8 Best Bitcoin Lightning Wallets 2023: Top LN Wallets Compared!

https://www.coinbureau.com/analysis/best-bitcoin-lightning-wallets/

Bitcoin’s birth came at the heels of the 2008 financial crisis, one of the most defining crises of the decade. The title of the Bitcoin white paper called it a “Peer-to-peer Electronic Cash system”. Ironically, it is actually not very well equipped to fulfil the narrative of becoming a global payment network, at least, not until the Bitcoin Lightning Network becomes more widely adopted, which brings us to this article on The 8 Best Bitcoin Lightning Wallets.

Despite the top-notch security and limited token supply that drives up the value of the Bitcoin, the network’s transaction processing speed leaves much to be desired, moving at a paltry 7 transactions per second.

Ethereum, its second closest competitor in terms of market cap fared slightly better but not by much with 13 transactions per second. However, blockchains known as Layer-2s or sidechains like Polygon, have taken on the burden of processing transactions on behalf of Ethereum. These alternative solutions greatly speeded up the processing speed, with theoretical outputs in the tens of thousands per second, rivalling Visa and Mastercard.

No such layer existed for Bitcoin until the Lightning network came about in 2015. Due to the fast processing speed and low transaction fees, the popularity of the project increased. One thing that brought the project to the forefront is the development of Lightning network wallets. In this article, we are going to look at some of the most popular lightning network wallets currently available.

Best Bitcoin Lightning Wallets: Summary

Key Features of Bitcoin Lightning Wallets Are:

Nodes – A Lightning node is required to perform transactions on the Lightning network. It has two responsibilities: monitor the Bitcoin network to ensure the funds’ safety and perform transactions by communicating with other nodes. It keeps tabs of which channel has how much so that there will be enough to make a payment when the need arises.

Channels – Channels are how two parties pay each other. Each party opens a channel on a node by depositing some BTC in it. Think of a channel like the sender and receiver. They’d need to know who is on the other end making and receiving the payment. How the payment is made is the node’s business. It can be a direct payment between two nodes, or it could involve multiple nodes along the way.

Both the opening and closing of channels are recorded on the Bitcoin network. What happens in the time period between these two actions though is none of Bitcoin’s business.

Invoices – It is a request for payment on the Lightning network. The invoice is identified with a long string of alphanumeric characters which contains all the necessary information required. These include:

  • Payment amount
  • Expiration time
  • Invoice ID with timestamp
  • Invoice description
  • Backup bitcoin address
  • Payment routes
Lightning Invoice Example

What a Lightning Invoice looks like. Image via medium.com/suredbits

Bitcoin Lightning Wallets Pros and Cons

Pros of Bitcoin Lightning Wallets

  • Fast and cheap transactions on the most secure blockchain network in the world.
  • Simple-to-use UI, suitable even for beginners.
  • Free to download

Cons of Bitcoin Lightning Wallets

  • Start-up funds needed to open the channels
  • Low adoption rate

What Are Lightning Network Wallets?

A Lightning Network wallet allows users to make and receive payments via the Lightning Network. This network, commonly referred to as Bitcoin’s Layer-2, enables fast and cheap transactions on Bitcoin through the use of channels and Lightning nodes.

There are two types of Lightning Network Wallets catering to different types of users.

Custodial Wallets

When you use a custodial wallet, your funds are parked with the custodian, so you will need to trust that they won’t run away with your money or mismanage the business resulting in a business failure. On the other hand, you do not have the responsibility of safeguarding your own funds. When you want to send a payment, the wallet routes the funds on your behalf and shows you the balance you have with them. However, there’s no way for you to verify if the balance you see is true unless you move your funds to a non-custodial wallet through the Bitcoin network.

In return for your trust, custodial wallets take care of the node-running and channel management part for the user. All they need to do is follow the simple UI to send and receive funds. All the complicated stuff is handled by the wallet. In some cases, if two customers use the same app to send funds to each other, a channel is not needed as the wallet can shuffle the funds from one party to another using their accounting system. You can also receive BTC via Lightning without having to first provide liquidity to activate the channel.

Non-Custodial Wallets

Security is solely on the user’s shoulders if they choose to go with a non-custodial wallet. Those who like to have complete control over their funds consider this a blessing as they do not have to trust a third party with their precious BTC.

Each non-custodial wallet has its own node. Some offer the option for users to connect to their node of choice instead of using the wallet’s node. Aside from that, other related operations such as channel management, including the opening and closing of channels, channel capacity etc can be handled by the non-custodial wallet for those who do not want to muck around. Certain wallets offer advanced users the ability to fiddle with channel-related settings.

One thing they will have to consider is how much BTC to allocate when opening a channel. This is because there needs to be a minimum amount of sats to keep the channel open, especially if it will be open for an extended period of time, like a running tab at a restaurant or your neighbourhood Quik-E Mart where you only settle the bill once a month.

If you are going to be using any non-custodial wallets for cryptocurrencies, I recommend checking out our article on crypto safety to ensure you are following the best practices to keep your crypto safe!

How do Bitcoin Lightning Wallets Work?

It is a well-known fact that Bitcoin has a scaling problem. This makes it a less-than-ideal choice for a global payment system despite the super-tight security and value-retaining features. It wasn’t until the emergence of the Lightning Network, introduced by Thaddeus Dryjo and Joseph Poon in a white paper, that gave Bitcoin a shot at overcoming the issue of scalability.

The Lightning Network allows Bitcoin micropayments to happen off-chain through nodes and channels, similar to a sidechain for Ethereum. These micropayments are made instantly and save a lot on transaction costs, compared to the main Bitcoin network. Transactions that happen on the Lightning Network are not recorded on the main Bitcoin network except for the opening and closing of channels as these transactions carry the BTC balances needed to keep track of the overall balance. It’s like having a fixed amount for a monthly food budget but you may not track every single penny spent for food.

A Bitcoin Lightning wallet usually is its own Lightning node where it allows payments to be routed through it to other nodes/destinations. At the same time, it also enables channels to be opened and to be the party initiating the transaction to someone else.

The job of each Lightning node is to route payments. The compensation they get is the fees set by the node operators. In order to be a successful node operator, a certain amount of capital is required as liquidity. Insufficient liquidity from the nodes means that the payments will fail, and node operators won’t get any compensation.

To maintain the balance of funds in a node, you want to have almost equal amounts of inbound and outbound payments so that the funds in the node do not get depleted from making too many payments but not enough paid to you. Here is where fees come in.

There are two types of fees: the ones charged by the network and by the wallet. The amount of fees charged, denominated in sats, may not appear to be a lot in cash terms, but as the price of Bitcoin rises, there would be a significant difference between 120 sats and 12,000 sats. The fees charged include channel management and making a transaction or payment.

Aside from payments, the wallet also gives the users access to apps or locations where they can use their sats. This encourages more people to consider using Bitcoin for their daily needs.

Best Bitcoin Lightning Wallets

In the following section, we will introduce a number of wallets, both custodial and non-custodial ones, for your consideration. Bearing in mind that the context is around ease of making payments in everyday situations, the focus is on mobile apps as most of us have accepted using some kind of e-wallet on our phones to pay for things.

Wallet of Satoshi

The official website of Wallet of Satoshi claims that it’s “the world’s simplest Bitcoin Lightning wallet” and it does appear so. This Lightning wallet is the custodial type that is only available on mobile for both Android and iOS users.

After downloading the app to your phone, you are greeted with a screen with the Send and Receive button, allowing you to instantly send or receive Bitcoin. For the full menu list, select the three lines in the top-right corner. Enter an email address to use the account on multiple devices.

WalletOfSatoshi_Layout

The various layouts of the app. Image via WalletOfSatoshi

The wallet offers three ways to add funds to it: receiving Bitcoin from another wallet via the main Bitcoin network, Lightning Network, and buying Bitcoin directly from them. Moonpay is the partner for buying and selling Bitcoin through the app. Prior to entering your card details, you get an email notification with the verification code through the email address you entered for creating an account. Note that this is subject to the regions supported by Moonpay.

If you’re at a loss as to where you can spend your Bitcoin, the app links you up with btcmap.org  which lets you know which vendors or ATMs in your area accept Bitcoin as payment. In terms of security, the app has a biometric setting and the ability to hide your balance.

WalletOfSatoshi_Settings_Menu

Menu and Setting options. Image via Wallet of Satoshi

Overall, the clean and simple interface presents an inviting allure to use the app, giving users the confidence to try it out.

 Electrum

Electrum is a non-custodial Bitcoin wallet designed specifically to store Bitcoin only. It’s been around since 2011 and is used by many of the Bitcoin OGs. Security is one of the great features of the wallet because it has a watching-only wallet function for tracking transactions, multisig abilities, and supports hardware wallets that were introduced by Guy in his Top 5 Hardware Wallets video. The wallet features both a desktop and mobile version (but only for Android), making it handy for mobile users to make payments to merchants.

Electrum Wallet

Configure Electrum for Lightning Payments. Image via Electrum Google Playstore

Electrum is also the oldest wallet to adopt Lightning network payments since they announced their support in 2020. The wallet itself is open-source and free to download. However, it is not a wallet for newbies as there are many options to configure the wallet to do a lot of things. However, it is great for those who want as complete control as possible over their wallet setup.

Breez Mobile

Breez Mobile is a non-custodial open-source wallet available in iOS and Android for Lightning payments. By using Breez, you are essentially running your own Lightning node on your mobile. You will also need to open a channel with Breez and have a minimum of around 600 sats in your balance to keep this wallet active.

To add funds to the wallet, you can make a BTC deposit from another address, buy Bitcoin, or use a FastBitcoins voucher. Note that both the actions of adding and removing funds involve interacting with the main Bitcoin network.

Breez Mobile Wallet

Use Breez for P2P payments, accept BTC for services, or support your favorite podcaster. Image via Breez Google Playstore

The wallet can be backed up to a cloud storage such as Google Drive so it’s not great for anonymity or if you want to divest yourself from the clutches of a big tech company. For extra protection, add a 12-word phrase during the backup process. That being said, it also lets you restore your wallet using your Google account. Note that the wallet is still in Beta mode so please use at your own risk.

What makes Breez interesting is that it’s not just a mobile wallet. It can also double as a Point-of-Sale app for merchants who want to accept Bitcoin for their products and services. In addition, you can also listen to podcasts on the app and support your favorite podcasters by paying them in sats. This is possible by giving them a “boost” with a one-time payment or entering an amount for Sats/minute, basically, pay as you listen.

Zap Wallet

Zap wallet is the brainchild of Jack Mallers, known for the Strike app, a payment network for merchants used by Shopify. He was one of the first to publicly preach the gospel of the Lightning Network to the masses. The non-custodial wallet, in both desktop (MacOS, Windows, Linux!) and mobile versions, is more suited for medium to advanced users. Some setup is required to get the wallet up and running. Jack has made some YouTube tutorials on this topic and a few more. Note that the mobile versions do not contain a Lightning node and require a separate node to use it.

You can connect the wallet to an existing node prior to opening a channel there. Future features include the ability to run a full Lightning node in one click and use the Tor network to connect, thus maximizing anonymity and security, plus the ability to buy Bitcoin directly from the app.

Zap Wallet

Zap Wallet requires some setup. Image via Zap Wallet Google Playstore

Muun Wallet

Launched in 2019, Muun Wallet is also a well-known option for a non-custodial Lightning Wallet, especially ever since Jack Dorsey tweeted about it in 2022. Security is a key concern with any wallet and Muun has taken great measures to keep your funds safe.

  • 2 for 2 multisig, which means you hold one key for spending, and the other key is held by Muun.
  • Emergency Kit that exports your private keys and output descriptors. Both pieces of information combined tells you how to find your funds on the Bitcoin network.
  • Choose between a randomly-generated code or multi-factor authentication as your backup option.

Image via Muun Wallet blog

Muun Wallet also has some interesting features not found in other wallets. These include: 

  • Lightning Invoices expiration from 1 hour to 24 hours
  • Mempool estimator is a tool to check that you are neither overpaying nor underestimating fees required for the transaction.
  • Submarine Swap is a feature that involves making payments via a third party known as a swap provider. In situations where you need to pay someone but you don’t have a direct channel with that person, the funds will then go through a swap provider who helps you pass along the funds to the intended party. The swap provider sends the funds to the recipient first, then claims the same amount from the sender by the revelation of a secret created by the recipient within a certain timeframe.

Phoenix wallet

ACINQ, one of the teams that contribute to the development of the Lightning network and created the Eclair wallet, has released another product called Phoenix Wallet while sunsetting the former one.

Phoenix is a non-custodial mobile native LN wallet for both iOS and Android users. It will handle the opening and closing of channels for you and the wallet itself is a full-fledged Lightning node. A minimum of 10,000 sats is needed to open the channel and “activate” the account.

The wallet allows for on-the-fly channel creation but there’s a fee involved. This function is recommended to be disabled on the app as it may result in the unnecessary creation of multiple channels when receiving payment amounts that exceed the channel’s balance limit. When this function is disabled, unsuccessful payments will simply fail, thus never leaving the sender’s wallet.

Phoenix Wallet

Image via Phoenix Wallet

Zeus Wallet

Rather than a straight-up wallet, the Zeus Wallet app is more of a mobile version of a Lightning node management app that allows for Lightning payments to be made on it. This app does not have its own node and requires the user to connect to an existing node. This alone makes it out of reach for beginners. However, for those who are interested to run their own node, this would be a good app to consider.

The app is open-sourced and non-custodial, and supports both Lightning and the Bitcoin network itself, with a strong privacy focus through Tor connection and the ability to hide the sending data in Privacy mode.

Zeus Wallet

Secure transactions with Zeus wallet. Image via Zeus

Bitcoin Beach Wallet (Blink)

The Bitcoin Beach Wallet was created at El Zonte in El Salvador, the only country in the world that currently accepts Bitcoin as legal tender. The wallet is part of the government’s efforts to enable the quick and cheap transfer of Bitcoin in the country. Unlike Chivo, the official wallet used only by El Salvadoreans, this wallet is available for anyone around the world.

The app is designed not only for beginners using the Lightning Network but also for onboarding newbies to Bitcoin. It features an Earn and Learn section where users can stack sats by learning about Bitcoin. Other features include:

  • Multi-language support
  • Multi-currency support
  • Stablesats – an open-source project that creates a form of “synthetic USD” through a derivatives trading strategy in the background. The result is that users can receive, send, and hold their funds in a USD equivalent account.
  • Localised map showing where one can spend their sats.
  • Log in using your phone number.
  • Integration with Nostr for tipping
Bitcoin Beach Wallet (Blink)

Image via Bitcoin Beach Wallet Google Playstore

The app also has a merchant interface that acts as a Point-of-Sale (POS) system for accepting Bitcoin payments.

Lightning Network Development and Adoption Rate

Although the idea of having a payment channel has been around for as long as Bitcoin, it wasn’t until the Lightning Network white paper,  released in February 2015 by Joseph Poon and Thaddeus Dryja, that the idea really caught on. Central to the white paper is the Hashed Timelock Contract (HTLC), used for payment routing over multiple channels, that gave Lightning Network a meaty feature.

In August 2015, ACINQ debuted its new implementation of the Lightning Network known as Eclair. Not long after, they unveiled the Android version of their Lightning wallet by the same name. This was quickly followed by Lightning Labs and Blockstream. The three companies were the main actors pushing the development of the Lightning protocol.

From the first purchase of a physical item in January 2018 to today, where there are companies like Bitrefill and Fold App to name a few that offer BTC purchases for daily necessities, adoption is slow but surely growing by the day. As more and more people cotton on to the possibility of using Bitcoin to make payments, the promise of a future where Bitcoin can be accepted alongside cash is coming ever closer.

Tik Tok Inline

8 Best Lightning Wallets: Conclusion

A key impetus for me to do this article is because I was recently introduced to Bitrefill and the possibilities of paying for daily necessities using Bitcoin. I then decided to go on the hunt for a good Lightning wallet to use and share my findings with you. It’s clear to me that mobile apps are the way to go for maximum convenience. Depending on how adventurous I am (or you are), I may consider running my own Lightning node in the future. For now though, I’m happy to use a custodial wallet as the quickest and easiest way to dip my toes in. While there is a risk of funds’ safety with a custodial wallet, it’s worth pausing a moment to consider: if I only keep 10,000 sats in that wallet, and it’s all gone, that’s a small price to pay, whereas I may benefit greatly from the upside.

Once you start seeing Bitcoin as a denomination of sorts, it could be a gradual shift to viewing the value of items in sats instead of dollars. Somewhere in there is the germination of a way of seeing the world in a completely different manner.

Lightning Network Wallet FAQs

Which Bitcoin Wallets use Lightning?

Electrum is a known Bitcoin wallet that also has the option for using Lightning. Exodus is a wallet that supports both Bitcoin and Lightning.

Does Coinbase Wallet use Lightning Network?

No, the Coinbase wallet does not support the Lightning Network. Recently though, Coinbase announced that they will be supporting the Lightning network. When that happens, they might extend that support to their wallet.

Is a Lightning Wallet the Same as a Bitcoin Wallet?

Not quite. a Bitcoin wallet stores Bitcoin and all transactions are performed on the main Bitcoin network. A Lightning wallet utilises channels between two parties for transactions. These are known as off-chain transactions that Bitcoin knows nothing about. Only the opening and closing channels are recorded on the Bitcoin network.

Are Lightning wallets safe?

Even though some of the wallets might be in Beta version, the wallets in general have no glaring security risk. Please bear in mind that the Lightning Network is still being developed as we speak, so we recommend only putting in an amount you won’t lose sleep over at any time.

What is the Simplest Lightning Wallet?

Both Wallet of Satoshi and Blink are some of the simplest Lightning wallets currently in the market.

How Do I Get a Lightning Network Wallet?

Lightning Wallets can be easily downloaded via the App Store or Google’s Playstore as long as the wallet supports iOS and/or Android. The wallets are free to download.

What is an LN wallet?

An LN wallet is a wallet that supports the using the Lightning Network for making cheap and near-instant payments over the Bitcoin network.

What are the Main Crypto Wallets?

Depending on what kind of crypto you hold, popular ones include Metamask, Exodus, and Coinbase Wallet to name a few. For more information about them and many more, we suggest taking a look at our Top Wallets Guide for a more comprehensive introduction.

Which Wallet is Best for Cryptocurrency?

A cold wallet, known as hardware wallet, are hands-down, the best wallets for storing cryptocurrency. We’ve got a great selection for you to choose from in the Most secure wallet article.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

The post 8 Best Bitcoin Lightning Wallets 2023: Top LN Wallets Compared! appeared first on Coin Bureau.

Polygon 2023: Beginner’s Guide to MATIC

https://www.coinbureau.com/education/polygon-2023-beginners-guide-to-matic/

Communication is key to the development of human society. Back in the days when tribes lived on their own, spread out all over the place, the growth of the community was limited to the resources they had in their vicinity. The resources referred to aren’t only restricted to natural ones, but also the diversity of the gene pool. If everyone married each other without outsiders involved, inbreeding would occur at some point. 

When travel was made available and tribes started to come in contact with each other, that’s when the need for communication arose, and with it, a more thriving society for all involved.

This same scenario can be applied to the crypto space when talking about blockchains. Many of them are often referred to as siloed entities, each with its own ecosystem but not always easy for users of each system to talk to each other from different blockchains. 

Cross-chain operability and communication are the logical next step forward for the development of this space. A few blockchain projects had already started R&D to tackle this problem, amongst them the Polygon network. Together with Polkadot and Cosmos, Polygon positions itself to be the one layer on the Ethereum network that connects other blockchains built into the Ethereum ecosystem so everyone can talk to each other in a seamless manner.

Polygon is a critical component of the Ethereum network, not just as a scaling solution and resolution to the high gas fees and low throughput on the Ethereum network, but as an interoperability layer as well. This Beginner’s Guide to Matic will not only highlight the importance of Polygon and its robust utilities, but it will also answer the important question: What is Polygon?

What is Polygon? Summary:

Polygon is an interoperability and scaling framework for building Ethereum-compatible blockchains. Polygon helps to significantly increase the efficiency of the Ethereum network both in terms of lowering fees and increasing transaction throughput by acting as what is known as a “sidechain“.

The Polygon network is a blockchain running next to the main Ethereum blockchain network, it alleviates the burden of processing transactions from the Ethereum network by doing this on its own chain at a much faster speed, allowing for lower gas fees as a result. It also serves to connect other Ethereum-based blockchain applications together while also providing a toolset to simplify the building process for the apps, earning it the nickname “Ethereum’s Internet of Blockchains”. 

It aims to combine the networks’ adaptability and scalability while taking advantage of Ethereum’s security, liquidity, and interoperability. The Polygon network is centred around the MATIC token, which is used for governance, staking, and fees. The Polygon blockchain aims to be the blockchain of choice for anyone looking to build an Ethereum-compatible blockchain project. It offers a framework to help builders get started with a variety of tools at their disposal and connectivity for the blockchain to talk to the Ethereum network and other blockchains in the same space. 

Cryptocurrency Sidechain

Illustration of a side chain in cryptocurrency. Image via StackExchange

Key Features of Polygon are:

  • Quick and safe transactions: The Polygon network can perform an estimated 65,000 transactions per second, far more than what Ethereum can manage. A single sidechain alone can process up to 10,000 transactions. At the same time, it leverages the security of the Ethereum blockchain by having the final confirmation processed there.

  • ETH-compatibility: Polygon offers builders full Ethereum compatibility with their blockchain projects. They can easily launch them on Polygon and gain access to the Ethereum network with ease. 
  • zk-EVM: Polygon is one of the earliest blockchains to use this technology. The “zk” stands for “zero-knowledge”, a way to prove you have something without having to show what you have. Previously, this method didn’t work with smart contracts but by adding the EVM component to it, this method can also be used with smart contracts. This means much quicker and more secure transactions. It also allows developers to build a variety of dApps for all sorts of user experiences.

  • “Security as a service”: This feature gives builders the option to utilise Ethereum’s validators to validate transactions or for professional validators to do so. 

Polygon Pros and Cons

Pros of Polygon Matic

  • Fast and cheap transactions- not only compared with Ethereum but it can stand its own in this corner with other blockchains of a similar kind.
  • High level of security- by using the Ethereum network for its own security layer. Its own sidechain also uses Proof-of-Stake for additional security.
  • High-profile partners– the Polygon marketing team had gone into overdrive by signing up with numerous high-profile partners such as Starbucks and Nike to name a few. It was also accepted into Disney’s Accelerator Program, which bodes well for the future of mainstream adoption of the blockchain. 
  • Healthy ecosystem– lots of popular dApps are on the Polygon network which gives it a high user rate, driving demand for its native token.

Cons of Polygon Matic

  • Not a standalone chain– It relies heavily on the Ethereum chain, tying its fortunes with Ethereum.  
  • Heavy competition– Polygon is not the only kid on the block bringing a scaling solution to Ethereum. It’s also one of a handful of blockchain projects working on cross-chain communication, albeit within the Ethereum space but not yet with other non-Ethereum-based chains.
  • Centralization concerns- Polygon is more centralized as it is managed and developed by centralized entities, which is in contrast to decentralized cryptocurrencies like Bitcoin.

A Brief History of Polygon Network

The Polygon network would not have come about if it weren’t for the NFT project CryptoKitties. Back in 2017, that was the most talked-about project on the Ethereum blockchain and within the crypto community. Its popularity caused terrible network congestion on the blockchain and traders had to pay exorbitant fees. Jaynti Kanani, a data scientist in India who was working for Housing.com, noticed this issue and saw an opportunity for improvement. He reached out to Sandeep Nailwal, a blockchain developer, and Anurag Arjun, a business consultant for help. They got together and drafted a white paper, calling their project MATIC network.  Their center of operations was set up in Mumbai. 

Later in April 2019, the Polygon team sold about 1.9 billion MATIC tokens to raise funds for developing the project through the Binance launchpad in an IEO (Initial Exchange Offering). The main MATIC network successfully launched in Q2 of 2020.

In February 2021, the team rebranded itself as Polygon. The rebrand represents a shift in the team’s focus from developing Plasma chains to an expansion of the project’s services, including the use of multiple scaling solutions. During this transition, they were joined by Mihailo Bjelic, a Serbian who brought his expertise in software engineering, to the team. 

Since then, the strength of the project has grown by leaps and bounds. Its mission is to be the top aggregator of Ethereum-compatible blockchains by providing them with superior interoperability capability while also processing transactions made on the Ethereum network to help speed up the process.

What is Polygon Network?

In the English language, “poly” is often used to talk about something that is multi-faceted. While a pentagon has 5 sides and a hexagon has 6, a polygon has an infinite number of sides. This is the idea behind the Polygon network, a blockchain project with multiple facets to serve the main Ethereum network. 

There are two components to the Polygon network: a sidechain scaling solution for the Ethereum network known as Matic, and as an interoperability platform for Ethereum-based blockchains.

The Matic component is a sidechain that uses the Plasma scaling solution to help Ethereum process transactions much faster and at a cheaper price. It addresses the deficiencies found in the Ethereum network, which are low transaction speeds and high gas fees. You can think of it as a contractor tasked by Ethereum to do the heavy lifting of transaction processing.

After its rebranding, it broadened its offerings with the second component, which is by becoming the platform for launching interoperable blockchains on the Ethereum mainnet. Polygon provides the framework for connectivity by allowing messaging between the blockchains and the Ethereum network itself and also enabling interoperability for existing blockchains.  

How Polygon Works

All that is supported by the Polygon Network for Ethereum. Image via Geeksforgeeks.org

Polygon PoS Sidechain 

The PoS sidechain runs alongside the Ethereum mainnet to process transactions before passing them to Ethereum for final confirmation. This part of the process is done through checkpoints and fraud proofs. The side chain can process up to 7000 transactions per second at a fraction of the Ethereum gas fee. 

Polygon PoS Sidechain

How the Sidechain works in conjunction with Ethereum. Image via Polygon Wiki

PoS sidechain uses its own Proof-of-Stake mechanism to run the blockchain. A 2/3 majority is required to reach a consensus on block validation. Validators are known as Stakers in this environment. Anyone can become a validator by staking any amount of MATIC tokens on the Ethereum chain and run a full node. 

The side chain supports two types of bridges for moving assets between itself and Ethereum: Plasma Bridge and the PoS Bridge. The former is more secure but there is a 7-day withdrawal period due to the fraud-proof mechanism. The latter is secured by a set of validators, using the security layer mentioned below

Smart Contract Layer

This layer houses a collection of smart contracts with the following functions:

Delegation management – manage the delegators who delegate their tokens to validators for staking purposes.

Staking management – handle all staking-related functions

Record maintenance – checkpoint records and snapshots of the states of the side chain are stored here.

Heimdall Node

Here is where the validation of transactions takes place. A checkpoint is created after a number of blocks are validated to ensure continuity in the validation process. The layer itself is based on the Tendermint consensus with changes made to the signature scheme and different data structures. A Merkle Tree is created here by aggregating the blocks generated by the Bor layer. Periodically, it also publishes the Merkle tree root information to the Ethereum blockchain. 

The checkpointing process is important because once past it, the transactions will be written on the Ethereum blockchain forever. This is known as finality. If there are any assets withdrawn as part of the transaction, the checkpoints will also provide “proof of burn”. 

PoS validators run this type of node to validate transactions. Each validator is given any number of 10-token slots, based on the amount of MATIC tokens staked on the Ethereum blockchain.

Bor Node

This layer handles block production for the Polygon PoS Chain. Block producers are selected by the validators based on Tendermint’s proposer selection algorithm that chooses from the validators. 

Delegators are MATIC token holders who have no interest in being a validator themselves but would like to help secure the network. They do so by delegating their tokens to the existing pool of validators. Care is to be exercised in selecting a validator so that their tokens are not slashed by malicious actors. If the staked tokens are to be withdrawn, there is a holding period of 9 days before the delegators can regain access to their tokens.

3 layers of PoS Sidechain

A visual diagram of the 3 layers in the PoS Sidechain. Image via Polygon Wiki

Architecture of the Polygon Network

Aside from the sidechain portion, the Polygon network features a 4-layer layout to help blockchains be connected to Ethereum to take advantage of the Ethereum ecosystem while keeping their own distinctiveness as an individual blockchain.

Architecture of Polygon

The 4 layers in the Polygon network. Image via Coingecko.com

Ethereum Smart Contract Layer

Critical functions to be handled by Ethereum occur here in the form of smart contracts. These include functionality such as finality of the transactions, staking, dispute resolutions, and cross-chain messaging.  This is an optional layer because many of these functions can be handled by the blockchains themselves or if they do not require finality of the transactions to be on the Ethereum blockchain.

Security Layer

Blockchains that want to make use of this layer can choose to pay professional validators for their validation services for a fee. If this layer is implemented directly, then they will be using Ethereum’s validators to perform the validation. This layer runs in parallel to the Ethereum network. The two main functions handled here are validator management and Polygon Chains validation.

Polygon Networks Layer

Any blockchain built on Polygon resides here. They belong to one of two types: either as a standalone chain or a secured chain. These blockchains do their own block production, have their own consensus mechanism, and collate their own transactions. The biggest difference between them is that the secured chain opts into the security layer while the standalone chain doesn’t. 

Execution Layer

This layer validates and executes transactions originating from the Polygon Network layer. It has an execution environment and logic to handle the transactions. This is a mandatory layer that the blockchain networks need to use. 

Polygon SDK

The Polygon SDK is a set of tools and modules that simplifies blockchain development that is EVM-compatible. Some of these include consensus algorithms, synchronization protocols, and various other modules that make it possible to build standalone chains or secure chains. The idea is to be a one-stop shop for developers to launch their projects on Ethereum with a single click.

What is the Polygon MATIC token used for?

MATIC is the native cryptocurrency used on the Polygon network. It is the method of payment used to pay for the cost of having your transaction data stored on the Polygon network. As the number of projects on Polygon increases, the demand for the token also goes up exponentially.

Aside from this, MATIC is also a governing token that gives holders the ability to vote on proposals aimed at furthering the development of the blockchain project. Examples of this are new scaling solutions that are considered for adoption by the community. 

Holders of the MATIC token can stake them to help secure the Polygon standalone chain PoS and earn some yield at the same time. Staking MATIC through Ledger is one of the safest ways to do so as it combines the security of a hardware wallet with the flexibility to choose your own validator. You can find Matic and other staking tokens in our Top Staking Tokens article.

What are Ethereum Scaling Solutions?

When Ethereum was initially designed, the designers were faced with the blockchain trilemma of decentralisation, security, and scalability. In the end, they decided to put more emphasis on the first two with the idea of improving the last one at a later stage. At that time, it was difficult to accurately predict how popular the Ethereum blockchain would be. 

Scalability trilemma

The Blockchain/Scalability Trilemma has Proven to be a Problem for Blockchain.

This scalability trilemma has proven to be incredibly difficult to overcome, one project that has an interesting approach to this problem is Algorand, and you can learn more about how they overcame the trilemma in our in-depth Algorand review.

It wasn’t long before the popularity of the Ethereum blockchain was established and network congestion became a real issue. With more users clamouring for block space, the current throughput of 7-15 transactions per second was not able to meet the demands. For reference, Visa and Mastercard handle thousands of transactions per second. At this time, ideas on how to improve the scalability of Ethereum emerged which led to a number of scaling solutions. 

Broadly speaking, there are two types of scaling solutions, known as on-chain and off-chain solutions. The on-chain solution requires changes to be made to the Ethereum network. This is going to be in the form of sharding, which is the next phase in the Ethereum upgrade coming up in the near future. Off-chain solutions are changes that occur indirectly on the network to increase transaction speed and throughput (more transactions per second). 

As these solutions take place in a separate layer from the mainnet, they are commonly referred to as Layer-2 scaling solutions. This layer provides users the option of handling transactions on their own before handing over the final batch to be written on the Ethereum mainnet. There are 4 types commonly used:

Roll-ups

Transactions are bundled together, or “rolled up” like a carpet on the layer-2. These transactions are submitted in batches to the Ethereum mainnet for final confirmation. There are two types of roll-ups favored by different parties. Optimism and Arbitrum One both use Optimistic roll-up in their operations. This type of roll-up assumes that all the transactions are true and honest unless proven otherwise within 7 days, making it fraud-proof. 

The second type of roll-up is zero-knowledge (zk) roll-up. This type generates a cryptographic proof, also known as “validity proof” that acts as a proxy for the batch of transactions it represents. It’s like someone proving they are of legal drinking age without having to show their ID. Loopring and zkSync are two of the blockchains that uses this type of roll-up. 

State Channels

This type of off-chain scaling solution allows two parties to transact on their own for multiple transactions, with the first and last transaction recorded on the Ethereum mainnet. There are some similarities between this and Bitcoin’s Lightning Network. Raiden network uses this as their off-chain solution.

Sidechain

As the name suggests, a side chain is a blockchain that operates next to the main chain. They use a cross-chain bridge to communicate with each other, whether it’s to pass tokens or messages/data between them. Users need to lock up the same number of tokens in the main chain that they want to bring over to the other chain. This ensures the same amount will appear in the other chain. For the reverse action, the tokens in the side chain will be burnt (by sending the tokens to a burnt address) before being able to access the ones on the main chain. The side chain is also designed to be EVM-compatible to support smart contracts. 

The Polygon network is a stellar example of a sidechain. 

Plasma

What makes Plasma stand out from the above is the concept of “child chain” and root chain, which is the Ethereum mainnet. Plasma chains need to submit a cryptographic proof of the child chain to the root chain for transaction validity. Plasma chains can also connect to the Ethereum mainnet using smart contracts. Another interesting feature about Plasma is that they publish Merkle tree roots to the Ethereum mainnet. If the Plasma chain were to be hacked, users can still withdraw their funds via the main Ethereum chain.

Polygon started out as a Plasma sidechain as we mentioned above, but after their rebranding, they also use roll-ups and sharding in their network, ensuring its relevancy in the current period and the future.

Why is Polygon good for Ethereum?

Ethereum is kind of a large, lumbering beast that’s not very agile but it’s got a huge surface space where lots of other creatures can thrive on it. In some ways, it reminds me of that huge elephant in the One Piece anime that carries a whole world on its shoulders. If we take this analogy to its fullest extent, then Polygon would be the world that relies on the elephant, known as the Animal Kingdom, home to the Minks. 

Polygon provides the agility and nimbleness that Ethereum lacks by implementing a number of scaling solutions to help process the transactions sent to the Ethereum network. Not only does this take the burden off Ethereum, but it also lowers the required gas fees, making it more affordable to the everyday user who wants to delve into the rich world of Ethereum.

The network also offers a platform to launch interoperable blockchains. Developers of these blockchains can preset attributes specific to the blockchains they are developing together with various modules to suit the needs of each blockchain. This is something Ethereum lacks in its design. What Polygon does bring about is more diversity at an affordable rate, enticing more developers to work in an EVM-compatible environment.

Polygon (MATIC) vs. Ethereum Layer 1

Even as Polygon is the sidekick to Ethereum, there are a number of benefits that Polygon brings to the Ethereum network that cannot be ignored. While Ethereum trumps Polygon in TVL, number of dApps, and market cap, Polygon holds its own with higher transactions per second and lower gas fees.

Polygon vs Ethereum

A comparison between Polygon and Ethereum. Image via Coingecko.com

Benefits of Polygon over Ethereum Layer 1

Whether it’s minting an NFT or using a DeFi app to get a good deal, you would do better to perform those actions on Polygon rather than Ethereum. Even though gas fees in Ethereum have gone down since The Merge, they are nowhere as competitive as Polygon’s fees.

Polygon vs Ethereum_Fees

How Polygon compares with Ethereum in fees for dApps. Image via Coingecko.com

Ethereum has an unlimited supply of its native ETH token. Thanks to the burning mechanism put in place, it has the potential to be deflationary. Polygon has a fixed supply of 10 billion MATIC tokens, with more than 90% of it in circulation. As demand for the token rises, it is conceivable that the price of MATIC could prove to be a good investment for investors.

Does the Ethereum 2.0 Upgrade Make Polygon Obsolete?

The short answer is, not likely. Ethereum’s roadmap shows that the focus of the blockchain is on improving its own infrastructure and maintaining the operability of the network. This includes finding a way to store historical data so that it doesn’t impede on the ability for new data to be written, much like how we back-up old files we don’t use to external hard drives, leaving the machine with enough space to store new files. 

Polygon is Ethereum’s interoperability layer. It provides the infrastructure and capability for individual blockchains to talk to each other, like individual units in a shared apartment block. In this analogy, Polygon is the management office, making sure that all the tenants are happy and thriving in the singular apartment building called Ethereum. It is unlikely that Ethereum would want to take over the duties of the management office as it has enough work to keep it busy in developing the infrastructure of the place. 

It is also good to note that Polygon also has its own thriving ecosystem, so regardless of what happens with Ethereum’s improvements, most industry thought leaders are in agreement that Polygon isn’t likely going to become obsolete once Ethereum is fully upgraded.

Polygon (MATIC) Price and Potential

MATIC, Polygon’s native cryptocurrency, has made it to the top 10 on CoinGecko with a $10.4 billion market cap. Around 92% of the maximum supply of 10 billion tokens is in circulation. Its initial trading price of $0.00314376 has been exceeded many times over, reaching an all-time high of $2.92 briefly before settling down in the $1 region. New tokens are minted by staking them in a smart contract as validators are randomly selected to validate new transactions.

Given the number of high-profile partnerships they have signed up, the price potential for the token is on the positive end as there is huge growth ahead. Investors like Greyscale have placed their bets on MATIC as they added it to their Digital Large Cap fund back in October 2022.  On the other hand, there are a few clouds on the horizon as some may question the impact Ethereum has on the project with its sharding phase coming up next. 

Polygon has had a good start, recently adding more features and signing up more partnerships to lend support to the project. If all goes well, it can see steady growth not only in user adoption but also in its price.

MATIC Price

MATIC is not a particularly volatile coin by crypto standards. Image via CoinGecko

How to Buy MATIC Cryptocurrency

There are plenty of choices for obtaining MATIC, with major exchange support from the likes of Binance, OKX, Kraken, Crypto.com etc. Guy has a few centralised exchanges to recommend if you want to buy it with cash. There are also decentralised exchanges but you will need some form of cryptocurrency to exchange for it. The most common types used are stablecoins. There are also crypto shops that sell you the MATIC token but you will need to provide a wallet address to them to send the tokens.

Where to store MATIC Tokens

Most of the wallets in the market can store your MATIC tokens safely. For ease of use, hot wallets such as Metamask are a popular option. If you plan to hold on to them for a while, then cold wallets are your best bet. Ledger, Trezor, and Ellipal are solid cold wallet choices for the storage of MATIC.

Top Projects on Polygon

Being the multipurpose chain that it is, Polygon, long known for being home to some of the top DeFi dApps, is also now known as the no. 2 gaming platform for Web3 games. The rise in gaming ranks is attributed to the formation of Polygon Studios in July 2021.  In this section, we briefly look at some of the top dApps on the network, just to give you an idea of the network’s capabilities.

  • AAVE – the top DeFi protocol with the highest amount of TVL at $342.72m, according to DeFi Llama, can be found on Polygon. 
  • Aavegotchi  – this project was launched by AAVE, and features NFTs of ghosts, similar to the AAVE ghost icon. These ghosts live in the Gotchiverse, and can be procured in two ways: summoning an Aavegotchi or picking one up at the Aavegotchi bazaar.
  • Uniswap V3 – the top decentralised exchange in the crypto space is available on Polygon by popular consensus since December 2021. Trading volume for the exchange on the Polygon network is around $38 million, according to CoinMarketCap, compared to the $99.88 million for the exchange across all the networks. 
  • OpenSea – the top NFT marketplace has a presence on the Polygon network. Cheap gas fees and fast transaction speed are a definite plus for NFT traders.
  • Decentraland – the project that popularised the term “Metaverse” has a footprint on Polygon too. 

Tik Tok Inline

Polygon (MATIC) Review: Closing Thoughts

The Polygon network is a thriving ecosystem with plenty of activity happening on it. Even though total value locked (TVL) on Polygon is only $1.1 billion, which is a fraction compared to $30.69 billion on Ethereum, it has a very strong and vocal community that has supported the expansion of the project from its early days as a sidechain scaling solution to the multi-faceted network it has become. 

The success of Polygon Studios and the spate of high-profile partnerships with RedditMeta, and DraftKings speaks to big plans ahead for the project. It also doesn’t hurt to be selected as the blockchain of choice for Disney’s Accelerator program, and our very own Top Defensive Crypto Investments list. When it comes to the NFT market, Polygon offers traders the chance to trade on the top NFT markets such as OpenSea and Rarible. 

The coming period after the Ethereum upgrades are completed will be an interesting time for the blockchain network. How quickly it manages to garner developers to build on its own chain as a doorway into Ethereum will be key to its growth. At the same time, once sharding on Ethereum is completed, the sidechain will also need to find ways to stay relevant as it faces fierce competition amongst other Layer-2 scaling solutions.

Polygon Matic FAQs

What is Polygon (Matic)?

The Polygon network, formerly known as Matic, is a sidechain that helps the Ethereum network handle transaction processing using Plasma. It is also a blockchain project that provides development tools such as the Polygon SDK to make it easier for developers to build dApps that are compatible with the Ethereum blockchain.

What does Polygon (Matic) actually do?

There are two parts to the blockchain project. One part is as a sidechain that helps Ethereum process transactions at much higher speeds and a fraction of its costs. The other part is as a platform that brings together other EVM-compatible blockchain networks with cross-chain messaging and developer tools that enable a one-click solution for developers to launch their projects on Ethereum.

Is Polygon (Matic) as good as Ethereum?

Ethereum is the foundation that Polygon relies heavily on. It’s fair to say that without Ethereum, Polygon would not have far to go as its role is to be a strong supporting player for the Ethereum network. That being said, Polygon has certain attributes that Ethereum lacks. These attributes complement the Ethereum network, making it more agile. 

Does Polygon (Matic) have a future?

The future of the Polygon network is looking very bright with a number of high-profile partnerships and the success of Polygon Studios, the gaming arm of the network. These partnerships straddle both sides of the fence as regular businesses such as Starbucks and Nike join Web3 dApps like Uniswap and AAVE to offer their services to users.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

The post Polygon 2023: Beginner’s Guide to MATIC appeared first on Coin Bureau.

Cryptocurrency Beginner’s Guide: Crypto Simplified!

https://www.coinbureau.com/education/cryptocurrency-beginners-guide/

Back in the early 2000s when I got my first email address from Rocketmail and browsed the Internet using Netscape, there was no way I, and millions around the world, could have foreseen the extent of our reliance on the Web. The dot-com boom bookmarked an important chapter in the history of Internet development. In the run-up leading to the crash, it seemed that anything with “.com” associated with it was a potential money-making machine, although it didn’t much matter how the money was going to be made to many of those investing in it.

After the bust, where fortunes were lost and made, the Internet went through a low-profile period. Those who managed to catch a glimpse of the potential benefits it could bring continued building. Out of those ruins, gradually a few companies started to take shape. Fast forward to today, more than 20 years later, and the world has never seemed as vibrant and exciting as it is now. 

Looking at the stock market today, tech stocks have been some of the biggest drivers in the S&P 500. If you had a penny for every time you heard someone say, “Gosh, if only I’d invested in Apple/Amazon/Microsoft/Oracle/[insert big tech company here],” you’d already be able to afford a thousand shares of any of those companies. For every success, the way is also paved with the corpses of those that didn’t make it. It’s not just about having the opportunity, but also a smidgen of luck involved. Even if you grabbed the chance to do something and lost, it’s better than not having acted. After all, if things had worked out differently, who knows? 

This brings me to today when I am faced with the birth of a new asset class known as digital assets. From computers to the Internet to smartphones and now to cryptocurrency, it’s a continuation of where we came from and where we’re heading to. I missed my chance to invest in the Internet back in the day because I didn’t have much money and knew jack about investing. As I see what is happening in the crypto space, I think this is the closest God ever came to putting me in a time-machine capsule so that I could do something toward securing my own future. With the interest of sharing knowledge with anyone equally enthusiastic about the evolution of Web3, I hope you will find this Cryptocurrency Beginner’s Guide helpful

And now, without further ado, I want to introduce you to the wild and colorful world of cryptocurrency. 

What is Cryptocurrency in Simple Terms?

We all know what is currency, as in the wads of paper and coins that you use in your daily life. Each country has its own currency, which can only be used within its own borders other than for a few exceptions. The “crypto” part is a shortened form of the word “cryptography,” meaning “the practice of creating and understanding codes that keep information secret,” according to the Cambridge Dictionary.

In other words, coded currency. The word “currency” itself is also a bit of a misnomer because it’s not just about money, even though that’s how it got started, which we are going to look at later. However, we’re just going to go with the flow and call it cryptocurrency, for now.

Cryptocurrency is, according to Monia Milutinović, ” a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.[2] “

-Wikipedia

In its early days, “cryptocurrency” usually meant things like coins, tokens, and another kind of asset known as non-fungible tokens (NFTs). Given that it’s evolving at breakneck speed, it’s gone on to include more than just “currency”.  If your head is starting to spin, I get you. I promise it’ll get better and I’ll also give more detailed explanations of these as we go along. For now, just think of cryptocurrency, or crypto shortened, as a form of money that exists without the backing of guns or land and is accepted worldwide. 

Cryptocurrency-scaled

Cryptocurrency, a new asset class. Image via Shutterstock

Is Cryptocurrency the Same as Blockchain?

The short answer is no. It’s possible for blockchain technology to work without cryptocurrency but it would be difficult the other way around. Blockchain can, and often does, work completely independently without any need for cryptocurrencies, but cryptocurrency relies on some form of blockchain technology for its existence, whether that’s a vanilla type of blockchain or rainbow variations of it.

Some examples of the rainbow variations are DAG, short for Directed Acyclic Graph (used by a project called IOTA) and hashgraph (used by Hedera Hashgraph). However, we won’t get into them at this point as it’s beyond our scope of discussion.

Since this article is all about cryptocurrency, we won’t dwell too much on what is blockchain technology. I don’t want your head to start hurting now. If you’d like to learn more about it, be sure to check out our article “What Is Blockchain?” for a comprehensive understanding of this technology. 

What is Bitcoin? A Beginner’s Overview

While blockchain technology has been around since 1991, it wasn’t until Bitcoin came along that gave the technology its first real use case. When the Bitcoin white paper first appeared in 2008, it was about a protocol for “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” The white paper, published under the name of Satoshi Nakamoto, listed blockchain technology as the means to make this protocol a reality. We’ll find out a bit more about how this is done later.

In the interest of keeping things moving, here are some salient points about Bitcoin for a basic grasp of what it is and what makes it so revolutionary: 

  • It has a finite supply of 21 million. This means money printing is not possible and runaway inflation cannot happen.
  • It is the largest cryptocurrency in the market with a market capitalization ranging between $800 billion and $1 trillion and above.
  • It can be sent anywhere globally within seconds to minutes for less than the price of the cheapest street food you can find. Innovations such as Bitcoin’s Lightning Network has made this possible.
  • Decentralized- the Bitcoin network can’t be controlled by any government or influenced by lobbyists. It is immune to human corruption. Transactions on the network cannot be sanctioned. Since nobody owns the network, it is a much more levelled playing field between countries, corporations, and people.
  • Bitcoin is transparent as its ledgers are as public as the advertising on a billboard, making it easy to trace. Smart criminals know not to use Bitcoin as transactions are viewable by anyone forever, and cryptocurrency forensic companies can easily track criminal activity.
  • The Proof-of-Work consensus mechanism is one of the most secure ways of protecting the network from hacks and attacks. Not only is it nearly impossible to attack technologically, but it’s also prohibitively expensive to do so.
  • Billions of dollars worth of Bitcoin can be transported on something as small as a USB device, mobile phone, or even by a person simply memorizing their recovery phrase, making it ultra-portable. The same cannot be said of gold or cash.
  • The Bitcoin network itself may have started off as a payment network, but it’s got a lot more potential to be used in ways that can bring about significant change to the way society operates. 

Image via medium/coinmonks

To learn more about bitcoin, we invite you to dive into our “What Is Bitcoin” article for a better understanding of its uses and potential.

Was Bitcoin the First Cryptocurrency?

Not quite. Nakamoto wasn’t the first person to attempt some kind of digital cash system. There were others before who had a crack at it. All of them faced “the double spend” problem. This is best illustrated as: if I gave you one digital dollar, what stops me from spending again that dollar I just gave you? The first person who had a go was David Chaum with his eCash system in 1982. The idea was to use blind signatures and it allowed users to store digital cash on their own computers. However, this system relied on banks, which as we know, aren’t always the most reliable in times of crisis.  

After him came Adam Back with HashCash, which uses the Proof of Work algorithm in 1997. Ironically, there was no money involved in this. Instead, it was intended as a way to prevent spam emails and DDoS attacks. Users would need to solve a cryptographic puzzle before the email could be sent, along with a unique stamp that would be generated as a result. If the email was sent with a used stamp, the email wouldn’t be sent. Adam used a double-spend database to do the checks.

In 1998 Wei Dai came up with B-Money and Nick Szabo with Bit Gold. Both are decentralised and anonymous ways to send money.  Hal Finney, in 2004, also had an idea called Reusable Proof of Work (RPoW) added to the mix. None of these managed to get off the ground in any meaningful way due to the trade-offs or limitations involved. However, they were the inspiration for Nakamoto and the Bitcoin protocol. 

What made the Bitcoin protocol successful where others had stumbled was the introduction of the Unspent Transaction Output (UTXO) concept. It basically keeps track of how much of a digital currency is left after a transaction occurs, like the change you get from a vending machine. 

Why Do People Invest in Cryptocurrencies? 

Everyone has their own reasons for undertaking anything. Investing in crypto is no exception. While the individual reasons may vary, if you were to do a survey and ask people why they invest in crypto, the answers you get can be grouped into a few categories. 

Hedge Against Inflation

Most cryptocurrencies have a finite supply. As demand for it rises, there will be more dollars chasing the limited supply instead of the other way around. A great example of this is Bitcoin. Excessive money printing and irresponsible monetary and fiscal policy can lead to inflation, or worse, hyperinflation, as we are currently seeing in many nations around the world. With Bitcoin, run-away inflation is not possible as new supply cannot flood the system.

I would like to take a moment to point out that not all crypto has a finite supply. Some have an infinite supply and yet manage to be deflationary at the same time. The example I’m thinking of is Ethereum, another cryptocurrency, ranked no. 2 in the crypto space after Bitcoin.

What makes it interesting is its potential to be deflationary. As rewards are generated and given out to network participants, a portion of the circulating amount is taken out of circulation through an action known as burning. In Ethereum’s case, this occurs with every transaction occurring on the Ethereum blockchain as a portion of the fees get sent to a wallet address that cannot be accessed by anyone, effectively removing them from the total Ethereum supply. To find out more about Ethereum, it’s potential, use cases, and what separates it from Bitcoin, feel free to check out our Ethereum Beginner’s Guide.

Bitcoin has been the best-performing asset in a decade, producing an annualized return of 230%. Some believe it’s an even better hedge against inflation than gold!

Inflation

Inflation is the invisible money eater. Fight it with the Bitcoin beast. Image via Shutterstock

Store of Value

Some people see crypto as a store of value and choose to invest in it for that purpose. But wait, some people might ask: “that’s not quite true. The price of the tokens I bought last week with cash, isn’t the same as this week or even a year ago. What kind of value does it store?” 

In this instance, I admit, the price goes up and down pretty drastically at times, just like the shares in the stock market. So the store of value narrative certainly isn’t about the price, but what it might bring in the long run. Think about it: Why do people invest in property? With the expectation that the price of it will go up. The reason for the price going up has a lot less to do with any renovations you’ve made to it to increase its value. Rather, it’s because, once again, there are more dollars chasing a finite supply of houses. Even if you didn’t do any kind of improvement to the house, if you’ve got a good location, the price would most likely go up on its own. 

When it comes to store of value, it’s about using your money to buy something that retains its value over the years as more and more dollars come into the market and lose purchasing power. It’s also why millionaires nowadays don’t mean the same as they used to 20 or 30 years ago. We now think of billionaires the same way instead. Not because they made that much more money, but because money got cheap due to inflation.

Speculation 

In a capitalistic society, everyone needs capital. If you don’t have it, you’ll need to find a way to get it. Speculating in crypto is one of the quickest ways to grow or lose wealth. For every Dogecoin millionaire you hear about, there are many more who have lost a lot. There is potential to gain a small fortune in a very short time, but it’s no easy climb to the top, so beware!

Passive Income

We all know about putting money in a fixed deposit account to earn interest. The interest earned is usually known as passive income. You didn’t have to work for it and the money just appears like magic. The goal of every FIRE person and retiree is to live off passive income without having to put in a certain number of hours a day of labour in exchange for cash. Crypto offers lots of opportunities for anyone to earn passive income. The most common way to do so is through staking, a process where token holders can park their tokens into a staking pool or with validators to help them secure the blockchain network.

Read up on how staking works and see if you would like to give this a try.

Decentralised Banking

Aside from staking, another way to earn passive income is by being a lender as you can collect interest from the borrower. You’re essentially doing that when you put money in a bank. It’s just that the bank is the one who decides how much interest you earn while they lend out your money to someone else for a higher rate of interest. It’s always struck me as odd that the interest I get from my bank deposits is vastly different from the mortgage interest I pay to the bank. Why should the bank pocket all that difference? 

This is what Decentralised Finance (DeFi) is all about. It gives everyone the opportunity to be their own lender and earn interest that they can pick and choose from, depending on how long they want to lend their money out. This happens through crypto protocols that act as the middleman to help lenders and borrowers find each other. Since there is no overhead or staff costs or shareholders to appease, the difference between the rate of interest charged to borrowers and paid to lenders is a lot less. 

It’s also a great equilibrium because it allows anyone with money to be a lender and anyone who needs money can be a borrower without having to fill out lots of forms or have a decent credit score or go through the whole process and even then, still not be sure that you can get that loan you’re hoping for, even with collateral.

Hedge Against Risk

The banking system as we know it is incredibly fragile due to fractional reserve lending and many firms are susceptible to bank runs. This is because the bank always has less in its vaults than the actual deposits it collects because it wants to squeeze every bit of utility it can by investing the money into all sorts of financial instruments. 

Many feel that owning Bitcoin helps hedge against the risks that exist in the financial system, similar to owning gold, which is why Bitcoin is often referred to as “digital gold.” 

How Does Cryptocurrency Work?

In this section, we provide you with an overview of how cryptocurrency works, from how it’s created all the way to the various use cases. We want to show you the potential for what it can bring in helping with the further development of society and civilisation. Let’s get started!

How Cryptocurrency is Created

Generally speaking, there are two ways that cryptocurrency comes into being. The first is through cryptocurrency mining. The other way is through pre-mining, which is a slightly fancy way of saying “we created this out of thin air.” 

What is Cryptocurrency Mining?

There are quite a lot of technicalities involved, which I will not go into detail, being a non-technical person myself. What I can do is provide you with a basic understanding of how it works. 

The two most well-known cryptocurrency consensus mechanisms are Proof-of-Work and Proof-of-Stake. Of the two, the latter is more popular as it is more widely adopted by other projects than the former. 

The most high-profile example of using the Proof-of-Work method is Bitcoin mining. This mining process requires a huge amount of computing power to solve complex mathematical problems in order to add a block to the blockchain. Coins are generated as a reward to the miners who need to invest a substantial amount of money to get machines with grunty graphics cards to participate in this activity. 

Bitcoin Mining

Image via Shutterstock

This is what Proof-of-Work looks like: 

I buy ice cream from you using 0.0002 BTC, or 20,000 satoshis (sats). That’s about $5. I transfer the funds from my wallet to your wallet. Behind the scenes, here’s what’s happening:

  • This transaction is broadcasted to all the miners (computers) across the network.
  • Each node or miner is busy collecting enough new transactions to fill a block.
  • Once done, they also need to crack that problem to include the answer in the block.
  • When it manages to do so, it will broadcast the block to all the nodes in the network.
  • The other miners check that all the transactions in that block is valid and nothing has been used.  
  • When the block is accepted to the blockchain, all the miners use the answer in this block to create a new block. And the process starts all over again.

At this point, you will see my 0.0002 BTC appear in your wallet. 

The other way to generate rewards is called the Proof-of-Stake method, involving a process called Staking.

To qualify as a validator, which is what miners are called here, you need to have a minimum amount of tokens on hand. In Ethereum’s case, the magic number is 32. The act of staking means that your node is backed by these tokens. They act as a “guarantor” of your credibility as a validator so that you are not incentivised to be a bad actor on the network. If you validate false transactions, your node is not always running, or you do anything to harm the network, then your tokens will get confiscated or “slashed.

Proof of work vs proof of stake

A Look at Some of the Key Differences Between PoW and PoS

Validators are randomly selected to verify transactions and add to the blockchain. Those who manage to add a block will get rewards given by the protocol. The only thing you can do to increase your chances of being chosen is to hold more tokens than others. Fortunately, this can be done by having others join your staking pool. In return, you share whatever rewards you get with your contributors. 

If you’d like to understand more about how these two consensus mechanisms compare with each other, I highly recommend reading our article on Proof-of-Work vs Proof-Of-Stake to get a more in-depth look. You can also watch Guy explain it if you prefer a more visual method.  

The Way of the ICO

ICO is short for Initial Coin Offering. This is an action taken by blockchain projects to raise funds. Coins or tokens of the project were issued in exchange for cash to build the project. Back in 2017, there was an ICO boom, similar to the dot-com boom in the 2000s. The trajectory for both was also similar as the majority of the companies that got started this way went bust later on. It wasn’t that ICOs don’t work, it’s just that there were too many half-thought-out projects that either didn’t have a solid plan or were a solution looking for a problem. 

Those who obtained the coins or tokens, most likely thought of them like shares in a company, even though that’s not exactly accurate. With a company’s shares, you partake in the profits and losses generated by the company based on what they’re selling or offering. If you hold enough of them, you even get to have your say on how the company operates.

Participants of ICOs are usually venture capitalists (VCs) who see these projects as investing in a start-up. They put down large sums in exchange for the tokens and even provide guidance to ensure the project has a successful launch. Once the project’s token gets listed on an exchange and trading begins, these VCs will be in a position to make their money back by selling their tokens in the market at a price point that’s almost always higher than what they paid for. This is even before the project starts to turn a profit! The ones who are caught buying the tokens at a higher price are retail customers like you and me. 

To prevent this from happening, projects started implementing a Vesting Schedule, which means that VCs won’t be able to sell all their tokens at the same time. Instead, they can only sell them in tranches after a certain period of time has passed. To find out more about how ICOs work, here is an article that talks about them in detail.

For major networks like Ethereum, the ETH token is not only given out as a form of reward to the validators for their efforts as a participant in securing, validating, and keeping the blockchain running, but is also used as a form of payment for those who want their transactions recorded on the blockchain. You’re basically paying for your transaction to take up space in the blockchain. If you’re interested in how blockchains make money, check out our article on blockchain revenue to learn more.

The Way of the Airdrop

The founders of some crypto projects decided not to issue tokens to raise funds. Maybe they got a grant or seed money somewhere to start up their project, hence decided not to go the ICO route. As the project develops and garners users, the founders may decide to reward users for engaging with the project. The reward is usually in the form of a coin or token distributed to the users for free. This is known as an “airdrop.”

Not only is it to reward users, but these airdrop announcements, made in advance, are also used to promote the project so more people who hadn’t engaged with it before will start to. Typically, these tokens will allow the holders a say in the governance of the project, and they will be used as a form of payment to further engage with the project. 

Airdrop

Come one, come all, Get yer tokens! Image via Shutterstock

There are numerous examples of token airdrops. One of the more prominent ones is the Ethereum Name Service. This project offers users the ability to buy their own customised “.eth” domain, like the DNS ones for IP addresses, but on the Ethereum network.

Let’s say I’ve bought one called “eateggs.eth”. Now, I can also create a subdomain called “helpme.eateggs.eth” and use it for a different purpose than the main domain name. 

With this domain name, you can use it for a new website you might be building or more commonly, link it to a wallet address that is used to store your cryptocurrency. That way, if you want to receive a crypto payment from someone, you can say “just send the money to eateggs.eth”. You can learn more about blockchain domains and how they work in our Unstoppable Domains review.

The ENS token was airdropped to anyone who had bought a .eth domain name prior to Nov 9th 2021. Users had until May 2022 to claim their ENS tokens from the official website. This is known as a governance token which allows token holders to get to vote on the direction of where the project is going. 

Immediately after the airdrop occurred, people were trading the tokens for as much as 120 at one point, before the price settled down a bit in the 80-dollar zone. Since then, it’s gone way down to slightly less than $15 at the time of writing, which is less than the initial price when airdropped.

ENS Price Action

An example of the volatility of cryptocurrencies. Image via TradingView

Types of Cryptocurrency

How many cryptocurrencies are there? Not as many stars as there are in the sky but squarely in the 4-digit territory. Most of them fall into one of these buckets below:

Coins – this is the reward given out for participating in the network and helping to secure the blockchain. The reward is a native token of an individual blockchain. Bitcoin, Ethereum, Cardano, and Solana are great examples of coins. 

Tokens – these are virtual currencies that are issued by an application but it’s not used to pay for space on the blockchain. Examples include AAVE, UNI (by Uniswap), APECOIN  etc. A good explanation here is the Ethereum network. The Ethereum network has only one coin, which is Ethereum (ETH), but there are thousands of different tokens built on top of the Ethereum network.

Non-fungible tokens (NFTs) – unlike the coins and tokens previously mentioned, which are swappable, i.e. one ETH coin is much the same as the next ETH coin, these NFTs have unique characteristics that make them one-of-a-kind. Imagine Beanie Babies in a digital card format. Another selling point for NFTs is provenance as it’s easy to see all its past and present owners. This is of the utmost importance because the majority of NFTs have no physical form. The only way to safeguard its uniqueness is the ability to prove that there is only one current owner at any given time.

Within the NFT sub-asset class are various kinds like artworks, digital certificates, identities, virtual land deeds etc which we won’t get into in detail. If you’d like to learn more, feel free to give this Fundamental Analysis on NFTs a read.

Frosties_Rug_Pull

Frosties NFTs On OpenSea

Stablecoins – these are cryptocurrencies pegged to a fiat currency, usually on a 1:1 ratio, and backed by some form of asset, although there have been instances where it’s backed by an algorithm. You can see them as a kind of avatar for the fiat currencies they represent. Relative to other cryptos, it is a stable asset as its price is designed to remain within the $1 zone more or less. The most common examples of this are USDC and USDT, two cryptocurrencies that are pegged $1 to $1 with the United States Dollar, and PAXG, a cryptocurrency pegged to the price of gold.

Wallets

Assuming you’ve taken the plunge and gotten yourself some cryptocurrencies, the next big thing to consider is where to store them. This is where the concept of wallets comes into the picture. 

Unlike a regular wallet that you put your cash in, a crypto wallet doesn’t store your crypto as it’s already stored on the blockchain as information. Instead, a crypto wallet contains keys that grant you access to the crypto that’s on the blockchain that you can use. 

Broadly speaking, there are two kinds of wallets: cold and hot wallets. A cold / hardware wallet is like the safe you install in your own home. It’s disconnected from the internet and no one can access it except you. A hot wallet is like renting a storage unit from a storage company. You have the keys to your stuff in the unit, but you rely on the storage company to help keep things safe for everyone.

To learn more about wallets and how they work, please read our article on hardware wallets for further insight.

How Much Money Do I Need to Start Investing in Cryptocurrency

The beauty of cryptocurrency investment is that you don’t need any sizable amount of money to start off with. Just like buying fractional shares, you can buy a fraction of a cryptocurrency or whole units of them for those that are at a reasonable price. It’s whatever you can afford to lose if things go pear-shaped.

How Can I Invest in Bitcoin?

Bitcoin is one of the most well-known cryptocurrencies and there are numerous ways to get your hands on some. The most common way is either through apps like Paypal using your credit card, online crypto shops like EasyCrypto, or through a cryptocurrency exchange like Binance or Coinbase. There is also Swissborg, a crypto investment platform that is definitely worth checking out.

If you buy through an exchange, you will be required to open an account with them. Some of them might require that you undergo a KYC process by asking for ID or other proofs as part of regulatory processes before they allow you to deposit cash or make crypto purchases. When you have the cash, just trade it for Bitcoin or any other kind of crypto, and bingo, you’re in! 

You can also invest in Bitcoin indirectly by buying shares of Bitcoin-mining companies or companies that provide equipment to mine Bitcoin such as Nvidia which supplies the graphic cards used in mining Bitcoin. 

Other Ways to Invest in Cryptocurrency?

Aside from buying cryptocurrency directly, there are other ways to invest in cryptocurrencies that is less risky (but not risk-free). The popularity of NFTs has been surging so buying them can be a good investment, if you know how to gauge their value. When it comes to art NFTs, it’s a bit like buying artwork. A lot of the value is subjective, and in this case, highly speculative. 

One option you can consider is investing in an Exchange-Traded Fund (ETF) that comprises of blockchain companies. Some examples include iShares Blockchain Technology UCITS ETF, iShares Future Metaverse Tech and Communication ETF, or even ARK Innovation ETF (ARKK) which has Coinbase, one of the top crypto exchanges, as one of its top holdings. 

Are Cryptocurrencies a Good Investment?

Of course, we cannot give investment advice and “Good” is a subjective term, with its definition being measured against a number of criteria, but many crypto enthusiasts and financial thought leaders in the space feel that it is something worth considering having as part of a diversified portfolio. As cryptocurrency is quite volatile, it is common for investors to start by only exposing 1-5% of their net worth to crypto assets, and, as with any investment, only investing what they can afford to lose.

Pros & Cons of Cryptocurrency

Cryptocurrency Pros

  • Decentralisation: There is no central or single entity controlling the blockchain networks where cryptocurrencies reside, unlike fiat currencies which are 100% controlled by the government and central banks. You can have access to your funds without fear of seizure. 
  • Security: Advanced encryption techniques are used to secure cryptocurrency transactions, which keeps the funds safe. 
  • Anonymity: No personal information is necessary to perform a crypto transaction. Cryptocurrencies such as Monero are great for those who value privacy. 
  • Transparency: Public blockchains have ledgers that are publicly available for anyone to access them. The transactions recorded are pseudonymous, with only a wallet address as a reference for each transaction that occurred. 
  • Immutability: Once a transaction is recorded on the blockchain, it cannot be altered or deleted in any way. This makes falsifying records an impossibility.
  • Efficient: No intermediaries of any sort are required to transfer money from one party to another. Not only does this speed up efficiency, it also greatly lowers any fees incurred. 
  • Total ownership control: Users can be their own bank by having 100% custody of their own funds by storing their crypto in cold wallets. 

Cryptocurrency Cons

  • Irreversibility: Transactions made in error cannot be reversed. This includes sending tokens through the wrong network or using the wrong wallet address. These results in lost funds that are usually irretrievable. In this sense, crypto is very unforgiving. 
  • Volatility: Cryptocurrency prices can fluctuate sharply from one day to the next. Changes of 10% and above either way is a frequent occurrence.
  • Lack of regulation: Little regulatory oversight in the cryptocurrency space gives room for fraud, scams, and other illegal activities to thrive.
  • Steep learning curve: There’s a lot of new knowledge to learn, and it’s not easy for many people to understand, thus limiting adoption.
  • Strong sense of accountability: Users are highly encouraged to have custody over their own funds. This can be a big pressure for those who are used to having others be the custodian of their assets. 
  • Security risks: Some cryptocurrencies are susceptible to cyber-attacks and hacks. In addition, poorly-written code or misconfiguration can also lead to loss of funds.
  • Energy hungry: Proof-of-work mining has often been criticised as the least eco-friendly way to generate mining rewards due to the large demand for electricity to power the machines. However, innovations are being made to harness the energy generated by the machines to be the source for other activities that benefit mankind, such as powering greenhouses to grow food.
  • Lack of customer support: When something goes wrong, it’s not possible to find the blockchain’s support center to seek help or address an issue. This inconvenience is mitigated by the community support for the blockchain, which is often found on social media channels.

Telegram Inline

Closing Thoughts

I hope that by the end of this article, I have laid out enough facts about cryptocurrencies to satisfy at least a bit of your curiosity about cryptocurrencies. For the skeptics, I hope that you’ve read enough to put aside some of that skepticism and agree to delve just a little bit deeper to understand more about this new budding technology that could potentially take the world by storm.

It is one of the grandest wishes of fervent cryptocurrency believers that 1 Bitcoin = 1 Bitcoin. This means that, if purchases are priced in Bitcoin, Bitcoin’s purchasing power will be unaffected by the rise and fall of its value against any type of fiat currency. The only way for this to happen is for enough people to accept Bitcoin as a form of payment on its own merits. If that happens, the world would’ve undergone a seismic shift not only in economics, but also in “the affairs of humans” as politics is known. This shift could very well mark a change and revolution in society.

We are just beginning to explore the various ways they can be incorporated into our lives. While many of today’s winners may not be around in a decade or so, there are countless as-yet-unborn entities that could end up as tomorrow’s champions. Regardless of how things will turn out in the current situation, the introduction of cryptocurrencies will certainly mark the dawn of a new milestone for human civilisation.

Crypto Beginner’s Guide FAQs

What Cryptocurrency Should a Beginner Buy?

Most beginners start with Bitcoin as it is the least risky and most well-established. It is highly liquid, holds the largest market cap, and is the one crypto representing all of crypto to those outside of the crypto industry. You may not see huge gains compared to some of the riskier tokens out there, but when compared against equities, its growth has been nothing short of remarkable.

How to Learn Crypto for Beginners?

Thanks to the internet, there is no shortage of information one can look up to learn more about crypto. Consuming quality content, such as Coin Bureau’s YouTube channel or listening to crypto podcasts aimed at crypto beginners can be a good start. If you prefer to learn in a more systematic fashion, you can sign-up for courses on educational platforms such as Coursera or EdX.org

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

The post Cryptocurrency Beginner’s Guide: Crypto Simplified! appeared first on Coin Bureau.

OKX vs PrimeXBT Review 2023: Crypto Exchanges Compared!

https://www.coinbureau.com/review/okx-vs-primexbt-review/

Here at the Coin Bureau, we believe that the mettle of something good can be tested over and over again and not found wanting. That was the approach we took with OKX, an exchange that might have flown under lots of peoples’ radars. Despite the number of “opponents” we’ve hurled at it, ranging from big names such as Coinbase, Binance, and Kraken, to smaller ones like Bitget and Bybit, it has, in each round, managed to stand its own ground. 

In this OKX vs PrimeXBT issue, we’re pitting it against PrimeXBT, another popular cryptocurrency exchange. Let’s find out if PrimeXBT can be the one that has the ability to put a dent into OKX’s battle-tested hide!

OKX vs PrimeXBT: Summary

 PrimeXBTOKX
Headquarters:SeychellesSeychelles
Year Established:20182016
Regulation:NoneVirtual Asset Trading License
HK SFC

 

VFAA compliant
Malta Financial Services

Provisional Virtual Assets License
Dubai Virtual Assets Regulatory Authority

Spot Cryptocurrencies Listed:40+350+
Native Token:NoneOKB
Maker/Taker Fees:Trading Fee: 0.05%Lowest: -0.005%/0.020%

 

Highest: 0.080%/0.1%

Security:HighVery High
Beginner-Friendly:Advanced trading concepts can be confusing for beginners.Advanced trading concepts can be confusing for beginners.

Good platform to learn how to trade.

KYC/AML Verification:NoNone for limited trading. Users will need to KYC to reach higher volume trading limits
Fiat Currency Support:Yes-Deposit onlyPurchase crypto with 90+ fiat currencies
Deposit/Withdraw MethodDeposit – Purchase crypto via bank card or transfer via third-party companies.

Withdrawal-Crypto only

Deposit- Buy crypto with 129+ supported services for bank transfers, card purchases, Apple Pay, etc. and Crypto.

Withdraw– Crypto only

PrimeXBT vs OKX

Like Bitget, PrimeXBT is an exchange specialising in derivatives. You won’t find it listed in the centralised crypto exchange chart on Coingecko, which is where OKX can be found. However, it is listed in the no. 10 spot on the derivatives page, just a few spots below Bitget Futures (no. 6) and way below OKX Futures (no. 10).

What differs PrimeXBT from the rest of the crypto exchanges covered previously is that PrimeXBT is not only in the crypto market, it also offers the ability to trade in forex, commodities, and stocks. This makes it an all-in-one one-stop trading shop for a trader looking to trade just about anything (except maybe their own grandmother).

Unlike OKX, PrimeXBT does not have its own token or blockchain. In fact, it more closely resembles a firm on Wall Street offering crypto trading services than a crypto exchange in the Wild West of Cryptoland. The company has 150 employees spread out amongst three offices while all trading activity is taken care of by Amazon’s AWS servers in London and Frankfurt.

OKX, in comparison, is almost the exact opposite of PrimeXBT. Not only does it offer crypto trading, but it’s also one of the few exchanges providing a taste test of Web3 applications through its own platform and with its next-generation Web3 crypto wallet. Anyone interested in dabbling a bit in Web3 will be able to easily navigate amongst the applications without the complexity of Web3 were they to try these applications natively on their own web pages.

Its native token, OKB, as previously mentioned, is used to pay for gas fees interacting on the OKC chain, which is built on the Cosmos blockchain. Token holders can also use OKX to get a discount on maker/taker fees. 

We’re definitely not comparing apples to apples here in this showdown, which makes it all the more interesting. Let’s continue to see how they continue to stack up against each other in various areas.

PrimeXBT vs OKX: Products Offered

Aside from the different kinds of market access that PrimeXBT offers, the products on its platform aren’t too dissimilar to what OKX has. It might even be a bit on the thin side but it has all the trading tools to make any trader happy. Below is a short list of what’s on offer at PrimeXBT:

  • Margin trading with up to 200x leverage on crypto, and up to 1,000x on other assets
  • Ability to buy crypto via card or bank transfer
  • Copy trading
  • Trading contests
  • Trading Academy to help newbies get started in the trading game.

They also offer a variety of trading tools such as long/short trading, Bitcoin leverage, and charts for crypto, forex, stocks, and commodities.

On the OKX platform, there’s a whole lot more variety going on to whet any beginner’s appetite. Their list includes:

  • A variety of trading options such as spot, perpetual swaps, futures, margin, options, and trading bots.
  • Ways to earn and grow your holdings with Savings, Shark Fin, ETH2.0 staking, Fixed Income, and staking for other assets.
  • Loans
  • Jumpstart – OKX’s platform showcasing new, cutting-edge projects.
  • Demo Trading – great for beginners new to the trading game. Advanced traders are also free to use it to test out new strategies.
  • Access crypto via 90 fiat currencies
  • Easily swap between different crypto pairs with the “Convert” feature
  • Go to the “Explore” section to give DeFi and Web3 dApps a try
  • NFT marketplace to some NFT trades
  • Copy trading – the latest feature for OK clients

👉 Sign up to OKX and get a 40% discount on trading fees for life!

PrimeXBT vs OKX: User Friendliness

Before we begin, I’d like to say upfront that PrimeXBT is really not designed for beginner traders. Their bread-and-butter is in earning trading fees from experienced traders, as you can see from the amount of leverage they offer. Other exchanges such as Kraken and Swissborg offer more beginner-friendly platforms, so feel free to check those out if that’s where your level is at.

Caution: Margin trading, especially with high leverage, is an extremely risky activity resulting in traders getting rekt’ed more often than not so please approach it with the greatest caution.

If you’re familiar with the layout of a trading chart, then you’ll have no problem navigating either PrimeXBT or OKX’s trading platforms. Both feature great UI/UX and offer the convenience of trading apps. In this instance, PrimeXBT has a small edge over OKX as their app even won an award for being the best crypto trading app!

What also makes PrimeXBT stand out from most of the other crypto exchanges is that it doesn’t integrate with TradingView, which may be familiar to most crypto traders these days. Instead, they developed their own interface complete with their own set of trading tools and indicators for traders to use. This makes their screen highly customizable, which can be a delight. Some of the functions that traders can do are adding or removing widgets, colour-coding the chart according to their preference, or even changing the spacing or shuffling panels around to create a highly individual experience.

Primexbt trading interface

The Main Trading Platform on PrimeXBT

The trading platform on PrimeXBT may not look as flashy as what OKX has, but it serves its loyal followers well, even if it does seem slightly dated. This is what OKX’s platform looks like: 

OKX trading interface

A Look at the OKX Trading Interface

One thing I really like about OKX is the top 10 movers which, in a bull market, allows me to quickly see at a glance if there are any buying opportunities that are still available. Sometimes, it’s not too late to join the party!

The “Buy and Convert” feature is a really easy way to trade crypto as it involves exchanging one crypto for another, without the need for a trading chart. This is for those who are not too price-sensitive and are simply looking for a convenient way to swap some crypto.

OKX one click trading

Easily Buy Crypto on OKX

PrimeXBT Fees vs OKX Fees

Trading platforms like PrimeXBT and OKX are all about trading volume. In that sense, neither will want to be caught with high fees as that is a sure sign to drive business to the other competitors.

PrimeXBT takes a simple approach to fees by limiting it to only two types: trade fee and overnight fee. Entering a position gets the former while the latter is for any positions held overnight. Here’s what is being charged:

  • 0.05% for Cryptocurrencies
  • 0.0001% for Forex, Indices, and Commodities

Note ✍:  PrimeXBT also has dynamic financing fees. Check out the fees section to confirm the exact fees on the day.

When it comes to withdrawals on PrimeXBT, it’s a slightly different story. Fees vary based on crypto assets as you can see from below.

  • 0.0005 BTC
  • 0.002 ETH

Fees even vary based on the network used in addition to the type of asset involved.

For ERC-20:

  • 10 USDT
  • 10 USDC
  • 5 COV

For BEP-20:

  • 0.8 USDT
  • 0.8 USDC
  • 2 COV

High-roller discounts are available for institutional traders and those who trade more than 300+ BTC worth of volume in 30 days.

In contrast, OKX fees follow a tiered system and also distinguish between regular and VIP traders. To get to that level, you’d need to be trading at a minimum of USD100k to qualify for a 0.06% maker fee and 0.08% for taker fees.

OKX fees

Image via OKX

Since January 2023, OKX added the functionality of fiat withdrawals which is certainly a much-lauded addition by traders. Buying crypto through OKX results in some pretty hefty fees, half of it probably going to the third-party payment providers charging for the service.

PrimeXBT vs OKX: Security

Security is always the no. 1 factor to consider when deciding which crypto exchange to use. All it takes is one misstep to destroy years of reputation. Therefore, any exchange worth its salt would pay special attention to this aspect. Neither PrimeXBT nor OKX dares to be exceptions.

PrimeXBT uses Cloudflare’s technology to protect itself against DDoS attacks while their in-house security team conduct regular tests and implements measures to safeguard the platform. OKX is no slouch either. In fact, they can proudly proclaim that they’ve not suffered any kind of security breach since 2017.

Both platforms diligently follow industry best practices by storing most of their crypto in cold storage. OKX also uses both online and offline storage and multiple backups with location-separated QR codes for key personnel. Multi-sig authorisation for any movement of funds is a must for both platforms, thereby preventing the “one bad apple” scenario that allows compromisation to occur.

Other security measures taken by OKX include:

  • A limit of 1000 BTC for each cold wallet, used once only.
  • The encryption of private keys are stored in an offline computer using AES technology. Only the offline ones are accessible via QR codes, in paper form, and are stored in bank vaults around the world, all requiring physical access.

Even if an unfortunate incident were to occur, OKX has the ability to reimburse users from a special risk reserve fund set aside precisely for this purpose. This would surely go a long way to reassure OKX customers that they can safely trade on their platform.

Customers can also do the following to secure their own account:

  • Login Password
  • Email Verification
  • 2FA for login
  • Google Authenticator
  • Mobile Verification
  • Secondary password for withdrawals
  • Anti-phishing code

PrimeXBT Overview

What is PrimeXBT?

Unlike OKX and the other crypto exchanges we’ve covered previously, PrimeXBT is a CFD exchange, where the buyer pays the difference between the current value of an asset and its value when the contract was made. Therefore, aside from crypto, it also offers other markets such as commodities, stocks and indices all in one place. It’s a popular exchange for experienced traders looking for very high leverage.

On their web page, they are officially registered in Seychelles with offices in St Vincent and the Grenadines. Switzerland is the next potential location for expansion but it could take a while, what with legal compliances etc. However, a few million traders in more than 150 countries have access to its services.

What also makes it stand out from other crypto exchanges is that it has more than 12 liquidity providers, thus making it easy for people to get money onto its platform. Its average daily trading volume stands at around 1 billion on average.

Cryptocurrencies Offered

Since the exchange got started from the depths of the TradFi market, adding crypto to its offering indicates its interest in expanding into this part of the financial world. Recently, another well-known trading institution, Interactive Brokers, also did something similar. I take it as a good sign that traditional exchanges are also elbowing their way into the crypto space. At the very least, it will drive more traders, bringing liquidity along with them.

Being new to the crypto trading game, it doesn’t have the most attractive offerings as they don’t do spot trading, only CFDs, which, to be fair, is a preferred tradeable instrument for certain traders. The range of cryptocurrencies supported is also a handful compared to OKX. These include the main ones like BTC, ETH, LTC, XRP, DOT, and more.

What gives it an edge is that crypto traders can have access to non-crypto markets and that it’s convenient for adding liquidity as you can do bank transfers, not just buying crypto with credit card.

cryptocurrencies on primexbt

Image via PrimeXBT

PrimeXBT Products

Let’s take a bird’s-eye view of the products available on PrimeXBT. For more detailed coverage of the platform, please check out our PrimeXBT review.

Trading Platform

One big feather in PrimeXBT’s cap is the number of awards they’ve garnered for their trading platform and app. Granted, these awards are given by Forex Awards, an association that likely doesn’t deal much in crypto. Still, it’s worth something.

Primexbt awards

Image via PrimeXBT

The trading platform itself offers quite a number of advanced features and innovative trading tools that would appease even the pickiest of the technical traders out there. As mentioned previously, they provide a highly-customisable layout combined with multiple order types to support the multitudes of trading markets available on their platform.

In addition, PrimeXBT’s award-winning mobile app allows traders seamless trading between both devices wherever there is Internet access available.  The amount of accolades is backed by many positive reviews online together with its army of loyal users.

trading platforms

Image via PrimeXBT

PrimeXBT Copy Trading

One of the most popular trading trends in recent years is copy trading. This is partly due to the influx of new traders, (no) thanks to Covid lockdowns and the gradual adoption of crypto. Most of the people who got into the crypto space were through trading, unlike me, who got involved due to crypto scams. It’s one thing to learn on your own but if you can learn through watching others, that might help solidify your trading knowledge.

For the experienced trader that doesn’t mind being copied, they can also earn some side income while trading without having to do any extra work. Sounds like a good deal, right? In the era of specialisation and diversification, one specialist can easily learn from another. For example, someone who specialises in trading stocks can copy a crypto trader or vice versa.

PrimeXBT’s Copy Trading product is powered by Covesting, whom they previously worked together in providing the Earn product that looks to have been discontinued.

primexbt copy trading

Image via PrimeXBT

If you would like to learn more about copy trading, check out Gate.io as they are one of the top crypto copy trading leaders in the space. Read more about it in our Gate.io review.

PrimeXBT Trading Contests

Traders are known for their somewhat braggadocio demeanour. I attribute this to the mostly testosterone males roaming in this field. One-uppance is sweetest when you can publicly declare your smarts amongst the smartest. The best place to do this is in trading contests.

Of course, everyone is very practical and any trading contest would have some juicy prizes ripe for the winners. Usually, trading contests involve real money such as the kind you’d find in KuCoin and Binance. In PrimeXBT’s version, however, these contests are given a devilish twist by having traders compete in a demo account with virtual funds with the winners getting real rewards like USDT cash prizes.

PrimeXBT trading contests

Image via PRimeXBT

Not only can users participate in the trading contest set up by PrimeXBT, they can also design their own for the trading community. How cool is that! 

trading contest

Launch a Trading Contest for Your Community with PrimeXBT

I daresay this product contributes a fair bit to the platform’s popularity as it is not something often seen elsewhere, making it PrimeXBT’s unique selling point. What makes PrimeXBT really powerful is that its popularity is also backed up by the ability to trade multiple asset classes on a high-performance trading engine and super-customisable interface. Traders can get a satisfyingly meaty bite out of this platform.

👉 Sign up to PrimeXBT and enjoy copy trading and trading contests!

Types of Accounts and PrimeXBT Fees

Keeping things simple is PrimeXBT’s approach to account type and fees. Only one kind of account for everyone and a flat 0.05% trading fee for all crypto assets and 0.0001% for forex, stocks, and commodities. Margin trading also incurs overnight fees.

When it comes to crypto withdrawal fees, it is quite a different story as these vary according to asset and in some cases, the type of network used to make the transfer. For the latest information on the kinds of withdrawal fees charged, please check out their Fees page. 

Prime XBT Security

Having been in the exchange space for a number of years and not suffering any major losses, it’s reasonable to assume that they have a solid security plan in place. Here are just a handful of the security measures they have in place:

  • 2FA for secure account access
  • Mandatory whitelisting of Bitcoin addresses
  • All passwords are cryptographically hashed
  • Cloudflare for potential DDoS attacks
  • Cold storage of funds with multi-signature access from multiple staff members.

On their Security page, they also state that they run a full risk check after each order that is executed. This is in addition to other regular tests and checks performed by their security team.

One thing worth noting is that they put somewhat of a reliance on Amazon’s AWS security infrastructure too since that’s where the trades are executed on. I’d say this is a double-edged sword and requires a fair amount of trust in both the exchange and AWS.

OKX Review

OKX is one of the more reputable exchanges in the crypto space. Based in Seychelles, the exchange is part of the OK Group, founded by Xingming Xu in 2013. In 2017, it was established as a subsidiary of OKCoin.

The target audience of the platform is aimed at both traders and non-traders alike. This is seen in its product mix and friendly UI/UX design. Those in the trading game would appreciate the clean and easy-to-navigate interface coupled with the variety of trading options such as spot, derivatives, margin, futures, perpetual swaps, and options markets. The general public interested in earning some yield from holding tokens can take advantage of the range of Earn products while exploring the Metaverse, NFTs, DeFi and GameFi dApps through the OKX Wallet. However, due to the regulatory environment surrounding crypto in the US, OKX has also rescinded the ability for US clients to participate in their Earn program.

The trading interface comes in two versions: a basic for traders new to the game and an advanced version for experienced traders. There is also a cool feature known as the Demo Trading feature that can be used as a sandbox or testing ground, depending on your trading experience.

OKX also offers a Learn section where users can go to learn more about general crypto knowledge and trading ideas. The section also has a few posts on industry analysis to get an overall view of what is happening in the market.

Fiat and Cryptocurrencies Available on OKX

More than 90+ fiat currencies worldwide are available on OKX.  These can be swapped for 350+ crypto assets through the spot, margin, and derivatives markets via 500 trading pairs.

OKX Products

As this is a general overview of what OKX offers, what is mentioned is just a glimpse of the products. If you would like to find out more about each of the products, be sure to check out our dedicated OKX review.

OKX Trading Platform

The trading section on the OKX exchange has three sections:

Basic trading has the Spot market and a simplified version of Options. On the trading platform, there is a wide range of timeframes to choose from, with the longest duration of up to 3 months for those who want to see the really big picture. If you want to give Options a try, there are only three steps involved: Choose direction, Select options, and Buy options. Let it be known that options trading is more like gambling. Try not to get stuck in it too much if you can.

OKX Simple Options

Guess which way the price will go and put your best guess down!

The Derivatives and Margin Trading section is where you can do Perpetual Swaps, Margins, Futures, and a more complicated version of Options. Each of them has its own trading interface with little difference from each other and is easy to navigate.

  • Perpetual Swaps and Futures allow you to execute StopTrailing StopTrigger, and Advanced limit orders.
  • Margin allows you to execute StopTrailing Stop, and Trigger orders.

All of them also offer the standard Limit and Market orders as part of the trading choices.

Another popular feature on OKX is Trading Bots. Currently, more than 900k+ traders use its auto-trading functions and also have the ability to create their own bots via plug-and-play solutions. The standard bots provided by the platform have their own stats and trading history, which traders can check before making a decision.

Here is what’s available to choose from:

  • Grid bot
  • DCA bot
  • Recurring buy bot
  • Arbitrage bots
  • Smart Portfolio rebalancing bot
  • Slicing bots

If you’d like to learn more about how these trading bots work, please check out our article on OKX Trading Bots.

OKX trading bot

Image via OKX

For those who get a headache just by looking at the trading chart, the Convert feature can be your new best friend as it allows you to swap between crypto and stablecoins. It’s the easiest way to get in the game with zero fees and no slippage.

OKX Earn 

Not everyone is suited to be a trader but it would be unfair to restrict the opportunity to reap gains from the increase in crypto prices to only trading alone. This is why Earn products are also very popular. Aside from those that allow one to stake their tokens to participate in the Proof-of-Stake consensus mechanism, centralised entities like OKX also offer a few ways for you to lend your crypto tokens to others and get rewarded for it. Let’s see how these work on OKX. For a more detailed dive-in, feel free to browse our OKX Earn article for more information.

Savings – Similar to a savings scheme in a bank, depositors can earn anywhere from 1.00% to 207% (KNC!), and can access their funds for any-time withdrawal.  The interest is earned on an hourly basis.

Dual Investment – Restricted to only BTC, ETH, and USDT, one can “Buy Low” and “Sell High”. This feature has a lock-up period and there is a possibility of losing what you put in if the market fluctuates too much.

Fixed Income – The interest from this section is more than what you get in Savings, but it’s only restricted to OKB, BTC, ETH, and USDT. It also involves a fixed duration, after which the pool will be closed to new deposits. At the moment, they are not accepting any new deposits so keep a look out on this page if you’re interested.

Shark Fin – A new feature on OKX that just launched in early Feb, it allows you to bet on the price of an asset at the end of 7 days. If your bet falls within a certain range and the results mirror this, you can get a higher yield. If not, you’ll get less for betting wrong. At least you’ll still get something!

Staking – The staking version in OKX is time-dependent. The longer you stake your assets, the higher the yield percentage. What makes it interesting is that each pool has a cap on how much can be staked. The other point of interest is that the ones with the highest yields aren’t necessarily the ones to get sold out first.

Flash Deals – For those looking to scratch the occasional gambling itch, Flash Deals could be the one to satisfy that itch. Basically, you have the opportunity to get some really dodgy-looking coins and stake them to earn some ridiculous APYs (52% for BTC up to 300% for MARS!). You’ll need to get your eyes glued to the page as they come and go quite sporadically. Be ready to withdraw before the pool disappears!

OKX Flash Deals

OKX Flash Deals

DeFi – This section is definitely designed with first-time DeFi users in mind. Usually, any interaction with a dApp involves self-custodial wallets and various networks, which can be a real headache. What OKX did was to integrate the dApps into their platform by pasting the same UI and feel as other OKX products over these dApps. To the uninitiated, it looks just like an OKX product, greatly lowering the barrier of entry and satisfying the curious-minded.

The dApps found on the OKX platform fall into a few categories: Yield, Lending Pools, Decentralised Exchange featuring Sushiswap, and Staking.

OKX DeFi

Some DeFi dApps for those interested

ETH2.0 – stake your ETH in exchange for bETH on their platform and earn up to 5.09% interest.

OKX Loans 

Borrowers have two options for loans on OKX, known as Flexible and Fixed loans. The APY and duration vary depending on the type of loan chosen. Aside from this, you can also choose between single-collateral or multi-collateral loans. To find out more, check out our OKX Loans review.

OKX Jumpstart

One thing that can also help drive interest in a platform is if it can be the place where “the next great thing” gets to be discovered. All it takes is one super-popular project and suddenly everyone will flock to it out of FOMO. It’s rare for this to happen but it doesn’t stop people from trying. At the very least, one needs to lay the groundwork for it to happen, and that’s where the Jumpstart program comes in.

This section is where new projects are handpicked by the OKX team to be featured and awaiting discovery (to be the next 100x token). Just like how other similar programs work on Binance and KuCoin, joining the party involves staking the platform’s OKB token to get the new project’s token, pro-rated to their staked amount. Thus far, Raydium on the Solana blockchain is the most successful one to date.

Be warned: investing in these start-up projects is risky as hell so read up all you can before investing AND keep a close eye on them after.

OKX Jumpstart

Image via OKX

OKX Wallet 

No purview into the Web3 world is complete without a non-custodial wallet. To this end, OKX has also ticked that box with their own OKX wallet. Users can access loads of dApps in DeFi, Metaverse, NFTs and GameFi projects by connecting the wallet to them. It reduces the complications normally associated with Web3 and bypasses the pain points, such as no support if they get stuck. It’s a smart way to get more newbies on board as the rocky bits get smoothed out.

okx wallet

OKX a Leader in Web3 Innovation. Image via OKX

This tactic made such an impression on us that we did a dedicated OKX Wallet review to talk about it even more.

Types of Accounts and OKX Fees

Trading fees are the bread-and-butter for exchanges. Its charges can be an indication of the strategic direction of the exchange. To this end, it’s clear that OKX is very much in the trading business, aiming for high volumes. One is given a choice when opening an account at OKX, as an individual or as a company. For the whales, there is also a third choice of joining the VIP program. The trading fees associated with each account type are evidence of this strategy.

The other type of fee that could also have quite an effect on users is the fee for purchasing crypto. This mainly depends on the service provider chosen. Generally speaking, the most expensive fee you can rack up in an exchange is to buy crypto using credit cards. Think of all the third parties having a finger or thumb in that pie and you can easily see why that’s so. One advantage that OKX has is SEPA transfers, which are used mostly in the European market, providing options for cost-friendly deposits. 

OKX Security

One thing that distinguishes OKX from PrimeXBT is its inclusion in the list of top Crypto exchanges in terms of Proof of Reserves (PoR) by CER. This is by no means any kind of a snub against PrimeXBT, but only to illustrate the underlying focus of each exchange. Given the damage done by the FTX collapse, all of crypto is in a heightened sense of alertness when it comes to what is actually held by the crypto exchanges.

To address this concern, OKX has gotten an audit report done on their own PoR handiwork. The last audit date was on Nov 22nd last year, which is recent enough, as the system currently lacks up-to-the-minute reporting.

On its PoR webpage, OKX lists a holding of 105% of BTC and ETH each and 101% of USDT. Users can also verify the safety of their own funds, whether held on the exchange or in the wallet, on the same page.

OKX PoR

Check your funds with OKX’s Proof of Reserves

Aside from funds safety that can be traced on-chain, the platform has also undertaken their own security measures, some of which are listed below:

  • A mixture of online and offline storage. The latter are air-gapped cold wallets that are never connected to the Internet, thus reducing attack vectors for hackers and malware.
  • Key personnel around the world need to come together to have access to the funds via multi-signature protocols
  • The funds themselves are stored in various bank vaults worldwide.
  • An insurance fund, known as OKX Risk Shield, that’s worth about $700 million has been set up to make users whole in the unlikely event of a breach in security. Income for the fund comes from a percentage of their earnings.

To find out more, check out our OKX Security Page. I promise it won’t be boring even if the title seems to imply so.

Tik Tok Inline

OKX vs PrimeXBT : Conclusion

As mentioned before, this is not exactly an apples-to-apples comparison, mainly because these two platforms are aimed at traders with differing interests. OKX is great for those who are focused more on the crypto end and have some passing interest in Web3 and DeFi. PrimeXBT is mainly for the TradFi traders who have a passing interest in crypto. You could almost say they are from opposite ends of the financial spectrum coming to meet somewhere in the middle. Depending on where your starting point is, feel free to choose the one that best serves your needs.

FAQ

Is OKX better than Coinbase?

Coinbase is a heavily-regulated exchange in the US that offers limited exposure to the DeFi space. This is apparent in its latest move with the Base layer integration with Optimism.  OKX has already had one foot in the door with its own native OKB token on its own blockchain. Both move in the EVM/Ethereum space. In terms of offerings, OKX has more variety than Coinbase due to its regulated identity.

Is OKX a good crypto exchange?

It’s one of the more reputable ones out there aiming for diversity in product offerings and working hard at being the one-stop shop for all things crypto. Its foray into Web3 is commendable while the basic trading products are sufficient to satisfy the needs of most crypto traders. It also conducts Proof of Reserves on its crypto assets which is a lot more than what you can say about some exchanges these days.

Is PrimeXBT better than KuCoin?

Just like its comparison with OKX, these are two completely different animals roaming in a small sliver of shared space known as crypto. KuCoin is for the crypto moonboys who like to trade in some of the craziest-looking tokens and get high on the at-times extremely volatile nature of crypto price fluctuations. PrimeXBT is for traders who prefer the CFD trade instrument and have a firmer foot in the traditional asset classes.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

The post OKX vs PrimeXBT Review 2023: Crypto Exchanges Compared! appeared first on Coin Bureau.