perpetual contracts</strong></a> to bring the transaction price closer to the underlying asset's index price. The <strong>price of a perpetual contract</strong> is not always the same as the price of an underlying asset because a perpetual contract is a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-derivative/">derivative. /nFor instance, the price of a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-bitcoin-btc/">Bitcoin (BTC)</strong></a> <strong>perpetual contract</strong> during a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-bull-market/">bull market</strong></a> is generally higher than the price of BTC in the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-spot-market/">spot market</strong></a>. This happens because people are more <strong>bullish</strong> and believe that the price will continue to grow.</p>\n<p><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-funding-payments/">Funding payments</strong></a> were adopted by derivatives exchanges to reduce the difference between <strong>the spot market</strong> and the perpetual market. <em>How does it work? </em>Funding payments between traders are made automatically at fixed intervals (e.g. every 6 hours). </p>\n<p>Traders on the <strong>long</strong> side during a bull market (the more popular side) pay to the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-short/">short side during a bull market (the less popular side). This way people are encouraged to open a position on the less popular side which drives the price towards the spot price.</p>\n<p>Funding payments are calculated by multiplying the notional value of a trader’s position by a rate that shows the price difference <strong>in a given interval</strong> (e.g. 6 hours). This rate is called the funding rate. How high the funding rate is, depends on how big the price difference is in a given interval. </p>\n<p>When the funding rate is positive (above the spot price), <strong>short position </strong>traders receive funding from long position traders. However, when the funding rate is negative (below the spot price), it’s the other way around. The <strong>funding rate reflects</strong> the cost of capital and the steepness of the futures curve, as well as the sentiment of a trader on a particular <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-exchange/">exchange. The rates might vary depending on various market conditions.</p>","level":"medium","meta_title":"What are Funding Payments? Definition & Meaning | Crypto Wiki","meta_description":"Funding Payments meaning: Funding Payments - periodic payments between traders that are intended to reduce the difference between the spot market price and the perpetual market price.","meta_keywords":null,"language":"en","created_at":"2022-03-15T15:47:05.000000Z","updated_at":"2022-05-13T14:32:23.000000Z","preview_url":"https://www.bitdegree.org/crypto/learn/crypto-terms/what-are-funding-payments"},"prevSection":{"id":360,"original_id":null,"author_id":42,"translator_id":null,"title":"What is Fork (Blockchain)?","slug":"what-is-fork-blockchain","section":"F","keyword":"Fork (Blockchain)","status":"published","definition":"the formation of a new version of the blockchain, which allows two blockchains to operate at the same time.","content":"<p><strong>A fork happens when two different versions of <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-blockchain/">blockchain appear due to a split that occurs</strong>. Since a blockchain network is open-source, everyone can make changes to the code, which usually results in blockchain updates. Forks can also be used to enable new features, eliminate bugs, or address the effects of major <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-hacking/">hacking.
/nIn addition, a fork can happen when the software updates of miners don’t align with each other. In this case, the mining community should pick one of the blockchain paths to continue mining. Though if for some reason they cannot come to a unanimous decision, there will simply be two different versions of the blockchain. The extent to which blockchain will be altered depends on whether a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-hard-fork-blockchain/">hard fork</strong></a> or a <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-soft-fork-blockchain/">soft fork</strong></a> occurred.</p>\n<p><strong>A soft fork</strong> is the addition of a new backward-compatible rule to the protocol that will not clash with older rules. This means that non-upgraded <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-node/">nodes will successfully communicate with upgraded nods. This change is not dramatic because new <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-block/">blocks will still be recognized by old nodes.</p>\n<p><strong>A hard fork</strong>, on the other hand, is a massive change to the protocol that could result in the creation of new digital currencies. For instance, when the <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-bitcoin-btc/">Bitcoin blockchain</strong></a> split into two, Bitcoin Cash was created. </p>\n<p>The changes that happen during a hard fork are permanent and not backward compatible meaning that all nodes must be upgraded because the old version of the software will not work with the new one. The new version of blockchain appears after the hard fork, creating its own transactions and blocks.</p>","level":"easy","meta_title":"What is Fork (Blockchain)? Definition & Meaning | Crypto Wiki","meta_description":"Fork (Blockchain) meaning: Fork (Blockchain) - Fork – the formation of a new version of the blockchain, which allows two blockchains to operate at the same time.","meta_keywords":null,"language":"en","created_at":"2022-03-15T15:43:30.000000Z","updated_at":"2022-12-23T13:54:02.000000Z","preview_url":"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-fork-blockchain"},"currentChapter":"F","currentSection":"what-is-front-running","chapterTitle":"F","readingLevel":"easy"},"url":"/crypto/learn/crypto-terms/what-is-front-running","version":"cdd198d50cbe5c9c21c9329d7c096ffc"}" class="container-fluid d-flex crypto-book p-0"> Crypto Terms: Letter F
What is Front Running?
Front Running MEANING:
Front Running -
an illegal practice of putting a transaction in a queue after gaining advantageous knowledge about future transactions.
Let's find out Front Running meaning, definition in crypto,
what is Front Running,
and all other detailed facts.
On a blockchain platform, front running occurs when a miner with access to information on pending transactions places an order that will profit him from a pending trade. On the Ethereum blockchain, for example, when bots have the ability to quote a higher gas price than a pending rate, front running might occur.
There are also other parties that are capable of front running like, for example, full node operators that gain knowledge of uninformed transactions by monitoring network activities. Centralized exchanges (CEXs) can also perform front running but it's not in their best interest to cheat on their clients. Overall, there is a variety of methods that can be used to arrange front running.
Since front running is an illegal practice, it is also referred to as an attack when there is malicious intent included. There are three main types of malicious attacks using front running:
- A displacement attack which happens when a genuine transaction is replaced with the transaction of the malicious actor.
- An insertion attack which happens when a genuine transaction is "sandwiched" between two transactions aiming for profit without holding an asset.
- A suppression attack which delays the execution of a genuine transaction.
Front running can be prevented by improving transaction confidentiality and sequencing transactions. Confidentiality can be applied to many different parts of a decentralized application (DApp). Transaction sequencing, on the other hand, can be achieved using implementations like the canonical transaction ordering rule used by Bitcoin (BCH).
