Crypto Q&A #3 (Moon, London, Contracts)

Coin Field Guide Answers Crypto Questions

Everyone on the internet:
Which alt-coin will go to the moon in 2021?

Davey:
The moon could be a great place to store servers and send our data back to Earth! The cool temps on the moon will save a lot of energy.

Dane:
Um Davey, by “going to the moon” I believe they are referring to coins that rapidly appreciate in value. DOGE is a great example. It started the year priced at under $.01 and within the span of a few months, it spiked to $.70. That’s over a 70x return!

Side note. I’m happy to answer questions like this. But first, a few ground rules:

1) This is not investment advice. I might talk about a coin with a high upside. But that doesn’t mean you should invest. Talk to your financial advisor and do your own analysis.

2) I’m not an oracle, I don’t pretend to see the future. It’s exciting to take the information at hand and guess which coin is most likely to win. But even with the best available information, the probability of picking a winner is very low. We’ll talk more about how to manage risk in the future. But just know that we aren’t talking about a 50/50 coin flip here. It’s more like rolling a pair of dice and trying to get sixes.

3) When I think about a coin with a high upside, I don’t really care what happens in the next month or two. I’m usually thinking about where a coin could be in the next 1-5 years.

Great. Now let’s talk about a coin I’ve been excited about for a few years, Tezos (XTZ). In the startup world, new companies often succeed or fail based on their ability to adapt to the market. Almost every company makes poor assumptions about their space on day 1. The companies with enough self-awareness to constantly reevaluate their assumptions have a huge advantage.

Tezos has taken that idea and applied it to crypto. When most cryptocurrencies make a bad assumption, it is extremely difficult to course correct. You’ll hear about coins that go through a “hard fork”. This basically means that they need to start fresh, build an entirely new blockchain, and try to migrate everything over. With Tezos, it’s possible to “amend” changes to the existing blockchain without going through a messy breakup.

By creating technology that is more adaptable, Tezos has been able to be opportunistic. Look at the latest NFT craze. The majority of NFT marketplaces are Ethereum based which makes sense because they lead the way in web3 technology. Most other blockchains have been slow to support NFTs. But there are already a handful of Tezos powered marketplaces on the scene including Kalamint and Hen.

Learn more by reading Tezos: Superior Governance and Use Cases by Co-Founder Kathleen Breitman.


The Coin Field Guide Team:
What is this this “London hard fork” I’m hearing about?

Davey:
The “London hard fork,” which went live on August 5th, is actually 5 upgrade packages (known as EIPs) that are intended to enhance the performance of the Ethereum network. These are substantial upgrades that should provide a more consistent user experience by making transaction fees (also known as gas fees) more predictable. This is accomplished by having a base fee for each block rather than bidding on gas fees. For more detailed information on each of the EIPs in the London upgrade.

Though many users are happy about this upgrade, there are a lot of miners that are upset. In the previous system, Ether users would have to enter a bid in order to get their gas fees paid. Miners prioritized transactions based on these bids and would use the transaction fees as their reward for adding the transaction to a block. Now, each block will have a fixed fee associated with it, and gas fees will be burned resulting in a lot of lost income for miners.

It has only been a few weeks since the London hard fork upgrade was implemented and it appears that this new deflationary model has had a positive impact as Ehtereum’s price has already gone up to over $3,000!

*Note price of Ethereum mentioned above was reported by Coindesk on 17 August 2021


The Coin Field Guide Team:
What are smart contracts?

Davey:
Simply put, smart contracts are agreements between two parties put into code. Unlike a typical contract where two parties usually rely on a third-party to mediate and manage the contract, the conditions of the smart contract and the corresponding data are stored in a blockchain (like Ethereum). Once the conditions have been met, the contract or code is executed and the agreement is fulfilled.

One analogy could be using a parking ramp.

There is usually an arm that prevents you from leaving until you have paid for the time that you were parked there. Historically these ramps would have operated like a traditional contract. You would have had to pull up to a booth and the person sitting inside would tell you how much you owe, you would give them money and they would lift the arm. This method was fine for a long time, but you had to rely on the person in the booth to tell you how much you owed and also make sure they gave you the correct change. With 10 cars waiting behind you, who had time to stop and count their change!?

Today, parking ramps operate a lot more like a smart contract. When you pull into the ramp you pull a ticket from a machine and either leave it in your car or take it with you. When you’re ready to leave, you have to place the ticket in a machine that tells the arm (and you) how much money needs to be paid before it will let you out. Once you have paid that amount, the arm lifts, and you are on your way. The rates per time parked and the ability to collect payments via credit card are coded into a program that operates the parking ramp arm. Once you have paid the amount determined by the details on the ticket, the program tells the arm that you have satisfied the conditions, the arm raises and you are on your merry way. All of this is a self-executing contract that does not rely on a third-party person in a booth.

For more detail on how smart contracts work, check out this great article written by Taylor Pearson posted on Hackernoon’s site.