In the crypto space, an airdrop is a marketing strategy to promote and create awareness of a new virtual currency. It involves sending people coins for free to their digital wallets hoping they get more people trading when it does an ICO. As an incentive, the recipients may receive free merchandise or different coins, subject to terms and conditions. Ultimately it is a promotional activity, not seeking any capital investment.
In 2020, Uniswap, the world’s most popular decentralized exchange, airdropped UNI. To be eligible, the account had to use the platform at least once and transacted before a specific date. Those that qualified received 400 units of the base asset. Those investors who held on and did not dump their tokens were hugely rewarded as the value climbed from $2 to $30 as of April 2021.
Cryptocurrencies are denominated in these tokens, which represent a specific unit of value. Through the ICO process, these tokens are created and distributed. Even Though a cryptocurrency coin and token are used interchangeably, they are widely different. Think of a cryptocurrency coin like any ordinary coin, it can be used for the same purposes, transfer money or pay for goods and services. On the other hand, a cryptocurrency token is used on the decentralized application itself. The most relatable example would be BNB, the Binance token. When users trade with the BNB token on the Binance exchange they receive a 50% discount on the fees. Different tokens can serve different purposes depending on the crypto.
In simple terms, crypto exchanges are platforms that allow their users to trade cryptocurrencies. It acts similarly to a stock exchange, matching buyers and sellers making money through commissions and fees. There are two types of exchanges; a) centralized and b) decentralized.
- Centralized exchanges – they are controlled by a company and hence are more reliable. They account for around 99% of all crypto transactions. One probable disadvantage of a centralized exchange is that the users cannot remain anonymous, a KYC is needed. Some of the notable centralized exchanges are – Coinbase, GDAX, Kraken, and Gemini.
- Decentralized exchanges – there is no third party, its users execute peer-to-peer transactions. Unlike centralized exchanges, they do not allow the trading of fiat currencies in exchange for cryptocurrencies. One advantage of the decentralized exchange is that due to the absence of a third party the risk of theft reduces. Also, they are less likely to be influenced by price manipulation and other illegal trading activities. Some of the notable centralized exchanges are – Uniswap, Sushiswap, and Pancakeswap.
In the technology space, a whitepaper is an informational document that describes the process and working behind the new technology. It can be seen as an in-depth report on a topic that poses a problem and provides a solution. The company in question hopes to educate its audience and promote its technology, converting them into potential customers.
In 2008, the most famous crypto whitepaper, The Bitcoin Whitepaper, was published under the name Satoshi Nakamoto. It is a comprehensive 9-page document describing the underlying technology known as a blockchain and how this technology is incorporated into Bitcoin. It outlines the flaws of the traditional financial system that requires a third party to facilitate transactions. Nakamoto goes on further explaining the technical transaction process, timestamp server, proof of work, the network, incentives, and privacy. A simple guide is available on the Bitcoin website.
Market capitalization refers to the market value of a publicly-traded company’s outstanding shares. It is equal to the product of the share price and a number of shares outstanding. In the cryptocurrency space, market capitalization is the product of the number of coins in circulation and the current market price of a coin.
This measure is important to know how a cryptocurrency will react in volatile periods. A cryptocurrency like Bitcoin that possesses the largest market capitalization will likely be more stable than one with a smaller market capitalization. Thus they are considered to be less risky. Two terms special to the crypto market while referring to market capitalization are circulating supply and fully diluted supply. Since crypto coins are mined and not all coins possible are in circulation, there is a circulating supply and a fully diluted supply i.e. assuming all coins are mined.
Shown below is the total market capitalization for all cryptocurrencies to date.
Source : coinmarketcap.com
Rug pull is a type of scam where the crypto developers abandon their projects and take away the investors’ money. Once the developers receive a substantial amount of leading crypto in exchange for the tokens, they withdraw everything from the liquidity pool causing the coin’s price to plummet to zero. It usually occurs in decentralized exchanges due to the lack of regulation. Developers can list their tokens without an audit, unlike in a centralized exchange.
To prevent being a victim of such a scam, an investor should check whether or not the liquidity is locked. This could be done through a liquidity locking service like Unicrypt. It allows the developer to store their LP tokens, granted at the time of listing, in a smart contract. This contract has a fixed start and end date. This means the developer can not withdraw the liquidity before that. An additional step could also be to research the project and verify via a trusted source like CoinMarketCap or CoinGecko.