One of the largest potential use cases for the crypto world lies in stablecoins. These tokens are pegged to other assets, such as fiat currency. The price of these tokens is designed to remain constant and can be useful for conducting monetary transactions on the blockchain.
However, multiple major blockchains have had issues with high gas fees on these transactions. Fees are continuing to rise and are turning many away from the use of stablecoins. This is where Gnosis steps in with its stablecoin, xDAI. This token is designed to be a stablecoin with low fees, fast transactions and high security.
Overview of Gnosis and xDAI
Gnosis is attempting to solve an issue that many major blockchains face, which is expensive gas fees. These fees can make transactions on the blockchain inefficient both in terms of time and money. Blockchains such as Ethereum rely on a proof-of-work (PoW) system to verify transactions. This method of consensus involves using computing power to earn the right to validate and earn rewards. This system uses huge amounts of energy and is very costly. As such, Ethereum has struggled to handle the strain of increased demand.
Gnosis is an Ethereum Virtual Machine (EVM)-compatible blockchain. While it is centered around Ethereum, it uses a different method of consensus called proof of stake (PoS). This method involves token holders giving tokens to the chain as collateral in exchange for the right to validate transactions. This method is much more accessible to the average blockchain enthusiast and can allow for a much faster and scalable consensus solution. For example, transactions of the Gnosis chain average around $0.01, while they are closer to $3 to $5 on the Ethereum mainnet. Additionally, Gnosis processes transactions within five seconds whereas Ethereum can typically take a minute or more at peak times. These features make Gnosis more attractive from both an economic and speed perspective.
GNO is the token that powers the Gnosis chain. This token is used to secure the chain through staking and governance on the GnosisDAO.
xDAI is the other token on Gnosis chain. It’s a stablecoin that is pegged to DAI, which is pegged to USD. xDAI is essentially the same as DAI, but xDAI is on the Gnosis chain whereas DAI is on the Ethereum chain.
Why do People use xDAI?
People use both the Gnosis chain and the xDAI token for several reasons. Perhaps the most important reason is the reliability associated with the chain and the token. The chain is reliable in that it maintains low transaction fees and quick processing times through its PoS system, and xDAI offers reliability in that it’s a stablecoin pegged to $1.
The Gnosis chain is used for a variety of projects. One of the larger projects is SushiSwap, a decentralized exchange (DEX) that lets investors trade crypto in a peer-to-peer manner. SushiSwap is one of the largest DEXs, supporting swapping, lending and leverage.
Another major project on Gnosis is Chainlink. This project brings smart contracts and blockchain technology to the mainstream by using the technology to provide data solutions. The project uses the Gnosis chain to access the Ethereum network while avoiding hefty transaction fees.
xDAI serves two main purposes: currency for gas fees and stable payments. Transaction fees are covered with xDAI, which also aids in keeping transaction fees low. It is used as a stable form of payment, as it is always worth $1.
Gnosis and xDAI History
In 2018 at ETHBerlin, a group of computer engineers and tech investors were discussing the state of stablecoins. More specifically, they discussed the high gas fees and slow speeds. Eventually, they came up with the idea to create a sidechain and bridge a stablecoin.
Within a month, Gnosis and xDAI were launched. Since then, the market capitalization and volume have grown considerably. As such, the developers have continually added validators to the PoS system to keep up with increased demand.
Where to buy xDAI
You cannot buy xDAI directly as it is a bridge from DAI on the Ethereum mainnet. Because of this, you will have to purchase DAI using a trading platform and then bridge it to xDAI. Some of the best places to buy DAI are Coinbase Global Inc. (NASDAQ: COIN), FTX and Gemini.
Once you purchase DAI, send it over to a wallet and then navigate to the DAI to xDAI bridge through Gnosis website. Enter the amount to bridge and execute the trade.
Gnosis Blockchain vs. Other Blockchains
Gnosis is an Ethereum-compatible blockchain, meaning that it uses all the main tools from the Ethereum blockchain but allows for creativity in terms of the consensus model and decentralized application (dApp) deployment. Gnosis created a new chain based on Ethereum and changed the consensus model to PoS to solve major issues on the Ethereum mainnet.
While the platform solves problems surrounding transaction fees and speed, it also means that the Gnosis chain is less decentralized, as it is somewhat reliant on the Ethereum chain. However, it also uses its own method of consensus, so it may not be as secure as the Etheruem network. Overall, the Gnosis chain solves a couple major issues with the Ethereum mainnet but not without drawbacks.
How to Store Gnosis (xDAI) Safely
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As xDAI is not supported by any major exchanges, you need a wallet to store your xDAI. You can choose from two types of wallets: hardware and software. Hardware wallets are often regarded as the safest way to store crypto.
Hardware wallets store the keys needed to send crypto on a physical device. If the physical device is not present to grant the keys, crypto cannot be sent from the wallet.
Ledger is a brand of hardware wallet that supports the sending and receiving of xDAI. It currently offers Nano S and Nano X models. The Nano S provides basic security while the Nano X focuses on ease of use with features such as a larger screen and Bluetooth connectivity.
So, is xDAI worth using?
xDAI has solved issues and attracted some of the larger projects in the crypto space. These projects may not be solely reliant on Gnosis and xDAI, but the user experience can be enhanced through their usage. So, if you are looking to have transactions with smaller fees and faster processing times, it may be worth taking a look at using xDAI in your crypto ventures.