## What is an NFT?

When you have a unit of currency, such as the U.S. dollar, it is interchangeable with any other U.S. dollar. One Euro is the same as any other Euro. Fungible is just another word for interchangeable.

Non-fungible means unique. One house is not the same as another, even if their prices are the same. In crypto, non-fungible tokens are singular and cannot be recreated or substituted using any other token. Once a token has been minted, it cannot be recreated - even if it is the same artist or someone attempting to use the same work of art.

We are still in the early stages of understanding and fulfilling the full potential of NFTs. They can be used to represent identity, property, artwork, assets, legal documents and much more. Therefore, NFTs are like digital deeds. When they are on a blockchain, NFTs can be a [store of value](https://taschalabs.com/nft-is-better-than-diamond-heres-why/) because they are limited in supply, durable and a community of buyers and sellers decides their value. With these conditions, NFTs become digital assets which can be traded. As with any kind of trading, traders need a marketplace. On the Ergo blockchain, the main marketplace for NFTs is [The Ergo Auction House](https://ergoauctions.org/).

## How to Mint an NFT?

If you want to participate as a creator in the NFT marketplace, you will need to learn how to mint NFTs. To start, there are a few requirements.

## Requirements

* Create an Ergo Wallet in [Ergo Wallet](https://ergoplatform.org/en/mobile_wallets/) (mobile) or use a browser extension wallet like [Yoroi](https://yoroi-wallet.com/) or [Nautilus](https://chrome.google.com/webstore/detail/nautilus-wallet/gjlmehlldlphhljhpnlddaodbjjcchai).  
* Buy ERG, the native cryptocurrency, and transfer it to your wallet from an exchange. (For information on acquiring ERG, please see [the ERG buying guide](https://www.reddit.com/r/ergonauts/wiki/trade)).
* Save a digital file (such as a photograph, piece of music, drawing, etc.) to your computer of the item that is to be made into an NFT. This digital file should be something you created.

## Visual Reference

![Visual reference](/img/uploads/group-17-1-.png "Visual reference")

## Minting an NFT

For this example, let’s assume we are using Nautilus on Google Chrome. There is 1 ERG in our wallet, and we are making an NFT of a photograph saved as a PNG file on our computer.

1. In your browser, click on the Nautilus wallet, either by clicking on the Nautilus icon (pinned) or by clicking the Puzzle Piece icon (both in the upper right corner of your browser) and selecting Nautilus wallet from the list.

![extensions](/img/uploads/extentions.png "Extensions")

2. In the Nautilus wallet, click on Receive, the middle icon at the top. Then, copy the default address of your Ergo Wallet.

![](https://lh3.googleusercontent.com/ivdhFyA8mfVKBsvZ0rHTRE3STyT_AfhpqxDx1YeWAZEqIoztpMNIIWHHKhshp8inJ8eTs1-qpiMiQgfsjvOXUbHhGsk69yOCN_ENMAThArXZVoGeraXwHptZwwVbvhN6MDAMEzDN)

3. Go the The Ergo Auction House website, <https://ergoauctions.org/>
4. In the upper right hand corner, click on the wallet icon.

![](https://lh5.googleusercontent.com/jYSJbFvbhvbvsmvmFgkpWb1d98JF4MaruMXwIdVx7JxNEOS5Ck0Dv7lsW2huUPKapD9xYBY5c8qOHqBNNIWyvPmJpG9MLqMr62zYVyaA7zBpypK-XwwS3TaC-SfspxUD8Vwlg-Lt)

5. Click on Any Wallet 
6. Paste your wallet address into the box - this will be the receiving address you copied from your Nautilus wallet. It should be a string of 51 characters that are a mix of numbers and upper and lower case letters. For example: \
   *9g1p6UU8XoAeU4yGPLpbTHYiG8aBHwfCFzQqJZrfzuLnmF3zb7P* 
7. Then, click the Save button.
8. You will be returned to the main Ergo Auction web page.
9. Click the Add button, which is the first icon in the top right corner. Then, select Create Artwork from the pull-down menu.

![](https://lh5.googleusercontent.com/cc109waYgYoB6wx8qFX1d5_vUWkUPHUSi6KWl06lHSLuRv0vqbJLFX_oQLKcpDaGE-LNP63UOYd4AX6yFCKGfxLIhosbryz8XGrLtJaetuxdpmrbvXUbfRASMvYwJkn4Kg_hWmUp)

10. In the “Creating new item” dialog box, drag & drop your photograph in PNG format to the artwork section. Then select a quantity (you have the choice to create one NFT from the image or as many copies as you like). Then, give it a name, a description and select a royalty percentage.
11. Click Issue. 
12. Next, you will be prompted to complete a transaction for the minting of your NFT(s). A screen will appear, providing you with an address and the necessary fees to complete this process:

 ![](https://lh5.googleusercontent.com/2zzBHkc07mykvs2lZRe0GEokSoIjSqoqnRT0FZbR--AjnDocPrFayataBmWWrqPSFOmMZ_-3kkuk6JNbXKb4ZQCzMZ0uqnArGSCOtlPXfxB9iG4FAoQ4H_qloH8gSpZ7zLbN0hsg)

13. Send the amount of ERG required and your wallet will add the transaction fee of 0.0011, sending a total of 0.0041 ERG. In return, you will receive 0.001 ERG and the newly minted NFT. The total cost for minting this NFT is 0.0031 ERG. 
14. Wait a few minutes for the transaction to be confirmed. Then, go to The Ergo Auction House website and click on Owned Artworks to see your new NFT.

How-to: Minting a Non-Fungible Token (NFT) on the Ergo Blockchain

From the inception of Bitcoin, blockchain technology has undergone enormous advancements over the twenty-first century. Enhancements to security, access and various protocols have allowed blockchains to evolve to compete with their ever-growing demand. Popular cryptocurrencies that have been developed on blockchain technologies include: Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Polkadot (DOT) and Ripple (XRP), to name a few. The purpose of this article is to help shed some light on how ERG (Ergo) is a viable competitor to current popular blockchains and future ones. 

`Blockchain Generations`

* `1st Gen - DOGE, BTC, XRP.`
* `2nd Gen - BNB, NEO, ETH`
* `3rd Gen - ADA, DOT, ERG`

Currently, there are three generations of blockchain, each capable of more complex behaviors than the last. First generation refers to the original use BTC was intended for, that is to provide a reliable and accurate method of maintaining a public transaction ledger. Second generation blockchains were created with implementation of smart contracts as priority, with the most popular one being ETH (Ethereum). One of the big differences in ETH is the language used to code smart-contracts. ETH utilizes a [turing complete](https://www.cs.odu.edu/~zeil/cs390/latest/Public/turing-complete/index.html) language (known as Solidity), meaning it is computationally universal. 

The third generation of blockchain technology now focuses on solving issues with congestion and scalability. As this technology becomes more decentralized, there will inevitably be an exponential increase in the number of users interacting with the blockchain. DOT, ADA and ERG are third generation blockchains, meaning they have smart-contract capabilities while proposing solutions to scalability for a global audience. Third generation blockchains generally have the ability to process off-chain transactions, helping speed up transactions significantly. Ergo also has various innovations to address scalability. NIPoPows on Ergo allow for connection to side chains and light chains, opening up a whole world of possibilities. Readers can learn more about NIPoPoWs here: [NIPoPoW Applications: Light Clients and Side Chains | Ergo (ergoplatform.org](https://ergoplatform.org/blog/2021-08-26-nipopow-applications-light-clients-and-side-chains/)). 

Smart contracts on ERG are programmed using ErgoScript, a turing-complete programming language. ErgoScript is specifically designed to be friendly to cryptographic protocols and applications, which allows for the development of all kinds of dApps for countless use cases. Learn more about ErgoScript here: [ErgoScript.pdf](https://ergoplatform.org/docs/ErgoScript.pdf).

#### Transaction Speed

Transaction speed is generally measured in Transactions per Block/Second (TPS). Below are approximated TPS values for other blockchains:

* `BTC - ~7 TPS (Gobbel, 2017)`
* `ETH - ~15 TPS (Clincy et al (table1), 2019)`
* `XRP - ~ 1500 TPS (Clincy et al (table1), 2019)`
* `ADA - ~ ~7 TPS (~250 in controlled tests) (Stamoulis, 2021)`
* `DOT - ~1500 TPS (Hiemstra et al., 2021)`

Transaction speed, more specifically TPS measures the transactions per block/second a blockchain can perform, essentially quantifying how fast a blockchain can perform transactions. You may have noticed ERG is not listed as having a concrete quantifiable TPS. The eUTXO model Ergo utilizes renders TPS values obsolete because multiple transactions can be chained together into a single transaction. Below you will find a developer harnessing the power of eUTXO to send [10000 transactions at once](<[https://explorer.ergoplatform.com/en/transactions/e2c4954665ccf87791f42983ae4f7031205c2e719709907cbf2ff09e5489d4b8](<https://explorer.ergoplatform.com/en/transactions/c4e5276182543b17eae4e767d60965feceaf1fd1ba1f5bde76aae751b33a6bb8>).

As of present, solutions for scaling via a second layer are being implemented on the Ergo blockchain, however processing and storage of transactions are not the main idea behind Ergo. A quote from a developer sums it up quite nicely:

*“However, simple payment transactions are not what Ergo is all about. The main power of Ergo is that it enables many unique dApps (ones already implemented, ones already discovered and many more not yet discovered). In addition, Ergo enables many layer 2 solutions (like sidechains, which kushti already mentioned as a work in progress). Those layer 2 solutions/protocols will be the main source of actual scalability. The general idea, roughly, is that large chunks of transactions can happen in layer 2 and the whole chunks will be settled in Ergo blockchain using a single transaction. Thanks to the high flexibility of ErgoScript programming model (what we call eUTXO), many different protocols will be possible on layer2, each one solving scalability problem in a specific domain (like simple payment transactions). Thus, Ergo blockchain can be thought as common settlement layer for many level2 protocols and applications. And for settlement transactions, even 50 tx/second is good enough.” - [ERGO transaction speed : ergonauts (reddit.com)](https://www.reddit.com/r/ergonauts/comments/pcff16/ergo_transaction_speed/?utm_source=share&utm_medium=ios_app&utm_name=iossmf)*

In conclusion, Ergo is a powerful blockchain capable of dethroning current and future competitors. Ergo offers unique solutions to scaling problems via utilization of NIPoPows, harnessing eUTXO and a second layer to process transactions, all while offering the ability to create dApps and smart contracts using ErgoScript.

For those who are interested in additional reading, please see the following articles:

*[Building Ergo: UTXO vs Account | Ergo (ergoplatform.org)](https://ergoplatform.org/blog/2020_03_03_building_utxo/)*

*[UTXO Model Transaction | Ergo (ergoplatform.org)](https://ergoplatform.org/blog/2021-10-07-utxo-model-transaction/)*

*[Off-chain Logic and eUTXO | Ergo (ergoplatform.org)](https://ergoplatform.org/blog/2021-10-04-off-chain-logic-and-eutxo/)*

Blockchain and the Case for Ergo

Today, USD-pegged [circulating stablecoins](https://www.coingecko.com/en/categories/stablecoins) account for nearly 185 billion USD market capitalization - a 500% increase from last year. As stablecoin market value surges and financial companies like Visa and Mastercard announce stablecoin integration, the FED decided to research the impact of stablecoins on the traditional markets. 

During a time when debates explore whether cryptocurrency is an inflation hedge or a speculative asset class, the Board of Governors of the Federal Reserve published the following research paper in January 2022: [Stablecoins: Growth Potential and Impact on Banking](https://www.federalreserve.gov/econres/ifdp/files/ifdp1334.pdf). The research investigated the stability of stablecoin pegs, their potential use cases and integration with the fractional reserve model.

It is frequently posited that cryptocurrencies can not provide a healthy economic system because they are too volatile. However, the Federal Reserve is approaching the problem from another angle: **How will the financial system adopt cryptocurrencies?** 

Researchers are exploring whether dollar-pegged stablecoins can be a safe haven in volatile crypto markets during times of distress. The research is also examining the integration of stablecoins with the traditional markets.

## Questions for Stablecoin Adoption

1. How does the USD peg hold?
2. What are stablecoin use cases?
3. How will the traditional credit system integrate?

In this article, we will give an overview of these three questions. If you would like to learn more about stablecoins, please visit [Introduction to Stablecoins](https://ergoplatform.org/blog/2020_05_05_stablecoins/).

### **There are two main types of stable coins: cash equivalent asset-backed stablecoins and crypto-backed stablecoins.** 

Cash equivalent backed stablecoins are issued from a legally incorporated firm in exchange for cash or traditional assets like bonds and stocks. Crypto-backed coins are backed by collateralized debt positions or a reserve-backed model. 

The peg of a cash equivalent backed stablecoin like USDT or USDC are protected by a firm's balance sheet. This type is currently the most common and makes up for more than 80% of the stablecoin market. The issuers back the coins through various assets and control the money supply when there is excessive demand during crypto market drawbacks or reimbursement. These coins are also referred to as custodial stablecoins and their reliability  has been [called into question](https://www.coindesk.com/policy/2021/10/15/cftc-fines-tether-and-bitfinex-425m-for-untrue-or-misleading-claims/) in the past.

Crypto-backed stablecoins are created with smart contracts that operate on a public ledger. There are two models for crypto backed stable coins: Collateralized debt positions and reserve-backed models.

**Collateralized debt positions model**, like DAI, are backed by collateralized crypto (such as ETH). In this model, if the collateral ratio goes below a certain level, the position gets liquidated. These types of stablecoins can cause cascading liquidations during high volatility, similar to the [March 12, 2020](https://blog.makerdao.com/the-market-collapse-of-march-12-2020-how-it-impacted-makerdao/) crash.

**The reserve-backed model** is where a certain threshold of reserve coins guard the peg. Ergo’s SigUSD as an example of this: the stablecoin value is protected by locking the contract when the reserve ratio goes below 400%. An excess amount of ERG coins thus protects the reserves.

### **Stablecoin technology is very new and it has a wide range of use cases that can be applied to many sectors.**

The most important use of stablecoins is for making lightspeed cross-border transactions without passing through intermediaries. This means that people can use stablecoins at all times throughout the year on a public blockchain with instant settlements and minimal fees.

Stablecoins are pegged to a fiat currency, and they provide nonvolatile cryptocurrency alternatives for new crypto enthusiasts. They facilitate peer to peer transfers, cross border payments and online commerce. Institutions can use these coins for cheap internal transfers and more transparent liquidity management. In decentralized finance, the programmability aspect of stablecoins makes it suitable to integrate into a variety of financial instruments such as market-making protocols, lending protocols and derivatives. 

Because of their current ambiguous status in the regulatory landscape, not all aspects of stablecoin use cases have been fully explored. In the future, one might expect to see stablecoin innovations in areas such as micropayments, tokenized assets, and Web3 integration.

Tokenization of real-world assets can increase circulation and accessibility by leading to an integration between decentralized and traditional finance. Such ease of access encourages participation, especially in asset classes like real estate, by allowing worldwide fractional ownership secured by decentralized servers. 

Social media platform integration can benefit content creators by directly providing revenue from their contributors instead of relying on advertisement companies. For example, instead of relying on Youtube revenues, a Web 3 wallet integration can facilitate direct earnings from viewers.

### **Lastly, in this section, we will look at the integration of stablecoins with traditional banking models.** 

The FED research focuses on cash equivalent-backed stablecoins and not decentralized stablecoins. This is because DeFi stablecoins currently make up about 15% of the total stablecoin market cap and are still a relatively experimental area compared to centrally issued cash and asset-backed stablecoins.

In most scenarios credit provision will remain unaffected. Furthermore, stablecoin issuance will likely increase the liquidity by replacing banknotes.

**Narrow Bank**: This type is mostly neutral as it refers to 1-to-1 backed stablecoin reserves with central bank currency equivalents. The fractional reserve banking system will not be used as stablecoins will be the tokenized equivalents of fiat.

**Two-Tiered intermediation**: Stablecoin issuances will be carried out by commercial banks so that the peg will be protected in a fashion that is similar to today’s fractional reserve system. Commercial banks will be able to loan out the reserves and circulate stablecoins into the economy.

**Security Holdings**: Stablecoin issuance will be carried out by depositing stocks and bonds. Therefore, the need for cash will greatly diminish as there will not be a need to hold it. However, as they might be backed by risky assets, deposit protection can be negatively affected.

In contrast to the narrow bank framework, a two-tiered system can support a functioning and stable economy. However, the Security Holdings model will increase the risk of the fault of reimbursement during volatile periods because securities are mostly less liquid than cash equivalents. 

As dollar-pegged stablecoins function as a safe haven during crypto market volatility, FED research explains how the traditional economy can embody the stablecoins on a large scale.

Lately, we see increasing momentum towards centralization as [more than 30% worth of DAI](https://decrypt.co/84958/ethereum-primary-collateral-decentralized-stablecoin-dai) is also backed by USDCs. Stablecoin protocols are usually governed by governance token holders, therefore it will be up to people to decide how much these stablecoins will be decentralized.

## Decentralized Stablecoins on Ergo

The [SigUSD](https://sigmausd.io/#/) stablecoin on the Ergo Platform is backed by SigRSV tokens. SigRSV tokens are minted with ERG, therefore the value of SigUSD is pegged to 1 USD by an excess reserve of ERG. Below the 400% threshold, SigRSV redeeming stops to protect the SigUSD value.

The [ErgoDEX](https://ergodex.io/) team is currently developing the Dexy stablecoin protocol which will work through the collateralized debt positions model. In this model, the value of the stablecoin will be protected by liquidating the collateral positions when the reserve ratio drops below certain levels.

Decentralized stablecoins are an important feature of decentralized finance ecosystems. They are fast, immutable and accessible for all of us. However, as usage increases and ecosystems merge into one another, decentralization and protection limits will be reinterpreted. New people and new institutions joining smart contract ecosystems will probably have a choice of multiple stablecoins for various platforms. 

### Conclusion

Cryptocurrencies are still regarded as a risky asset class, however the market capitalization of stablecoins has increased fivefold during the last year. The Board of Governors of the Federal Reserve System are taking this issue seriously and have started researching the integration of stablecoins into traditional markets. Decentralized stablecoins still take up only a small percentage of the market compared to centrally issued asset-backed stablecoins. However, decentralized stablecoins can now also be issued by collateralizing centralized stablecoins. Integration of coins like USDT and USDC into decentralized exchanges like ErgoDEX will inevitably lead to the intersection of these two sectors and encourage faster integration of DeFi markets.

Is Stablecoin Adoption on the Horizon?

After the first whitepaper surfaced on the internet in 2008, blockchain technology has evolved enormously. Founders, developers, and blockchain enthusiasts have proposed varying ideas on how the technology should function. However, there seem to be several underlying foundations and principles for blockchain technology despite the various prototypes. Let's look at blockchain technology through the lenses of privacy and security.



## Privacy

Blockchain technologies function as distributed ledger technology - a publicly encrypted network ledger shared across multiple nodes requiring a consensus mechanism to validate transactions. Consequently, every transaction is recorded on the blockchain and can be viewed at any time by any party. The identity of every individual is represented by a wallet address, hence the term "Pseudo-anonymous."



The first privacy feature of any blockchain network is that all transactions are pseudo-anonymous. Every user has a public wallet address, owns a private key to the wallet, and there is a ledger where every wallet and their transactions are recorded and displayed publicly. 



## Security

We need to consider two questions when discussing security. First, how do blockchain users protect themselves? Secondly, how is a blockchain network as a whole protected from external attacks?



The seed phrase and a private key are necessary to safeguard the user in any decentralized blockchain network. A seed phrase is a specific number of words generated by a crypto wallet upon creation (whether it be a software or hardware wallet). A seed phrase may be twelve words, twenty-four words, or fifteen words, as is the case in the Ergo blockchain. A private key is a long string of hexadecimal numbers required to sign every transaction made by a wallet. In practice, a seed phrase encodes a private key and is the gateway to a wallet.



Every blockchain network is protected by a decentralized protocol of verifying transactions known as the consensus mechanism. Since Bitcoin's emergence, blockchain networks have been built on varying consensus mechanisms. Broadly, the three most common consensus mechanisms are: Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS). Each model uses miners or validators to verify transactions and blocks.



## Proof of Work vs Proof of Stake

The emergence of the Bitcoin whitepaper represented the beginning of the cryptocurrencies era, but left the door open to potential improvements. Over the past couple of years, there has been much debate between Bitcoin's Proof of Work and the Proof of Stake consensus mechanisms.



In the Proof of Work (PoW) consensus mechanism, miners solve complex equations, the first miner to the new hash is rewarded and a new transaction is added to the block. With Ergo, the protocol is ASIC resistant and allows for miners to use commercial GPU hardware to participate in the network. However, in Proof of Stake (PoS), validators stake their cryptocurrency in the network. In turn, they are randomly selected to verify network transactions based on their stake in the network.



### Ergo’s extended UTXO and Proof of Work

Founded in 2018, the Ergo Blockchain utilizes both the Proof of Work consensus mechanism and the extended UTXO model (similar to Bitcoin’s UTXO model). Ergo’s choice for PoW was made based on years of research and an understanding that the consensus mechanism still had room for development and improvement.



Ergo endeavored to optimize the PoW consensus while building on its strong security foundations. This, in combination with the implementation of smart contracts on extended UTXO are the core foundations of the Ergo blockchain. 



### Ergo and extended UTXO

The extended UTXO model is where a total of the unspent transaction outputs are recorded after each transaction. Bitcoin first introduced UTXO and in contrast to Ethereum's shared global context where any account can modify, UTXOs are short-lived immutable data structures.



While UTXO offers a lot of privacy and even scalability reassurances, smart contract implementation is restricted on Bitcoin's UTXO model. In Ergo's case however, the UTXO was designed with ErgoScript to allow multi-stage contracts with zero-knowledge operations powered by Sigma Protocols. Ergo has Non-Interactive Proofs of Proof of Work (NIPoPoWs) support since the launch to allow for efficient light-clients and sidechains. 



Ergo introduces read-only UTXOs to allow the formation of UTXO transaction chains. Summarily, Ergo's extended UTXO is smart contract-enabled and it provides a platform for building dApps and DeFi tools maximizing the scalable design of UTXOs.



### Ergomixer — A Tool for Privacy on Ergo

From implementing Sigma protocols on PoW consensus and the extended UTXO, the Ergo blockchain was built with privacy and security in mind. 



Ergomixer is the first non-custodial, non-interactive mixer in blockchain. The privacy-based tool works like a physical wallet where a user can spend or perform a transaction without revealing their assets. The dApp is permissionless, enabling anyone on the Ergo blockchain to conceal private details when conducting transactions.



## Ergo Summit: Privacy Week

As a community committed to the future of decentralization and issues in blockchain, Ergo will be hosting a privacy summit from February 17-23. The privacy summit features several keynote guest speakers who are experts in the industry and it will be hosted on Ergo's [Youtube](https://www.youtube.com/c/ErgoPlatform) channel. Every blockchain/DeFi enthusiast is invited to participate in the exciting upcoming summit!

An Introduction to Privacy and Security in Blockchain

People need to trust the owners of centralized platforms to protect their funds and privacy. On these platforms, a few trusted people control all the information and money, and we voluntarily give away enormous power to those individuals. For the most part, these trusted actors are motivated to uphold their responsibilities by profits and legal privacy acts. However, when the interests of individuals and institutions interfere with each other, it is often the individual who stands in harm's way.

## Digital Identity

In late October 2021, Facebook rebranded to Meta and shortly after an artist on Instagram claimed that their handle, @metaverse, had disappeared. About a month after this situation was announced in the news, the artist was able to reclaim the account. Facebook later claimed that the account was suspended "incorrectly" because of impersonation. 

[The artist explained](https://www.businessinsider.com/instagram-meta-disabled-metaverse-account-facebook-2021-12?r=US&IR=T):

"This account is a decade of my life and work. I didn't want my contribution to the metaverse to be wiped from the internet."

After the news was released on big media platforms, Meta returned the account to the rightful owner. The seizure of this artist’s Instagram handle would not have been possible if identity had been governed by smart contracts. Decentralized root naming services such as [Handshake](https://handshake.org/) and [Unstoppable Domains](https://unstoppabledomains.com/) protect individuals from being compromised by centralized ruling power. Every aspect of our digital identity, such as our social media and e-mail accounts, are stored in centralized services. These services are open to censorship and are obvious targets for hacking attacks.

Whatever the reason, once malicious actors access our accounts and private information, the chance of an individual to recover and delete private information off the internet is very low (if any). Smart contracts can prevent this kind of personal invasion by reducing centralized points of failures and increasing the cost of the attack* with decentralized security. 

## Crowdfunding Platforms

Funding companies such as [Kickstarter impose a fee](https://www.kickstarter.com/help/fees?ref=faq-basics_fees) of over 8% along with credit card payment processors. A charity event can become a profitable campaign for these fundraising companies. Some fees are to be expected, as taxes and expenditures are covered by those companies. Fundraising companies are for-profit third-party facilitators that provide donors and campaigners with a platform to connect. In the Web3 era, people have access to smart contracts with a personal wallet, thereby removing the need for these companies.

[ErgoRaffle](https://ergoraffle.com/) is an incentivized crowdfunding platform governed by Ergo smart contracts. All the funding campaigns are protected from fraud and deception by centralized powers. If funding reaches its goal, it is verifiable on the blockchain that the funds are sent to the receivers. If a campaign does not reach its goal all the donors are refunded automatically. There are 5% fees for a fundraising campaign, yet in the future it is possible to change the parameters of the platform (or simply fork the infrastructure) to deploy personalized funding platforms. 

For crowdfunding platforms that are governed with smart contracts, it is also possible to tokenize the platform. With this structure, there is a possibility to further decentralize the platform and distribute an incentive to individuals in return for their contribution. There are costs to hosting these platforms, yet the marginal costs are expected to diminish as more people pursue funding through decentralized platforms.

## Future Governance

It is worthwhile to consider the intentions for crowdfunding and social media platforms. The companies generally offer services to increase their profits. The governance of the platform stays centralized so when these companies reach a wide user base, they increase their authority and knowledge over the users on their platform. Custodial rights and data privacy are two important features that smart contracts protect. It is up to the individual to decide for themselves. It is preferable to govern for each other and not expect big brother to decide for us.





 *\*Attackers need to pay tx costs and they would need to attack multiple nodes at the same time so it would be harder to detect.*

Smart Contracts: Protection for Digital Identity and Crowdfunding

We have been hearing the warnings for a while now and our economies have started to signal the inevitable: rising inflation is here. What does this mean for the value of your money and your financial future? 

Inflation occurs when the purchasing power of a currency is diminished against the rising costs of goods and services. In the United States, [inflation spiked sharply](https://www.usinflationcalculator.com/inflation/current-inflation-rates/) in April and May of this year with rates of 4.2% and 5%, respectively. As of October, inflation now stands at a staggering 6.2%. In Canada, inflation has [soared to a near 20-year high](https://financialpost.com/news/economy/canadas-annual-inflation-rate-hits-4-7-in-oct-highest-since-feb-2003) of 4.7% in October and it stands to reason it will go higher if the USA is already at 6.2%. These are concerning numbers as countries continue to struggle with strategies for reopening economies amidst the continuing COVID-19 pandemic. Ultimately, those who will feel the brunt of inflation will be the lower and middle class as the majority of this population have not earned wage increases to match rising inflation rates. 

Since the inception of Bitcoin, the argument has been made that cryptocurrency can be a solid hedge against rising inflation. Why is this? Cryptocurrencies with a fixed supply can not mint additional tokens and therefore provide scarcity and a store of value. Similar to Bitcoin, Ergo’s tokenomics guarantee that the supply is capped at approximately 97 million ERG (for comparison, Ethereum does NOT have a fixed supply of coins). Over time, inflation (whether gradual or extreme) will decrease fiat’s purchasing power of goods, services and other assets - including crypto. Compounding this issue is the willingness of governments and central banks to print an unlimited supply of money in tandem with what seems to be an infinite government debt ceiling. Think about that for a moment. Who will suffer when this house of cards falls? It is probably safe to assume it will not be the millionaire/billionaire class.

So what are the options? What can you do to diminish inflation's impact on your financial future? Most financial advisors encourage their clients to invest their savings into an asset class. Traditionally those include bonds, stocks, precious metals, etc. Most of these options are pillars of the traditional banking system and therefore continue to be controlled by centralized entities. If you are new to cryptocurrencies, you have no doubt come across discussions about centralized versus decentralized finance (DeFi). To explore that discussion more fully, here is some suggested [reading](https://medium.com/stably-blog/decentralized-finance-vs-traditional-finance-what-you-need-to-know-3b57aed7a0c2) covering some of the principles of decentralized finance.

With cryptocurrency, people have another option and a new way to invest their money. That being said, there seem to be thousands of options when it comes to cryptocurrencies. How do you decide where to invest? 

We recommend you ask some very important questions before you choose a blockchain to invest in:

* What are the tokenomics of the particular crypto?
* What is the circulating supply and is there a fixed cap for the emission schedule of the tokens?
* Was there an Initial Coin Offering? Was a portion of the supply reserved for founders and venture capitalists? If so, how much?
* What is the purpose of the particular blockchain?
* Does the blockchain have projects built on it? What kinds of products do they offer?
* Who are the founders and developers, and what are their goals?
* Is the blockchain decentralized or are there centralized features?
* Are the applications being built open-source and peer reviewed?

One of the proudest features of the Ergo blockchain is that there was no Initial Coin Offering (ICO) and no funds or assets were pre-allocated to any founders or developers (for a deeper dive into Ergo’s tokenomics, please see [the following article](https://ergoplatform.org/blog/2021-11-05-ergo-blockchain-tokenomics-and-finance/)). If you research the launch of other blockchains, you will find many that pre-allocated funds and held ICO’s to raise capital. Ergo had a truly fair launch and is developing a blockchain for the financial needs of the future. The [Ergo Manifesto](https://ergoplatform.org/blog/2021-04-26-the-ergo-manifesto/) is the seminal document highlighting all of the inspirations and motivations for the creation of the blockchain. If one were to attempt to succinctly define the goal of Ergo, it would be to offer financial empowerment to the average citizen in a world where centralized entities have allowed the powerful to weaponize and control the flow of money for their benefit.

Ergo is an answer. Ergo is an opportunity for individuals to reclaim even a little bit of their financial freedom and power. Ergo is a possible solution to inflation and yet so much more than just a store of value.

The developers of Ergo are some of the leading technologists in the blockchain industry, having created smartcontract.com (now Chainlink). They are IOHK alumni (the company behind the creation of Cardano) and were instrumental in projects such as NXT and Scorex. The Ergo blockchain is designed with the UTXO model ledger that Bitcoin operates on but with the added advantage of smart contract functionality. This is called the extended UTXO model.

When you invest in Ergo, you are not just investing in a cryptocurrency, you are investing in a platform that is building decentralized applications (dApps) and financial products for you. You are investing in a platform that is committed to open source, peer-reviewed work and collaborations with other blockchains with like-minded goals (see [UTXO Alliance](https://utxo-alliance.org/)  and [BPSAA](https://bpsaa.vision/)). The future of crypto adoption and a functional blockchain industry will require interoperability and the ability to host a wide array of services between different platforms. Therein lies the real potential of cryptocurrencies. In addition to a store of value, Ergo’s dApps offer competitive financial products and services without a centralized intermediary. Ergo is at the forefront of developing this future with features such as [ErgoScript](https://ergoplatform.org/docs/ErgoScript.pdf), Σ-protocols (see [Whitepaper II](https://ergoplatform.org/docs/ErgoScript.pdf) and [Whitepaper III](https://ergoplatform.org/docs/AdvancedErgoScriptTutorial.pdf)) and [NiPoPoW’s (Non-Interactive Proof’s of Proof of Work)](https://ergoplatform.org/blog/2021-08-26-nipopow-applications-light-clients-and-side-chains/).

These powerful tools are the building blocks that support an already impressive ecosystem of decentralized applications:

[ErgoDEX](https://bit.ly/3oPGwzt)  - A [flagship dApp](https://ergoplatform.org/blog/2021-07-21-ergodex-a-cross-chain-workhorse/) on Ergo - it is the first decentralized exchange on the UTXO model with cross-chain capability with Cardano.

[SigmaUSD](https://bit.ly/3nFRKHx)  - A novel and innovative solution for a crypto-backed algorithmic stablecoin protocol.

[ErgoRaffle](https://bit.ly/3DI15nT) - A decentralized pseudo-crowdfunding application.

[Ergo Auction House](https://bit.ly/3DHCorr) - Ergo’s NFT hub.

[ErgoUtils](https://bit.ly/3kYyT8V) - The dApp for the creation of Ergo NFT’s and new tokens.

[Oracle Pools](https://bit.ly/3kYfIMm) - Messengers between Ergo blockchain and the outside world.

These are just a few of the dApps currently deployed on Ergo. For a comprehensive overview of the ecosystem please visit [Sigmaverse](https://bit.ly/3kRCqpo) and explore the dApps that are in development from the most recent [ErgoHack](https://ergoplatform.org/blog/2021-10-21-ergohack-ii-results/).

As this article attempts to convey, Ergo is designed to be a solution for financial empowerment. With rising inflation and the uncertainty that accompanies that reality, we believe that Ergo and the tools it is building will become increasingly more important in times of financial uncertainty. If you have more questions about the possibilities of Ergo, we encourage you to explore our [website](https://ergoplatform.org/en/) and [ErgoWiki](https://bit.ly/3x6Iak8) and get to know the community on [Telegram](https://t.me/ergoplatform), [Twitter](https://twitter.com/ergoplatformorg) and [Discord](https://discord.com/invite/kj7s7nb). The Ergonaut community is one of the best aspects of Ergo and they are the reason we are building this blockchain. Ultimately, we are stronger as a community and the feedback we receive informs us about the tools and dApps we need to focus on to meet the financial needs of society.

Ergo, Inflation and the Importance of a Store of Value

The following article will look into core aspects of cryptocurrencies, decentralized finance (DeFi), tokenomics and the path of the Ergo Protocol. For the first episode in the Ergo & Blockchain series, please see [Ergo & Blockchain: Cryptocurrency Sphere](https://ergoplatform.org/blog/2021-10-26-ergo-blockchain-cryptocurrency-sphere/).

## Crypto, Blockchain and  Finance

Cryptocurrencies rely on distributed ledger technology to maintain relevant data on the blockchain. A decentralized database consists of the nodes that carry the information, such as the number of wallets, tokens, nodes and the function of specific contracts stored on the blockchain. As Decentralized Finance (DeFi) becomes more accepted, it is important to prepare for a new functioning economic design.

When Satoshi Nakamoto created something new (Bitcoin) in opposition to traditional financial institutions, it was thought to be a hobby project by an anonymous developer. Quite often, it was thought to be a joke or a scam initiated to take away people’s money. Fast-forward to today and now Bitcoin is recognized as legal tender and gaining acceptance among financial firms. What once was thought to be “money out of thin air” has turned into something far beyond that touches more and more of everyday life.

The relevance of this is that the currency, in the form of data, is backed by computing power which is the outcome of running mining equipment and electricity. Users pay commission fees to miners for transaction verification and miners get extra rewards from the protocol for providing security. This is called the Proof of Work (PoW) consensus model on which Bitcoin, Ethereum, and Monero are built. Another model is called Proof of Stake (PoS). In PoS, the consensus is decided by the amount of staked tokens rather than the hash power from miners. There are different actors (Miner/Staker) and attack vectors (51/66/33% attacks) that these two core consensus models represent.

## PoW and PoS Launch Models 

As the pioneer of PoW systems, Bitcoin did not have an initial coin offering (ICO) but instead had a fair launch where anyone could mine it with their computer hardware. Ethereum, on the other hand, pre-mined certain allocations (of coins) for the team and ecosystem funding and conducted an ICO before the mining started. Both launch models have different characteristics in terms of their allocators. In PoS, the foundation holds the vast majority of the funds at the launch phase and investors can obtain coins on ICO or buy them on secondary markets. There can also be pre-sale rounds that are open mainly for Venture Capitals (VC). In PoW, the only way to get the coins is by mining or buying on the secondary market from a seller. 

Ergo chose the PoW model with a fair launch and designed a treasury allocation for the ecosystem development as a portion of block rewards. Instead of offering a portion of pre-mined allocation, the Ergo Protocol allocated 7.5 ERG per 75 ERG block rewards as Treasury allocation for the first two years. Treasury allocation then drops to zero in the following six months. This plan yielded the treasury 4.33 million ERGs which represents 4.43% of the 97 million ERG total supply. This allocation was instituted in order to support the initial ecosystem development by releasing funds gradually during project development. Ergo launched in July 2019, so the emission rate has already started to decrease since last July.

In the PoS model launch, there is often a certain amount of foundation/team allocation and generally there is also the VC allocation in pre-sale. These allocations can either be vested linearly or unlocked at launch and investors can get coins at an ICO or secondary markets. Because these proportions can take up to huge numbers or sometimes more than 50%, it means that the core team has the liquidity and therefore the market-making power in the initial phases. Given that ICO prices are usually a couple of times higher than pre-sale rounds, retail investors will have a disadvantageous position compared to VCs. 

Below is an infographic displaying a comparison of token allocations for various projects
![Fairest-of-them-all_smol.png](https://storage.googleapis.com/ergo-cms-media/Fairest_of_them_all_smol_9290ccadb3/Fairest_of_them_all_smol_9290ccadb3.png)

## Tokenomics

Tokenomics, or Token Economics, is the key factor that separates cryptocurrency from fiat currency. Traditional monetary policies are defined by institutions and they are always subject to changes by the same institutions. Tokenomics on the other hand are written on blockchain and can not be changed without achieving a consensus to do so.

Fiat currencies are issued by central banks and their circulation is controlled by these centralized entities. As you may guess, this was necessary to prevent fraud and provide authentication in financial transactions. With distributed ledger technology, authentication is carried out by decentralized nodes and transactions are verifiable on the public ledger. Bitcoin did not need a 3rd party to prove the transactions on the blockchain or a central entity to govern its monetary policy.

So with the inception of Bitcoin, a new monetary system was created with 21 million hard-capped coins and a deflationary emission that lasts for 140 years at a predictable rate. Bitcoin’s emission halves every four years, reducing the block rewards that miners collect. Initially, there were 50 BTC rewards per block but now it has been reduced to 6.25 after the 2020 halving. 18.6 million Bitcoins have already been mined. This means 88% of the total supply is already in circulation after 13 years. 

Some cryptocurrencies such as Ethereum or Monero do not have hard-capped supplies, but instead a diminishing and predictable emission rate is set. According to the data at the time of this writing, emission rates for Ethereum and Monero are 0.54% and 0.96%, respectively. We can calculate the issuance rate for the next 10 or 50 years to predict the future inflation according to this emission rate. You can access various projects’ inflation rates at [Messari](https://messari.io/asset/bitcoin/metrics/all) under the metrics page/supply column.

In PoS projects where VCs have a head start, inevitably, the bigger stake gets bigger. VCs can accumulate big sums of coins in the pre-sale phase for cheap prices and they may start dumping with the ICO launch. If they stick to their investment and do not dump, they could be in control of blockchain governance in the future. Because consensus relies on the staked amount, most of the circulation will be illiquid and controlled by big money.

Ergo has a hard-capped supply of 97 million ERGs, which will be emitted over 8 years. The emission schedule may seem aggressive, however it should be noted that 80% of Bitcoin’s total supply has already emitted during its first 8 years and 88% is in circulation as of today. The circulating ERG supply is at 45 million, representing 46% of the total supply. The rest of the supply emission will be released over the next six years before PoW consensus rewards drop to zero. From there on, Storage Rent and the transaction fees paid by users will provide economic incentives for miners to run their equipment. 

Ergo’s protocol offers another economic incentive for miners, called [Storage Rent](https://ergoplatform.org/blog/2020_04_21_ergo_positioning/). The Storage Rent component is a proposition to eradicate unused data bytes (dust) from the blockchain. Every four years, users will need to pay 0.13 ERGs per unused UTXO box . Unused or lost coins will be mineable and eventually flow back into circulation. This is a commitment to secure future cash flow and create a more liquid crypto economy. Users can simply move their coins every four years to avoid paying unnecessary storage rent.

## Social Transformation

Blockchain technology and smart contract development are moving at an increasingly fast rate. We see that new laws are passing globally, financial institutions have started allocating crypto portfolios, and just recently, the SEC approved the first Bitcoin exchange trading fund on the NASDAQ. Yet there is strong opposition to the institutionalization of Bitcoin and cryptocurrencies. Who will be controlling your funds in the future? Can cryptocurrencies really become a tool for ordinary people against centralized entities? 

While Central Bank Digital Currencies (CBDC) are on the horizon, a vital choice is fast approaching. How will regulations evolve in regard to ownership rights and privacy? Will blockchains and cryptocurrencies become the ultimate tool for social surveillance? 

Keep an eye out for the next chapter in this series of articles: Ergo & Blockchain: Privacy and Security.

Ergo & Blockchain: Tokenomics and Finance

The following is a first in a series of articles covering general cryptocurrency & blockchain education. Over the next few weeks, we will regularly publish articles covering various introductory topics as they relate to the field of smart contracts.

Before you start, [Ergo Protocol Research and Client Development Roadmap](https://www.reddit.com/r/ergonauts/comments/qfjhw4/ergo_protocol_research_and_client_development/) is recently published by Kushti, if you wish to look in advance.

At the core, Ergo supports smart contracts and blockchain development as a way to enrich ordinary people. Cryptocurrencies are innovative tools that should be open to everyone. Everyone can be their own bank, execute international transfers and participate in global financial markets. 

As some private funds want to grab a big slice, the short-term price of the currency is advertised as the sole indicator to investors. The adoption phase requires time and devotion. An average cryptocurrency holder however, does not know the technology behind the investment. Cryptocurrency is an investment in a future decentralized network so it is important to have an overview of the big picture.

With this series, we hope to simplify some of the more complex blockchain concepts into more easily accessible terms. Some topics we will be covering are:

* **Tokenomics & Finance:** Differences between proof-of-stake and proof-of-work networks indicate a whole new set of tokenomics and users. These are both entirely different notions to the traditional centralized finance we are used to. Understanding the different approaches cryptocurrencies are taking to finance is crucial for predicting the evolution of this ecosystem.
* **Privacy & Security:** Blockchain can serve as an immutable tool for participating in global markets - even for an ordinary person. No centralized entity is needed to validate transactions, and there is no need to expose your identity to a third party when using blockchain. There are different layers of privacy and security aspects to be discussed on personal & public usages.
* **Technology & Innovation:** What are crypto ecosystems, really? Smart contract implementations are evolving faster than ever and it feels like there are new platforms or currencies appearing every other day. A summary of smart contract development phases will serve to inform about the potential use cases of blockchain.
* **Scalability & Adoption:** Data processing is costly and blockchain & cryptocurrencies are trying to achieve faster and cheaper means to lower the barrier of entry to finance. There are different approaches to scalability solutions and different applications will serve different markets. What tools/moves are being developed to integrate the masses?
* **Sustainability & Growth:** What are the future projections for blockchain technology? How will actual usage, energy consumption, innovations and new regulations continue to evolve? 
* **Collaboration & Value:** Cryptocurrencies are open-source software projects. The more the collaboration, the more value and innovation created. The cypherpunk spirit and altruist approach of cryptocurrencies are generally overlooked topics in this space these days. We hope to change that. 

The “Ergo & Blockchain'' series will serve to educate Ergonauts on the current ‘cryptosphere’ and the approach of Ergo regarding the topics mentioned above. Please stay tuned as we dive deeper into demystifying these blockchain concepts and provide an avenue to simplify the tools and applications of the future.

Ergo & Blockchain: Cryptocurrency Sphere

As the Ergo ecosystem grows, our community can now enjoy the functions for several of our key dApps. Ergo has a stablecoin protocol where users can mint SigUSD and SigRSV tokens. Ergo Auction House offers the ability to mint NFTs and ErgoDEX (Beta) allows you to swap tokens and provide liquidity. These are the very first, unique and complex DeFi dApps on the UTXO model - a model that Bitcoin pioneered. It has often been debated whether the UTXO model can express rich smart contracts, much like the Accounts model. That is why Ergo Platform built the ErgoScript language from scratch in an effort to progress on Bitcoin’s legacy.



*For an in-depth comparison about UTXO and Accounts models, please read our previous blog post:* [Ergo: Advancing on Bitcoin](https://ergoplatform.org/blog/2021-08-17-ergo-advancing-on-bitcoin/)



As an Ergonaut, you may have experienced some confusion if you have checked the explorer to view your transaction details. The UTXO model is essentially different from the Accounts model via the use of “boxes'' for data-keeping. In the Accounts model, there is a single account where you receive your coins. In the UTXO model however, every tx (transaction) creates a new box and your balance is the sum of all the boxes linked to your addresses.



To be clear, your Yoroi private key can consist of more than one box in a single address to hold your coins.

![](https://lh6.googleusercontent.com/qxEWrauKaD8yEXAjwXFzlikSNAXFeAxSPwuxUolS410Xf5HgOzJh_1vCL6YOfFfOyWnBhxLVIWZ0scz4BbIF9w4Tm_9aywTKo3EIrvG0zSPhCIPvLoyrlwgvZCHWHqEfXZb43klV=s0)



As you generate a new address, you will create a secondary box to hold your coins. After it is created, you can send funds to this new address and your funds will be seen as one with your private key. You can create an infinite number of new boxes to hold your coins. As such, every receiving and spending action will also create an additional unique box.



This feature can create misconceptions by the user at first glance. When you make a transaction, the network scans your “boxes” to verify if you have your tokens and then initiates the transaction. 



Things get complex after this point because you can not guess which boxes are going to be spent. Imagine you have three different receiving addresses. You received a couple of coins in each of them and you want to spend some of your coins. In a Yoroi wallet, you can hold any Ergo native coins such as SigRSV or SigUSD. When you initiate a transaction that accesses the boxes of these coins, you will see that they are taken away and then redeposited. Recently, an Ergonaut raised the following [question](https://www.reddit.com/r/ergonauts/comments/prn7x3/comment/hdty87z/?utm_source=share&utm_medium=web2x&context=3): 



“I just created a Yoroi Nightly wallet. I transferred 31 Erg from my main Yoroi wallet to the Yoroi Nightly wallet. The transaction shows 31 Erg plus a small fee, 0.0011. But it also says +92,000 SigRSV. My balance shows no change in SigRSV. What is the meaning of the +92,000 SigRSV in the transaction?”



Let’s take a look of the details of this particular [transaction](https://explorer.ergoplatform.com/en/transactions/143f5ba0ee1482d332d1020c94f261399f220c7f4523063ade8290c478acbd29):



![](https://lh5.googleusercontent.com/HOFhlYx5l3wvUzET-wa9E4dhU8az4srODa_4n09qZm3y-gWQz1L9Obw5qobgQM5Bthokn8SYMuO13cLDNEW5fqbboSj3qAwf2rzYH1rHkyvaoDsIMSDa3zwJU31s5XLEc_n5VbZ0=s0)



To make a transaction of 31 ERG,  the wallet selected three of the boxes with ERG:

* A box containing 0.029595 ERG that was received on 07/19/21
* A second box containing 19.76 ERG that was received on 07/19/21
* A third box containing 208.26 ERG that was received on 06/09/21 



On the left section of the image above, you will see approximately 228 ERG taken while on the right section you will see 31 ERG sent and 197 ERG redeposited to your wallet.



So your wallet used three of your boxes to spend the desired amount. This action includes all the assets in that box to the transaction. 



After the desired amount is spent, your funds are simply refunded to your address in a newly created UTXO box or boxes. Spending any coin in a box therefore means spending the whole box and creating a new UTXO box, which is why you see your tokens are taken away and then redeposited.



The selection of which boxes to spend is a secret of the wallet’s random selection strategy. Whatever coins are in the selected boxes, be it SigRSV, SigUSD or NFT, will be displayed as in the example. 



### To sum up: 



The Accounts model contains a single box and this box is not spent. It remains the same so non-related coins will remain unaffected.



The UTXO model on the other hand contains a set of boxes that represents the total amount of the users balance and the unspent transaction output has to change with each spending transaction.  



You may see a long list of tokens when swapping just 5 SigRSV as below:![](https://lh6.googleusercontent.com/wK-uprlqrj6wKt74AODkxBt6xR5Dey_qGB4kclXm5OuhWz2nfIuBTZm412oFA1h0OHXRi_oGcx6y7jR6A6kRcgpAUU7vSaQrfAMY6lKzdzy8THl2Hh2uEMzHjs5M5Sdlly6DO8f4=s0)



This is just how UTXO model Transaction works - its storage is different from the Accounts model. In the UTXO model, coins will be stored in one-use UTXO boxes and not in long-living accounts.

UTXO Model Transaction

Nakamoto created Bitcoin to provide a platform for a decentralized, secure and private peer-2-peer financial system. It’s creation was born out of a concern that the distribution of economic power is too reliant upon centralized entities.

After the 2008 Mortgage Crisis, it is clear that the fractional banking system and ever increasing M2 and M3 money supply can easily get out of hand with various synthetic derivatives. This is a clear indicator of monetary mismanagement by centralized entities. Money shocks can occur because of a liquidity crisis and over-extended credits. In this scenario, the value of fiat currencies will inevitably decrease due to inflation.

## Too Big To Fail

Banks have an incredible amount of power over individuals with the ability to influence phenomenal changes on a national or global landscape. When they get in trouble, governments often have to interfere to prevent them from collapsing because these institutions are inextricably linked to their respective economies. When these institutions get too big, their decision makers can become reckless with an expectation that the government will bail them out.  

A fractional-reserve banking system often requires banks to provide between 0-10% cash liquidity after deposit transactions. The low reserve requirements allow more money to flow into the economy, often in the form of credit and loans. This can cause two problems: uncontrollable inflation of fiat money and a liquidity crisis in the event of a panicked run on banks. After trusting banks with their cash and investments, customers are the ones who stand to get hurt the most since they have no control over the bank's decisions.

## P2P Cash System

To prevent these issues caused by centralized banking, zero-knowledge authentication is proposed through the proof of work algorithm in Bitcoin.It should be noted however, that a PoW structure is not immune to flaws. In PoW, if a malicious actor takes over 51% of the nodes, then they can execute Sybil Attacks and perform double spending or network halting actions. Therefore, decentralized mining and more varied mining pools are highly recommended for securing the decentralization of blockchain.

Bitcoin is the pioneer of cryptocurrencies and is the prototype for what is to come. It is the first global implementation of a peer-2-peer autonomous monetary system where its native currency is traded on free markets. Bitcoin has only one implementation of blockchain though, which is as a cryptocurrency. Bitcoin functions as either a store of value or a transaction unit. A lot of different implementations were left empty in its design. Ergo is building a new approach to Layer 1 and novel ideas of decentralized finance are showing that Layer 2 implementations are vastly improved from the initial launch of Bitcoin.

## Decentralized Finance

[Smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp) provide the infrastructure of a decentralized financial system. For example, consider a bank's borrow/lend pool where you can deposit and borrow money.

Banks charge certain fees in order to match depositors and borrowers. The matching process considers different elements such as: 

* How much money is deposited?
* How many individuals want money?
* When will be the execution of borrowing and lending contracts?

This is where smart contracts come into play on a decentralized network. Instead of using your bank, you can use blockchain based immutable smart contracts and verify smart contract pools with on-chain metrics. Through the use of the blockchain, individuals will be able to reclaim their economic freedom by controlling their finances through decentralized autonomous organizations(DAO).

\
*You can learn what kind of applications are being developed for DeFi Ecosystems [here](https://ergoplatform.org/blog/2021-05-10-defi-ecosystem/).*

\
**It should be noted that blockchains are more than just vehicles for providing cheap and fast transactions. Distributed ledgers can expand to cover every aspect of virtual data processing services, including cloud storage, cloud computing, governance and finance.**

Why Choose Crypto? Blockchain: A Better Way to Bank

## Building Blocks of DeFi

With new decentralized finance platforms across different blockchains, crypto holders may be wondering what are the differences between a DEX and a CEX? Which one should you choose, and why? DeFi is still in its infancy, and these questions are important in order to understand the innovations of this new industry.
A Centralized Exchange (CEX) is probably familiar to readers who have used platforms such as Binance, Coinbase, Kraken, FTX, Kucoin, etc. In contrast to these major CEXs, a Decentralized Exchange (DEX) is a platform where smart contract applications operate in a decentralized and immutable manner with minimal trust in centralized authorities.

## Centralized Exchanges Explained

A centralized exchange is essentially a platform that allows a user to buy and sell assets through a private entity. They are the most widely used platforms for purchasing cryptocurrency and are often initially more user-friendly than decentralized exchanges (DEXs). The centralized exchange, [Gemini](https://www.gemini.com/cryptopedia/centralized-exchanges-crypto), describes CEXs as “platforms which facilitate the buying and selling of cryptocurrency, either for fiat currencies, like the US dollar or between digital assets, like BTC and ETH. 

## How does a CEX work?

CEXs function as trusted intermediaries in trades and often act as custodians by storing and protecting your funds. Leading exchanges facilitate every aspect of the digital asset trading experience: from security to fair market pricing to regulatory compliance, consumer protection, and access to various digital assets. As of September 2020, 95% of digital asset trades are executed through centralized exchanges, which represents approximately $228 billion USD a month.” 

Depending on the centralized exchange, a customer can be offered a wide variety of cryptocurrencies to choose from. This allows consumers to gain easier access to a diverse set of investments. Centralized exchanges are also user-friendly in that the purchasing and selling of cryptocurrencies is usually much more intuitive. Centralized exchanges often offer off-ramping to fiat currency, while many decentralized exchanges do not offer this feature.

Many centralized exchanges require consumers to provide documentation, identification and sensitive financial and personal information in order to use their platform. This is known as KYC (know your customer) and is often necessary for regulatory compliance within respective jurisdictions. 
 
## Decentralized Exchanges Explained

Decentralized exchanges offer an important alternative to centralized exchanges in that they do not require KYC in order to interact with the exchange. A [decentralized exchange](https://blog.chain.link/dex-decentralized-exchange/#:~:text=A%20DEX%20(decentralized%20exchange)%20is,transfer%20and%20custody%20of%20funds), or a DEX, can be described as “a peer-to-peer marketplace where **users can trade cryptocurrencies in a non-custodial manner without the need for an intermediary to facilitate the transfer and custody of funds.**”
 
## How does a DEX work?

Many DEXs will offer a way to connect your private crypto wallet to their platform, and that will allow you to swap a specific cryptocurrency for another. DEXs also offer much more privacy than CEXs and often provide the user with an opportunity to purchase specific cryptocurrencies that might be much newer. DEXs are commonly associated with specific blockchains, and because of this, they allow the consumer to purchase that particular blockchain’s native assets. [Smart contracts](https://www.spglobal.com/en/research-insights/featured/special-editorial/smart-contracts-could-improve-efficiency-and-transparency-in-financial-transactions#:~:text=Smart%20contracts%20in%20decentralized%20exchanges,parties%20in%20a%20single%20transaction.) also aid the exchange in reducing the counterparty risk by transferring the assets between the two parties in a single transaction.

## Pros and Cons of CEX and DEX
### Pros of CEX
#### Liquidity
**(+) **Centralized Exchanges generally administer market-making services. This means they provide both buying and selling liquidity for users to exchange their tokens and coins. In DeFi, not every liquidity pool is substantial, so users can face high slippages due to a lack of liquidity. [Slippage](https://www.investopedia.com/terms/s/slippage.asp) is a term that can be defined as “the difference between the expected price of a trade and the price at which the trade is executed.”

#### Power of Centralized Structure
**(+)** Centralized exchanges are faster by design because funds do not need to be moved across a blockchain. Transactions are fulfilled by simply exchanging the funds' information internally on the CEX. Therefore, as a centralized entity, it can provide faster transactions. With CEXs, one does not need to worry about losing access to their assets if they lose their login password. In this instance, a user can easily request a password reset from the CEX. However, if an individual loses the private keys to their private crypto wallet, the assets can not be recovered.

#### Fees
**(+)** Fees can be cheaper on a CEX. As mentioned earlier, a user's funds stay in a CEX wallet where they can execute all kinds of exchange activities without the need to incur basic blockchain costs. Therefore, a CEX can provide fixed and relatively cheaper fees in contrast to current DeFi platforms such as Uniswap, where swapping fees for small volumes can take up to hundreds of dollars. It is important to note, however, that this is changing on certain blockchains. On Ergo and Cardano, for example, fees are very low and can even be lower than certain CEXs. Certain CEXs also have high fees if one is attempting to off-ramp and cash out to a fiat currency. However, it does depend heavily on which CEX one uses, as fees vary depending on the platform. 

### Pros of DEX

#### Non-Custodial Interaction
**(+)** At the heart of Cypherpunk, the ideal is that cryptocurrency economies should provide access to a peer-to-peer economic structure that gives back financial freedom to people. Since a DEX functions in a non-custodial manner, a user can keep their funds in their private wallet and swap tokens through the DEX in any desired amount. 

#### Custom Trading Pairs
**(+)** One of the most unique characteristics of a DEX is that it is an ideal place for initial coin offerings and custom trading pairs. Anyone can set up a liquidity pool in a DEX and provide liquidity for a new exchange pair. This type of platform democratizes individual participation in market-making.

#### Transparent Data
**(+)** All DEX interactions happen on-chain, therefore anyone can check if the volume is executed on the blockchain. This is why it is impossible to create Wash Trading without encountering transaction fees. The transparency of a blockchain acts as a protection layer against malicious actors.

### Cons of CEX
#### Liquidity
**(-)** When it comes to lower market cap coins, big holders are needed to create buy/sell liquidity in a CEX. Automated Market Making (AMM) algorithms on DEXs can be much more beneficial in providing a healthy market for early-stage projects.

#### Wash Trade
**(-)** Wash trading occurs when exchanges manipulate transactions for the purpose of appearing to have high trade volume numbers. This false display of transactional volume is an attempt to appear attractive to prospective cryptocurrencies looking for new listings and new investors who are seeking an active trading platform. Trades on a CEX happen internally, so there is no way of tracking the transaction by an impartial party. This gives a lot of power to centralized exchanges. This highlights the benefit of using a DEX due to the transparency of blockchain explorers and the utilization of smart contracts. On Ergo, for example, every transaction can be seen on the Ergo explorer. 

#### Power of Centralized Structure
**(-)** "Not Your Keys, Not Your Coins." Readers may be familiar with this phrase, and it is a reference to the intrinsic downside of storing assets on a CEX. The actions of a user happen under the auspices of a custodial service provider.  Centralized exchanges implement data-keeping services of your funds but also hold your keys, which is contradictory to the principles of a P2P (peer-to-peer) financial system. To clarify, the CEX is singularly responsible for the security of the wallet that holds your assets.

### Cons of DEX
#### Non-Custodial Interaction
**(-)** The non-custodial nature of a DEX means that a user can lose their funds permanently if they do not keep their private keys secure. There is no way to recover the seed phrase for a unique wallet, so in the event, a user loses or forgets their private keys, there is no way to retrieve them.

#### Custom Trading Pairs
**(-)** It should be noted that there can be adverse consequences from some custom pairs on a DEX. Since anyone can set up a liquidity pool, one common type of fraud by malevolent entities is called a "rug pull." Investors can fall victim to unexpected losses when trading and/or swapping with a new "false" token on a DEX. Malicious actors defraud investors by creating new tokens for the purposes of trading and swapping the "false" token on a DEX.

#### Fees
**(-)** Since DEX interactions happen on-chain, there are different transaction fees that need to be included for each trade. DEX platforms generally have governance and liquidity providers’ fees that can vary between 0.2-1% per transaction. On top of that, however, an additional fee must be paid to the blockchain platform since the transactions occur on-chain. However, these blockchain fee requirements can evolve through the implementation of sidechains that address scalability issues. With this being said, the fees depend on which blockchain one uses. For example, the gas fees on Ethereum can be extremely expensive, whereas on Ergo they are quite low in comparison. 

#### Transparent Data
**(-)** Since data is transparent, though, transactions can be tracked, and wallets can be easily detected. This scenario is not ideal, but a dApp like [ErgoMixer](https://ergoplatform.org/en/blog/2021-05-12-ergomixer/) provides users with a new layer of security by hiding some of the transactions on-chain.

## DEX vs CEX- Key Differences

There are several vital differences between what a CEX and DEX offer. Primarily, a CEX requires KYC information, whereas a DEX is non-custodial. CEXs often allow a user to sell their cryptocurrency for fiat currency and then off-ramp that money to their bank account. DEXs seldom allow for the off-ramping of fiat currency and usually deal strictly with cryptocurrencies. CEXs can provide a user with a large, diverse set of cryptocurrencies to purchase, whereas DEXs usually offer a few cryptocurrencies and their native tokens for swapping. 

#### Conclusion
Overall, there are advantages to using a CEX and a DEX, and many users use both depending on their specific needs. DEXs become much more useful when a user is participating in a specific cryptocurrency ecosystem and wants to purchase native assets. It is vital that both CEXs and DEXs are available to the public if mainstream cryptocurrency adoption is to take place because they serve as the main avenues for participation in cryptocurrency markets. It is imperative that one does ample research about the CEX platform they are using to ensure that their funds are in a safe place. It is also important to note that sufficient research into any native assets on a respective blockchain should be carried out before swapping a coin for a native asset.


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Centralized Exchange (CEX) vs Decentralized Exchange (DEX): What are the Differences?


While cryptocurrency addresses are usually pseudonymous, they can frequently be linked to real-world actions and individuals. 

When creating an account on an Exchange users need to identify themselves via a KYC (Know Your Customer) procedure and when they decide to withdraw their tokens, the exchange operators will have access to the users’ private information.

Furthermore, Companies like Chainalsysis and Cyphertree specialize in blockchain forensics to trace transactions and wallets back to users utilise advanced methods that can be used to link people to a public address. 

## Who uses mixers?

In order to provide users with more privacy and ensure transactions are harder to trace, mixers allow their users to send their tokens into a batch of transactions from several other users and mix them all together. The goal is to guarantee that the transaction from “address A” to “address B” is not as traceable as it could be through a direct transaction.

Each mixer has its own features and service fees, depending on reliability or trust and in this  article we will discuss the TOP Mixers of the market, as well as their pros and cons.

### Current top mixers

1. [MyCryptoMixer](https://mycryptomixer.com/).com

MyCryptoMixer has gained popularity as a trusted and user-friendly platform. Although they only support Bitcoin and Ethereum at the moment, there are plans to expand to other cryptocurrencies based on its community feedback. Self-nominated as a “People-First service provider, they are constantly looking to innovate and provide for the changing demands of their users.

Advantages: User-Friendly, Trustful, Privacy Policy;

Disantavages: Only BTC and ETH supported;

2. [BitMix.Biz](https://bitmix.biz/pt)

BitMixer is a mixer that requires little to no personal information, not storing any users data, thus increasing their privacy. The platform provides tools to calculate the exact fee they will be paying for each transaction, and it ensures the process occurs as smoothly as possible.

Advantages: Anonymity, user experience;

Disantavages: No ETH supported;

3. [ChipMixer.com](https://chipmixer.com/)

ChipMixer is a unique tumbler that works somewhat uniquely. The service has wallets with chips that range from 0.01 BTC to 8.192 BTC which can be split and merged according to the holder's needs. Since the mixing is performed by the user, there are no standard fees and the customer decides what the amount is they want to donate in exchange for the service provided.

Advantages: Anonymity, fees, the “chip” method;

Disadvantages: Only supports BTC;

4. [CryptoMixer.io](https://cryptomixer.io/)

CryptoMixer began offering mixing services in late 2016, built from the ground up with inputs from the Bitcoin Community. It has a reserve with over 2,000 coins allowing almost instant tumbling, thus improving the traceability to a minimum. All data about any transaction is deleted in 7 days. The provided CryptoMixer code ensures that every coin which has already been cleaned on the platform is reserved and marked to prevent it from returning to the customer’s wallet again.

Advantages: Anonymity, no-log policy, affiliation programs; 

Disadvantages: Only supports BTC;

5. [MyCoinChain.com](https://mycoinchain.com/home)

MyCoinChain has a massive reserve of 200 coins, offering mixing services to everyone for only 2% fees. The reserve guarantees that the user never has to wait more than 30 minutes to send their coins. MyCoin offers an exchange service for Bitcoin, Ethereum, Litecoin, Bitcoin Cash and Monero. 

Advantages:  Supports various cryptocurrencies, fees;

Disadvantages: Registration Required;

### Why choose the ErgoMixer:

Σ–Ergomixer is the first non-interactive, non-custodial mixer in the cryptocurrency space. There have been requests from the community to understand the mixer, why it is an important piece of tech, and why people would choose to use it. 

A non-interactive application is permissionless. Everyone has the ability to use it without initiating a request. Imagine you came across someone who gave non-interactive high fives. They just walked about with their hand outstretched offering a high five to everyone they passed. This type of application empowers the user, it treats everyone the same. There are no special privileges, no compliance requirements, non-interactive applications are simply free and open to all. 

The ergo mixer is non-custodial meaning at no point does another party hold an individual’s tokens. Originally mixing cryptocurrency was a service. A user had to send their tokens to a custodial party, who would then provide the service of mixing. Hopefully, the tokens that were sent were returned. As many of you know, there are often grifters who float about on social media offering all kinds of wonderful services without any intention of returning whatever you send them. GIving custody of your tokens to another party does come with risk. The Ergomixer eliminates that risk. 

These are two principles of true decentralization that I would recommend to everyone in the cryptocurrency come to recognize, understand and use. 

Why? Because these types of applications protect you, the user. 

## How does it actually work?

Understanding the full operation of ErgoMixer requires a fairly in-depth grasp on cryptography, but the base concept is fairly simple. Participants send coins to a pool, and these can be spent by any different members. The protocol ensures that it is impossible to know which member spent them.

Let’s set a quick example. There’s a pool with coins that can be spent by the individual “A” or “B”. Any of them can sign a transaction and move the coins, but no external observer is able to know exactly which one did it. The fact that this process is repeated over and over again with multiple users makes it impossible to trace them, while at the same time the coins never left the control of their original owner, making it a risk-free process.  

In conclusion, ErgoMixer is revolutionizing the mixing industry, guaranteeing that there is no risk of lost funds and that no transaction can be traced.

## How do I use it?

Luckily you don’t need to be a cryptographer to use the mixer either. For Mac and Windows users, there are compiled programs that you can download and run which are available in the [releases section on GitHub](https://github.com/ergoMixer/ergoMixBack/releases). You can of course also build from source or run the .jar file directly. 

When you open the Mixer, the home page displays information about the system and how each component works. ErgoMixer will also be available from your menu bar.

The mixer only mixes while the application is running - however, you can close to pause mixing at any time, covert addresses will also work fine and start mixing when you launch the application.

## Flexibility/Fungibility

In time any token on the Ergo blockchain will have the ability to be mixed. The first token that was mixed through the mixer beyond Ergo’s native token was SigmaUSD. This is really an exciting accomplishment, especially given there is a Dex in the process of being developed on the Ergo Blockchain. 

Any coin that will be listed on Ergo’s decentralized exchange will have the capability of being mixable. I am sure the development of that will take some time, however, it suddenly gives privacy capabilities to tokens that have no privacy features. 

Suddenly users may be able to mix a variety of stablecoins and assets. Simply set up a new mixer for some erg, do not set a withdrawal address (otherwise your mixed erg will be withdrawn) and once the mixing is complete - you can convert it into either SigmaUSD or SigmaRSV on withdrawal. 

## Why Might I Want to Mix Tokens?

The UTXO model of account is similar to cash register accounting. Simply stated, a deposit is made, amounts are combined, and change is returned. 

If you go to a local shop and pay in paper currency, the cashier does not have the ability to look into your wallet. Perhaps they may peek inside from a distance and try to gauge the amount that you are carrying, however, you have a certain element of privacy in the transaction. 

In the basic UTXO model of accounting, this transaction is not private. While it may be extremely difficult to connect the wallet and the user, the amount held is stored. This information is not simply available as if a cashier is trying to catch a momentary glance, that transaction is stored for all to see and is auditable at any point in the future if someone has the transaction information.\
\
The Ergomixer is a way to send tokens and potentially conceal both sides of a transaction. 

Covert Addresses

Covert addresses allow you to set up an address to receive tokens to - these tokens will be automatically mixed when you launch the program. Future improvements on the horizon is adding the ability to allow users to create a covert address that automatically receives ERG and mixes SigUSD/SigRSV.

Practical Example for a Senders

Imagine a user wants to place a bid on the latest NFT at the Ergo Auction House. 

A bidder may want to conceal their wallet information for a variety of reasons, for example, they may have a limited budget and not want that information broadcast to their competitors. 

They may be transferring money into the future Decentralized Exchange and want to conceal their total balance from other traders. Perhaps they have a large position and believe other traders may try to take advantage of knowing a large sum is inbound. 

There are many practical reasons why parties making an exchange may want to conceal their financial decisions. We do this all the time. 

In truth, this is no different than the privacy features of cash. 

You can go into a store, take out a 10, and ask for two 5’s... You have just mixed money. 

There is a reason why people do not go about in their daily life with all of their net worth on their person. In reality, it is common sense. On a blockchain, it is often associated with some nefarious intent.

Cash is fungible, interchangeable, mixable. We have accepted that as normal. I hope that in time the perception of mixing on a blockchain is as acceptable as the same properties we see with physical currency. 

The truth is the majority of criminal and illicit activities occur in physical fiat currency. However, this has never been a legitimate justification to outright ban the use of fiat currencies. 

**Resources**

[ErgoMixer GitHub](https://github.com/ergoMixer/ergoMixBack)

[Introduction to Ergo Mixer - How to set up and configure mixer on Windows](https://www.youtube.com/watch?v=03_2HH82Plw)

<https://ergonaut.space/en/ErgoMixer>

[ErgoMixer Tutorial Installation - Windows, Mac, JVM & Docker - Version 3.0.1 & Above](https://www.youtube.com/watch?v=iIHLlIZ-47Q)[ErgoMixer Tutorial Usage - Taking Fire - Version 3.0.1 & Above](https://www.youtube.com/watch?v=Cc3n8CjaGPE)

<https://ergoplatform.org/docs/CBT_2020_ZeroJoin_Combining_Zerocoin_and_CoinJoin_v3.pdf>