Crypto Academy

CBDC (Central Bank Digital Currency)

CBDC (Central Bank Digital Currency)

4 min reading

Banks getting involved in cryptocurrencies to the extent of having their own digital currency! How interesting! Discover what their digital currency is and how it works.

Central Bank Digital Currency

CBDC (Central Bank Digital Currency)

Paper notes and coins are likely far in the past because of a new financial instrument – central bank digital currencies (CBDCs). In this article, we’ll explain what CBDCs are, what their benefits are, and how crypto-assets could supplant traditional fiat. And to understand how this new kind of digital money was born, we’ll also look at the history of cryptocurrencies in general.

What is CBDC

CBDCs are central bank digital currencies or national cryptocurrencies. In theory, businesses can use CBDC for all payment options using a range of technologies. They are the digital local currency equivalent. Rather than the conventional dollar, for example, banks may issue a crypto version in CBDC format. According to some experts, central bank digital currencies combine the capabilities of fiat and electronic money.

History

Cryptocurrencies had their origins as a project created by people who were not connected to officials, politicians, or authorities at all. Who was Satoshi Nakamoto, bitcoin’s anonymous creator, after all? We can assume that he was not connected to any government. The first message that appeared on the Bitcoin network was “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” – a reference to a Times headline in early 2009. At the time, the UK Chancellor of the Exchequer Alistair Darling was considering state aid for banks that had suffered losses from the global financial crisis. Mocking the 2008 crisis, Nakamoto offered an alternative to the global financial system. The benefits of blockchain-based data protection became clear, and the capitalization of the cryptocurrency market went up. After that, some central banks began to consider their digital money – in contrast to bitcoin, it was managed by central authorities. With a large economy, it is difficult to create a working central bank digital currency. Smaller economies, on the other hand, have more space for a maneuver.

CBDC functions

There are several versions of the national cryptocurrency production scenarios. The selection defines how CBDC will impact the country’s financial system. For example, CBDC could be used directly as opposed to cash. Customers have the option of changing from conventional money to a handy digital version of it. The introduction of such cryptocurrencies will have barely any impact on the country’s coinage policy. CBDC will be a substitute for billing procedures. Paying for goods and services would be more convenient and simpler, but the role of the Central Bank in the payment system market would radically grow. National cryptocurrency would compete with other forms of payment systems in direct competition, resulting in a significant monetary policy shift. CBDC instead of deposits. In some cases, a fundamental shift in monetary policy is expected. Furthermore, the commercial banks’ role will change. The national bank may produce cryptocurrency for physical persons or financial institutions. In this case, the use and application scenarios of this new money will be varied. The direction chosen depends on the extent of the need of market participants for an fiat money alternative and a concern that regulars plan to address with CBDC.

Difference between CBDC and Fiat

The issuer of CBDC, as with fiat, is the country’s central bank. As a result, domestic cryptocurrency becomes a financial tool centrally controlled by a single government body. Unlike fiat money, all crypto-asset transactions can be fully digitised. The benefits of CBDC compared with fiat money is about reducing transaction costs and increasing the speed of transactions. In addition, the quality of payment systems is excellent due to the automation of the process. CBDC provides the ability for the regulator to control the turnover of funds and monitoring of the flow of money, as well as expenditures of government agencies. As a result, the authorities will have the necessary tools to combat embezzlement, scams, laundering, and other illegitimate activities.

However, CBDC could be the next stage in money’s evolution. It could move citizens to a national cryptocurrency and simplify the central bank’s control over the funds’ circulation. If the CBDC is successfully adopted in several countries, their experience could be the basis for the further proliferation of central bank digital currencies.

Conclusions

Cloud mining

Cloud Mining

4 min reading

Have you ever heard about cloud mining? Here is an interesting write up for you.

Cloud mining

Cloud Mining

With the rise of the cryptocurrency industry, new unique opportunities have emerged, one of which is crypto mining. Conventional mining refers to solving mathematical puzzles to create the next block on a blockchain. Every miner receives a reward for participating in the puzzle-solving process. These mining processes require high-definition computers, computer knowledge, and maintenance that will facilitate the mining process. There is also another type of mining called cloud mining. This article is set to talk about what it is and how it works. 

Cloud mining is about utilizing a remote data center with shared processing power. Cloud mining helps users to mine cryptocurrencies without necessarily using the hardware. With cloud mining rigs, participants either lease or rent hash power. A mining rig is a hardware responsible for adding coins into the existing circulating supply. With cloud mining, a user does not need to go through the stress of having the required computing power in his home, thus having to deal with the noise and the high electricity consumption. Rather, the user can rent these computing powers to a company that is into mining and receive commensurate profit with the said investment. However, the easiest way to benefit from this type of mining is by registering on a platform that offers these services and then benefits from the shares or profits that come with it.  There are about two different cloud mining: Host mining and Lease hash power.

Lease hash power is a model used in cloud mining. In this model, computing power associated with cryptocurrency is leased on a mining farm. With this, you do not need to worry about maintenance or setup fees. Just subscribe to a plan, open an account with any cloud mining company through its website, and select the contract period as well as the hashing power. When the farm finds a new block and receives cryptocurrencies as rewards, the users share the profit among them depending on the share of the hash power they control. 

Host mining on the other hand is one of the most popular forms of cloud mining. In this model, the customer purchases mining hardware from a miner’s facility. The miner on his part is responsible for maintaining the equipment and ensuring it functions well. The advantage of this is that overhead costs associated with electricity are managed. Also, the customer has full control over the rewards he receives since he will have to pay for set-up fees to the cloud mining provider. 

Cloud mining provides quite a good solution for those who want to reap benefits without dealing with the stress that comes with acquiring hardware equipment like finding space to place the equipment, the noise produced by this mining equipment, and the heat produced by it. Also, the cost of running mining rigs reduces because the customer can fund a portion of the mining operation and the cloud miners do the rest.

However, there are potential setbacks when it comes to cloud mining, meaning you will have to think before opting to use this model. First and foremost is the existence of fraudulent platforms in the cloud mining sector. Since investors may not have the opportunity to assess the mining farms, it is therefore difficult to assess the claims made by the cloud mining provider. Another drawback is the fact that some of these service providers run Ponzi schemes where they pay early investors with the money provided by new investors. It is better to explore reviews, investigate the credibility of the crypto platforms, consider the withdrawal limits, and avoid offers that promise outrageous deals. 

In conclusion, cloud mining is a model that can generate very promising returns. However, as we mentioned in this article, it is not void of pitfalls. Therefore, it is very important to carry out extensive research on the platform you desire to invest in and obtain adequate information before diving into any investment. Note that if a company does not reveal much about who they are and how they operate, then be watchful. 

Conclusions

Slippage

Slippage

4 min reading

When is slippage said to occur, what could possibly lead to this, and how can it be avoided? All these questions are answered in this article.

Slippage

Slippage

One of the most unexpected risks for novice crypto investors is slippage. Unfortunately, this phenomenon inevitably haunts traders and disrupts plans. What slippage is, how it happens, and what causes it, you will learn in this article.

What is slippage 

Slippage at the market is a situation when a stop-order is executed at a worse price than that specified in the conditions of such an order. In other words, the order is executed at a less favourable price than the trader had planned. Moreover, slippage is inevitable in any volatile market and especially during periods of sharp price fluctuations (for example, at the release moment of long-awaited important news), when there are many participants making transactions and the risk of not getting the asset at the desired price increases significantly.

Types of slippage

In general, slippage is divided into two types: positive and negative. If positive, the trader suddenly earns a higher profit than he or she hoped for, while in the second case, on the contrary, he or she suffers a higher loss. In both cases, slippage is caused by volatility and large market movements, as well as delayed execution of trader’s decisions. In the first case, the pendulum may swing in his favour, and in the second case, it will swing back. 

Causes of slippage

It goes without saying, the most important cause of slippage is high volatility and a short-term lack of liquidity in the chosen instrument, but why? Several factors influence the sudden spike in volumes and price movements. For example, a news release. The most trivial cause of slippage occurs all the time. The reason may come from testing of important price extremums. Often a spike in volatility can occur when annual highs or lows approach, matching a news release. Anyway, it can also occur for no apparent reason. The market is unpredictable and can go off a cliff at any time, with no apparent reason even in the future. Maybe a big player urgently needed to sell some assets for his own purposes, but we can only speculate about that. In addition, one more factor is price gaps. They could be technical, when the market opens after the weekend, and for some other reasons. There is no public information about this anywhere, so it is impossible to predict gaps reliably.

What are the dangers of slippage?

Let’s assume that each trade order and its Stop Loss – slips by one pip. For medium-term trades and long-term trading strategies, it is of course not critical, but for scalpers and even scalping strategies, it can be catastrophic. Taking into account the cost of the spread, a loss of tens or even hundreds of pips per day can completely wipe out the profits of short-term trades. If the reported price is in a zone of strong levels, then strong slippage can incorrectly set your Stop Loss and at the first pullback, your trade will be closed with a loss. During periods of high volatility, the number of participants increases dramatically, and more often than not, in the same direction, so the risk of slippage increases significantly.

How to avoid slippage

Considering the factors described above we can determine the way to avoid the negative result of slippage. The first thing you can do, if you can, is to switch to medium and long-term trading and not to bother with slippage and spread as well. For a scalper, you should study more attentively the broker’s trading conditions. Examine all reviews, some brokers don’t like scalpers and in the conditions of trade, they prescribe the clauses, excluding taking profit from short deals. Choose the optimal Internet provider with the high speed of the Internet. Choose optimal trading periods, refrain from trading during important news releases, when the volatility is too high. Use pending orders. When opening a pending order, the trader sends a request to open a position in advance, and when the price of the pending order reaches the server, the request is already on the server. Thus the speed of the Internet and the remoteness of the terminal from the server does not affect the execution time of the pending order. Finally, when opening an order, specify the maximum allowable slippage.

However, slippage in trading is an objective phenomenon, it is just considered a “healthy” sign of real exchange trading. The suggested methods will help protect your deposit from slippage as much as possible unless they contradict your trading strategy. Otherwise, adjust your trading methodology to the real market.

Conclusions