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Monday, 5 September 2022
Issue #5 | Wednesday, 3 august 2022
Optimism. L2 solutions For Ethereum
In the last newsletter we introduced Layer 2: The Second Breath of Ethereum, examples of Layer 2 networks and general information about them. In this article, we take a closer look at the Optimism network
What is Optimism?
Optimism is a Layer 2 (L2) open source solution for the Ethereum blockchain. The platform aims to solve the ETH scalability problems that cause users of the network to face high fees and transaction delays. Optimism allows users to send transactions on the Ethereum network and execute them faster with much lower gas fees.

Optimism has been developing an Ethereum scaling solution using Optimistic Rollup technology since June 2019. The company was previously known as the nonprofit Plasma Group (2019). At that time it was mainly engaged in research, and since 2020 it has actually started the practical part one of the principles of which implies the refusal to check all transactions. Instead of constant monitoring, Optimistic Rollup analyzes only those transactions that are challenged by system participants.

Sequencers are responsible for conducting transactions. Such nodes sign commitments to execute transactions as declared. If it is necessary to organize checks, the system involves the second type of network nodes - verifiers. Such nodes are responsible for network security.

Verifiers can challenge the decisions of sequencers. The process may take about a week. If a node detects a fraud which the sequencer is responsible for, the latter is punished. The verifier himself receives a reward. The reward system stimulates the participants of the system to work honestly.

The new network is the second surface layer of the Ethereum blockchain. All the main information is stored in Ethereum, but some of the transactions are processed in Optimism, the 2nd layer network. The second network offloads the first one and due to this the speed of transaction processing increases noticeably. As for commissions, for example, on the Uniswap exchange they are reduced from 10 to 100 times.
How is Optimism managed?
Optimism has a native token - OP. OP is Optimism's project management token. launched in 2022. The tokens were distributed by airdrop to 232000 users. I believe that the launch was quite unsuccessful. Tokens were received by many participants in order to sell, not to develop the project, which led immediately to a sharp drop in price.

Interesting Facts
One of the most unusual natural phenomena is an upside-down rainbow. It is extremely rare. For it to appear, a thin cloud of frozen crystals must form at least 8 kilometers above the ground. The sun's light must fall at such an angle that it splits into a spectrum reflecting backward. In this case, the colors we are accustomed to will also be displayed upside down - red at the bottom and purple at the top.
How Optimism works?
Optimism, like other L2 solutions for Ethereum, creates a second network on top of ETH (link). It groups transactions and processes some of the computation to take the load off the main blockchain. Ethereum, on the other hand, records the results. This approach speeds up the project's main blockchain.

The second-tier Optimism solution is based on Optimistic Rollup technology. Its essence is the formation of a sidechain (additional blockchain).

I think, that it was necessary to do a vesting period of at least 2 years and a betterchoiceofparticipants,towhomtoissuetokens.

The consensus is achieved through cooperation between the Optimism Foundation and members of the collective (Optimism Collective).

The core governance structure of the collective consists of two equal houses: the Token House and the Citizen's House. These two houses are tasked with balancing short-term incentives with a long-term vision toward the fulfillment of the Optimism Vision;

  • "Citizen's House" votes on OPtoken distributions under the Stewardship Fund, protocol updates, initiative projects, and more
  • Citizens from the "House of Citizens" will be"soul-bound, "non- transferable NFT tokens. Citizens will be involved in the process of distributing retroactive funding.
How to use?
To transfer assets from the primary blockchain to the secondary blockchain, a proprietary gateway (link) (Project Bridge) is used. Alternatives such as Celer Bridge or Hop Exchange are also available.
Optimism benefits
Almost instantaneous transaction completion.You are informed instantly if the transfer took place or not;
The cost of fees is reduced by a factor of ten
A high level of reliability and the effect of decentralization;
Simplicity - all Optimism blocks are stored in a special Ethereum smart contract, called Canonical Transaction Chain
Optimism's core network only launched in December 2021.And there are still many vulnerabilities in the network
Optimism work separately, it is not clear what problems may arise when merging L2 networks.

In my opinion the Optimism network is one of the steps everyone has been waiting for . The Ethereum network is one of the most popular, but it is "not modern" for many DEFI projects. It is like transporting 20 people on a motorcycle, it is expensive, long and impractical. The project has a future, many participants, who received the AIRDROP, immediately sold it and the remaining participants who are really interested in the development of the project. The distribution of tokens - this is one of the worst decisions Optimism Network, I am sure the team will draw conclusions.
Animoca Brands
Today let's talk about a company that every gamer should know about - the Animoca Brands blockchain game fund and developer.
You may ask, what is so remarkable about this company? Animoca Brands is a Visionary Company. A visionary is an economic analyst and strategist who can foresee or influence future market developments.

Having analyzed the experience of the company in recent years, I want to share with you the conclusions I have made. In the period 2018-2020 (link) they invested in the then incomprehensible markets GameFi, Metaverse, and NFT. Only three investments today account for >45% of Metaverse market capitalization: Decentraland, Sandbox, Axie Infinity.

In 2018, the company reported (link) the largest revenue in its history of $14 million.

And in 2022, the company is valued (link) at >$5 billion. And the total value of its assets is >$16 billion. As a result, from a little-known mobile app developer, the company managed to become a well-known and indispensable player in the blockchain and game industry, building a bridge between the world of cryptocurrencies and the real world, through work with major global brands from Disney and Warner Music, to the NBA and F1.
Company History
Animoca Brands, formerly Animoca - avid game and mobile app developers, since the beginning of 2011 developed 300 apps receiving >220 million downloads, in 2014 changed course to engage extensively with the market not only in development, but also in networking and famous collaborations. Helping famous brands enter the world of mobile gaming, Animoca found a successful side business in doing so. That's how Animoca Brands came to be.

From 2014 to 2018, the company was actively buying up off-the-shelf solutions, building its own portfolio of assets, intellectual resources, and connections. The company was getting cool specialists, new technologies, and connections to pop culture brands.

Then in 2018, Animoca Brands partnered with CryptoKitties, one of the first popular play-too-hern games, and it excited the market so much that the companies joined forces* to form Dapper Labs, with Animoca becoming their patron (link).

Below I will tell you the significant company events of 2018-2022.
Significant Events 2018
  1. Participating in conferences (link) with Decentraland, Coinbase on the topic of gaming NFTs. This is in 2018.
  2. Joining the company is Holly Liu, co-founder of KABAM (link), game developers for Disney and Marvel.
  3. HTC is developing (link) a blockchain-focused phoneN
  4. Acquisition (link) of The Sandbox Game and developers for $5 million.
  5. Enter into a partnership (link) with a development platform from Tencent, the developers of LoL, PUBG, owners of 40% of Epic Games.
  6. Voiced (link) her strategy for introducing the play-to-earn format in today's games.
  7. The Hong Kong government gives (link) a grant to a company to develop a fitness app.
  8. Partnering (link) with Decentraland to bring the recently acquired The Sandbox Game to blockchain.
Significant Events 2019
  1. Attracts first investment (link) for its recent acquisition OliveX, a fitness app integrating blockchain technology and artificial intelligence
  2. Officially partnered (link) with Formula 1 to create the blockchain game F1DELTHATIME
  3. Collaboration (link) with 9GAMES, the gaming division of Alibaba
  4. Warner Music is investing (link) in Dapper Labs and partnering with Ubisoft and Animoca Brands to develop a blockchain-based racing game.
  5. Invested (link) in Axie Infinity. And this in 2019!
  6. Acquires (link) nWay, developers of games for Power Rangers and WWE
Significant Events 2020
  1. #5 in the ranking (link) of blockchain companies
  2. Square Enix, creators of Final Fantasy invest (link) in The Sandbox
  3. NBATOPSHOT has officially (link) launched!
  4. Animoca Brands is gradually selling (link)off its portfolio of previously created mobile games and pouring capital into blockchain
  5. The company invests (link) in Opensea
  6. Acquires (link)a blockchain-based fitness app, LYMPO.
Significant Events 2021
  1. Enter into a strategic partnership (link) with Binance Smart Chain
  2. Launching (link) motoGP
  3. Partnering (link) with Immutable
  4. Invested (link) in Alien Worlds, one of the most popular play-to-earn games in 2021
  5. Partnering (link) with ZEPETO, a meta-universe platform, fast-growing avatar service that has partnered with Disney, One piece, Gucci, Nike, The North Face since 2018. Have a user base of over 200 million people
  6. Partnering (link) with the Olympics
  7. An investment (link) in Metamask
  8. Collaboration (link) with the most popular and expensive NFT collection - Bored Ape Yacht Club to create a play to earn game
Significant events of 2022
  1. Strengthens (link) the relationship with the Hong Kong government: Sandbox is part of the city's cultural project
  2. An investment (link) in Sygnum, the first digital asset bank. The partnership is aimed at the expansion of the web3 market
  3. TRLAB (link) is a platform for finding and interacting with the world's leading NFT artists
  4. Strengthened (link) their friendship with Warner Music Group, Sandbox will join the music universe
  5. Investments (link) in Soma finance -The project aims to launch trading in tokenized stocks, ETFs and crypto-assets
Animoca Brands is worth (link) $5 billion. And their portfolio is valued at over $16 billion as of November 2021. By the way, in 2018, the company reported record revenues of 14 million

To summarize, it is hard to imagine the capabilities and knowledge of a project with such a history, which has assembled such an incredible team.
As we see it, it has helped companies from 0 to grow to a value of $1 billion. The technology that the company is developing and investing in is increasingly penetrating into real life and interacting with more and more people.
This is the future that awaits us all.
You will be able to earn tokens just by going to work, watching celebrity concerts in virtual reality and buying things for your characters in meta universes.
My recommendation to you is to keep an eye on the projects that the company invests in, because this will allow you to be always aware of the development of technology for several years ahead and possibly become part of the team of these projects, so do not miss your chance. #KYEP
Blockchain Oracles
Today let's talk about a company that every gamer should know about - the Animoca Brands blockchain game fund and developer.
Blockchain oracles - what are they, how do they work and why are they needed?
Blockchain is a completely digital technology. So by default we think that it has no contact with the real world. That used to be the case before oracles and smart contracts.

Blockchain oracles are services that take data from the real world, process it, and send it to a smart contract. They have become key tools in the DeFi world and a bridge between crypto and the rest of the world. In this article, I will explain to you what an oracle is, why such technology is needed, and whether all oracles are secure. So, here we go!
What are blockchain oracles and why are they needed?
First, it is important to understand why oracles appeared and what problems they are supposed to solve.

Oracles are computer programs that link data from outside the blockchain to the blockchain world (the onchain).

Blockchain technology is very useful. But it can be compared to a computer without internet access. Blockchain stores data on the network, but it cannot process external information. For a long time we had the problem of compatibility between different blockchains. Now with the advent of smart contracts and WEB 3.0, blockchain is evolving into a large-scale and transparent technology that has no boundaries.

Now let's remember what smart contracts are. They are computer programs that operate on a blockchain protocol, automatically executing predetermined actions when specified conditions are met. All actions in smart contracts are traceable and cannot be undone. Smart contracts are executed without the involvement of a third party. They can be made up to fulfill almost any contract.

For example, if you buy a house for cryptocurrency, you can make a simple smart contract to sell. It would look something like this: if person A sends the required amount to person B, the title deed will be transferred from person B to person A.

When the conditions of the smart contract are fulfilled, it is irreversibly executed according to the programmed rules. This eliminates the involvement of third parties or intermediaries.

But for smart contracts to have any real-world application, they must take information from the real world. In the example of a transaction involving the purchase of a house, a notarial deed or an insurance company might be required. Because blockchains operate autonomously, they do not have access to that information. This is where oracles come into play.
There are many instances where third-party information needs to be transferred to a closed blockchain system. Especially when smart contracts involve real events. Cryptocurrencies can search, verify and authenticate external information and then transfer it to the closed system. This authenticated data is then used to verify the smart contract. To understand exactly how oracles work, here's another example.

Dave and Rob have a bet about who will win the Champions League final. Dave is sure Real Madrid and Rob is willing to bet on Barcelona. They make a bet, agree on the amount they will win, and sign a contract. Dave and Rob lock up their money in a smart contract. It will give the prize to the winner based on the result of the match. But how will the smart contract know who won the final match? It is the oracle that will give it that information.

The oracle will ask the trusted APIs to figure out which team won and send the information to the smart contract. The contract will then award a prize to Dave or Rob, depending on the result of the match. If not for the oracle, the smart contract would not be able to determine who won.
Types of oracles
Blockchain oracles come in different types: inbound and outbound; software and hardware; human and digital; centralized and decentralized.
Let's get into the details.
Inbound Oracles
Oracles communicate with blockchains in one of two ways:they can send data to or from the network. Inbound oracles are used much more frequently. They send real-world event data to the blockchain. Almost any kind of information can be imported-the current price of an asset, the weather, legal documents, statistical data, etc.

An example of using incoming oracles: "if an asset reaches price X, a buy order will be placed.
Outbound oracles
As you understood, an outbound oracle informs the outside world what happened in the blockchain. For example, a smart contract can be programmed to open a smart lock in a real hotel room if the company receives a payment in cryptocurrency to a specified address. This type of script is already being used by some hoteliers.

Software oracles
Such services process information from digital sources. For example, data from websites or servers.
Hardware oracles
Hardware oracles transfer data from the real world. So, they can synchronize with motion sensors, cameras, thermometers, barcode scanners, smart scales, and so on
Human and digital oracles
Usually oracles interact with programs and databases. But a real person can also give information and then transform it into a smart contract
Centralized Oracles and Their Risks
Centralized Oracles are controlled by a single provider-owner. He will be the sole provider of information for the smart contract. And then there is the issue of trust from the parties to the contract.

In a centralized system, we have a single point of failure, which in theory threatens the security of the smart contract. After all, if the oracle falls into the hands of a fraudster, the smart contract is also at risk. As we mentioned earlier, the accuracy and efficiency of smart contracts depends largely on the quality of the data they provide.

Smart contracts were originally invented to eliminate the risk of intermediaries and third-party control. Oracles allow parties to enter into contracts without an intermediary. But if the developer company controls a large share of the market, the oracle itself becomes an intermediary. This is the fundamental problem with centralization. It cannot provide adequate security and integrity.
Decentralized Oracle Network (DON)
Decentralized oracles distribute trust among many network participants. They use dozens of different data sources and are not controlled by a single organization. Therefore, these oracles provide greater reliability and integrity.

The most popular blockchain projects operate as decentralized oracles. They are Chainlink, Band Protocol, Augur and MakerDAO.
Examples of Oracle Uses
Oracles in the blockchain ecosystem solve different tasks. Here are the most prominent examples of usecases.
The combination of smart contracts and finance has ushered in the era of decentralized finance (DeFi). These products need to connect to accurate data sources (e.g., monitoring prices or trading volumes). That's the task oracles are taking on.
Insurance products can be purchased through oracle, and claims can be paid. Fraud is known to be the biggest problem in insurance. This problem can be solved through blockchain decentralization and reliable oracles. Services capture surveillance footage and satellite imagery, transmit legal information, and record the terms and order of payments under the insurance contract.
Oracles can replace the usual centralized GPS systems in logistics. They automatically transmit delivery and payment data from counterparties, check documents, track shipments, and more.
Maintaining Stablecoin
MakerDAO's DAI token uses a network of multiple oracles to constantly monitor the Ethereum price. Why? The protocol must continuously monitor the exact price of ETH in order to maintain rate stability. Depending on the data presented, MakerDAO consolidates or liquidates its security.
Dynamic NFTs
Oracle forecasters have discovered a new kind of dynamic NFT. Such tokens can change their appearance depending on different factors (e.g. time of day or weather). Computational oracles help projects assign randomized attributes to art tokens or select random winners in airdrop.
Blockchain games
Mathematical oracles make gameplay more unpredictable. For example, they are responsible for randomly dropping lootboxes or picking contestants.

Oracles remain one of the key building blocks for the new WEB3 era. They need to be implemented safely and thoughtfully so that the entire blockchain ecosystem can grow freely.
The importance of oracles in smart contract technology is enormous. Without them, decentralized applications (dApps) cannot be developed. They are directly dependent on external data outside the blockchain.

Oracles serve as a bridge between smart contracts and the outside world, enriching and evolving the technology. This is why they are an integral part of the WEB3 industry.
Cryptocurrency mining is the process of creating digital currencies. But it should not be compared to the issue of money, because in mining there are certain functions and tasks for the performer. The fact is that most cryptocurrencies operate on the principle of decentralization. This means that all transactions in the network are not handled by some central authority, for example, in the form of the familiar National or Central Bank, but by any willing user connected to the network. And in order to motivate users to spend their time and computer power to process transactions - the system creates, and accrues to miners remuneration in the form of cryptocurrency or its part for a certain number of processed transactions.
But it's not as simple as it looks at first glance. Most cryptocurrencies are based on blockchain technology, which means that each transaction contains information about all previous transactions on the network since the creation of the digital currency. Therefore, the complexity of processing cryptocurrency transactions is constantly increasing, and only one miner who first processed the transaction receives the reward. Thus, mining is not a speculation and a game, but a serious job that requires certain knowledge; an investment that can bring both profit and loss.
Is it possible to make money from mining in the middle of 2022?
As of July 15, 2022, bitcoin mining revenue has fallen nearly 80% (link) in nine months after reaching a record $74.4 million in October 2021.

As card manufacturers resume operations around the world, GPU prices have plummeted, with some cards selling for less than the manufacturer's recommended retail price. In May alone, GPU prices fell more than 15 percent (link) on average, as supply exceeded market demand. Moreover, the recent

Moreover, the precipitous drop in the price of GPUs has opened up a small opportunity for small-scale miners to purchase more powerful and efficient mining equipment. Combined with lower hashing rate requirements of 203.6 hashes per second, miners now require less processing power to successfully mine a block in the Bitcoin blockchain.

Thus, the cost of mining 1 bitcoin has dropped from $24,000 in early June to $13,000 now, which can be seen as a great reason to start mining.

Depending on the equipment and software used for mining, as well as the type of their owner, mining is divided into: CPU mining, GPU mining and ASIC mining.
The advantages of CPU mining are:
- The small amount of capital required to start mining compared to GPUs;
- Ability to use Smart Mining for mining

- Low profitability.
Advantages of GPU mining:
- Ability to mine almost any token;
- Fast switching to mining other more profitable cryptocurrencies.

- Not the highest hash rate.
Advantages of ASIC mining:
- Efficient mining of any cryptocurrency, including bitcoins;
- High profitability.

- High cost of equipment;
- High electricity consumption.
Previously, when it was profitable to use CPUs (processors) or GPUs (graphics cards) to mine the most popular coins, we always had the ability to quickly adapt to the cryptocurrency market. As soon as the rate of a coin dropped, we could immediately start another miner (cryptocurrency mining software) and start mining a more profitable coin.

Now that ASICs are taking most coins by storm, there is only one strategy: choose a coin, buy an ASIC for it and pray that the coin pays off quickly. GPU mining is still an option, but the number of coins we can mine is now limited.
By choosing the right mining equipment, you can provide yourself with a nice passive income. If you plan to mine a specific cryptocurrency, use ASIC devices, but for mining different tokens it is better to use video cards.

But apart from buying mining equipment there is another resource that you will need, and that is electricity. Modern mining farms consume a huge amount of electricity, and we know that electricity is not free.

The cheapest electricity is in Kuwait at $1400 per bitcoin, and the most expensive to mine in Cuba ($77,000) and Venezuela ($246,000). In the U.S., the cost of bitcoin mining ranges from $15,000 to $54,000 depending on the state, averaging $21,000, and in Canada $24,000.
For more detailed information about the profit, you can use the mining calculator (link), you just need to specify your equipment and the price of electricity.
Perhaps, in the future we will mine super profitable coin from ECO directly on our smartphones. I personally would like to see such a future :)
Mobile devices. Are they a dead end or our future?
Every morning we wake up to the sound of the alarm clock on the phone, then we watch the news on our devices and all our work and life depends on the phone. There is a saying "No man, no problem". But now in the age of technology this phrase can be rephrased as "No phone, no man", just a shadow we can not even express emotion so we are used to express our emotions in the form of brackets. The age of advanced technology gives us opportunities that we do not even use at least 50%, for example communication through hashtags, ordinary communication, before the receipt of information, we tried to use it to the maximum (link).
The emergence of new devices has given the world a new face in the form of new technology programs, which undoubtedly affects our world progress, but at the same time people are alienated from the world begin to live in their imagination, and this is a new problem of humanity called the epidemic of loneliness (link). There is a theory that the Internet is very destructive for people, it makes them withdrawn. You just think even before the older generation was confused by how young people can live in a virtual world, around the clock not to leave their gadget, but now even older people are trying to master the World Wide Web and technology. But in addition to learning new technology, society was obliged to learn new technology, because progress has trapped us. The paradox is that the more users are online, the more isolated they become. Statistics in Britain say that every average person checks their phone over ten thousand times in one year, and then think to yourself if you forget your phone for example in the store, I think you will definitely break the world record for running for the phone.
In ancient times, messages addressed to a particular person or group were conveyed through the services of messengers. This profession was very dangerous, because if you had to deliver a letter with bad news, the likelihood of execution was quite probable.

The messengers of ancient Egypt had to take care to have a will, especially those who delivered letters outside the state, as their lives were in constant danger. Both wild beasts and the cruel mores of foreigners posed a danger. Even special identification signs (bells in Japan, red shields in Russia) could not guarantee the safety of the messenger's life and health (link).

The messages were cords of different lengths and colors with knots. On the territory of modern Mexico and Peru such a message was called kipu. Its meaning was determined by such parameters as the way of tying, the number and location of knots.
And they could not have imagined that now many people abbreviate the words to get the information faster, or even better "emoji".

But what does the future hold? Every year we wait for a new device, to see how technology develops, what new design our gadgets will be. It can be called an acquaintance with the other half (i.e. how many thousands we will spend on the new gadget, how long it will last, how much use it will be, and how much time we will spend together).

Progress since the iPhone has given rise to new smartphones, new gadgets, and new possibilities for getting information. After touch-sensitive smartphones and telephones the era of flexible, very thin, transparent gadgets is coming, which will be controlled by voice or thought, and even later there will be virtual communication devices, whose image will appear in the air if necessary (like in science-fiction movies).

Investments in technology over the next ten years still rely on devices that need to be worn, even if it is just glasses. But the most incredible, cutting-edge and unpredictable developments will go much further.
The development of new technology is in its very early stages, but it is already intended to be a bridge between us and computers (link). This is the next step, even beyond the aforementioned merging of the digital and physical worlds; man and computer must become one. The idea of man merging with a machine is terrifying.If this can be accomplished, our cognitive abilities will be greatly enhanced. More importantly, though, new people will emerge, emotionally, spiritually, and consciously very different from us. When this happens, we can't even imagine how our experience of being will change. Fiction writers, engineers and philosophers can legitimately raise the question of what makes us human in the first place. At the same time, the idea is so new that no one really knows what it will look like in practice.Thus, if and when smartphones die out, it will mean the end of more than just their era. It will be the end of the passive mechanisms we carry around with us and the beginning of something that will connect our bodies directly to the flow of digital information. It will be a very different world. As they say, welcome to the matrix.
Why The Euro Is Falling?
Is it Worth Buying Euros Now?
The euro has fallen 12% against the dollar since the beginning of the year.
Since its inception in 1999, the single currency has been below parity (link) with the U.S. USD for a very short time. In fact, the last time it did was between 1999 and 2002, when it fell to a record low of $0.82 in October 2000. Euro banknotes and coins were not put into circulation until January 1, 2002, and the currency existed only until that day as the unit of account for cross-border transactions.

In its relatively short two-decade history, the euro is the second most sought- after currency in the world's foreign exchange reserves, and daily euro/dollar turnover is the highest among currencies in the global market at $6.6 trillion a day.

Rates such as sterling and the yen have also fallen this year, in part because of more aggressive rate hikes in the U.S., which have increased the dollar's appeal, but also because fears of a global recession have caused investors to flock to the safe haven dollar.
Is the conflict between Russia and Ukraine the main reason for euro currency weakness?
The pair of the planets two major reserve currencies entered the current year of 2022 at 1.14, but after Russia launched a special operation against Ukraine, the euro began to rapidly depreciate from late February. On July 8, the two currencies nearly equaled in value for the first time in two decades, and on July 11. On July 11 the situation repeated itself. Parity was fixed in the morning of July 12.

The war in Europe alerted many international investors who began to withdraw their assets into dollars. The European Union announced unprecedented sanctions against Russia, severed traditional ties with the Russian economy and faced an energy, above all - gas crisis (link), which threatens to plunge the EU countries into recession.
However, if we look at the chart of the euro-dollar pair quotes for a bit longer period, it is clearly seen that consistent decrease started back in the first half of 2021, when the rate was still above 1.22. The reason for this trend was the expectation of the world financial market participants that the rising global inflation caused by the pandemic would force the U.S. Federal Reserve (Fed) to raise interest rates earlier, faster and more radically than the European Central Bank (ECB) was prepared to do.
And increases in prime rates by central banks lead to higher government bond yields. When the interest rate in one country goes up, it increases the demand for that currency (because by holding it, investors get higher interest rates). However, if at the same time another country's interest rate rises at a faster rate, the demand for the second country's currency will increase more. In simple terms, government bond yields are an indicator of investor confidence. For example: In October 2021, the U.S. interest rate outlook began to improve significantly as the Federal Reserve began to consider raising rates. At the same time, the outlook for the European Central Bank and the Bank of Japan still suggests that interest rates are stuck in negative territory. This has led to higher U.S. bond yields relative to the Eurozone and Japan. As a result, the bond yield differential shifted in favor of the U.S., and the U.S. dollar strengthened against the euro and Japanese yen.
The U.S. Federal Reserve raised its benchmark rate sharply while the ECB waited.
And so it was: the first increase since 2018 was 0.25 percentage points in March 2022, followed by a 0.5 percentage point increase in May. - On June 15, the Fed raised the benchmark rate by 0.75 percentage points (link) at once, which it has not done since 1994. And it will continue that course in the coming months, while the ECB will just start to move away from zero percent in July, apparently in a small step of 0.25 p.p.
This ever-increasing difference in interest rates and, accordingly, in government bond yields between America and Europe has been the main reason for the depreciation of the euro and the strengthening of the dollar, while the war in Ukraine and its consequences for the European economy have further exacerbated this trend. The fact that the American currency is strengthening is evidenced by the fact that its rate has significantly increased not only against the European, but also, for example, against the Japanese monetary unit. On July 11 the yen fell (link)against the dollar to its lowest level in 24 years.
Is now a good time to buy euros?
For those planning a summer trip to Europe with currency in dollars, it's a great way to save money. A year ago, the euro was worth just under $1.20, which means travelers will get a much better return on their investment this summer. For those planning to travel in the more distant future, the question becomes whether the price of the euro will continue to fall. Despite the threat of a further economic downturn in Europe, some experts suggest that it will recover some of its value in U.S. dollars in the coming weeks.