Good & bad practices in the blockchain multiverse: Chapter 3. Trading
In this article, we move a bit into the trading aspect of the multiverse. Although trading is a different kind of beast on its own and has existed forever even before the multiverse, it is crucial to talk about it in this context. As the blockchain multiverse is built on the fundamentals such as providing true ownership and p2p token trading, it is important to understand some basic good and bad practices for the same.
Before we dive into the content this article is part of a series and the following list is some of the topics we will be covering. This is subject to change and likely has more content/subtopics which will be updated retroactively. At the end of this series, a summary article with links will be published for ease of navigation.
Topics:
- DYOR
- Smart Contract verification practice
- Cryptocurrency wallet practice
- The web3 (MetaMask, etc.) practice
3. Trading (covered in this article )
- Why the ‘trading’ topic?
- P2P, Marketplace, FOMO, Risk management
- Social platform practice
Disclaimer: This article is written with an intent to help new gamers entering the blockchain space grasp general ideas about trading tokens which are a cornerstone of games in this industry. The article is not written to provide any sort of financial advice/tip/trick or tool that can be used to perform ‘successful trades’.
Why the ‘trading’ topic?
Trading items against items/virtual currency is not a new concept to gamers. We have been doing it in MMOs and other types of games for years now. However, in the blockchain multiverse, trading is a completely different beast and has to be taken rather seriously. In this industry, the main cornerstone of the gaming ecosystem is a token (fungible and non-fungible). There are certain tokemonics in place such as limits, multiple interlinked tokens, multiple sources of trade, etc, while the price is never controlled by the company but the external market as the token can be traded freely outside the game. This results in an extremely complex ecosystem that involves cryptocurrencies and non-fungible tokens having not just utility but also speculative value. These tokens are truly owned by the gamers and can be traded either p2p or over a marketplace (in-game or outside of the game).
The following topics are written from a perspective of what to always remember if you do wish to participate in trading.
P2P (peer-to-peer)
Peer-to-peer trading means being able to send and receive (non-) fungible tokens directly to another person without going through a platform/market. This is one of the fundamental advantages of blockchain technology as everyone can verify the transactions publicly. As much as it gives the user free reign over their tokens and trades, it is highly risky due to zero trust and irreversible transactions. An example would be if person A sends a CAR NFT to person B first with the promise of receiving any other tokens in exchange but doesn’t follow though, there is no way to recover the CAR NFT.
A good practice is to avoid p2p trading with random users with nothing to lose. Do a quick check about the user before proceeding with trading (refer to DYOR article for tips). An even better practice is to trade using an escrow service*, especially for high-value items. Reputed escrow services are built on trust and transparency which can be used by trading users against small fees.
* = An escrow is a standard financial arrangement to add security to a transaction. The agreement includes a third party with the responsibilities of holding funds in safekeeping until the two parties meet the obligation terms.
Marketplace
In the blockchain space, the tokens can freely be traded outside the game and thus are not restricted to ingame markets. A good practice is to always check for multiple sources from reputable marketplaces for the NFTs that need to be traded. It is also possible that fake NFTs are being traded on external marketplaces and thus a good practice is to verify the smart contract address against the official one from the game company. The best practice from a safety point of view is to stick to the official ingame market as they are curated for verified/legit items only.
FOMO (Fear Of Missing Out)
Due to the nature of tokens, especially the specification of them being limited by code, the users might feel the fear of missing out. Many games in the blockchain industry have adapted the route to limit NFTs to create ‘scarcity’ and native ‘rarity’. Most games also restrict players without NFTs to enter the game thereby creating a scenario of exclusivity, either for early releases or the complete game. This is often capitalized by external users with heavy investments. A good practice is to ‘DYOR’ extensively and have a rational outlook by calculating basic numbers. Please read our DYOR article for tips on research. A bad practice is to blindly follow or take financial advice from anyone online without prior research. No one can predict the future, and no single person’s advice is better than doing your own research and coming to your own conclusions. In some cases, influencers and publishers can actually have a vested interest in causing FOMO in order to manipulate the markets in a given direction. When learning about the latest updates across the cryptocurrency markets, always try and confirm with multiple sources.
Risk Management
When we deal with value exchange, we basically take a risk. For example, if you buy bread from a supermarket whose utility is to satiate your hunger, you are taking a risk of it being good and healthy for consumption. However in this case, due to the authenticity and years of experience, you know that the probability of the bread being good for consumption is close to 100% thus a risk worth taking. When this fundamental idea is extended to the blockchain industry which is our scope, the probability varies highly, especially in the gaming scene which is rather new. Here, without doubt, we can say that the risk is much higher and thus must be managed accordingly.
A few points to remember, never invest more than you can afford to lose, calculate different scenarios (best, average, and worst-case) and act accordingly, be extra cautious with NFT investment as they are highly dependent on the success of the project and are comparatively less liquid for trading purposes.
To summarize, good practices are to perform p2p with a reputable escrow, stick to in-game marketplace or verify NFT contract on the external market, DYOR, manage risk in the worst-case scenario. Bad practices are to p2p trade with a random person, trading before verifying NFT contracts, blindly following online financial advice, managing risk in the best-case scenario, and investing more than you can afford to lose.
And that covers everything. We hope this article has given you more insights into the crypto world, and if there are any questions, don’t hesitate to join our Discord community and fire away!
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