Introduction To Yield Farming/Lending

Yield Farming is taking the crypto space by storm by offering attractive rates and cheap transaction costs. Traditional investment vehicles are being outperformed and driving crypto adoption at paces never seen before. By the end of this article, you will understand the basics of what tools you need and what to look for to get passive returns on cryptos you already hold.

Key Takeaways

  • Yield farming is the process of earning a return on capital by putting it to productive use
  • Money markets offer the simplest way to earn reliable yields on your crypto
  • Liquidity pools have better yields than money markets, but there is additional market risk
  • Incentive schemes can sweeten the deal, giving yield farmers an added reward

What is Yield Farming?

The hottest buzzword in crypto today is “yield farming,” which allows people to earn fixed or variable interest by investing crypto in a DeFi market. Investing in ETH is not yield farming; lending out ETH on Aave for a return beyond the ETH price appreciation is yield farming.

As the newest trend in crypto, investors in the space need to understand what it is and how it works.

But before hashing out the specifics, it’s important to note that given the amount of competition between investors and high gas prices, yield farming is only profitable if you’re willing to put a significant sum of money to work. Yield farming with $100-1,000 in crypto will result in a net loss. If you’re tinkering with small amounts to understand how it all works, that’s okay, but the strategy isn’t profitable

Money Markets: Compound and Aave

Compound and Aave are DeFi’s primary lending and borrowing protocols. The two together account for $1.1 billion of lending and $390 million of borrowing.

Dashboard for total supply and total borrow on Compound
Source: Compound

Lending capital on a money market is the easiest way to earn a return in DeFi. Deposit a stablecoin to either of the two and start earning returns immediately.

Aave generally has better rates than Compound, because it offers borrowers the ability to choose a stable rate of interest rather than a variable rate. The stable rate tends to be higher for borrowers than the variable rate, increasing the marginal return to lenders.

Aave Protocol stats, via AaveWatch

However, Compound introduced a new incentive for users through the issuance of its native token COMP. Anyone that lends or borrows on Compound earns a certain amount of COMP. 2,880 COMP is issued to Compound users per day. At $250 per COMP at press time, this translates to $720,000 in extra rewards per day.

Security from Financial Risk

DeFi money markets employ over-collateralization, meaning a borrower must deposit assets with more value than their loan. When the collateralization ratio (value of collateral / value of the loan) falls below a certain threshold, the collateral is liquidated and repaid to lenders.

This setup is optimal for financial speculators who want to obtain leverage. But it also ensures that lenders don’t lose money when borrowers default. Smart contract hacks are still a significant risk, but Aave and Compound have avoided this risk so far.

Yield Farming Liquidity Pools

Uniswap and Balancer are the two largest liquidity pools in DeFi, offering liquidity providers (LPs) with fees as a reward for adding their assets to a pool. Liquidity pools are configured between two assets in a 50-50 ratio in Uniswap. Balancer allows for up to eight assets in a liquidity pool with custom allocations across assets.

Most liquid pools in DeFi, via Pools.fyi

Every time someone takes a trade through a liquidity pool, LPs that contributed to that pool earn a fee for helping to facilitate this. Uniswap pools have offered LPs healthy returns over the past year as DEX volumes picked up. However, optimizing profits requires investors also consider impermanent loss, which is the loss created by providing liquidity for an asset that rapidly appreciates.

Read more about impermanent loss in our guide about yield farming on Uniswap.

Balancer pools can mitigate some impermanent loss, as pools don’t need to be configured in a 50-50 allocation. They can be set up in an 80-20 or 90-10 allocation to minimize, but not entirely eliminate, impermanent loss. Additionally, users can earn Balancer’s governance token, BAL, by providing liquidity on a Balancer pool.

There’s another kind of liquidity pool that eliminates impermanent loss. Curve Finance facilitates trading between assets pegged to the same value. For example, there is a Curve pool with USDC, USDT, DAI, and sUSD: all USD pegged stablecoins. There’s also a liquidity pool with sBTC, RenBTC, and wBTC: all pegged to the price of BTC.

Returns for providing liquidity on Curve

Since all of the assets are worth the same amount, there’s no impermanent loss. However, trading volumes will always be lower than general-purpose liquidity pools like Uniswap and Balancer.

Ironically, yields for Curve Finance LPs rocketed in the last week as the yield farming narrative led to excess demand for stablecoin-to-stablecoin trades. Bottom line: Curve Finance eliminates impermanent loss, but Uniswap and Balancer result in higher fee collection.

Binance Smart Chain Yields

Binance has proven themselves worthy by giving birth to the BSC (Binance Smart Chain).

Binance Smart Chain’s compatibility with the Ethereum Virtual Machine (EVM) and its interoperability with ETH-native protocols have turned it into a popular destination for DeFi DApps.

Yield farming on Binance Smart Chain (BSC) has witnessed rapid growth and several protocols have been grateful participants with many more still on the line.

Below, you will find five of the most popular yield farms on BSC.

1. PancakeSwap

PancakeSwap is the leading automated market maker and the first billion-dollar project on Binance Smart Chain. The decentralized exchange protocol has surged to the top platform the DeFi space with a current 24-hr trading volume of $400M, leaving incumbents like Uniswap and Sushiswap trailing.

Its native token, which was at $0.48 at inception, is currently trading at $13.

Liquidity providers can deposit cryptoassets into PancakeSwap liquidity pools to earn fees and liquidity mining rewards. In return for providing liquidity, they receive liquidity pool tokens (also called FLIP tokens), which can be staked to earn CAKE.

Its yield farm remains ever rich as well with more than 10 pairs yielding an annual APR of 300%+ at the time of writing.

2. Venus

Venus is an algorithmic money market for decentralized lending and borrowing. Users can deposit cryptoassets like BNB, ETH, and stablecoins to earn interest.

Interest earned can be used as collateral to borrow more digital assets or to mint VAI (Venus’s stablecoin).

Launched in October 2020, Venus has gone on to become one of the largest protocols on BSC with a 24-hr volume of $237M.

3. Bearn

Bearn seeks to provide an extensive yield farming ecosystem and to improve the interoperability between BSC and the Ethereum blockchain.

The cross-chain protocol’s new product, bVault, offers double/triple reward systems. Vault holders get to earn 3% of newly minted BDO in addition to high APYs and accrued fees on farmed assets.

Bearn’s liquidity pools remain high as well with their ETH farm generating more than 1,000% APY and BSC farms with over 300% APYs (at the time of writing). Its native token has surged from just $15.22 in December to an ATH of $984.50 with a current price of $507.

4. Pancake Bunny

Pancake Bunny is a DeFi yield farm and aggregator that compounds your Pancakeswap yields with automatic compounding strategies. With over $1 billion in locked-in value and close to $450 million in market cap, Pancake Bunny has a lot to offer. The protocol started as a dual-chain yield aggregator for BSC and ETH but is now focused on the former.

Thanks to their partnership with PancakeSwap, liquidity providers can also stake their $CAKE on Pancakeswap to earn $BUNNY.

5. Autofarm

Autofarm is on a mission to aggregate yields and facilitate decentralized exchange in the most seamless way possible on Binance Smart Chain.

The two-month-old protocol has witnessed unprecedented growth, with a total value locked of $1.3B, more than $20.7M 24-hr trading volume, and a $124M market cap.

As you would predict, its yield farms are plentiful. There are over 30 liquidity pools with substantial APYs.

The Bottom Line

As with any project, yield farming is laden with risks — ranging from smart contract risks to liquidation and exit scams. DeFi users must be well aware of these risks to avoid preventable losses.

Also, as much as APY is a valid index for assessing a DeFi yield farm, it is volatile and token prices can fluctuate aggressively.

But you are happy to take risks, yield farming may be something for you.

Before you start make sure you have a defi wallet that supports your targeted liquidity pool.

So, Here we go. ONE FINAL STEP BY STEP…

  1. Buy your crypto you want to FARM
  2. Utilize it on one of these platforms and provide liquidity and receive LP TOKENS.
  3. STAKE your LP TOKENS and EARN 30%-500% APY returns.
  4. UNSTAKE your LP TOKENS.
  5. WITHDRAW YOUR LIQUIDITY.
  6. CONGRATS YOU ARE A FRIGIN FARMER.
  7. Repeat.

What Is A Blockchain ?

First off, Do not think of blockchain as an app store where developers can just create and launch their product on it. Although understanding how a blockchain works is complex and confusing, we will discuss the key terms you need to know when learning about blockchain and the functionality between them.

Basics of a blockchain.

Invented in 2008 with Bitcoin, The tech behind blockchain enables digital information (pictures, money transfers, texts, phone calls, etc.) to be distributed, but never copied or altered in anyway. This enables a piece of data to individually have one owner. The beauty of this concept can have a magnitude of applications, especially when it comes to privacy data such as identity or individual wealth. Normally being heard as a “distributed ledger” which is true, the information within the blockchain is constantly reconciled into the database. Meaning the data is pubilc, verifiable, and being stored in multiple locations and updated instantly with anyone who interacts with the blockchain. This makes it extremely difficult to hack due to the decentralized nature of the protocol. Since the data is being stored in multiple locations and exits in multiple locations, the result is hackers can’t determine an IP address to steal precious, valuable data.

Why is it called a blockchain?

The term blockchain is derived from how the technology functions. To break it down simply, A block in the chain, is a record of transactions. Using cryptographic hash technology, each block that is created are chained together, representing the previous block’s transaction data and a timestamp representing its creation on the chain. Once created, the data in any given block can’t be altered unless every block on the chain adheres to the change in the entire chain. Typically blockchains are managed by a peer-to-peer network, being agreed on within the protocol through inter-node communication for verifiable and validated new blocks within the chain.

Benefits of blockchain.

What are the benefits of blockchain and what purpose does it provide? How is it better than current data transfer systems? What are the downsides and compromises? Are people using blockchains or is it just hype? These are the assumptions everyone has when first hearing about Cryptocurrency.

The growth of blockchain intergration by market size has been booming for the past 10 years since its creation and is estimated to grow 1000% – 10,000% in the United States of America alone by the end of 2025. The main reasons for this growth consists of big tech names like Mircrosoft, Apple, Starbucks and even IBM intergrating blockchain technology into their own products to offer to their customers.

Use Case Number 1

Joe is extremely addicted to gardening and wants become a farmer to start selling plants of all kinds. He takes the precious time out of his day to check the temperature of the soil for each individual plant, checks the weather, inspects the moisture content, and organizes his garden strategically to help with plant growth. With so many different plants, soil types and water consumption for those plants, it takes a lot of research and time to figure out his garden for a maximized yield. Blockchain can help Joe’s frustration. With a tracking protocol oriented blockchain such as Vechain (https://www.vechain.com/), Joe can purchase sensors that help manage his plants. Data from his plants (soil type,moisture, root strength, weed formation,etc.) can be recorded on the blockchain along with several other farmers due to its secure decentralized manner. Since the data is secure and is 100% immutable, Joe is able to see his plants growth compared to other farmers. This helps Joe not make make mistakes and helps him get the most out of his plants!

Use Case Number 2

Bjorn is a wealthy man that owns several business in the United States but has family in the Middle East that are poor and can barely afford to live comfortably. Bjorn sends them money every month to help them, but ends up paying high fees in the United States and has to send extra money in his transfer, for the fee that his family has to pay to transfer it out in the Middle East. In addition to the fees, the transfer can take up to 2 business weeks to hit his family’s account. Cross-border payments have been an issue since the beginning of time, and blockchain solves this problem. A cross-border payment oriented blockchain such as Ripple (https://ripple.com/) where XRP can be sent to his family. A transaction through Ripples blockchain, powered by the XRP token, has an average transaction time of 5 seconds and is secured through the blockchain with a one time transaction fee one of $0.002. Bjorn can now send any amount of money seamlessly to his family with no worries or strings attached thanks to blockchain.

Downsides of blockchain.

Although blockchain is a revolutionary technology, just like the internet, it has some disadvantages when compared to other systems that involve data, money, and media. Some things to consider when talking about blockchain are…

  • Blockchains use excessive energy
  • Blockchains are not indestructible
  • Some Blockchains are extremely complex and makes them inefficient
  • Blockchain miners can pool hash power together, compromising the integrity

The chance of attacks on a blockchain and altering its performance are very slim, but the threat of it will always be there… looming in the darkness. Regardless of the few flaws in certain blockchains, it is still one of the greatest upgrades to the internet for seamless peer-to-peer data transfers of all types. Blockchain is here to stay and pave the way for innovation to help mankind.

Although the technology may be confusing at first, it is an extremely crucial mechanism for data transfers that everyone must understand.

Earning Money In Decentralized Finance

The cryptocurrency industry, and consequently the decentralized finance space, have evolved beyond what many initially thought possible. What’s more, a growing number of hedge fund managers, institutional investors, and governments have given the green flag for crypto to thrive. With that said, many are yet to realize cryptocurrency and DeFi’s full potential. Although Bitcoin is hitting the headlines, understanding how to make a passive income with DeFi is often seen as a complex, high-risk endeavor. Read on for an easily understood breakdown of how to make a passive income with decentralized finance!

In this article, we look at some of the most important considerations for deciding how to make a passive income with DeFi. Also, we’ll explore some of the various methods of generating passive income streams and the projects facilitating the DeFi revolution. As such, we touch on some of the most popular DeFi projects, such as UniSwap, Compound, Balancer and much more.

This article comes as another in our ongoing Passive Income series. If you’ve missed our previous entries, see there articles on how to make a passive income with Ethereumpassive income with Cardano, and learn about passive income in crypto. If you want to learn more about the cryptocurrency and blockchain field, we strongly recommend you to check out Ivan on Tech Academy. The Academy is one of the leading blockchain education platforms anywhere in the world, and features countless world-class blockchain and cryptocurrency courses. See which ones suit you! Look at BlockFind Earn for more information!

What Is Decentralized Finance?

To begin with, let’s answer the basic question of “what is decentralized finance”. Decentralized finance (DeFi) is the term used to categorize a broad range of financial applications that utilize cryptocurrency and blockchain technology. DeFi is posed to disrupt traditional financial intermediaries by removing middle-men from financial transactions.

In many ways, human intermediaries, or gatekeepers, have been a burden on financial transactions for many years. While the traditional financial system is fractured and highly inefficient. DeFi allows for value transfer across several complex financial instruments. Crucially, this occurs even with the absence of centralized entities such as legacy banks, and consequently without the control of a single organization or party. This gives users of DeFi greater levels of control and financial freedom. Before the buzzword “DeFi” came about, “Open Finance” was an umbrella term used to describe many of the features within DeFi.

Some of the most common applications in DeFi include lending, decentralized exchanges (DEXs), staking, derivatives, crowdfunding, and insurance. All of these services are made available in DeFi without the need for third-party intermediaries. Instead, DeFi applications are highly automated, and largely rely on smart contracts. You can interact directly with smart contracts to execute trades, token swaps, and much more.

Decentralized Finance on Ethereum

The majority of DeFi applications are built on the Ethereum blockchain, the second-largest cryptocurrency platform. Despite this, however, several other blockchains are emerging that could compete with the DeFi offerings made available by Ethereum. In particular, CardanoEOS, and Polkadot are platforms that are pushing DeFi both outside of Ethereum, and in a way creating  interoperability with Ethereum.

However, there are many good reasons that the majority of DeFi has been built on Ethereum. Ethereum has created a platform that is based around programmable money. As opposed to Bitcoin, which is oftentimes referred to as “Digital Gold”, Ethereum is the technological solution to the unease felt in traditional financial markets. As the global financial infrastructure is in a state of flux, DeFi is reshaping the global economic landscape by bringing permissionless, borderless, open finance to the masses. 

The appeal of DeFi is further compounded by the effects of the COVID-19 coronavirus pandemic. On a worldwide scale, interest rates are flirting with negative returns. Furthermore, unprecedented stimulus packages are devaluing the underlying fundamentals of almost every major fiat currency. DeFi offers a lifeline to those that may have previously been excluded from basic financial services, by offering the same financial tools that are available to everyone.

Why is DeFi So Popular?

Globally, DeFi has created tools for financial freedom. DeFi can be a useful tool for preserving wealth and avoiding harsh capital controls. Furthermore, DeFi platforms allow for fast and cost-efficient remittances outside of the traditional financial system, without KYC.

This is particularly useful for those without access to basic financial services, whether due to a lack of formal documentation, legal status, or because such services are not available locally. DeFi does not discriminate. DeFi promotes financial inclusion by providing access to financial instruments regardless of wealth, status, religion, or geography.

Another factor that makes DeFi so popular is the proliferation of stablecoins. Stablecoins provide a stable price-pegged asset on the blockchain that can be freely traded with other cryptocurrencies. One of the issues with stablecoins is that they are not always reliable. Some stablecoins use algorithms to keep the price as close as possible to $1. However, these valuations can fluctuate, and on occasion, can deviate drastically from their peg.

Stablecoins

Though this is infrequent, it can cause major problems for liquidity providers and yield farmers counting on that stablecoin remaining stable. Thanks to DeFi however, there are now a plethora of different stablecoins available. This means that many DeFi protocols can diversify by creating baskets of several different stablecoins to reduce the risk of such an event. Furthermore, stablecoins are providing the framework for various fintech and traditional banking firms to move into the crypto space.

DeFi also lowers the barrier of entry to participate in derivatives markets and synthetics. By using DeFi platforms like Synthetix, users can gain exposure to all kinds of markets without the need for a broker or other type of intermediary. Want to learn more about DeFi? Join +30,000 students already enrolled in Ivan on Tech Academy, and get 20% off with “BLOG20”.

DeFi For Everyone

Also, DeFi allows users to participate with much smaller investments than are required by many traditional services. As an example of how to earn a passive income with DeFi, an investor could gain access to the price of gold or stocks via the blockchain, without the need for a vault or a brokerage account.

DeFi has attracted the attention of many traditional traders. High yield and volatility are lacking in traditional markets. However, DeFi provides risk to suit every appetite. Trading altcoins is one of the highest-risk investment opportunities available in most markets. However, with correct risk management, trading altcoins can also be one of the most profitable forms of trading. Unsurprisingly, this is attracting attention from traders of all backgrounds. Perhaps one of the most captivating features of DeFi is wrapping services such as renBTC or Wrapped Bitcoin (WBTC).

These services allow Bitcoin hodlers to lock up their assets on an Ethereum protocol and mint ERC-20 tokens that are pegged to the price of Bitcoin. This has brought a wave of new users into the DeFi space. Wrapping services changed the minds of many Bitcoin maximalists about the value proposition of Ethereum. Also, wrapping services have added huge value to the DeFi space by putting idle BTC to work.

Prediction markets have become widely popular in the crypto space thanks to DeFi. The blockchain has created new markets that wouldn’t have otherwise been possible, introducing the concept of prediction markets to a new audience. With DeFi, you can bet on elections, sports, the weather, just about anything!

Although there are many exciting use cases for DeFi, many involve a high level of risk. One of the safest ways to understand the many benefits of this ever-evolving ecosystem is by learning how to earn a passive income with DeFi.

How To Earn A Passive Income With DeFi

UniSwap

One of the easiest ways to learn how to earn a passive income with DeFi is by becoming a Liquidity Provider (LP). Uniswap is a decentralized exchange whereby users can swap ERC-20 tokens directly from a web3 wallet to almost any other ERC-20 token. The key difference between DEXs such as Uniswap and centralized exchanges (CEXs) such as Coinbase and Binance, is that the tokens are made available by liquidity providers.

When making trades on CEXs, fees are paid to the exchange. However, with DEXs such as Uniswap, fees are paid to liquidity providers (LPs). LPs simply deposit an equal USD amount of two tokens, known as a pair, to a liquidity pool. Whenever these tokens are bought and sold, LPs earn a share of the fees generated by the token swaps. 

For anyone hodling idle assets, wondering how to put them to work, providing liquidity to a platform like Uniswap is one of the simplest ways of understanding how to earn a passive income with DeFi.

Maker

Maker is one referred to as one of the founding fathers of DeFi. Considered by many to be the first building block on top of Ethereum, Maker was one of the major catalysts for the surge in DeFi adoption. MakerDAO is a decentralized autonomous organization that governs the Maker platform with the MKR token. Token holders can vote on updates to the protocol and events with the two Maker tokens generated, MKR and DAI. 

Both the governance token MKR and the stablecoin DAI are ERC-20 tokens. DAI is one of the most popular stablecoins used by those who understand how to make a passive income with DeFi. Unlike stablecoins such as USDT or USDC, which rely on a centralized banking service backing the value of the coin, Maker approaches its stablecoin in a decentralized manner. The MKR token is burned in relation to any fluctuations in the DAI price, with holders incentivized to maintain the DAI token pegged to a $1 price. 

The Maker platform offers borrowing and lending services, using smart contracts called Collateralized Debt Positions (CDP). Users can send their ETH to the Maker CDP smart contracts, to receive over-collateralized loans for up to 66% of the collateral value locked. DAI is the most-used decentralized stablecoin across the DeFi ecosystem. Using the Maker platform, you will soon learn how to earn a passive income with DeFi, using the DAI stablecoin in other DeFi applications.

Compound

Compound Finance is a decentralized, algorithmically-operated protocol for the lending and borrowing of cryptocurrencies. The Compound app comprises a sleek user interface and a visualization of the best interest rates for lending and borrowing. 

Compound allows its users to borrow against their crypto collateral, or provide liquidity to the protocol. The interest rates for lending and borrowing are based on supply and demand. Compound has no lock-up period, meaning you are free to add or remove liquidity to pools frictionlessly.

As the name suggests, the idea is to earn interest that can be compounded by providing liquidity. Furthermore, users of the protocol earn the COMP governance token. The COMP token kickstarted the summer of DeFi. As the price of COMP increased dramatically, users began to realize the full potential of DeFi. Compound was catalytic in the birth of yield farming, whereby savvy liquidity providers jump from platform to platform in search of the highest yields possible.

Compound has already been audited and formally verified. Since May 2020, Compound has adopted community governance. Holders of the COMP token and their delegates debate, propose, and vote on all changes to Compound.

Aave

Previously known as ETHlend in the launch of November 2017, the peer-to-peer lending platform rebranded to Aave in January 2020. (Fun Fact: Aave is Finnish for Ghost). Aave is one of the most popular DeFi platforms for its ease of use and sleek interface. Additionally, Aave accepts a wide variety of assets and cryptocurrencies as collateral to use for loans. A bonus for users is being able to withdraw collateral at any time, with no mandatory lock-up period.

The protocol operates a bug bounty program – whereby developers are rewarded for finding any bugs or flaws within Aave’s infrastructure. On top of this, Aave has been through extensive auditing of their smart contracts. These security precautions and policies have radiated confidence to users, and in particular, the introduction of flash loans. 

Flash loans are uncollateralized loans, that conduct all borrowing, lending, and repayment, all within the same transaction. For those new to the crypto industry, flash loans could be a very risky way to discover how to earn a passive income with DeFi. Do your own research, and make sure you understand the premise of a protocol before using it.

Balancer

The Balancer protocol was released in March 2020 on the Ethereum blockchain. Balancer is an automated market maker (AMM) that generates fees for liquidity providers. As a second layer platform built on top of Uniswap, Balancer allows AMMs to combine several assets into a single liquidity pool, even if they are unevenly weighted. 

AMMs facilitate market-making without the need for intermediaries. Instead, algorithms determine the rules of any trades executed on the platform.

Balancer can be viewed as a type of self-balancing crypto ETF. Users can create and manage their own crypto index fund, or provide liquidity to an existing pool. These pools are self-balancing. This means that tokens can be freely exchanged without being removed from any given pool.

One of the key features of Balancer is its Constant Mean Market Maker (CMMM). This allows up to eight different tokens to enter a liquidity pool and be swapped or removed frictionlessly. 

Yearn.Finance

Yearn Finance was developed single-handedly by Andre Cronje. The Yearn.finance protocol is a yield aggregator and DeFi ecosystem that maximizes yields for users of the platform. By using other DeFi protocols such as Curve, Aave, and Compound, Yearn.finance optimizes token lending and gives users the highest annual percentage yield (APY) available depending on their risk tolerance. This is done by locating the best returns for token lending across several platforms. All of this happens under the hood, saving a great deal of time and energy for users seeking optimal returns.

Among the various lending and farming opportunities proposed by Yearn.finance is the yPool on Curve finance. User deposits into the yPool are converted into “yield optimized tokens” (yTokens) including yUSDC, yUSDT, and yDAI. This function enables users to earn lending fees from Yearn but also trading fees from Curve. This is because liquidity is routed to various sectors of the DeFi space through yEarn.

Subsequently, Yearn has provided some of the most impressive rates of 2020. The platform is responsible for some of the largest gains made by yield farmers and is deemed by many to be one of the most innovative DeFi applications on the market. Yearn is also considered to be the most decentralized platform in DeFi. 

Furthermore, thanks to its limited total supply of 30,000 YFI tokens, demand for the platform’s native token is substantial. In fact, the YFI token reached a staggering $43,000 during September and has shown remarkable strength since. At the time of writing, YFI is trading at $28,465 and has recovered considerably from its early November dump.

How To Earn A Passive Income With DeFi Summary

Decentralized finance is a great way to earn extra income, however, there are things to be wary of. Yield Farming protocols are sometimes referred to as “weird platforms”. Perhaps surprisingly, food meme coins like Yam, Pasta, and Sushi can sometimes offer substantial gains. More often than not, however, they are a one-way ticket to Rekt City. Protocols such as these require so much attention to price movement, that you could view this as more of an active, rather than passive income. Also, these projects are often short-lived and benefit only those who can get in early, before the inevitable post-launch dump

IMF’s Call For New Bretton Woods

What is “Bretton Woods” ? Bretton Woods was one of the most important parts of global monetary policy and United States history. Before the first Bretton Woods, in short, Nations had their own money, Had control of their own supply of money, And a nation’s currency was valued based on the amount of gold they had pegged to their currency. Over time, the United States had the highest gold reserves amongst the other countries due to mining and other deals with other countries. Finally, The US Dollar has become the strongest currency. The Bretton Woods Agreement resulted in countries pegging their currencies to the U.S. dollar. In turn, the dollar was pegged to the price of gold, and the U.S. became dominant in the world economy.

The Implications For Deflation

The global elite, predictably, will not let a crisis go to waste.

Back in 1995, as the golfing world was starting to notice the birth of a superstar, the British golfer Sandy Lyle was asked a question by a journalist. “What do you think of Tiger Woods?” was the query. To which Lyle genuinely replied, “I don’t know, I’ve never played there.”

Bretton Woods, a picturesque resort in the state of New Hampshire, does have a golf course, but it is most famous for the 1944 conference at which the international financial order was decided as World War II drew to a close. The Bretton Woods System of international finance, which created the International Monetary Fund (IMF) at its core, lasted only two and a half decades before it blew up, the death knell being when U.S. President Nixon stopped the convertibility between U.S. dollars and Gold in 1971. Since then, monetary inflation has raged throughout the developed world and beyond, creating the biggest debt bubble in the history of humanity.

But just as the 1944 agreement emerged from a global crisis, there are signs that the current crisis might cause another new world order to be born. This speech last week from Kristalina Georgieva, the current IMF Managing Director, titled “A New Bretton Woods Moment,” could be a clue that once the dust settles from 2020’s health and economic crisis, the powers that be might be thinking about a new way of doing things. What might be considered and what will it mean?

Taking it at face value, one might be inclined to think that the IMF wants to move back to a Bretton Woods type of system. Under that process, exchange rates were fixed as was the U.S. dollar to Gold. But hold on: that system proved to be way too much of a constraint for countries, resulting in its demise and the monetary inflation-fest of the past 50 years, as encapsulated in the chart below, accelerating the trend of currency debasement ever since the Federal Reserve was created in 1913. Would countries like the U.S., hopelessly addicted to money creation and debt, agree to such an inflation straitjacket? I don’t think so. If, incredibly, a system like that was agreed to, perhaps with gold having a link again, monetary deflation would become commonplace as countries could not just print money willy-nilly.

But, as Baldrick used to say to Blackadder, someone might have a cunning plan.

John Maynard Keynes, the celebrated British economist, was one of the main architects of the Bretton Woods System. However, his initial plan was rejected. What he had first wanted was that the IMF simply invents a currency for accounting purposes, and he gave it the name Bancor. The idea was that global economic imbalances could all be smoothed out via individual countries borrowing and lending Bancor via the IMF. Rather than having an inbuilt constraint, though, as the final Bretton Woods Agreement did, Keynes’s plan was that there would always be enough Bancor to grease the wheels of global trade and finance, because the IMF would simply create it out of thin air. Essentially, Keynes wanted a global central bank with the ability to print as much “money” as it wanted.

That might be a neat conclusion to the past 50 years of monetary insanity, but the implications for individual countries are unclear. Taking the broad view, though, should something like Bancor or any other monetary system that involves international co-operation develop, the inevitable loss of control of sovereign central banks will probably point to less monetary inflation, not more. (From a socionomic point of view, the possibility of international co-operation at this juncture if our bearish stock market Elliott wave thesis is correct is a pipe dream, but that’s for another story).

Whatever happens to the global financial architecture in the next few years, it certainly is beginning to feel like major change is coming. Stay tuned to EWI and deflation.com to take advantage of that change.

IMFS “New Bretton Woods Moment 2020”

1. Introduction: ‘A sisterhood and brotherhood of humanity’

I first want to thank Dr. Ernest Kwamina Addison for his excellent remarks and contributions as Chairman of the IMF’s Board of Governors.

Reflecting on the dramatic change in the world over the last year, I paid a visit to the Bretton Woods, New Hampshire, where 44 men signed our Articles of Agreement in 1944. Our founders faced two massive tasks: to deal with the immediate devastation caused by the War; and to lay the foundation for a more peaceful and prosperous postwar world.

At the conclusion of the conference John Maynard Keynes captured the significance of international cooperation as hope for the world. “If we can continue…The brotherhood of man will have become more than a phrase”, he said.

As we look forward to welcoming Andorra as our 190th member, the work of the IMF is testament to the values of cooperation and solidarity on which a sisterhood and brotherhood of humanity is built.

Today we face a new Bretton Woods “moment.” A pandemic that has already cost more than a million lives. An economic calamity that will make the world economy 4.4 % smaller this year and strip an estimated $11 trillion of output by next year.And untold human desperation in the face of huge disruption and rising poverty for the first time in decades.

Once again, we face two massive tasks: to fight the crisis today— and build a better tomorrow.

We know what action must be taken right now. A durable economic recovery is only possible if we beat the pandemic. Health measures must remain a priority—I urge you to support production and distribution of effective therapies and vaccines to ensure that all countries have access.

I also urge you to continue support for workers and businesses until a durable exit from the health crisis.

We have seen global fiscal actions of $12 trillion. Major central banks have expanded balance sheets by $7.5 trillion. These synchronized measures have prevented the destructive macro-financial feedback we saw in previous crises.

But almost all countries are still hurting, especially emerging market and developing economies. And while the global banking system entered the crisis with high capital and liquidity buffers, there is a weak tail of banks in many in emerging markets. We must take measures to prevent the build-up of financial risks over the medium term.

We face what I have called a Long Ascent for the global economy: a climb that will be difficult, uneven, uncertain—and prone to setbacks.

But it is a climb up. And we will have a chance to address some persistent problems — low productivity, slow growth, high inequalities, a looming climate crisis. We can do better than build back the pre-pandemic world – we can build forward to a world that is more resilient, sustainable, and inclusive.

We must seize thisnew Bretton Woods moment.

2. Building Forward: Three Imperatives

How? I see three imperatives:

First, the right economic policies. What was true at Bretton Woods remains true today. Prudent macroeconomic policies and strong institutions are critical for growth, jobs, and improved living standards.

One size does not fit all—policies must be tailored to individual country needs. Support remains essential for some time—withdrawing it too early risks grave and unwarranted economic harm. The stage of the crisis will determine the appropriate shape of this support, generally broader early on and more targeted as countries begin to recover.

Strong medium-term frameworks for monetary, fiscal and financial policies, as well as reforms to boost trade, competitiveness and productivity can help create confidence for policy action now while building much-needed resilience for the future.

That includes keeping a careful watch on risks presented by elevated public debt. We expect 2021 debt levels to go up significantly – to around 125 percent of GDP in advanced economies, 65 percent of GDP in emerging markets; and 50 percent of GDP in low-income countries.

The Fund is providing debt relief to its poorest members and, with the World Bank, we support extension by the G20 of the Debt Service Suspension Initiative.

Beyond this, where debt is unsustainable, it should be restructured without delay. We should move towards greater debt transparency and enhanced creditor coordination. I am encouraged by G20 discussions on a Common framework for Sovereign Debt Resolution as well as on our call for improving the architecture for sovereign debt resolution, including private sector participation.

We are there for our member countries—supporting their policies.

And policies must be for people my second imperative.

To reap the full benefits of sound economic policy, we must invest more in people. That means protecting the vulnerable. It also means boosting human and physical capital to underpin growth and resilience.

COVID19 has underscored the importance of strong health systems.

Rising inequality and rapid technological change demand strong education and training systems—to increase opportunity and reduce disparities.

Accelerating gender equality can be a global game-changer. For the most unequal countries, closing the gender gap could increase GDP by an average of 35 percent.

And investing in our young people is investing in our future. They need access to health and education, and also access to the internet—because that gives them access to the digital economy – so critical for growth and development in the future.

Expanding internet access in Sub Saharan Africa by 10 percent of the population could increase real per capita GDP growth by as much as 4 percentage points.

Digitalization also helps with financial inclusion as a powerful tool to help overcome poverty.

Just as the pandemic has shown that we can no longer ignore health precautions, we can no longer afford to ignore climate change—my third imperative.

We focus on climate change because it is macro-critical, posing profound threats to growth and prosperity. It is also people-critical and planet-critical.

In the last decade, direct damage from climate-related disasters adds up to around $1.3 trillion. If we don’t like this health crisis, we will not like the climate crisis one iota.

Our research shows that, with the right mix of green investment and higher carbon prices, we can steer toward zero emissions by 2050 and help create millions of new jobs.

We have an historic opportunity to build a greener world—also a more prosperous and job-rich one. With low interest rates, the right investments today can yield a quadruple dividend tomorrow: avert future losses, spur economic gains, save lives and deliver social and environmental benefits for everyone.

3. The IMF’s Role

At the Fund, we are working tirelessly to support a durable recovery— and a resilient future as countries adapt to structural transformations brought on by climate change, digital acceleration and the rise of the knowledge economy.

Since the pandemic began, we have committed over $100 billion—and we still have substantial resources from our $1 trillion in lending capacity.

We will continue to pay special attention to the urgent needs of emerging markets and low-income countries—especially small and fragile states, helping them to pay doctors and nurses and protect the most vulnerable people and parts of their economies.

Our unprecedented action was only possible thanks to our members’ generous support. The doubling of the New Arrangements to Borrow and a new round of bilateral borrowing arrangements preserves this financial firepower. Members have also stepped up with essential contributions to our Catastrophe Containment – and Relief and Poverty Reduction and Growth—Trusts.

This has allowed us to support our low-income members with debt relief and to triple our concessional lending. We are engaging with members to further boost our concessional lending capacity adapt our lending toolkit and increase support for capacity development.

IMF staff, working day and night, have been magnificent in this crisis. My sincere thanks to them and my Management team.

My deep appreciation also to our Executive Directors – they have been there every step of the way over the past six months.

Breaking Down ETH 2.0 And Scalability

As you are probably aware, we are on the verge of an Ethereum revolution, colloquially known as ETH 2.0. This upgrade is going to bring in a lot of innovations to the popular Ethereum protocol.

We have covered two of the most significant changes – Casper and Sharding – in detail before. In this guide, let’s cover another exciting innovation that is going to give the overall scalability a significant boost – Ethereum layer-2 scaling.

Ethereum layer-2: Solving the scalability problem

Numerous sources have very extensively documented Ethereum’s scalability problems. Decentralized cryptocurrencies are inherently non-scalable due to their design issues. Ethereum does around 25 transactions per second, which is pretty abysmal but still marginally better than Bitcoin, which can only do seven transactions per second. 

This low transaction throughput happens because of the amount of time it takes to validate and put in a transaction within the block. 

Design problems of Ethereum

The transaction validation and fulfillment process is extremely sequential in Ethereum. For example:

  • If you want to send someone 1 ETH, it will first have to wait in the mempool.
  • Following that, the miners pick up the transaction from the mempool and verify the validity of the transaction.
  • After that, they put the transactions in the block.
  • In Ethereum, a block gets mined every 15 seconds, Meaning every transaction requires 15 seconds to be validated.

Now, these are just theoretical mechanics. We still haven’t even considered the “gas” factor. Long story short, “gas” is a metric used to decide how much fees it would take to execute a particular transaction. These gas fees are collected by the miner, who then proceeds to add the transaction. This is where we hit our next bottleneck.

The gas problem

The chart above shows the average gas price since November 2019. While the average price is pretty consistent, there are some noticeable spikes in price. This is noteworthy because you need to put in a certain amount of gas within your transactions to incentivize miners to put them inside their blocks. This is why wealthier users can bloat their transactions with high gas fees and get more preference from the miners. 

Hence, if you just pay the standard gas price, your transaction can take anywhere between 15 seconds to 5 mins to process a transaction.

Orphan block rate

Orphan blocks are empty blocks in the blockchain that contain no data whatsoever. Some of the best mining pools in Ethereum also end up having a 1-2% orphan block rate. These empty blocks create an extra time lag on our transactions, which reduces the probability that they will be included in a block. As a user, the worst part about this experience is that your transaction can get delayed for factors entirely outside your control.

Ethereum Layer-2 Protocol: Scaling things up

The lack of scalability is the biggest obstacle for mainstream adoption. After all, why will people opt to transact with cryptocurrencies when they can’t enjoy instant fulfillment. This also makes it highly impractical for microtransactions. Eg. Imagine that you have an agreement with your milkman wherein you pay them 25 cents for each liter of milk delivered every single day. Now, let’s say that you want to make your relationship completely digital and make the payments only with cryptocurrencies. This will be a problem because the gas fees associated with each microtransaction will make it highly impractical.

There is another big issue we must consider.

The underlying Ethereum blockchain isn’t well-equipped to handle high-value smart contracts. In fact, we have seen this play-out first-hand with the cryptokitties fiasco. The cryptokitties game became so popular that the underlying blockchain simply couldn’t cope with demand. As such, Ethereum got bloated, and the number of pending transactions went through the roof. 

ETH Layer 2: Difference between layer 1 and layer 2

So, as you can imagine, we needed to resolve the scalability issue as fast as we possibly can. The crypto community as a whole is working on two schools of techniques – layer 1 and layer 2. 

  • Layer 1: These are techniques that work in the base-layer of the blockchain itself. Eth 2.0 will be bringing in layer-1 scalability with sharding.
  • Layer 2: Techniques that work on top of the underlying chain are ETH layer 2 techniques. 

Ethereum Layer-2 Protocol: Why use it?

One of the biggest problems that Bitcoin and Ethereum face is blockchain bloat. As more and more users enter the crypto space, the number of transactions fulfilled is only going to go up. This will bloat the blockchain, making it harder for individual nodes to download and maintain the whole chain. As such, nodes will need to invest in expensive hardware to store the extra data. 

One possible solution here to increase the block size itself. However, the block size debate can get very long and drawn out, splitting up the community in the process as we have seen with the Bitcoin and Bitcoin Cash. 

This is why ETH 2.0 is looking to delegate more complex operations to layer 2 protocol, keeping the base blockchain as activity-free as possible. Ethereum layer-2 scalability can be achieved with the following methods:

  • Raiden.
  • Plasma.

Raiden: ETH layer 2 protocol

Raiden is similar to Bitcoin’s lightning network in the sense that they are HTLC state channels as well. You can think of state channels as a two-way communication channel between users. This allows the network to conduct standard on-chain transactions, off the chain. This is especially helpful for microtransactions since it gives users a way to conduct these without having to commit each and every one of those to the blockchain 

Now, this brings us to the next question…

Ethereum layer-2 with off-chain state channel: How does it work?

  • A piece of the blockchain’s state is locked up and segregated by a smart contract or a multi-signature.
  • The conditions governing these state channels are pre-agreed upon by the participants.
  • The participants directly interact with each other without having to submit anything to the miners in the interim.
  • The condition which dictates when the channel closes can either be time-lapsed (the channel closes after one hour) or total transaction completed (channel closes only after $50 worth of transactions have been completed).

Ethereum Layer-2: How do HTLCs work?

While there are many kinds of state channels out there, the most common form happens to be hashed timelock contracts (or HTLCs). HTLC allows users to transact directly with each other before a pre-agreed deadline by submitting cryptographic proofs.

So, how does your general HTLC transaction work? Let’s take a look. Imagine Alice and Charlie want to transact with each other, through their shared connection in Bob.

  • Bob opens a channel with both Alice and Charlie. Alice and Charlie both want to interact with each other.
  • Charlie declares a random number X and generates its hash X’. Charlie then sends over the hash X’ to Alice.
  • Alice sends over 0.2 ETH to Bob with the condition that she will unlock the fees only if someone sends over a number, which on hashing gives X’.
  • Bob hands over the funds to Charlie using the same condition. 
  • Charlie hands over the number X to Alice, she then proceeds to unlock the funds for him.

Looking into Raiden

Raiden is an Ethereum layer-2 solution. Unlike the Lightning Network, Raiden isn’t just a simple payment channel. You can transfer smart contract details, as well. As per Brainbot, the company behind Raiden, says that Raiden will be a mesh-like structure laying on top of Ethereum. 

ETH Layer 2 Raiden: Advantages

  • It allows users to conduct microtransactions.
  • Enables Ethereum to scale up significantly.
  • It can be used to send any ERC20 token.
  • Reduces blockchain bloat
  • Raiden’s native token is RDN.

Plasma: Ethereum Layer-2 protocol

Trust us when we say this, that meme is so accurate that it is scary. Plasma is a network of blockchains built on top of the base root blockchain. To paint yourself a mental picture, think of the main chain as the root of a tree, and the plasma chains as the branches.

Image credit: Hackernoon

Rules of the root chain

  • The root chain puts down the law for the entire network. The plasma chains are solely responsible for all the calculations that take place within the network. Following that, they commit the final results to the root chain, where it becomes the undisputed truth.
  • The root chain only comes into play for dispute resolution. 
  • For the root chain to be the base of the entire system, it should be as devoid of regular calculations as possible.
  • In the case of Ethereum, The Ethereum blockchain is the root chain.

ETH 2.0 Plasma Structure – The Court Structure

Following is how a normal court structure works:

Image Credit: Duke Law

So, in our typical court structure, the Supreme Court acts as the root chan, while your Criminal and Civil courts serve as the plasma chains. Each of these plasma chains has its own plasma chains. So, now think about how the whole structure works:

  • If you want to bring up a civil lawsuit, you usually shouldn’t be able to go directly to the Supreme Court.
  • You will first have to go to the County Courts. After that, you eventually move up the ladder, depending on your unhappiness with the final results.

ETH layer 2 scaling: Plasma design goals

Plasma was formulated by Ethereum co-founder Vitalik Buterin and Lightning Network co-founder Joseph Poon. The design goals of plasma are as follows:

  • As stated multiple times before, the main chain is the root blockchain that puts down the law of the land. The root chain doesn’t interfere with the daily activities of the plasma chain. Except in the event of disputes.
  • Like the root chain, the plasma chains have to produce a trustless environment as well.
  • The individual plasma chains should be as scalable as the root chain to cope with increasing demand.
  • They should also be compatible with scalability techniques like raiden and sharding as well.
  • Conducting localized computations is critical for the success of this project. This is why these plasma chains should be well-equipped to perform calculations on their own.
  • In the event of a dispute, a user in the plasma chain can send a verifiable proof-of-fraud to the root chain.
  • Every plasma chain can integrate its own unique governance rules and consensus protocols.

Ethereum Layer-2 Plasma: MapReduce

Now, let’s look at how the whole system works. MapReduce is a very well-known programming model that allows you to process and create big data sets via a parallel, distributed algorithm. As the name suggests, there are two parts to MapReduce:

  • Map: A large dataset is divided and delegated to different entities, who then solve it in parallel.
  • Reduce: The entities answer the queries, creates a summary of their findings and hands it back. The summaries are collated, and a final master summary is created to present a solution to the initial data set.

To understand how this works, let’s take an example. Alice needs to submit a report on how Ethereum works. She hands the article over to Bob. Bob then assigns Charlie, David, and Eric specific tasks. Charlie needs to write on how mining works, David has to show how Ether’s tokenomics works, while Eric has to come up with a future projection for Ethereum.

This is how this process works from the POV of Map/Reduce.

Map:

  • Alice hands over the writing task to Bob.
  • Bob assigns individual tasks to Charlie, David, and Eric.

Reduce

  • Charlie, David, and Eric compile their summaries and hand it over to Bob.
  • Bob collates the summaries and hands over the final result to Alice.

Finally, let’s see how Map/Reduce works in the context of blockchains and plasma.

Image Credit: Trust Nodes.

Map:

  • The Plasma chain in tree depth 1 gives a task to Plasma chain 2.
  • Plasma chain 2 proceeds to delegate portions of the tasks to different plasma chains in level 3.

Reduce:

  • Level 3 plasma chains compute and return the summarized version of their findings to plasma 2 in the form of Merkelized data.
  • Plasma 2 receives the final data, collates it, and sends the ultimate Merkelized data back to chain 1. 

Ethereum Layer-2 Protocol Plasma: Dispute Resolution

Finally, let’s look at one of the essential aspects of plasma chains – dispute resolution.

Let’s look at the following diagram to understand how it potentially works.

  • Imagine that Alice has 1 ETH in plasma block 3 but doesn’t have it in block 4.
  • She feels that the person in charge of that block is malicious in nature and has handed over her ETH to someone else.
  • The plasma smart contract empowers her to send a Fraud proof to the root chain for dispute reporting.
  • The root chain checks the validity of the proof. If it’s valid, they roll-back the plasma block 4, and reverts the state of the plasma chain back to block 3.
  • The creator of plasma block 4 gets suitably penalized.

To get a diagrammatic version of this incident, look at the following image:

ETH Layer 2 plasma chains: Possible use cases 

  • PayPal, one of the most famous payment processors in the world generates 5M txns/day. Ethereum can barely do a million (~945,942). Plasma can exponentially boost up this number by enabling faster and cheaper transactions. Plasma can even integrate with existing DeFi protocols to create newer financial offerings.
  • Remember that plasma chains can operate by their own rules and are interoperable. As such, the plasma chains can operate via laws that help in the facilitation of enterprise blockchains.
  • Enterprises can use plasma to scale up and transparently trace the ownership of assets right to its origins. Plus, they can also control the modularity and access controls on the plasma chain to ensure that the data’s privacy is maintained.
  • The core nature of supply chains is extremely opaque and cross-border payments can be a pain. By using plasma, enterprises will have the ability to digitize royalty payments and send them over to the appropriate party at very low costs.
  • Banking the unbanked: OmiseGo, An Ethereum-based dApp, is the primary organization working on plasma implementation and plans on banking the unbanked. A staggering 2 billion people around the world don’t even have a bank account. In fact, a study done by McKinsey shows that reaching the unbanked population in ASEAN could increase the economic contribution of the region from $17 billion to $52 billion by 2030. Low-cost, interoperable, and scalable chains like Plasma can help mitigate this crisis.
  • Bond Brand Loyalty released a report, where it was stated that nearly a $100 billion has been left unclaimed in loyalty points. Using the plasma chains, one can transfer their unclaimed loyalty points to other payment channels to redeem it in other forms.
  • Stablecoin projects will have the ability to interact with and siphon in liquidity from tokens across different networks via plasma.

Decentralized exchanges with Ethereum Layer-2 scaling

Decentralized exchanges can benefit immensely from Plasma integration. Let’s take a look how:

  • Plasma also allows for the creation of high-throughput decentralized exchanges (DEXs). DEXs can use plasma to scale their settlement by an exponential amount. With the increase in speed, Plasma integration can also allow users to conduct trades with significantly low fees.
  • Plasma enables exchanges to pool their liquidity into one consolidated and decentralized sidechain, which in turn empowers them to run with less on-chain data.  
  • Staying on the DEX topic, Plasma facilitates cross-chain interoperability for DEXs. This means that DEXs can use Plasma to create new trading pair offerings and decentralized business models.
  • With plasma and SNARK integration, DEX can support Dark Pool Exchanges. These exchanges are the ones where users have no clue of what the order book looks like. This prevents arbitrage or any other form of front-running attacks.

Ethereum Layer-2 Conclusion

With layer 2 integration, ETH 2.0 will enjoy immense scalability and interoperability. As mentioned before, scalability and interoperability are the two most significant pain points in the crypto space. With Ethereum layer-2, developers have the rare opportunity to kill two birds with one stone. Plus, the sheer number of use cases and utility that Raiden and Plasma will bring in is significant, to say the least.

Do you want to know more about how Ethereum 2.0 works? Do you want to know about how the blockchain in general works? If yes, then do check out our blockchain courses. We have the absolute best resources in the world that will give you all that you need to educate you and make you extremely proficient in this space.

DISCLAIMER: Posts are not conducted by BlockFind and does not resemble ownership

What Is Mining ?

Most people in today’s society have heard of either cryptocurrencies in general, or at least Bitcoin specifically. The crypto market keeps growing, and as of 2020, crypto awareness is arguably bigger than ever before. Along with this surge in public interest, people are also starting to open their eyes to the technology behind cryptocurrencies such as Bitcoin. The fundamental technology for cryptocurrencies is blockchain, and this is an essential cog in the crypto machine. 

However, even though there’s a large number of people aware of what Bitcoin is, there are still many people who do not know how Bitcoin works or where Bitcoin comes from. Put simply, the process of creating Bitcoin relies on something known as crypto mining, and in this article, we are taking a look at what Bitcoin mining is.

If you feel that you want to learn more about the crypto fundamentals, such as crypto mining, we highly encourage you to enroll in some of the courses available on Ivan on Tech Academy. To mention just a few, the course on the history of money and Bitcoin, as well as the crypto for beginners course, are both excellent starting points!

What are Bitcoin and Crypto?

So, to fully understand what Bitcoin mining is, we must first understand what crypto is. A lot of people already know what cryptocurrencies are, but there are still some people unfamiliar with the basic concept.

Cryptocurrencies, such as Bitcoin, are predominantly known for being virtual currencies. Consequently, they represent a form of virtual medium of exchange which effectively allows users to make financial transactions online. In 2009, an anonymous person known as Satoshi Nakamoto first launched Bitcoin, which has since gone on to become the most well-known cryptocurrency. 

One of the most important differences between regular fiat currencies and cryptocurrencies is the fact the crypto is decentralized. This means that there is no central authority in the mix that can meddle with or control the system. Since no single person or entity has the power to take control over or rig the system, it also means that the risk for structural fraud is significantly lower.

Blockchain technology is famously the technology underpinning Bitcoin, and Bitcoin subsequently relies on this technology to fully function. Cryptocurrencies use functions known as ”cryptographic functions”, which are also a vital aspect of crypto. Moreover, these functions ensure that the information regarding transactions cannot be falsified. Such cryptographic functions are used to ensure that transactions in the system take place and are recorded.

Once a transaction is made and validated, this information is then stored permanently in a block, hence the name “blockchain”. Whenever a new transaction is made and verified another block forms, containing information confirming the new transaction. Furthermore, when a new block is formed, the new block will contain the cryptographic signature of the previous block, and this signature is known as a hash. Once a transaction is validated and the block forms, it can not retroactively be changed. This ensures that the record is clear and the so-called hash validates everything, ensuring that no one can tamper with the information stored on the blockchain.

What is Bitcoin Mining?

As such, you might be wondering – “where does Bitcoin come from?”. There is more than one way to acquire Bitcoin – some are easier, and some are harder. One easy way is simply to buy Bitcoin using fiat currency. However, the process of purchasing Bitcoin might be complex for people without any technical background. It is also possible to buy Bitcoin using other cryptocurrencies such as Ethereum, and this can be done on a decentralized exchange.

Another way to acquire Bitcoin is to find an employer that pays salaries in the form of Bitcoin. This is not common at all, but there are companies out there that have made the transition of paying their employees in cryptocurrencies. Additionally, although these methods would both allow you to get your hands on Bitcoin, it does not explain where Bitcoin comes from.

To get back to the core of this article, therefore, we are going to take a look at how to create Bitcoin. The crypto-world refers to the process of creating Bitcoin as crypto mining or Bitcoin mining. The term “Bitcoin mining” actually comes from the traditional world of mining since this process somewhat resembles the mining of other metals and commodities. It requires resources and time, and it slowly creates new units – or coins – that anyone mining can take part of. There is also a fixed, or finite amount of Bitcoin out there, and at one point it will be impossible to mine more. This similarly resembles that of, for example, gold or other natural resources which also only exist in finite amounts.

The main reason that Bitcoin mining exists is as an incentive for people to become part of the network to govern, support, and legitimize the system as well as the blockchain. This process is done by a large number of people which means that no single entity controls the system, and this ties back to the decentralized nature of crypto. The miners then receive their compensation for helping out with this process in newly mined Bitcoin.

If you want more basic information about Bitcoin and crypto before diving into Bitcoin mining, Ivan on Tech Academy has got the courses for you. More than 20,000 people are already enrolled in Ivan on Tech Academy, and the Academy keeps producing real-life success stories. Sign up for blockchain courses and get 20% off with the special discount code BLOG20! 

So what do Bitcoin miners do?

In technical terms, Bitcoin miners act as “auditors” for the transactions made on the Bitcoin blockchain. They verify previous Bitcoin transactions and the point of this is to keep the users of the system honest. One of the functions that the miners have is actually to prevent the problem of double spending. 

Double spending means that one user makes a transaction using the same funds twice. In traditional fiat systems, this is not an issue since the money actually has physical form. If someone takes $2 and buys a bottle of Coca-Cola, they exchange the physical cash and receive the bottle; this means that they are no longer in possession of the two-dollar bill.

However, there is the potential risk that someone makes a copy of a digital token such as a Bitcoin and tries to spend the same amount twice. Nevertheless, this is also a problem when it comes to fiat money. If someone has a two-dollar bill and makes an exact copy of that bill, they would have the same serial number, meaning that one of the bills has to be false. So merely by looking at the serial number of a bill, someone can determine if it is a copy or not. 

In the Bitcoin system, it is actually the miners that solve this problem. They check transactions to make sure that someone has not spent the same Bitcoin twice. However, this process is, unfortunately, a bit more complicated than it might first sound.

Bitcoin mining conditions

To earn Bitcoin as a miner, two conditions must be met. The first condition is that you will have to verify or validate blocks of 1 MB worth of transaction data. Once someone has verified 1 MB of data, they are eligible to earn a reward in the form of Bitcoin. However, it’s worth mentioning that this 1 MB size cap has become somewhat of a controversy in the community. Some people argue that this block limit is too small, since bigger blocks would mean that the system can process more transactions faster.

Nevertheless, a block of 1 MB of data does not have a set amount of transactions included; it can actually vary. It all depends on how much data each transaction is included in the 1 MB block. Sometimes this could just be one transaction (even though this would be unlikely), meanwhile other times it can be thousands of transactions.

However, once someone has verified 1 MB worth of transactions, they are only ELIGIBLE to earn Bitcoin, it is not a guarantee of a pay-out.

This brings us to the second condition that needs to be met. To earn Bitcoin, the miner must also be the first person to solve a numeric problem. In the crypto community, this is more well-known as “proof of work”.

What is Proof-of-Work?

So, some of you might have heard that this numeric problem, or “proof-of-work”, involves performing challenging mathematics or computations, but this is not entirely true. What the miners are trying to do is come up with a 64-digit hexadecimal number, and which is something better known as a “hash”. Moreover, this hash has to be equal to a target hash. This means that miners are only trying to guess and match the targeted hash.

This might actually not sound too bad, but since it is guesswork and it is actually of a 64-digit hexadecimal number, there are actually trillions of guesses that need to be made. This means that in order to solve one of these problems, someone needs a lot of computing power. So to mine, you need to have a high ”hash rate” which measures how many megahashes per second that a system can process.

How Does Bitcoin Mining Work?

Aside from “auditing” or simply validating the system in exchange for compensation, Bitcoin miners also serve another critical function. They are still also the reason that new Bitcoin can enter the market. The miners are basically minting new currency, which means that they are the ones responsible for creating new Bitcoin.

At the moment, there are currently just above 18.5 million Bitcoins in existence, and there are approximately 900 new Bitcoins issued every day. However, as mentioned earlier, there is a cap on how many Bitcoins that can exist, and this cap is 21 million. At the rate that Bitcoins are created (taking into account that Bitcoin rewards decrease over time) the last coin will be minted sometime around 2140.

Another interesting number is how many Bitcoins are ultimately lost, and end up being inaccessible. This number could be roughly 3 – 4 million, but this is just a qualified guess. It is hard to calculate the exact number, but it’s possible to speculate based on how long the funds have sat in specific addresses.

How much can you earn from Bitcoin mining?

At the beginning of Bitcoin, in 2009, the verification and proof of work for each block would earn someone 50 BTC per block. However, this halves roughly every fourth year, meaning that in 2012 – 2013, successfully mining one block would result in 25 BTC. This trend has been almost the same meaning that in 2016 one block could result in 12.5 BTC. As of now, in 2020, verifying one block will result in about 6.25 BTC following the Bitcoin halving

Although mining just a few Bitcoin coins might seem like a small reward, taking the price of Bitcoin into account makes these sums a lot larger. The current price for a Bitcoin reaches $10,755.46, meaning that verifying one block and providing the proof-of-work would result in a payday worth almost $70,000.

These numbers might indicate that the potential for mining Bitcoin is vast, however, this is not the case. The time and resources it takes to mine Bitcoin are huge, and so is the starting investment. The time estimation for mining one Bitcoin is almost 30 days, and the computing power that you need is huge. This also means that the costs for electricity and the hardware/software needed will eat up most of your profit.

Proof of Work vs Proof of Stake

The process of mining cryptocurrencies is resource-intensive, and an alternative to proof of work is proof-of-stake, or “staking”. Staking takes up significantly fewer resources than mining, which makes it a more affordable way of earning money on crypto.

The act of staking revolves around holding cryptocurrencies in a wallet and receiving a reward from this process. This can be done by staking coins directly from a crypto wallet, if the wallet provides that service. Another option is using an exchange that might offer this function.

To understand staking, we must first define what Proof-of-Stake is. Proof of Stake is similar to that of proof of work. The idea behind proof of stake is that people lock (stake) their coins at a specific interval. Then, a protocol assigns someone the right to validate a block. The assigning process is random, but staking more coins enhances the chance of becoming the validator. This means that proof of stake is an alternative method for validating blocks, meaning that we can create coins without having to rely on proof of work.

The most significant benefit of staking is that it does not require the proof of work to validate a block. This means that there is no need to solve the hash-problems, which are resource-intensive. We might therefore be able to conclude that staking is a cheaper and less resource-intensive alternative to mining crypto. This means that more people can participate in the governing of cryptocurrencies. It also means that they can make passive income by simply holding on to their coins.

Nevertheless, Bitcoin uses “proof-of-work” in order to be mined. If you want to learn more about Bitcoin mining, blockchain, and staking, feel free to join the number one blockchain education platform at Ivan on Tech Academy for numerous crypto and blockchain courses. Join the crypto industry today! Follow our newsletter to stay up to date !

Can You Retire Off Of Bitcoin And Cryptocurrency ?

With recent uncertainty in the media about the stock market and gold prices, rumors of an upcoming crash, the worst since The Great Depression, and money being printed in the trillions, more and more, people are looking at options to retire with Bitcoin. With so many options ranging from trading, yield farming, interest bearing accounts and of course, dollar cost averaging. The possibilities of securing your wealth and growing it exponentially through cryptocurrency can be hard to understand.

In this article, we breakdown the basics of how and why people would choose to retire with Bitcoin and the safest ways of doing so.

U.S. Debt Clock

The U.S. Debt Clock is a website that displays a breakdown of real-time debt and liabilities of the United States of America, different departments, and averages of the amount of debt per citizen and per taxpayer. The debt is split between ‘government’ debt, approximately $7 trillion, and ‘public’ debt, which is around $19 trillion.

At the time of writing, the total debt amounts to more than $26.5 trillion, increasing by $1 million approximately every 20 seconds.

To put this into perspective, 1 million seconds ago was 11 days, 13 hours 46 minutes, and 40 seconds. 1 billion seconds ago is just over 31 and one-half years. 1 trillion seconds hasn’t even been recorded yet since the time of civilization. 1 trillion seconds ago would be back more than 31,688 years, around 29,679 B.C., roughly 24,000 years before the earliest civilizations began to take shape. This website is an incredible insight into the amount of debt in a lot of different countries, but only shows the detailed breakdown of where debt lies, in the U.S.

US DEBT

Why People Are Looking To Retire With Bitcoin

In the past, when citizens have turned away from fiat currency to store their wealth, they have turned to gold. Bitcoin is sometimes be referred to as ‘digital gold’, for the similar properties they both hold.

However, as exemplified several times over history, gold can have its drawbacks, namely the limitations around the possession of the precious metal. In 1933 the U.S. announced citizens must surrender their gold or face a hefty fine or imprisonment. In 1959 Australia put a law in place that allowed gold seizures from private citizens if “expedient to do so” to protect the currency of the Australian Commonwealth.

In 1966, the U.K. passed a law making it illegal for anyone to own more than 4 gold coins and closed off private gold imports. This was only temporary before the ban was lifted in 1979.

In addition to government intervention, gold also can be difficult in terms of physical practicalities, for example, the purchasing and storing process.

There are a couple of gold brokers online where you can purchase a chosen amount of weight in gold and have it delivered to your doorstep. It is then your responsibility to securely store this precious metal in your own safe or other means available.

Oftentimes, this isn’t the case. A lot of people feel vulnerable holding gold and therefore turn to services from others to store their wealth for them. More often than not, people who ‘purchase’ gold, never physically see it, but will hold a certificate of authentication which can be exchanged for gold at any time should they wish.

Bitcoin is gold alternative…

One of the main reasons people feel comfortable to retire with Bitcoin is because they have true, full ownership of their digital assets, that cannot be seized by governments.

There have been a few countries around the world, such as India and Russia, that have banned the use of Bitcoin and cryptocurrency within their borders. However, citizens are still able to purchase and access their Bitcoin funds online using a VPN (virtual private network and, although they may be unable to transact crypto withina their country, citizens still have a borderless store of wealth that can be used in millions of other places around the world.

Bitcoin is the easiest store-of-value asset to cross borders and travel the world with, as it is simply code that can be accessed anywhere with an internet connection.

Another reason people are looking to retire with Bitcoin may be due to the rumors of Bitcoin becoming the new world reserve currency.

Bitcoin 401ks

There is an increasing demand for people looking to retire with Bitcoin, with people of all ages looking to purchase Bitcoin now and keep in a pension fund to access at some point later in life. Bitwage, the cryptocurrency payroll giant, has partnered with the most regulated exchange on the market, Gemini, to offer users in the U.S. a Bitcoin 401k, that allows employees to contribute to a fund from their salary alongside employer contribution.

The U.S. government Payment Protection Program means that businesses receiving financial support loans must spend at least 75% of their funds of employee payrolls, for businesses to receive 100% loan forgiveness as authorized by the federal authority of Small Business Administration (SBA). Fortunately, the employer retirement contribution is counted towards the 75% payroll expenses. This means that currently, businesses are incentivized by the government to offer healthier contributions to pension funds and 401ks.

Bitwage offers a custodial service through the Gemini wallet for employees to access pre-tax and post-tax Bitcoin contributions to a Bitcoin 401k.

According to the Bitwage website “a traditional 401k allows pre-tax dollar investments with deferrals on income taxes until withdrawal and a Roth 401k allows post-tax dollar investments with no tax obligations on capital gains for qualified withdrawals.” Bitwage can cater to both.

Institutional Companies In Cryptocurrency

In the past 6 months, cryptocurrency and the tech that surrounds it has been being adopted at a parabolic rate. Many issues revolving around the current infrastructure of the internet dealing with personal data being exposed to hackers globally, cloud computing storage being manipulated and precious data being lost and of course over-seas money transfers to people who need it taking days and costing a fortune, the dawn of blockchain is among us. This article will take a deep dive into why companies are looking to cryptocurrency and blockchain to increase their companies stability.

Grayscale

At Grayscale Investments, they believe investors deserve an established, trusted, and accountable partner that can help them navigate the gray areas of digital currency investing. That’s why they are building transparent, familiar investment products that facilitate access to this burgeoning asset class, and provide the springboard to invest in the new digital currency-powered “internet of money.” They decided to take blockchain adoption into their own hands and make it accessible to any big wall street honcho diversify their portfolio through ETF’s through their company.

The Grayscale Bitcoin Trust launched its TV advert in August and was quickly followed by an unhappy Crypto Twitter community, with the advert showing “technical flaws and an ambiguous message”, with Decrypt explaining crypto enthusiasts were not impressed.

Still, though, the advert certainly did its job with Grayscale bringing in $217 million within a week of the ad launch. The Grayscale Bitcoin Trust GBTC currently holds 2% of the circulating supply of Bitcoin, with estimates to be at 3% by 2021. These percentages do not take into account lost coins. In addition, GBTC has since created the Grayscale Ethereum Trust (ETHE), with plans to set up and create all ten of its cryptocurrency investment vehicles into “publicly traded assets, then turn each of those into SEC reporting companies” according to Grayscale Managing Director Michael Sonnenshein in an interview with Forbes.

Fidelity Digital Assets

Fidelity Digital Assests envisions a future where all types of assets are issued natively on blockchains or represented in tokenized format. It all begins with a full-service, enterprise-grade platform for securing, trading, and supporting investments in digital assets. They offer custody products, great institutional grade security, and a service team available to answer questions od high networth investors within the space.

A further breakdown of results shows that 74% of U.S institutional investors find cryptocurrency appealing, on the other hand, 82% of European investors do. Interestingly, 25% of European institutional investors find the reason that certain digital assets are “free from government intervention” to be the reason for the appeal, whereas this number is 10% for U.S participants. An encouraging average of 36% (27% in the U.S. and 45% in Europe) of those who completed the survey are already invested in cryptocurrency, with only a shy 11% invested in Ethereum.

Key mentions for not being in the crypto space were ‘price volatility’ as the main reason- 53% of respondents chose this answer, with “lack of fundamentals to gauge appropriate value.” being voted for by 45% of investors.

Microsoft

In 2020, Microsoft announced creating a patented design for a “cryptocurrency system using body activity data” with the World Intellectual Property Organization (WIPO). In short, Microsoft aims to accelerate the cryptocurrency mining ecosystem, by using users’ own body heat as proof-of-work, and users can earn/mine crypto by carrying out certain tasks online i.e. browsing, shopping, gaming, etc.

Microsoft has long been embracing blockchain, building a decentralized online personal identification application, on top of the Bitcoin blockchain since early 2019. The beta launch for the decentralized identification network was released in June this year. Microsoft contiunes to make partnerships globally with its new projects involving blockchain.

Paypal

PayPal is another company that has changed its tune on its public view of Bitcoin and cryptocurrencies. Earlier in the Summer, PayPal announced developments for cryptocurrency capabilities on its platform and plans to offer sales of cryptocurrencies to their 325 million users. In recent days, PayPal has announced integrations with crypto exchange bitFlyer allowing users to deposit funds and purchase crypto in a few clicks with their PayPal account.

Meanwhile, fintech apps that offer crypto are making money. Square, the payments unicorn launched by Twitter CEO Jack Dorsey, rolled out bitcoin purchases in its Cash App in mid-2018. Cash App reported $306 million in bitcoin revenue in its most recent earnings report. And people say crypto is considered a scam…. OOFFFTTAA!!

visa

Visa quoted its founder Dee Hock, who gave a speech in 1996 explaining why he created Visa, using the same rationale to justify the company’s pivot toward cryptocurrencies.

“Money is nothing but alphanumeric data and it would become alphanumeric data not in paper form, but in a form of arranged electrons and photons,” Hock told the Extension National Leadership Conference over 20 years ago. “And they would move around the world at the speed of light by infinitely diverse paths through the entire electromagnetic spectrum.” Visa, pointing to its work with bitcoin and crypto exchange Coinbase and bitcoin rewards app Fold, said it wants to “provide a bridge between digital currencies and our existing global network of 61 million merchants.”

Meanwhile, Mastercard has this week said it’s extending its cryptocurrency program to make it easier for companies in the space to issue their own payment cards, signing a deal with London-based Wirex, making it the first “native” cryptocurrency platform to gain principal membership and allowing Wirex to directly issue cards on Mastercard’s network.

“The cryptocurrency market continues to mature, and Mastercard is driving it forward, creating safe and secure experiences for consumers and businesses in today’s digital economy,” Raj Dhamodharan, Mastercard’s executive vice president for digital asset and blockchain products and partnerships, said in a statement. Forbes gives a great review on this.

In conclusion, the space is growing…

Federal Reserve Bank’s Digital Dollar

 Loretta Mester emphasized that the Federal Reserve has been exploring central bank digital currencies (CBDC) since before the pandemic, noting that its Board of Governors has been “building and testing a range of distributed ledger platforms to understand their potential benefits and tradeoffs.” Loretta is the President of Federal Reserve Bank of Cleveland. In this article, we will be taking a deep dive into digital currencies globally and the pros and cons of this concept.

Digital Dollar for Faster Response For Emergencies

At the 20th anniversary of the Chicago Payments Symposium, Mester, in her speech titled, “Payments and the Pandemic,” addressed the Fed’s shortcomings in its efforts to revive the economy amid the latest crisis. Since March 2020, the Fed has injected a vast amount of money into the economy, increasing its assets from $4.1 trillion to $7 trillion. However, despite the massive scale of the stimuli, significant markers indicate a continued downtrend, as highlighted by negative GDP growth. The annual GDP growth rate of the U.S. for 2020 is -9.1%.

Having a digital dollar would not only be a great alternative to stimulus payments to citizens who need it, but even businesses that need quick assistance that cant be filled fast enough with the traditional financial system. A digital dollar would be ideal and helpful but comes with some serious privacy issues.

Threat to Privacy

A digital dollar would allow the Fed to monitor the activities of its citizens, and also enable the bank to exercise arbitrary control by freezing accounts of individuals. It would also enable the Fed to easily manipulate industries and sectors within the economy due to the fact they have complete control over buying power. For Example, If Jim gets paid $2400 per month in the traditional finance system, he can spend that money anywhere he wants and whenever he wants. If Jim receives that same payment in a Digital Dollar and the economy is in a terrible crash like we have been seeing in 2020, The Fed can program the digital dollar to only be spent in certain sectors such as housing and food… No more partying for Jim! The idea of a digital currency can be seen as a revolutionary technical frontier, but it does come with a price.

On the other hand, A digital dollar could provide many benefits to the world as well. While perhaps it is too early to pass ultimate judgement on the government’s COVID-19 response, it already is clear that the lack of a US digital dollar had a severe negative impact on the ability of the government and Federal Reserve to address the current pandemic. A US-government supported digital dollar (and wallet software) would have been extremely helpful in meeting the goal of rapidly deploying financial assistance to hundreds of millions of American citizens during this crisis. Beyond speed, a US digital dollar would also offer a host of other benefits compared to mailing checks and other payment methods, including

  • Efficiency: Reducing the cost of payment delivery, which may run into the tens of millions with postal costs, etc. for checks.
  • Financial inclusion: Facilitate payment to individuals lacking access to bank accounts or low-cost check-cashing services.
  • Support the most vulnerable: Help ensure payment to some of those most in need who lack a physical mailing address, or those who have relocated recently (eg students).
  • Hygiene: Encouraging digital forms of payment may help reduce the rate of virus transmission as compared to cash and check use.
  • Efficacy: The receipt and use of digital payments can be more easily tracked to ensure individuals have received financial support and solve the significant “lost check” problem.

European Cryptocurrency Regulation

The European Commission is moving to provide more legal clarity and certainty for the cryptocurrency industry in its member states. On Sept. 24, the European Comission officially adopted a new digital finance package including digital finance and retail payments strategies, as well as legislative proposals on crypto assets.  The European Comission said that the new package represents the first time that the authority proposed new legislation on crypto assets. As part of the new legislative proposals, the EC pays special attention to stablecoins — a type of cryptocurrency that pegs value to an external reference like the United States dollar or an algorithm.

According to the authority, the new measures will be crucial in supporting the EU’s economic recovery as it will unlock new ways of channelling funding to Europe’s businesses. “By making rules safer and more digital friendly for consumers, the Commission aims to boost responsible innovation in the EU’s financial sector, especially for highly innovative digital start-ups,” the EC noted. The package is now subject to consideration by the EC’s legislative counterparts, the European Parliament and the European Council.

Money and value as we know it is changing with no doubt in mind. With talks of global economic resets, new monetary policy changes, and new partnerships with blockchain technology companies, the need and creation for a digital currency is almost immanent rather than speculative. A new currency standard would be great for the current economical state of the world, bridging all global economies in a secure, transparent way, but life as we know it would be changed forever.

Crypto V.S. Stocks, Will Another Crash Happen?

2020 has no doubt been the most interesting year not only for traditional finance (Stocks, Bonds, Funds etc.), But for cryptocurrency and everything within the world as well. Economies around the world suffered tremendous causalities with a wide range of factors, The noble Coronavirus ( Covid-19) caused thousands of small businesses to shut down drastically and some even went bankrupt. The virus is also spreading at a drastic rate with no talks of a vaccine coming out anytime soon causing new social distancing parameters and mandatory masks to be worn at all times. Due to police brutality, riots and looting began to surge across the United States as if it was a hot trend that should be followed, and of course the record breaking wildfires in California forcing hundreds of people from there homes and the record breaking floods in China causing food shortages throughout the country. In this article, we will be covering the ways to help preserve your wealth during these economical hard times.

New World Of 1971

Before diving into the events that happened in 1971 and their significance, it is very important that you checkout a 10 part video series called “Hidden Secrets of Money” by Mike Maloney. The videos explain the movements of money and are most definitely very important if you don’t know anything about the current financial system and its history. Mikes website https://wtfhappenedin1971.com/ also provides great metrics of the current economy.

Before 1971, the United States Dollar was tied to a monetary policy that involved gold. The Legislation was called “The Gold Reserve Act”. This act in short, Signed by President Franklin D. Roosevelt in January 1934, the Act was the culmination of Roosevelt’s controversial and skeptical gold program. Among other things, the Act transferred ownership of all monetary gold in the United States to the US Treasury and prohibited the Treasury and financial institutions from redeeming dollars for gold. More about this act can be found here at https://www.federalreservehistory.org/essays/gold_reserve_act for a deep understanding of the rules and regulations for the act.

In 1944, at The Bretton Woods Conference, the world’s richest nations came together to regulate the international monetary and financial policies after World War II. It was decided that the U.S. dollar was going to be the world reserve currency and would be pegged to the price of gold (At this point America held approximately two-thirds of the world’s gold supply). All other currencies would then be pegged to the U.S. dollar.

When President Nixon cut the gold peg in 1971, it was the first major crack in the foundations of the global economy, the effects of which can still be felt now. The new legislation was referred to as the Nixon Shock. The Nixon Shock effects that we feel today, is a world of mostly free floating, market-traded currencies. This system has advantages, especially in terms of making radical monetary policy like quantitative easing possible. However, it also creates uncertainties and different circumstances and has led to a massive market based on hedging the risks created by currency uncertainty.

So, many decades after the Nixon Shock, economists are still debating the merits of this massive policy shift and its eventual ramifications. Some say it was a scam, Some say it saved our reserve currency.

With the art of inflation taking place, the amount of fiat being added to the money supply is at an exponential rate. This affects not only the costs of products and services, but stock prices as well. When inflation increases, purchasing power declines, and each dollar can buy fewer goods and services. … Similar to the way interest rates impact the price of bonds—when rates rise, bond prices fall—dividend-paying stocks are affected by inflation: When inflation is on the upswing, income stock prices generally decline. Inflation is an important factor, but due too inflation and corrupt financial systems, it can be used to manipulate and “prop up” certain assets.

Cryptocurrency V.S. Stocks

In the previous few years, but especially in the last 12 months or so, investors have been asking one central question: Should I invest in cryptocurrencies or in traditional stocks?

Firstly, crypto’s main appeal is the relative volatility of the market. In no time, investors can double or even triple their investment, something that traditional stocks really do not have the ability to do. If you are successful in the stock market, you could make a 5-15% ROI. However, investing in Bitcoin 12 months ago would yield approximately a 144% return. The numbers really don’t compete! Between volatility and leveraged derivative exchanges, It is very eye-catching to the money hungry traders. Secondly, unlike traditional stock trading, it’s very hard for an individual to recognize, analyze, and capitalize on trends in the greater stock market. This is not the case with cryptocurrencies, and crypto price increases and decreases are much more tied to one another, as the market hits peaks and valleys more or less with one another. This can be used as a big advantage for cryptocurrency traders, especially experienced ones who can effectively predict movements in the market, whereas stock traders tend to be somewhat at the whim of external and unpredictable forces.

Stocks to begin with, even when the value is based on the idea of the currency or the stock, in the stock market you actually invest in the company. Stocks are heavily regulated, and most have to go through yearly audits in order to continue to be traded on the market. Because of the heavy scrutiny that comes with making your own stock, it’s highly unlikely that the stocks that you invest in will be fraudulent. This makes it a “safer” option for a newbie investor, yet the gains per quarter are very limited. However certain stocks have potential of 50x-100x your investment, most have low returns and low risk.

Conclusion

It has been suggested by economists that we were to anticipate a financial crash in 2019, yet the numbers surpassed most economists’ predictions positively. With recent market success, some are asking what the difference is this time. Is the stock market going to crash again? With GDP so low to levels we haven’t seen before and companies slowing down production, It seems likes it is just a matter of time.

We are living in an unprecedented situation, printing unimaginable amounts of money on large scale to keep businesses afloat whilst our economies shut down. There are several key factors to consider such as the looming ‘second round’ of the virus that could send stocks plummeting once more, plus an upcoming presidential election.

There were also rumors about the effect of the stock market after labor day, with some influencers predicting a crash. The general feeling across the crypto YouTube space is that the stock market could continue to rise until election day. After that is anyone’s guess, the FED has a lot of power and many ways to prop up the market in an attempt to prevent a crash due to unfavorable election results.

If you want to learn more about the history of money, blockchain technology, or cryptocurrencies and how these can help you preserve your wealth, be sure to join our newsletter and checkout https://academy.ivanontech.com for in depth understanding.