仮想通貨に関する用語集(CRYPTO GLOSSARY) F行

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Fan Tokens

Fan tokens are digital assets that provide unique online and in-person benefits and are designed to enhance the engagement between sports teams, clubs, or players and their fans.

What Are Fan Tokens?

Fan tokens are blockchain-based digital assets that sports fans can purchase to show their support for a specific sports team, club, or player. Unlike traditional engagement methods, which are often passive, fan tokens allow fans to actively participate in activities related to their favorite teams. These tokens are predominantly used in the sports industry but have similar use cases in other markets/industries as well.

Fan Tokens vs NFTs

While fan tokens and NFTs are digital assets created using blockchain tech, they serve different purposes. For one thing, fan tokens are fungible, meaning they can be exchanged one-for-one with another identical token. This fungibility makes them similar to traditional currencies and facilitates easy trading.

On the other hand, NFTs are unique, representing ownership of a specific digital item, such as a piece of art or a virtual event ticket, and cannot be exchanged on a one-to-one basis.

How Do They Work?

There are many decentralized apps (dApps) and web2/web3 hybrid platforms that issue fan tokens. These tokens can have various functions within their respective platforms and are often linked to specific sports teams or clubs. To acquire fan tokens, users typically purchase a platform’s native cryptocurrency, and use it to buy the token during a fan token offering (FTO). Once acquired, these tokens can access a range of exclusive benefits for some of their favorite football teams, for example

. For instance, fan token holders might gain voting rights on non-critical team decisions, such as choosing the color of the team’s bus or selecting a song to be played during a game. These voting rights foster a sense of community and involvement among fans. Additionally, these tokens can be exchanged for collectibles, merchandise, or even unique experiences like meet-and-greet sessions with players. Fan token represent a modern approach to fan engagement, leveraging blockchain technology to create a dynamic and interactive experience for sports enthusiasts.

By understanding what fan tokens are, how they differ from NFTs, and their various benefits, beginners and intermediate users can appreciate the value these digital assets bring to the fan experience.

Faucet

A crypto faucet is a website or app that rewards users with small amounts of cryptocurrency for completing simple tasks.

What Is a Crypto Faucet?

The origin of the first crypto faucet traces back to 2010. Bitcoin developer Gavin Andresen created a crypto faucet for Bitcoin that allowed people to earn 5 BTC every day by solving a simple captcha.

The primary purpose behind crypto faucets is to promote cryptocurrency to beginners and increase its adoption and that’s exactly what Andresen’s Bitcoin faucet did. Using it, anyone could earn Bitcoin without having to mine it or invest in it. However, as Bitcoin adoption increased, the faucet eventually became unsustainable due to the rise in BTC prices.

As crypto gained popularity, many other crypto faucets emerged to reward users, and some even partnered with other protocols and blockchains to advertise specific cryptocurrencies.

How Does a Crypto Faucet Work?

Users are first required to register on the faucet website or app. For this, they might have to provide an email ID, name, or wallet address to the platform. Once registered, users can perform simple tasks such as watching ads, solving captchas, playing games, and more. In return, they receive a tiny bit of cryptocurrency. These rewards are added automatically to their accounts or wallets.

However, some crypto faucet platforms can have a certain set of rules or time clocks around tasks and rewards. For example, a user may only be able to withdraw crypto after accumulating a minimum amount, such as ＄10.

This way, a crypto faucet provides a great way for new users to engage and earn crypto with minimal effort. Moreover, these platforms are user-friendly and simple, making them accessible for beginners.

Popular Crypto Facuet Platforms

Bitcoin Faucets:

The most popular Bitcoin faucet platforms are Freebitcoin, Cointiply, and Firefaucet. They offer easy hourly tasks, daily bonuses, and games to earn small Bitcoin rewards.

Ethereum Faucets:

Similar to Bitcoin faucets, they let you earn ETH rewards for performing tasks. Freeethereum, Firefaucet, Allcoins, and Trustdice are some platforms where users can claim free ETH.

Bitcoin Cash Faucets:

Faucet Crypto, Allcoins, and Bchgames let users earn rewards in Bitcoin Cash (BCH) for playing games, downloading apps, and completing surveys.

Several other crypto faucets offer opportunities to earn rewards in Tron, Monero, Litecoin, ZCash, and more cryptocurrencies.

Fear Of Missing Out (FOMO)

FOMO stands for the “fear of missing out,” which is the anxiety or fear traders experience when they think they are missing out on a profitable investment or trading opportunity.

What Is FOMO in Crypto?

While FOMO can be used in any social or business circumstance, FOMO in the crypto industry specifically refers to an intense feeling that you are missing out on the next big thing in the crypto space, and subsequently the opportunity to make large profits. FOMO is typically referred to as a reason behind someone’s emotional decision to buy or sell crypto based on unverified information. 

For example, many new traders end up buying a crypto asset at its all-time-high price, because they see it doing well and don’t want to miss out on that profit. This is especially common when there’s a lot of social media or online speculation about further price movements. Similarly, many traders will refuse to sell assets at their peak price due to FOMO; in this circumstance, that trader is afraid of losing out on future monetary gain based on potential price movements.  In both cases, traders lose profit, because they end up jumping in to buy at the highest price or selling at a significantly lower price.

Psychology Behind FOMO

According to trading psychology, most traders experience FOMO near the top of a bull run. At this point, the market sentiment is positive, and prices are rising. You feel like the uptrend will continue and nothing can go wrong, so you’ll make more money if you buy now, even if the price is high. If you are FOMO-driven then you might experience: 

• Anxiety and constant obsession with your open position
• An extreme need to follow social media news and trends 
• Making investment decisions because of popularity or massive price movement 

However, FOMO can also lead to negative consequences. It is a major psychological tool employed in pump-and-dump schemes, where malicious actors convince investors they are missing out on massive profits and get them to invest. An example is the rug pull scheme of SQUID Coin that gained traction based on social media hype and FOMO from investors, but then plummeted in value. 

How To Deal with FOMO in Crypto 

Here are some tips to help you deal with FOMO and avoid risky  trading decisions:

• Keep a trading journal that records every investment/trading move you make. Record your strategy, risk management plan, and emotions, so you can physically see the results of strategic trading decisions versus trades made out of FOMO. 
• Have a trading plan and stick to it. That way, you can avoid emotional trading. 
• Create a detailed risk management strategy. This will help you clearly understand when to take profit or cut your loss. 
• Do your own research before making a trading decision. Don’t base your trading strategy on social media hype, and don’t rely on influencers. Follow news from trusted new media and verify information from the source. 

Fiat

The term “fiat” or “fiat currency” refers to a type of currency that is declared by governments as a country’s legal tender. Fiat currencies include the USD, Euro, Sterling Pound, and Chinese Yuan amongst others.

What is Fiat Money?

Fiat currency refers to a currency that, rather than being backed by gold or silver, is backed by a government. 

It derives its market value and validity as a medium of exchange from collective societal beliefs. Thus, its intrinsic purchasing power is highly reliant on the government’s decree and collective social conventions; when compromised, the purchasing power declines.

It is issued by a government’s treasury, reserves, or central bank, which is responsible for its generation and distribution to the public. This gives the government the power to control supply variations, interest rates, and liquidity. 

Some examples of fiat money include the USD, EUR, GBP, JPY, CAD, and other currencies lawfully accepted by governments as legal tender.

What is the Difference Between Fiat Money and Cryptocurrency?

Cryptocurrencies differ from fiat money in several ways:

• Cryptos are not a legal tender of any country, except El Salvador, which adopted Bitcoin as its legal tender.
• Fiat is controlled by the government, while crypto is decentralized, i.e., it doesn’t have a central authority controlling supply variation. 
• Fiat currencies have physical forms such as paper money or coins, while crypto is completely digital.
• Because cryptocurrencies are decentralized, cross-border transactions are seamless in crypto. On the other hand, fiat currencies transactions require conversions to the corresponding nation’s currency.
• Crypto enables peer-to-peer transactions, while fiat currencies need a middleman or bank to verify transactions.
• Crypto transactions are irreversible, in that, crypto payments cannot be reversed once the transactions are confirmed or added within a valid block of the chain, and refunds can only be done by the receiving party. On the other hand, credit card transactions can be canceled by the sending party.

Crypto has introduced an alternative to fiat currency as a store of value, unit of account, and medium of exchange.  It has inspired a number of governments to develop Central Bank Digital Currency, which are digital fiat currencies based on blockchain technology. 

Fill or Kill Order (FOK)

A Fill or Kill order is an order to buy or sell that must be executed immediately in its entirety at the set price or canceled altogether.

What Is a Fill or Kill Order?

Think of a Fill or Kill (FOK) order as a time-limited order. It’s a buy or sell order that must either be executed immediately in its entirety (fill) or automatically canceled (kill). 

Simply put, an FOK dictates the conditions for the expiry of an order a trader places, such as quantity and price. This means that the order will only be executed if the entire amount is matched. Failure to fill the order in its entirety immediately after it is submitted to the exchange, the system automatically cancels it entirely.

For instance, assume you intend to purchase 1 BTC at ＄60,000 at once rather than placing numerous, smaller buy orders. You can place multiple Fill or Kill buy orders for 1 BTC to different exchanges. This allows you to cancel any order that is not filled in its entirety– such as an order of 0.9 BTC at ＄60,000 – and only pay for the transaction if you get the 1 BTC you want.

What Characterizes FOK Orders?

FOK orders are useful when traders don’t want partial fulfillment or have a time-based demand. It allows them to place multiple orders on different exchanges without risking receiving partial fills. They can then cancel the remaining orders after one of the trades is filled in its entirety.

Therefore, FOK can be characterized by:

• Immediate execution – FOK orders are executed immediately after they are submitted.
• Price and quantity specificity – The trader specifies the exact amount of crypto they want, and their set price.
• All-or-nothing approach – Either the entire trade is filled at once, or canceled altogether.

What Are the Benefits of FOK Orders?

Some of the advantages FOK orders offer include:

• Preventing slippage – FOK orders minimize the risk of price slippage, where the volatility of crypto may cause the price to change unfavorably before the entire order is executed.
• Price control – It also ensures that you buy or sell crypto at a specified price, giving you better control over your desired entry or exit prices.
• Immediate execution – FOK orders are executed instantly. This allows traders to exploit fast-moving or illiquid market conditions while minimizing their exposure to price fluctuations.
• No partial fills – FOK orders offer traders a level of certainty, ensuring that you don’t end up with unwanted partial positions. You either get the exact amount of crypto you want at the price you want it at or don’t proceed with the trade at all.

 

Finality

Finality is a guarantee that, at a certain point, a particular transaction is confirmed and recorded on the blockchain, and cannot be reversed, modified, or canceled.

What Is Finality in Blockchain?

In the context of blockchain, the term “finality” refers to the point at which a transaction or a block of transactions becomes irreversible or unchangeable as it is confirmed and added to the blockchain. Different blockchains achieve this through different consensus mechanisms, such as proof-of-work (PoW) and proof-of-stake (PoS). 

The time to achieve finality (time-to-finality) dictates how fast transactions can be completed and added to the network. However, the finality is often not immediate because it is dependent on the underlying blockchain’s latency. Latency measures the duration or time taken to confirm a transaction after its submission. In other words, blockchains with low latency typically reach finality faster.

This confirmation time is essential in ensuring that once a transaction is validated and recorded on the blockchain as “spent,” it cannot be used again. As a result, it precludes occurrences that undermine the network’s security and integrity, such as double-spending.

Types of Block Finality

Blockchain finality can be probabilistic, instant, economic, unconditional, or related to the blockchain’s entire state.

• Probabilistic finality – Transactions or blocks become final as more and more blocks or transactions are confirmed. For example, a Bitcoin transaction becomes practically immutable and irreversible after 6 confirmations (60 minutes).
• Economic finality – Often related to PoS networks. In economic finality, a transaction becomes final when reversing it would be financially unfeasible, since it hurts the validators financially to act maliciously.
• Unconditional transaction finality –  A transaction becomes completely and unconditionally final when it reaches finality without any conditions. In other words, the transaction cannot be reversed under any circumstances.
• State finality – In some protocols, finality means the entire blockchain achieves finality rather than being limited to transactions or a block of transactions. This implies that the blockchain’s state becomes irreversible once a state transition is complete.

Instant finality – Refers to when a transaction achieves near-instant finality, i.e., the transaction becomes irreversible immediately after it is confirmed and recorded on the blockchain.

 

Flash Loan

Flash loans allow you to borrow crypto assets without collateral or borrowing limits within the DeFi space. The lending condition is that you pay back the loan within the same blockchain transaction.

What is a Flash Loan in Crypto?

A flash loan is an unsecured loan available on some DeFi protocols. No collateral is needed, because the loan is paid back instantly, within the same transaction.

As a loan that doesn’t require collateral, flash loans work differently than loans in the traditional finance sector. First, they are part of the DeFi ecosystem, so they are entirely decentralized and not run through a bank. 

Flash loans are executed incredibly fast: the borrowing and repayment of a flash loan happen on the same transaction. Whereas traditional loans can last for decades, a flash loan requires repayment in minutes. Typically, a smart contract executes the loan and immediately repays it with interest. 

It usually takes seconds to a few minutes to validate/ mine a block containing proposed details of the flash loan. During this period, the network must agree that a transaction is valid for it to be stored permanently on the blockchain. If the network rejects a transaction, it becomes void, and there is no record of it on the blockchain. 

The network rejects and cancels the transaction if a user can’t repay the loan before a block is completed. In this case, the asset is returned to the lender as if the transaction never happened. This is possible because the blockchain didn’t reassign the tokens to the borrower in the first place. 

How Do Flash Loan Work Differently Than Traditional Loans?

Typically, you can’t think of flash loans in terms of traditional loans; they are unsecured and decentralized. 

Unsecured Loan

Flash loans are unsecured: you don’t need collateral to get one. Instead, smart contracts on the blockchain enforce the loan. If you can’t pay back the loan immediately, the blockchain doesn’t confirm the transaction. The loan doesn’t go ahead.

Smart Contracts

Smart contracts are code that run on a blockchain, executed when its predetermined conditions are met. Flash loans are executed by smart contracts, which execute the loan only on the condition that the borrower can immediately pay back with interest.

Flash Loan and Arbitrage Use Cases

The most popular use of flash loans is arbitrage trading. In this case, users take advantage of the difference in the price of cryptocurrencies across trading platforms. 

For example:

• Say a token trades for ＄1 on DEX A but for ＄1.50 on DEX B. If a user buys 100,000 tokens on A and immediately sells them on B, they would earn a profit of ＄50,000. 
• To take advantage of that, an arbitrage trader borrows ＄100,000 flash loan to buy from DEX A and resell on DEX B. The smart contract sets up the buying and reselling, takes back ＄150,000, and returns ＄100,000 with fees to protocol A. The rest of that profit is for the arbitrage trader. 

Read more about them in the full Ledger Academy article on what flash loans are.

 

Flashbots

Flashbots is a research and development institution that mitigates the adverse negative effects of maximal extractable value (MEV) on the Ethereum network.

What Are Flashbots?

Maximal extractable value (MEV), originally known as miner extractable value, is the maximum value that a validator or miner can extract from block production. Block producers use this strategy to optimize their profitability by excluding, including, or reordering transactions in a given block. MEV also benefits other network participants, known as searchers, through liquidation, arbitrage, and front-running. 

However, MEV transactions can often harm the network by centralizing power and creating inequalities, causing network congestion,and high gas fees. What’s worse, MEV transactions can also be exploited for nefarious purposes, such as manipulation, attacks, and censorship.

Flashbots emerged in November 2020 as a potential solution to this MEV crisis. This research and development organization aims to reduce the negative impact of MEV transactions on the Ethereum ecosystem by taking MEV transactions off-chain and directly connecting searchers and block producers while maintaining privacy.

How Does It Work?

Searchers examine the entire network and mempools seeking MEV opportunities. When they find such an opportunity, they create a transaction(s) for it. Then, rather than broadcasting this MEV transaction to the entire Ethereum network or mempool, the searchers submit it to the Flashbots server. By bypassing public mempools, it prevents malicious entities from seeing these transactions and manipulating them.

The Flashbot then sends the transaction details to the network’s validators, where the validators bid on the transaction in a private auction for the chance to forge a block on it. The validators can also include non-MEV transactions in the block containing MEV transactions. 

Put another way, by bundling transactions away from the main network and directly sending them to block producers, Flashbots mitigate harmful MEV practices such as front-running, sandwich attacks, and back-running. In summary, its primary focus is to: 

• Democratize access to MEV revenue
• Make MEV activities more transparent
• Make the distribution of MEV revenue fairer

While Flashbots make Ethereum more transparent and permissionless, it is not entirely transparent since the process of creating MEV is still a mystery for users. Moreover, it is only one of the many solutions to the MEV issues.

Flippening

The “Flippening” is the hypothetical moment when Ethereum will potentially surpass Bitcoin in terms of market capitalization.

What Is Flipping in Crypto?

Flipping is a popular investment strategy in real estate or share markets. It involves purchasing something with the goal of quickly reselling it for profit. Similarly, flipping crypto refers to buying a coin or token at a lower price to sell it later at a higher price. 

It often occurs during ICOs or IEOs, where a market participant purchases the token before it is listed on cryptocurrency exchanges. The market participant “flips” the token for a profit immediately after they start trading on secondary marketplaces. This is because crypto tokens are likely to increase in price after ICOs.

In the context of Bitcoin flipping, the market participant buys a certain amount of Bitcoin at a lower price and shortly resells it at a higher price. This is especially common during high volatility and extreme price spikes.

How to flip NFTs

This practice is also common in NFT marketplaces, where investors mint or purchase NFTs when they are cheap in the early stages of the project. The investors resell them on secondary marketplaces when their prices increase.

Flipping NFTs involves methods such as:

• Floor price method – Investors can flip NFTs by taking advantage of their floor price, which involves finding low-priced NFTs and selling them for more.
• Sold-out NFT flipping – Involves minting NFTs from projects with only a few tokens left for the minting. The investors then list the NFTs on secondary marketplaces at the floor price – typically higher than the minting price.

What are the risks of flipping?

The cryptocurrency market is known for its unpredictability and extreme volatility. Such factors risk market participants losing their capital when the market moves against them. The lack of regulation also subjects flipping crypto to market manipulation, scams, and fraudulent activities. In addition, flipping crypto in low-liquidity markets makes it difficult for investors to cash out.

Flipping

Flipping is an investment technique that involves buying an asset at a low price to resell it for profit.

What Is Flipping in Crypto?

Flipping is a popular investment strategy in real estate or share markets. It involves purchasing something with the goal of quickly reselling it for profit. Similarly, flipping crypto refers to buying a coin or token at a lower price to sell it later at a higher price. 

It often occurs during ICOs or IEOs, where a market participant purchases the token before it is listed on cryptocurrency exchanges. The market participant “flips” the token for a profit immediately after they start trading on secondary marketplaces. This is because crypto tokens are likely to increase in price after ICOs.

In the context of Bitcoin flipping, the market participant buys a certain amount of Bitcoin at a lower price and shortly resells it at a higher price. This is especially common during high volatility and extreme price spikes.

How to flip NFTs

This practice is also common in NFT marketplaces, where investors mint or purchase NFTs when they are cheap in the early stages of the project. The investors resell them on secondary marketplaces when their prices increase.

Flipping NFTs involves methods such as:

• Floor price method – Investors can flip NFTs by taking advantage of their floor price, which involves finding low-priced NFTs and selling them for more.
• Sold-out NFT flipping – Involves minting NFTs from projects with only a few tokens left for the minting. The investors then list the NFTs on secondary marketplaces at the floor price – typically higher than the minting price.

What are the risks of flipping?

The cryptocurrency market is known for its unpredictability and extreme volatility. Such factors risk market participants losing their capital when the market moves against them. The lack of regulation also subjects flipping crypto to market manipulation, scams, and fraudulent activities. In addition, flipping crypto in low-liquidity markets makes it difficult for investors to cash out.

Floor Price

The floor price of an NFT collection is the lowest price at which you can buy an NFT from a collection. It’s a quick way to gauge the entry-level cost for a particular NFT project.

What is NFT Floor Price?

An NFT floor price is the minimum amount you’d need to spend to buy into a specific NFT collection. This metric helps buyers quickly assess the current market value and accessibility of a collection. 

Unlike the average price, which considers all sales, the floor price focuses solely on the  NFT(s) in a collection with the lowest available list price. This distinction is crucial because it gives potential buyers a clear starting point for entering a collection, regardless of the higher-priced, rarer items it may contain.

How NFT Floor Prices are Calculated

NFT floor prices are determined by identifying the lowest-priced NFT currently listed for sale in a collection. In other words, the floor price is not affected by how big a collection is or the number of NFTs in a collection listed for sale. It is simply the lowest price at which someone could buy into that collection.

Floor prices are generally tied closely to rarity, and floor NFTs tend to be those with more common traits, as opposed to rarer NFTs which are typically priced higher. As with any tokens, NFT collection floor prices can fluctuate quite a bit. This dynamic nature of floor prices makes them a useful indicator of a collection’s current market demand and overall health.

At the peak of NFT trade activity, dynamic price action at the floor of large NFT collections was commonplace, as active traders – often armed with bots – would look for underpriced assets throughout collections and participate in a practice known as “sweeping the floor”.

Fork

A fork refers to a change or update to a system’s underlying code or software. Forks in blockchain change the set of rules governing a cryptocurrency’s protocol.

What is a Fork in Crypto?

A crypto fork describes the changes made to a blockchain network. Most blockchain networks are open source, which means they depend on communities to develop, update, and maintain the underlying source code. When a crypto community modifies the blockchain’s code or set of rules governing it, it will either upgrade the existing protocol or split the altered blockchain into a completely separate network. Both of these paths are considered a “fork”. 

Forks occur for various reasons, including:

• To enhance functionality or introduce new features
• To address security issues or flaws (or just make the network more secure)
• To resolve community disputes or disagreements regarding a project’s direction

Crypto forks either upgrade the existing protocol or split it to create an alternate version. The separate blockchain retains the entire transaction history of the original up to a certain time and diverges in a new direction.

However, developers can also fork or copy the code of a protocol and modify it to create entirely new cryptocurrencies and ecosystems.

What are the Different Kinds of Cryptocurrency Forks?

Crypto forks can be categorized into hard forks and soft forks. A soft fork is like a minor software upgrade for the blockchain. The improvements or modifications are integrated into the blockchain without impacting or altering the previous set of rules. This allows users to gradually upgrade to or adopt the new version since they can still interact with the blockchain with the old version.

Hard forks, on the contrary, occur when the upgrades dramatically change the rules that determine how the blockchain functions. It results in a newer version that is no longer compatible with earlier blocks. This causes the blockchain to split into two: the original blockchain, and the new, completely separate version that adheres to the updated rules.

 

Fractional NFTs

Fractional NFTs (F-NFTs) are a type of non-fungible token divided into smaller parts, so that many people can own a fraction of the same NFT.

What Are Fractional NFTs?

Fractional NFTs are created by locking a standard NFT in a smart contract and dividing it into multiple ERC-20 tokens. Each token represents partial ownership of the original NFT. 

For example, if an NFT were divided into 10,000 ERC-20 tokens, each token would give its holder the right to own 0.01% of the NFT. These fraction tokens can then be traded or sold independently on different marketplaces.

Use Cases of Fractional NFTs

Art and Collectibles

F-NFTs can revolutionize the art world by making expensive artworks more affordable. For example, a high-value digital artwork can be fractionalized, allowing multiple investors to own a piece without needing a significant upfront investment. This democratizes art investment, making it accessible to smaller investors. What’s more, it also increases the market liquidity for valuable assets, as many people can pool their resources to make an investment.

Gaming

In gaming, F-NFTs enable players to collectively own valuable in-game assets. Games like Axie Infinity already have this concept, allowing players to purchase fractional shares of rare in-game items, thus enhancing player engagement and investment.

Real Estate

Fractional NFTs can benefit real estate transactions by allowing multiple investors to co-own a property. This can simplify buying and selling real estate, reduce costs, and increase market liquidity. For instance, an expensive property can be tokenized and sold in fractions, making it easier for investors to enter the real estate market.

Benefits of F-NFTs

By breaking down high-value assets into affordable fractions, F-NFTs make it easier for more investors to participate in the market. This can lead to better price discovery as more transactions occur, reflecting the asset’s true market value. Additionally, fractional ownership increases liquidity, making buying and selling portions of an NFT easier than trading the entire asset.

Challenges of F-NFTs 

One of the main challenges with fractional NFTs is reconstitution. If someone wants to regain full ownership of a fractionalized NFT, they must buy back all the fractions. This can be complicated if other fraction holders are unwilling to sell. Some platforms address this issue through buyout auctions, where the NFT can be reconstituted if a buyer acquires all fractions at a predetermined price.

Front Running

Front running is the act of utilizing advanced knowledge about pending transactions to place one’s transaction before the original trades are executed.

What Is Front Running?

In conventional markets, front running is the illegal practice that involves a broker exploiting early access (or insider information) to impending trade orders. Such practice allows the broker to execute their own trades ahead of the existing ones. This dishonest behavior gives the front-runners an unfair edge over other market participants, allowing them to capitalize on anticipated market shifts. 

In the blockchain context, network participants known as validators or miners can access mempools. A mempool is simply the temporary waiting area or queue for pending or unconfirmed transactions. And since the validators are responsible for verifying and confirming them, they can reorganize, omit, or include the transactions based on the incentive. Front-running occurs when the miners or validators use their knowledge of the mempool to place their own transactions based on the pending transactions.

For example, assume that Jane places a genuine large buy order for a particular cryptocurrency. The transaction is sent to the network nodes’ mempools, making it visible to other market participants. This advanced knowledge allows these participants to quickly insert and confirm their buy orders for the same crypto before Jane’s order is executed. Furthermore, automated trading bots often execute front-running attacks by offering higher gas fees than the original trade. By paying higher fees, the validators are incentivized to process these transactions ahead of the pending transactions. The traders benefit from the arbitrage. 

This form of attack is also common in NFT marketplaces, where the trader with insider information purchases an NFT before it launches. The trader sells the NFT once publicly available, gaining from the price increase.

 

FUD

FUD is an acronym for “Fear, Uncertainty, and Doubt” which refers to the spread of negative, questionable, or false information, relying on fear about a particular asset or market to create fear and doubt among investors.

What is Fear, Uncertainty, and Doubt (FUD) in Crypto? 

The term Fear, Uncertainty, and Doubt (FUD) is used to describe a general mindset of pessimism about a particular asset or market and its long-term viability.

FUD is a common expression in both the traditional stock market and the crypto industry.  It happens when people share negative news about a project with the intent to spook investors. In crypto, the strategy involves using misinformation, fictitious, or exaggerated information to target an asset, project, or platform. This strategy can also lead to volatility or a crash in the price of the asset.

The crypto community sometimes uses FUD to describe temporary short-term bearish sentiments in the market. People who promote skepticism in crypto as a whole are also branded as FUDsters.

Example of FUD in Crypto

Government Regulation

Regulatory concerns from national governments often fuel fear, uncertainty, and doubt in crypto markets. Since crypto regulations are still developing, many countries lack clear rules on its use and taxation. Some nations have attempted to ban crypto, while others hint at strict future regulations. Even the suggestion of a government crackdown can unsettle investors.

China Banning Bitcoin

Nearly every year, Chinese officials claim to ban Bitcoin in some form. However, instead of a comprehensive “ban” on Bitcoin, the Chinese government introduced some kind of restrictions for individuals or organizations involved in crypto markets, which are then reported as a “Bitcoin ban by the media.

Crypto Energy Consumption

Another example of FUD is the claim that Proof of Work (PoW) cryptocurrencies like Bitcoin and Dogecoin, consume unsustainable amounts of energy, posing a threat to the planet. While mining is energy-intensive, some analysts argue that much of it is powered by renewable energy. They also point out that industries like gold mining, banking, and healthcare use far more energy than the Bitcoin network.

Warren Buffett against Bitcoin

The renowned U.S. investor Warren Buffett has publicly stated he has no desire to own Bitcoin (BTC), citing its lack of tangibility and the fact that it “doesn’t produce anything.”

In conclusion, a cryptocurrency investor might describe all the examples and remarks above as “FUD” (Fear, Uncertainty, and Doubt) and encourage others in the crypto community to stay optimistic.

What is the Impact of FUD on the Crypto Market?

The volatility of the crypto market makes many users nervous about negative news about any project. FUD usually prompts hasty and uncalculated trading decisions.

It also reduces investor confidence in the cryptocurrency market as a whole. An example of FUD could be a rumor being spread on social media or forums about a potential hack or vulnerability in a particular cryptocurrency’s blockchain. Even if the rumor is not true or is exaggerated, it can create fear and uncertainty among investors, causing them to panic sell their holdings and potentially leading to a drop in the cryptocurrency’s price.

Another example could be negative news coverage about the crypto market as a whole, such as regulatory crackdowns or bans in certain countries, which could lead to a drop in investor confidence and a sell-off in the market. Even if the news is not entirely accurate or does not represent the full picture, it can still create FUD and lead to market volatility.

Differences Between FUD and FOMO

FUD (Fear, Uncertainty, and Doubt) spreads negative information to create panic, often through rumors or exaggerations. It’s strategically used to manipulate markets, causing people to sell assets out of fear, usually at a loss.

FOMO (Fear of Missing Out) is anxiety over missing potential opportunities or benefits, often driven by seeing others succeed. For instance, someone might hesitate to buy Bitcoin at ＄16,000, only to regret it when it climbs to ＄60,000, leading them to buy at the peak and suffer losses.

FUD vs FOMO: Key Differences

Both FUD and FOMO are emotion-driven, leading to irrational actions—whether panic selling due to fear (FUD) or impulsive buying driven by hype (FOMO).

 

Full Node

A full node is a component of a blockchain that stores and validates transactions. It is a computer program that ensures the security of a blockchain by enforcing consensus rules and transmitting data to other full nodes.

What Is a Full Node?

A full node is an integral component of any blockchain. It is a computer in a network of connected computers which validate and store transactions on a blockchain. It hosts a copy of the data on the entire blockchain and uses this information to verify the history of a transaction before validating any new data. 

Think of a full node as one of many cars on a train, independent but connected to other cars and performing the same function. In Bitcoin, a full node helps keep the entire network secure and running. It validates transactions and new blocks, and transmits the data to other full nodes on the network. Full nodes also ensure that there is consensus between nodes, and they also vote on proposals for updates to the Bitcoin network. 

Validators that operate a full node have to verify the blocks that have been created by miners on that network. The block has to meet the rules set in the blockchain network. Once a full node verifies the data, it will be added to the copy of the blockchain stored by the full node. The data is then transmitted to other full nodes on the network and the transaction is reviewed and, if the other nodes agree, validated. 

Mining: Full nodes vs miners 

Mining nodes are computers that solve complex cryptographic puzzles to earn the right to create the next block. They are known as miners and compete to unlock the next block and earn mining rewards in Proof of Work (PoW) blockchains. Miners use specialized computer hardwares known as application-specific integrated circuit (ASIC) to add new blocks to the network.

Full nodes and miners are integral components of the blockchain, but they have their differences. Miners can create new blocks to be added to the blockchain, while full nodes validate these new blocks (but can’t create their own). Miners receive an incentive for creating these blocks in the form of rewards, while full nodes don’t receive incentives but their transactions have increased security. 

Mining also requires specialized and powerful computers and enormous amounts of electricity to run, while full nodes can run on devices with significantly less power. 

Not all full nodes are miners, as running a full node does not necessarily involve participating in the mining process. However, many miners choose to operate their own full nodes to enhance their mining operations and maintain a high level of independence and security.

Fundamental Analysis

Fundamental analysis is a technique traders use to establish the underlying fundamental factors that affect an asset’s intrinsic value.

What is Fundamental Analysis?

Fundamental analysis (FA) is an approach investors use to determine the value of an asset. They examine both internal and external economic and financial factors to ascertain whether or not the asset is correctly valued. The goal of FA is to understand an asset’s actual worth based on key traits and characteristics not reflected in its market price. FA also helps investors evade potential rug pulls, scams, or fraud.

FA is traditionally associated with analyzing stocks, commodities, and bonds in financial markets, but it is applicable to nearly all asset classes, including cryptocurrency. In the crypto context, fundamental analysis involves analyzing the key factors driving the digital asset’s value.

How Does Crypto Fundamental Analysis Work?

Crypto fundamental analysis involves analyzing the key factors that affect a cryptocurrency’s value. Some factors to consider when evaluating FA for a crypto project or asset include:

• Competitive advantage: How does the asset fare against its competitors, and is it in a position to surpass the competition?  Its uniqueness, user experience, adoption, and real-world use cases help determine if it has a competitive edge against other market players.
• Business model: A project with a well-defined business model that entails a clear vision for generating revenue and a plan to utilize the revenue in achieving its goals will likely attract long-term traders and investors. A sustainable business model that is likely to generate revenue will raise a cryptocurrency’s fundamental value.
• Narrative and marketability: A digital asset’s marketability and narrative affect its market value and drive adoption. A strong marketing team and a compelling story behind a project, as well as how it promotes itself to potential investors, can determine its success in the long term. 
• Community support: The community behind a crypto project can help increase awareness and drive adoption, which contributes to its value appreciation.
• Tokenomics and token dynamics: A project with clear tokenomics that encourages users to hold and utilize its token can help maintain its market value over a long period.
• On-chain metrics: It is worth considering a project’s transaction count, transaction value, active addresses, fees paid, hash rate, and staking amount. These data points measure the network activity, health, interest level, and demand.

Futures

Crypto futures contracts are a derivative in which traders agree to either buy or sell an asset on a specific date at a predetermined price.

What are Crypto Futures?

Crypto futures are financial contracts that allow traders to speculate on the future price of a cryptocurrency. They are similar to traditional futures contracts, but instead of trading commodities like oil or gold, they allow traders to speculate on the price movements of cryptocurrencies like Bitcoin, Ethereum, and others.

Crypto futures contracts do not involve the actual buying or selling of the underlying cryptocurrency asset. Instead, they are financial derivatives that track the price of the underlying asset. When a trader buys a futures contract, they are essentially agreeing to buy or sell the underlying cryptocurrency asset at a predetermined price at a specified time in the future.

Crypto futures are a type of derivative, where traders are speculating on the future value of a digital asset. It requires traders to extrapolate and bet on future market sentiment and price variations.. 

How Does Crypto Futures Trading Work?

With futures contracts, a buyer or a seller commits to a contract dictating that they purchase or sell a particular crypto at a preset future date and price. Crypto futures specify the number of units of the underlying asset and the specific date at which they would be purchased or sold. 

The contract is settled at the contract’s predetermined execution date. At this time, both parties holding the futures contract are legally obligated to purchase or sell the asset at the agreed-upon price.

What are the Benefits and Risks of Futures Trading?

Crypto futures contracts can provide benefits including:

• Act as hedging instruments against adverse market movements
• Provide gains if a trader’s prediction about future market trends is correct.
• Secure against market volatility, because users can short in any market, including bear markets.
• Manage risks associated with the volatility of the underlying asset.
• Provide a way for traders to diversify their portfolio

At the same time, futures contracts also pose risks for a number of reasons. First and foremost, they involve speculating on the future price movements of highly volatile assets, which can be difficult to predict. This means that traders can potentially suffer significant losses if they make the wrong predictions.

Additionally, futures trading often involves leverage, which can amplify both gains and losses. This means that traders can potentially lose more money than they have in their trading account. Furthermore, futures contracts are subject to market and liquidity risks, which can lead to significant price fluctuations and potentially prevent traders from closing their positions at their desired price.

 

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