In the current global market scenario (21st century), liquidity becomes one of the decisive factors. Before 2008, liquidity was mostly focused on stocks, bonds, real estate, etc., but since 2008 (Bitcoin’s whitepaper hits the market) it has been shifting towards digitally decentralized liquidity via blockchain and similar platforms. Needless to say, the factors affecting the conversion of assets to cash and vice versa have become faster, safer and more complex for third parties looking to hack. Another advantage in the liquidity process was that the time limit was somewhat lifted. The reason for this is that since blockchain is an open source platform, miners all over the world are mining blocks according to different time zones, so the entire liquidity ecosystem works almost around the clock (24 hours a day, 7 days a week). This piece takes a look at the past, present, and potential future of the runoff.
Liquidity mining before 2008, ie before digitization and globalization were mixed up, only a few relevant financial institutions managed the entire liquidity process. But after the 2008 financial collapse, the trust factor in authorities started to decline, which is one reason that decentralized platforms like blockchain and applications like decentralized finance came into play. One of the most important factors in making liquidity mining so sustainable is that it works on two basic technologies. They are public-private key cryptography for storing and issuing financial currency and for cryptographic validation of transactions.
In a nutshell, liquidity mining is a network mechanism where users / nodes in the network offer their capital to the respective protocol while receiving the protocol’s native token in return. The current drainage scenario is that it will be used for consumer payments. The gradual interest and use of mining via decentralized applications arose when the overall functionality and pricing of the credit and debit card system received quite a bit of criticism (mostly excessive fees). One way to look at the scenario is that credit / debit cards had a monopoly for some time and started changing supply and demand to their liking. By avoiding exactly what consumers wanted and wanted, the trust factor was redirected to decentralized platforms.
It is expected that in the future, liquidity mining could be used for general purpose payments, which are also perceived as a mainstream store of value. Few computer scientists suspect that Bitcoin is considered cheaper because of its ability to develop a decentralized record of almost anything rather than its ability to facilitate payments. The opportunities for liquidity mining in the coming days are enormous, provided various application providers can instill confidence in the value and acceptance of customers / prospects.
According to this investigation (Table 3), a comparison was made to find out the advantages and disadvantages between the use of “gold”, “traditional credit money” and “cryptocurrencies”. Out of 10 different categories, only three fall into the “not preferable” category. The two areas in which improvements in liquidity mining are required are “Security and intrinsic value”, “Commissions and finance costs” and “Degree of integration of the instrument”. In short, this research shows that the move to decentralized platforms and applications may take a while as traditional money practices have been in use for a long time. If people were made aware (using a certain context) of the numerous benefits of short and long-term use, they would get started with decentralized applications without friction.
As can be seen from the infographic above, the number of uses for liquidity mining has grown fairly quickly. A practical example of how liquidity mines are used in almost every industry is this part of the survey. The survey mainly focuses on blockchain networks from the perspective of consensus protocols developed in an open access P2P grid. A transaction can be described as the atomic data structure (subtle building blocks) of a blockchain. In order to protect the authenticity of a transaction, functionalities such as hash function, asymmetrical encryption, etc. are used. In addition to the above factors,
- Validity / correctness / honesty
- Agreement / consistency
- Liveliness / termination and
- Total order
are used to further make the consensus between each node in the grid strong, robust and transparent. Just as every technology / concept needs an update at a certain time interval, mining concepts / protocols designed and built by Nakamoto also require a certain amount of upgrade. The modification (in-process) is called “virtual block mining and hybrid consensus mechanisms”. Table 5 shows various consensus protocols where liquidity mining can be achieved smoothly. Figure 19 illustrates the difference in performance between centralized databases, hybrid consensus protocols, scale-out protocols, and basic Nakamoto protocols. Appropriate protocols for effective and productive liquidity mining could therefore be selected based on the use of a protocol, its complexity, the total length of time, etc.
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