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Table Of Contents
What is Tezos (XTZ)?
Tezos (XTZ) is a fourth-generation blockchain network that incorporates advanced protocols to enable a host of functionalities. Primarily, the platform supports the development of decentralized applications (DApps) and the coding of smart contracts.
Tezos is an open-source decentralized network for assets and applications. Today, the Tezos community consists of researchers, developers, validators, and various support groups. All of these parties share the common goal to expand the Tezos ecosystem.
History of Tezos (XTZ)
Tezos’ history begins in 2014 when co-founders, Arthur Breitman, and Kathleen Breitman began development on their next-generation blockchain. Specifically, the Breitman’s sought to simplify Dapp development and create a unique decentralized ecosystem to cater to the needs of the digital economy.
Tezos officially launched in Switzerland in September 2018. Like many other projects in the sector, Tezos utilized a dual company approach. Specifically, Tezos’ founding company is Dynamic Ledger Solutions (DLS).
Additionally, the group utilizes a foundation for its fundraising purposes. This non-profit is known as the Tezos Foundation. Importantly, the Tezos Foundation is the company that holds all the operating funds, including the funds collected during the ICO.
Tezos hit the market running. The firm hosted a record-breaking uncapped ICO in 2018. The event was a major success. It secured $232 million in Bitcoin and ether in just under two weeks. The success of the event made international headlines. It also helped propel Tezos further into the spotlight.
Investors received XTZ for their Bitcoin and Ethereum. XTZ, also called tez or tezzie, is a utility token for the Tezos ecosystem. Users can pay for services and execute smart contracts using XTZ. There are 741,546,948 XTZ in circulation currently.
Tezos never announced the total amount of XTZ the platform plans to release. Developers left this open in a bid to ensure that their platform never reaches its capacity in the market. However, some in the space argue that this lack of scarcity hurts the overall value of the coin.
Tezos’ ICO success was short-lived. Within weeks, the President of Tezos Foundation, Johann Gevers, and the Breitmans got into a public feud regarding the funds raised. Specifically, Gevers refused to disburse the funds to the Breitmans.
The issue was a huge debacle that caused investors to lose faith in the project. This led to the value of XTZ dropping temporarily. Eventually, Gevers left the project, and the funds made it to their destination. However, Gevers made sure to secure a $400,000 severance package for his troubles.
How Tezos (XTZ) Works
Tezos is unique in the market for a variety of reasons. For one, it utilizes a Liquid proof-of-stake consensus mechanism. Also, the platform introduces an agonistic native-middleware known as a Network Shell. This strategy enables developers to utilize modules during the construction of applications.
Tezos is bilingual meaning it utilizes both an Imperative and Functional language. Imperative languages such as Solidity are ideal for smart contract programming in terms of flexibility Whereas, functional languages are more adept at mathematical reasoning, making them more secure.
Tezos uses the combination to ensure its smart contracts are both robust and secure. Notably, the Tezos ecosystem relies on Ocaml for blockchain programming and Michelson for the coding of smart contracts. This strategy also improves transaction speeds across the network.
Currently, XTZ is capable of around 1000 transactions per second (tps). The limit is based on the max allowed gas per transaction. This rate can also increase in the future via voting on protocol changes such as off-chain scaling solutions.
Why Tezos (XTZ) Matters
Tezos offers users some features not available to earlier blockchains. To accomplish this task, Tezos combines its transaction and consensus protocols. This strategy streamlines its processes. Crucially, the combination aids in the communication between the network protocol and the blockchain protocol.
Liquid Proof-of-Stake – Tezos (XTZ)
The Liquid PoS consensus mechanism is an upgrade to the Delegated Proof-of-Stake systems found in third-generation blockchains like EOS and NEO. In a DPoS, the community votes on who will function as a delegated node.
Importantly, Delegated nodes approve blocks and add the transactions to the blockchain. Additionally, they have a few more rights and responsibilities in the network. Crucially, the number of delegators allowed depends on the bond size minimum requirement. Currently, this limit allows up to around 70,000 delegators.
The LPoS mechanism is exclusive to Tezos at this time. LPoS in Tezos has proven to be very successful. Currently, the network has a stake rate of approximately 80% spread across 450 validators and 13,000 delegators. This makes Tezos one of the most decentralized blockchains in the sector.
The Liquid PoS offers users more control compared to DPoS systems. For one, every user gets a vote. This strategy helps to ensure a more cohesive community. Keenly, users can vote directly or delegate their voting responsibilities to another party.
Additionally, these delegates can then delegate their votes to other delegates via a process known as transitivity. Notably, users can choose to regain their voting rights at any time. They can even change their representative’s vote whenever there is a topic in which they disagree with their decision.
Benefits of Liquid PoS
The Liquid PoS consensus mechanism provides a balanced and inclusive approach to decentralized network security. Each person has a vote that counts in the final approval of network changes. Best of all, anyone can become a delegate for free. You just need to gain the respect of the community.
To participate in the process a user simply needs to stake their XTZ in a network wallet. In the Tezos ecosystem, this process is called “baking.” The more XTZ you cake, the better the chances you get to add the next block.
After the block bakes successfully, the network will have 32 random other bakers repeat the process. Once this process is complete, the baker receives a reward. Best of all, the baker gains the ability to charge transaction fees on all the transactions within the block.
Self-Amending Ledger with On-Chain Governance
The Tezos system mitigates the chance of hard forks via this decentralized voting mechanism. Developers took extra care to ensure that the network has the capabilities to upgrade passively in a decentralized manner via self-amendments. In this way, Tezos seeks to keep its community focused on the same goals.
Tezos (XTZ) Voting Process
The voting process begins when a developer submits an upgrade proposal. The proposal must include the technical aspects of the upgrade. Also, it must include the compensation required by the developer for their efforts.
From here, the protocol will go before the community. The community will test the protocol and give valuable feedback as to its merits. Notably, every protocol undergoes multiple testing periods. In this way, Tezos ensure that only top quality coding makes it onto the blockchain.
Following the completion of the testing period, Tezos token holders can vote on the upgrade directly. If approved, the protocol upgrade will integrate into the network via a protocol called a “hot swap.” Additionally, the developer will receive compensation from the Tezos Foundation for their efforts at this time.
Tezos (XTZ) Account Types
The Tezos ecosystem provides you with the ability to operate under two different account types. These accounts go by the names Implicit Accounts and Originated Accounts. Critically, these accounts serve different purposes within Tezos’ infrastructure. In most cases, an Implicit Account will work for basic functionalities.
Implicit Accounts are the type of account that most users posses. These addresses function similar to traditionally crypto accounts. Each Implicit Account includes both public and private keys. Users can check their balance and transfer funds to and from this address.
Originated Accounts are what developers utilize for smart contracts. They differ from Implicit Accounts in a couple of key ways. For one, these accounts always begin with a KT1 versus a tz1. All Originated Accounts include a Manager, Amount, Delegatable, and Delegate Field options.
Where to Buy Tezos (XTZ)
Tezos is available on most major exchanges today. Binance, the world’s largest exchange, offers multiple Tezos trading pairs. To get started you just need to register for an account. Once your account verification period is over, you can fund your account with fiat currency.
Once your account has funds, it only takes a second to transfer these funds over to Bitcoin or Ethereum. From here, you will want to exchange for XTZ. The entire process can be done in under ten minutes after your account verification completes.
How to Store Tezos (XTZ)
Storing Tezos is easy. If you are new to the space, you can download a reliable mobile wallet in seconds. The top mobile wallets for this coin are Kukai Tezos Wallet and TezBox Wallet. Both are free to download and provide you with an easy-to-navigate interface.
If you intend to invest significant funds into the project, you should consider a hardware wallet. Manufacturers such as Trezor or Ledger, they both provide high-quality devices for around $100. These devices keep your crypto safely stored offline in “cold storage.”
Tezos – Out of The Storm
Now that Tezos has overcome its inner-company related issues, the firm is ready to take its platform mainstream. Today, Tezos has one of the largest followings in the market. Consequently, you can expect to see Tezos in the top twenty cryptocurrencies for years to come.
David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com
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Investing In Kava – Everything You Need to Know
Updated4 days ago
What is Kava?
Kava is a next-generation decentralized lending platform that seeks to bring new flexibility to the market. The network is known for its cross-chain capabilities and unique lending strategy. Today, the platform offers a range of products with its two main being collateralized loans and stablecoins. To date, Kava has paid out $1,129,883.32 in interest payments to its users.
What Problems Does Kava Attempt to Fix?
Kava developers seek to streamline the decentralized lending sector via the integration of a variety of proprietary technologies. Developers specifically developed the system to provide stablecoins and decentralized lending against all major crypto assets in a more transparent and simplistic manner. Consequently, Kava is a pioneer in the DeFi sector that continues to draw international media attention.
How Kava Works
Users of the network can collateralize their crypto assets in exchange for USDX. USDX functions as Kava’s stablecoin in the network. To receive USDX loans, users just need to lock up their crypto in a smart contract on the platform. This locked up cryptocurrency serves as collateral against your loan.
Users may take out multiple collateralized loans to create synthetic leverage for any supported crypto asset in the system. For example, you could choose to lock up your Bitcoin or XRP using the protocol. You would receive an equivalent amount of newly minted USDX to purchase more Bitcoin with. In this way, you gain a leveraged position in the market.
Kava also encompasses a wide variety of community-built applications. Each of these Dapps adds to the overall UX of the platform. This interoperability allows you to store your assets using a variety of hardware wallets and institutional-grade custodians. This flexibility is one of the main draws to Kava versus the competition.
Decentralized Loans and Leverage
The main product of the Kava platform is decentralized loans. All Kava users gain open access to loans, leverage, and stablecoins for hedging. In this way, Kava acts as a powerful tool for investors in the market.
Stablecoin Hedging + Interest:
Another unique feature of Kava is its stablecoin’s capabilities. You can stake and bond USDX stablecoin to start yielding a healthy passive income.
Kava features a unique open architecture that enables future growth. The platform will support a wide range of new crypto assets and offerings in the coming months. These new synthetics and derivative products will push Kava adoption to new heights.
Kava utilizes a dual token strategy to ensure that each user gains the maximum flexibility and usability possible. Dual token platforms are more common than ever in the market. This strategy allows developers and users to maximize their functionality without detracting from either sector. The two coins that are critical to Kava are USDX and KAVA.
KAVA is the native token for this blockchain. This coin functions as the governance token within the ecosystem. Users need these tokens to vote on critical parameters. These votes are what guide the network’s upgrades. They are also used for proposals and voting on specific parameters of the collateralized debt position (CDP) system.
This crypto also plays an integral part in maintaining the network’s security. Users stake KAVA to accomplish this task. Notably, only the top 100 nodes in the network validate blocks in this system. The top token holders are determined using an algorithm that examines each user’s weighted bonded stake in KAVA tokens. For their effort, stakers earn crypto as block rewards.
Stakers in the network hold a couple of responsibilities as well. Aside from securing the blockchain, these users can further stake their holdings utilizing bonding curves of network validators. Malicious nodes can lose their Kava. Actions such as failing to ensure high uptime and double signing transactions are sure to get you removed from this network. Kava is known for its zero-tolerance of malicious nodes.
Last Resort Lender
KAVA can also function as a reserve currency for the network. If USDX becomes over collateralized, the network will mint new KAVA to utilize in the purchase of USDX. This allows Kava to ensure its stablecoin retains its value.
USDX is the stablecoin for the Kava network. This financial instrument is what you receive and pay back your loans in. It also functions as a general payment system. USDX features fast transaction times making it an ideal stablecoin for payroll and other corporate-related payment processes.
Kava users will also utilize USDX to purchase additional crypto assets on the platform. This strategy permits skilled investors to effectively leveraging their exposure in new ways.
Hedging with Interest
You can also hold USDX as a stable asset. In this way, USDX functions as a safe haven during times of market volatility. Keenly, when USDX holders bond their tokens, they receive accumulate interest equal to the current USDX savings rate.
Kava resides on the futuristic Cosmos blockchain. Cosmos is a fourth-generation blockchain that seeks to help categorize and leverage the growing number of blockchains in the market. Specifically, the platform was built using Cosmos-SDK. This protocol is an open-source framework for building public Proof-of-Stake blockchains. Cosmos has a native token called ATOM.
Kava operates with a Tendermint-based Proof-of-Stake (PoS) consensus mechanism. This upgraded PoS consensus mechanism utilizes a Byzantine Fault Tolerant consensus engine. Impressively, this mechanism is far more energy-efficient than early blockchains such as Bitcoin or Ethereum. In many ways, the network is similar to MakerDAO with the integration of CDPs. However, Kava better leverages the zones from Cosmos to add access to cryptocurrencies running on independent networks
Cosmos is best known for its use of open-source modules. These protocols allow developers to quickly implement desirable functionalities into their Dapps. For example, Kava utilizes the Inter Blockchain Communication (IBC) module to provide the platform with the ability to communicate to all Cosmos-SDK blockchains.
Modules Used in Kava Ecosystem
There are four main modules in use within the Kava ecosystem. These modules help the network to function properly and provide users access to some unique financial tools.
The first module integrated into this network is a price feed mechanism. This module is a simple price oracle. Oracles are off-chain sensors that can provide data to blockchains. A group of white-listed oracles posts prices for various assets in the system. The protocol then determines the median price of all valid oracle prices. This data also determines the current price in the system.
The Auction Module allows users to utilize three types of auction protocols. The first option is the forward auction. This is a traditional auction where the buyer will solicit raising bids for an item. This strategy is employed whenever the platform sees a surplus in collected fees. This mechanism allows the system to convert the surplus into more stablecoins.
The next type of auction the network allows is reverse auctions. As the name implies, this auction consists of decreasing bids for a particular item or lot of items. Primarily, this protocol functions to sell governance tokens in order to mint new stable coins. This strategy is used to make up the difference between failed collateral auctions and debts.
CDP (Collateralized Debt Position) Module
The CDP module serves a critical function. It allows users to create, modify, and close CDPs for any collateral type. Additionally, this is the coding used to set the global parameters of the system. These settings cover items such as debt limits and the total circulation of stablecoins in the market.
The Liquidator Module is the repo man in the network. This is the protocol that is responsible for seizing collateral from CDPs whose collateralization ratio is below the threshold set for that collateral type. This module automatically tracks the status of CDPs to make determinations. The final decision of the module is based on prices received from the Price-feed module.
Any collateral that is seized by the liquidator module goes to the Auction module. Here, the collateral auctions for stablecoins using a forward-reverse auction. The goal of this process is to wipe out the debt held initially plus the addition of a small repo fee.
How to Buy Kava
There are a lot of platforms that offer KAVA currently. Binance currently shows the most trading volume. You will need to first register for these platforms to participate in trades. Once you are all set up, you just need to fund your account. Once you have Bitcoin in your wallet, you can simply go to the KAVA/BTC trading pair and select the amount you wish to trade. The entire process is quick and painless.
How to Store Kava
You have three options to consider when storing Kava. The first is a PC-based network wallet. You can download the Kava application for free. It’s secure and easy-to-use. There is also a multitude of mobile wallet options available. Make sure your mobile wallet supports staking rewards such as the JAXX wallet available on iOS and Android.
For serious investors, a hardware wallet is the best move. The Ledger Nano S is one of the most popular hardware wallets in the world and it allows users to earn their staking rewards. Hardware wallets are safer than other options because your crypto remains offline. This method of storage also goes by the name “cold storage.”
Kava – More Opportunity for Rewards
The latest DeFi craze has made the crypto sector even more profitable than initially imagined. Regular users are earning hefty rewards via these platforms. Protocols such as Kava make it possible for anyone to enjoy a reliable passive income. For these reasons, Kava is sure to be a major contender in the DeFi sector moving forward.
Investing in NEO – Everything You Need to Know
Updated9 hours ago
NEO is one of the top cryptocurrencies in the world. This coin managed to capture the imagination of the Asian markets, even during times of regulatory uncertainty. Today, the NEO ecosystem is more vibrant than ever thanks to the hard work of developers and participation from the community.
What is NEO?
NEO is a non-profit community-based blockchain project that entered the market to provide Dapp developers with an easy-to-utilize platform. Specifically, NEO is an open-source blockchain and cryptocurrency. According to the company’s whitepaper, NEO functions as a “distributed network for the smart economy.” Notably, NEO translates to new and young in Greek. The name is appropriate when you consider that the platform is seen by many as a newer and younger version of Ethereum.
NEO was China’s first blockchain project to receive a nod of approval from regulators. Interestingly, the Chinese government has embraced the project, even after shuttering exchanges in the country. The firm is one of only a select few cryptocurrencies allowed to operate in China at this time. This support and the nationalistic feeling behind the project have led many to call the project “Chinese Ethereum.”
What Problems Does NEO Correct
NEO seeks to tackle a multitude of issues facing the market. Primarily, NEO is meant to act as a more flexible alternative to Ethereum. The company utilizes a philosophy that evaluates design choices on a multivariate spectrum. In this way, Neo can adjust its market approach accordingly.
For example, NEO developers can decide based on each particular use case what level of decentralization/centralization is most appropriate for a project. They can also make similar judgments on other important issues such as the level of on-chain/off-chain governance. These options provide NEO with more use case scenarios for large scale adoption in both the commercial and governmental sectors
How NEO Works
The NEO blockchain can accommodate a wide variety of digital assets. For example, the network features full support for blockchain assets, digital identity, and smart contracts. The platform can support decentralized apps (dApp) of all types, tokenization of real-world assets, and initial coin offerings.
NEO is a public platform that also leverages the Onchain network to create an optimal governance scenario. The interoperability of the networks extends the platform’s reach to new heights. It also combines these project’s communities to leverage developments across the network.
Onchain was founded in 2014 in China. This private blockchain company is best known for its focus on government and large enterprises. The platform is well-known for its Decentralized Network Architecture (DNA) tech. This protocol simplifies the creation of public and private blockchains.
NEO utilizes a two-tiered system to provide the network with more flexibility for users and developers. The ecosystem relies on both NEO and GAS tokens. In total, the firm will issue 100 million of each token. There are currently 70,538,831 NEO in circulation.
NEO is the cryptocurrency of the NEO blockchain. This crypto represents a share of ownership in the NEO blockchain. This crypto also plays a role in governance. It allows the community to create blocks and manage the network. Interestingly, NEO has indivisible units and cannot be divided like other coins such as Ethereum. The reasoning behind this decision is that each coin is meant to act as a single share in the NEO blockchain. Just like stocks, these coins cannot break down into smaller units.
GAS is the utility token for the NEO network. This token was formerly known as ANC- Antcoins. In the ecosystem, GAS functions like Ether in the Ethereum network. Developers use GAS for transactions in the network. Additionally, users receive rewards in GAS tokens.
GAS generates at a rate of eight GAS per block. The network automatically reduces the number of rewards per block after two million confirmed blocks. Users have options with GAS. You can trade GAS for other cryptocurrencies such as Bitcoin, Litecoin, or Ethereum. You can also convert your GAS to NEO directly. In this way, GAS pricing remains decoupled.
Coding Smart Contracts
NEO provides developers access to a powerful virtual machine that simplifies the most critical components of smart contract programming. For example, developers don’t need to learn a new coding language to use the platform. The network allows smart contracts in C#, Java, Python, plus a wide variety of other coding languages. In this way, the network can accommodate developers from across the industry.
NEO introduces the world to the Delegated Byzantine Fault Tolerance (dBFT) consensus mechanism. In this mechanism, there are certain nodes known as Bookkeepers. These digital accountants do the actual block verifications. The data is broadcast on the blockchain. Only when two-thirds of the nodes on the network agree with a bookkeeper’s version of the blockchain is consensus achieved.
The dBFT consensus mechanism is fast, really fast. It can handle more than 1,000 transactions per second. In comparison, Bitcoin handles around six transactions per second (tps). Ethereum can handle a whopping 12 tps. Impressively, NEO seeks to push its tps rate to new heights with their next upgraded. The goal of the update is to take the network to an insane 10,000 transactions per second.
In May 2020 the developers behind NEO proposed a major upgrade to the network. The upgrade would introduce a new governance model. The new strategy enables coin holders to vote for a committee of 21 governing members. These members hold the responsibility of representing the community. They gain the ability to vote on various modifiable parameters of the blockchain and other changes to the network’s coding.
The proposal suggests that people that vote for these members receive extra GAS rewards. This reward is a means of thanking members for their participation in the governance process. The proposal states that out of the 21 chosen governing members, seven will also become consensus nodes.
As a consensus node, their responsibilities will extend to validating blocks. Additionally, these seven members gain veto powers. To make a veto decision, the consensus nodes must obtain two-thirds support from the community.
History of NEO
NEO entered the market as Antshares back in February 2014. This firm is the brainchild of two longtime blockchain enthusiasts, Erik Zhang and Da Hongfei. During this time, the actual cryptocurrency went under Antshares (ANS). In 2014, the two developers expanded their vision with the creation of Onchain.
In April 2016, NEO releases its whitepaper officially. The paper highlighted the benefits and technical aspects of the delegated Byzantine Fault Tolerance. At the time, this was the first Chinese born consensus mechanism. As such, it received heavy media coverage in the region.
In August 2016, NEO entered the market via an ICO. The event was a major success with the project securing over $4.5 million in funding. These funds went to the further expansion of NEO’s strategy in the region. In September of the same year, Onchain established a Technology Strategic Partnership with Microsoft. The agreement inked cooperation on multiple projects.
In June 2017, Antshares rebranded to NEO officially. The crypto also received its first US-based support this year. Specifically, the coin saw a listing on Bittrex. The next year, the digital ID platform VALID announced a strategic partnership with the firm.
This year saw the announcement of a major upgrade. The NEO3 upgrade is set to be the company’s largest to date. In addition to the introduction of the new governance models, the upgrade will bring more interoperability into the sector. Specifically, the platform will gain more cross-chain capabilities. Currently, developers are experimenting with these protocols. They have set up Testnets with Bitcoin, Ethereum, and Ontology.
The upgrade will also simplify the tokenization process. Specifically, developers want to make it easier to create and issue Non-fungible tokens. Non-fungible tokens are unique digital representations of an asset. Some examples of non-fungible tokens include the tokenization of:
- Security Tokens
- Event Tickets
- Other Physical Assets
How to Buy NEO
NEO is not hard to find in the market. Most major exchanges have NEO/Bitcoin trading pairs. To utilize these platforms you will just need to register for an account. Once your account is live, load it with fiat currency or Bitcoin directly. From there, you just need to locate the NEO/BTC trading pair. The entire process is quick and easy once you complete your registration.
How to Store NEO
There are a few ways to store your NEO. The important thing to remember is that you only want to store your crypto in a wallet that allows you to earn your GAS rewards. The NEON wallet is one of the best options for investors seeking to earn their rewards.
Impressively, you can also earn GAS rewards using a hardware wallet. The Ledger Nano S is able to connect to your NEON wallet directly. You can then send, receive, and get your rewards from one safe wallet platform Notably, NEON is not the core wallet for the network but it has received unmatched community support and has the blessings of the developers.
Given NEO’s unique stance in the Asian markets, it’s hard to imagine anything but success for this platform. These developers continually upgrade the network with NEO3 set to release in the coming months. For now, NEO shares a top spot in the crypto market as one of the premier Dapp development platforms available.
How to Short Bitcoin (BTC) – An Easy to Follow Guide
Updated1 week ago
Learning how to short Bitcoin (BTC) is an essential skill to learn if you intend to become a professional crypto trader. Notably, shorting is an advanced investment strategy that comes with a high level of risk. However, if you master the skill, you gain the ability to acquire massive returns during times of market value decline.
What is Short Selling?
Short selling is an investment method that allows you to benefit from drops in the price of a particular asset. When an investor speculates on the decline in a tradable asset such as Bitcoin, stocks, or other securities prices, they can gain profits using shorts. In a short sale scenario, you bet against the price of the asset in question.
Why Would You Want to Short Bitcoin?
While in the long term it’s easy to see that Bitcoin continues to see price appreciation, there are endless reasons to short this cryptocurrency. The market is volatile and rather than letting your holdings sit during times of market value decline, you can sure up your holdings using shorts.
How Bitcoin Shorting Works
To understand shorting, let’s first look at the industry that created this method, stocks. In the stock market, short selling is a popular investment strategy. To accomplish a short, an investor borrows a certain amount of the stock they believe will decline in value. As soon as the investor receives these stocks, they sell them at the current market value. Once the price of the assets drops, the investor then can buy the stocks back and return it to the lender.
While the asset is different, shorting Bitcoin works in much the same manner. A crypto trader will borrow Bitcoin prior to a foreseen market drop. As soon as the investor receives their Bitcoin, the assets are sold. After the value of Bitcoin completes its dip, the investor repurchases Bitcoin with the original sales funds.
Because the price of Bitcoin is cheaper than when you borrowed it, you can repay your loan and keep the difference in the repayment and your total trading actions. Here is a specific example of shorting in action.
Jeremy borrows 5 Bitcoin’s at $12,000 apiece. He immediately sells these coins for $60,000.00. A few days pass. On the third day, Jeremy’s hunch proved correct. The price of Bitcoin did a major correction to $10,000.00.
Jeremy then repurchases Bitcoins using the $60,000 he held from the initial sale of his holdings. Since the price of Bitcoin dropped $2,000 apiece, Jeremy receives six Bitcoins for his purchase. He then returns the five Bitcoins to the lender. The last Bitcoin is his profit.
Jeremy can sell this Bitcoin and keep the $10,000, or he can use his earnings to make other investments. Had he not shorted the market, he would only show losses in his portfolio. Even if he had traded his assets out to stable coins, he would only make the difference in price from his original holdings and the value drop. Instead, he 5x his ROI using this advanced trading method.
How to Short Bitcoin?
Shorting Bitcoin is easier than ever today. The first step is to locate a reliable platform that permits leveraged trading. These platforms specialize in high-risk shorting investment loans.
Importantly, you will need to pay back any loan you take, plus fees. If you borrow ten Bitcoin, you’ll need to have those coins back when it’s time to repay your loan. To ensure that you fulfill your promise, these platforms require users to put up a deposit, or margin.
Your margin requirements act as a form of collateral or security. These holdings back your position with the goal to ensure the shares will be repaid at the agreed-upon future date. If your short starts to go awry, your lender can, and most likely, will call your margin in. Most platforms only need to provide you with a quick notice to do this. For these reasons, it’s imperative you read all the fine details of your Bitcoin short agreement.
Ways to Short Bitcoin
Today, there is a variety of ways to short Bitcoin. Each of these techniques provides its own advantages and disadvantages. You must consider the entire situation before you decide on what strategy best suits your needs.
Short Sell – Contract for Difference (CFD)
One of the most popular ways to short Bitcoin is through the use of CFDs. CFDs allow you to short Bitcoin without purchasing any coins directly. Instead, you sign a CFD and agree to just pay the difference between the price of the asset at the time of your loan and your contract rate. CFDs are popular because they are more convenient and cost-efficient because there is no need to make additional purchases.
How to Short CFD
eToro is the premier exchange for cryptocurrency CFD trading services. You will need to create an account to get started. Luckily, the process is simple. Notably, you must verify your identity and account via an email before you can use the platform.
Once you are all set up, shorting is simple. All you need to do is open a trade on the BTC/USD instrument. Next, you need to select “Sell” from the options. You will be brought to a screen that will allow you to set up all of the details of your CFD. It doesn’t get easier than that. Best of all, eToro features an advanced interface that is easy to navigate. Form here, you can stay up-to-date on all the market’s developments.
There are many exchanges in the market today that offer shorting services. Most of these platforms allow you to leverage your shorting strategy. Leveraged shorting is the act of borrowing more Bitcoin from the exchange than you hold prior to your sell-off.
Leveraged trading is one of the riskiest strategies in the market. It takes a firm understanding of the market conditions and your investment. Additionally, you really need impeccable timing to be successful with this strategy. If the exchange feels as if your investments are going to sour, they will close your trade early, keep your margin, and make you repay your loan.
Understanding When to Short
There are certain times when shorting Bitcoin is more complicated than others. For example, shorting Bitcoin against long-term uptrends can be tricky, to say the least. Bitcoin has a way to slowly rise in value. Reversely, this digital asset can shed thousands of dollars in market value in minutes. These scenarios put into perspective why shorting can be difficult for new investors to complete successfully.
Understanding the Mentality of the Market
It’s also important to consider the mentality of other traders in the market. If you short Bitcoin, and suddenly the price starts to shoot up quickly, you will need to rush to repurchase your assets. Unfortunately, every other investor who made the same decision will seek to accomplish the same task.
This sudden drive to repurchase Bitcoin drives the market value up sharply. When this scenario plays out, it’s what is known as a short squeeze. Short squeezes add to your losses in this position. To avoid this scenario, you must be vigilant in your market assessments.
Past Bitcoin Sell-offs
The Bitcoin market has nine years of trading data to back it up now. A quick glimpse at the past of Bitcoin and you can easily see scenarios that initiated major sell-offs. The more you understand these scenarios, the easier it will be to identify the next major sell-off in the market. Here are some of the main reasons Bitcoin prices stuttered in the past.
Since the crypto market is still in its early stages, there is still a lot of regulatory uncertainty surrounding this industry. In the event that a major country bans or enacts some anti-Bitcoin stance, the market will adjust accordingly.
Major Exchange Hacks – Short Bitcoin
History has shown that major exchange hacks can tank Bitcoin prices in minutes. One famous example of this scenario playing out was during the Mt.Gox hack. At the time, Mt.Gox was the largest Bitcoin exchange in the world. Its hacking sent Bitcoin prices spiraling downwards for months.
Hard forks occur when the community behind a crypto project is split on a certain upgrade. In a hard fork, some of the miners refuse to change over to the new protocol. This creates two separate blockchains from the moment of the fork moving forward. Consequently, hard forks also create a rift in a coins support community.
Bitcoin prices saw a decline when the community split over transaction block sizes. The row eventually led to the creation of Bitcoin Cash. Today, both coins have a strong following in the market.
There is another update related scenario that can drop the price of a digital asset. When important upgrades see considerable delays, it can cause a loss of faith by investors. This loss of faith demonstrates itself in negative price movements.
Bitcoin saw some significant price drawbacks when developers postponed the SegWit update. SegWit reduced the size of transactions in an attempt to combat market congestion on Bitcoin’s blockchain. At the time, the network’s congestion was unbearable. Consequently, every delay was met with negative price movements.
Developers Exiting the Project
Another major development that can hurt a coin’s price is the exiting of a key member from the platform. Blockchain developers are in high demand. The top programmers are respected throughout the entire industry. When one leaves a project, it can symbolize the beginning of the end for a coin. It can also represent a shift in the coin’s primary functionality moving forward. Either way, investors don’t like to see these guys go.
Future Risk Scenarios
There are also future scenarios that could occur that would affect Bitcoin’s price negatively. For example, if the cryptographic hashing algorithm of Bitcoin is broken, the coin will become unsecured and its market value will plummet. Along the same line of thought, major coding exploitations could also cause investors to lose faith in this cryptocurrency.
Regulatory changes in the market are perhaps the biggest threats to Bitcoin prices. In the past, major countries, such as China have put heavy pressure on the market. In 2017, China banned all exchanges and ICOs in the country. These actions dropped Bitcoin’s price sharply following the news.
Bitcoins anonymous creator Satoshi Nakamoto has remained in the shadows for the last couple of years. In the early days of Bitcoin, Nakamoto mined over one million coins. These coins have sat in his wallets since day one. If these coins were to enter the market, the price of Bitcoin would see a huge correction to reflect the added supply.
Risks of Shorting Bitcoin
Short sales are considered a risky trading strategy because they limit gains even as they magnify losses. Shorting is especially risky if the lender calls in the assets before prices have a chance to drop. There are some techniques you can employ to simplify the process, however, none are full proof.
Let’s examine the same example from before using the $12,000 Bitcoins that dropped down to $10,000. In the first scenario the short completed according to plan, the price of Bitcoin dropped and the investor repaid their debts to the lender. Now let’s see what would happen if the price of Bitcoin didn’t drop.
Maximum Risk Exposure
Let’s say that the price of Bitcoin jumped up to $13,000 instead of dropping. In this situation, the lender would call in their loan. The lender would close your trade and keep your margin. Additionally, you would owe $65,000 worth of Bitcoin instead of the original $60,000 worth of Bitcoin you borrowed.
Shorting Bitcoin – Summary
Shorting is a great way to make some extra profits. However, if you are new to trading, or are unfamiliar with the market, shorting is one of the fastest ways to lose your booty. For these reasons, each investor needs to do some soul searching prior to jumping into the shorting market. That being said, shorting is a powerful tool that provides investors with huge ROIs when completed correctly.