In previous beginner’s guides, we approached blockchain technology from a bird’s eye view. Those who have been following should have a good understanding of what blockchain is, how to spot opportunities, and how to start investing in this space.
It turns out that there is more to be done in this world than buying cryptocurrencies and waiting for profits, so it’s time to delve deeper into some more advanced but essential concepts within the realm of blockchain. I did.
As with any investment, it’s important to know what you’re investing in. We’ve partnered with Luno Discover, Luno’s educational hub, to find out why people have been paying exorbitant amounts of money for these NFTs, why they’re just ‘jpegs’ or ‘pngs’, and that they’re all ‘playable’. Explain how it ties into earning games, the metaverse, and DeFi.
A unique identity in the digital world
Let’s start with the ideas that took the world by storm in 2021. Non-fungible tokens, aka NFTs. Chances are, you’ve heard about them, or at least seen them before.
Perhaps it was a cartoon ape – from Boad Ape Yacht Club COLLECTIONS – Today they are worth hundreds of thousands of dollars.or every day It was purchased by a Singapore-based investor for US$69.3 million. This is the highest amount ever paid to an NFT.
The original Starry Night painting hangs in the Museum of Modern Art, New York. People are free to buy copies online and have them framed, but these aren’t worth much: a collector values the original at over $100 million, while the print is only 10 Available for dollars.
For digital art, the process of evaluation and validation is not so straightforward. When he sees the two images below, he doesn’t know which one is real. original A work of Super Mario. They both look exactly the same.
This has long made it difficult for digital artists to monetize their work. Why pay for art when you can easily download it and make a copy?
This is where NFTs come into play. Before that, it’s important to know what a token is.
Blockchain applications for tokens and NFTs
A crypto token refers to an asset that runs on an existing blockchain.
For example, consider the Ethereum blockchain. Although it uses Ether (ETH) as its native cryptocurrency, the chain also supports other crypto assets that he can fall into one of two categories.
First, there are cryptocurrencies such as Polygon (MATIC) and Loopring (LRC) that operate on the Ethereum blockchain. They are called fungible tokens because they are not unique but fungible. That is, you can replace one her MATIC token with another her MATIC token. All tokens built on the Ethereum blockchain are also known as ERC-20 tokens.
Then there are non-fungible tokens (NFTs). NFTs refer to unique assets that cannot be duplicated or exchanged for another asset. Blockchain technology allows any file to be associated with a unique digital signature and stored as an NFT. In this case, NFTs cannot replace each other under any circumstances due to their uniqueness.
Digital files are converted to NFTs through a process called minting. Once minted, the files are completely unique and original.
Anyone can verify its legitimacy by looking at the transaction history recorded on the blockchain. It tracks the original creator and the hands it passed. If someone makes a copy of her NFT, it can be distinguished from the original even though it looks the same.
Where are the NFTs?
Dedicated online marketplaces have emerged for users to buy and sell NFTs, and various blockchains have their own NFT ecosystems and marketplaces.
Ethereum is currently the most popular blockchain for NFTs, followed by Solana.
OpenSea leads as the most-used trading platform, with over $600 million in trading volume in June. OpenSea started as a marketplace for NFTs hosted exclusively on the Ethereum blockchain, but has since introduced support for other blockchains as well. Solana is that he is the one. Another popular marketplace is Solana’s Magic Eden.
Investors will find that the NFT landscape varies from blockchain to blockchain. Projects launched on Ethereum tend to be more expensive due to the “gas” fee charged each time an NFT is bought or sold.
Gas prices range from US$20 to over US$100, compared to Solana’s gas cost of only US$1.
Ethereum, the first blockchain to support NFTs, also houses some of the most established projects.
In fact, the top 10 NFT collections by market capitalization are all Ethereum-based, including projects like Bored Ape Yacht Club, CryptoPunks, and Moonbirds.
NFT beyond art
Beyond their usefulness in digital art, NFTs are now expanding into other areas, serving the purpose of proving ownership of unique and unreproducible assets. After all, you can convert any file to NFT, not just images.
Some universities have started issuing NFTs instead of paper-based degrees. In the digital world, games and metaverse projects have started using his NFTs for selling virtual land and other assets.
Decentraland and The Sandbox are two of the most popular metaverses, each with land selling for thousands of dollars. This land can be used by creators and businesses to set up three-dimensional spaces such as CapitaLand’s CapitaVerse.
Clothing brands such as Charles & Keith and Tommy Hilfiger have created virtual stores in Decentraland for this year’s Metaverse Fashion Week. They were able to use their land to display and sell items in both virtual and physical form.When purchasing an item, a customer could see the actual clothing and her clothing worn by the avatar. receive the NFT version of
DeFi games and how fungible and non-fungible tokens play a role
A decentralized financial game called “gamefi” is a game that works without a central authority. These games find similar uses for NFTs.
In-game assets such as weapons, cosmetics, and characters, which are typically built on models that you earn by playing, are NFTs made available for users to trade on marketplaces such as OpenSea or in-game marketplaces, All transactions are logged there. blockchain.
DeFi games can also have their own native token. These tokens become in-game currency for buying and selling in-game items, and can even be taken out into the “real world” and sold for real money (such as fiat currency).
These tokens can also be deposited at regular intervals to earn profits through interest called staking. In the DeFi world, players are incentivized not only by their passion for the game, but also by earning financial benefits in exchange for their time playing. This is something that has never been seen in the traditional gaming industry.
In Axie Infinity, the native token Smooth Love Potion (SLP) can be earned as a prize while playing the game. They can then be used to breed Axies and purchase in-game items. SLP is an example of a fungible token, but all axes exist as separate his NFTs.
Crypto tokens such as SLP can sustain their value as new users join the Axie Infinity ecosystem and demand for axie grows.
Zoom out to DeFi
Over the past few years, DeFi games have become a prominent part of the DeFi space, proving how DeFi is expanding and providing utility to various industries.
Imagine being able to bypass traditional financial institutions such as brokerage firms, banks and insurance companies and access everything you can think of: loans, savings, insurance, transactions, payments and more.
In the real world, banks decide whether or not to issue a loan based on factors such as the applicant’s credit score, income, expenses, and work history. They generate revenue by using customer deposits to fund these loans and charging interest. The entire process of obtaining a loan can often take weeks.
DeFi apps like Compound and Aave, on the other hand, allow anyone with enough collateral to get a loan instantly. Almost instant.
Unlike bank customers who deposit their funds with banks that ultimately fund mortgages and loans, cryptocurrency holders can choose whether or not to use their assets to fund such loans. . If they want to lend their assets, they can deposit them into the liquidity pool. This usually offers much higher interest rates than banks. Of course, the risk exposure is also higher.
The demand for DeFi hinges largely on freedom from middlemen and the use of blockchain to crowdsource its ends. It’s a way to get rid of your reliance on banks and other financial institutions while consuming their services in a transparent (and in most cases cheaper and faster) way. Moreover, anyone with an internet connection can access his DeFi.
Here’s another common use case: DeFi offers similar benefits through exchange protocols. Fiat currencies such as SGD and USD can only be exchanged through banks, exchange offices or money changers. These institutions make their profit by charging fees or applying spreads to the exchange rate.
In the DeFi world, these profits are distributed to cryptocurrency holders. When holders add their holdings to a “pool,” they increase the availability of funds (read: liquidity) to trade without affecting market prices.
Users can deposit equal amounts of two cryptocurrencies (for example, Ethereum (ETH) and Tether (USDT)) to platforms like Uniswap. Every time someone uses her Uniswap to swap between these two currencies of his, the user earns a portion of the exchange fee.
As the DeFi space develops, more and more utilities are emerging that allow services to be delivered through smart contracts on the blockchain rather than through institutional intermediaries. Ways are open for easier access.
Whether it’s crypto or any other asset, it’s important to always know what you’re investing in. If you want to learn more, stay tuned for our next issue that will explore the massive world of stablecoins. In the meantime, visit Luno Discover for daily crypto updates and subscribe to Luno’s Telegram channel for timely headlines and a little bit of blockchain knowledge. You can also
This article is part of a six-part series of beginner’s guides to cryptocurrency without the hype. You can read more articles here:
– Part 1: Blockchain and Cryptocurrencies
– Part 2: Coin Types and How to DYOR
This article was written in collaboration with Luno.
This partnership between Vulcan Post and Luno is for educational purposes only. Luno Singapore has been approved in principle by the Monetary Authority of Singapore (MAS) under the Payment Services Act 2019. Cryptocurrency is a risky investment. The value of cryptocurrencies can fluctuate wildly and you may lose your invested capital. Before investing, we recommend that you learn about cryptocurrencies and understand the associated risks. luno danger warning.
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