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What Is a Hybrid PoW+PoS Consensus?



What Is a Hybrid PoW+PoS Consensus

The crypto community is fully aware that Bitcoin will never be taken as a possible alternative to fiat currency until consumers can use it as seamlessly as credit cards. The sobering reality is that blockchain developers are not even close to competing with fiat money as a method of payment. However, that hasn’t stopped the crypto community from unveiling new mechanisms for solving the scalability dilemma. For example, a hybrid PoW+PoS consensus protocol is another attempt to improve transaction validation on the blockchain network. Let’s review the details.

As the name implies, hybrid PoW+PoS combines proof-of-work with proof-of-stake to create a more efficient consensus mechanism. It utilizes elements of both PoW and PoS to validate transactions on the blockchain network. The objective of PoW+PoS is to diminish the weaknesses of each consensus mechanism on a stand-alone basis.

Why Do We Need Hybrid PoW+PoS Consensus?

Concerning PoW, the chief complaint within the crypto community is the amount of energy and computational usage required to effectively use the mechanism. Additionally, it is generally disliked by users because the miners with the most powerful computers have an unfair advantage. Eventually, a small group of miners with supercomputers can control the mining process. Of course, this defeats Nakamoto’s original goal of creating a decentralized platform with multiple users validating Bitcoin transactions.

Suggested Read: What Is Symmetric Encryption? – Cryptobite

How Does it Work?

PoS aims to replace the original PoW mining process with a validation process. Miners are known as validators. The most notable change between PoW and PoS is based on the fact that supercomputers are no longer needed to verify transaction blocks. Instead, the verification of blocks is randomly distributed within the community by an algorithm. Consequently, this prevents miners with supercomputers from monopolizing the entire PoW process. PoS relies on validators to process the crypto transactions, thus creating a more decentralized approach.

However, PoS is not a flawless concept. For example, unlike PoW where miners have to solve complex puzzles, participants can join the PoS mining process by using their coins to stake. Therefore, those who have a large accumulation of coins can obtain control of the consensus. Of course, this reduces the decentralization of the system.

The Decred cryptocurrency (DCR)

A hybrid consensus mechanism is created by merging PoW and PoS. To provide a usable example of PoW+PoS, we will examine the Decred cryptocurrency (DCR). Launched in February 2016, DCR is a community-based cryptocurrency similar to Bitcoin. It is a big believer in community involvement, which explains why DCR selected the hybrid system. PoW+PoS ensures that a small group of users cannot dominate the transaction flow or make changes to DCR without input from the community.

How DCR implements PoW+PoS

Hybrid PoW+PoS creates a system by using PoW miners to create new blocks containing transactions to be added to the blockchain. PoS miners determine which blocks are to be confirmed. The miners purchase votes by staking a portion of their tokens. However, instead of examining the total vote count, PoW+PoS randomly selects 5 votes to determine the adequacy of the newly created block. To be added to the blockchain, 60% (3 of 5) of the blocks must be affirmed. In exchange for the miners’ services, a block reward is dispersed. PoW miners receive 60% of the block reward. PoS miners receive 30%. The remaining 10% is earmarked for DCR developmental efforts.

Is Hybrid PoW+PoS a perfect solution for validating transactions on the blockchain network? The answer is no. However, for many cryptocurrencies, it is the preferred consensus mechanism.

Brief Summary of Hybrid PoW+PoS Consensus

  • Hybrid PoW+PoS is another attempt by developers to improve transaction validation.
  • The chief complaint of PoW is the amount of energy required to use the mechanism.
  • The main concern with PoS is the loss of decentralization by large coin holders.
  • Hybrid PoW+PoS solves the problem of excessive energy and centralization.
  • Decred (DCR) was one of the first major cryptocurrencies to implement PoW+PoS.
  • DCR selected hybrid PoW+PoS because it is a community-based cryptocurrency.
  • DCR aims to ensure that a small fraction of users could not dominate the network.
  • A hybrid mechanism is initiated when PoW miners add transactions to the blockchain.
  • The next step involves PoS miners determining which blocks are to be confirmed.
  • Miners purchase votes by staking a portion of their tokens.
  • Upon affirmation, the blocks are added to the blockchain.
  • Finally, rewards are distributed to PoW and PoS miners.
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Knowledge Center

Everything You Need to Know About Binance USD



binance usd coin

Binance USD (BUSD) is a fiat-backed stablecoin designed to address issues of accessibility, flexibility, and speed on the blockchain. A cryptocurrency exchange leader, BUSD, is currently the second-largest stablecoin on the blockchain by market cap.

This flexible cryptocurrency is stable, regulated, and can be swapped on multiple blockchains. Investors can use BUSD on the Ethereum chain, Binance Chain, and Binance Smart Chains.

What Is Binance USD?

Binance USD (BUSD) was created to be a safe investment for cryptocurrency investors looking to invest in a low-volatility stake. This cryptocurrency is pegged at the value of the US Dollar. The New York State Department of Financial Services regulates Paxos, the creators of this currency.

USD is a fiat-backed stablecoin backed by Paxos instead of a government. As a result, Paxos holds the equivalent of the total amount of BUSD in US dollars in its financial reserves. BUSD is a stablecoin that keeps pace with the price of the United States dollar.

When the price of the dollar rises or falls, the price of BUSD fluctuates as well. Paxos issues monthly audits to verify collateralization.

Key Features of BUSD

1. BUSD is regulated

2. Fiat-backed stablecoin backed by a reserve

3. 1:1 ratio price fluctuates with US Dollar

4. Operates on multiple blockchains

Who Created Binance USD?

Paxos and Binance created Binance USD.

When was Binance USD launched?

Binance USD (BUSD) was launched in September 2019 as a partnership between Paxos and Binance.

How Does Binance USD Work?

They first issued BUSD on the Ethereum blockchain as ERC-20 tokens. Binance USD is one of only three cryptocurrency tokens currently approved by Wall Street regulators. The New York-based financial company Paxos issues BUSD tokens.

Paxos collateralize BUSD tokens by holding equivalent dollar amounts in regulated US bank accounts. Paxos is also responsible for creating and burning BUSD tokens.

Paxos and Binance designed BUSD to be a low-volatility investment for crypto traders seeking highly liquid investments. Investors can easily convert their BUSD investment into fiat-backed currency during times of volatility.

How To Keep Your Binance USD Safe?

Cryptocurrency experts recommend taking security measures like using two-factor authorization (2FA) to manage online Binance USD accounts and wallets. Serious investors use Binance USD wallet software to store, protect, and manage investments. They do this by using public and private keys to store value.

Is Binance USD A Good Investment?

We do not provide investment advice. Cryptocurrency traders looking to invest in Binance USD should do their research on the history and performance of BUSD and choose the best options that fit their investing style and budget.

It’s important for investors to consider how much they can afford to lose on investments with downturns before committing to any investment. The creators of Binance USD designed BUSD as a low-volatility asset for crypto traders seeking high liquidity. This stablecoin’s goal is to remain stable and as close to the value of one dollar as possible. While its performance appears stable, this can change at any time.

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Knowledge Center

What are Candlesticks and How to Read Them



what is a candlestick in stocks and crypto

A candlestick is a type of price chart used in technical analysis to forecast the future price direction of stocks, commodities, and cryptocurrencies. Each candlestick is a graphical representation of a price movement for a specific period. Four different price points are displayed on each candlestick. They include open, high, low, and close.

Candlesticks are one of the oldest forms of technical analysis. According to historical records, candlestick charting can be traced back to Japanese rice merchants during the 18th century. Most financial historians agree that Munehisa Homma was responsible for popularizing candlestick charting.

Candlestick formations are based on a strict set of rules which are universally accepted among all traders and investors. Let’s review a few of the most basic candlestick formations and patterns.

Candlestick Formations

A solid red candlestick is displayed if the opening price is above the closing price (Chart #7).

how to read candlesticks

A hollow candlestick is displayed if the closing price is above the opening price (Chart #8).

what is a candlestick

Bullish Candlestick Patterns

Big White Candle – The market opens near the low and closes near the high (Chart #9).

big white candlestick

Doji – The opening and closing price is virtually identical (Chart #10).

doji bullish candlestick

Hammer – A candlestick that consists of a small body near the daily high with a long lower tail (Chart #11).

hammer bullish candlestick

Bearish Candlestick Patterns

Big Red Candle – The market opens near the high and closes near the low (Chart #12).

big red bearish candlestick

Inverted Hammer – A red or white candlestick within an upside-down hammer position (Chart #13).

inverted hammer bearish candlestick

Shooting Star – A red or white candlestick with a small body, a long upper shadow combined with little or no upper tail (Chart #14).

shooting start bearish candlestick

Brief Summary of Candlesticks

  • A candlestick is a type of price chart used in technical analysis.
  • Each candlestick represents price movement for a specific period of time.
  • Four different price points are displayed on each candlestick.
  • The price points include open, high, low, and close.
  • Candlesticks are one of the oldest forms of technical analysis.
  • Candlestick charting was first used by Japanese rice merchants during the 18th century.
  • Munehisa Homma was responsible for popularizing candlestick charting.
  • Candlestick formations are based on a strict set of rules.
  • These rules are universally accepted among all traders and investors.
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Knowledge Center

What Is an IEO?



initial exchange offering

An Initial Exchange Offering (IEO) is a type of token sale administered by a cryptocurrency exchange. The entire process is controlled and managed by the exchange on behalf of the crypto company. Both parties have a vested interest in the success of the IEO. Neither party receives a payout unless investors purchase the token through the participating exchange. Therefore, it’s not uncommon for the exchange and the token issuer to join forces to help with marketing, promotions, and advertising.

Before launching the IEO, the crypto exchange and token issuer sign an agreement outlining the payout structure. Typically, the token issuing company is required to pay a listing fee along with a percentage of tokens sold through the crypto exchange. The majority of IEO agreements stipulate that the new token must be listed on the exchange for a predetermined amount of time following the initial sale of the token.

Investors who participate in the IEO are required to open an account with the participating crypto exchange. Instead of sending money to the token issuer through a smart contract, the investor deposits funds into his/her crypto account. Funds are dispersed by the crypto exchange to the crypto company.

IEO Versus ICO

As you may recall from our ICO discussion, the first ICO was launched in 2013. However, the ICO explosion did not occur until 2017, followed by its peak in 2018. Without question, the chief complaint within the crypto community concerning ICOs was a large number of failures and outright scams. In fact, the failure rate approached 90% in 2018.

As we have discussed several times, the cryptocurrency community is incredibly innovative. This community is filled with some of the brightest minds in global finance. Not surprisingly, a small group of young men and women were quick to replace problematic ICOs with IEOs in early 2019. The first major crypto exchanges to join the IEO wave occurred in January 2019. IEO activity continues to flourish in 2020.

The main difference between IEO and ICO is the level of success. In a typical ICO, the crypto company received funding immediately upon issuance of the token. Investors had very little recourse once the tokens were dispersed. They were trapped in a vulnerable position. Sadly, many unscrupulous start-up firms basically disappeared upon receipt of the funds commonly known as a ‘rug pull’.

IEOs solve this problem by preventing the token issuer from receiving funds immediately upon the distribution of the tokens. As we discussed earlier, both parties work together to ensure the success of the project, which increases the likelihood of a rising token price.

Although IEOs have only been in existence for two years, the popularity of this new fund-raising method has increased substantially. The success rate of projects launched on IEO is much higher compared to ICOs. Most likely, this trend will continue.

IEO Regulatory Environment

As you may recall from our ICO discussion, crypto companies struggled to clear all of the regulatory hurdles to satisfy financial regulators. Unfortunately, IEO participants, are experiencing the same type of regulatory problems that plagued the ICO marketplace. This by and large means that regulators dissuade people from taking part in IEOs.

A positive to this is that IEOs are largely unregulated and don’t have to satisfy bureaucracy that can stifle innovative projects.

Financial regulators, particularly in the United States, claim that an initial exchange offering is similar to an initial coin offering, even though the token issuer is not directly involved in the sale of the token. An ongoing problem with regulation is whether or not any particular token counts as security and needs regulation, or whether they are utility tokens. Exchanges will typically avoid listing securities on an IEO as it means they have to submit to regulation.

To avoid the strict regulation requirements around securities, crypto exchanges may even opt not to offer tokens in countries like the United States where there is ambiguity about regulation. As long as the IEO is not soliciting in a particular country, registration is not required.

Due to the overwhelming success of IEOs, many of the world’s largest crypto exchanges are becoming heavily involved in IEOs by offering tokens on behalf of start-up companies. Most likely, this trend will continue.

Brief Summary of IEO

  • An initial Exchange Offering is a token sale administered by a crypto exchange.
  • The entire process is overseen by the crypto exchange.
  • Neither party receives a payout unless investors purchase the token.
  • The exchange and token issuer will often collaborate with marketing and advertising.
  • Both parties sign an agreement outlining the payout structure of the IEO.
  • The new token will be listed on the exchange for a predetermined time period.
  • Participating IEO investors are required to open an account with the exchange.
  • Investors pay for the token by depositing funds into their crypto account.
  • IEOs have proven to be safer than ICOs.
  • Many crypto exchanges are not participating in heavily regulated countries.
  • IEOs have become very popular in the crypto universe.
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