## Step-by-step guide: How to mint NFTs on Ergo



To learn how to auction your NFT directly please check the following video: <https://www.youtube.com/watch?v=OAHFHrHq3Oc> 

Today, we’re going to show you how to mint your own Non-fungible tokens (NFT) on Ergo. NFTs are the latest craze in the crypto world. They are here to stay, allowing anyone to monetize their digital artworks, improving ownership and rewards for the gaming world, and shaking up many other industries.



As a layer1 project focusing heavily on improving security, scalability, and usability for the world of DeFi, the Ergo team has been working tirelessly on providing the best solutions for NFTs. 



In order to encourage the community to try out the NFT features provided in the Ergo ecosystem, we have [launched a NFT artwork contest](https://ergoplatform.org/blog/2021-02-12-2000-erg-in-prizes-to-be-won-in-the-ergo-digital-art-competition/) and recently [announced the winners](https://ergoplatform.org/blog/2021-03-18-ergo-art-competition-winners-announced/) of the three selected categories. They have received up to 2000 ERG in prizes, split by the winners of three different categories.

### Part 1: Setting up and funding your ERG wallet



**Step 1:** First thing you need is a wallet. We suggest using the Yoroi wallet extension for chrome which is easy to install and to use. Please check this video for more info: [https://www.youtube.com/watch?v=sYu-DtGjjWI ](https://www.youtube.com/watch?v=sYu-DtGjjWI)



**Step 2:** Once this is done, you’ll need to fund your wallet. Transaction fees associated with NFT issuance is only a couple of cents . You can buy ERGO through multiple exchanges in case you haven’t done so already. Check the exchange that would best fit your needs here, create an account, or login and purchase ERG with fiat or other cryptos. 



**Step 3:** Now that you have acquired ERG, you’ll need to send it to your own wallet. Exchange wallets aren’t suitable for interacting with smart contracts. In Yoroi, navigate to “Receive” and then copy your wallet address. You can do this by clicking the “copy” symbol next to your wallet address.



![](https://lh5.googleusercontent.com/j2fcahWfQw__qAIpfaT9Fw7FwGlEiVsS21x1irdfeN0HWGc_sYYrmCHZndw1e4o9HxNPBaoU9NJg3Ooz15Wxf-ygQxZylV76yXmtF80SkC6-GG2ecHtqzxuUSzi26wQ5vQLQWvtM)



**Step 4:** On the exchange, go to withdrawals and past your address in the correct field. Withdraw the desired amount and wait for it to be confirmed. This process will vary according to the exchange chosen, and additional KYC/verifications may be needed, so please make sure to check this carefully when choosing your exchange.



**Step 5:** Once the transaction has been initiated and confirmed on the blockchain, you’ll be able to see your balance on the ERG wallet created. You can verify this on the left upper corner. If you cannot see your balance click the “eye” symbol next to “ERG”

![](https://lh5.googleusercontent.com/0ibZ5E1w18FUd87QLyYmmnS5P8PfYSnVYKgNXr_n9XUPWTT22q38RjZkgUYiaVj1lfTj9OBoC8otmWu9E47OxnBIr1Z9K84ZiptfNsmx2aOtgQ3ovVpxwI3tDMinsACuCaXQHt9I)

## Part 2: Configure your Ergo Utils account wallet

Now that we have successfully created and funded our Ergo wallet, it’s time to configure the Ergo Utilis account. Ergo Utils allows you to perform simple actions, including asset and NFT issuance as well as Airdrop creation through an easy to use graphic user interface. We will be using Ergo Utils to mint our NFT.



**Step 1:** Go to Ergo Utils via this link: <https://ergoutils.org/>



**Step 2:** On the upper left right corner, click “Configure Wallet”



![](https://lh4.googleusercontent.com/-7GRPEudSYMtR0Mos2J1svk8v2djL-5FNseJIzUQEDOG38jr-307X6PJEqGPvJFFef5qYBqzf77FuHSbEGm9PUuLHgusTzJdPIDrPbVyOR4j25dSXqKXNC7UBo6yyDBi1G3ZE_tP)



**Step 3:** A Popup window will prompt you to add your ERG address. This step is similar to the one performed in the previous part of the guide. Simply copy your wallet address and paste it in the “Address” field.



![](https://lh5.googleusercontent.com/VxD2gsTnbDZ757hbNjbnpyxgFDZKXXT-sjVQt9ygNz0IoLUPav0-3sKjaCc76-qPQWPz3304Jb5iQqmnjhqO1PeaJMZCOADhg-wuQ7EoEsGRNR3xBLq35KHrmVAv8BWTeg6ekdiX)



Step 4: Confirm that the wallet address has been correctly entered and click “Save”

## Part 3: Mint your NFT

Now it’s time to mint your NFT. While both artwork and audio NFTs can be issued, we’ll use the Artwork NFT 



**Step 1:** On the New Artwork NFT section, click the “+New” button



![](https://lh5.googleusercontent.com/gma90pSuBft84pwFiemERhLZafBgPJaeTFmzkattuEnGuFkAMohNEMnZ6b7i4HxXvxvY_SqU170oARKN8qVUMxS8v96z_BfhwiqGnViP0J-hMHY_5Rp3nNiCHVqBfKQYA8jFXgvE)



**Step 2: A pop-up window will prompt you to fill out several fields:**



1. Artwork Name
2. Artwork Description
3. Artwork File



Fill these out accordingly. We will be using a dummy name, description and artwork for the purpose of this tutorial. You can add a link or description of the artwork in the description field depending on how complex the description is. You can also Upload the Artwork if you wish to preserve the image online but this is not required for the purpose of this tutorial.



![](https://lh5.googleusercontent.com/v3o8pIIdUuyogLfJWfWTDe6BTsI0O3krecWLiYGM_3ezPk4QH8BWeOKVXQDBnsN8__D1XGgWCfyXVXf7QP9zhTWYTzl4l7wToigqvAULDvm4BaUisnEIzU0FsmDXjnz_9KFa1DfU)



*Optional:* You may also click “Advanced configuration and choose a higher fee for a faster transaction and an alternative wallet address to send your NFT to. This may be useful to gift an NFT or to send to a predefined wallet you have created for this purpose. 



We will leave both fields as they are which means a 0.1 ERG will be set as the initial value for the NFT along with the transaction fee and which will also be included in the NFT value (totalling 0.11ERG) the NFT will be sent to the wallet used to configure the Utilis account. 



**Step 2:** Click “Issue”



**Step 3:** A pop-up window will prompt you to send a specific amount of ERG (0.112 in our case) to the wallet displayed. This will be done via a smart contract that will receive the funds and automatically issue your NFT. An additional 0.002 ERG fee is paid to the smart contract.



![](https://lh5.googleusercontent.com/Y7gnh8Enj9wl81UTZGdiYvkGhSvNMbJCs2LzayqmnnbulqV9HnNPprcNZ3arRwu0PM1lon8khejTmQoiiiLSUl_ii1X5D9D19b_Iu__62ggAgcARguHIhbYttl97hUfK_M4m6maD)



**Step 4:** Send the exact ERG amount to the wallet. Since we have already covered how to send ERG via the Yoroi wallet, this step should be easy for you. Additional transaction fees will apply.



![](https://lh5.googleusercontent.com/uuIY-_idYQBClqJR2tMgwLKHp2_2TWQyHnkJZGeUA4paFZhEpl_6lrMW3e-yoAqUhL6vqsRwwPh-1oXoKTO6G-rd5OPGq7TxvUx8SUAS8B9Rw7pUR-MsmRhS4RUgeKg0jLOreKpY)



Copy the value and wallet address and send the funds to this address. Once the data has been confirmed you can click “OK”. 

## Conclusion

You’re all set. You should be able to see the following message in the Ergo Utils platform. Feel free to close the previously open pop-up by clicking “OK” if you haven’t done so already.



![](https://lh3.googleusercontent.com/VCHSUvsZiDtiEeUx4BzHyEGE9DSqdXk_He6XPTsPHmFdsNuIbqWD9oa639txKBxApSa3L2mJmPfx7kef8v7CRbQHoBz89uzGFwIOckF7o7XqmrAGcnJ-Sh0IH3rUwKyUHLH2ztq0)



You can now check your NFT transactions by clicking “My Artworks” 



![](https://lh4.googleusercontent.com/OIOgQkBK2Q9aR9ZCuFVi9_ZgjNXUrXd9gqkQMmZmALtZVbcNkIT9pGF0ZyP4PDckzxwXdd8kSyOpc0m7iyrPY_5B1OwMpuSPLrZtACyiX33NFUpu3xaJRwK9VY4M0HTRRx_bbhQk)



For more details, click “See Transaction”



You’ll be able to see that 0.11 ERG were sent to your wallet and a 0.002 ERG fee was charged for the issuance of the token. The 0.11 ERG is the initial value of the NFT. 



![](https://lh5.googleusercontent.com/LV8xH4LbJ5iaPscusjANDDFSTXyE2NKQpOMFPLT_HrmIdx7IVo11F29WobbD0w3n1tpHgG1Yp2iBLlkzYyqP6lPDPmIXnX-rcnmflxXt73WRTwJu8rQUz_MycWpJlxpOELwiLL1P)



You can also click “+1” to see that the NFT token was sent along with this transaction



![](https://lh4.googleusercontent.com/2ke47JIumKdl3LoPxM8E7qc4HyCQ7SMLJJKQvcCSmrNOL8nBRedLFC6eI9mc1-tzJri6qxL_zRHDkGWuY7cnflVGQZl7Q5-QCbOonZ52DCAj0XLlROQix2Rnvhw89DxmTXGjuqw-)



You’re all set! You are now the proud owner of a NFT!

Mint Picture And Audio NFTs On Ergo

*Bitcoin is often thought of as an anonymous currency used by criminals and hackers. While this [myth has been dispelled many times](https://www.thewealthmosaic.com/vendors/chainalysis/insights/the-chainalysis-2020-crypto-crime-report/), it still lingers on. The truth is that Bitcoin is a pseudonymous cryptocurrency. While no names or real identities are tied to addresses and transactions, these can all be seen through the public ledger that is the blockchain.* 



While the alphanumeric wallet addresses do not give away any private information, there are ways in which these can be connected to real-world identities, including wallet transaction broadcasters who can link your address to an IP, and especially fiat on and off-ramps. 



## Blockchain: A Problem Or The Solution?



When one uses a centralized exchange to buy or sell crypto for fiat, they’ll have to go through a KYC (Know Your Customer) process, which will reveal their identity. In some aspects, Bitcoin and other public blockchains are not suitable for money laundering and other malicious activities . Criminals will still need to go through regulated corporations to cash out any ill-gotten funds or spend them on any real-world items. 



In short, Bitcoin is actually a much better alternative when it comes to anti-money laundry enforcement when compared to private banking or cold hard cash. So much so, former CIA Acting Director Mitchell Morell revealed that [cryptocurrencies between made up to less than 1%](https://cryptoforinnovation.org/resources/Analysis_of_Bitcoin_in_Illicit_Finance.pdf) of all illicit financial activities between 2017 and 2020. In this report, he mentions that illicit activities with fiat money count for an astonishing 2 to 4% of the U.S.A.’s GDP.



## Privacy and User Security



On the other hand, pseudo-anonymity makes users vulnerable to malicious actors.When receiving a payment, users need to share their public wallet address which exposes the wallet, the transaction and the funds to the entire world which make high-network individuals a target for wary hackers and criminals.



A random spy actor can monitors wallets and transactions, and they can devise an attack plan if any security flaws are discovered. This becomes even more dangerous when one considers the potential for data leaks on exchanges or third-party wallets, which may allow nefarious actors to link a wallet to an I.D., social security number, and more.



The public and pseudonymous nature of blockchain comes as a double-edged sword. It makes the users vulnerable to attacks, leaks, and other issues. Traditionally, banks and governments keep their centralized ledgers private, which means one must trust the aforementioned entities to remain honest and ensure the safety and liquidity of funds.



## Money For The People

Call for action! As I said earlier, money laundering schemes were around before Bitcoin and even now they take up as much as 1% of total usage in crypto. When regulators are keeping a close eye on the public ledger, with the help of KYC exchanges, they can still know what you’re up to. In a way, you may think that’s okay because governments must prevent black money circulation to stop illegal activities. We think that’s okay too! However, up until now, they were closely following personal bank accounts and the only thing they prevented was individual users from freely using their funds. Big corporations can continue walking around legislation to evade taxes and bad actors use global money laundering schemes to continue using black money. What governments do is keeping a close eye on citizens by seeing them as potential money launderers. How does this sound?

Bitcoin FUD(Fear, Uncertainty, Doubt) arguments made by regulators were mainly counting on the idea of Bitcoin as a private, anonymous, uncontrollable, and unstoppable money. We know that these cases aren’t true, we saw that cash was the primary money laundering tool and blockchain wallets are traceable. When you withdraw your money to your bank account, governments know what were you doing with your non-custodial wallet. The only case is then, you’re in control of your own funds, and you aren’t using “*legal*” fiat money controlled by central banks. That makes governments powerless on a global state because they can’t tell you what you should do with your funds or they can’t ban your account when they spot an unexpected activity. 

What remains is that they can question you about where did you get the money that you withdrew to your central bank account to pay your bills and make shopping etc. Also, they can’t ban your account, for example, when you didn’t pay your debts but let me ask again: Did these powers stop illicit financial activities, or prevent big players from taking delirious debts and going bankrupt? The answer is no, illicit financial activities continue happening elsewhere and institutions can rely on the “too big to fail” argument with the hope of bail-outs when they need them.

## Enhancing Privacy and Anonymity

For the protection of individuals, we have private chains or ‘[CoinJoin](https://www.investopedia.com/terms/c/coinjoin.asp)’ (coinmixer) apps that make users' wallets untraceable. Like I said this doesn’t mean that a user can launder money because every on-chain financial activity must end with an “integration” phase, which means withdrawing funds to the real, off-chain world. If you can prove that the custody of your funds wasn’t involved in any illicit financial activity, you shouldn’t be prevented from using privacy-enhancing tools to protect yourself in the on-chain world. You hold your keys, you hold your coins or in a reverse phrase- *not your keys, not your coins*. That also includes custodial exchange wallets because in centralized exchanges this is not any different from using a bank. You aren’t in crypto if you use only centralized exchanges, they can track you, prevent you or on the worst scale they can steal your coins(exit scams). 

That’s why decentralized finance protocols are entering their golden era now. You don’t have to give up the custody of your funds to use financial applications. Decentralized exchanges are becoming more efficient and cross-chain operations are becoming stronger by supporting all cryptosphere with a single non-custodial wallet. Coin mixing services don’t rely on custodial firms, they are working on zero-knowledge proofs. Decentralized applications are shining in a traditionally controlled government-backed finance world. A new history is upon us and we are just seeing the tip of the iceberg. Future is very exciting in this sense: Banking the bankless with decentralized applications, giving power to the people, draining seigniorage rights of governments and preventing bail-outs of “too-big-to-fail” institutions by infinite money printing -or how is it called in the fancy financial literature- by quantitative easing.

Ergo Blockchain provides a non-custodial coinjoin service, the [ErgoMixer](https://www.ergoforum.org/t/ergomixer-zerojoin-mixer-for-erg-and-tokens/318), as a dApp. It basically protects you from spy agents in the blockchain sphere. It is perfectly secure with its open-source code so that you know what you are interacting with. For more, Ergo Blockchain is a powerful network and it supports Layer 2 services on top of it so anyone can create private side-chains to use blockchain securely. We will provide more updates on the exact details of ErgoMixer later on and new developments on [Layer 2](https://www.ergoforum.org/t/stealth-address-contract/255) services and [privacy focused dApps](https://www.ergoforum.org/t/zero-knowledge-treasury-on-top-of-ergo/354) will soon flourish with new developers coming on board. 

*Ergo Blockchain isn’t built for governments or institutions, it's built for people by the people.*

Blockchain Privacy

*The challenge for Ergo and all DeFi platforms over the next year is to work towards the complete set of features that will enable DeFi to take on the conventional financial sector: decentralised atomic composability at scale with opt-in auditable privacy.*

As 2020 draws to a close, it’s worth looking back at what has been a landmark year for crypto and DeFi.

Since the COVID-induced global market turbulence of March, we have seen crypto establish itself as an asset class as corporate investors began buying bitcoin as a store of value and a hedge against dollar devaluation in the wake of unprecedented money printing. The dam has been breached and this is only the start.

From June, the still-new DeFi movement gained momentum, with the amount of funds locked in DeFi protocols [soaring 2,000% over the year](https://defipulse.com/) as a whole. While TVL is still relatively limited compared to the size of the global financial sector, again the precedent has been set. DeFi isn’t going away, any more than crypto is.

But there are several key issues that need to be solved: the battleground areas for the coming year, if DeFi is going to succeed in taking a share of the conventional finance sector. Ergo is positioning in all of these critical areas, which are summarised below.

## Decentralisation

It should go without saying that decentralisation is the hallmark of decentralised finance, but 2020 has proven otherwise. Too many initiatives have shown themselves to be centralised in one way or another.

Decentralisation is not a binary matter (i.e. a project is either centralised or decentralised). It is not even a spectrum. It’s more like a series of domains, with a different spectrum for each. For example, every project lies somewhere on a continuum between centralised and decentralised in the following ways and more:

* Infrastructure. How decentralised is the underlying blockchain? How many nodes are there, and how is hashrate distributed?
* Development. Does the survival of the platform rest on a small number of developers, or is it more of a community initiative?
* Holders. Do a few people own a large proportion of tokens?
* How many exchanges does the token trade on?
* Are there smart contract risks or potential single points of failure?
* For individual dApps, do developers hold any critical private keys?

Problems relating to all of these have been seen in the crypto world. Security for DeFi is only possible when all of these issues, and other other sources of centralisation, are eliminated. The challenge for DeFi is to ensure it is moving in the right direction. Ergo is actively working to [address issues of centralisation in all of these areas](https://ergoplatform.org/blog/2020-09-17-defi-finance-but-not-always-decentralised/).

## Atomic composability, at scale

A second significant hurdle to overcome is scaling. Conventional blockchain platforms support limited transaction throughput. Many different scaling solutions exist and have been proposed, but they typically have one or other shortcoming associated with them. The so-called Scalability Trilemma states that it is difficult to scale a blockchain platform while maintaining decentralisation and security. Solutions including larger blocks, a smaller number of validators, and sharding have all been suggested or are being implemented.

There is another issue to factor in: composability. DeFi is so powerful because open-source dApps can be reused, modified and plugged into existing dApps to access existing functionality and network effect – adding value to the ecosystem as a whole. Certain applications, including those that use flash loans or involve instant arbitrage, require atomic composability: the property whereby all relevant transactions are executed successfully, or else none are. Certain scaling solutions – including some forms of sharding and L2 platforms – can introduce friction and complexity, meaning that atomic composability does not work reliably or at all.

The challenge for blockchain is not just to scale, but to maintain atomic composability at scale. Ergo is not currently seeking to scale by implementing untested technologies for now. Instead, it aims to use the ‘headroom’ that is still available for conventional blockchain platforms by using resources more intelligently. Solutions include [NiPoPoWs](https://ergoplatform.org/blog/2020_05_1_spv_security/) and [storage rent](https://ergoplatform.org/blog/2020_04_21_ergo_positioning/), as well as featuring an open governance process that avoids the need for contentious hardforks to upgrade the network.

## Auditable, compliant privacy

Finally, the privacy wars have stepped up as regulators realise crypto’s scope for illegal transactions. France has recently sought to [ban the use of privacy coins like Monero](https://thedailychain.com/france-introduces-new-order-to-ban-anonymous-crypto-transactions-like-that-of-monero/), and authorities in the US have stated their aim of de-anonymising transactions in such networks.

At the same time, there is a huge need for privacy within businesses, not least to help prevent industrial espionage, as well as a reasonable expectation of financial privacy on the part of everyday users. Selective or opt-in privacy, as well as bespoke conditions for who is allowed access to the transaction record, may well become an established feature of the space. This will enable users to maintain the privacy they need to, while revealing information where required. Ergo’s Sigma protocols are the ideal vehicle to implement the custom cryptographic signatures for this use case.

What is clear is that 2020 has been a Rubicon year for crypto. If there was any doubt that the sector was here to stay at the beginning of the year, it is gone by the end. 2021 looks set to be a very interesting year for crypto and DeFi as the themes we have seen over the past 12 months continue to play out.

 2021: The Next Battlegrounds for DeFi

*What happens in an election has many parallels to the governance of blockchain platforms. Ergo, though, has a better way to deal with differences and the need to make changes to the system.*

Tuesday, 3 November 2020, brings the most hotly-anticipated election in living memory. The background needs no explanation. Both Republicans and Democrats see their way of life threatened. The stakes could barely be higher.

Whatever the polls say, there is only one vote that ultimately matters. And whatever the outcome, there will be those who are pleased with the result and those who are disappointed. All, however, will have to live with the fallout.

**Blockchain governance**

The US Election provides a useful analogy and parallel for the process of blockchain governance, and particularly for forks. While forks – where versions of the software used by miners and node operators to maintain the blockchain diverge – are a common feature of the blockchain world (including to update node software and address security issues), they can be hugely divisive. 

Bitcoin’s own history is marked by the 2017 hard fork, which was intended to force an increase in the block size on the network and its users. This resulted in two separate and incompatible chains, Bitcoin and Bitcoin Cash. The original Bitcoin, which gained the most support in terms of hashrate, retained its title and reputation as the ‘real’ Bitcoin, while Bitcoin Cash received limited (and dwindling) support. Perhaps even more damaging than the temporary uncertainty was the bitter propaganda war in the run-up to the fork, which split the community.

The Bitcoin Cash hard fork was settled decisively, with miners voting overwhelmingly for the status quo. Bitcoin consistently commanded a [majority and growing share of hashrate](https://bitinfocharts.com/comparison/hashrate-btc-bch.html). This was the best possible outcome: a decisive result, with no doubt over which chain deserved the name of Bitcoin. The Ethereum Classic fork provides another example; there was no question about which chain was more legitimate in terms of hashrate.

**An alternative to hard forks**

When a political/blockchain election/fork occurs, the worst outcome is if the participants (whether a nation or a network) are evenly divided. The last US Presidential Election, which saw an almost exact 50:50 split between red and blue, was about as divisive as it’s possible to get. The same was true of the UK’s 2016 Brexit referendum. Both countries have seen years of subsequent tension and resentment. If the same occurs this time around, and there is no clear winner or one candidate wins very narrowly, significant unrest is to be expected.

Making such a major decision once every four years might (might...) be the best model for selecting a president, but occasional and divisive hard forks are not the only way to make changes to a blockchain protocol – even if that’s the way most platforms currently do it.

Ergo has opted to implement a form of decentralized governance. Instead of relying on sporadic and significant updates, which are decided in major events that may split the community, miners can decide on protocol upgrades and changes to existing features on a more incremental and gradual basis. For example, miners can vote on changes to block size and other critical network parameters, on a more-or-less continuous basis.

This allows those responsible for maintaining security and processing transactions to also have a say in how the project evolves, voting to shape it around their own needs and preferences. And, while it does not eliminate the need for hard forks, it allows for a smoother process of network upgrades that relies more on soft forks. 

This approach leads to less contentious decision-making, which is more decentralised and therefore democratic – rather than resting on major ‘upgrade’ milestones.

It’s less dramatic, and it may not make for good entertainment, but – given how the markets watch and react to both political and blockchain ‘forks’ – that may not be a bad thing.

The US Election and Blockchain: the Risk of Hard Forks

*This is the first in a series of articles speculating on how the fast-emerging DeFi sector might evolve in the coming years.*

The DeFi movement as it currently exists is only a few months old, and blockchain itself has barely existed a decade. Already, though, we are beginning to see themes crystallising and the first popular use cases becoming established.

As a DeFi platform that takes positioning for the future seriously, it’s important that Ergo has a vision – not only a sense of where things might be heading, but the role that it should itself be playing as these new decentralised financial services consolidate and grow in popularity.

While no one can know the future, least of all in this space, a number of trends, technologies, products and use cases are emerging, and it seems that these are starting to plot a certain trajectory. Allowing for necessary course correction as time goes on, where might we see DeFi end up in ten years?

**Tokens will be the fuel for DeFi, and everything will be tokenised**

One of the major themes that was becoming apparent, long before the [yield farming craze](https://ergoplatform.org/blog/2020-09-03-some-thoughts-about-defi-yield-farming-and-how-open-systems-should-be-used/) brought DeFi to global attention, is tokenisation. We already have blockchain tokens representing cryptocurrencies and digital assets, and the first shares and other securities have been issued on the blockchain. The benefits are such that the direction of travel is clear. Sooner or later, everything will end up as tokens.

For regular, fungible (interchangeable) assets, a regular token will work. Fiat and cryptocurrencies, shares, bonds, precious metals, ETFs, [CBDCs](https://ergoplatform.org/blog/2020-08-17-ergos-vision-for-defi-ergo-vs-cbdcs/) – these will all be freely available on the blockchain.

For other assets, NFTs will proliferate. When you buy a car, house, painting or other unique item of value, whether digital or physical, there’s a good chance that transaction will also include a blockchain token.

These tokenised assets will place on the blockchain trillions of dollars of value that are currently ‘stuck’ offline, illiquid or impossible to buy or sell outside of certain limited circles and circumstances. This pool of tokenised value will represent the fuel of the Defi economy: assets that can be traded frictionlessly, borrowed against and leveraged using decentralised protocols that probably won’t look so very different to the ones we use today.

**Digital identity will become non-negotiable**

Since these assets will be tradeable on centralised and decentralised exchanges, digital identity will also become an increasingly important theme. This will link blockchain addresses with offline identities, enabling individuals and corporations to operate in a way that is compliant with relevant regulation. It will also allow the automation of tax and accounting processes. To date, digital identity has been an overlooked element of the DeFi ecosystem – likely due to the use of centralised platforms that can conduct KYC as a condition of use. We’re fast approaching a point where that is no longer a given, with the growth of new forms of decentralised exchange and the increase in volumes moving to these platforms.

**Stablecoins will become embedded elements of the blockchain**

One of the biggest use cases for DeFi – and again one that is often overlooked – is stablecoins. These exist in many forms, and rely on a range of approaches: centralised and decentralised, collateralised and algorithmic, fiat-backed, and so on.

Whatever your preferred approach or view of stablecoins, they are here to stay. They have found use cases as a store of value, especially for traders, and as a popular form of collateral for yield farming.

What they haven’t been widely adopted for, yet, is as an integral part of blockchain infrastructure. Transaction fees are almost always paid for with the native blockchain token. Not only does this fluctuate in value, but so does the amount of it required per transaction, depending on both the complexity of the transaction itself and competition for space in the next block. Clearly, this complexity is not conducive to mainstream adoption. End users are best served by simplicity, with minimal burdens for managing multiple tokens. They will want to pay transaction fees in a stable unit of account, and not have to worry about handling the native blockchain token.

The solution? An integrated stablecoin that, to most end users, is the most important token on the platform.

**Two-tier system**

As a result of this need, it seems likely that we may start to see a two-tier system evolve more clearly. A blockchain such as Ergo will have a native token, which will serve as the underlying currency of payment, just as occurs now. For the most part, though, these will only be handled by more experienced users. These expert users will maintain the technical and financial infrastructure of the DeFi space. For example, they will mine and use the native token as collateral to create a stablecoin, which can be sold into the market for general use, in return for tokenised assets of all kinds.

Regular users will then use the ‘native stablecoin’ in all their business, as a kind of standard reserve currency. It will be used to buy other assets; it will be lent to users against other tokenised assets as collateral (houses, cars, real estate and much more); and it will be used to pay transaction fees.

The miners who receive this native stablecoin can hold it as it is, to pay for electricity and hardware costs, or they can convert it back to the platform token or other assets – that is up to them.

These are just some of the themes we are starting to see emerging in the DeFi world, and how they might develop over time. In the coming weeks, we’ll explore various other ideas as the space continues to evolve and Ergo launches new technology.

What will DeFi look like in 10 years?

As a recent blog post explored, [DeFi – decentralised finance – can and will be used in whatever ways developers and the market see fit](https://ergoplatform.org/blog/2020-09-03-some-thoughts-about-defi-yield-farming-and-how-open-systems-should-be-used/). This is the nature of open, decentralised systems. You can’t stop it, and there’s a very strong argument for saying we shouldn’t try. To restrict any element of DeFi, at least at the protocol level, is to introduce centralisation and single points of failure, thereby killing the core innovation by misguidedly trying to protect it.

But “decentralisation” is widely misunderstood. It is, first of all, not a binary matter: a project is not either “decentralised” or “centralised”. Decentralisation lies on a spectrum. One node in a blockchain “network” is centralised; Bitcoin, with [many thousands of nodes in its network](https://bitnodes.io/), is typically considered decentralised. At what point does the threshold between centralised and decentralised lie? 10, 100, 1,000 nodes?

Secondly, there are different types of decentralisation. A blockchain network might be decentralised, but its mining infrastructure may not be, especially if a few pools comprise 51% of hashrate. If there are very few exchanges, or active developers, these are also forms of centralisation and points of potential vulnerability.

**DeFi’s recent failings of decentralisation**

We have seen other forms of centralisation and failure in the DeFi space in recent weeks, suggesting that a significant proportion of DeFi cannot truly be considered Decentralised at all.

At least two recent DeFi projects (one a fork of the other, and clearly designed to appeal to yield farmers, with improbable gains promised), include an [“infinite mint” function](https://thedailychain.com/something-fishy-kimchi-defi-touts-unbelievable-returns-just-hours-after-launch/) that poise the devs to carry out an exit scam, pulling the rug from under holders when it is most lucrative (if not [timelocked](https://twitter.com/SeanDoctor/status/1301041140867559425)). SushiSwap, a now-notorious clone of UniSwap, apparently suffered a similar exit scam when its founder [Chef Nomi took $14 million from the dev fund – only to return it](https://decrypt.co/41547/sushiswap-chef-nomi-gives-back-14-million-ethereum) in what may have been genuine remorse, or possibly an act of theatre.

Many of the ‘new’ DeFi protocols are simply clones of existing dApps, making them akin to a Ponzi or HYIP scheme. It’s worse when the users, who pour millions of dollars into these smart contracts, don’t wait for an audit – as was [the case with Yam Finance](https://cointelegraph.com/news/yam-token-holders-burnt-the-hardest-after-price-plunges-to-zero), which led to a bug that caused its token price to crash to zero.

**The ruthless elimination of centralisation**

DeFi is not DeFi when it contains any of the above single points of failure. “Decentralisation” is about far more than the blockchain. Using a blockchain and smart contracts is an entry-level requirement for DeFi: necessary but not sufficient.

No protocol can be considered decentralised if it includes back doors, whether built in deliberately like the “infinite mint” function (Yuno), or that exist inadvertently, like the rebase bug in Yam Finance. They’re not decentralised if individual developers or small groups control large amounts of funds, the theft of which will destroy the project.

Adequate decentralisation from the outset may be impossible, but what matters is that unnecessary centralisation – in all its forms – is eliminated as soon as possible.

This is what Ergo is seeking to do: Building decentralised applications on decentralised blockchain infrastructure, with a strong and independent community of developers, smart contracts that are safe to run and easy to audit, and [using custom joint signatures to protect community-owned funds](https://ergoplatform.org/blog/2020-09-04-announcing-the-zk-treasury-on-ergo/).

**To find out more, join the [Ergo Discord](https://discord.gg/kj7s7nb) or [Telegram group](https://t.me/ergoplatform).**

DeFi: Finance, but not always Decentralised?

At the risk of stating the obvious, decentralisation is the hallmark of DeFi. It is decentralisation that brings the benefits of transparency, accessibility, security, immutability, composability, efficiency and more besides to these new financial initiatives.

Some thoughts about DeFi, Yield Farming and how open systems ‘should’ be used

At the risk of stating the obvious, decentralisation is the hallmark of DeFi. It is decentralisation that brings the benefits of transparency, accessibility, security, immutability, composability, efficiency and more besides to these new financial initiatives. 

As a DeFi platform that aims to take and build on the best features of Bitcoin, Ergo is committed to decentralisation. 

And so it is with a mixture of interest, concern, excitement, dismay and, frankly, awe that we watch the current DeFi craze for Yield Farming unfold. A [$10 billion](https://defipulse.com/) movement has arisen almost overnight.

As the number of DeFi initiatives has multiplied, and with them yield farming opportunities, we have seen Ethereum struggle under the volume of transactions. A simple ETH transfer can cost several dollars, a token transaction $10-20. The kind of complex transactions associated with smart contract execution for DeFi protocols can be many times that.

This hardly fulfills DeFi’s promise of providing universal access to financial services. So what are we to make of this?

**Decentralisation comes first**

There’s some exceptional innovation in the DeFi space, but equally, it’s easy to be critical of some of the recent DeFi initiatives: protocols that have been built (or cloned) for the sole purpose of capitalising on the yield farming craze, with no real-world utility, ability to generate revenues, or expectation of longevity. In one sense, it’s little more than a rerun of the altcoin craze of 2014-15. It’s certainly not what Ethereum’s founders had in mind. Vitalik Buterin has [compared yield farming protocols (unfavourably) to central banks](https://twitter.com/VitalikButerin/status/1300406428289572865) in their need to constantly print more tokens to sustain themselves.

The problem is that no one gets to say how an open platform ‘should’ be used – even its creators. The nature of decentralisation is that no one has control. Open platforms are like democracy: in the words of Winston Churchill, the worst system, apart from all the others. Or, to quote William Gibson’s sci-fi short story, [Burning Chrome:](http://self.gutenberg.org/articles/Burning_Chrome) ‘The street finds its own uses for things’. Put a piece of tech in the wild, and you shouldn’t be surprised if users come up with applications you never expected. Yield farming is just another result of DeFi’s core characteristics of openness and composability.

Viewed this way, yield farming isn’t a ‘good’ or ‘bad’ application of blockchain. It just is. It’s what the street, or the crypto community, has decided to do with DeFi. 

**The opportunity**

There’s precedent for such an unintended development. Bitcoin was launched as peer-to-peer digital cash. It ultimately became digital gold, a hedge against inflation in a world in which the money printers were running hotter than an overclocked mining rig. Bitcoin survived and even thrived on its new narrative; it turns out the street valued digital gold more than it valued digital cash.

For initiatives that aim to impact the mainstream, like Ergo and many other DeFi applications and platforms, yield farming might be an unwelcome reality. Right now, it’s preventing regular users from accessing DeFi and realising the benefits we hoped to make available to our users. But to take action – even if that were possible – would be to make blockchain and DeFi something that they are not. The only way to do that is to exert some form of control and centralisation.

Instead, we have to treat this as an opportunity. There may be damaging consequences in the long run, just like the Silk Road, a major use case for bitcoin, brought unwanted scrutiny and adverse reputation for the idea of digital money. But if DeFi truly is decentralised – the property that makes yield farming possible – then it will survive, albeit not in the form we first expected or hoped. More than that, it will thrive. Understood this way, yield farming is an uncomfortable test of DeFi’s robustness. Better now than later, when it has gained real traction.

The attention brought to DeFi by yield farming may not be there forever, but it’s there now. We have work to do to enable DeFi to operate at scale, but we had to do that anyway. Yield farming has also brought new users, new technology, and new liquidity. 

There are worse problems to have.

*Ergo is building the most effective programmable currency in history.*

Money is changing. It’s interesting that, at a time when money is increasingly being trivialised and devalued through enormous quantitative easing, evolution and innovation in a parallel sphere is qualitatively improving money. One of the key ways in which blockchain is enhancing money is programmability.

Money is just information. Once that basic principle has been accepted, it opens a whole new arena and value proposition for cash. Money becomes more valuable – not because it’s worth more per unit, but because it’s more versatile. Programmable Money (PM) has far-reaching implications for productivity and economic regeneration, and there may never have been a point when that is more needed.

**Open Banking: Programmable Money 0.1**

Despite moving to the digital realm decades ago, money has evolved very little. The recent development of open banking APIs is only a tiny step in the right direction – something we might call PM 0.1.

Open banking APIs enable developers to code new applications that interface with consumers’ bank accounts – within a tightly-controlled environment – but do not provide nearly as much value and freedom as they might. That very limited new functionality is, of course, provided within the existing, highly centralised system.

The upshot is a little like giving someone a remote control for a black and white TV that only receives four channels (anyone remember the early 1980s?).

**Bitcoin: PM 1.0**

Money forever changed with the advent of Bitcoin, the first truly decentralised online currency. Bitcoin is programmable; it allows users to attach certain conditions to addresses and transactions. The options are limited, though that’s not a bad thing in Bitcoin’s case. Satoshi originally envisioned – and built – a much more extensive, flexible system, but much of that functionality was taken out by later developers. As digital gold, it’s understandable that Bitcoin should be treated conservatively. The chain stores hundreds of billions of dollars of value, and limitations are a feature, not a bug.

Ethereum launched in 2015, with the emphasis on decentralised computing. ETH is highly programmable money, a currency for dapps. The Ethereum platform is immensely powerful, but as we’ve seen too often, that can be risky. The nature of Solidity, Ethereum’s programming language, means there can be grey areas and edge cases that mean smart contracts do not execute as expected or required. Its complexity also opens the way to exploits, which even professional audits don’t always catch in time – when they’re conducted at all.

**Ergo: PM 2.0**

Ergo takes the best features of Bitcoin and builds on top of them, enabling Turing-complete decentralised money that is fit for purpose. It is highly composable, and its smart contract language – ErgoScript – is powerful while also avoiding the major problems that have plagued Ethereum.

Using ErgoScript, developers can neatly and reliably attach customisable conditions to coins and addresses. It’s a Turing-complete system, which means that any computational task – that is, any set of programmed conditions – can be applied. (While the same might theoretically be true of Ethereum, it’s dangerously complicated and expensive in practice.) ErgoScript has been designed to ensure it’s always known how much a smart contract will cost to execute up-front, and that a contract will always run as planned, without errors. It’s the ideal mixture of safety and versatility.

Ergo is therefore the next stage in the evolution of programmable money: a qualitatively better currency, at a time when money is losing its value before our eyes.

**Learn more about [ErgoScript and Ergo’s Sigma Protocols](https://ergoplatform.org/discover/#DiscoverERG/).**

The Evolution of Programmable Money

*As blockchain technology gains traction, central bank digital currencies are among the most significant applications being developed. But these will inevitably fall far short of the ideal, for one simple reason: control. In particular, that has implications for composability and privacy, and much else besides.*

Central bank digital currencies are no longer a theoretical application of blockchain technology. The list of countries developing CBDCs is growing rapidly, with several now trialing state-backed digital cash.

CDBCs are not built on classic, open blockchain technology. While there are various approaches, they are all based on permissioned ledgers that restrict the role of securing the network and processing transactions to a group of approved entities. They also include a control layer that gives administrators the ability to intervene in transactions, blocking or reversing those they deem invalid.

It’s a far cry from the ideals of Bitcoin, and the Ergo platform that aims to build on these. But it’s only to be expected. The state has a role and a remit, and it’s unlikely to give up the control it exercises. Unfortunately, though, there are two ways that holding onto control will mean that CBDCs fall far short of what they could be, meaning they may ultimately cede ground to open platforms like Ergo.

**Composability**

As we wrote in a recent blog, composability is a core feature of DeFi. It’s what gives applications network effect, instantly adding value by plugging into existing dapps’ user bases and functionality.

Programmable money is a huge development. The current system is clunky and complicated to use, at best. It’s not possible to attach detailed conditions to transactions, and have them interact seamlessly with software, as can be done with blockchain and smart contracts.

Imagine the value that could be unlocked if CBDCs were programmable, and smart cash could be integrated frictionlessly into new applications – banking interfaces, investment services, stores, social networks, games. The list is endless. But this is hardly likely. The freedom to program money will exist, for many years at least, in the open blockchain space alone.

**Privacy**

Secondly, we consider privacy to be a core requirement of DeFi. Money is too important to be used as a tool of surveillance, but there is no question that this is what it will become as soon as the first CBDCs are rolled out to a large user base.

China is one of the furthest ahead in its creation of state-backed digital cash. This is a state that is notorious for its internet censorship and online surveillance of its population. Its human rights record is dire, and in recent days we have learned more about its oppression of the Uighur minority. Moreover, China already uses a social credit system, which grants or denies citizens access to certain services and amenities depending on their social score, with model citizens enjoying greater privileges.

There is, again, no question that a state-backed, traceable CBDC will be used as a tool of surveillance on a scale that is unprecedented in human history. And it will be the same across any nation that implements money within the same framework.

That giant eye on the dollar bill? You ain’t seen nothing yet.

**Private, programmable financial services**

Ergo has a very different vision for blockchain-based cash and financial services. In the new paradigm of blockchain, value is not retained by constraining it. It is only maximised through open systems that make it as accessible as people want it to be. Money without borders, in both senses: cash that can be programmed, sent and received freely but privately, between any two individuals or organisations – and even blockchains – anywhere in the world.

This is what money needs to be, and what Ergo is building.

Ergo’s Vision for DeFi: Ergo vs CBDCs


*Stablecoins are a major use case for DeFi but come in various different forms. The stablecoin space is still relatively young and underserved – but that’s changing fast.*

Stablecoins are one of the most important and popular DeFi products, enabling users to hedge and store value on the blockchain, without having to use exchanges or other centralised providers.

As a smart contracts and DeFi platform, Ergo is well suited for building all kinds of dApps, including stablecoins. You’ll certainly be hearing more from us in the future about a stablecoin on the Ergo blockchain, but until then, we want to introduce and unpack the idea as context for what’s coming.

## Different stablecoin approaches

There are various ways to peg a crypto token to the dollar or another fiat currency. The easiest way is to hold dollars in a bank account, and issue one token for every dollar you have. This is exactly the approach that [Tether (USDT)](https://tether.to/) takes. This offers users the ability to store and transfer USD easily, without using an exchange. However, this approach is still highly centralised; you have to trust Tether that they have enough dollars in their bank account to cover the issued tokens. Tether is well known for being opaque and refusing proper audits. The token could also be shut down if a regulator managed to freeze their accounts. 

There are various backed stablecoins on the market, which take broadly the same approach. Tokens like [USDC](https://www.circle.com/en/usdc) and [Gemini dollars](https://gemini.com/dollar) are much the same, but they are far more transparent, and operate within a clear regulatory framework. Then there are projects like TrustToken, which underpins the [TrueUSD token (TUSD)](https://www.trusttoken.com/trueusd); this is much the same again, though takes a more distributed approach, with both a high degree of transparency and multiple banking partners.

All of these necessarily have a degree of centralisation and risk, because they rely on banking partners – and those accounts can potentially be frozen, shut down or even raided.

Other projects – notably the [Maker Protocol](https://makerdao.com/en/) – attempt to address this with a fully decentralised model. Maker’s Dai is an algorithmic stablecoin: a ‘synthetic’ dollar that is not backed by real dollars as USDT, USDC and other stablecoins are.

Dai are issued from ‘Vaults’ backed by crypto collateral (mostly ETH). A system of smart contracts and oracles (decentralised price feeds) ensures that every Dai issued is collateralised by at least $1.50; if the ratio falls too low, the Vault is closed and the Dai repurchased automatically. It’s a complex and impressive system, and the [largest project in the DeFi space](https://defipulse.com/).

## Some stablecoins are more stable than others

Stablecoins have been around since at least 2014, though the first attempts had limited success. The earliest algorithmic coins, like NuBits and BitUSD, did not have the benefit of smart contracts platforms (which were only available with the launch of Ethereum in 2015). They tended to be centralised or semi-centralised, and didn’t work well in practice. (NuBits, for example, lost its peg and [has completely collapsed](https://coinmarketcap.com/currencies/nubits/).)

Tether, which has been around since 2014, has grown into a multi-billion-dollar phenomenon, with [tens of billions of dollars of daily volumes](https://coinmarketcap.com/currencies/tether/markets/). However, while Tether generally keeps its peg pretty well, occasional quirks of the market and fears about the company’s reserves mean it has not always been worth $1 (once [dropping as low as $0.90](https://coinmarketcap.com/currencies/tether/)). USDC, which is more trustworthy and transparent, tends to have lower spreads and a more reliable peg.

Meanwhile Dai, as the foremost algorithmic stablecoin, has historically done well. It aims to maintain a ‘soft’ peg, with decentralised monetary policy nudging it back towards $1 if market conditions push it too far away from this. This has generally been successful; the only time prices have deviated significantly was on the enormous market volatility of ‘Black Thursday’ in March, which saw a massive sell-off of almost every fiat and crypto asset.

## Algo, collateralised, back or a combination?

And so the existing stablecoins take one or more of several approaches to keeping the token pegged to the dollar. The simplest, but also the most centralised, is to back the token with actual dollars. You can also back it with crypto, so long as you ensure there is enough collateral to cover the tokens issued in the event of market volatility. Algorithmic stablecoins use price feeds and decentralised monetary policy to make it more or less attractive to buy or sell the tokens, helping to ensure the price gravitates towards $1.

Every approach has its strengths and weaknesses. Ergo will be announcing details of its own implementations in the coming weeks, and explaining why its developers are taking the approach they are. 


Introduction to stablecoins


Ergo takes the most secure and best-established features of Bitcoin and implements advanced new cryptographic features on its rock-solid foundations. This series explores the choices we have made in creating Ergo, with the first article unpacking the advantages of the UTXO model.

When you’re dealing with financial value, you cannot afford to take chances. Every architecture decision in a cryptocurrency platform has implications. While there are different ways to solve the same problem, some solutions are better tested and more reliable than others.

Like Bitcoin, Ergo uses the ‘UTXO’ (unspent transaction outputs) model, rather than the Account model used by platforms like Ethereum. There are a number of reasons why we have made this choice, but first it’s worth explaining a little about how the UTXO or ‘Box’ model works.

Most people think that the balance of an account is a simple number that is updated when you send or receive funds. This is the obvious way to approach the problem; after all, it is effectively how money works in the real world. Your bank account has a balance that is increased or decreased when different transfers are made in and out. This is how the ‘Account’ model operates: your balance on the blockchain is altered by transactions to and from the account.

## How much dough?

The UTXO model, pioneered by Bitcoin, is quite different. You can think of this a bit like a person holding a series of lumps of bread dough. Their balance is the sum of these lumps, or UTXOs. Lumps can be divided or combined, before they are sent to a new address, but you always know where they came from. For example:

Alice has 100g of bread dough (100 ERG). She breaks off a lump of 75g and gives it to Bob, keeping 25g of ‘change’ for herself.
Charlie has 250g of dough. He breaks off 150g and gives it to Bob, keeping 100g of change for himself.
Bob breaks 20g of dough off the 150g lump he received from Charlie, and combines the resulting 130g with the 75g he received from Alice. He gives the total of 205g to Dave, keeping the 20g change for himself.
Dave now has 205g of bread dough, which used to belong to Charlie. Before Charlie owned it, 75g used to belong to Alice, while 130g used to belong to Bob.

In the UTXO model, ‘lumps’ of coins can be combined and divided, but unlike bread dough, they aren’t mixed together. You can follow the history of funds right back to the coinbase transaction in which those coins were first mined. That’s very different to the Account model, where the balance of each account is simply changed. (You can, of course, check the blockchain to make sure the Account says what it should, but that’s not intrinsically necessary like it is with the UTXO approach.)

## Why UTXO?

The UXTO model has several implications. For a start, each object is immutable – lumps of coins cannot be ‘edited’ like an Account balance is edited when a transaction is made. The balance is calculated from the transaction history, right back to the point those coins first came into existence. 

That makes security much simpler, because either a UTXO exists in the form you are expecting, or it does not exist at all. With the account model, you need to carefully check that the account you’re dealing with is in the state it should be (and developers typically don’t do that properly). This also makes UTXOs more friendly for offchain protocols, like sidechains and the Lightning Network.

Accounts make it easier to store the ‘state’, but easy doesn’t always mean better. With Ergo’s extended UTXO model, state transitions are more explicit and so they are cleaner – there are no unwanted surprises. It might be a little bit more burdensome to deal with, but it’s a lot better and more straightforward in terms of security.
