The Digital Assets Newsletter: Week 5
- ateekberg
- Feb 6, 2022
- 5 min read
Too Long Didn't Read Summary
Market update: At the time of writing the crypto market has seen an uptrend this week with major players Ethereum rising 9.7% and Bitcoin 1.54%. This is possibly due to the lower market prices of recent weeks. The craziness of the NFT space has continued into this week, mainly involving LooksRare and Opensea. In which LooksRare having double the daily trading volume of Opensea despite having a fraction of users. Recent reports suggest this is due to wash traders. Read more Below to find out more about the LooksRare wash trading and the effects of the lower crypto prices. Concept of the week: Protocols and Layers - The Architecture of Crypto Assets When reading about cryptocurrencies you may have come across terms such as “layer one or layer two protocols.” These are foundational concepts for understanding the technical aspects of digital assets are protocols and layers, namely layers and protocols. Ultimately they facilitate data sharing and dictate processes such as transaction validation, system security, the interaction between participating nodes, etc.. Layers specify the set of protocols used in certain components of the blockchain architecture. Think of it as different layers to a cake with each layer serving a unique purpose. The layered architecture of blockchain technology can be split into six categories which then are grouped into three distinct layer protocols. Many different crypto assets (such as Ethereum) are essentially these layered protocols. Read more to find out and understand why! Investor Joe Updates: Joe looks into a new Altcoin; namely Helium and its fascinating approach to telecommunications. Read more below!
We are not advocators we are educators
This Week's Market Update
This week has been a somewhat better one for the crypto asset market with major players Ethereum rising 9.7% and Bitcoin 1.54% (at the time of writing). This can possibly be attributed to one primary factor, lower prices in recent weeks which have led to new investors and investor sentiment regarding more bullish appetite for risky assets. In addition to this, Polkadot pushed dogecoin out of the top 10 crypto assets based on market cap. In the NFT space we’ve seen plenty of action within NFT exchanges. The new decentralized NFT marketplace LooksRare, which aims to be an alternative to Opensea, has seen a rapid rise to the forefront of news cycles as it reports daily trade volume (USD) that is more than double that of Opensea despite significantly lower users. However, this is not why it ended up in the spotlight, rather it is due to the traders taking advantage of its low fee structure to wash trade. Wash trading refers to the same trader buying and selling an instrument to create artificially high trading volume and manipulate the market price of the asset. This is thus what explains LooksRare's insane volume in recent weeks, suggesting that these volumes are not sustainable.
Concept of the Week: Protocols and Layers - The Architecture Crypto Assets
When reading about cryptocurrencies you may have come across terms such as “layer one or layer two protocols.” These are foundational concepts for understanding the technical aspects of digital assets, namely layers and protocols. Let’s begin with explaining protocols. There are various types of protocols. Ultimately they serve as a set of rules which allow for the exchanging and processing of data between computers. Think of it as a language between humans; without a shared language (e.g. English) they wouldn't be able to engage and communicate. Blockchain protocols facilitate data sharing and dictate processes such as transaction validation, system security, the interaction between participating nodes, etc.. Ultimately, protocols are what facilitated the decentralization inherent within crypto by defining how information and data is distributed without the need for a centralized entity. Layers specify the set of protocols used in certain components of the blockchain architecture. Think of it as different layers to a cake with each layer serving a unique purpose. The layered architecture of blockchain technology can be split into six categories which then are grouped into three layers:
The Hardware/Infrastructure Layer, also known as Layer 0, can be seen as the baking sheet which makes the cake possible. It involves all components which allow for blockchain networks to function and be a reality, this includes the internet, hardware and connections.
The Implementation Layer, also known as Layer 1 protocols, is the system associated with the base architecture of a blockchain network. These protocols set the rules and parameters for the entire network such as the consensus processes, transaction throughput, dispute resolution, etc.. Bitcoin and the Ethereum Network are all layer 1 protocols. Meaning when you purchase these tokens you are investing into a layer 1 token.
Layer 2 protocols, also known as Layer 2 (L2) Solutions, are the protocols and overlapping networks which sit on top of the base layers and provide scalability. This is primarily to provide interoperability features and scalability for layer 1 networks by carrying some load. The primary difference from layer 1 protocols is that layer 2 is a third-party integration used in conjunction with layer one to enhance system efficiency and the number of nodes whilst layer 1 is the blockchain of the decentralized ecosystem. Thus layer two crypto are tokens and systems which are built on top layer 1 networks. An example is Polygon (Matic) which is a cryptocurrency built on top of the Ethereum network to address ETH’s scalability problems when facing mass adoption.
The application layer, also known as Layer 3 protocols, consists of protocols which all applications run on the blockchain. The applications are known as Decentralized Application (Dapps). Layer 3 is ultimately what gives blockchain real-world applications by allowing for the implementation and execution of use-cases.
Sources (Excellent further readings for learning):
Hope you learned something new or interesting. Feel free to email us with questions, suggestions or criticism and I'll see you next week!
/Alexander Ekberg
Investor Joe Portfolio Updates
For this section we encourage you to click the links in order to learn and understand the investment reasoning and how Investor Joe works.
Who is Joe? We explain everything here.
Previous positions remain unchanged. This week Joe continues his DCA strategy with 100$ split as:
Quick take on Helium (HNT)
Helium has the grandiose ambition to take over the telecommunications sector with its decentralized machine network. The network is built up of hotspots or ‘gateways’ that also act as miners (they look and act similar to a simple home wifi router). Based on the coverage that your miner/hotspot has as well as the traffic on it, Helium miners are rewarded with Heliums native token HNT. A few of many use cases include for these hotspots: IoT sensors, tile-like trackers, dog tag trackers
(Map Link) This map shows a map of all miners in the world. Here’s a screenshot of Stockholm (each hexagon has >1 miner in it)
Investor Joe's Current Portfolio:
⚠️ DISCLAIMER ⚠️ This is not financial advice, and is purely for educational purposes only, always DYOR!
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/Erik Gunnarsson
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