Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2018/01/crypto-home-study.jpg483725Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-09-20 17:54:322021-10-01 19:12:29Primary Function of the Top 10 Cryptocurrency Coins
Stablecoins are non-volatile digital assets (cryptocurrencies) that are pegged to an external, real-world asset.
Because they are designed to have a consistent value, in theory they allow for a risk-free investment.
By solving one of cryptocurrency’s biggest issues (volatility), stablecoins give retail investors more confidence to invest in cryptocurrencies.
In this blog post, I will go over what stablecoins are, why they are popular, the top four stablecoins to invest in, and the risks associated with this digital currency.
What are Stablecoins, and How Do They Solve the Problem of Volatility?
As previously mentioned, stablecoin is a non-volatile cryptocurrency that can reduce the risk of loss for crypto traders to a great extent.
But, considering that stablecoin is a cryptocurrency, how can it be non-volatile?
Here’s your answer:
Stablecoins are pegged to fiat currencies or any other real-world asset.
In other words, they are tied to a government-issued currency that we use every day, like the U.S. Dollar ($).
If a stablecoin is backed by U.S. dollars in a 1:1 ratio, it means that one single-currency stablecoin equals $1 in cash or cash equivalents and very short-term government securities.
Because it is backed by a fiat currency, the value of this digital currency remains constant—hence the word “stable” coin.
With stablecoins, crypto users do not need to be concerned about the value of their investment plummeting at any time.
Real-world assets serve as collateral for stablecoins—for every stablecoin in circulation, an asset is saved in reserve.
The reserve is overseen by an independent custodian, who is audited on a regular basis to prevent any fraud.
This is what makes stablecoins the most reliable and secure cryptocurrency out there.
For now, we cannot directly use stablecoins for our daily transactions because they are not yet an acceptable mode of payment and are not exactly widely popular.
To ensure safety and prevent financial losses, crypto traders can only buy stablecoins with other cryptocurrencies at the time.
Types of Stablecoins
It is also worth noting that not all stablecoins are pegged to fiat currencies. There are some that are backed by other real-world assets.
1. Metal-backed Stablecoins
Some stablecoins are backed by precious metals such as gold and silver.
The value of the stablecoin is determined by the value of the metal—one stablecoin token equals one gram of gold. Just like fiat-backed stablecoins, there are reserves for precious metal-backed stablecoins as well.
The most common precious metal-backed stablecoins are Digix Global (DGX), Tether Gold (XAUT), and PAX Gold (PAXG).
2. Cryptocurrency-backed Stablecoins
Then, there are cryptocurrency-backed stablecoins. In this case, the problem of volatility is addressed by the over-collateralisation of reserves.
The stablecoin to cryptocurrency ratio is 1:3. In other words, the amount of cryptocurrency reserved is three times the amount of stablecoins—so for every $1 of stablecoins, there are $3 worth of crypto in the reserves.
3. Algorithmic Stablecoins
Finally, there are algorithmic stablecoins that are not backed by any collateral. Instead, their price is determined by an algorithm that controls the supply of stablecoins.
This is how it works: when an increasing number of people are buying a lot of stablecoins, the value of the coins shoots up.
When this happens, the algorithm limits the supply of coins, causing the value to revert to its original level.
The same thing happens when the demand for stablecoins goes down, and its prices fall.
What Attracts Crypto Traders to Stablecoins?
Stablecoins have a number of advantages in addition to having a fixed value and offering stability.
To begin with, because stablecoins are a component of decentralised finance (DeFi), no intermediary financial institution is involved in stablecoin transactions. The traders can communicate directly without interference from a third party.
This also means that you will not be charged a third-party fee for the services you are using. However, you must still pay a small fee to use the blockchain network.
These blockchain networks are public ledgers that record all stablecoin transactions for public audit and inspection. This provides greater transparency, which is valued by all traders.
Most importantly, the transactions are straightforward, fast, and are not limited by geographical boundaries.
The Best Stablecoins to Invest In
Currently, there are around 200 stablecoins available around the world, some of which have already been released or are in development. Of those that are released, some show more promise than others.
Here are the four best stablecoins to invest in currently:
1.Tether (USDT)
Tether is a fiat-collateralised, blockchain-based stablecoin that is widely regarded as the most secure stablecoin to invest in.
It is pegged to the U.S. dollar at a 1:1 ratio—meaning 1 USDT equals $1.
Tether was originally known as RealCoin when it was introduced in 2014. It was later renamed Tether.
Today, Tether has become a major source of liquidity for the crypto market.
Crypto traders can buy Tether tokens on well-known cryptocurrency exchanges like Binance, OKEx, Huobi Global, and BitWell.
2. USD Coin (USDC)
USD Coin — like Tether — is pegged to the U.S. dollar at a 1:1 ratio.
All the USDCs in circulation today are ERC-20 tokens, which can be found on the popular cryptocurrency and blockchain system, Ethereum.
Coinbase and Circle collaborated to create USDC. While Coinbase is a well-known crypto exchange platform, Circle is a Boston-based peer-to-peer payments technology company.
USDC is a safe investment option because it is regulated by the United States Financial Crimes Enforcement Network (FinCEN).
Because FinCEN fiercely opposes money laundering, there is little to no risk of fraudulent activity when trading USDC.
Furthermore, the USDC reserves are audited monthly by Grant Thornton LLP, one of the world’s largest accounting networks.
The audit reports are also available on the Circle website for public viewing.
3. Binance USD (BUSD)
Binance USD is also a fiat-backed stablecoin that is pegged to the U.S. dollar at a 1:1 ratio.
It was founded by Paxos and Binance. Paxos is a New York-based financial institution and technology company specialising in blockchain, whereas Binance is a Cayman Islands-domiciled cryptocurrency exchange.
The BUSD stablecoin is approved and regulated by the New York State Department of Financial Services. It is known for making transactions accessible, flexible, and quick.
4. Dai (DAI)
DAI is another popular stablecoin that is an ERC-20 token.
It is known for being completely decentralised, as it is not backed by any external assets controlled by certain central authorities.
Unlike all other stablecoins, DAI is backed by a number of cryptocurrencies rather than just one.
By locking multiple cryptocurrencies in smart contracts, it maintains a 1:1 ratio with the U.S. dollar.
DAI is a ‘stable’ trading option for users in nations with high economic instability.
For such traders, this stablecoin provides a means of financial inclusion.
Disadvantages of Stablecoins
Although stablecoins were created to solve the problem of volatility, it also has some inherent issues.
1. Absence of Decentralisation
The absence of decentralisation is the most serious issue with stablecoins.
Stablecoins, unlike all decentralised cryptocurrencies, are owned by a single entity—in other words, centralised.
For example, the most popular stablecoin, Tether (USDT), is issued by Tether Limited.
The company has complete control over the supply and distribution of USDT.
If the company fails in the future, the value of USDT will suffer greatly as a result. It would be a huge financial loss for investors.
2. Lack of Transparency
Another primary disadvantage of stablecoins is their lack of transparency.
People buy stablecoins with the expectation that the owners have a reserve with a real-world asset for each stablecoin.
However, there is no guarantee that the fiat currency is locked in an actual safe.
Tether Limited is a good case in point. In 2018, the company was fined for failing to show reserves against which the USDT was pegged.
As a result, the value of USDT plummeted… albeit briefly.
3. Underlying Assets Might be Volatile
Ultimately, stablecoins are pegged to fiat currency, or some underlying asset.
This means they are subject to the same volatility of the underlying assets, and can be directly influenced by economic downturns, inflation, and black swan events.
Though they are pegged to high-value currencies—such as the U.S. dollar—and a sudden crash is highly unlikely, it is not entirely impossible.
Therefore, we can conclude that stablecoins are only as stable as the external assets that they are backed by.
Are Stablecoins a Good Investment?
Unfortunately, there is no such thing as a “risk-free” investment in the crypto world.
Before you invest your money in an entirely new digital financial system, you must take a leap of faith.
Although the advent of stablecoins have been heralded as an innovation in the crypto market, I would not go as far to say that they are completely risk-free.
Personally, when I invest in cryptocurrencies, I do so because I am looking for capital appreciation, so I feel that investing in a coin pegged to another asset is not very useful, because I might as well invest in that asset directly without the additional hassle and risk of the stablecoin.
If you are moving a lot of funds through crypto exchanges, then using stablecoins will be a good way to minimise transaction costs, while reducing volatility of your crypto assets during the transition.
Also, for people living in countries with unstable currencies (that are depreciating), then stablecoins might be a good way to store their cash to preserve its value.
Now that I have shared all about stablecoins and its pros and cons, what do you think of it? Do you think they are a good investment?
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2021/08/stablecoins.png7201280Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-08-06 06:00:372022-12-19 02:15:34What are the Best Stablecoins and are they a Good Crypto Investment?
Decentralized Finance (or “DeFi”) is a new global financial system that allows people to access financial services without the intervention of financial institutions such as banks.
It is a robust financial system that aims to set people free from their reliance on banks, credit unions, and insurance companies as there is no transparency in the operations of these institutions.
In this post, I will go over decentralised finance (DeFi) in detail to help you understand how it works and whether it has the potential to replace our traditional financial system.
Understanding Centralised Finance and Its Flaws
We currently rely on a centralised financial system (or “CeFi”) in which power is concentrated in the hands of a few central authorities.
These authorities have complete control over all financial institutions, and the people are at their mercy for investment, lending, borrowing, and a myriad of other day-to-day financial services.
When people deposit money into their bank accounts, it is these financial institutions that assume responsibility for it.
The authorities set the standards and ensure that everyone follows them.
For this reason, CeFi is regarded as the most reliable and secure financial system.
That being said, this centralised system is not without flaws—in fact, the system is riddled with them.
Let’s take a closer look at two of the major drawbacks of CeFi.
1. Lack of Transparency
The first drawback of CeFi is a lack of transparency in its financial procedures.
When you deposit your money in a bank, it is never locked away in a bank account that only you have access to.
Instead, your money is handed to another person in need; otherwise, how do you imagine banks lend money?
They take your money and are responsible for ensuring that the borrower repays it.
Even though the bank returns your money if the borrower defaults on the loan, you never know what is happening with your money or to whom it is lent.
2. Data Breaches
In addition to lack of transparency, CeFi is also prone to data breaches.
There have been multiple occasions in the past where a person’s confidential information and money were stolen.
Not only that, but the centralised financial system is vulnerable to financial crises—we are all familiar with past economic downturns that rattled the financial system as a whole.
These are two main concerns in the centralised financial system that everyone should be aware of.
Decentralised finance (DeFi) is now regarded as a panacea for such financial maladies.
Understanding Decentralised Finance (DeFi) and Its Features
A decentralised financial system, as previously mentioned, is an alternative to a centralised financial system.
It enables financial transactions to take place without the involvement of a third-party financial institution.
It is a digital ecosystem of financial services similar to those provided by a traditional centralised financial system. All financial services in this digital ecosystem are risk-free and automated since they are handled by a “code” rather than a human.
The distinction between DeFi and CeFi is that the services of the former are developed on top of a blockchain network. Now, blockchain refers to a decentralised, distributed and often public digital ledger that records transactions across all computer systems on its network.
The best part about blockchain networks is that it is tough to manipulate the financial information that is recorded on the digital ledger. This is attributable to the fact that transactions across a blockchain network are recorded in the form of “blocks,” and any involved block cannot be modified retroactively without affecting all subsequent blocks.
In other words, it is virtually impossible to game this system.
Now, there are two main problems that DeFi solves: lack of transparency and manipulation.
As each transaction is recorded on the public digital ledger, you know exactly what is happening with your money and where it is being used. Furthermore, since this foolproof system cannot be cheated, you and your money are safe.
Advantages of Decentralised Finance (DeFi)
There are many other advantages of using a decentralised financial system.
1. No Censorship
In contrast to CeFi, there is no censorship in DeFi—anyone can use any type of financial service they need.
This is a pretty big deal, particularly for underbanked adults.
2. No Geographical Restrictions
You can also conduct financial transactions with people from all over the world.
Again, this is not something you can do in a centralised financial system.
CeFi has geographical restrictions and does not allow you to receive or lend money to someone in another country.
DeFi users can freely engage in worldwide peer-to-peer (P2P) lending and borrowing.
However, users can only use crypto assets—the most popular of which is bitcoin (BTC)—rather than real assets such as gold or real estate.
Disadvantages of Decentralised Finance (DeFi)
1. Reliant on Technology
First and foremost, because DeFi is a digital ecosystem, it is entirely reliant on technology.
Therefore, there are some serious technical risks involved—one glitch and the whole financial system can come crashing down.
2. Volatility of Cryptocurrencies
Another threat to the decentralised financial system is volatility.
Because all major cryptocurrencies are highly volatile, this system is unpredictable.
Even if a person borrows stablecoin, they must put up collateral in the form of crypto assets.
The value of this collateral is not fixed and can drop drastically at any time.
3. Risk of Hacking
Furthermore, the transparency of the smart contracts themselves can be problematic. Because smart contracts can be seen and audited by any user, they are also exposed to hackers. This means that there is still a possibility of data manipulation.
4. Lack of Oversight & Regulation
The lack of oversight and regulation that characterises DeFi is still its biggest disadvantage. The general public is so reliant on the centralised financial system that the transition to DeFi seems almost unrealistic at this point.
Ethereum: The Most Popular, Open-Source Blockchain Network
Ethereum is among the most popular blockchain platforms, a decentralised public ledger that enables its users to use decentralised applications (dApps).
Ethereum has its own cryptocurrency, Ether (ETH), as well as programming languages called Solidity and Vyper.
After Bitcoin, Ether is the most popular cryptocurrency in the world, and it also ranks second in terms of market value.
Since there are no financial institutions involved in any financial transactions in DeFi, there are smart contracts to ensure compliance and prevent fraudulent activities.
These smart contracts are collections of codes and are not controlled by any central authority, but they run as programmed when certain predetermined conditions are met.
Once the code is deployed on the network, it cannot be changed.
Just like a traditional contract, these smart contracts lay down the rules of the transaction, but they are automatically enforced.
For example, if a person fails to repay a loan taken from another Ethereum user, their collateral is automatically liquidated, and the loan is settled.
In the world of DeFi, smart contracts substitute all financial institutions.
Popular DeFi Applications
1. Digital Exchanges (DEXs)
Digital exchanges function similarly to a marketplace, allowing sellers and buyers to connect and trade cryptocurrencies and fiat currency without the intervention of a central authority.
The entire exchange process is non-custodial and takes place through smart contracts.
In other words, no third-party owns the digital assets.
2. Peer-to-Peer (P2P) Lending Platforms
If you need a loan, you can approach an available user/peer directly, bypassing any middlemen.
Because both parties rely on smart contracts, there is absolutely no risk of fraud.
3. Stablecoin
Stablecoin was developed in response to the issue of cryptocurrency volatility.
Stablecoin is a type of cryptocurrency, similar to Bitcoin and Ether.
The only difference is that stablecoins are pegged to the value of a cryptocurrency, fiat money (government-issued currency like USD), or exchange-traded commodities (such as precious metals).
DAI is the most popular stablecoin cryptocurrency, with 1 DAI going at an exchange rate of $1.
Will Decentralised Finance (DeFi) Take Over the Traditional Financial System?
It is safe to say that decentralised finance (DeFi) has profoundly altered the financial landscape—and rightly so.
It gives people control over their money while also delivering efficiency and transparency.
Most importantly, it has dramatically decreased the risk of corruption and fraud.
Therefore, it appears to be the best financial system today.
Having said that, the system is still in its relative infancy and is not without shortcomings:
For all its flaws, this new financial system will see many more developments in the future.
If they deliver efficient solutions to the current gaps, there is a chance that DeFi will replace the existing centralised financial system as the future global financial system.
Now that I have shared all about Decentralised Finance (DeFi) and its pros and cons, what do you think of it? Do you think it will take over the traditional financial system?
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2021/08/draft-2-Defi-thumbnail.png7201280Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-08-04 20:49:322022-12-19 02:15:43What is Decentralised Finance (DeFi) and is it the Future of Finance?
Would you pay millions of dollars for digital artwork?
Welcome to the world of NFTs, or non-fungible tokens.
Just this year so far, about $1.3 billion of NFTs have traded through Ethereum network, dwarfing the activity last year.
The biggest transaction was an NFT purchased for $69.3m dollars.
At this point, you might be wondering, what is a NFT, and whether it’s even a real thing.
Sounds unbelievable? Let’s find out more about this hottest new asset class.
What is a NFT? (Non-Fungible Token)
So, what exactly is a NFT, or non-fungible token?
Firstly, to understand what fungible means, let’s look at the concept of normal fiat currency.
If you have a $10 bill, that bill is fungible, because it is completely interchangeable with any other $10 bill. Every bill has the same value, and there is nothing unique about it.
Similarly, cryptocurrencies like Bitcoin are also fungible, meaning 1 Bitcoin (BTC) is interchangeable for any other Bitcoin and has exactly the same value.
On the other hand, NFTs, which rely on special token standards like ERC-721 (using blockchain technology) to ensure uniqueness, are non-interchangeable and each token is unique.
In this way, NFTs are like digital artwork or collectibles because they are one-of-a-kind, and ownership is locked to one particular person (the owner/buyer), making every piece a unique and limited-edition piece of work.
“Think of it like a digital passport that comes with an asset,” said Nadya Ivanova, chief operating officer of BNP Paribas-affiliated research firm L’Atelier. “They allow for this trust and authenticity to be established in a way that we haven’t been able to do before, whether it’s with physical assets or digital assets.”
Now that we have some understanding of “what is a NFT?”, let’s go more in-depth to see how they work.
How do NFTs Work?
What is a NFT token?
Non-fungible tokens are actually cryptographic tokens with unique identification codes and metadata that make them unique.
Created on a smart contract platform such as Ethereum, these tokens are unique and cannot be replicated.
This means that when you buy an NFT, you are essentially buying lines of code on a blockchain.
But these lines of code do have value.
They represent proof of ownership and authenticity of these digital artworks and assets, that this asset you own is uniquely and authentically yours.
This blockchain, which is a type of decentralized record-keeping on a public ledger of blocks, means that the whole world knows who officially owns the NFT.
And because it is decentralized, multiple records are stored all over the place, so it is impossible to hack the network to “steal” ownership of the NFT.
Since an NFT’s uniqueness and ownership can be easily verified, and they ensure strong property rights which cannot be stolen, they can be efficiently traded on the secondary market.
As a result, this new asset class can empower creators, such as artists, developers, in a variety of new ways that weren’t possible before, allowing them to monetise their creations more directly.
The Different Types of NFTs
What are NFT applications?
Back in 2017, we saw the first NFTs in projects such as CryptoPunks and CryptoKitties, where blockchain technology was used to sell online collectibles.
Since then, the industry has bloomed into a wide variety of new use cases and industries, with a market exceeding $1b dollars.
Non-fungible tokens can be used to tokenize just about anything, and so far some of the most popular NFT use cases have been:
Here are some recent samples of NFT artworks and related products that have been sold, proving that this is a potential multi-billion dollar or trillion-dollar market.
NBA’s Top Shot NFT-based trading card system – $230m in sales
“Everydays: The First 5,000 Days” by Beeple – $69.3m
CryptoPunks #7804 and #3100 – $7.6m each
CROSSROAD by Beeple – $6.66m
Collection of 10 digital artworks by Grimes – $6m
First Tweet by Jack Dorsey – $2.5m
Exclusive NFT version of their latest album by Kings of Leon – $2m
CryptoPunk #6965 – $1.54m
Auction Winner Picks Name by SSX3LAU – $1.33m
Not Forgotten, But Gone by WhIsBe – $1m
Hairy by Steve Aoki – $888,888.88
THE COMPLETE MF COLLECTION by Beeple – $777,777.77
Nyan Cat by Chris – $590k
The founder of Twitter, Jack Dorsey, recently auctioned his first tweet ever on the Twitter platform to raise money for charity.
The tweet, which said “just setting up my twttr,” was first published on March 21, 2006 and was sold for $2.9m.
What is a NFT Artwork? Is it a Scam?
So, what is a NFT artwork and how it is different from normal artwork?
When you buy a non-fungible token, what you are getting is a unique cryptocurrency token on the blockchain.
Some NFTs have only one version, so it is like owning the authentic version of a famous artwork such as the Mona Lisa.
However, things can get a little confusing here.
Because there are also NFTs which are digital versions of the reprints, kind of what you see in Pokemon cards where each card is printed multiple times.
But for each NFT, there is still a unique “watermark”, which is the code, so if yours is the original or limited edition, then the property rights or IP of the digital asset belongs to you.
For example, the “Nyan Cat” meme is freely available to anyone who wants to download a copy of it, but none of these downloads are the ‘real’ Nyan Cat NFT worth 300 ETH.
In the jargon of the art world, the difference is like owning an original versus owning a replica.
In the art world, one of the biggest problems is fake artworks.
However, because of blockchain technology, it is impossible to sell “fakes” of NFTs, because anyone can easily check the online public ledger to see who owns the real original NFT.
So in a sense, it is actually safer than physical artworks.
How Much is an NFT Worth? What Are the Risks?
How much should you pay for an NFT, or how much should you sell one for?
Just like dealing in valuable art pieces or collectibles, this answer is tricky because the value is totally dependent on supply and demand.
An art piece or collectible is only worth as much as what the next person is willing to buy it for.
So using that as a benchmark, you want to look out for things like artist reputation, scarcity, and provenance, including the origin and past transactions.
You can try to benchmark it against other similar pieces by the same artist, or other products in the same genre, but at the end of the day, the worth is determined by the market.
Hence, you want to make sure there is still interest and other buyers for your NFT, should and when you decide to sell it in the future.
The biggest risk is that should the NFT craze turn out to be a bubble, kind of like a game of “pass the bomb”, then you don’t want to be the fool left a bunch of worthless NFTs which you paid a lot for.
Since this is still the early phase, the risk of this is less, but the risk of a potential bubble increases if prices for popular NFTs keep increasing exponentially, akin to the Tulip Mania.
Another risk is that because NFTs are transacted in cryptocurrencies (ETH), the prices of NFT are very likely tied to the price fluctuations of cryptocurrencies.
So if you have noticed, there are sort of 2 different segments of NFTs. One is the super expensive NFTs of rare digital artworks or collectibles, while the other is the more “down-to-Earth” retail market for common folks to sell or access useful products and services.
For the former, just like the market for valuable artworks and collectibles, I feel that it is somewhat of a playground for rich investors to speculate, and not really meant for the typical retail investor.
How to Create & Mint NFTs
However, even though you don’t have millions of dollars to speculate on non-fungible tokens, you can still take advantage of this trend by creating and selling your own NFTs.
If you have already tried uploading photos or videos on social media platforms like Facebook, Instagram, or Tik Tok, then you already know how to create “digital artwork”.
The difference is that after creating your artwork, there is one extra step called “minting” to turn your creation into an official NFT.
To do that, you can use one of the many NFT minting platforms around the Ethereum ecosystem. Each has its own pros and cons, and different fees.
DIY (do-it-yourself) minting platforms like OpenSea, Rarible, InfiNFT, Mintbase, and Cargo let creators easily and permissionlessly mint their own NFTs.
On the higher end, there are some exclusive membership-only NFT minting platforms to which creators have to apply and be accepted before they can mint through these platforms, such as SuperRare and Async Art.
Once you have decided on your platform, you will need to upload your artwork, fill in a description, and decide whether you want to create a standalone or edition-based piece, your asset’s royalty percentage, unlockable content, etc.
Finally, you will need to make payment via ETH (Ethereum) for the approval and minting process to commence.
How to Buy and Sell Non-Fungible Tokens (NFTs)
Now that you have created your own non-fungible token, the next step is to find a marketplace to sell it.
You might be wondering, what is a NFT marketplace?
Thankfully, there is already such ecosystem set up, with open marketplace platforms like OpenSea, Nifty Gateway (art), Decentralland, Enjin (games), Yellowheart (concert tickets), NBA Top Shot (NBA collectibles), SuperRare (art) and Rarible where you can list your NFTs for sale easily, depending on which category your NFT falls under.
Payments are done via Ethereum (ETH) as well, so you will need to connect your wallet to the platform, in order to buy or sell any NFTs.
Criticism of NFTs
What are some of the current drawbacks of this non-fungible tokens system?
High Transaction Fees (Ethereum Gas Price)
If you recall in the previous segments when we talked about minting, buying and selling NFTs, there were transaction fees involved.
One problem is that these transactions fees can be quite high.
As most NFTs are on the Ethereum blockchain platform, each transaction requires the payment of Gas: the fee charged for processing a transaction or contract on the Ethereum blockchain network.
This fee is denominated in gwei: a small fraction of ETH.
Hopefully, as the market matures, and more competition comes in, the fees for these transaction costs will fall as well.
Environmental Impact
Currently, Ethereum still operates on the “Proof of Work” architecture that requires mining, which consumes a large amount of electricity and leaves a large carbon footprint.
To put this into context, the amount of electricity that the Ethereum network consumes rivals that of countries like Ecuador with a population of about 17.4 million.
Since almost all NFT transactions involve ETH, this will undoubtedly contribute to the usage of the network and electrical consumption.
Hopefully, Ethereum will be transitioning to a more eco-friendly “Proof of Stake architecture” soon, although progress has been slow since this idea was first put forth years ago.
Concluding Thoughts on NFTs
Currently, the NFT transactions attracting all the hype are the super expensive transactions similar to valuable artworks or rare collectibles.
While these garner the headlines, the more relevant applications NFTs could lie in empowering independent creators such as artists and developers to directly monetise their creations.
The huge potential also lies in the myriad of products and services which businesses (both small and large) can create or tie-in with their existing offerings in the offline world.
This means that in a couple of years, many of these products and services could become commonplace in our lives, unlocking a trillion-dollar market opportunity.
Now that I have shared all you need to know about NFTs, what do you think of this new asset class? Is it a bubble or is it here to stay? And if someone asks you “what is a NFT?”, will you be able to explain it to them?
Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.
https://synapsetrading.com/wp-content/uploads/2021/04/Why-are-NFTs-non-fungible-tokens-worth-millions.jpg7201280Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2021-04-08 20:22:302022-12-21 02:58:58What is a NFT (Non-Fungible Token) and Why are They Worth Millions?
