Splinterlands Economics: Exchange Rates
Hello everyone! We are back again today with another edition of Splinterland Economics - a series in which we introduce a basic economic concept and then apply it to Splinterlands. If this is your first time reading, just to tell you a little bit about myself: my day job is in an unrelated area but I consider myself a little bit of economics nerd - I read a little (or maybe way, way) more news than I should, double majored in econ, and am obsessed with optimization. I love the way Splinterlands is equal parts card game and resource allocation game. My goal with these articles is to share a little bit of what I know with you all.
Our subject today has to do with something that happens when you have multiple currencies to deal with. If you have done some travelling to a foreign country or have spent a significant amount of time in crypto then you probably already have some experience with the concept for this week. Today, we will be talking about exchange rates!
What is an Exchange Rate?
As I mentioned in the introduction of this post, exchange rates arise whenever you have multiple currencies which may be exchanged with one another. An exchange rate is the price of one currency that it would cost to purchase another currency. For example, if the exchange rate of Japanese Yen to US Dollars is 120, then that means that you can purchase one dollar with 120 yen. An exchange rate may be applied to any pair of currencies which may be exchanged for each other in some way. Do note that an exchange rate deals purely with the amount of currency you can get, which is related to but different from your purchasing power, which we went over a couple of weeks ago.
Exchange rates are important because different currencies have different uses. A random shop in the EU may not accept your US Dollars, Chinese Yuan, or Mexican Peso. In order to make a purchase from that merchant you would be required to exchange your money into Euros, at a price dictated by the exchange rate. The exchange rate is one factor which will dictate the purchasing power of your money, in whichever form you happen to be currently holding it. And exchange rates can make significant differences in your purchasing decisions, since exchanging currencies may occasionally result in significant changes in your purchasing power. As a result, travelers may be more likely to visit countries with a more favorable exchange rate since their spending money can go farther, with similar rationale guiding companies which are making international purchases and importing or exporting goods.
Exchange rates are complicated and many factors determine them, but you may think of many different currencies being exchanged in a marketplace. So the rules of supply and demand often apply to currencies, with the exchange rate taking the place of a concrete price. Factors which increase the demand of a currency or decrease the supply - for example, if there are firms producing desirable goods and only accepting payment in a particular currency, or if a country has a central bank implementing a "tight" monetary policy - will tend to make a currency more valuable and increase its exchange rate. On the other hand, factors which increase the supply or decrease the demand of a currency, such as inflationary printing of currency or overzealous regulations which make transactions more difficult, will tend to make a currency less valuable and decrease its exchange rate.
How do we apply it to Splinterlands?
Splinterlands is a game with many different currencies. Most of those currencies may be exchanged for one another, and on top of that many of those Splinterlands currencies may also be exchanged for currencies which are outside of the Splinterlands ecosystem. There are a wide variety of ways to buy and sell different currencies, such as the Hive Engine marketplace and various bridges and liquidity pools. This means that any time you want to make a purchase or hold on to your savings for a sizable amount of time, it is helpful to be aware of what the exchange rates are and which direction they may be likely to move in. There are also cases where making payments in different currencies will have different costs depending on how you pay. For example, when making purchases, using Vouchers or DEC can occasionally result in a lower overall cost - which you may be able to take advantage of depending on the current exchange rates.
This seems like a lot to keep track of - and it certainly is! But luckily there are some tools which make figuring out exchange rates in Splinterlands a little bit easier. One of my favorite third party websites is Splintercards, which displays the exchange rates of several cryptocurrencies right on its front page. For example, right at the top you can see the price of DEC, which may also be thought of as the exchange rate of US Dollars to Dark Energy Crystals. There are also helpful rates for various other currencies, both on the Hive blockchain and outside of it. The exchange on Tribaldex of Hive Engine also has prices listed for a wide variety of currencies and assets. As always, do your own due diligence before performing large transactions, but I have personally found Splintercards and Tribaldex to be excellent places to reference whenever I am trying exchange my currencies.
Why should we care?
While keeping track of everything would certainly be simpler if it was all priced in a single currency, the reality is that most of us will be dealing with multiple countries, ecosystems, or blockchains at one point or another. And this means that understanding the concept of exchange rates (and how they work) while operating in these areas is extremely helpful, or perhaps even necessary.
Keeping exchange rates in mind when you are thinking about spending or moving your money around helps you to be aware of which purchases are in your budget, and can even save you some cash. Notably, different methods of buying and selling currencies (and yes, swapping counts as buying and selling!) may result in different effective exchange rates due to variations in fees or amounts of liquidity, so you may save yourself a lot of money by doing your due diligence. Doing some research on where to take your next vacation? It may benefit you to see if any of your candidate locations have an exchange rate which could increase your purchasing power and help you to get a nicer experience for the same amount of money!
Thank you so much for reading all the way to the end. Interested in seeing some more of my writing in the future? Be sure to give me a follow! In the meantime, if you'd like to see some of my recent posts:
Share Your Battle Challenge - Using Dragons in Battle! - Last week's battle challenge, featuring the Dragon splinter!
Splinterlands Economics: Government - An overview of the role of government in economics, and how we can apply it to Splinterlands!
Splinterlands Economics: Purchasing Power - An overview of the concept of purchasing power, and how we can apply it to Splinterlands!
Thinking about giving Splinterlands a try but haven't signed up yet? Feel free to use my referral link: https://splinterlands.com?ref=bteim, and be sure to reach out to me if you have any questions!
All images used in this article are open source and obtained from Pixabay or Unsplash. Thumbnails borrowed with permission from the Splinterlands team or made in Canva.
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Thanks for sharing! - @alokkumar121
this strategy sounds good and thanks to you for sharing.