Cryptocurrency (or crypto), NFTs, DAOs, are all hitting new highs in terms of awareness. This year has definitely been the one for crypto whales and enthusiasts. However, what if you aren’t one? It’s not too late to get into the game, especially as this world has many applications for influencers and creators to monetize, build credibility, form communities, and be your own boss.
The words you may have heard include DAO (pronounced Dow), Gas (as it relates to crypto transactions), DeFi (rhymes with HiFi, not like defy), and Discord. All of these terms play various roles in the new crypto world that is slowly creeping into our lives. What do each of these mean?
You may have heard about the Constitution DAO when a group of history buffs (and grandmas, museum curators, and art directors, according to the organizers) raised close to $47 million dollars to buy a copy of the Constitution of the United States when it went up for auction at Sotheby’s. The DAO failed in its mission to buy the US Constitution but it thrust this decentralized autonomous organization (DAO) structure into the spotlight.
The DAO operates on a smart contract that is on the blockchain. If anyone tries to stray from that original contract prior to a vote to change it, the actions will fail. Thus, there is no real hierarchy in the organization as each “worker” follows the rules based in the smart contract. To incentivize those that contribute, each contribution is made transparent on blockchain and the workers are correspondingly provided with more tokens of ownership in the DAO.
A DAO can be thought of, ironically, a Constitution, or a set of rules that the group has agreed upon to execute and follow. The more that people do, the more tokens they get, where tokens act similar to shares of stock so that all incentives are aligned. As the DAO gets closer to its mission, in theory, tokens in the DAO should also increase in value. Some famous DAOs include the aforementioned Constitution DAO, Augur, a prediction markets software, as well as Dash coin.
The big difference between a DAO and an ICO (initial coin offering) is that the DAO has a smart contract that transparently showcases what it is doing. An ICO simply sells coins to the public with the public believing in whatever the mission that was stated by the founders of the coin. While many ICOs fizzled or were determined to be fraudulent, Ethereum, the second largest cryptocurrency, started as an ICO.
Gas (Crypto style)
Your car runs on gas. The Ethereum network runs on complex equations that can be equated to gas and thus the crypto network adopted the term. To clear Ethereum transactions some complex calculations are needed and as we previously heard, most cryptocurrencies are not green due to the amount of computation resources consumed. Thus the fees are passed onto the user that is trying to make the transaction, which varies depending on the congestion of the network.
Gas fees are charged in Ethereum (ETH) and have been increasing as the value of ETH has gone up. NFT collectors might even notice that some ETH gas fees are comparable or more than the cost of the NFT that they are buying. A lot of ETH users are hoping that gas fees will decrease with the release of ETH 2.0.
Decentralized finance, or DeFi for the cool kids, is where there are no central financial institutions like banks, brokerages, or exchanges. Instead every transaction is executed on the blockchain through smart contracts. There are a variety of use cases for DeFi in lieu of a traditional bank: lending and earning interest on crypto, borrowing crypto, trading crypto, speculation on crypto using derivatives, and insurance. DeFi is still in its infancy and sometimes subject to bugs, errors, and scams, and because every transaction is recorded on the blockchain any or all of these issues are sometimes hard to reverse.
Discord is not a concept, rather it’s a software platform that many crypto and NFT enthusiasts have turned to to chatter about what happened, what is coming, and what the future holds. It is similar to a real time chat room with many low overhead features like voice, screen share, and video.
Discord started as a way for video gamers to help each other with certain challenging gaming issues. However as the company got larger, more users, and more funding, it has now rebranded itself as a community building application. Many artists and others launching NFTs use Discord to drive awareness and hype for their projects.
There you have it, a few words you might run into in the upcoming web 3.0 or the Metaverse, which we will define at some other time. While this primer won’t turn you into a crypto whale you should have enough information to utter a few sentences at a noisy bar. Have you entered the crypto space? Drop us a line and let us know what you are working on!