CryptoURANUS Economics

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Tuesday, June 15, 2021

Max Supply: Defined in CryptoCurrency

Max Supply: Defined in CryptoCurrency 












Maximum Supply:

The maximum supply of a cryptocurrency refers to the maximum number of coins or tokens that will be ever created. This means that once the maximum supply is reached, there won’t be any new coins mined, minted or produced in any other way.


Normally, the maximum supply is capped by the limits defined by the underlying protocol of each digital asset. Therefore, the maximum supply and issuance of new coins are usually defined at the genesis block according to the project’s source code (which also defines many other features and functionalities).


Setting a steady issuance rate together with a predefined maximum supply can be valuable for controlling the inflation rate of a cryptocurrency, which may potentially lead to a long-term appreciation of the asset. Generally speaking, when the maximum supply is reached, there will be fewer coins available on the market. This is expected to create market scarcity, which may eventually lead to deflation conditions (or 0% inflation rates).


However, some cryptocurrencies do not have a predefined maximum supply, meaning they can be mined or minted continuously. Ethereum is a notable example of a cryptocurrency system that has no predetermined maximum supply. Ether’s supply is constantly increasing as new blocks are generated.

Max supply vs. total supply:
As mentioned, the calculation of max supply includes all coins that were already produced (or mined) plus the coins that are yet to be issued (in the future). On the other hand, the total supply includes only the coins that were already produced minus the units that were destroyed, for instance, in coin burn events.

Market Order: Defined in CryptoCurrency

Market Order: Defined in CryptoCurrency












Market Order:

A market order is an order to instantly buy or sell at the best available price. It is executed based on the limit orders that are already located in the order book, meaning that market orders depend on market liquidity to be completed.

Unlike limit orders that are placed on the order book and wait for someone to execute them, market orders are executed immediately at the current market price. Therefore, when completing a market order in the Binance exchange, you will be paying the trading fees as a market taker

Since market orders are executed right away, your market order will match the best limit order available on the order book. In other words, if you create a market buy order, it will match the best limit sell orders at the current price. 

However, if the cheapest limit sell order available is not sufficient to fill your entire market order, your order will automatically match the following limit sell orders until it is finally completed. This process is called slippage and is the reason why you pay higher prices and higher fees with market orders when compared to limit orders.

Market orders are convenient in situations where getting your order quickly filled is more important than getting a certain price. This means that you should only use market orders if you are in a hurry and willing to pay higher prices and fees (caused by the slippage). In other terms, market orders should only be used if you want to buy or sell as quickly as possible, regardless of price and fees.

Market Capitalization: Defined in CryptoCurrency

Market Capitalization: Defined in CryptoCurrency









What is Market Capitalization

Within the blockchain industry, the term market capitalization (or market cap) refers to a metric that measures the relative size of a cryptocurrency. It is calculated by multiplying the current market price of a particular coin or token with the total number of coins in circulation.

Market Cap = Current Price x Circulating Supply...

For example, if each unit of a cryptocurrency is being traded at $10.00, and the circulating supply is equal to 50,000,000 coins, the market capitalization for this cryptocurrency would be $500,000,000.

While the market cap may offer some insights about the size and performance of a company or cryptocurrency project, it is important to note that it is not the same as money inflow. So, it does not represent how much money is in the market. This is a common misconception because the calculation of market cap is directly dependent on price, but in fact, a relatively small variation in price may affect the market cap significantly.

Considering the previous example, a few millions of dollars could potentially pump the cryptocurrency price from $10.00 to $15.00, which would cause the market cap to increase from $500,000,000 to $750,000,000. However, this doesn’t mean there was an inflow of $250,000,000 in the market. Actually, the amount of money needed to cause such an increase in price is dependent on volume and liquidity, which are distinct but related concepts.

While volume relates to the number of assets exchanged within a certain period, liquidity is basically the degree to which the asset can be quickly bought or sold without causing too much impact on the price. 

Simply put, a high-volume and liquid market cannot be easily manipulated because there are many orders in the order book and possibly a big volume of orders within the different ranges of price. This would result in a less volatile market, meaning that a whale would need a lot of money to significantly manipulate the price. 

In contrast, a thin order book of a low-volume market could be easily overpassed with a relatively small amount of money, causing a significant impact on both the price and market cap.

Litecoin [LTC]: Defined in CryptoCurrency

Litecoin [LTC]:










What Is Litecoin?


Litecoin is a cryptocurrency that was founded in 2011, two years after bitcoin, by a former Google engineer named Charlie Lee. Measured by market capitalization, Litecoin is the ninth-largest cryptocurrency.

Initially, it was a strong competitor to bitcoin. However, as the cryptocurrency market has become more saturated in recent years with new offerings, Litecoin's popularity has waned.

Litecoin has always been viewed as a reaction to bitcoin. In fact, when Lee announced the debut of Litecoin on a popular bitcoin forum, he called it the "lite version of Bitcoin."1 For this reason, Litecoin has many of the same features as bitcoin, while also adapting and changing some other aspects that the development team felt could be improved.

KEY TAKEAWAYS

  • Litecoin is a cryptocurrency that was founded in 2011, two years after bitcoin, by a former Google engineer named Charlie Lee.
  • Litecoin can be used as an avenue for paying people anywhere in the world without an intermediary having to process the transaction. 
  • Measured by market capitalization, Litecoin is the ninth-largest cryptocurrency.
  • There will never be more than 84 million Litecoins in circulation.
  • On April 17, 2021, the value of one Litecoin was $310.73.

Understanding Litecoin

Like other decentralized cryptocurrencies, Litecoin is not issued by a government, which historically has been the only entity that society trusts to issue money. Instead of being regulated by a central bank and coming off the press at the Bureau of Engraving and Printing, Litecoins are created by an elaborate cryptocurrency procedure called mining, which consists of processing a list of Litecoin transactions.

Unlike traditional currencies, the supply of Litecoins is fixed. There will never be more than 84 million Litecoins in circulation. Every 2.5 minutes, the Litecoin network generates a new block–a ledger entry of recent Litecoin transactions throughout the world.2 3

The block is verified by mining software and made visible to any system participant (called a miner) who wants to see it. Once a miner verifies it, the next block enters the chain, which is a record of every Litecoin transaction ever made.3

There are incentives for mining Litecoin: the first miner to successfully verify a block is rewarded with 12.5 Litecoins.4 The number of Litecoins awarded for such a task reduces with time. In August 2019, it was halved, and the halving will continue at regular intervals until the 84,000,000th Litecoin is mined.5

Mining cryptocurrency at a rate worthwhile to the miners requires a huge amount of processing power, courtesy of specialized hardware. The central processing unit in most personal computers isn’t fast enough to mine most cryptocurrencies. However, Litecoin can be differentiated from the majority of other cryptocurrencies because it can be mined with personal computers.3 Although the greater a machine’s capacity for mining, the better the chance it’ll earn something of value for a miner.

Any currency–even the U.S. dollar or gold bullion–is only as valuable as society thinks it is. If the Federal Reserve started circulating too many banknotes, the value of the dollar would plummet in short order. This phenomenon transcends currency. Any good or service becomes less valuable the more readily and cheaply available it is. The creators of Litecoin understood from the start that it would be difficult for a new currency to develop a reputation in the marketplace. But by restricting the number of Litecoins in circulation, the founders could at least allay people’s fears of overproduction.

The Litecoin Foundation estimates that it will be around 2142 when the maximum of 84 million Litecoins will be reached.6

How Is Litecoin Different than Bitcoin?

The most important distinction between Litecoin and Bitcoin is the different cryptographic algorithms that they employ. Bitcoin uses the SHA-256 algorithm, whereas Litecoin makes use of a newer algorithm, called scrypt.7

Litecoin has some inherent advantages when compared to bitcoin. It was founded with the goal of prioritizing transaction speed, and this is a major reason for its popularity. The bitcoin network’s average transaction confirmation time is currently just under nine minutes per transaction, while Litecoin's is roughly 2.5 minutes. Litecoin's network can handle more transactions because of its shorter block generation time.83

Bitcoin has a significantly greater market capitalization than Litecoin. As of April 21, 2021, the total value of all bitcoins in circulation is around $1 trillion, while the market capitalization of Litecoin is around $18.3 billion. Bitcoin's market capitalization still dwarfs all other digital currencies.9

Both bitcoin and Litecoin have fixed supplies. However, bitcoin's supply is limited to only 21 million coins, while Litecoin's total fixed supply is 84 million coins.1

Goals of Litecoin

Litecoin, like all virtual currencies, is a form of digital money. Both individuals and institutions can use Litecoin to purchase things and to transfer funds between accounts. Participants can make transactions with Litecoin without the use of an intermediary like a bank, credit card company, or payment processing service.

 

Rather than focusing on its functionality, many investors are interested in Litecoin as a potential long-term holding. Similar to investments in any type of currency, investors are speculating that Litecoin will build relative wealth over time.

Litecoin FAQs

What Is Litecoin and How Does It Work?

Litecoin is a peer-to-peer virtual currency, which means it is not governed by a central authority. Litecoin's network offers instant, near-zero cost payments that can be conducted by individuals or institutions across the globe. Bitcoin, Litecoin, and many other cryptocurrencies use the proof-of-work (PoW) algorithm in order to secure their networks. Basically, PoW requires that one party proves to all the other participating parties in the network that a required amount of computational effort has been expended.

What Is Litecoin Used For?

Litecoin can be used as an avenue for paying people anywhere in the world without an intermediary having to process the transaction. 

What Is the Highest Litecoin’s Price Has Been?

On April 17, 2021, the value of Litecoin was $310.73. Previously, the coins high was $237.57, which had been reached in December 2017.10

When Was Litecoin’s Last Halving?

Like bitcoin, the creation of Litecoin tokens involves a process called mining. For participating in the act of mining, miners are rewarded with Litecoin. A Litecoin halving refers to an instance of halving the amount of Litecoin rewards that miners are given for each block.

Litecoin halvings aim to preserve Litecoin’s purchasing power. The last Litecoin halving took place on August 5, 2019. On this date, the mining reward was reduced from 25 Litecoins per block to 12.5 Litecoins per block.11



How Many Litecoins Are Left?

There will ultimately only be 84 million Litecoins in circulation. In. October 2020, there were 66,134,058 Litecoins in circulation.12

The Bottom Line

Once a currency reaches a critical mass of users who are confident that the currency is indeed what it represents and probably won’t lose its value, it can sustain itself as a method of payment. Litecoin isn’t anywhere near universally accepted. But as cryptocurrencies become more readily accepted and their values stabilize, one or two of them–possibly including Litecoin–will emerge as the standard currencies of the digital realm.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own Litecoins.

Margin Trading: Defined in CryptoCurrency

Margin Trading: Defined in CryptoCurrency









What Is Margin Trading?

Intermediate:
Margin trading is a method of trading assets using funds provided by a third party. When compared to regular trading accounts, margin accounts allow traders to access greater sums of capital, allowing them to leverage their positions.
Essentially, margin trading amplifies trading results so that traders are able to realize larger profits on successful trades. This ability to expand trading results makes margin trading especially popular in low-volatility markets, particularly the international Forex market. Still, margin trading is also used in stock, commodity, and cryptocurrency markets.


In traditional markets, the borrowed funds are usually provided by an investment broker. In cryptocurrency trading, however, funds are often provided by other traders, who earn interest based on market demand for margin funds. Although less common, some cryptocurrency exchanges also provide margin funds to their users.


How does margin trading work(?)
When a margin trade is initiated, the trader will be required to commit a percentage of the total order value. This initial investment is known as the margin, and it is closely related to the concept of leverage. In other words, margin trading accounts are used to create leveraged trading, and the leverage describes the ratio of borrowed funds to the margin. For example, to open a $100,000 trade at a leverage of 10:1, a trader would need to commit $10,000 of their capital.


Naturally, different trading platforms and markets offer a distinct set of rules and leverage rates. In the stock market, for example, 2:1 is a typical ratio, while futures contracts are often traded at a 15:1 leverage. In regards to Forex brokerages, margin trades are frequently leveraged at a 50:1 ratio, but 100:1 and 200:1 are also used in some cases. When it comes to cryptocurrency markets, the ratios are typically ranging from 2:1 to 100:1, and the trading community often uses the ‘x’ terminology (2x, 5x, 10x, 50x, and so forth).


Margin trading can be used to open both long and short positions. A long position reflects an assumption that the price of the asset will go up, while a short position reflects the opposite. While the margin position is open, the trader’s assets act as collateral for the borrowed funds. This is critical for traders to understand, as most brokerages reserve the right to force the sale of these assets in case the market moves against their position (above or below a certain threshold).


For instance, if a trader opens a long leveraged position, they could be margin called when the price drops significantly. A margin call occurs when a trader is required to deposit more funds into their margin account in order to reach the minimum margin trading requirements. If the trader fails to do so, their holdings are automatically liquidated to cover their losses. Typically, this occurs when the total value of all of the equities in a margin account, also known as the liquidation margin, drops below the total margin requirements of that particular exchange or broker.


Advantages and disadvantages:
The most obvious advantage of margin trading is the fact that it can result in larger profits due to the greater relative value of the trading positions. Other than that, margin trading can be useful for diversification, as traders can open several positions with relatively small amounts of investment capital. Finally, having a margin account may make it easier for traders to open positions quickly without having to shift large sums of money to their accounts.


For all its upsides, margin trading does have the obvious disadvantage of increasing losses in the same way that it can increase gains. Unlike regular spot trading, margin trading introduces the possibility of losses that exceed a trader's initial investment and, as such, is considered a high-risk trading method.


Depending on the amount of leverage involved in a trade, even a small drop in the market price may cause substantial losses for traders. For this reason, it's important that investors who decide to utilize margin trading employ proper risk management strategies and make use of risk mitigation tools, such as stop-limit orders.


Margin trading in cryptocurrency markets:
Trading on margin is inherently riskier than regular trading, but when it comes to cryptocurrencies, the risks are even higher. Owing to the high levels of volatility, typical to these markets, cryptocurrency margin traders should be especially careful. While hedging and risk management strategies may come in handy, margin trading is certainly not suitable for beginners.
 
Being able to analyze charts, identify trends, and determine entry and exit points won't eliminate the risks involved with margin trading, but it may help to better anticipate risks and trade more effectively. So before leveraging their cryptocurrency trades, users are recommended first to develop a keen understanding of technical analysis and to acquire an extensive spot trading experience.


Margin funding:
For investors who do not have the risk tolerance to engage in margin trading themselves, there is another way to profit from the leveraged trading methods. Some trading platforms and cryptocurrency exchanges offer a feature known as margin funding, where users can commit their money to fund the margin trades of other users.


Usually, the process follows specific terms and yields dynamic interest rates. If a trader accepts the terms and takes the offer, the funds' provider is entitled to repayment of the loan with the agreed-upon interest. Although the mechanisms may differ from exchange to exchange, the risks of providing margin funds are relatively low, owing to the fact that leveraged positions can be forcibly liquidated to prevent excessive losses. Still, margin funding requires users to keep their funds in the exchange wallet. So, it is important to consider the risks involved and to understand how the feature works on their exchange of choice.


Closing thoughts:
Certainly, margin trading is a useful tool for those looking to amplify the profits of their successful trades. If used properly, the leveraged trading provided by margin accounts can aid in both profitability and portfolio diversification.

As mentioned, however, this method of trading can also amplify losses and involves much higher risks. So, it should only be used by highly skilled traders. As it relates to cryptocurrency, margin trading should be approached even more carefully due to the high levels of market volatility.


Lisk: Defined in CryptoCurrency

Lisk: Defined in CryptoCurrency


Lisk is a cryptocurrency built on a blockchain with programming abilities built into it. 







What is the Lisk SDK?
Logo

The Lisk SDK is designed to provide an easy and reliable software development kit for building blockchain applications which are compatible with the Lisk Protocol.

The codebase is written entirely in JavaScript and TypeScript, which is highly beneficial for the majority of developers, as no significant change of tools are required to get started.

The Lisk SDK makes every effort to ensure developers are easily able to focus purely and simply on writing the code that is required for their own blockchain application and nothing else.


The Lisk SDK ecosystem

The Lisk SDK operates on the Node.js runtime and consists primarily of an application framework (Lisk Framework). This consists of a collection of libraries providing blockchain application functionalities (Lisk Elements), and a powerful Command Line Interface (Lisk Commander), which allows developers to manage a Lisk node instance and interact with a Lisk compatible network.

Diagram

A detailed explanation regarding the underlying architecture of the Lisk Framework is described at Architectural overview

SDK components

DirectoryDescription

Framework

Lisk Framework is an application framework responsible for establishing and maintaining the interactions between the modules of a Lisk blockchain application.

Elements

Lisk Elements is a collection of libraries, each of them implementing some form of blockchain application functionality such as cryptography, transactions, p2p, etc. Each library is designed to be compatible with the Lisk Protocol.

Commander

Lisk Commander is a command line tool which allows the management of a Lisk node instance and interaction with a Lisk compatible network.

Usage

Dependencies

The following dependencies need to be installed to run the Lisk SDK:

DependenciesVersion

Node.js

v12 (latest)

Installation

Installation of the Lisk SDK is straightforward and only requires getting a single NPM package lisk-sdk, to your Node.js project as shown below:

npm install lisk-sdk

Lisk SDK is an all-in-one package that provides the tools to create, run and maintain blockchain applications in JavaScript.

In the case whereby only a specific functionality is required, it is possible to install only the relevant package as shown below:

npm install lisk-commander 
npm install @liskhq/lisk-client 
Install Lisk Commander.
Install Lisk Elements client package.

Getting started

To get started with the Lisk SDK and the development of a blockchain application, please refer to the following sections in the documentation:

Quickstart

The quickest way to bootstrap a blockchain application with the Lisk SDK is described on the Quickstart page.

Tutorials

The Tutorials explain in detail how to build a specific blockchain application. All examples provided in the tutorials describe how to implement simple, but valid industry use cases.

The tutorials overview page provides an informative overview about all existing tutorials, including the estimated time and the skill level required to complete each specific tutorial.

All code for the example apps that is used in the tutorials is also available in the lisk-sdk-examples repository on GitHub.

The Lisk protocol

The Lisk protocol is the set of rules followed by a blockchain created with the Lisk SDK using the default configuration. It contains various development-agnostic specifications about the Lisk SDK.

It is a good location to look up certain topics in order to gain a deeper understanding, or to further explore the SDK in a scientific direction.

Architecture

The architecture pages contain various explanations about the architecture of the Lisk Framework.

It contains the following chapters:

How-To Guides

The development guides are dedicated how-to guides which cover specific topics required to build a blockchain application with the Lisk SDK.

The most relevant guides for beginners are: