Learning the friendly way

Imagine a world where your investments flourish, your financial goals are within reach, and you navigate the complexities of the stock market with confidence. Welcome to the world of bull markets, where optimism reigns supreme, prices surge, and opportunities thrive. 

Whether you're a novice investor or someone looking to deepen their financial acumen, comprehending bull and bear markets is an essential pillar of success. With the right insights and strategies, you can harness the potential of these upward trends and navigate the often-unpredictable world of investing.

In this article, we will delve into the defining traits of bull markets, explore the drivers of their growth, examine the benefits and opportunities they present, and equip you with the knowledge to navigate the accompanying risks and make informed investment decisions.

What is a bull market?

At its core, a bull market is a period characterized by extended price rallies across various financial markets, such as stocks, bonds, or commodities. During this time, optimism and positive sentiment prevail, inspiring investors to engage in increased trading activities to tap into potential capital gains. The allure of potential gains draws both seasoned investors and newcomers into the market, fostering an atmosphere of excitement and growth.

It is often associated with economic growth, positive corporate performance, and favorable market conditions. Understanding what constitutes a bull market is essential for investors as it allows them to identify potential opportunities, make informed investment decisions, and capitalize on the upward momentum of the market.

With an understanding of a bull market and their defining characteristics, you'll gain the ability to identify opportunities, make informed decisions, and mitigate potential risks.

A bull vs bear market

A bull market occurs when prices are on the incline, while a bear market occurs when prices are on the decline. This is paired with corresponding investor sentiment. Bull markets tend to last longer than bear markets, with an average length of 6.6 years, according to Time Magazine. While the average bear market lasts from a few months to several years.

The longest bull market ever recorded in US stock market history is 11 years when the bull market began in the depths of the 2009 financial crisis and lasted until the pandemic in 2020. The bull run came to an end when the Dow Jones Industrial average closed 20% below its February high.

What does “bull” refer to?

Many believe that the term "bull" in the context of a bull market derives from the way a bull attacks its prey by thrusting its horns upward. This analogy captures the essence of a bull market, where prices rise aggressively and investor optimism prevails. 

The upward movement of prices symbolizes the bullish nature, with investors charging ahead and pushing the market higher. The term "bull" has become synonymous with a market characterized by optimism, growth, and upward momentum, reflecting the spirit of these dynamic market cycles.

The characteristics of a bull market

In a bull market, several distinctive characteristics shape the investment landscape, offering potential opportunities for investors. Let's explore these traits in a beginner-friendly manner:

An extended period of rising prices

Bull markets are defined by extended periods of rising prices across various financial markets. Notable historical examples include the dot-com boom in the late 90s and the housing market surge in the early 2000s. Factors contributing to these price increases include favorable economic conditions like robust GDP growth and positive corporate performance. These factors fuel the upward trajectory of prices, making bull markets attractive to investors.

Optimism and positive sentiment

Bull markets thrive on investor confidence and positive sentiment. During these periods, optimism spreads through the investment community like wildfire, fostering an atmosphere of excitement and growth. Market psychology plays a pivotal role, as investors' positive outlook and belief in future market trends fuel their decision-making.

Economic indicators and news also influence investor sentiment. Positive economic data, such as strong job reports or increasing consumer spending, can also amplify overall optimism. News of beneficial government policies or advancements in key industries can further boost investor confidence, driving the market upwards.

Increased trading activity

In a bull market, trading activity surges with higher volumes and increased market participation. Investors actively buy and sell assets to benefit from the upward momentum. This heightened activity enhances market liquidity, allowing for easier asset transactions.

However, increased trading in a bull market also carries risks, including heightened volatility and sharper price fluctuations. Caution and effective risk management strategies are essential. It's important to remember that bull markets are part of market cycles that naturally undergo corrections as they progress through phases.

The four phases of the economic cycle

Market cycles typically go through four distinct phases, each characterized by different investor behaviors, market dynamics, and price movements. Understanding these phases can provide valuable insights for investors. Here are the four phases of a market cycle, using the stock market as an example:

Accumulation phase

During this phase, the stock market is recovering from a downturn or consolidation period. Stock prices are often low, and investor sentiment is negative or uncertain. Savvy investors start accumulating assets during this phase, taking advantage of attractive price points and positioning themselves for the next phase.

Markup phase

The markup phase marks the beginning of a bull market. Stock prices start to rise steadily as optimism and positive sentiment build up. The stock market experiences broad-based buying, and the overall trend is upward. This phase is characterized by increasing volumes and participation from retail investors. It is an opportune time for growth-oriented investments.

Distribution phase

In the distribution phase, the stock market reaches its peak. Prices are at their highest levels, and investor optimism is at its peak. However, savvy investors start selling their holdings to make profits, sensing that the stock market may be overextended. This phase often exhibits increased volatility, and signs of exhaustion or divergences may emerge.

Markdown/decline phase

The markdown or decline phase, also known as the bear market, sees a sustained period of falling prices. Investor sentiment turns negative, and fear dominates the market. Selling pressure increases, leading to further price declines. This bear market phase offers opportunities for defensive positioning, capital preservation, and potential bargain hunting as stock market prices reach attractive levels.

The benefits of a bull market

With rising prices, a bull market also brings a wide range of benefits that can positively impact investors and businesses alike. Below are several advantages of a bull market:

Increased returns

One of the main benefits of a bull market is the potential for increased investment returns. As prices rise during this market phase, investors have the opportunity to enjoy capital appreciation, meaning their investments grow in value over time. This can lead to wealth creation, allowing individuals to achieve their financial goals more quickly.

Furthermore, a bull market often leads to higher dividends and stock values. Companies tend to perform well during these periods, generating strong earnings and cash flows. As a result, they may distribute higher dividends to shareholders, providing an additional source of income. Additionally, stock market valuations tend to rise, presenting investors with the potential for capital gains.

Investment strategies for a bull market

There are several investment strategies that align perfectly with the rising price movements of a bull market. Firstly, asset allocation and portfolio diversification play a crucial role in reducing risk and maximizing returns. Allocating investments across different asset classes, such as stocks, bonds, and commodities, helps manage volatility and spreads risk.

Additionally, identifying growth sectors can be profitable. Certain sectors, such as technology, healthcare, or renewable energy, tend to flourish during bull markets. Conducting thorough research and selecting individual stocks within these sectors that show strong growth potential can lead to impressive returns.

Favorable conditions for businesses

Bull markets create favorable conditions for businesses, enabling them to thrive. Rising stock prices and investor optimism provide companies with easy access to capital through IPOs and secondary offerings, fueling expansion, research and development, and fostering innovation and job creation.

Additionally, bull markets and rising corporate profits also positively impact consumer spending and confidence, as individuals feel more secure and optimistic about their financial futures. This heightened confidence translates into increased consumer spending, benefiting businesses across industries. While bull markets offer benefits, investors should remain vigilant and manage risks such as market volatility and overvaluation through careful due diligence.

The risks of a bull market

While a bull market presents enticing opportunities as stock prices rise, it is essential to be aware of the risks that come hand-in-hand with this market phase. Understanding and managing these risks is crucial for investors to navigate the dynamic landscape of a bull market. Below we explore the potential risks one should be aware of before they invest in a bull market.

Market volatility

Bull markets are not immune to volatility. Prices can fluctuate sharply, leading to heightened market volatility. Sudden downturns or corrections can catch investors off guard, eroding gains and causing emotional stress. It is crucial to maintain a long-term perspective and be prepared for market fluctuations.

Market timing and investor psychology

Timing the market is notoriously difficult when chasing a bull market or navigating a bear market. Greed and fear can drive investors' decision-making, leading to poor investment choices. Emotional biases, such as herd mentality or fear of missing out (FOMO), can cloud judgment and result in impulsive decisions. It is essential to remain disciplined, stick to a well-thought-out investment strategy, and avoid succumbing to emotional impulses.

Complacency

During a bull market, complacency can set in as investors enjoy a prolonged period of rising prices. This complacency can lead to a lack of proper due diligence, with investors neglecting to thoroughly research investments and analyze potential risks. It is crucial to maintain diligence, conduct a thorough analysis, and make informed decisions. This remains true during both a bull and bear market, consult a financial advisor if need be. 

Overvaluation and bubbles

In the euphoria of a bull market, prices can become disconnected from their underlying value, leading to overvaluation. Investors may become overly optimistic, driving prices to unsustainable levels. This can create speculative bubbles, where assets are priced far above their intrinsic value. This was witnessed in the infamous dot-com stock market bubble in the late 1990s. The bursting of these bubbles can result in significant losses.

Market reversal and bear markets risk

As illustrated in the market cycles above, bull markets do not last forever. They eventually transition into bear markets, which are characterized by falling prices and negative sentiment. Investors should be prepared for a potential market reversal and have strategies in place to protect capital during downturns.

Previous bull runs in stock market in history

Historic bull markets serve as valuable reference points for understanding the potential and dynamics of such market cycles. 

One notable bull market example is the dot-com boom of the late 1990s, characterized by soaring stock prices in the technology sector, which ultimately lead to a stock market crash. Another example is the bull market of the 2010s, fueled by accommodative monetary policies and post-financial crisis recovery. 

These historical instances highlight the immense growth and potential gains that can be achieved during bull markets, but they also underscore the importance of caution and risk management to avoid excessive speculation and potential market bubbles.

Lessons learned from previous bull market cycles emphasize the importance of staying grounded and avoiding excessive optimism. Markets can be cyclical, and bull markets eventually give way to bear markets. 

Understanding the concept of market cycles, maintaining a diversified portfolio, and practicing disciplined investing are crucial lessons. Additionally, previous bull markets have shown the importance of not chasing hot trends or succumbing to irrational exuberance. Patience, a long-term perspective, and thorough research are key to navigating bull markets and managing risks effectively.

In conclusion: bull markets

A bull market is an exciting and potentially lucrative phase of the market cycle, characterized by rising prices, investor optimism, and increased trading activity. It offers increased investment returns, favorable conditions for businesses, and opportunities for implementing bull-specific investment strategies. 

However, it is essential to be aware of the risks associated with bull markets, such as market volatility, overvaluation, and emotional biases. Learning from previous bull market cycles and understanding market dynamics can provide valuable insights to navigate these risks effectively. 

By maintaining discipline, conducting thorough research, and practicing risk management, investors can harness the benefits of a bull market while mitigating potential pitfalls. So, as you embark on your financial journey, keep these insights in mind and empower yourself to make informed investment decisions in the dynamic world of bull markets. 

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You might be familiar with buying and selling cryptocurrencies, but have you tapped into the world of crypto airdrops? Airdrops are essentially marketing strategies that are designed to build awareness and interest in a blockchain-based crypto project. As we set out to provide more information and explain what these are we will also touch on the benefits that airdrops can bring to investors. 

What Is A Crypto Airdrop?

A crypto airdrop is when a project gives out its native coins for free as a marketing tool to generate hype, grow its network and gain wider adoption, essentially providing free money. On occasion, the coins require small tasks such as following social media pages, and other times they are entirely free of engagements. 

These coins are then transferred to current or potential users' wallets for free in the hopes of drawing in more business. Airdrops rose to fame in the ICO boom of 2017 and are still used today. While handed out for free, airdrops can increase in value over time, becoming potentially lucrative to the receivers.

Through distributing coins, projects increase their number of holders (a positive metric for up and coming projects) as well as increase their decentralisation (due to increased token ownership). 

How Do Cryptocurrency Airdrops Work?

An airdrop is typically outlined in a project's roadmap and will commence once certain criteria have been met. While airdrops can range from project to project, they typically involve small amounts of cryptocurrencies, often built on Ethereum or other smart chain, being distributed to several wallets.

These coins are usually distributed for free, however, on occasion users will need to perform small tasks related to marketing (like engaging on social media or subscribing to a newsletter) or hold a certain number of coins in their wallet. A successful airdrop will see its recipients promoting the project and generating hype before being listed on an exchange.

What Is The Difference Between An ICO And An Airdrop?

While both are related to new digital currency projects, the major difference between the two is that airdrops are when tokens are distributed for free while ICOs require participants to purchase the project's tokens with an outlined purchase price. ICOs are a source of crowdfunding while airdrops are marketing strategies.

What Are The Different Types Of Airdrops?

As mentioned above there are several different types of airdrops; exclusive, bounty and holder. 

Exclusive Airdrops

These airdrops are centered around active members of the community or early adopters. In exclusive airdrops, coins are only sent to designated wallets. Uniswap is a classic example of this, distributing 400 UNI to each wallet that had engaged in the platform before a certain date. The governance token allowed holders to vote on the project's future developments.

Bounty Airdrops

Bounty airdrops are when users need to engage in the platform in order to claim their tokens. This typically involves activities related to social media (liking a post, joining a Telegram channel, tagging friends, etc.) and the project might ask to see proof before distributing the coins. 

Holder Airdrops

This type of airdrop is for users already holding the project's token to thank them for their loyalty. Typically the project's team will take a snapshot of the wallet balances at a certain time and reward all the wallets that meet the minimum criteria. 

When creating holder airdrops, projects might use other more established cryptocurrencies in the hopes of tapping into their networks. For example, in 2016 Stellar (XLM) airdropped 3 billion XLM to users on the Bitcoin network, granting them free access to the Stellar network. 

The Downside To Airdrops

Naturally, there are ill actors out there who take advantage and have created airdrop scams. These scams might involve a "project" airdropping tokens into a wallet but when the holder attempts to move these tokens their wallet is drained. 

Another example of an airdrop scam is a project enticing you to sign up for the airdrop by connecting your wallet only to take your wallet details and gain access to your account. These are typically conducted through websites and fake Twitter and Telegram accounts that look very similar to the real deal but are in fact phishing scams. 

It's important to DYOR ( do your own research ) when engaging in an airdrop, and know that a project will never require you to send funds in order to "unlock" tokens or require you to provide a seed phrase or private key. 

Another downside to airdrops is that projects can create an incorrect impression of growth. If thousands of coins are distributed to thousands of wallets this might cause the project to look busier and more adopted than it actually is. When judging a project by this metric ensure that it has an active trading volume that reflects the number of wallet holders, if there are plenty holders and minimal activity consider this a big red flag. 

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You’ve probably heard whispers about the "whales" swimming in the crypto seas. But these aren’t your typical marine mammals – they’re the ultra-wealthy folks and organizations holding massive amounts of digital currency.

What Exactly is a Crypto Whale?

So, what makes someone a crypto whale? There’s no hard-and-fast rule, but it generally comes down to owning a huge chunk of a coin’s total supply. We’re talking over 10% of the available coins for a particular cryptocurrency. That’s an ocean-sized wallet!

Take Bitcoin, for example. In May 2022, just four wallets controlled over 3% of all Bitcoin in existence. The top 100 wallets? They collectively held over 15%. Now that’s some serious whale power!

Bitcoin isn’t the only one with its share of whales. Dogecoin, the beloved meme coin, had a pretty wild concentration too. In 2022, just 15 addresses held nearly 52% of its total supply. Even Vitalik Buterin, the mastermind behind Ethereum, is considered an Ether whale thanks to his massive stake in the coin he created.

How Whales Make Waves

With that kind of buying power, whales can really make waves in the crypto marketplace. If a whale decides to sell off a giant chunk of their holdings, it creates a tidal wave of downward pressure on prices due to the sheer volume and lack of liquidity. Other crypto enthusiasts are always on the lookout for signs of an impending "whale dump," closely monitoring exchange inflows to spot potential dangers.

Here’s the twist, though – whales keeping their coins locked away actually reduces trading liquidity in the market since there are fewer coins actively circulating. Their massive idle fortunes are like icebergs weighing down the crypto ocean.

Tracking Whale Movements

Not every whale transaction is a sell-off. These giants could simply be migrating to new wallets, switching exchanges, or making monster-sized purchases. But you can bet experienced crypto folks keep a keen eye on those huge whale wallets, carefully tracking any ripples they make to navigate the ever-shifting tides of the market.

Whale Alert is a popular service that tracks these large transactions and reports them, often on Twitter. Whenever a whale makes a big move, it’s usually publicized quickly, giving everyone a heads-up on potential market changes.

Below is an example from Twitter from Whale Alert:

The Human Side of Whales

Behind these massive holdings are real people and organizations. Some whales are early adopters who bought into Bitcoin or other cryptocurrencies when they were cheap. Others are companies that have invested heavily in the belief that cryptocurrencies will continue to grow in value. For instance, Ethereum’s founder, Vitalik Buterin, is the biggest Ethereum whale because he holds a significant amount of the cryptocurrency he created.

How whales affect crypto's price

Price volatility can be increased by whales, particularly when they move a significant amount of one cryptocurrency in one go. For example, when an owner tries to sell their BTC for fiat currency, the lack of liquidity and enormous transaction size create downward pressure on Bitcoin's price. When whales sell, other investors become extremely vigilant, looking for hints of whether the whale is "dumping" their crypto (and whether they should do the same). 

The exchange inflow mean, also known as the average amount of a certain cryptocurrency deposited into exchanges, is one of the most common indicators crypto investors look for. If the mean transaction volume rises above 2.0, it implies that whales are likely to start dumping if there are a large number of them using the exchange. This can be viewed by regular crypto traders as a time to act before losing any potential profit.

How whales effect liquidity

When it comes to learning about whales and liquidity, one must remember that while whales are generally considered neutral elements in the industry, when a large number of whales hold a particular cryptocurrency, instead of using it, this reduces the liquidity in the market due to there being fewer coins available. 

What crypto whales mean to investors

In terms of the relationship between whales and investors, one must remember that there are various situations in which a person may transfer their cryptocurrency holdings. It's worth mentioning that moving one's assets doesn't always indicate that you're selling them; they might be switching wallets or exchanges, or making a major purchase.

Occasionally, whales may sell portions of their holdings in discrete transactions over a longer period to avoid drawing attention to themselves or generating market anomalies that send the price up or down unpredictably. This is why investors keep an eye on known whale addresses to check for the number of transactions and value. This is not necessarily a task that newbie investors need to actively be involved with, however, understanding the terms and how whale accounts can affect the market is recommended.

Why Whales Matter

Whether you love them or hate them, whales are a formidable force in the crypto world, shaping its dynamics in profound ways. These giants, whether they’re creators, collectors, or traders, have a tremendous impact across the digital waters. When they make a move, it can trigger monumental swells that ripple through the entire market.

By understanding whale activity, anyone involved in cryptocurrency can better navigate these choppy waters. Staying informed about whale movements helps both newbies and seasoned traders make smarter decisions and stay afloat in this ever-changing space. Keep an eye on these behemoths; their actions can significantly influence your crypto journey.

While tracking whale activity can offer valuable insights into the cryptocurrency market, it's important to complement this knowledge with expert advice. Consulting with a financial advisor can help you navigate the complexities of investing and ensure your strategies align with your personal financial goals and risk tolerance.

Both hard and soft forks are fundamental to blockchain development and cryptocurrency evolution. The hard fork is what offers the ability for different cryptocurrencies to split into two and allows them to compete with each other, offering new features or security upgrades that appeal to users looking to buy in a particular niche.

Both soft and hard forks happen whenever a community makes a change to the blockchain’s protocol or basic set of rules. This is different from an update: updates often lead to improvements in the software (for example, adding new features), whereas soft and hard forks can result in changes that may not be compatible with existing code.

Cryptocurrency forks are important because they can be used to change blockchain rules, instead of forcing users to upgrade their software. This allows new cryptocurrency development teams to fix bugs and issues without forcing everyone else onto new software versions. Soft and hard forks enable cryptocurrencies that have diverged from the original codebase to solve problems using a consistent protocol across two branches.

A hard fork creates a new blockchain that shares the same history as another blockchain. The best way to imagine it is like splitting an old road into two new roads, both of which have their own unique set of rules and paths. To understand the term and concept of blockchain forks more accurately, let's look at the difference between a hard fork and a soft fork.

Cryptocurrency forks: Hard Forks and Soft Forks

What Is A Hard Fork?

A hard fork is when a blockchain splits in two and a new cryptocurrency network is created. The hard fork happens when there’s a fundamental change to the blockchain, such as upgrading one of its core technical components (ie: blocksize). This requires everyone who uses that blockchain to upgrade their software or else they will no longer be able to participate on the network. Users can also opt to be a part of both blockchains that result from cryptocurrency forks.

When a hard fork occurs two unique blockchains are created that each have their own cryptocurrencies, and is usually a result of a community split over a decision or vision for the future. A hard fork is a common occurrence in the cryptocurrency industry, with many big cryptocurrencies being the product of a successful hard fork.

An Example of a Hard Fork: the Bitcoin Cash Fork

Bitcoin Cash is a prime example of a hard fork. In 2017, following a disagreement within the Bitcoin community about the future of the original cryptocurrency, a group of developers and miners got together to form a new and improved version known as Bitcoin Cash. The Bitcoin Cash hard fork was implemented and BCH was created, with several new additions to the original blockchain code.

The most significant change to the Bitcoin Cash network was the increase of the block size to 8MB, allowing for faster transaction speeds, more transactions able to get verified at once, and lower transaction fees. The network also increased the difficulty to ensure the security of the network would not be compromised. In March 2022, the block size limit was increased to 32MB.

There have been many Bitcoin forks over the years, with Bitcoin Cash and Litecoin being the two most well-known.

What Is A Soft Fork? 

Soft forks is backward-compatible and require upgrades only if you want to access new features. For example, soft forks that increase transaction speed don’t require everyone to upgrade their software in order to enjoy the new feature.

If you don’t upgrade your software, however, you will not be able to take part in any future transactions using the new feature (ie: faster transaction speeds). Soft forks are a great way for new changes to be implemented without creating an entirely new cryptocurrency.

An Example Of A Soft Fork: The SegWit Upgrade

In 2015, the Bitcoin blockchain underwent a soft fork known as the Segregated Witness (SegWit) Bitcoin protocol update.

Before the SegWit upgrade, Bitcoin's protocol was both more expensive and slower, with transactions costing about $30 each and taking around an hour to complete. The inventors of the SegWit change recognized that signature data accounts for 65% of a transactional block. As a result, SeGWit proposed moving the effective block size from 1MB to 4MB.

The motivation for this increase was to separate or delete the signer data from the transactional data on every block of the blockchain, allowing for greater transaction throughput per block.

With the soft fork, the old Bitcoin blockchain was able to accept both new 4MB and 1MB blocks at the same time. The soft fork enabled the existing nodes to also validate the new blocks via a clever engineering approach that formatted new rules without breaking existing ones.

What To Do When A Fork Is Announced

When it’s announced that a fork is coming, you should first wait for the dust to calm down before making any big decisions, such as buying or selling your tokens. Keep in mind that sometimes forks can be contentious and not everyone will agree on the path forward, meaning that there may be a lot of confusion and volatility in the coming days as people react.

 In Conclusion

A hard fork is when blockchain technology is split into two resulting in two unique blockchain networks with their own cryptocurrencies. A soft fork is when a blockchain simply upgrades or incorporates new features and allows users to decide whether they would like to continue using the old version, or upgrade their software protocol to make use of the new features.

Either way, cryptocurrency forks are a common occurrence in the blockchain space and have been the start of many different networks. The most iconic hard forks include the likes of Litecoin, a hard fork from the Bitcoin network, Ethereum Classic, a hard fork from the Ethereum network, and Bitcoin Cash, a hard fork of the Bitcoin network.

Both soft and hard forks allow innovation within the blockchain space to evolve, making space for new features, more efficient means of executing an action, and other chain improvements. Hard forks in particular have shed light on new innovations without creating a blockchain network from scratch.

As you navigate the waters of the cryptocurrency market you're likely to come across a term called "coin burning". In this article, we're exploring the process used to manage the token supply of projects, a means for companies to manually alter the supply (and thereby demand) of a token's circulating supply. While not adopted by every project, coin burning has proven over the years to be successful in increasing the price of a digital currency.

What Is A Coin Burn

Diving right in, a coin burn is the process of removing a certain number of tokens from circulation by sending them to an invalid address, a "black hole" of sorts. This process is written into the project's code and implemented at various increments as outlined in the whitepaper. While Bitcoin doesn't make use of coin burning, many projects on the Ethereum network, particularly ERC-20 tokens, have been known to implement it.

Through the use of a smart contract, also known as a burn function, the network would remove a specified number of tokens from circulation, decreasing the total supply and thereby (hopefully) increasing the demand. Coin burns have been known to lead to an increase in price, as the supply-demand ratio is altered.

An Example Of Coin Burning

A top 10 cryptocurrency project underwent a coin burn last year that is believed to be the biggest layer 1 token burn to date. 88.7 million LUNA, the native coin to the Terra project, were burned in November 2021 following a vote by the community. This was effectively worth $4.5 billion at the time. A few days following the coin burn the LUNA token hit a new record high. 

The burn aimed to remove value from Terra’s community pool, but in reality, it simply moved the value from the pool to the individual holders of the cryptocurrency.

Bitcoin Cash and Stellar are two other high profile cryptocurrencies that have made use of the coin burning initiative. Shiba Inu is another cryptocurrency to have undergone a coin burn, although this wasn't the initial intention of the project. The project's developers gifted half of the SHIB supply to Ethereum creator Vitalik Buterin, who went on to donate 10% and burn the remaining 90%.

How Does Coin Burning Work?

Should a project wish to implement a coin burn they will need to create a smart contract. Smart contracts are digital agreements that execute when certain criteria have been met. Say a project wants to implement a coin burn every 200,000 blocks, they will create the burn function to include this instruction.

When this milestone is achieved, the coins will automatically move from the designated wallet to a wallet address that does not have a private key. Without a private key, these coins can never be recovered. The coins will then be sent from the one wallet address to the other and effectively be removed from circulation. The transaction (burn) will be added to the network's blockchain records and be available to view through the blockchain explorer.

The Downside To Coin Burning

Before you get into a project that undergoes coin burning it is important to note that coin burning does not guarantee an increase in the coin's price. The increase in price will depend on the network, the market climate and the current sentiment. During the Shiba Inu coin burn, while the price rose considerably, it soon returned to a more stable and substantially lower level.

Coin burning can also be used by ill acting developers to deceive the community. Say a project has a total supply of 100 million tokens and allocates 10 million to the platform's developers. They could then burn 40 million tokens, increasing their hold to 60% of the circulating supply on the network.

As with all transactions conducted on the blockchain, all payments are irreversible meaning that once you burn coins they can never be recovered.

What Is Proof Of Burn?

Not to be confused with coin burning, Proof of Burn (PoB) is a consensus mechanism similar to Proof of Work and Proof of Stake. The model utilizes an element of coin burning in its mining practice and is known to use considerably less energy than its PoW counterpart.

The process requires miners to burn tokens in order to participate in the mining process. The more coins burned the more blocks they can create, meaning the more rewards (in the form of transaction fees) they can earn. Miners are still required to use mining hardware. The benefit of this is to provide a less energy-intensive blockchain network that can run optimally through a network of decentralized mining participants.

Cryptocurrency whitepapers are detailed documents that outline the project's intentions, products, and infrastructure. While there isn't a rule on what needs to be included, most projects aim to share as much information about how the project aims to succeed in the hopes of building investors' trust, and interest.

Some of the topics typically covered include a summary of the project's team, goals, products, features, and tokenomics. When researching a blockchain or cryptocurrency project, whitepapers are a very good place to start.

What is a whitepaper?

A typical cryptocurrency whitepaper is usually a report or guide that teaches its readers about a certain topic or problem. As an example, developers might make a whitepaper covering their software to inform users about what they are constructing and why.

In the crypto space, a whitepaper is released by a project and assists in outlining the technical guidelines and core features of the project. While many whitepapers focus on specific coins or tokens, they can also be concentrated around various types of projects, like decentralized finance (DeFi) platforms, for example.

Cryptocurrency whitepapers will typically consist of statistics and diagrams outlining the project's core date, as well as the governing structure of the project, the team involved in creating and leading it, and their roadmap (current and future development plans).

What value do crypto project whitepapers serve?

Despite not being worth a monetary value, whitepapers play an important role in the crypto space. While there are no official criteria for creating them, whitepapers are integral to investors, researchers, developers, and industry insiders.

A great place to start for anyone interested in a project is to read through the whitepaper. If you're considering tapping into a project, it's best to meticulously read through it again. Whitepapers often provide insights into the project's potential red flags and a means to monitor whether they are sticking to their forecasted timeline.

A number of blockchain projects that have crashed displayed subtle warning signs in their whitepaper, like promising a deliverable without providing any evidence on how it will be executed.

How does one make a cryptocurrency whitepaper?

There are no official rules or outlines that projects need to follow when creating a crypto whitepaper, each blockchain project may determine what is best for that individual situation. As mentioned earlier, these are often the first official documents outlining the project to potential investors, so thorough and informative content depicting the project's structure, goals, and roadmap is best included.

Whitepapers should always be neutral, and avoid persuasive language or making too many promises. This is essentially a "business plan" in the crypto sense released to investors or the public prior to launching.

What info is included whitepaper?

Objectives

Whitepapers are created by founders to provide a comprehensive overview of both the project and the goal. For instance, Bitcoin's whitepaper describes the project's core objective as "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."

While Ethereum's whitepaper describes its intention as "The intent of Ethereum is to create an alternative protocol for building decentralized applications."

In a good cryptocurrency whitepaper, the project will outline what specific problem it aims to solve, and how it will improve various aspects of people's lives. Be cautious of projects that promise the world but have little in the way of evidence to back these claims. In the ICO boom of 2017, thousands of projects overpromised and underdelivered (if they delivered at all).

Blockchain specifications

Whitepapers will typically include how the cryptocurrency will work and function in the greater crypto ecosystem. This might outline technical aspects like the consensus mechanism the blockchain will utilize and how the decentralized aspect of the network will function.

Tokenomics

Another core piece of information that should be included in a project's whitepaper is the tokenomics. This will include information on the token, how it will be allocated, whether will it participate in token burns, or any incentive mechanisms.

Roadmaps

Roadmaps (a project timeline)are not just useful to see how a project aims to deliver on its objectives, but also provide insights into whether the project can keep up with its promises. While missing a deadline isn't a deal breaker in the crypto space, being open and communicating why is important.

Readability

A well-articulated whitepaper will typically be written in a manner that anyone can understand them. However, its important for the new blockchain project to also include certain technical specifications to provide evidence of the project's competence. Anyone can write a whitepaper, it takes technical know-how to create a blockchain platform.

Tips for reading a cryptocurrency whitepaper

• first and foremost, ALWAYS read a project's whitepaper before putting any money.
• read whitepapers with a pinch of salt, they must be neutral and not over-promise.
• Look into the team members and their experience in the crypto and blockchain realm.
• a great idea doesn't necessarily mean it will be used or adopted.
• look for technical explanations that showcase the project's understanding.

Examples of crypto projects’ whitepapers

The Bitcoin whitepaper (2008)

The instigator of the entire cryptocurrency industry, Satoshi Nakamoto, an anonymous individual or group, published the Bitcoin whitepaper in 2008. The paper is called "Bitcoin: A Peer-to-Peer Electronic Cash System."

The whitepaper explains how Bitcoin can be used as a more efficient and decentralized form of money, outside the traditional banking model. It gives technical explanations of how the peer-to-peer Bitcoin network allows users to send digital currency without intermediaries. The whitepaper also outlines how the Bitcoin network is resistant to censorship and double-spending attacks.

The project launched two months later in January 2009.

The Ethereum whitepaper (2014)

While Bitcoin launched the crypto industry, Ethereum played a pivotal role in the development of the blockchain space. The Ethereum whitepaper was published in 2014 by a young developer named Vitalik Buterin and titled "Ethereum whitepaper: A Next Generation Smart Contract & Decentralized Application Platform."

In the Ethereum whitepaper, Vitalik outlines how the platform's intentions differ from Bitcoin's. The whitepaper outlined how the platform would allow developers to create and launch decentralized applications (now commonly known as dapps) and included technological solutions that backed these goals, such as the Ethereum Virtual Machine and smart contracts.

In conclusion

Crypto whitepapers are not legally regulated, meaning that anyone can write one. Although a cryptocurrency whitepaper should provide readers with an understanding of what the project plans to do and how, it's crucial, if you're interested in a particular project, to consider red flags and risks when reading through the document.