Perhaps you’ve already invested in bitcoin or another currency and depending on when it was, it might have shown a decent return, or what’s happening in the crypto world these days. Given that, you may be suffering from buyer regret.
Or maybe you were more conservative and looked with envy at some of the incredible gains your friends reported, or recently some of the stratospheric gains they made are rapidly returning to Earth. You may have seen their disbelief about things. About the (paper) losses suffered by newcomers to the crypto brigade.
In Part 2, we’ll look at different aspects of cryptocurrencies and so-called ‘platforms’. Next, we’ll look at more specific items such as their grandfather, Bitcoin, and other familiar names, from Ethereum to Binance. In Part 3, we’ll look at examples of FTX’s recent “fall from grace.”
But where do you start? Two fundamental concepts or trends combine to lead to the rise of cryptocurrencies.
First, it’s a digital world now! Almost every set of data has a “list” kept somewhere on your computer.
Examples are barcodes and prices in supermarkets (and other retailers), or names, dates of birth, IRD numbers or mobile phone numbers for insurance policies, bank accounts, other group affiliations and much more. Call an 0800 number and instantly know who you are. In the words of Gilbert and Sullivan, “I put them on the list….” (Forget the next line!)
The second is the concept of trust. When you do internet banking, and who doesn’t these days? It is assumed to be debited (or credited) immediately.
That “belief” is a strong trust. You also believe or trust that you will not allow transactions other than your own to occur on your account, regardless of who you are dealing with.
Banks in particular, but also other financial institutions, need to stay one step ahead of hackers and fraudsters.
You may even have received a call from your bank’s fraud department about a particular transaction deemed “suspicious” (such as being in a different country than your usual transaction).
Therefore, it is our trust in the system that has allowed us all to adopt and use digital transactions as part of our daily lives. Much easier and more convenient than standing in line at the bank.
Do you know or need to know how much capital your bank has in order to operate efficiently? Do you know how the process works to ensure that
Or how are transfers between different banks settled? Almost certainly! why? Because we trust the banks, the system, and the regulators responsible for overseeing and checking these things.
Now, without additional reporting and controls, how do you ensure that transactions between two parties are correctly matched and that total credits and debits are always balanced across all users of unregulated entities? Can you? How do you get the same degree of trust that your users have in their bank?
Enter the concept of blockchain. This is a process of solving security and not really related to cryptocurrencies (although given that the two words are often used together, it’s hard to believe that the two words are the same thing). Blockchain methodology for the essential element of trust).
surprise! A blockchain is nothing more than a network of computers with the same ledger (account numbers, balances, list of transactions) called a “distributed database”.
A typical number of computers, called “nodes,” is 8, and should be placed in different geographical locations for added security.
All of them are linked by (near-instantaneous) data transmission over cables or the Internet with what is possible today in networks. As with many things, it is possible for a hacker to get through one or another defense mechanism (a “firewall”) in one place, but at the same time he cannot reach all eight (almost ) is not possible.
By regularly checking that all 8 have the exact same information, you’ll discover discrepancies almost immediately, identify which of the 8 is “wrong”, find gaps, and , see which transactions caused the problem, and rerun them (so that if proven correct, they are reflected in all ledgers), or correct the wrong ones without any suspect transactions Revert to “correct” balances (until they are validated).
Another important feature of blockchain is that all transactions are time-stamped. So any transaction that should have occurred with a timestamp earlier than the last cross-ledger check is classified as “suspicious”.
Transactions are also linked to other transactions or “blocks” such as references, times and details (giving rise to the concept of “chains”).
All this indicates that the person responsible for the following headline taken from the internet was promoting standard security procedures.
— Liston Meintjes is an independent business, economics and market consultant and analyst with many years of experience in the investment industry.
