered a "liquid market." If the market was quiet and there was little buying and selling going on, it would be considered a "narrow market."

Read more: Crypto Trading 101: How to Read an Exchange Order BookWhat is Uniswap?

Uniswap is a completely different type of exchange that‘s fully decentralized – meaning it isn’t owned and operated by a single entity – and uses a relatively new type of trading model called an automated liquidity protocol (see below).

The Uniswap platform was built in 2018 on top of the Ethereum blockchain, the world’s second-largest cryptocurrency project by market capitalization, which makes it compatible with all ERC-20 tokens and infrastructure such as wallet services like MetaMask and MyEtherWallet.

Uniswap is also completely open source, which means anyone can copy the code to create their own decentralized exchanges. It even allows users to list tokens on the exchange for free. Normal centralized exchanges are profit-driven and charge very high fees to list new coins, so this alone is a notable difference. Because Uniswap is a decentralized exchange (DEX), it also means users maintain control of their funds at all times as opposed to a centralized exchange that requires traders to give up control of their private keys so that orders can be logged on an internal database rather than be executed on a blockchain, which is more time consuming and expensive. By retaining control of private keys, it eliminates the risk of losing assets if the exchange is ever hacked. According to the latest figures, Uniswap is currently the fourth-largest decentralized finance (DeFi) platform and has over $3 billion worth of crypto assets locked away on its protocol.

How Uniswap works

Uniswap runs on two smart contracts; an “Exchange” contract and a “Factory” contract. These are automatic computer programs that are designed to perform specific functions when certain conditions are met. In this instance, the factory smart contract is used to add new tokens to the platform and the exchange contract facilitates all token swaps, or “trades.” Any ERC20-based token can be swapped with another on the updated Uniswap v.2 platform.

Automated liquidity protocol

The way Uniswap solves the liquidity problem (described in the introduction) of centralized exchanges is through an automated liquidity protocol. This works by incentivizing people trading on the exchange to become liquidity providers (LPs): Uniswap users pool their money together to create a fund that’s used to execute all trades that take place on the platform. Each token listed has its own pool that users can contribute to, and the prices for each token are worked out using a math algorithm run by a computer (explained in “How token price is determined,” below).

With this system, a buyer or seller does not have to wait for an opposite party to appear to complete a trade. Instead, they can execute any trade instantly at a known price provided there’s enough liquidity in the particular pool to facilitate it.

In exchange for putting up their funds, each LP receives a token that represents the staked contribution to the pool. For example, if you contributed $10,000 to a liquidity pool that held $100,000 in total, you would receive a token for 10% of that pool. This token can be redeemed for a share of the trading fees. Uniswap charges users a flat 0.30% fee for every trade that takes place on the platform and automatically sends it to a liquidity reserve.

Whenever a liquidity provider decides they want to exit, they receive a portion of the total fees from the reserve relative to their staked amount in that pool. The token they received which keeps a record of what stake they’re owed is then destroyed.

After the Uniswap v.2 upgrade, a new protocol fee was introduced that can be turned on or off via a community vote and essentially sends 0.05% of every 0.30% trading fee to a Uniswap fund to finance future development. Currently, this fee option is turned off, however, if it is ever turned on it means LPs will start receiving 0.25% of pool trading fees.

How token price is determined

Another important element of this system is how it determines the price of each token. Instead of an order book system where the price of each asset is determined by the highest buyer and lowest seller, Uniswap uses an automated market maker system. This alternative method for adjusting the price of an asset based on its supply and demand uses a long-standing mathematical equation. It works by increasing and decreasing the price of a coin depending on the ratio of how many coins there are in the respective pool.

It’s important to note that whenever someone adds a new ERC-20 token to Uniswap, that person has to add a certain amount of the chosen ERC-20 token and an equal amount of another ERC-20 token to start the liquidity pool.

The equation for working out the price of each token is x*y=k, where the amount of token A is x and the amount of token B is y. K is a constant value, aka a number that doesn’t change.

For example, Bob wants to trade chainlink (LINK) for ether using the Uniswap LINK/ETH pool. Bob adds a large number of LINK to the pool which increases the ratio of LINK in the pool to ether. Since the value K must remain the same, it means the cost of ether increases while the cost of link in the pool decreases. So the more LINK Bob puts in, the less ether he gets in return because the price of it increases.

The size of the liquidity pool also determines how much the price of tokens will change during a trade. The more money, aka liquidity, there is in a pool, the easier it is to make larger trades without causing the price to slide as much.

Arbitrage

Arbitrage traders are an essential component of the Uniswap ecosystem. These are traders that specialize in finding price discrepancies across multiple exchanges and use them to secure a profit. For example, if bitcoin was trading on Kraken for $35,500 and Binance at $35,450, you could buy bitcoin on Binance and sell it on Kraken to secure an easy profit. If done with large volumes it’s possible to bank a considerable profit with relatively low risk.

What arbitrage traders do on Uniswap is find tokens that are trading above or below their average market price – as a result of large trades creating imbalances in the pool and lowering or raising the price – and buy or sell them accordingly. They do this until the price of the token rebalances in line with the price on other exchanges and there is no more profit to be made. This harmonious relationship between the automated market maker system and arbitrage traders is what keeps Uniswap token prices in line with the rest of the market.

How to use Uniswap

Getting started with Uniswap is relatively straightforward, however, you will need to make sure you already have an ERC-20 supported wallet setup such as MetaMask, WalletConnect, Coinbase wallet, Portis, or Fortmatic.

Once you have one of those wallets, you need to add ether to it in order to trade on Uniswap and pay for gas – this is what Ethereum transaction fees are called. Gas payments vary in price depending on how many people are using the network. Most ERC-20 compatible wallet services give you three choices when making a payment over the Ethereum blockchain: slow, medium or fast. Slow is the cheapest option, fast is the most expensive and medium is somewhere in between. This determines how quickly your transaction is processed by Ethereum network miners.

Read more: Ethereum 101: What is Ethereum Mining?

1. Head to https://uniswap.org 2. Click “Use Uniswap” in the top right-hand corner. 3. Go to “Connect wallet” in the top right-hand corner and select the wallet you have. 4. Log into your wallet and allow it to connect to Uniswap.5. On the screen it will give you an option to swap tokens directly using the drop-down options next to the “from” and “to” sections. 6. Select which token you’d like to swap, enter the amount and click “swap.” 7. A preview window of the transaction will appear and you will need to confirm the transaction on your ERC-20 wallet. 8. Wait for the transaction to be added to the Ethereum blockchain. You can check its progress by copying and pasting the transaction ID into https://etherscan.io/. The transaction ID will be available in your wallet by finding the transaction in your sent transaction history.

Uniswap's UNI token

Uniswaps native token, UNI, is known as a governance token. This gives holders the right to vote on new developments and changes to the platform, including how minted tokens should be distributed to the community and developers as well as any changes to fee structures. The UNI token was originally created in September 2020 in an effort to prevent users from defecting to rival DEX SushiSwap. One month before UNI tokens launched, SushiSwap – a fork of Uniswap – had incentivized users from Uniswap to allow SushiSwap to reallocate their funds to the new platform by rewarding them with SUSHI tokens. This was a new type of token that gave users governance rights over the new protocol as well as a proportionate amount of all transaction fees paid to the platform.

Uniswap responded by creating 1 billion UNI tokens and decided to distribute 150 million of them to anybody who had ever used the platform. Each person received 400 UNI tokens, which at the time amounted to over $1,000.

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El Salvador president Nayib Bukele says the country will save $400 million a year in remittance fees by adopting bitcoin. That claim doesn’t necessarily stack up.

Why is El Salvador adopting bitcoin?

A quick recap: The Central American country rolled out its bitcoin wallet app, called Chivo, on Sept. 7. Businesses are now obliged to accept the crypto token and the US greenback, which was already a national currency, for payments. Bukele seeded the wallets using taxpayer money with $30 worth of bitcoin to get things rolling. The president is hoping to attract a new generation of crypto entrepreneurs and to cut the expense of remittances, which are estimated to make up around 20% of gross domestic product.

Unfortunately for Salvadorans, there may not be a cost or time savings for remittances using bitcoin versus PayPal (via its Xoom offering) or Western Union, according to Jason Mikula, a fintech consultant. Mikula crunched the numbers for sending $200 from the US to El Salvador; his analysis assumes the sender is starting out in US dollars and traded them for bitcoin using Coinbase, the largest US crypto exchange. (He notes that some crypto proponents assume the transaction starts out in bitcoin, which he suggests is unreasonable as most people hold their funds in fiat currencies.)

Is bitcoin good for transferring money?

Exchanging $200 for bitcoin costs between $2.99 to $7.67 at Coinbase, depending on whether the transaction is funded using PayPal, ACH, or debit, Mikula says. The exchange may charge an additional spread for the transaction (the gap between the bid and offer prices for bitcoin on its exchange). There’s also a network fee (paid to the crypto miners who process transactions on a blockchain) to send bitcoin from Coinbase to a Chivo wallet in El Salvador, which runs around $3. El Salvador’s bitcoin wallet lets users switch between the US currency and bitcoin at no cost.

By contrast, a person can send $200 from the US to El Salvador using Western Union’s mobile wallet, called Tigo, at no cost and in minutes, according to the company’s website. Mikula speculates that Western Union may be willing to eat the transaction costs (debit/credit interchange) because fewer remittances are sent this way. Western Union charges a hefty fee for transactions using physical cash: it costs $9 to $18 to send $200 in cash from the US to El Salvador. This is probably a popular way of sending money, as around 70% of the people there don’t have a bank account.

Chivo could still help El Salvador’s unbanked

Bukele is correct about at least one thing: Remittances are a critical lifeline for millions of people in El Salvador. Around 18% of households receive them, taking in an average of about $195 per month, according to a report from researchers at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise. They found that remittance costs there absorb about 2.95% of transactions, the lowest level of any nation in the Latin American-Caribbean region.

And they, too, found that sending remittances using bitcoin’s blockchain rails is more expensive than the systems already in place. Their analysis is partly based on the assumption that people in El Salvador want paper greenbacks, not bitcoin, and will have to pay up a crypto ATM to withdraw the hard currency. (They note that the coastal town of El Zonte, El Salvador, made bitcoin a local currency in 2019, but it didn’t catch on.) “At present, traditional transfer methods are the cheapest way to make remittance payments,” they wrote.

Bukele’s controversial bitcoin gamble has a number of serious risks for El Salvador, including the potential to undermine financial stability. That said, there could be some upside if the Chivo wallet succeeds in making digital payments and mobile wallets into the hands of the country’s vast majority that is unbanked. That infrastructure actually could reduce remittance costs—without using bitcoin.

Cryptocurrency is red hot, but if you’re looking to get in on the action, you can’t buy it on the stock market through a standard brokerage account like you would with an index fund or a share of Amazon. Cryptocurrency like Bitcoin is traded on special exchanges like Etoro, CoinBase and BlockFi. The biggest exchange in the world by far is called Binance. It’s so big, in fact, that a “native” cryptocurrency called Binance Coin was developed just to make it easier to pay for the site’s services. 

Read: Bitcoin Cash (BCH): How’s It Differ From Bitcoin and What’s It Worth? More: What Are Altcoins — and Are the Potential Rewards Worth the Risks?

You Pay Fees To Trade Cryptocurrency

If you’re not familiar with crypto exchanges, the following numbers might not mean much to you, but the 1.4 million transactions that are executed on Binance every second and the site’s 2 billion in average daily volume are truly astounding statistics. Exchanges take fees for executing crypto transactions, and part of the reason Binance is so popular is that its transaction fees are among the lowest in the world. Users pay just 0.1% to execute each of those billions of trades.

The Economy and Your Money: All You Need To Know

Binance Coin Makes Cheap Trading Cheaper

Binance reduces those already-low trading fees by a full 50% if you pay for them using the exchange’s native cryptocurrency, Binance Coin (BNB). That means that instead of paying 10 cents on a $100 transaction, you’d pay only 5 cents if you complete the transaction using BNB.

An Ethereum-based (ERC-20) token, BNB hit the market on July 21, 2017, when Binance made its initial coin offering (ICO) of 100 million BNB tokens. It eventually moved to its own unique blockchain called Binance Chain and limited the BNB supply to 200 million tokens in total.

See: Ethereum (ETH): What It Is, What It’s Worth and Should You Be Investing?

There’s a Lot To Like About Binance Coin

In review, BNB is the native app for Binance, the world’s largest cryptocurrency exchange. It was designed specifically for use in the Binance ecosystem, which offers juicy rebates to incentivize its use — but there’s more to Binance Coin than just the trading discount. According to CoinJournal, BNB: 

Provides lightning-fast transactions

Can be used to buy and sell a huge variety of cryptocurrencies

Is safe and secure

Is accepted as currency by some service providers, mostly in the hospitality/travel industry

Find Out: What Is Chainlink and Why Is It Important in the World of Cryptocurrency?

Considering Investing? Look Before You Leap Onto the Bandwagon

On April 6, Forbes reported that the cryptocurrency market had topped $2 trillion in value. It was a huge moment for crypto, and Forbes cited BNB specifically as one of the smaller altcoins (Bitcoin alternatives) that are driving so much of that incredible growth. 

But investors looking for a quick buck should tread lightly. 

Beyond the crypto bubble, BNB is not yet widely accepted as currency outside the travel, accommodations and entertainment industries, although some investment platforms let you use it to buy mainstream securities. It’s just as trustworthy as non-native crypto, but it’s not as anonymous since Binance traders must have registered accounts. In the end, it’s another altcoin that you can invest in if you choose, but like all crypto investments, expect a wild ride with ecstatic highs, terrifying drops and lots of drama in between. That, after all, has been the story of crypto investing so far.

This article is part of GOBankingRates’ ‘Economy Explained’ series to help readers navigate the complexities of our financial system.

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Last updated: April 9, 2021

This article originally appeared on GOBankingRates.com: Binance Coin (BNB): Why It’s So Interesting to the Cryptocurrency World

Since the emergence of cryptocurrencies like Bitcoin and Ethereum, the rise of decentralised payment networks has spurred a whole new class of digital assets. Altcoin markets are a byproduct of the success with the skyrocketing space already having over 11,000 cryptocurrencies on CoinMarketCap alone.

With the sheer magnitude of options on the market, knowing which tokens are worth investing in is crucial, especially considering the volatile nature of cryptocurrency. Getting in early has the potential to produce incredible gains for investors who understand the potential and backing of the tokens they invest in. Seasoned investors dedicate time to thoroughly research a project, taking a deep dive into the team, fees and taxes, use-cases, and token economics.

One specific factor that stands a token in good stead is having a dedicated team, including experienced members of the crypto community, IT professionals, and marketing experts. Teams with a solid understanding of the industry usually lead to a cryptocurrency with a solid foundation. While some enthusiasts prefer to invest in projects with famous key players, such as Elon Musk, Vitalik Buterin, Justin Sun, or CZ, other investors believe in teams bootstrapping their way to the top, as betting on the underdog can yield higher rewards. It’s important to note, advisors are often a sign of the calibre of the team.

Another thing to look out for when minimising token risk are transaction fees. If investors are having to pay high transaction fees to transfer their tokens, it’s not a good sign, especially if they’re initially hidden. One of the reasons altcoin projects might have these fees are to deter investors from selling the tokens. Therefore, investors are encouraged to do their due diligence beforehand and see what fees might lie ahead. Some projects, however, use these taxes to better their platform, using fees towards marketing, development, providing liquidity, and reflections for token holders.

A stealthy altcoin project will have an extended focus and strong use case. Projects with developers focused on heavy sales and quick pumps are generally short-term investments, while projects focusing on giving back to the community and/or charities and have great use cases, attract long-term token holders. A project’s whitepaper provides the best insights into the future goals, motives, and values of a project.

Finally, the token economy of a project shows the intention of the team and the strength of the project. Tokenomics should focus on platform development and investors while taking the community into consideration. Tokens with a limited supply, used for marketing, development, operations, and liquidity. Tokens with anti-dump functions for protection against whales have proven to be valuable for any project. 

There are a multitude of factors to consider when selecting an altcoin investment. As an investor, it pays to be cautious, but there are also many opportunities to capitalise. One of the most effective strategies to make a good return on an altcoin is to invest in research, before investing money into any project. Charity token God Shiba is the perfect example of an altcoin with promising gains. Driven by strong moral values, with a core focus on its community and to aid “all the living things on planet earth”, the project supports charities such as WWF and Unicef, an incredible team, great tokenomics, and a long-term goal in mind.

No one’s being their own bank in Bitcoin. There is no such thing as ‘be your own bank because you have Bitcoin’ because banks aren’t cash. It’s a depository.

What is more important? Being free or being equal?

-Dr. Craig S. Wright

As we move through all the sections of the Bitcoin whitepaper with Ryan X. Charles and Dr. Craig Wright in “The Theory of Bitcoin: The Bitcoin Whitepaper series,” it becomes more and more apparent what its creator’s intentions were and how far they deviate from the narrative of BTC and other digital currencies. This is not a system to replace banks. This is not a system to facilitate anarchy. Bitcoin is not digital gold.

Bitcoin is the innovation of a lifetime not only because of how it works technically, but also because its creator factored human nature into its functionality. Not all miners are created equal, and the proof of work system thrives on competition and inequality. Dr. Wright chooses freedom over equality because you can’t have both.

Video 9 of Theory of Bitcoin: The Bitcoin Whitepaper builds us up for the grand finale of the series, covering the “Combining and Splitting of Value” and “Privacy” whitepaper sections. Here are my key takeaways from Charles and Dr. Wright’s conversation in this episode.

“Tokens in an envelope”

Section 9 of the whitepaper, “Combining and Splitting Value” addresses “how you can deconstruct and reconstruct a coin,” Dr. Wright sums up.

Dr. Wright likes to tell people to think of Bitcoin as a set of tokens in an envelope. In a transaction, each of the input “envelopes” gets ripped open and the tokens are “poured out”—you can think of the tokens as being little grains of rice—the tokens or “grains” are then put into new envelopes and we can decide how much we put into each envelope for the outputs.

“Bitcoin is really one hundred million individual tokens. Each of these tokens are fungible, separate items,” Dr. Wright explains.

We can merge coins if we have lots of small amounts, or we can break them down if we have lots of big amounts, similar to how cash works when you change a 20-dollar note into smaller notes, for example. With BSV blockchain’s signature low fees, all of this can be done at a minimal cost.

To merge or not to merge

In general, we should have lots of little “pots” as opposed to merging all the outputs together into one big “pot” for privacy and other reasons. (BTC’s exorbitant fees are the reason why the “one big pot” narrative started). 

Dr. Wright explains that one big pot slows down the process and there are two main reasons we should have lots of little pots as outputs: 

Privacy. If you have one big transaction to pay for something and you send yourself back the change, it’s easy to follow and figure out what the payment and change amount was from that single transaction. If you have a lot of small transactions getting sent to the merchant and back to yourself as change, in other words a lot of different outputs, it’s much harder to follow.

Availability of funds. What if you want to spend again immediately? If you make one big payment for a small transaction, you’ll have to wait for the change to come back as confirmed before you can pay another merchant, and this could take time. 

There are some special cases when merging outputs together into bigger pots would be beneficial. For example, if you are going to make a huge transaction, it might be better to merge or else you could end up paying a lot in fees for processing all the smaller transactions. Therefore, it’s a bit of a balancing act between how much privacy you want and how much you are willing to pay in fees. 

As a side note, once we get to a thousandth of a cent for fees (transaction fees will go down as the network scales), this balancing act will no longer exist because the fees are so low.

Dr. Wright also points out that the more inputs you have, the more time it takes to validate and verify. With a single transaction, we’re talking a fraction of a second. However, if you have a hundred thousand transactions, each worth 100th of a cent, for the purchase of a TV for example, it will take a minute or so to validate all the inputs before the transaction is sent off to the blockchain. It’s kind of like the old lady coming into the shop with the penny jar to pay for something, Dr. Wright jokes.

With all of this in mind, some people will prefer to have more small transactions if they are concerned about privacy and others will prefer to have larger ones because they don’t care as much about privacy and they want the process to be quick and at a lower cost. Wallets will eventually be able to construct and deconstruct coins for their users, perhaps updating and reassigning values in the middle of the night, once a week.

Bitcoin is not anti-bank

While the concept of Bitcoin not being “anti-bank” is on the periphery of what’s covered in sections 9 and 10 of the whitepaper, Dr. Wright sets the records straight in this episode.

“There is not anti-bank stuff in Bitcoin. No one’s being their own bank in Bitcoin. There is no such thing as ‘be your own bank because you have Bitcoin’ because banks aren’t cash. It’s a depository,” he says.

Dr. Wright explains how a bank consolidates and reinvents money by taking a lot of short-term amounts and putting them into long term outputs. Bitcoin doesn’t do that.

Dr. Wright also does not see Bitcoin completely replacing fiat at any point in the future. Rather, he predicts people will be using fiat currencies on chain and these currencies will be tokenized. He also predicts that if we’re transacting in small amounts, Bitcoin will prevail as the currency of choice because “it always will be more efficient,” he says.

Traditional banking system privacy model

Moving on to the whitepaper’s section 10 “Privacy,” Charles and Dr. Wright start off by making the distinction between the traditional banking system’s privacy model and Bitcoin’s privacy model. Let’s begin with the traditional model.

In traditional banking, identities and transactions are put together, given to the trusted third party, they then go through a counter party and the public has no idea, they are firewalled off from the entire process.

In actuality, the traditional banking system is not private, think of what happens when it gets compromised. “The whole model is completely screwed up! There are instances of 100 million individuals being compromised at once. All their information now known,” Dr. Wright points out.

Dr. Wright goes on reference a security breach when 11 million Target customers had their information compromised. Why should Target have all your information if all you want to buy is a low-cost item such as a candy bar, he questions? Why should they have this information to be hacked? Your information can now be used for identity fraud, etc, and all you wanted was a candy bar.

There are so many third parties handling our information on the internet these days and this does not have to be the case. Bitcoin makes it possible to buy that candy bar digitally, but without the possibility of having personal information compromised.

Bitcoin privacy model

The privacy that Bitcoin provides is something Dr. Wright wanted from the very beginning, in fact it’s one of the most essential parts, he says.

In Bitcoin, identities are firewalled off from the public. Dr. Wright and Charles use the analogy of a stock exchange—the ticker tape can be compared to the blockchain—you know things are happening, but you don’t know who is doing these things. The size and amounts of trades are revealed, what’s being traded, how much it’s going for. The trades are not linked to individuals, unless they have to disclose such information by law.

Dr. Wright explains that there is a difference between anonymity and privacy. Keeping public keys anonymous doesn’t mean a user is keeping their identity a secret, it just means they will have a level of privacy from the public. Public keys can be linked to a user’s identity and this allows for the law to work when it needs to.

Bitcoin is fungible and traceable

It’s important to note that Bitcoin is consistent with the legal systems all over the world and was not created for anarchy. Despite popular belief, even though it is private, Bitcoin is traceable and therefore not a crime-friendly system whatsoever. 

It’s not just tracing, it’s following, Dr. Wright points out. Following transactions are not “reversible,” rather it’s a one-way function. “From you, I can’t go backwards and find out what transactions are yours, but from the transactions you can follow the path. That’s a big critical distinction,” Dr. Wright explains.

“With a warrant or whatever else, there would be methodologies that could be deployed…through all of this, we now have a system that allows us to capture any stolen coins,” he adds. 

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.

Stocks represent a percentage of a business. They stand as a company’s value and change their price range based on the organization’s performance in the market. On the other hand, cryptocurrency is a digital asset that has made its debut in 2009 through the famous bitcoin. It can be stored and traded digitally. The value of a cryptocurrency varies based on its market demand, supply, and adoption. For many years, people were confined to the stock market investment models. But the recent emergence of cryptocurrency and bitcoin’s price has attracted or moreover, redirected many investors to try their hand on the digital currency market. Unfortunately, that doesn’t hide the fact that the cryptocurrency sphere is very volatile and carries potential risks. While bitcoin has been in the headlines in May for reaching the record US$60,000, within a month, it almost touched the death cross. The stock market is no different. During the early days of the pandemic, S&P 500 has lost over one-third of its value. Therefore, to investors who want to pick the right investment model, the confusion between cryptocurrency vs stocks remains unsolved. Analytics Insight has aimed to decrypt some of the hidden similarities and differences between cryptocurrency vs stocks to make it easier for investors.

The cryptocurrency market has opted for a digital model of functioning since the very beginning. But the story is completely different for the stock market. Initially, financial guides or brokers used to take money from investors and add them to the stock market. Fortunately, the scenario has changed when the stock market also through a complete transformation. Today, both cryptocurrency and stocks can be accessed through the digital exchange, brokerage account, mobile application, or other online platforms. Besides, they also offer a similar kind of user experience in terms of layout, trading options, and order-book-based liquidity mechanism.

Retail trading options open the door to general trading orders like a market order, limit order, and stop (or stop-loss) order. Even though both cryptocurrencies vs stocks might look similar from the buying and selling point of view, they have underlying differences that need to be addressed.

While cryptocurrency and stocks are both types of investments, they individually carry certain functionalities that make them different from the other. When you buy a stock, you are directly investing in a particular company that you believe will bring growth. On the other hand, you just buy tokens of a certain cryptocurrency to either use them as a digital investment portal or even trade them as payment.

Cryptocurrency maker and stock distributor: One of the reasons for cryptocurrency’s undying popularity is its independent and decentralized nature. Owing to its leniency, anybody can become a miner and try getting their hands on bitcoin. Besides, other cryptocurrencies like Dogecoin were literally born out of bored programmers who wanted to mock the meme. It is completely different for the stock market. Stocks need to be created. They have to be cleared by government agencies and should also be audited.

Stocks are encrypted from hacks while cryptos are not: As mentioned above, the stock market is widely regulated by government agencies and goes through complete yearly auditing. Due to its heavy scrutiny, there is little chance that stocks could be rigged or fraudulent. On the other hand, it is completely different for cryptocurrencies. Because of their decentralized nature, digital currencies are unregulated and prone to fraud. A simple cryptocurrency scam could make you lose all your digital assets.

The void in ownership rights: Stocks are seen as an ownership right. Similar to voting and citizenship card, stock ownership doesn’t change until the owner prefers to sell the stock. When he or she invests in stocks, they are allocated with a percentage of ownership in the company. In the digital currency market, you are allocated with tokens like Ethereum, bitcoin, etc. when you invest in it. They do not represent a legal stake in the organization that issued them.

The difference in transaction fees: Whenever you buy a new stock, even for a very less amount, you are bound to pay a transaction fee. While it is convincingly okay for large investments, transaction fees on small investments will eat up your profits from the stock. But trading cryptocurrency could be remarkably rewarding as it comes with low exchange fees. However, the transaction and gas fees vary based on the crypto exchange you opt for.

BeInCrypto –

According to a recent study done by ETC Group, data shows that cryptocurrency miners enjoyed a very strong spring.

According to a press release tied to the report, “The quarterly research, released for the first time by ETC Group, analyses the performance of Bitcoin, Ethereum and Litecoin as well as providing commentary and analysis on market and technical developments. The annualized revenue run rates are calculated from the total transaction fees, also known as network revenue, paid to crypto miners in any period.”

The research showed that in the month of April, the calculated ARR for fees paid to Bitcoin miners reached $2.986 billion. A tweet from ETC Group stated that the number eclipsed the money made by Shopify ($2.922B) and Square ($2.982B).

This story was seen first on BeInCrypto Join our Telegram Group and get trading signals, a free trading course and more stories like this on BeInCrypto

As the bitcoin market matures, there is an increasing number of options available to add the digital currency to retirement plans. 

Bitcoin has been consistently gaining momentum over recent years, despite lingering concerns about its high volatility, energy consumption and risk of fraud. Last year, bitcoin (BTC) – the native cryptocurrency of the Bitcoin network – trounced gold and the S&P 500 with a 164% return. Gold, by comparison, rose 21% last year, and the S&P 500 Index gained 13%. Even with the current rebounding post-pandemic economy, bitcoin continues to lead the pack as the most profitable asset class of the three. So far this year, it's up 69.55%, compared with a loss of 5.11% for gold and gain of 19.26% for the S&P 500.

With that performance, it’s not surprising 40% of young investors recently said they were interested in including bitcoin and other cryptocurrencies in their retirement plans.

So what are the benefits, risks and available options to be aware of?

While bitcoin’s potential for growth is balanced by its volatility, much of that risk becomes mitigated in the long term when you understand its intrinsic properties. 

Bitcoin has a fixed supply of 21 million coins, which means that unlike with fiat currencies like the U.S. dollar, no more can be created once the circulating supply reaches that figure. That is one of the major upsides for bitcoin’s projected value over time, which is expected to increase as the purchasing power of fiat currencies decreases because of inflation.

In addition to having a fixed supply, Bitcoin goes through what is called a “halving” event every 210,000 blocks (about every four years) where the reward for mining BTC transactions is cut in half. That reduces bitcoin’s inflation rate, improving its longevity. While it took four years to mine 50% of all bitcoins, it will take an additional 120 years to mine the remaining 50%. For long-term investors, that is a good thing, as it accentuates the assets' limited supply.

A statistical model known as the bitcoin stock-to-flow model takes into consideration the asset's supply (stock) and its annual issuance rate (flow) and uses that data to predict the future appreciation of BTC. Despite drawing criticism from a number of other traders, the model – created by pseudonymous trader Plan B – has forecasted the asset’s price well so far. 

What’s most interesting, perhaps, is that the Bitcoin stock-to-flow model suggests BTC could reach $1 million per coin by as early as 2024. 

The asset bitcoin’s most been compared with in recent years has been gold, historically considered to be a leading hedge against inflation. Both bitcoin and gold have a scarce, limited supply, but the advantages of bitcoin over gold include the fact that BTC can be transported instantly, it’s significantly cheaper to store and secure, and it’s easily divided into smaller units and impossible to counterfeit.

Bitcoin’s price has also consistently outperformed gold since its inception in 2010.

Here’s how much $1 would be worth if invested in the given year.

2020 BTC: $3.78 | Gold: $0.93

2019 BTC: $4.38 | Gold: $1.28

2018 BTC: $5.14 | Gold: $1.49

2017 BTC: $15.39 | Gold: $1.44

2016 BTC: $64.24 | Gold: $1.36

2015 BTC: $146.02 | Gold: $1.68

2014 BTC: $74.70 | Gold: $1.41

2013 BTC: $434.83 | Gold: $1.38

2012 BTC: $4,631.80 | Gold: $1.13

2011 BTC: $3,109.53 | Gold: $1.12

2010 BTC: $776,397.69 | Gold: $1.56

One of the leading ways to invest in bitcoin for retirement is through a bitcoin Individual Retirement Account (IRA). A bitcoin IRA is self-directed, meaning the account owner chooses which investments they wish to make. That opens the doors to investing in alternative asset classes like real estate, precious metals and cryptocurrency. 

Bitcoin IRAs work much like traditional ones, except your money goes toward cryptocurrency instead of mutual funds.

Like with a Roth IRA, you pay taxes upfront on the assets you hold instead of when you come to withdraw them. That is advantageous for investments that yield high returns, as bitcoin has a tendency to do. Bitcoin IRAs also have yearly contribution limits akin to traditional ones – typically around $6,000.

There are three parts to a bitcoin IRA:

Many self-directed IRA providers include an “all-in-one” package, where the bitcoin IRA company partners with specific crypto exchanges. While 13% of all Americans traded crypto in the last year, only 2-5% of all IRAs are invested in alternative assets, according to the Retirement Industry Trust Association (RITA). An array of bitcoin exchange-traded funds have also popped up in the past year to meet the growing demand of institutional investors entering the crypto market.

It is worth noting, however, that there are typically more fees involved with a bitcoin IRA. These include setup fees and account management fees. If you use the popular bitcoin IRA from Blockmint, for example, you will be hit with a 15% transaction fee, 2.5% purchase transaction fee, 1% sell transaction fee, $195 annual maintenance fee and 0.50% monthly storage fee assessed on your IRA balance.

Some self-directed IRAs also come with more limitations, and you may not be allowed to trade with your crypto exchange of choice. Another disadvantage is that capital losses from bitcoin cannot be deducted to offset capital gains like they would with a typical IRA.

A small 401(k) provider called ForUsAll has partnered with crypto exchange Coinbase to give their customers the option of investing up to 5% of their retirement funds into cryptocurrency like bitcoin. A 401(k) is an account that allows an employee to dedicate a percentage of their pre-tax salary to a retirement account, often matched by their employer.  The funds are typically invested in stocks, bonds and mutual funds, but demand is rising from retail investors to add cryptocurrency as an available asset. According to the Investment Company Institute, a fifth of the $34.9 trillion U.S. retirement market is made up of 401(k) plans, worth $6.7 trillion.

If you want to avoid the hassle of setting up a bitcoin retirement account, there are benefits to buying bitcoin directly from an exchange and holding it yourself long term. You’ll avoid having to pay middleman fees, which can become costly if you plan on making a lot of transactions. You’ll also be able to contribute as much or as little as you want, avoiding minimum and maximum contributions found in traditional 401(k) and IRA setups. This method also lends itself to the use of third-party software from companies like 3Commas, which automates exchange purchases so that you can more easily control your positions. There are drawbacks, however, to buying bitcoin on your own. Those include the fact you’ll have to pay more taxes on your returns than you would with an IRA or 401(k), and you’ll be responsible for securing your investments.

Ultimately, bitcoin is a volatile asset with more inherent risks than the assets you’d typically invest in for retirement. But investing in it for the long term is a great way to diversify your portfolio, and with more upside than other alternative assets. And while the asset is still in its infancy compared with a commodity like gold, it has delivered an annual average return of 891% (2011-2020.) Gold, over the same period, has returned an annual average of 4.08%.