What Are Blockchain Transaction Fees?

Transaction fees serve two essential purposes when it comes to blockchain networks. They reward miners or validators who help confirm transactions and help protect the network from spam attacks.

Transaction fees can be both small or large, depending on the network activity. Market forces can also influence the fees you pay. While high fees can hinder wider blockchain adoption, very low fees could potentially bring security concerns.

Why transaction fees?

Transaction fees are and have been an essential part of most blockchain systems since their inception. You are most likely to have come across them when sending, depositing, or withdrawing crypto.

The majority of cryptocurrencies use transaction fees for two important reasons. First of all, fees reduce the amount of spam on the network. It also makes large-scale spam attacks costly and expensive to implement. Secondly, transaction fees act as an incentive for users that help verify and validate transactions. Think of it as a reward for helping the network.

For most blockchains, transaction fees are reasonably cheap, but they can get quite expensive depending on network traffic. As a user, the amount you choose to pay in fees determines your transaction's priority in being added to the next block. The higher the fee paid, the quicker the confirmation process.

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What is blockchain bridge? 

To understand what a blockchain bridge is, you need to first understand what a blockchain is. Bitcoin, Ethereum, and BNB Smart Chain are some of the major blockchain ecosystems, all relying on different consensus protocols, programming languages, and system rules. 

A blockchain bridge is a protocol connecting two economically and technologically separate blockchains to enable interactions between them. These protocols function like a physical bridge linking one island to another, with the islands being separate blockchain ecosystems.

Thus, blockchain bridges enable what is called interoperability, meaning that digital assets and data hosted on one blockchain can interact with another. Interoperability is the cornerstone of the internet: Machines worldwide use the same set of open protocols to talk to each other. In the blockchain space, where there are many distinct protocols, blockchain bridges are essential to enabling a similar ease of exchanging data and value. 

How do blockchain bridges work? 

The most common use case for a blockchain bridge is token transfer. For example, you want to transfer your bitcoin (BTC) to the Ethereum network. One way is to sell your BTC and then purchase ether (ETH). However, this would incur transaction fees and expose you to price volatility. 

Alternatively, you can achieve this objective by using a blockchain bridge without selling your crypto. When you bridge 1 BTC to an Ethereum wallet, a blockchain bridge contract will lock your BTC and create an equivalent amount of Wrapped BTC (WBTC), which is an ERC20 token compatible with the Ethereum network. The amount of BTC you want to port gets locked in a smart contract, and the equivalent tokens on the destination blockchain network are issued or minted. 

A wrapped token is a tokenized version of another cryptocurrency. It’s pegged to the value of the asset it represents and typically can be redeemed for it (unwrapped) at any point.

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When you buy and sell assets on a crypto exchange, the market prices are directly related to supply and demand. Apart from the price, other important factors to consider are trading volume, market liquidity, and order types. Depending on the market conditions and the order types you use, you won't always get the price you want for a trade.

There is a constant negotiation between buyers and sellers that creates a spread between the two sides (bid-ask spread). Depending on the amount of an asset you want to trade and its volatility, you might also encounter slippage (more on this later). So to avoid any surprises, getting some basic knowledge of an exchange's order book will go a long way.

What is bid-ask spread?

The bid-ask spread is the difference between the highest bid price and the lowest ask price of an order book. In traditional markets, the spread is often created by the market makers or broker liquidity providers. In crypto markets, the spread is a result of the difference between limit orders from buyers and sellers.

If you want to make an instant market price purchase, you need to accept the lowest ask price from a seller. If you'd like to make an instant sale, you'll take the highest bid price from a buyer. More liquid assets (like forex) have a narrower bid-ask spread, meaning buyers and sellers can execute their orders without causing significant changes in an asset's price. This is due to a large volume of orders in the order book. A wider bid-ask spread will have more substantial price fluctuations when closing large volume orders.

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What is BTC Dominance?

Bitcoin dominance, or BTC dominance, is measured as the ratio of the market capitalization of bitcoin to that of the rest of the cryptocurrency market. Some crypto investors and traders use bitcoin dominance as a guide to adjust their trading strategies and portfolio structures. 

BTC dominance and market capitalization

In simple terms, market capitalization refers to the total value of a certain asset in circulation. For bitcoin, the market cap is calculated by multiplying the current price and the number of BTC that have been mined so far.

You can calculate bitcoin dominance with this formula:

Bitcoin dominance = Bitcoin market cap/ Total cryptocurrency market cap

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What are governance tokens?

Governance tokens give holders the right to vote on issues that govern the development and operations of a blockchain project. It’s a method for projects to distribute the decision-making power to their communities. This decentralized governance model helps align the interests of the token holders with that of the project.

How do governance tokens work? 

Governance tokens are the core method to realize decentralized governance in DAO, DeFi, decentralised apps (DApp) projects. They are often awarded to active users for their loyalty and contributions to the community. In turn, token holders vote on major issues to ensure the projects’ robust development. Typically, voting takes place via smart contracts, in which case the results are automatically implemented.

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Diversification of Portfolio 

Balancing a crypto portfolio is not that different from balancing a traditional portfolio. You can easily reduce your overall risk according to your profile and investment strategy. All it takes to get started is simply diversifying your investments among different cryptocurrencies.

The extent to which you diversify is up for debate, as there are pros and cons to both sides. However, it's generally accepted that some diversification is beneficial. You can reduce the risk of your investments by holding different crypto assets (including stablecoins) and making sure to rebalance your asset allocation regularly.

Getting started with crypto investing is as easy as purchasing your first bitcoin (BTC), ether (ETH), or any other cryptocurrency. While some investors prefer to buy and hold the largest cryptocurrencies, others choose to experiment with altcoins. 

But what's the best way to do this? You are more likely to succeed by thinking carefully about your asset allocation and balancing your crypto portfolio regularly. Depending on your risk tolerance, there are a few ways to do this. Balancing your portfolio isn't hard, and the results can literally pay off.

Asset allocation refers to investing in different asset classes (e.g., cryptocurrencies, stocks, bonds, precious metals, cash, etc.). 

Diversification relates to the distribution of your investment funds across different assets or sectors. For example, you could diversify your stock holdings by investing in different industries, such as agriculture, technology, energy, and healthcare. Both of these strategies reduce your overall risk.

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What Are Decentralized Applications (DApps)?

Decentralized applications (DApps) are smart contract-powered digital applications or programs that run on blockchains rather than centralized servers. They look and feel similar to regular mobile apps on your smartphone and offer a wide variety of services and functions from gaming to finance, social media, and much more. As the name suggests, DApps run on decentralized peer-to-peer networks.

A smart contract works as a set of predefined rules enforced by computer code. When and if certain conditions are met, all network nodes will execute the tasks that the contract specifies.

Once a smart contract is deployed on the blockchain, it is hard to change the code or destroy it. Therefore, even if the team behind the DApp has disbanded, users can still access the DApp. 

While the interfaces of DApps and traditional applications can look similar, DApps offer multiple benefits compared to their centralized counterparts. Web apps store data on centralized servers. A single compromised server may take down the entire network of the app, making it temporarily or permanently unusable. Centralized systems may also suffer from data leakages or theft, putting the companies and individual users at risk.

DApps, in contrast, are built on distributed networks with no central authority. With no single point of failure, DApps are less vulnerable to attacks, making it very difficult for malicious actors to hijack the network. The P2P network can also ensure the DApp continues to work with minimal downtime, even if individual computers or parts of the network malfunction. 

The decentralized nature of DApps also means that users can have more control over the information they share. With no companies controlling users’ personal data, they don’t need to provide real-world identity to interact with a DApp. Instead, they can use a crypto wallet to connect to DApps and fully control what information they share.

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What is crypto faucets?

The earliest crypto faucet may be a bitcoin faucet created in 2010 by the then-lead developer of the Bitcoin network named Gavin Andresen. It gave 5 BTC for free to each user who completed a simple captcha. This bitcoin faucet eventually gave out 19,715 BTC in total, helping to distribute early BTC ownership widely. It was instrumental in educating the initial network of bitcoin users, leading to the cryptocurrency’s healthy growth later on. 

Naturally, no crypto faucets would deliver such massive payouts today as bitcoin and other cryptocurrencies’ prices have increased significantly. But emerging crypto projects still need to attract new users, and there are many people out there who want to learn about crypto. Crypto faucets play a role in connecting the supply and demand.

How do crypto faucets work? 

Crypto faucets are generally made to be simple and user-friendly. Users usually need to register an account with the digital asset service first. There are also dedicated crypto faucet sites and apps that specialize in offering free crypto to users who complete simple tasks. In both cases, users should have their crypto wallets to receive the rewards and may sometimes be asked to verify their identity.

Users are offered to complete tasks that can include watching videos, reading articles, watching ads, playing games, and taking quizzes or surveys. The service can also ask users to refer friends to it. These tasks are relatively straightforward, and most people would have no problem completing them. But, in some cases, the tasks can be rather time-consuming.

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What is Forex Trading? 

Even if you don't trade forex yourself, the international currencies market often plays a significant role in your daily life. While the effects of a drop in the stock market aren't always so obvious, a change in your currency's value may affect the price of goods and services. If you've been abroad, you've also likely had to exchange your currency and pay a rate that depends on current forex quotes and rates.

Forex is a unique asset class that differs from stocks, commodities, and bonds. When we dive into what makes it different, it’s plain to see why there is such a large market and need for the truly global forex market. 

Forex or FX trading (from foreign exchange) is the purchasing and selling of sovereign currencies and other forex products. When exchanging currencies at a bank or bureau de change, the rates we find are determined directly by what happens in the forex market.

Exchange rate movements are based on a mixture of economic conditions, world events, interest rates, politics, and other factors. As a result, forex is highly liquid and has the largest trading volume compared to other financial markets. 

The forex market comprises two main activities: trading facilitating economic transactions and speculative trading. For companies and other entities operating in international markets, purchasing and selling foreign currencies are a must. Getting your funds back home or purchasing goods abroad is a key forex market use case.

Speculators make up the other side of FX trading. Short-term, high-volume trading that takes advantage of very small fluctuations in currency prices is common. Forex is a market full of arbitrage opportunities for speculators, in part explaining the vast trading volume in the market. 

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