A beginner’s guide to what Terra ($LUNA) is

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Do Kwon and Daniel Shin started Terra in 2018, and the company debuted its mainnet the following year (2019). Kwon and Shin created Terra in order to give consumers the security of fiat money while utilizing blockchain technology to make settlements quicker and less expensive than with conventional payment methods. These alternatives, according to the two founders, would boost blockchain acceptance.

A family of stablecoins serves as the foundation of the Terra Luna network, which enables simple cryptographic transactions on a worldwide scale. The founders of Terra Luna identified an opportunity for the expansion of global crypto acceptance with widespread use since they understood that the majority of stablecoins, like Tether (USDT), are tied to the value of the US dollar.

However, this so-called stablecoin UST was decoupled from the US dollar on May 9. The uncoupling set off a series of events that led to the collapse of UST, Terra (LUNA), Bitcoin, and the more important crypto sector, which has yet to fully recover.

It is advised that investors conduct thorough diligence before purchasing this digital asset owing to the significant likelihood that the entire Terra (LUNA) ecosystem could collapse. It is highly likely that this cryptocurrency will eventually be removed from the principal exchanges, at which point its value will be $0.00.

Terra is backed by the Terra Alliance. A global coalition of e-commerce companies and platforms called the Terra Alliance is promoting the use of Terra. The combined value of the enterprises in the Terra Alliance is in the tens of billions, and there are more than 45 million customers among them.

Benefits of Terra ($LUNA)

There are many advantages that Terra (LUNA) offers the market. It’s best suited for the digital economy because it’s decentralized and permissionless.

Easily compatible

The Cosmos IBC connects the many chains on which the network is intended to operate. Solana and Ethereum are now operational on Terra. In the near future, developers intend to broaden their protocol to incorporate additional successful blockchains.

Programmable

Terra is centered on continuous development, and building smart contracts on the network is possible through the use of programmable infrastructures such as AssemblyScript, Go, or Rust. The network’s oracles can also be used to provide further functionality to your Dapp. Off-chain sensors known as oracles are capable of transmitting and receiving data to and from the Terra blockchain. Especially when employed for price discovery, oracles are essential to many blockchain networks.

Integrated Financial

The main focus of Terra’s development team was to create a transparent environment. To replace the convoluted payment value chain, the network was constructed from the ground up. With a single blockchain layer, Terra specifically assists in reducing or eliminating the need for banks, payment gateways, and credit card networks.

How Terra ($LUNA) works

The Terra network makes use of blockchain technology and the methods of consensus to ensure its security and transparency, as is the case with all decentralized protocols. The consensus mechanisms that are specifically used to build the Terra blockchain are the Cosmos SDK and the Tendermint Delegated-Proof-of-Stake (DPoS) consensus mechanism.

The Terra protocol depends on a group of 100 validators that run full nodes to commit blocks to the blockchain while also validating transactions, settling disputes, and securing the network. By broadcasting votes with cryptographic signatures signed by each validator’s private key, their major function is to assist the decentralized network in achieving and maintaining consensus on the blockchain.

Validators must either bond (lock for at least 21 days) their own LUNA tokens or have other token holders delegate/stake LUNA tokens to them in order to participate in broadcasting. Delegators are owners of the Luna cryptocurrency who choose to stake their coins; they have the same rights and obligations as validators.

By taking part in the PoS consensus method, Terra miners significantly contribute to security. The network accomplishes stability by mining rewards with a shrinking and rising money supply, which also aids in stabilizing prices by absorbing short-term fluctuations in demand. Every time prices vary slightly, Terra exerts pressure to bring them back to normal. Terra’s supply is constantly being added to or taken away by the LUNA pool and Terra pool. Terra is mined by burning LUNA, and vice versa. The procedure provides consistent incentives for both contractions and expansions. So, abiding by the straightforward law of supply and demand.

The validators and their delegators are rewarded in the Terra protocol primarily in one of two ways:

👉 Payment of a minor charge to stakers is required for every transaction in order to avoid spam. Considering that credit cards and other conventional payment processors typically charge far larger transaction fees, Terra is a preferable settlement layer. These default to 0.1% of the transaction amount and are capped at 1%.

👉 Scarcity-based incentives: The protocol levies a small cost on every swap transaction between Luna and other Terra stablecoins in order to further incentivise adoption. Following the burning of the swap fees, Luna becomes scarce, rewarding all holders of the token in an indirect manner.

Terra validators nevertheless have the opportunity to vote on a variety of community-submitted protocol enhancement ideas, and this is basically another way they can engage in the governance activities of the protocol in the spirit of decentralization. It’s vital to note that Terra’s blockchain design trades overall decentralization for speed and scalability. However, the community’s voting power is proportional to the entire quantity of stacked coins, including delegations.

In other words, Terra has a much lower level of decentralization than some proof-of-work blockchains, but it more than makes up for it with a much higher transaction throughput.

Conclusion

In contrast to most cryptocurrency initiatives, Terra has the lofty goal of integrating cryptocurrency into everyday products and services that people already use, without requiring them to understand how crypto protocols operate.

It appears that Terra has identified a product-market match for its stablecoin and DeFi solutions based on what it has already accomplished in the two short years since its launch. At the same time, Terra Luna is aware that scalability and volatility are ongoing obstacles to the widespread use of cryptocurrencies.