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Crypto Classroom Lesson #16: BNB

Binance is a leading cryptocurrency exchange that provides trading for >100 different cryptocurrencies. Currently, the exchange provides both spot and margin trading and is considered to be the largest cryptocurrency exchange in the world in terms of trading volume. Accordingly, the token powering the Binance ecosystem, Binance Coin (BNB) now ranks #6 in terms of market cap. The unprecedented success of Binance can be attributed to the notable team, market timing and product impact. The Power of CZ It’s hard to talk about Binance without mentioning their stellar CEO, Changpeng Zhao (a.k.a CZ). Before launching the exchange, he built trading systems and led the technical teams at OKCoin and He’s also known for his frequent activity and responsiveness on Twitter; always keeping the community updated when there are issues. Market Timing & Strategy Binance grasped the opportunity to acquire users rapidly in Q3 2017. The timing was excellent as Chinese exchanges were under pressure to relocate, while market momentum was on the rise.  Strategy – Regulatory arbitrage by being registered in Malta – Crypto-to-crypto trading only to avoid issues from banking – User incentives (referral program + exchange token, BNB)   The Utility of BNB In the beginning, BNB was simply a way for the exchange to raise money with limited utility. Over time, we are seeing continuous efforts by the team to create value for BNB holders. 1.Trading Fees  Users enjoy a 25% discount when BNB is used for trading fees. Having a higher BNB balance also qualifies users for higher tier trading fee discounts: 2. Burn BNB is burnt quarterly according to the overall trading volume. As of writing, Binance has completed the 8th BNB Coin Burn, reducing 6.23% of the total supply. Eventually 50% of total BNB supply will be destroyed. Additionally, the team has given

Crypto Classroom Lesson #15: FTX

FTX is a cryptocurrency derivatives exchange that offers futures, leveraged tokens and OTC trading.  Due to the poorly designed risk management systems, current futures exchanges have frequent large clawbacks, leading to losses in the millions. FTX reduces the likelihood of clawbacks by using a three-tiered liquidation model. The goal of FTX is becoming the leading exchange ahead of BitMEX and OKEx in the coming years. FTX was launched in April and boasts some of the most liquid order books in the space. As of late, FTX futures have had volumes worth of $100m per day.   Product Type Exchange Token Type ERC20 Token Supply 350,000,000 Tokens for sale 70,000,000 (20%) Ticker FTT Listing Date 29th July 2019 Country Antigua and Barbuda   Key Features – Stablecoin settlement (TUSD/USDC) – New index futures (ALT, MID, SH*T along with USDT, BNB, etc.) – Automated OTC trades – Backstop liquidity provider to stop clawbacks – One universal margin wallet – Low fees, tight spreads, deep orderbooks, and a complete API Notable Team Members – Sam Bankman-Fried – CEO of Alameda Research. Former trader on Jane Street’s ETF desk. Designed Jane Street’s automated OTC trading system. MIT graduate. – Gary Wang – CTO of Alameda Research. Former software engineer at Google. Developed price aggregation and serving systems for Google Flights. MIT graduate.   Token Utility – Token Burn 1) 33% of all fees generated on FTX futures, until half of all FTT is burnt 2) 10% of net additions to the insurance fund (‘Socialized Gains’) – Discount on Trading Fees 10% if holding >$10k USD value of FTT Max discount 30% – OTC Rebates   Why FTX? Like any new exchange, the challenge is acquiring users and taking market share from existing players. Below are what the team sees as the key advantages:  –

Crypto Classroom Lesson #14: Decentralized Finance (DeFi)

Decentralized Finance (DeFi) has garnered popularity and grown into one of the biggest sectors in the crypto space. According to DeFi Purse, over 500M USD is locked in DeFi applications. Applications include stablecoins, DEXs, lending, derivatives, payments, etc. DeFi is usually referred to as Open Finance, which aims to remove restrictions that limit people’s access to traditional financial services. In simple terms, DeFi uses cryptocurrencies, blockchain technology, and smart contracts to provide financial services. Total Value Locked (USD) in DeFi on 16 July 2019 Why DeFi? Cryptocurrencies were designed to be decentralised, transparent, trustless, permissionless and censorship-resistant. They use decentralized control as opposed to central banking systems. DeFi aims to provide permissionless and transparent financial services to anyone and everyone. The advantages of decentralised financial products are similar to the original vision of public blockchain: Global Access to Financial Services With DeFi, anyone with an internet connection and a smartphone can gain access to financial services. Due to its permissionless nature, users cannot be restricted geographically. Even when IP addresses are blocked, users can still access the network remotely via VPN. In contrast, most traditional financial services are limited geographically. (e.g. a North Korean citizen would not be able to open a bank account in HK) Apart from geographic limitation, traditional financial services also favour the wealthier population. Clients with more assets typically enjoy better rates and have access to advanced wealth management tools. DeFi minimizes the inequality and users can enjoy similar services regardless of size. Privacy and Security With the surveillance of government agencies and large companies, our spending habits and financial statuses are closely monitored. Based on this data, merchants advertise products that “fit” our need and banks calculate a credit score that determines access to products such as loans. In the context of DeFi, personal identity

Crypto Classroom Lesson #13: Cosmos (ATOM)

The Network Cosmos, built on Tendermint Core, is designed to be the “Internet of Blockchains”. The network provides the means for trustless exchange of assets across independent blockchains. Exchange occurs via a master hub chain known as the Cosmos Hub.  Cosmos also comes with a toolkit called the Cosmos-SDK. This provides plug-and-play modules for developers to easily create custom blockchains. Consensus on the network is formed through the Tendermint BFT engine. Various advantages include: – High Performance: Blocktime on the order of 1 second. Capable of handling thousands of transactions per second. – No Forks: A property of the Tendermint consensus is instant finality. Forks are never created as long as less than one third of validators are malicious. – Security: Tendermint consensus is also accountable. When there is a fork, an external process can determine the cause by requiring each validator to justify votes.   Blockchains on the Cosmos Network communicate through IBC (Inter-blockchain Communication), a common standard that allows two chains to have light clients of the other chain. A light client can monitor and validate the state of another blockchain without running a full node.   Example: Cross chain token transfer – Token A on Chain #1 is locked in a smart contract – Proof is provided to Chain #2 – Chain #2 validates the proof and creates a Token B to represent Token A – The Token A can be redeemed when Chain #2 burns Token B   Developers have the freedom to customize rules that define the validator set of their blockchain to build both public and private networks. With Tendermint and the Cosmos-SDK, developers do not have to fork the codebase of an existing blockchain like Bitcoin; they can just build a blockchain by easily coding a few modules. Cosmos SDK provides all the

Crypto Classroom Lesson #11: What is a database?

  At its simplest, a database is defined as a systematic collection of data. Organisations use a database management system (DBMS) to access a database, store, retrieve and update data in a computer system.     Databases are used for a variety of reasons: – Hospitals – Patient records – Government – Tax records – Bank – Client balances – Police – Criminal records Why would you use a database? – Databases can store large amounts of data efficiently – Access can be granted and denied to specific users – It is easy to add, edit and delete data – It is more secure and efficient than manual paper recording So then what is a blockchain? The blockchain is a newer kind of database. It is decentralised which means no individual, company or government controls the records. All participants work together to come to a consensus on the state of the database. Blockchain has special properties that distinguish itself from centralized databases which are: – Disintermediation (eliminate trust) – Immutable – Fault-tolerant – Openness   Disintermediation The core offering of a blockchain is the ability for strangers to exchange value with each other in a trustless environment without a middleman. We have become accustomed to using trusted intermediaries for various purposes i.e. settling transactions, disputes, contracts and so on. Blockchain removes intermediaries because the technology ensures that peers in the network act with integrity that is achievable by combining a distributed network with public key cryptography. In a normal database, each person/organisation has their own version of the database containing records of what happened. If there are any discrepancies, time will be spent reconciling the problem.   Immutable A record confirmed by the blockchain is permanent and irreversible. The blockchain was designed with rules in place that permit data to

Crypto Classroom Lesson #10: Atomic Swaps

What are Atomic Swaps? Atomic Swaps are the peer-to-peer exchange of two different cryptocurrencies. They can be executed on off-chain channels or separate blockchains with different native coins. Currently, there are 10 cryptocurrencies that support atomic swaps including BTC, BCH, ETH, LTC, etc. Why Atomic Swaps? One might wonder why we should use Atomic Swaps when there are numerous exchanges providing crypto-to-crypto pairs. The main reason is to mitigate counter-party risk with respect to centralized exchanges. There have been many cases of funds lost due to fraud, mismanagement and cyber attacks. Notable examples include Mt. Gox, Coincheck and Zaif. Besides the crypto assets, user personal data is also at risk. Atomic Swaps provide a solution for users to exchange cryptocurrencies without having to trust a third-party.   How does it work? Suppose Alice has 10 BTC and Bob has 100 LTC, and they want to swap their coins. Alice can generate a smart contract, tx1, with hash function H(x), where x is a random number. Her 10 BTC is conditionally locked in the smart contract.           tx1:         [pay 10 BTC to Bob’s public key if                 i) x for H(x) is known and signed by Bob or                 ii) signed by both Alice and Bob.]   Since her BTC is locked in tx1 she needs to generate another smart contract, tx2, to retrieve her BTC if Bob defaults.           tx2:         [pay 10 BTC from tx1 to Alice’s public key, locked for 48 hours, signed by Alice]   tx1 and tx2 are also called Hashed Timelock Contracts (HTLCs).   Alice then sends tx2 to Bob. Once Bob has signed tx2,, Alice

Crypto Classroom Lesson #9: Stablecoin

Most cryptocurrencies are volatile as we often see a 10% move for the price of Bitcoin or Ethereum on any given day. To better facilitate practical transactions for good & services and store of USD value, several stablecoin projects were launched. A stablecoin is a cryptocurrency that is designed to minimize price volatility by being pegged to another asset such as the U.S. dollar or gold. However, most asset-backed stablecoins are considered to be centralized as the collateral (underlying asset) is controlled and managed by the issuer of the coin (centralized body). There are three main advantages of using stablecoins: 1. Stablecoins can be used in smart contracts; e.g. decentralized fundraising and decentralized financial products such as consumer loans. 2. Stablecoins act as a bridge for quicker and less costly international money transfers compared to fiat. 3. Various exchanges provide crypto to stablecoin pairs which allow traders to adjust their exposure. Stablecoins can be categorized into fiat-backed and crypto-backed. The main difference is while the collateralization of fiat-backed stablecoins happens off-chain, the collateralization of crypto-backed stablecoins is done on the blockchain via smart contract, hence more transparent and decentralized.   Fiat-backed stablecoins Tether (USDT) USDT is a stablecoin claiming that each token is backed by one US Dollar. It was initially issued on Bitcoin’s blockchain using the Omni Layer Protocol and later issued on the Ethereum blockchain (a Euro version of USDT, EURT was also issued) by Tether Limited. It is the most liquid stablecoin at the time of writing. USDT can be directly redeemed 1:1 with USD on the platform. However, there is a fee on fiat deposits and withdrawals. USDT has been the centre of controversy several times in the past. – During the 2017 Bitcoin rally, Tether was accused of manipulating Bitcoin prices by ‘printing’ USDT.

What is Sharding? – A Solution for Blockchain Scalability

TLDR: Bitcoin & Ethereum are slow networks. Sharding can divide the mining capacity into small shards, each capable of processing transactions in parallel. Sharding = Speed! Scalability of Blockchain The lack of scalability, only capable of processing a few transactions per second, is a major bottleneck for blockchain technology to garner mass adoption. With only 5 transactions per second (tps) for Bitcoin and 12 transactions per second for Ethereum, existing blockchain solutions are not competitive to centralized solutions like Visa as a payments system and AWS as cloud computing service. For example, with the growing popularity of CryptoKitties in 2017, it slowed down the Ethereum network significantly with just a few thousand users. This is certainly a concern for companies using Ethereum to power their services. Currently, every computer maintaining Bitcoin and Ethereum network are working on the same public ledger. Every node has to process every single transaction. Adding more computers into the network improves only security but not efficiency. A blockchain trilemma is formed as none of the mentioned blockchains can achieve scalability, security, and decentralization at the same time. Bitcoin and Ethereum are networks secured by Proof-of-Work. Hundreds of thousands of computers and specialized mining machines around the world are used to process transactions. As a P2P cash system / a world computer, Bitcoin and Ethereum are both secure and decentralized. However, they are not immediately scalable. To improve scalability, a lot of solutions have been suggested. For example, BitcoinCash (fork of Bitcoin) increased block size to allow more transactions to be processed in each block, while Lightning Network (second layer) utilized off-chain payment channels to reduce the burden on the main chain. Sharding is one of the most popular approaches being developed by different blockchain projects including Ethereum, Zilliqa, Quarkchain, etc.   What is Sharding? Sharding

Crypto Classroom Lesson #8: Stellar Lumens (XLM) -Part 2

In part 1, we explained quorum slices in the Stellar Consensus Protocol (SCP). In part 2, we will cover the federated voting process of SCP and recent developments of Stellar.   Federated Voting process Nodes within the SCP reaches consensus with the federated voting process. It consist of 3 steps: 1. Initial votin 2. Acceptance 3. Confirmation To simplify the process, let’s assume Bob needs to vote for either statement A or B. Bob starts at an uncommitted state and votes for A. When he sees a quorum vote for A then he can accept A and hold a second vote to confirm that the first vote has succeeded. In the case that Bob votes for B, he will be convinced and accept A if Bob’s v-blocking set of nodes has voted for A. A v-blocking set contains at least one node from each of Bob’s quorum slices. As a result A will be confirmed within Bob’s quorum.   Stellar developments IBM World Wire platform IBM Blockchain last week unveiled the World Wire platform which will help settle cross border payments in near real-time using the Stellar protocol. Financial institutions can transact with  any agreed stable coin, central bank digital currency or other digital asset as the bridge asset between any two fiat currencies. At the moment, while Stellar Lumens are used as the crypto bridge asset, IBM is also looking to test Stronghold USD, a stablecoin that is running on Stellar blockchain, as an additional bridge. Compared to Ripple’s xRapid (only uses XRP as bridge assets), the World Wire platform allows financial institution to use stable coin, central bank digital currency or other digital asset as bridge asset between any two fiat currencies.   Stellar Decentralized Exchange – StellarX Launched in July 2018, the StellarX allows users to trade