Gavin Wood, the co-founder of Ethereum, introduced the term “Web 3.0” in 2014. The majority of “Web2” that people recognize and use today is based on placing trust in a few private corporations. Influence belongs to a few corporations, such as Google, Apple, and Facebook. But some believe that the world will change to a modified decentralized version. Let’s learn what Web3 is all about and how it relates to finance with Exolix.

What is Web3?
-------------

While Web2 is mostly about corporate-run web servers, Web3 is a popular word to describe the notion of a better internet in the future. At its heart, Web3 employs blockchains, cryptocurrencies, and NFTs to return power to individuals by using a specific way of ownership. 

Let’s proceed to examine what Web3 is exactly. Web3 is based on decentralized control and ownership. Users can own “portions” of the internet by holding fungible assets like Bitcoin and non-fungible tokens (NFTs). 

For example, NFTs allow users to own assets such as art, images, coding, audio, gaming items, credentials, governance privileges, etc. NFTs operate on blockchains such as Ethereum, Polygon, Solana, etc. Ethereum, the most popular of them, is a distributed worldwide network that is most suitable for NFTs because of the development of smart contracts. However, today we see the emergence of new fast and convenient solutions. 

Web3 Main Concepts
------------------

1.  Web3 is decentralized, which means this significant chunk of the internet will be managed and controlled by decentralized companies, and ownership will be divided among its users.
    
2.  Web3 is a public blockchain, which means that each individual has access to it.
    
3.  Web3 offers native transactions. Instead of using the archaic architecture of financial institutions and payment operators, the flow of funds runs through cryptocurrencies.
    
4.  Web3 does not require trust. Rather than depending on third parties, it runs through incentives and economic systems.
    

Why is Web3 Significant?
------------------------

*   ### Ownership
    

Web3 provides you with the greatest level of control over your digital assets. It enables direct ownership via non-fungible tokens (NFTs). Nobody has the authority to deny you ownership.

*   ### Web3 Development
    

Despite the undeniable advantages of Web3 in its present state, the environment nevertheless faces significant limitations that must be addressed for it to thrive. The system is constantly evolving.

*   ### User Interface
    

The technological hurdle to utilizing Web3 is now excessive. People sometimes need to grasp security risks, handle clunky software platforms, and read complicated technical documents. Wallet operators, for example, are striving to address the issue, but more effort is required until Web3 is widely implemented. 

*   ### Knowledge
    

Web3 presents new concepts that demand the adoption of conceptual frameworks that differ from those applied in Web 2.0. Web3 is not rigid but distinctive. Educational programs that instruct Web2 users about these Web3 concepts are critical to its further success.

Humans are just getting started with Web3, but as we work to create the system that will enable it, the prospects look promising.

What is a Web3 Crypto Wallet?
-----------------------------

A Web3 crypto wallet is software that lets anyone securely transfer, receive, or hold cryptocurrencies without the involvement of a third party, such as a financial institution. The same can be applied to a common web crypto wallet, but Web3 is a new wallet generation designed for the future state of the internet. 

What’s the Importance of a Web Wallet to You?
---------------------------------------------

A Web3 wallet is a key to having control over your money. It can keep your crypto in the same way that banknotes are held in a real, physical wallet. 

There are several wallet types available for various blockchains and cryptocurrencies but mostly their features are similar. A wallet is how you access your cryptocurrency. Web3 wallets are also required if you wish to transfer or receive cryptocurrency.

The very first misunderstanding we want to clarify is that a wallet does not directly store either currency or tokens. Your funds are carefully held and safeguarded in crypto-specific blockchain networks such as Ethereum for ETH, Bitcoin for BTC, and so on.

What is a Web3 wallet’s similarity to an online banking app on a smartphone that you rely on to access your fiat currency? The app (or webpage) does not store your money but rather serves as a link for you to handle your money stored within the bank’s system. In the Web3/crypto world the blockchain is the bank.

In the case of Bitcoin, for instance, once you buy some coins, they are securely held within the Bitcoin blockchain. The exact same is true for your ETH coins, which are securely held on the Ethereum network.

What is a Web Wallet’s Main Function? 
--------------------------------------

Your wallet can work like a bank account for multiple currencies. Assume you have a bank account where you may save your funds in several fiat currencies, such as USD, EUR, GBP, and so on. You can also store numerous crypto tokens in your Web3 wallet if it has several sub-accounts.

A wallet address is the same as the bank transfer details that identify a particular bank account for a certain currency. This implies your wallet will be assigned a unique BTC address, an ETH address, and so on.

A Web3 wallet stores your authentication data for the future Web3 world. Essentially, instead of knowing a variety of passwords to use different apps, you may experience this new universe using your own Web3 wallet. Furthermore, you may use web wallets to hold crypto, receive it, make transactions, and earn income on your holdings. It is the magic key to a more open and fair monetary system.

### What are Web3 Wallets Used For?

*   Getting access to your cryptocurrency
    
*   Holding your crypto and NFTs safely
    
*   Making financial transactions 
    
*   Utilizing the numerous new Web3 services
    

How Can You Get a Web3 Wallet?
------------------------------

There are three choices for getting your own wallet:

1.  You can go now and join one of the reputable crypto exchanges such as Exolix, Coinbase, Binance, etc.
    
2.  You can install a Software Wallet.
    
3.  You can purchase a Hardware Wallet device.
    

### The Three Web3 Wallet Choices

1.  ### Cryptocurrency Exchange
    

A cryptocurrency exchange is, as the name implies, a location that allows you to trade cryptocurrency. When you purchase your selected cryptocurrency, you can store it on the exchange and the corresponding wallet address will be linked to your account.

2.  ### Software Wallet
    

A software wallet is typically designed to equip you with your personal independent wallet address for holdings and transactions. Lately, software wallets have begun to offer an increasing number of services: you can trade cryptocurrency (in collaboration with exchanges), swap them, and even send currencies to other wallets. 

Nevertheless, they provide fewer services than crypto exchanges since they are primarily devoted to storing assets and giving access to Web3 apps. Recently, a new breed of software wallets that are easier to use for beginners and feature even more capability than previously have emerged.

3.  ### Hardware Wallet
    

The final alternative, which is actually recommended if you have a significant amount of crypto, is to get a Hardware Wallet. A hardware wallet is essentially a little gadget that you can plug into your laptop or smartphone to access your crypto holdings using the most protected method possible because the device is not connected to the internet. 

Ledger is considered one of the most prominent ones, having built and sold more than three million devices since its creation in 2014.

You can perform the very same things with a hardware wallet as you could with a software wallet. 

Key Takeaways
-------------

*   The web wallet works similarly to a bank account, with distinct bank details (wallet addresses) for each currency you hold.
    
*   A cryptocurrency exchange enables you to hold your crypto assets and provides a variety of services such as staking, loans, swapping, etc. You may also exchange crypto for fiat currency.
    
*   Your coins are not stored in your Web3 (or crypto) wallet.
    
*   Within the blockchain network, your coins are securely kept and completely protected.
    

A software/hardware wallet enables you to hold your cryptocurrency assets, perform basic operations (send, receive, convert), as well as access a variety of Web3 apps.

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Web3 provides you with the greatest level of control over your digital assets. It enables direct ownership via non-fungible tokens (NFTs). Nobody has the authority to deny you ownership.

What Is a Web3 Wallet & Why You Might Need One?

Web3 is decentralized, which means this significant chunk of the internet will be managed and controlled by decentralized companies, and ownership will be divided among its users.


Probably the most significant priority in trading is about choosing the right entry and exit points. Sure thing, one can argue that trading as a whole is all about choosing the right moment. While this is undeniably true, these moments should be viewed as the most crucial ones. Let us say that you are searching for new promising investment opportunities through Exolix or other instant cryptocurrency exchange platforms. In such a situation, entry and exit points are always of key concern. They determine whether you will close the deal with a considerable profit or waste time and resources on a doomed enterprise. Among various indicators dedicated to the determination of the condition of the market, overbought and oversold levels provide one of the best trading opportunities, Reliable and relatively simple to use (of course, only in comparison with the insanely sophisticated market analysis mechanisms), they are widely used by both professionals and novices. Therefore, let us look closer at signals that make it possible to identify overbought and oversold markets with higher efficiency.

Overbought vs Oversold Definition
---------------------------------

Overbought and oversold levels describe two sides of the same coin. When an asset reaches an overbought level, its price most likely will not go up again. Conversely, oversold levels tell us about an extreme bearish pressure on the market, which may create a reversal point after which the price will rapidly go up. Price shifts happen all the time. The reasons behind them are incalculably numerous. Pretty much everything may affect the price of a certain asset: ranging from weather conditions to accidental tweets. Overbought and oversold indicators allow us to summarize certain factors, identifying the most likely price-shift scenario on the market.

### Overbought Signals

Overbought markets signalize a bullish momentum for an extended period. With time the asset become too expensive, trading far above its intrinsic value. A sell-off becomes imminent.

### Oversold Signals

An oversold market signalizes that the current price of an asset is too low. This situation becomes a natural result of prevailing selling pressure.

What is the difference between overbought and oversold signals
--------------------------------------------------------------

Identifying overbought and oversold signals is always a tricky task. Sure, a majority of experts consider them very reliable. However, false positives or early signals are a thing, and experienced traders may share hundreds of stories about a tremendously beneficial deal ruined by incorrectly identified market conditions. Therefore, how to identify them and make the right decision when to convert your assets? Firstly, an experienced eye may spot a trend just by watching a market. The price simply cannot go up or down indefinitely. There has to be a crucial point at which a reversal happens. For instance, if the price falls exceptionally rapidly and after that begins consolidating, this could be a clear indicator of an oversold market. Another semi-reliable indicator relies on support and resistance levels. For instance, oversold assets typically do not fall beyond their support level.

Overbought vs Oversold Crypto Assets: Indicators
------------------------------------------------

There is a wide specter of tools for advanced technical analysis, which may be used to identify overbought and oversold markets. The set of the most effective and yet comprehensive of them boils down to the following trio:

1.  Relative Strength Index (RSI);
2.  Stochastic Oscillator;
3.  Moving Average Convergence Divergence (MACD).

### Relative Strength Index (RSI)

Probably the most popular indicator of overbought/oversold asset conditions in the current market of financial analytic tools, the Relative Strength Index (RSI) measures the strength of the current price against past prices. Hence, the values displayed by the RSI fall into the category of 0-100. Although it may be used for quite sophisticated analytic operations, new traders should primarily look for the 70-30 ratio as follows:

*   When the RSI is above 70 the market is considered overbought.
*   When the RSI is below 30 the market is considered oversold.

Curious traders may calculate this indicator themselves. However, there is no need to waste time: almost all modern trading platforms provide integrated tools for measuring the RSI automatically.

### Stochastic Oscillator

The Stochastic Oscillator is another powerful indicator used for diagnostic purposes. However, instead of dealing with a 70-30 ratio, it offers you a slightly modified 80-20 one. Hence, when using the Stochastic Oscillator look for the following data:

*   When the Stochastic Oscillator is above 80 the market is considered overbought.
*   When the Stochastic Oscillator is below 20 the market is considered oversold.

### Moving Average Convergence Divergence (MACD)

Here is another practical yet less reliable tool for identifying overbought and oversold markets: Moving Average Convergence Divergence (MACD). It is designed to measure the difference between two moving averages. Hence, when using MACD look for the following situations:

*   When the MACD is above 0 the market is most likely overbought.
*   When the MACD is below 0 the market is most likely oversold.

As for the key differences between the MACD and the RSI, they include the following factors:

*   RSI is better in terms of fundamental analysis when compared with MACD.
*   MACD provides more signals than RSI. However, when it comes to the strength of signals, RSI is generally considered a better tool.
*   MACD tends to provide superior results in trending markets with worse results in corrective ones.
*   In cryptocurrency trading RSI shows better results, allowing users to increase accuracy and decrease the number of traders.

Overbought and Oversold Signals in Crypto Trading
-------------------------------------------------

Let us consider a practical example. You tend to keep your funds in Bitcoin and wait for the right moment for the next lucrative investment. Unfortunately, let us say for the purpose of our thought experiment that the current Bitcoin market is considered overbought. This means that the price is reaching its peak for the current market phase. The number of transactions is too high, and the asset simply cannot support them all. On the other hand, another cryptocurrency, let us say Ethereum, is considered oversold. Hence, it may be the right moment to visit Exolix, swap Bitcoin for Ethereum, and wait for a strong bearish trend.

Conclusion
----------

Overbought and oversold levels provide convenient indicators, which allow experienced traders to predict the most likely scenario on the market. These levels are applicable in all types of financial markets, including even extremely volatile ones, such as the current cryptocurrency market. Traders usually make decisions based on the data gathered with the most reliable indicators, such as the Relative Strength Index (RSI), Stochastic Oscillator, and Moving Average Convergence Divergence (MACD). Inexperienced traders often tend to choose one of the described trends, fearing the other. However, it is meaningless to worry about which is better overbought or oversold: each trend may benefit a trader when incorporated into a reliable strategy.

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Correctly identifying overbought and oversold stocks may become a crucial point in successful trading, leading you to unparalleled success. Read on to learn more about key differences between overbought and oversold signals

Overbought vs. Oversold Signals What Are the Differences

Overbought vs. Oversold Signals: Introduction

Over the last decade, cryptocurrencies evolved from an almost esoteric and incomprehensible innovation to one of the most promising financial sectors. With the DeFi space growing at a tremendous rate, there is a small wonder that we see more and more new methods that allow using cryptocurrency in smart and profitable ways. Just a couple of years ago the entire crypto sphere was limited to trading and trading only. As of today, cryptocurrency enthusiasts become directly involved in the internal functions of blockchain networks. Those who regularly visit modern instant exchange platforms, such as Exolix, will surely notice the abundance of new features, the most notable of which are mining, farming, and staking. All these options have a common feature: users have to pledge their assets in support of decentralized applications. However, there are also many differences between providing liquidity to pools, accumulating yields through farming, or relying on the Proof-of-Stake protocol for extra benefit. Analyzing these crucial differences will allow you to receive great returns most suitably. Hence, let us look closer at Yield Farming, Liquidity Mining, and Staking.

Staking
-------

Staking is often considered the simplest approach of the three, so it is only natural to start with it. Staking is about locking up your cryptocurrency for a certain time to receive rewards. While your coins remain locked you are unable to convert them. However, it does not mean that they are passively waiting for an occasion: without them, the Proof-of-Stake consensus mechanism would be useless and the entire blockchain network would effectively crumble. When we talk about the risks that wait for those users who decide to stake their crypto assets, it should be noted that Staking is considered safer than other strategies. Those risks include the following:

*   Validator risk;
*   Theft;
*   Conterparty risks;
*   Inconveniently long lock-ups;
*   Liquidity risks.

Yield Farming
-------------

So, what does Yield Farming mean? Essentially, this is a modified version of traditional staking. The crypto assets remain staked exclusively on decentralized platforms. A smart-contract-based liquidity pool allows users to access cryptocurrency assets, which have not been available to them before. Hence, these users obtain a chance to borrow these assets, using them for highly lucrative margin trading. Those users who provide these cryptocurrency assets for the common liquidity pool receive rewards in the form of passive income. Of course, this type of operation would be impossible without innovative software, such as the so-called Automated Market Makers (AMMs). Risks associated with Yield Farming include the following ones:

*   Impermanent loss;
*   Liquidation risks;
*   Diverse hazards associated with smart contracts.

Although Yield Farming is quite risky, it can work miracles when done properly. In addition, it is a life-saving mechanism in the case of coins with exceptionally low operating volume. Under normal conditions, these tokens have almost no chance to prosper. However, thanks to Yield Farming, they may accumulate enough active coins to increase the pool of clients until the blockchain network would become sustainable.

Liquidity Mining
----------------

Liquidity Mining is quite similar to Yield Farming. Many users state that there is no dilemma between Yield Farming vs Liquidity Providing: both methods rely heavily on gathering liquidity for the blockchain. However, as a reward for staking your cryptocurrency assets users obtain native tokens: Liquidity Provider Tokens. The amount of these tokens is determined by the total amount of accumulated liquidity in the pool. Users may use these tokens for governance or convert them for other cryptocurrencies at diverse third-party exchange platforms, such as Exolix. As for diverse risks, that one may expect when mining liquidity, the most notable of them are the following:

*   Impermanet loss;
*   Smart contract risks;
*   The so-called “rug-pull” projects.

What is the difference between yield farming and liquidity mining?
------------------------------------------------------------------

Although all three approaches have some notable similarities, the differences between them are crucial. If we look at the mechanism at the core of each approach, we will discover that these differences directly determine their purposes. Yield Farming is a highly beneficial approach, which makes it possible to invest your cryptocurrency assets in liquidity pools or protocols, obtaining proportional profit. Staking also deals with locking in your coins in protocols in return for privileges. However, the main goal of staking is to validate transactions and maintain the network, instead of gathering additional liquidity for the blockchain system. Liquidity Mining, while also bringing you rewards for locking your cryptocurrency assets provides you with governance privileges. What about the Difference Yield Farming and Liquidity Mining are capable of showing when we consider them in terms of profitability? If profitability is your main concern, then you should probably take a closer look at Yield Farming. This approach is currently considered the highest-grossing of the three with a caveat that it is also significantly riskier than traditional Staking.

Bottom Line
-----------

All three strategies are essential for the further evolution and efficiency of the DeFi space. What is even more important in the eyes of ordinary users is that all these approaches are highly beneficial. As for the direct Yield Farming vs Liquidity Pool vs Staking comparison, we can see that all these approaches at certain levels begin resembling each other up to the point of functional and structural interchangeability. Liquidity Mining may be considered a component of Yield Farming, which, in turn, should be viewed as a part of traditional Staking. These strategies also provide a wide range of opportunities for investors. Risk-seeking investors can make a good profit with Yield Farming. On the other hand, those who are interested in minimizing risks may find their niche with Staking. Whichever opportunity attracts you most, a profound understanding of these mechanisms will become your reliable guiding light.

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Yield farming and liquidity mining are quite similar concepts. Both provide users with beneficial strategies that help them maximize their wealth. So, what is the difference between them and which one should you select?

Difference between yield farming and liquidity mining

Yield Farming Vs Liquidity Mining

Among various challenges associated with blockchain technology, the issue of scalability is definitely one of the most crucial. The term refers to the number of transactions per second — this parameter determines its effectiveness on many levels. With cryptocurrencies becoming a part of everyday life and slowly yet steadily pushing back traditional systems, it is no wonder that further evolution of this technology requires dealing with scaling problems. Of course, you don’t necessarily have to know about the crypto Layer 1 vs Layer 2 dilemma unravelling behind the crypto curtain. Modern instant exchange services, such as Exolix, allow you to convert coins without any previous experience, simplifying your acquaintance with the subject. However, a little bit of technical knowledge won’t hurt. After all, the more you know about these mechanisms, the better your chances are at predicting what cryptocurrency may become the next big thing. Hence, let us look closer at what these Layers are and why they are so important.

Blockchain Scalability: Starting from the basics
------------------------------------------------

Scalability in blockchain technology is defined as the system’s ability to increase both the number of transactions per second and the number of involved nodes. Why is it so important? Firstly, blockchain networks are supposed to grow. Without further development, even such advanced technology will quickly become obsolete. Secondly, blockchain systems are supposed to provide efficient and secure services. A blockchain network clogged with unfulfilled and simply too slow transactions is unable to justify its existence. Sure thing, if you want to be able to swap, trade, and stack cryptocurrencies with satisfying effectiveness, scalability would become your key concern.

What is the difference between Layer 1 and Layer 2 solutions
------------------------------------------------------------

The term “Layer 1” essentially describes the basic blockchain architecture, whereas the term “Layer 2” refers to an additional network stacked on top of the basic one. Crucial differences between these solutions include the following:

*   Functional environment. Scaling solutions associated with Layer 1 change the basic blockchain protocol. Layer 2 scaling solutions rely on off-chain networks and services.
*   Functional goal. Layer 1 scaling solutions facilitate scalability by introducing large changes, such as modifying the block size or introducing new consensus mechanisms. Off-chain solutions tend to increase the network’s functionality by transferring the workload to another system architecture, such as dealing with transaction ordering.

In addition, both types of scaling solutions may be further divided according to the methods they rely on. Layer 1 scaling solutions include the following:

1.  Sharding;
2.  Improvements of the fundamental consensus protocol;
3.  Block size changes.

### Sharding

Sharding is one of the most popular Layer 1 scaling solutions. This approach makes it possible to break all transaction sets into smaller ones, creating “shards”. Next, the blockchain network processes these “shards” independently. Hence, increased transaction speed and improved network performance.

### Consensus Protocol Changes

This approach represents a transfer from one protocol to another, most commonly a decision to abandon a Proof-of-Work protocol in favor of a faster and more nuanced (not mentioning much more eco-friendly) Proof-of-Stake protocol. Probably the most famous example of such a switch is the Ethereum Merge. Layer 2 scaling solutions include the following:

1.  Side chain;
2.  State channels;
3.  Nested blockchain.

### Side Chain

The side chain is an independent blockchain network, which is connected to the main network through a set of smart contracts. An additional blockchain network greatly increases the effectiveness of the main chain.

### State Channels

State channels work as a two-way communication channel between the participants, allowing them to conduct interactions, which under normal conditions occur solely within the main blockchain. Usually, the interaction happens due to the pre-agreed or multi-signature smart contract. This approach significantly boosts both the transaction speed and the overall network capacity.

### Nested Blockchain

Developers create a set of multiple blockchains on top of the main one, forming a parent-child form of connection. The “parent” delegates the workload to the branching networks. The “child” chains execute the orders and transfer the obtained results back to the main chain. This approach significantly reduces the workload in the main blockchain, boosting the transaction speed and increasing overall network performance.

### Pros and Cons of Layer 1 and Layer 2 scaling solutions

As we can see, the main difference between Layer 1 and Layer 2 blockchain scaling solutions lies in their primary role. Layer 1 scaling solutions strive to improve the already existing fundamental blockchain architecture. Layer 2 scaling solutions create third-party networks on top of the already existing network to alleviate its workload and spread its functionality with additional tools. Consequently, there is no clear winner in a Layer 1 against Layer 2 race. Both approaches come with several significant pros and cons. For instance, Layer 1 scaling solutions usually require a hard fork — and such an event may be difficult to handle. All users have to agree with the new conditions and accept all new changes. On the other hand, Layer 2 scaling solutions may compromise the network’s security by involving third parties.

Blockchain Layer 1 vs Layer 2 scaling solutions: common problems
----------------------------------------------------------------

Both Layer 1 and Layer 2 scaling solutions have two common problems:

*   Adding new pieces of code to the already working system is an exceptionally difficult task. In many cases, it may result in further complications.
*   Even those blockchain platforms that are created from scratch to avoid this issue eventually run into a new scalability challenge.

Both issues are closely tied with the famous “scalability trilemma” invented by Vitalik Buterin. According to this principle, every optimization of a blockchain network eventually comes to a trade-off between three parameters:

*   Scalability;
*   Security;
*   Decentralization.

Therefore, even though both Layer 1 and Layer 2 scaling solutions have their respective pros and cons, their implementation is always tied to a decrease in either decentralization or security. Hence, the goal is to facilitate the exchange, creating the most prosperous conditions for the next iteration of the blockchain network.

Conclusion
----------

The problem with scalability is arguably the most serious obstacle to the further application of blockchain technology. The industry is in dire need of truly effective approaches, capable of increasing the effectiveness and safety of day-to-day transactions. This is exactly why Layer 1 and Layer 2 solutions have become so important. However, we should remember that the difference between Layer 1 and Layer 2 crypto refers only to their scope of application. In general, we should view them not as competing forces, but rather as complementing and extending each other. Because of this, many blockchain networks successfully combine both approaches, significantly improving their scalability, without damaging their security and/or decentralization.

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Read this article to learn everything you need to know about scalability in blockchain technology, Layer 1 and Layer 2 scaling solutions, and crucial differences between these levels

What is the difference between Layer 1 and Layer 2 crypto

What is Layer 1 and Layer 2 crypto

Cryptocurrencies have always been on the cutting edge of technological advancement. However, even these advanced projects still need regular updates and improvements, which keep them up with the times. Forks are the most notable examples of such improvements. Moreover, we have seen a great number of historical forks during recent years, some of which have the potential to change the entire structure of the cryptocurrency universe (the Merge organized by Ethereum being the most prominent of the lot). Hence, it is time to learn what does a hard fork mean in crypto and what all the fuss is about.

Blockchain hard fork: What is it?
---------------------------------

A fork is a radical transformation of the existing network protocols that changes the validity of blocks. Blockchain developers must reach a consensus to provide transactions and maintain all the governing functions of the network. When forks happen the entire blockchain splits, creating two independent systems. The first system works by the same old rules, whereas the new network functions according to the recently implemented changes. A hard fork is an insanely complicated process that requires coordinated actions of multiple developers. However, from the users’ standpoint, it looks deceptively simple: you get an opportunity to select which set of rules suits you most and decide whether the change is indeed necessary. Forks are exceptionally important for the development of blockchains. After all, blockchains are all about decentralization. Because of that, there is no central entity capable of deciding how and when to add new changes to the protocols. The flow of time renders even the most advanced strategies obsolete. Hence, the only way to keep up is to introduce changes, moving towards higher efficiency.

Soft and hard forks in blockchain network
-----------------------------------------

There are two types of blockchain forks:

*   Soft forks;
*   Hard forks.


Admittedly, these processes are quite similar. Although soft forks are much simpler, in the majority of cases users call for a hard fork: the latter indeed requires a mind-blowing amount of computational power, yet the advanced privacy gained as a result of such a fork easily outweighs the cons. Hard forks:

1.  Require a stronger consensus to implement the changes. All the users have to agree to swap the protocols, otherwise, the fork will not happen.
2.  Create two independent chains with distinctive rules.
3.  Hard forks are not backward compatible. This also means that theoretically hard forks may be organized by hackers with the majority of votes.


On the other hand, soft forks:

1.  Provide higher flexibility: only those users that plan to use the proposed changes have to agree on them and update the existing protocols. Even small groups of developers may add small changes on the network level.
2.  Soft forks do not require splitting the chain. Even after a series of updates the original chain just moves on.
3.  Soft forks are backward-compatible. Hence, attackers may manipulate the nodes, reinstating old protocols according to their needs.

What is a hard fork in crypto: notable examples
-----------------------------------------------

Hard forks happen for many reasons. In most cases, forks are driven by the necessity to keep up with innovative security procedures, the need to resolve false transactions, add new functionalities, or deal with existing disagreements within the network. Furthermore, hard forks may happen accidentally. For instance, two miners working on the same block may provide two different sets of data. As a result, the blockchains split in two due to the lack of consensus. Hence, let us look closer at the most notable examples of hard forks, which have affected billions in assets.

### Bitcoin Improvement Proposal 91 (BIP 91)

This hard fork happened because of a scalability problem left in Bitcoin by its creator Satoshi Nakamoto. The 1-megabyte cap significantly slowed down transactions, limiting their number and increasing fees. However, the famous SegWit (which stands for “segregated witness”) patch resolved this problem in 2017. It was originally designed to deal with the so-called “Transaction Malleability” — a flaw in code, which made it possible to change the digital signature of the receiver before the confirmation of the said transaction. Furthermore, this patch significantly increased the cap for Bitcoin blocks. However, several nods did not agree with the new set of rules. As a result, what was intended as a soft fork quickly became a hard fork: despite numerous attempts, both sides simply could not reach an agreement. Thus, Bitcoin Cash was born. The creation of BCH (Bitcoin Cash) clearly illustrates the key principles of hard forks. The changes were implemented, some nodes decided to disagree, the chain divided, and a new digital currency spawned out of thin air. However, the original blockchain did not suffer any grave consequences, apart from some users migrating to the new chain. You can check it for yourself on Exolix or any other trustworthy cryptocurrency exchange platform: both cryptocurrencies manage to coexist, despite originating from the very same source.

### Ethereum Classic

Ethereum Classic appeared because of a hack, which targeted funds of the Decentralized Autonomous Organization. On June 17, 2016, a group of hackers effectively stole 3.6 million out of 12.7 million Ethereum coins raised by the Decentralized Autonomous Organization. The network was quite new at the time, and the situation was desperate. Therefore, Buterin himself decided to interfere and introduce a piece of code, which would block the stolen funds. However, the anonymous hacker threatened lawsuits against anyone attempting to prevent the funds from moving. In addition, they offered rewards for those miners who would reject any soft forks, capable of separating them from the stolen goods. The situation escalated more and more until the Ethereum community agreed on a hard fork to restore the stolen coins to the original investors. Since some nodes did not comply, the blockchain was divided, creating two new branches: Ethereum and Ethereum Classic. Once again, you can check both coins on Exolix and compare their strengths and witnesses.

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What is a hard fork? Why hard forks are considered so important? Read this article to learn more about the nuances of this process, examples of historical forks, and the reasoning behind massive forks

What is a hard fork in blockchain

A fork is a radical transformation of the existing network protocols that changes the validity of blocks...

What is a hard fork in cryptocurrency?

Delegated proof-of-stake is an innovative consensus mechanism designed to overcome several critical disadvantages of its progenitors: namely, proof of stake and proof of work. While the proof of work mechanism had its distinctive advantages, its efficiency and the environmental impact left much to be desired. The sheer volume of calculations necessary to convert, verify, and transfer cryptocurrencies created serious problems in terms of environmental pollution and crippled the potential for future innovations. Proof of stake emerged as a more affordable, efficient, and democracy-oriented solution. As for the delegated proof of work (DPoS) mechanism, it represents the next evolutionary stage of the already progressive scheme.

What Is Delegated Proof Of Stake
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Therefore, what is delegated proof of stake? In general, it functions very similarly to the traditional proof of stake mechanism albeit with a couple of significant changes, such as voting and delegation mechanics. Conceived in 2013 and presented in 2014 by Daniel Larimer (a famous American software developer), DPoS adds a new layer of security to the traditional PoS, while also maintaining a desirably low level of energy consumption. While proof of work protocols force users to complete numerous mathematical operations to validate transactions, PoS protocols employ validators. The chosen validators verify all transactions based on the number of coins they have managed to stake. All owners of the delegated proof of stake coins may vote for the chosen delegates, promoting their reputation within the network. Many experts remained rather skeptical about how will proof of stake work in comparison with the classic mechanism. Nonetheless, the switch from proof of work (PoW) to proof of stake (PoS) performed by the Ethereum blockchain provided reliable proof of its efficiency.

### Advantages of Delegated Proof of Stake

*   Higher scalability with decreased dependency on computing power and acceptable hardware;
*   Better protection from double-spending;
*   Higher network sustainabitly;
*   Increased financial inclusivity;
*   Democratic and decentralized relationships within a network;
*   Faster transactions;
*   Signigicantly lowered entry threshold;
*   Separation of block creation and election of block creators;
*   Flexible approach to new techniques.

### Shortcomings of Delegated Proof of Stake

*   Delegated proof of stake work systems may be dependent on the number of participants: notably decreased number of active witnesses may lower desired decentralization and create a foundation for the further shrinking of democratic governing functions;
*   Delegated proof of stake work networks require the constant engagement of the maximum possible number of participants; otherwise, the network may fail;
*   Increased risk of 51% attack;
*   Decreased significance of voters with a lower number of staked tokens creates problems regarding the declared democratic structure of a network and may lead to further centralization.

How Proof Of Stake Work
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The best way to understand how does delegated proof of stake work, is to look closer at its crucial components. We already know that this network increases its security and efficiency by selecting some trustworthy members, which play the main role in block verification. The actual process is more sophisticated and involves validators, delegates, voting, and witnesses.

### Voting

Although each network uses its unique voting techniques, there are two main groups of voting methods:

1.  Participants may vote directly;
2.  Participants may delegate their votes to other members of the network.

Participants vote for certain nodes, which obtain the role of witnesses. These blocks are responsible for the validation of transactions and the creation of new blocks. Each time the witnesses finish validating all transactions in one block, they receive rewards, which are also shared with their voters. If a particular witness fails to complete all verification processes within a specified period, they obtain no reward.

### Delegates

In a delegated proof of stake system, delegates are considered responsible for all governing and maintaining functions. The delegates are chosen based on the voting procedure in which all users may participate. Furthermore, delegates obtain certain privileges, which allow them to introduce major changes. For instance, delegates may propose various modifications, changing the block size or the share of rewards for successful verification. Once delegates put forward their propositions, blockchain users may vote to decide whether the offered changes are worth implementing.

### Witnesses

The main role of witnesses is to secure and validate the blockchain. Interestingly enough, virtually anyone may become a witness: you do not even have to possess any cryptocurrency to participate in a blockchain as a witness. The total number of witnesses depends on the size of the network. In general, a blockchain network hosts 21-101 witnesses. Records of all successful transactions performed by witnesses are recorded in the ledger. The main resource of any witness is their reputation: users vote continually and it is possible to exclude a witness from a network if users suspect that something fishy is going on or find a witness with a better reputation.

### Block validators

Validators make sure that all newly created blocks comply with consensus rules. As always, considering how proof of stake work, validators are selected among all users in a democratic procedure. Users chosen as new block validators should run a validator node to provide reliable verification within the system.

Final Words
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The delegated proof of stake technology provides a much more reliable and effective alternative as opposed to the robust yet obsolete proof of work consensus mechanism. Among its main benefits, we find increased energy efficiency, better security, improved flexibility, and higher transaction speed. The last point deserves emphasis: delegated proof of work systems function with greater speed. For instance, let us look closer at a delegated proof of stake example. An average transaction in the TRON blockchain, which is based on the DPoS mechanism, lasts no longer than a minute. On the contrary, to swap coins within the PoS-based USD Coin blockchain one has to wait at least five minutes. Therefore, considering that faster transactions and reliable security along with decreased energy consumption have already become matters of top-tier priority, DPoS systems have all the chances to outrace the opponents and provide a leading solution for the cryptocurrency market.

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The following article offers you a brief yet detailed description of the consensus mechanism known as delegated proof of work

How does delegated proof of stake work?

The delegated proof of stake technology provides a much more reliable and effective alternative as opposed to the robust yet obsolete proof of work consensus mechanism.

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