Cryptocurrencies, NFTs, blockchain etc. and their other related terms belong to technological world. Common people find these terms so daunting that they often baulk at mention of these terms, leave alone trade in them. We try to simplify the crypto world jargon for general public. Here, we shall explain Trading Pair and Smart Contract.
Trading Pair
The term may be a regular one for cryptocurrency investors but for those who are new to the crypto industry, let’s elaborate it further.
In a financial world, a currency pair is the dual representation of the relative value of a currency unit against the unit of another currency in the foreign exchange market.
But in Crypto World, ‘Trading pairs’ or ‘Cryptocurrency pairs’ are generally a pair of crypto assets that can be exchanged with each other to complete a trade. A Trading pair is a price quote of the exchange rate for two different currencies available for trade on a crypto exchange. This includes facility to trade two cryptocurrencies without the need to cash out one for fiat currency. Additionally, one can also trade between crypto and a fiat currency like USD.
Generally, a trading pair is denoted by a slash (/) separating the two coins. For example, the ETH/BTC is a trading Pair available on almost all Crypto Exchanges. ETH is for Ether, currency used on Ethereum and BTC is for Bitcoin. With ETH/BTC pair the users can buy or sell Ethereum for Bitcoin or vice-versa. This is an example of crypto – crypto pair.
Likewise, fiat-based trading pairs are also available on cryptocurrency exchanges. For example, BTC/USD, in this case Bitcoin can be exchanged with US Dollars and vice-versa.
A fiat-based pair provides the same functionality as a cryptocurrency-based pair, the only difference being that the former uses one of the assets in the form of fiat currency.
The availability of Trading pairs may vary across the exchanges as different exchanges have different options of available cryptocurrencies. Moreover, in order to buy some cryptocurrencies, you need some particular cryptocurrency only. So, it becomes all the more evident that the knowledge of Trading Pairs gives an opportunity to expand your portfolio of crypto holdings.
Another thing to consider here is that trading one crypto for another is a taxable transaction.
How Do Crypto Trading Pairs Work?
The Trading pairs help the users to draw cost comparison and relative worth of different cryptocurrencies. This is used to establish value of different kinds of crypto coins. Exchanges usually offer many options for pairing. This gives an opportunity to choose a pairing based on currencies you have in your crypto wallet. For example, if you possess BTC, then you can trade with any pair with BTC combination.
What is Base Currency and Quote Currency?
In a currency pair, the first currency is known as the base currency or transaction currency. The second one to follow is called by many names like the quote currency, the reference currency or counter currency. So, in BTC/USD pair, Bitcoin is the base currency.
Exchange rates on fiat currencies in different countries can be compared with the help of base currencies. Suppose if you are visiting America from India then you will need to convert your money in rupees to US Dollars. The rupee here act as a base currency and can be represented as INR/USD. Similarly, the Crypto you want to exchange acts as your base currency in the crypto pair.
On an exchange, a pair can tell how much of the quote currency is required to buy a unit of the base crypto. Bitcoin, Ethereum and Tether (USDT) are the most popular base currencies. In an order of a Trading pair, the base currency is bought while the quote currency in the pair is sold.
If you want to buy a crypto that is new to the exchange, then you need to own the base currency listed in the pair. The most acceptable cryptocurrencies today are BTC and ETH. They serve as base currencies for most of the other crypto coins. But sometimes the exchange or the platform may have its own coin and inspite of Bitcoin or Ether, one may require the fiat currency.
How to choose a cryptocurrency pair for arbitrage?
For arbitrage, the users need a trading pair in which the trade of cryptocurrency against a fiat currency is available. This implies that you can use trading pairs like ETH/USD, LTC/USD, BTC/USD etc. Also, if you are simultaneously connected to more than one exchange then you can trade in crypto to crypto pair and earn profits.
WHAT IS A SMART CONTRACT?
A Smart Contract is an algorithmic program or a transaction protocol that automatically executes the terms of a contract as per its code. The Smart Contract has a capacity not only to control the events but also to document legally relevant events and actions according to a pre-specified agreement.
What is a Traditional Contract?
For execution of activities like the transfer of goods, money and services or a promise to transfer any of these at a future date, a contract is created between two or more parties. The contact basically includes the terms and conditions along with the deadline to carry out an activity so that both the concerned parties can agree upon some common criteria. This helps in the smooth completion of tasks and prevents the in-between changes that can occur due to market fluctuations.
The steps required to design a contract involve an offer, acceptance of the terms in the offer, consideration and mutual intention to follow it. In case any of the parties breach the terms of contract, the suffering party can bring the matter under the notice of judiciary and seek relief.
Need of Smart Contract
In common man’s terminology, we can call a smart contract as a digital contract between two or more parties instead of a physical one. Whenever a physical agreement is made between some persons or groups, it may require a trusted witness to guarantee the proceedings. On the other hand, since a smart contract runs on a blockchain, it is a peer to peer contract with no third-party involvement.
Likewise, in a smart contract parties form the rules and execute the decisions. The added advantage to this is that it can be publicly audited on any point, proposal or the very code itself.
The chief aim of smart contracts is to eliminate the need of trusted intermediaries. This drastically brings down the expenditures involved in arbitrations and enforcement. The smart contracts are secured via blockchain technology, therefore it also curtails the losses that may be incurred on account of malicious activities.
Applications of Smart Contract
Ethereum network can successfully execute smart contracts which makes it really popular with the crypto investors. Ethereum uses smart contracts to expedite financial transactions like trading, investing, lending, and borrowing.
Smart Contracts also have applications in the field of gaming, healthcare and real estate. Even the Decentralized Autonomous Organizations (DAO) have their foundation in smart contracts. The applications of DAO are so vast that they may reorient the entire corporate structure in the times to come.
