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How Does the Economy Work?

The economy makes the world go round. It deeply affects each of us in our daily lives, so it’s certainly something worth understanding, even at a high level.
  • Credit – money you receive that you must repay later – powers the economy.
  • More credit means more spending. More spending means more income, and more income means more credit is available from lenders.
  • Credit also creates debt: the borrowed money must be paid back, so spending must decrease later.
  • Governments raise and lower interest rates to keep the economy in check.

Introduction

The economy makes the world go round. It deeply affects each of us in our daily lives, so it’s certainly something worth understanding, even at a high level.

Definitions of “the economy” vary, but, broadly speaking, an economy could be described as an area where goods are produced, consumed, and traded. Typically, you’ll see them discussed at the national level, with op-eds and news reporters referencing the U.S. economy, the Chinese economy, etc. However, we can also look at economic activity through a global lens by taking into account every country’s activities and affairs.

In this piece, we’ll dive into the concepts that make up an economy, drawing on Ray Dalio’s model (explained in How the Economic Machine Works).

Who makes up the economy?

To determine the health of the economy, we want to be able to measure it somehow. By far, the most popular method for doing so is by using GDP, or Gross Domestic Product. This metric seeks to calculate the total value of goods and services produced in a country in a given period.

Broadly speaking, a rising GDP signifies an increase in production, income, and spending. Conversely, a falling GDP indicates decreasing production, income, and spending. Note that there are a couple of variations you can use: real GDP accounts for inflation, whereas nominal GDP does not.

GDP is still only an approximation, but it carries tremendous weight in analyses at national and international levels. It’s used by everyone from small financial market participants to the International Monetary Fund to gain insight into countries’ economic health.

GDP is a reliable indicator of a country’s economy, but, as in technical analysis, it’s best to cross-reference it with other data to gain a more comprehensive understanding.

Credit, debt, and interest rates

Lenders and borrowers

We touched on the fact that everything boils down to buying and selling. It’s worth noting that lending and borrowing are essential as well. Suppose that you’re sitting on a large amount of cash that isn’t currently doing anything. You might wish to put that money to work so that it can generate more money.

One way of doing this is by lending it out to someone who needs to buy something, such as machinery for their business. They don’t have the cash available currently, but once they buy the machinery, they can pay it back from sales of their finished product. You act as a lender, and the other party acts as a borrower.

To make it worthwhile, you set a fee for lending out your cash. If you lent $100,000, you might say something like “you can have this money on the condition that you pay me 1% for every month that it isn’t repaid.” This additional charge is called interest.

Going with simple interest would mean that the other party owes you $1,000 every month until the money is returned. If it were repaid after three months, you’d expect to receive $103,000, plus whatever additional fee you specified.

By offering that money, you create credit: an agreement that the borrower will repay you later. Credit card users will be familiar with this concept. When making a payment by card, the money isn’t instantly removed from your bank account. It doesn’t even need to be in there, provided you settle your bill afterward.

With credit comes debt. By acting as a lender, you’re owed money, and, by acting as a borrower, you owe money. The debt disappears once the loan is repaid with interest.

Banks and interest rates

Banks are probably the most notable types of lenders in today’s world. You could think of them as middlemen (or brokers) between lenders and borrowers. These financial institutions actually take on the role of both.

When you put money into the bank, you do so on the condition that they’ll give it back to you. Many others do the same. And, since the bank has such a large amount of cash on hand now, it lends it out to borrowers.

Of course, that means that the bank won’t hold all of the money it owes at once. It operates a fractional reserve system. It could be problematic if everyone asked for their money to be returned at the same time, but that rarely happens. When it does, though (e.g., if everyone loses faith in the bank), a bank run occurs, potentially causing the bank to collapse. The U.S. Great Depression bank runs of 1929 and 1933 are good examples.

Banks typically offer you an incentive to lend them your money in the form of interest rates. Naturally, higher interest rates will be more attractive to lenders (as they’ll get more money). To borrowers, the opposite applies – lower interest rates mean that they won’t need to pay as much on top of the principal sum.

Why is credit important?

Credit could be seen as a kind of lubricant for the economy. It allows individuals, businesses, and governments to spend with money that they don’t have immediately available. To some economists, this is problematic, but many believe that increased spending is a sign of a thriving economy.

If more money is being spent, more people receive an income. Banks are more inclined to lend to those with higher incomes, meaning that individuals now have access to more cash and credit. With more cash and credit, individuals can spend more, meaning that more people receive an income, and the cycle continues.

More income → more credit → more spending → more income. More income → more credit → more spending → more income.

Of course, this cycle can’t just continue indefinitely. By borrowing $100,000 today, you deprive yourself of $100,000+ tomorrow. So, while you can temporarily increase your spending, you’ll eventually have to decrease your spending to pay it back.

Ray Dalio describes this concept as the short-term debt cycle, illustrated below. He estimates that these patterns repeat themselves over 5-8 year periods.

In red is productivity, which grows over time. In green is the relative amount of credit available. In red is productivity, which grows over time. In green is the relative amount of credit available.

So what are we looking at, exactly? Well, let’s first note that productivity is steadily increasing. Without credit, we’d expect that to be the only source of growth – after all, you would need to produce to receive income.

In the first part of the chart, we can see that because of credit, income grows faster than productivity (causing economic expansion). Eventually, the expansion halts and leads into economic contraction. In the second part, the availability of credit significantly decreases as a consequence of the initial “boom.” As a result, obtaining loans is more difficult, and inflation sets in, prompting the government to take remedial measures.

Let’s explore this more in the next section.

Central banks, inflation, and deflation

Inflation

Suppose that everyone has access to lots of credit (part one of the previous section’s graph). They can buy a lot more than they would be able to without it. But while spending is growing skyrocketing, production isn’t. In effect, the supply of goods and services does not materially increase, but its demand does.

What happens next is inflation: this is when you start to see the prices of goods and services increase due to higher demand. A popular indicator for measuring this is a Consumer Price Index (CPI), which tracks the prices of typical consumer goods and services over time.

How does a central bank work?

The banks we described earlier are generally commercial banks – they cater mainly to individuals and businesses. Central banks are government entities responsible for managing a nation’s monetary policy. In this category, you have financial institutions like the United States’ Federal Reserve, the Bank of England, the Bank of Japan, and the People’s Bank of China. Notable functions include adding to the money in circulation (via quantitative easing) and controlling interest rates.

Increasing interest rates is something that central banks might do when inflation gets out of hand. When rates are increased, the interest owed is higher, so borrowing doesn’t seem as attractive. Since individuals also need to repay debts, spending is expected to decrease.

In an ideal world, higher interest rates bring prices back down due to less demand. But in practice, it can also cause deflation, which might be problematic in certain contexts.

Deflation

As you might guess, deflation is the opposite of inflation. We’ll define it as a general decline in prices over a period of time, typically caused by a decrease in spending. Since there’s less spending, it could further be accompanied by a recession.

One proposed solution for deflation is the lowering of interest rates. By reducing the interest owed on credit, individuals are incentivized to borrow more. Then, with more credit available, the government anticipates that parties within their economy will increase their spending.

Like inflation, deflation can be measured through a Consumer Price Index.

What happens when the economic bubble bursts?

Dalio explains that the chart we illustrated above (the short-term debt cycle) is a small cycle within the long-term debt cycle.

The long-term debt cycle. The long-term debt cycle.

The pattern described above (increasing and decreasing availability of credit) repeats itself over time. However, at the end of each cycle, there’s more debt. Eventually, the debt becomes unmanageable, triggering large-scale deleveraging (where individuals attempt to reduce their debt).This is represented by the sudden decrease on the chart.

When deleveraging occurs, incomes begin to drop, and credit dries up. Unable to repay debt, individuals attempt to sell their assets. But with so many doing the same thing, asset prices tumble due to an abundance of supply.

Stock markets crash in scenarios like this, and at this stage, the central bank can’t lower interest rates to alleviate the burden if they’re already at 0%. Doing so creates negative interest rates, which is a controversial solution that doesn’t always work.

So what can they do? Well, the most obvious way forward would be to decrease spending and forgive the debt. These bring other issues, though: reduced spending means that businesses won’t be as profitable, meaning that employees’ incomes will decrease. Industries will need to cut down on their workforce, leading to higher unemployment rates.

Then, lower incomes and smaller workforces mean that the government can’t collect as much tax. At the same time, it needs to spend more to provide for the increased number of unemployed citizens. Since it’s spending more than it’s receiving, it has a budget deficit.

A proposed solution here is to start printing money (making the money printer go brrrrr, as it’s known in cryptocurrency circles). With that money at its disposal, the central bank can lend to the government, which then attempts to stimulate the economy. But this can also lead to problems.

Creating money out of thin air causes inflation because it increases the money supply. This is a slippery slope that could eventually lead to hyperinflation, where inflation accelerates so fast that it destroys the value of a currency and results in economic disaster. You need only look to the examples of the Weimar Republic in the 1920s, Zimbabwe in the late 2000s, or Venezuela in the late 2010s to see the impact hyperinflation can have.

When compared to the short-term cycles, the long-term debt cycle plays out across a much longer time frame, believed to occur every 50 to 75 years.

How does it all tie together?

We’ve covered quite a few topics here. Ultimately, Dalio’s model revolves around the availability of credit – with more credit, the economy booms. With less credit, it contracts. These events alternate to create short-term debt cycles, which, in turn, make up part of long-term debt cycles.

Interest rates influence much of the behavior of the economy’s participants. When rates are high, saving makes more sense, as spending is not as much of a priority. When they’re lowered, spending appears to be the more rational decision.

Closing thoughts

The economic machine is so colossal that it can be difficult to wrap your head around its various components. However, by looking closely, we can see the same patterns repeating themselves over and over as participants engage in transactions with each other.

At this stage, you’ve hopefully got a better understanding of the relationship between lenders and borrowers, the importance of credit and debt, and the steps that central banks take to try and mitigate economic disaster.

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What Is an Automated Market Maker (AMM)?

What Is an Automated Market Maker (AMM)?
You could think of an automated market maker as a robot that’s always willing to quote you a price between two assets. Some use a simple formula like Uniswap, while Curve, Balancer and others use more complicated ones.
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A Guide to Crypto Collectibles and Non-fungible Tokens (NFTs)

A Guide to Crypto Collectibles and Non-fungible Tokens (NFTs)
The creation of Bitcoin introduced the concept of trustless, digital scarcity. Before it, the cost of digitally copying something was next to nothing. With the advent of blockchain technology, programmable digital scarcity has become possible – letting us map the digital world to the real world. Non-fungible tokens (NFTs), often referred to as crypto collectibles, expand this idea. Unlike cryptocurrencies, where each token is equal, non-fungible tokens are unique and limited in quantity.
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Decentralized Autonomous Organizations (DAOs) Explained

Decentralized Autonomous Organizations (DAOs) Explained
Blockchains are already radically transforming our financial system. However, properties such as trustlessness and immutability aren’t only useful in monetary applications. Another potential candidate ripe for disruption by this technology is governance. Blockchains could enable entirely new types of organizations that can run autonomously without the need for coordination by a central entity. This article will give an introduction to what these organizations might look like.
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A Beginner's Introduction to Cryptoeconomics

A Beginner's Introduction to Cryptoeconomics
In simple terms, cryptoeconomics provides a way to coordinate the behavior of network participants by combining cryptography with economics. More specifically, cryptoeconomics is an area of computer science that attempts to solve participant coordination problems in digital ecosystems through cryptography and economic incentives.
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Pyramid and Ponzi Schemes

Pyramid and Ponzi Schemes
Most individuals that invest in Bitcoin – or that participate in Initial Coin Offering (ICO) events – are usually concerned about two things. First, the Return of Investment (ROI), which represents the profits they will eventually make from the initial investment. Then, there is a second concern, which is related to the amount of risk involved with the investment. When the risks are too high, investors are more likely to lose their initial investment (in parts or completely), which would result in a negative ROI.
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What is Public Key Cryptography?

What is Public Key Cryptography?
Public key cryptography (PKC), also known as asymmetric cryptography, is a framework that uses both a private and a public key, as opposed to the single key used in symmetric cryptography. The use of key pairs gives PKC a unique set of characteristics and capabilities that can be utilized to solve challenges inherent in other cryptographic techniques. This form of cryptography has become an important element of modern computer security, as well as a critical component of the growing cryptocurrency ecosystem.
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History of Cryptography

History of Cryptography
Cryptography, the science of writing codes and ciphers for secure communication, is one of the most important elements that goes into making modern cryptocurrencies and blockchains possible. The cryptographic techniques used today, however, are the result of an incredibly long history of development. Since ancient times, people have used cryptography to transmit information in a secure manner. Following is the fascinating history of cryptography that has led up to the advanced and sophisticated methods used for modern digital encryption.
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What Is Axie Infinity (AXS)?

What Is Axie Infinity (AXS)?
It’s 2021, and that means you can earn money by playing games and breeding virtual pets. An easy way to think of Axie Infinity is to imagine a blockchain game that combines Pokémon, CryptoKitties, and card game elements.
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Is Bitcoin a Store of Value?

When you think of a safe-haven asset, precious metals like gold or silver probably come to mind. They’re investments that individuals flock to as hedges against turmoil in traditional markets. The debate over whether Bitcoin follows in the footsteps of these assets rages on. In this article, we’ll look at some of the main arguments for and against Bitcoin being a store of value.
When you think of a safe-haven asset, precious metals like gold or silver probably come to mind. They’re investments that individuals flock to as hedges against turmoil in traditional markets. The debate over whether Bitcoin follows in the footsteps of these assets rages on. In this article, we’ll look at some of the main arguments for and against Bitcoin being a store of value.
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What Is VeChain (VET)?

What Is VeChain (VET)?
VeChain provides blockchain solutions for businesses around the globe. With plenty of existing industry blockchain applications from supply chain management to anti-counterfeiting and carbon credits, their systems have been proven in the real world. VET is the coin that underpins VeChain, where VTHO is the gas token that’s used for transactions on the VeChainThor blockchain (like Ethereum’s gas).
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Приготовьтесь! Биткойн будут сливать, но это не точно

Приготовьтесь! Биткойн будут сливать, но это не точно
Только что в Twitter наткнулся на пост от Jacob Canfield, якобы есть инсайдерская информация, о том что Bitcoin планируют сливать, дабы выбить некоторых конкурентов, потом обратно откупить, подняв стоимость до $70к.
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More about the Crypto Fans club

More about the Crypto Fans club
Now I will tell you what our club is, how it works and what advantages it has. A minimum of water, a maximum of specifics. The club is a kind of trust fund, which consists of a team of Asset Managers, on the one hand, who invest in the crypto market, and Investors, on the other. I will not describe in this article what cryptocurrency is, why it is growing, and what are its advantages, this topic is worthy of a separate article. You can google all this, or go to coinmarketcap.com and see how the value of a particular cryptocurrency has grown at least this year, and doubts about investing in cryptocurrency should disappear.
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What Is The Sandbox (SAND)?

What Is The Sandbox (SAND)?
The Sandbox is a play-to-earn game that combines blockchain technology, DeFi, and NFTs in a 3D metaverse. Its virtual world allows players to create and customize their games and digital assets with free design tools. The virtual goods created can then be monetized as NFTs and sold for SAND tokens on The Sandbox Marketplace.
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What Is Tether (USDT)?

What Is Tether (USDT)?
Tether (USDT) is one of the most popular stablecoins out there. It was designed to hold a one-to-one value with the US dollar. The coin exists on many different blockchains and has experienced rising trading volumes and improved liquidity over the past few years.
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What Is Solana (SOL)?

What Is Solana (SOL)?
Solana is a blockchain network focused on fast transactions and high throughput. It uses a unique method of ordering transactions to improve its speed. Users can pay their transaction fees and interact with smart contracts with SOL, the network’s native cryptocurrency.
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What Is Polkadot (DOT)?

What Is Polkadot (DOT)?
Polkadot positions itself as the next-generation blockchain protocol, capable of connecting multiple specialized chains into one universal network. With a strong focus on building infrastructure for Web 3.0 – and founded by the Web3 Foundation – Polkadot aims to disrupt Internet monopolies and empower individual users.
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What Is Harmony (ONE)?

What Is Harmony (ONE)?
Harmony is a layer-1 blockchain using sharding and Effective Proof of Stake to achieve scalability, security, and decentralization. The network was launched in 2019 and features trustless cross-chain bridges and four shards, which process transactions in parallel. Effective Proof of Stake encourages decentralization of validators, and sharding shares the network's load among validators, delegators, and users.
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What Is Filecoin (FIL)?

What Is Filecoin (FIL)?
FFilecoin is a decentralized, peer-to-peer digital storage marketplace using blockchain technology. It’s built on top of InterPlanetary File System (IPFS) and allows users to rent unused hard disk space and earn FIL tokens in return. Let’s see how Filecoin aims to shake up the online storage space.
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What Is Decentraland (MANA)?

What Is Decentraland (MANA)?
Decentraland is a virtual world and community based on blockchain technology. Users develop and own plots of land, artwork, and Non-Fungible Tokens (NFT). Members also participate in the platform’s Decentralized Autonomous Organization (DAO).
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What Is Ethereum 2.0 And Why Does It Matter?

What Is Ethereum 2.0 And Why Does It Matter?
Ethereum 2.0 is a long-awaited upgrade to the Ethereum (ETH) network that’s promised significant improvements to the functionality and experience of the network as a whole. Some of the more notable upgrades include a shift to Proof of Stake (PoS), shard chains, and a new blockchain at the core called the beacon chain. All of this and more is expected to be phased in through a carefully planned roadmap.
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What Is BUSD?

What Is BUSD?
BUSD is a regulated, fiat-backed stablecoin pegged to the U.S. dollar. For every unit of BUSD, there is one U.S. dollar held in reserve. In other words, the supply of BUSD is pegged to the U.S. dollar at a 1:1 ratio. Holders can swap their tokens for fiat and vice versa. Paxos, the token’s issuer, releases monthly attestations of BUSD’s reserves.
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What Is Avalanche (AVAX)?

What Is Avalanche (AVAX)?
Avalanche attempts to improve scalability without compromising speed or decentralization. Three blockchains make up its core platform - the Exchange Chain (X-Chain), Contract Chain (C-Chain), and Platform Chain (P-Chain). The X-Chain is used for creating and trading assets. The C-Chain is for smart contract creation. The P-Chain is for coordinating validators and Subnets.
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What Are Wrapped Tokens?

What Are Wrapped Tokens?
A wrapped token is a cryptocurrency token pegged to the value of another crypto. It’s called a wrapped token because the original asset is put in a wrapper, a kind of digital vault that allows the wrapped version to be created on another blockchain.
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What Is a Stablecoin?

What Is a Stablecoin?
A stablecoin is a cryptoasset pegged to another asset, such as fiat currencies or precious metals. Stablecoins are designed to maintain a relatively stable price so that users can avoid the volatility risks common in the crypto markets.
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Tokenized Bitcoin on Ethereum Explained

Tokenized Bitcoin on Ethereum Explained
Tokenized Bitcoin is a way to use bitcoin on other blockchains. But wait, isn’t Bitcoin great already? Indeed it is! It has a solid use case, and it already acts as a kind of public good. At the same time, its purposely limited features leave little room for further innovation.
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How to Use WalletConnect

WalletConnect is a protocol used by many crypto wallets that allows you to easily connect with the many DApps of decentralized finance (DeFi). Simply find the DApp you want to interact with, connect with a QR code or deep link, and you’re good to go. Always remember to disconnect at the end of any session for maximum security
WalletConnect is a protocol used by many crypto wallets that allows you to easily connect with the many DApps of decentralized finance (DeFi). Simply find the DApp you want to interact with, connect with a QR code or deep link, and you’re good to go. Always remember to disconnect at the end of any session for maximum security
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What Is Ethereum? (ETH)

Ethereum is a decentralized computing platform. You can think of it like a laptop or PC, but it doesn't run on a single device. Instead, it simultaneously runs on thousands of machines around the world, meaning that it has no owner.
Ethereum is a decentralized computing platform. You can think of it like a laptop or PC, but it doesn't run on a single device. Instead, it simultaneously runs on thousands of machines around the world, meaning that it has no owner.
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What Is Bitcoin (BTC)

Bitcoin is a digital form of cash. But unlike the fiat currencies you’re used to, there is no central bank controlling it.
Bitcoin is a digital form of cash. But unlike the fiat currencies you’re used to, there is no central bank controlling it. Instead, the financial system in Bitcoin is run by thousands of computers distributed around the world. Anyone can participate in the ecosystem by downloading open-source software.
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How to Use MetaMask

If you’re interested in the Ethereum ecosystem, you need an application like MetaMask. Far more than a simple wallet, it allows you to interact with websites that integrate Ethereum.
If you’re interested in the Ethereum ecosystem, you need an application like MetaMask. Far more than a simple wallet, it allows you to interact with websites that integrate Ethereum.
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A Beginner's Guide to Bitcoin's Lightning Network

A Beginner's Guide to Bitcoin's Lightning Network
Cryptocurrencies have some pretty unique properties. They can’t be hacked or shut down easily, and anyone can use them to transmit value around the globe without a third party’s intervention. To ensure that these features remain, significant trade-offs must be made. Since many nodes are responsible for running a cryptocurrency network, throughput is limited. As a result, the number of transactions per second (TPS) a blockchain network can process is relatively low for a technology that aims to be adopted by the masses.
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What is Fundamental Analysis (FA)?

What is Fundamental Analysis (FA)?
When it comes to trading – whether you’re dealing with century-old stocks or nascent cryptocurrencies – there’s no exact science involved. Or, if there is, Wall Street’s top players ensure that the formula remains a well-kept secret.
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History of Blockchain

The underlying technology behind cryptocurrencies is the blockchain. It allows every client in the network to reach consensus without ever having to trust each other.
The underlying technology behind cryptocurrencies is the blockchain. It allows every client in the network to reach consensus without ever having to trust each other.
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How Does Blockchain Work?

In short, a blockchain is a list of data records that works as a decentralized digital ledger. The data is organized into blocks, which are chronologically arranged and secured by cryptography.
In short, a blockchain is a list of data records that works as a decentralized digital ledger. The data is organized into blocks, which are chronologically arranged and secured by cryptography.
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What Is MakerDAO (DAI)?

What Is MakerDAO (DAI)?
MakerDAO is a Decentralized Finance (DeFi) project with a crypto-collateralized, stablecoin DAI pegged to the US dollar. Its community manages the coin via a Decentralized Autonomous Organization (DAO). Users generate DAI by locking cryptocurrency in a Maker Vault at a certain Liquidation Ratio. For example, a 125% Liquidation Ratio requires $1.25 of crypto collateral value for each $1 of DAI.
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What Is a Crypto Wallet?

In short, a crypto wallet is a tool that you can use to interact with a blockchain network. There are various crypto wallet types, which can be divided into three groups - software, hardware, and paper wallets. Depending on their working mechanisms, they may also be referred to as hot or cold wallets.
In short, a crypto wallet is a tool that you can use to interact with a blockchain network. There are various crypto wallet types, which can be divided into three groups - software, hardware, and paper wallets. Depending on their working mechanisms, they may also be referred to as hot or cold wallets.
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What Is Tulip Mania?

The Tulip Mania is considered by many as the first recorded story of a financial bubble, which supposedly occurred in the 1600s. Before discussing if the Tulip Mania was really a financial bubble or not, let’s go through the most common narrative that considers it to be a real bubble.
The Tulip Mania is considered by many as the first recorded story of a financial bubble, which supposedly occurred in the 1600s. Before discussing if the Tulip Mania was really a financial bubble or not, let’s go through the most common narrative that considers it to be a real bubble.
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What Is Technical Analysis?

What Is Technical Analysis?
Technical analysis (TA), often referred to as charting, is a type of analysis that aims to predict future market behavior based on previous price action and volume data. The TA approach is extensively applied to stocks and other assets in traditional financial markets, but it is also an integral component of trading digital currencies in the cryptocurrency market.
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What Is Staking?

What Is Staking?
You may think of staking as a less resource-intensive alternative to mining. It involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. Simply put, staking is the act of locking cryptocurrencies to receive rewards.
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What Is Phishing?

What Is Phishing?
Phishing is a type of cyber attack where a malicious actor poses as a reputable entity or business in order to deceive people and collect their sensitive information - such as credit card details, usernames, passwords, and so forth. Since phishing involves psychological manipulation and relies on human failures (instead of hardware or software) it is considered a type of social engineering attack.
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What Is Inflation?

Ever hear your grandmother talk about how everything was cheaper when she was younger? That’s because of inflation. It’s caused by irregularities in supply and demand for products and services, leading to an increase in prices.
Ever hear your grandmother talk about how everything was cheaper when she was younger? That’s because of inflation. It’s caused by irregularities in supply and demand for products and services, leading to an increase in prices.
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What Is Hyperinflation?

All economies experience some level of inflation, which occurs when the average price of goods increases, as the purchasing power of that currency decreases. Usually, governments and financial institutions work together to ensure inflation occurs at a smooth and gradual rate. However, there have been many instances in history where inflation rates have accelerated at such an unprecedented degree that it caused the real value of that country's currency to be diminished in alarming proportions. This accelerated rate of inflation is what we call hyperinflation.
All economies experience some level of inflation, which occurs when the average price of goods increases, as the purchasing power of that currency decreases. Usually, governments and financial institutions work together to ensure inflation occurs at a smooth and gradual rate. However, there have been many instances in history where inflation rates have accelerated at such an unprecedented degree that it caused the real value of that country's currency to be diminished in alarming proportions. This accelerated rate of inflation is what we call hyperinflation.
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What Is Hashing?

What Is Hashing?
Hashing refers to the process of generating a fixed-size output from an input of variable size. This is done through the use of mathematical formulas known as hash functions (implemented as hashing algorithms).
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What Is Fiat Currency?

Simply put, fiat currency is legal tender that derives its value from its issuing government rather than a physical good or commodity. The strength of the government that establishes the value of fiat currency is key in this type of money. Most countries around the world use the fiat currency system to purchase goods and services, invest, and save. Fiat currency replaced the gold standard and other commodity-based systems in establishing the value of legal tender.
Simply put, fiat currency is legal tender that derives its value from its issuing government rather than a physical good or commodity. The strength of the government that establishes the value of fiat currency is key in this type of money. Most countries around the world use the fiat currency system to purchase goods and services, invest, and save. Fiat currency replaced the gold standard and other commodity-based systems in establishing the value of legal tender.
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What Is Cryptojacking?

What Is Cryptojacking?
Cryptojacking is a malicious activity, in which an infected device is used to secretly mine for cryptocurrencies. In order to do so, the attacker makes use of the victims’ processing power and bandwidth (in most cases this is done without their awareness or consent).
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What Is Arbitrage Trading?

What Is Arbitrage Trading?
Arbitrage trading is a relatively low-risk trading strategy that takes advantage of price differences across markets. Most of the time, this involves buying and selling the same asset (like Bitcoin) on different exchanges. Since the price of Bitcoin should, in theory, be equal on Binance and on another exchange, any difference between the two is likely an arbitrage opportunity.
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What Is a Multisig Wallet?

What Is a Multisig Wallet?
Multisig stands for multi-signature, which is a specific type of digital signature that makes it possible for two or more users to sign documents as a group. Therefore, a multi-signature is produced through the combination of multiple unique signatures. Multisig technology has been extant within the world of cryptocurrencies, but the principle is one that existed long before the creation of Bitcoin.
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What Is a Dusting Attack?

What Is a Dusting Attack?
A dusting attack refers to a relatively new kind of malicious activity where hackers and scammers try and break the privacy of Bitcoin and cryptocurrency users by sending tiny amounts of coins to their wallets. The transactional activity of these wallets is then tracked down by the attackers, who perform a combined analysis of different addresses to deanonymize the person or company behind each wallet.
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What Is Web 3.0 and Why Does It Matter?

What Is Web 3.0 and Why Does It Matter?
The Internet is a constantly evolving technology that continues to innovate. So far, we’ve experienced Web 1.0 and 2.0, and there’s much discussion of what to expect from Web 3.0. Web 1.0 provided a static experience for users without the ability to create the content-rich sites we have today. Web 2.0 brought us together with social media and dynamic websites, but at the cost of centralization.
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