Stablecoins, What "Crypto" Means, Crypto Wallets, Slowness of Bitcoin's Network, and a $2.9M Sweet NFT Tweet.

Welcome to this week's newsletter, recapping the week of 03/28/22 - 04/01/22. This edition introduces stablecoins, examines what "crypto" means, introduces crypto wallets, explains by Bitcoin's network seems slow, and ends with a fun fact about a $2.9M sweet NFT tweet.

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(03/28/2022) A stablecoin is type of cryptocurrency whose value is supposed to be constant and not fluctuate.

Have you ever thought: "It would be great if there was a digital asset, like Bitcoin or Ethereum, with their types of advantages, but without their price volatility?" If so, you're not alone. And there is something like that. They are called stablecoins.

Think of stablecoins like Bitcoin without any price change. They are a type of cryptocurrency. Thus, many stablecoins share favorable traits of Bitcoin, such as a digital store of value, security, disintermediation, a medium of exchange, etc. But their prices are not supposed to change.

Generally, the value of stablecoins is intended to remain at $1 U.S.

Examples include Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TerraUSD (UST), and Dai (DAI).

Tether was the first stablecoin. Its market cap is currently third, behind only Bitcoin and Ethereum. Tether's market cap is currently $81B. USDC's is $52B. BUSD's is $17.6B. UST's is $16B. And DAI's is $9.7B. See?https://lnkd.in/gxBkvsVB.

Many uses cases are self-evident. Deals that involve future payments (with a desire that that value of the payment not change) could benefit from stablecoins. Payment systems that want to avoid volatility of a token that the system uses is another.

How are the values kept fixed? Different technologies and frameworks are used. Some are decentralized and some are centralized (remember, those terms refer to control).

Tether, USDC, and BUSD are centralized (centrally controlled). Their stability stems from collateral backing. Some large U.S.?dollar stablecoins are backed by U.S.?dollars or U.S. Treasury notes.

Other stablecoins use more elaborate and algorithmic means to maintain a constant value. For example, UST (TerraUSD)'s value is maintained by controlling the availably of a paired coin, LUNA. As the demand for UST increases (which would normally put upward pressure on its price), the supply of UST is increased by swapping LUNA for UST and vice versa. See?https://lnkd.in/gu25Fypi.

The pegging mechanisms are not perfect. Sometimes, the value of a stablecoin does end up changing. This post is intended to introduce the technical concept of a stablecoin, not address potential regulatory, stability, liquidity, or other issues. In short, to let readers know that something like these exist at all.

To Clarify the Cryptic: Stablecoins are cryptocurrencies whose values are stable, or at least intended to be a constant value, such as $1 U.S.

(03/29/2022) "Crypto" refers to the cryptographic technology used in blockchain-based cryptocurrencies.

I have found that sometimes, people think of "cryptic" when they hear the first part of "cryptocurrency."

"Cryptic" means "secret" or "having or seeming to have a hidden or?ambiguous?meaning" or "mysterious."?https://lnkd.in/gA-XtnzT.

Whereas those attributes might justifiably be attributed to aspects of cryptocurrencies, that is not the intent of the name. Rather, "crypto" refers to cryptography, the technological underpinning of many cryptocurrencies.

l, cryptography refers to computerized encoding and decoding of information. In public blockchains, such as Bitcoin and Ethereum, each block is cryptographically linked to the next block in the chain.

The link is provided by way of a "hash." You can play with generating such a hash here:?https://lnkd.in/gvNB8zWw.

And you can see an example of how cryptographic hashes link blocks here:?https://lnkd.in/gtGcSKRE. Notice that if the contents of blocks change, so does the hash, breaking the chain.

Instead of breaking the chain, in a cryptocurrency that uses blockchain technology, a block with the wrong hash would not be allowed to be added or substituted. This is what makes blockchains "append only," or what some refer to as immutable.

To Clarfy the Cryptic: "Crypto" refers to the cryptographic aspects of cryptocurrencies.

(03/30/2022) A crypto wallet is software that enables one to manage digital assets.

?The term is more of an analogy that really a wallet. A physical wallet is a place to store physical money.

?By analogy, the term “wallet” in the crypto context is meant to convey the notion of a reservoir to store digital assets. But that’s not what a crypto wallet really is. It holds, at best, private keys to assets, not the assets themselves.

?Say you open an account with an exchange, such as Coinbase or Kraken and buy one ETH (Ethereum). If you would like, you could transfer your that asset to a digital wallet.

?Examples of digital wallets include the Coinbase Wallet, MetaMask, and the MEW Wallet. To setup your wallet, you would visit a provider’s website or, more likely, download an applicable app on your phone. During the setup process, you will be given a set of recovery words, such as 10 words that appear in a certain order.

?Think of those 10 sequential words as the proverbial keys to the kingdom. They are. With those 10 words (and usually your username and password), anyone could access your wallet. Those should be guarded extremely thoughtfully and prudently.

?The creation of a wallet includes generating a public blockchain address, such as something like 0xc6aa5a1aa37a4195725cdf1576dc741d359b56bd. That may look super secret, but public addresses are not. It’s just an address, somewhat akin to your street address inasmuch as knowing its identity or existence is not inherently dangerous (in contrast to a password, for example).

?If you were to move your 1 ETH to that address, that’s where your ETH would live, on the blockchain at that address. Not in your wallet. Granted, your wallet provides access to that 1 ETH, but it does not reside in your wallet.

?In the physical world, if you lose your wallet, you lose the cash in it.?In the digital-asset world, if you drop your phone in the ocean, and you had a wallet “on” your phone, no problem—as long as you know that 10-word phrase.

?If you know the recovery phrase, you can just download a new version of the wallet app on a new phone. During setup, indicate that you know a passphrase, want to recover a wallet, and it will recreate the wallet, thereby providing you *access* to your assets.

?To Clarify the Cryptic: rather than storing digital assets themselves, a crypto wallet provides access to digital assets that are stored on a blockchain.

(03/31/2022) A better question: Historically, why have Bitcoin transactions been slow.?

?Answer:?most organizations want to wait for three blocks to be added to the Bitcoin blockchain after the block of a given transaction, and each block takes about 10 minutes to mine.

?Let’s back up a little. Recall how transactions on the Bitcoin blockchain are logged. Blocks are composed of transactions. Blocks are limited in size. When a block becomes full of transactions, it is ready to be appended to the blockchain, which goes all the way back to the first block, the genesis block.

?Miners add transactions to blocks. Miners compete to have their blocks added to the blockchain. They compete by trying to solve a cryptographic puzzle that is solvable by guesses at a solution. It takes trillions of guesses.

?The first miner to correctly guess the solution earns a reward. As a reward for their work (gauged by having to pay for the electricity to power the computer that made all the guesses), they are rewarded by being allowed to add their block to the blockchain. They also receive an allocation of bitcoins and all the transaction fees associated with the transactions in the mined block.

?The Bitcoin network can adjust the difficulty of making the correct guess. The network adjusts the difficulty to keep the rate of generating new blocks at about one every ten minutes. If more miners (computers) are added, the difficultly level increases, and vice versa.

?Recall that it is possible that some blocks are mined very nearly in time to each other. The issues this might create are resolved by the “longest chain rule.”

?If new blocks arrive closely in time, they might, albeit temporarily, be added to a block that is not the correct most recent block. But as blocks get added correctly, the real chain emerges and is identified as being the longest chain. The longest chain becomes the real chain.

?It usually does not take more than one or two additional blocks to be added to the blockchain to sort out any simultaneous-arrival issues. To be safe, many companies wait to settle a transaction by waiting for three blocks to be added to the Bitcoin blockchain after the block with the at-issue transaction.

?And since it takes about 10 minutes to mine new blocks, a transaction native to the Bitcoin blockchain is perceived to take about 30 minutes.

?There are many technologies aimed at reducing this time, including the Lightening Network. Those are beyond the scope of this post.

?To Clarify the Cryptic: Native Bitcoin transactions are logged faster than what they appear, but their apparent settlement delay stems from companies waiting for two or three blocks to be added (at ~10 minutes each) to the blockchain after the one including the transaction of interest.

(04/01/2022) Fun-fact Friday.

?Jack Dorsey is the former CEO of Twitter. He made an NFT of his first Tweet.?It sold for $2.9M.

?In 1995, Dorsey enrolled at the University of Missouri–Rolla, which is now "Missouri University of Science and Technology," part of the renown ??UM system. S&T provided a foundation for Dorsey to transfer to NYU in 1997.

?At NYU, he came up with the idea of what would become Twitter.

?On March 21, 2006, he published his first Tweet: “just settin up my twttr.”

?On the Tweet’s 15th anniversary, March 21, 2021, Dorsey auctioned an NFT representing the Tweet for $2.9M (https://v.cent.co/tweet/20).

?Recall, an NFT is not actually the image, song, or in this case, Tweet. The selling site had explained: “The tweet itself will continue to live on Twitter. What you are purchasing is a digital certificate of the tweet, unique because it has been signed and verified by the creator.”

?Dorsey also announced that he would immediately donate the proceeds to a charity called GiveDirectly.?https://lnkd.in/gJ5pRzYF.

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#intellectualproperty?#patentattorney?#cryptocurrency?#defi?#NFTs?#metaverse?#blockchain?#Web30?(As always, no legal or financial advice here.)