Crypto Q&A #2 (Blockchain, NFTs, Gas)

Coin Field Guide Answers Crypto Questions

Rosie from Minnesota:
When should a company consider investing in blockchain technology rather than using a traditional database?

Dane Lyons:
Great question. There has been a trend of companies trying to use blockchain for anything and everything. While most data solutions can technically be solved by some form of a blockchain solution, it’s often much easier to use a simple database and a basic programming language.

Blockchain is a great solution when data transparency and reliability are at a premium. With blockchain, someone can’t change the value of a data point willy nilly without having proper authorization and creating a digital paper trail. Blockchains are also highly redundant, making data even more reliable than systems with a single point of failure.

Industries that exploit workers or struggle with corruption could easily be disrupted by using a blockchain solution. Read more about how IBM is trying to bring blockchain to Fair Trade.

The Coin Field Guide Team:
I’m a collector of paintings and other pieces of physical art. Why would I ever consider collecting a digital NFT?

Dane Lyons:
First, let’s explain what an NFT is. NFTs are digital assets, usually images or video, that live on a blockchain. By using blockchain, we create a reliable record of ownership and authenticity.

People collect art for a variety of reasons. Let’s assume you buy paintings purely because they give you joy. You’d never dream of reselling art so why worry about a paper trail?

NFTs could still be a valued addition to your collection. Buying an NFT is similar to buying a print. Maybe you don’t own the original. It could be just 1 of 100 minted editions that you don’t even put on display. But it’s a way of supporting the artist as a patron. Your support helps free them to continue making art.

If the NFT trend continues, it could trigger a new Renaissance-like era of artistic expression. Fewer starving artists and more art is good for everyone.

The Coin Field Guide Team:
Do I need to pay gas fees when buying cryptos on an exchange like Coinbase?

Dane Lyons:
It depends on the exchange. There are two common transaction types in the crypto world:

  • On-chain transactions (gas) move tokens from wallet to wallet with a record on the blockchain. You pay what’s called a miner fee, or a gas fee to facilitate the transaction. Usually, you have the option to pay a higher fee to speed up the transfer. 

  • Off-chain transactions (no gas) happen when “value is exchanged” but a record of the transaction isn’t actually recorded to the blockchain. This is common if you are buying crypto from an exchange such as Coinbase. The exchange owns the underlying tokens but they keep a separate record of who the tokens belong to. In this case, the transaction can be nearly instantaneous with no gas fee. But you do have to pay a platform fee, and you also have to trust the platform to take care of your tokens.

For an example of a decentralized exchange that charges on-chain transactions, check out Uniswap.

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