Tagged: Digital Money

What is Tether (USDT)?

Surely, you have heard about USDT in the crypto world.

Tether is a cryptocurrency that aspires to maintain a 1:1 parity with the US dollar, which means that the tokens in circulation are backed by an identical quantity of US dollars, making it a stablecoin with a price tied to USD $1.00.

USDT was first issued on the bitcoin protocol via the Omni Layer, but it has subsequently moved to other blockchains as well. In fact, most of its supply is held on the Ethereum blockchain as an ERC-20 token.

It is also available on the TRON network, EOS, Algorand, Solana, among others.

Tether is a stablecoin, which is a sort of cryptocurrency designed to keep prices stable.

Origins

J.R. Willett outlined the prospect of creating additional currencies on top of the Bitcoin Protocol in a document released online in January 2012. (JR Willet is called “The Man Who Invented ICO”).

Willett went on to assist in the implementation of this concept in the cryptocurrency Mastercoin, to encourage the adoption of this new “second layer.” The Mastercoin protocol would provide the technological backbone of the Tether cryptocurrency, and one of the Mastercoin Foundation’s early members, Brock Pierce, would become a Tether co-founder. Craig Sellars, another Tether creator, was the CTO of the Mastercoin Foundation.

Tether’s predecessor, initially called “Realcoin”, was launched in July 2014 as a Santa Monica-based firm by co-founders Brock Pierce, Reeve Collins, and Craig Sellars. The first tokens were released on the Bitcoin network on October 6, 2014. Tether CEO Reeve Collins announced the project’s rebranding to “Tether” on November 20, 2014.

The firm also announced the launch of a private beta program that will enable a “Tether+ token” for three currencies: USTether (US+) for US dollars, EuroTether (EU+) for euros, and YenTether (JP+) for Japanese yen.

Why was USDT created?

You are probably asking how beneficial a cryptocurrency worth the same as a dollar can be. Especially now that we have the dollar and digital payment methods that use it.

In reality, a stablecoin like USDT makes a lot of sense when we consider the following:

  • It does not place restrictions on you when making a transfer: USDT has all the benefits of a traditional cryptocurrency. This implies that you can transfer USDT anywhere in the globe with little difficulty and at a minimal cost.
  • It provides a way to safeguard investments from traders on an exchange platform: A trader, for example, can purchase and sell bitcoin and then convert his balance into USDT at the end of his deals. In this way, it shields itself against fluctuations in bitcoin values until it can resume operations.
  • Provides a safe payment platform, in terms of volatility: This is due to the cryptocurrency’s constant value of one dollar, making it perfect for payment systems when volatility is undesirable, but you still want to utilize a cryptocurrency.

How does Tether (USDT) work?

Tether is a stablecoin, a type of cryptocurrency that aims to keep cryptocurrency valuations stable, as opposed to the huge swings seen in the prices of other famous cryptocurrencies such as Bitcoin and Ethereum.

Instead of being utilized as a medium of speculative investments, this would allow it to be used as a means of trade and a form of wealth storage.

Tether was created particularly to provide consumers with stability, transparency, and low transaction fees by bridging the gap between fiat currencies and cryptocurrencies. It is tied to the US dollar and maintains a one-to-one value ratio with the US dollar.

Tether Ltd, the organization behind USDT, mints and burns the tokens from circulation based on their dollar reserves — Tether Ltd claims to have a 1:1 reserve ratio of USDT to USD stored in their bank account. As a result, USDT can trade at the same value as the US dollar.

Tether Ltd, in addition to giving US dollar exposure via USDT, also supports the Chinese Yuan (CNHT), the Euro (EURT), and gold ounces (XAUT).

According to a survey conducted by CryptoCompare, a worldwide cryptocurrency market data source, Bitcoin to Tether trading continues to account for the vast majority of BTC exchanged into fiat or stablecoin.

In January 2022, USDT accounted for 55% of all bitcoin trading.

Controversy

Tether Ltd was allegedly hacked in November 2017, with $31 million in Tether tokens taken.

In January 2018, it struck another stumbling block when the required audit to guarantee that the real-world reserve was maintained did not take place. Instead, it announced its separation from the audit company, following which authorities issued a subpoena. Concerns have been raised about whether the corporation, which has been criticized of lacking transparency, has adequate reserves to support the coin.

In April 2019, New York Attorney General Letitia James charged iFinex Inc., parent firm of Tether Ltd. and operator of cryptocurrency exchange Bitfinex, with concealing a $850 million dollar loss of co-mingled customer and corporate money from investors.

According to court documents, these assets were entrusted to a Panamanian firm named Crypto Capital Corp. without a contract or agreement to manage consumer withdrawals.

After the money went missing, Bitfinex allegedly grabbed at least $700 million from Tether’s cash reserves to cover the difference.

The organizations stated in a statement that the papers “were produced in ill faith and are laced with fraudulent statements.”

On the contrary, we have been informed that these Crypto Capital sums have been seized and secured, rather than lost. We are and have been aggressively attempting to enforce our rights and remedies and get the release of those cash.

Unfortunately, the New York Attorney General’s office appears determined to undermine such efforts, to the detriment of our consumers.

Read this article for more much more details.

Advantages

  • Transaction times: In a regular banking system, USD deposits and withdrawals typically take 1–4 business days to process. If the transaction occurs at night or on weekends when the bank is closed, the processing time may be extended. Tether transaction speeds are measured in minutes, which is advantageous for cryptocurrency traders who frequently wish to trade in minutes rather than days.
  • Transaction fees: SWIFT (Society for Worldwide International Financial Telecommunication) transactions are costly, ranging from $20 to $30 or more. Especially if you are using a fiat currency that is not accepted by the exchange, then you will be charged a fee for Forex conversion as well as a percentage of the transfer amount. Tether charges no costs for transactions between Tether wallets.
  • Price Stability: Cryptocurrencies are volatile when purchased using Tether rather than another currency. Currencies are not sufficiently stable as investments. Many exchanges do not accept fiat currency but will accept Tether.
  • Sidelining: Taking no stand while anything is happening. “Cashing out” and waiting for a better chance or market timing. Have your Tether ready. There is no need to take risks or leave money on exchangers.

Disadvantages

  • There are doubts about whether the Tether Ltd maintains a 1: 1 collateralization between the USDT tokens and their bank reserves: This is due to the fact that a full and public audit of this system has never been possible. As a result, the USDT faced a terrible position in 2017, with its value plummeting considerably below the 1: 1 ratio with the dollar, falling to 0.9: 1. Similarly, Tether Ltd has been embroiled in various controversies, including the Bitfinex hacking crisis and Tether’s own, both of which resulted in millions of dollars in damages.
  • Centralization: Because it is a cryptocurrency managed by a firm, its functions are determined by them.
  • Lack of anonymity: The requirement to make a bank deposit in order to produce the tokens reduces privacy and places your data in the hands of a firm.
  • No Mining: Because of its asset-backed nature, Tether isn’t minable. New USDT is issued to verified users who make fiat currency deposits.
  • There is no clarity on its implementation. There is no Github repository on its implementation on the Omni protocol. The only thing known is its smart contracts on Ethereum and EOS, the rest is not clear.

Conclusion

Tether has a role among cryptocurrency, filling a void when fluctuations are insufficient.

When with any cryptocurrency, be cautious and continue to research and monitor the news for any new information as you begin investing.

What is a Crypto Token?

What is a Crypto Token?

Token is a term that is frequently heard in the cryptocurrency community. In fact, you may hear Bitcoin referred to as a “crypto token” or something similar, because – theoretically – all crypto assets may be referred to as tokens.

Crypto tokens are programmable assets that may be created and stored on current blockchains. While they frequently have extensive compatibility with the network’s cryptocurrencies, they are a whole new digital asset class.

Tokens are units that are built on top of existing blockchains.

Tokens function within an existing blockchain to enable the development and execution of one-of-a-kind smart contracts, which frequently provide ownership of assets outside of the blockchain network. Tokens may be sent and received and can represent units of value such as electricity, money, points, coins, digital assets, and more.

Crypto tokens are a sort of cryptocurrency that symbolizes an item or a specific use and has its own blockchain.

How Crypto Tokens work?

To monitor transactions, blockchain employs a decentralized, or distributed, ledger that lives on a broad variety of independent computers. Each node organizes additional data into blocks, which are then chained together in “append only” mode. Because of the append-only structure, no one on any node can change or remove data from previous blocks. They can only contribute to the chain, which is one of blockchain’s primary security characteristics.

Cryptocurrency tokens provide an append-only safe record of cryptocurrency that is linked to a special-access contract that can connect to a variety of assets.

The token-based special-access contract can grant users access to assets like as cash, crypto coins, reward points, or even digital material such as music, art, a video clip, or a movie.

The tokens enable the ownership of a blockchain-verified private smart contract linked to that asset.

Coins Vs Tokens

While the terms “coin” and “token” are sometimes used interchangeably, they refer to different sorts of assets.

A crypto coin is often employed as the native coin of a blockchain, which is used to exchange cash, store value, and so on. Tokens, on the other hand, are not native to the blockchain on which they operate.

Crypto Token Types

Currently, there are four main categories of tokens

  • Payment Tokens: Payment tokens are the most well-known and extensively utilized types of cryptocurrency. These crypto tokens are used for buying and selling in the same way that the US dollar or the Euro are, only they are not backed by a specific government. Payment tokens are units of value that may be traded for other currencies that exist within the blockchain of crypto networks such as Bitcoin, Monero, and Ethereum. Third-party custodians or exchanges are also available to convert payment tokens into legal tender currencies such as the US dollar. People are increasingly utilizing these tokens to purchase products and services, albeit the aggregate number of retailers who accept them remains tiny.
  • Utility Tokens: These crypto tokens provide its owners with access to a product or service that is either now available or in the works. They are most typically employed as a fundraising mechanism for initial coin offers (ICOs), as a placeholder for the crypto currencies that buyers would get when the new coins go live on the network. The term for these tokens stems from the fact that they may be used to purchase an item or service from the issuer. Because they exist on an actual blockchain, their owners can be confirmed, and they can be readily swapped.
  • Security Tokens: Security tokens represent the rights and duties associated with securities such as stocks and bonds. A security token is often used to represent a stake of the firm that issued it. They can reflect legal ownership of an asset or a piece of an asset, such as real estate, stocks, exchange-traded funds (ETFs), and so on.

As a result, they are more strictly controlled than ordinary tokens. Companies may issue security tokens instead of traditional stock shares to raise funds more cheaply, or because the tokens provide immediate settlement and simpler cross-border trade.

  • Non-fungible Tokens: Also known as NFTs, these tokens have made the news lately because of the eye-popping sales prices of single NFTs connected with works of art, individual tweets, and sports memorabilia. They exist on pre-existing crypto networks, with ETH being one of the most popular. These tokens have private contracts that can be clearly distinguished from any other token in existence. Because of that feature, they are used by athletes, artists, musicians, and other creators as a way to connect with collectors, who see them as digital one-of-a-kind assets. Because the consumer may still reproduce the underlying material, they cannot copy, sell, or pirate it, NFTs have created new marketplaces for digital art and memorabilia. Some persons have also issued NFTs that provide ownership of non-digital assets that are one-of-a-kind, such as real estate.


Tokens can be used for investment purposes, to store value, or to make purchases.

The Takeaway

As the blockchain industry matures, the number of distinct digital assets will only increase to meet the diverse demands of all ecosystem members, ranging from business partners to individual users. Given that generating new assets in the digital world is less limiting than in the physical realm, these digital assets are widely predicted to change the way many sectors work, interact, and produce value, enabling a plethora of new social and economic possibilities.

What is a Stablecoin?

What is a stablecoin?

A stablecoin is a digital asset that is linked to a physical asset or fiat money. As a result, it is less volatile than other cryptocurrencies such as Bitcoin and Ethereum. The bulk of the 4000+ cryptocurrencies in existence in 2021 are not stable. This implies that they can change dependent on their market capitalization, the number of coins in circulation, the number of individuals investing, and other factors. Stablecoins originated in response to a market requirement for stability. They still use the same blockchain technology as other cryptocurrencies, but they have been designed so that their value does not fluctuate as much.

Types

There is some attraction to fiat currencies, which are backed by the full confidence and credit of the government that issued them. Fiat currencies benefit from some price stability because of this.

This, however, implies that many fiat currencies are essentially controlled by their central banks. Stablecoins are an attempt to bridge the gap between fiat currency and cryptocurrency. Stablecoins are classified into three types based on their operating processes.

  • Fiat-Collateralized: Fiat-collateralized stablecoins keep a fiat currency reserve, such as the US dollar, as collateral in order to issue a sufficient amount of crypto coins. Other kinds of collateral can include precious metals like as gold or silver, as well as commodities such as oil, however most fiat-collateralized stablecoins nowadays employ dollar reserves. Such reserves are managed by independent custodians and are audited on a regular basis to ensure compliance. Tether and TrueUSD are popular crypto currencies with a value equal to one US dollar and are backed by dollar deposits.

Pros:
– Stable price
– Not prone to hack

Cons:
– Needs an auditor to make sure transparency is maintained
– Slow liquidation to fiat

  • Crypto-Collateralized: Stablecoins that are crypto-collateralized are backed by other cryptocurrencies. Because the reserve cryptocurrency may be volatile, such stablecoins are over-collateralized — that is, a higher number of cryptocurrency tokens are kept as a reserve for releasing a smaller number of stablecoins.

Pros:
– More decentralized
– Quick and cheap liquidation — smart contracts

Cons:
– Not as price stable as the fiat baked stable coins
– Tied to the health of a particular crypto currency
– High complexity

  • Non-Collateralized (Algorithmic): Non-collateralized stablecoins do not employ reserves but do feature a functional mechanism, like that of a central bank, to maintain a stable price. For example, the dollar-pegged basecoin employs a consensus process to increase or reduce token supply based on demand. Such operations are analogous to a central bank producing banknotes to sustain fiat currency values. It is possible to do this by deploying a smart contract on a decentralized platform that can run autonomously.

Pros:
– No collateral required
– Most decentralized and independent
– Not tied to any crypto or fiat

Cons:
– Complex to implement as deeper understanding of finance, economics, technology and cryptography knowledge is required to think along these lines.

Advantages

Stablecoins are gaining popularity due to their promise of a more stable cryptocurrency choice. These are the crypto market’s safe bets, with support that prevents them from plunging overnight. But that’s not the only advantage of stablecoins; they also have a broader appeal, which means they’re more likely to get ingrained in society. As a result, it’s less of a risk for investors and early adopters, who can reasonably trust that the money they put into the currency isn’t going to vanish.

When the general public hears about a certain stablecoin, it is simpler to disseminate it and its effect since it is backed by a physical asset. The normal user is more likely to believe a currency that is the digital equal of a dollar than some transitory digital coin.

The presence of this anchoring feature elevates stablecoins from a mysterious new technology to something that even your grandmother could use. This has the potential to dampen the euphoria a little, because few young tech disruptors will be keen to share their preferred money with the older generation, because that’s just not hip enough. But, let’s be honest, hype hasn’t been doing a great job of keeping other cryptos afloat thus far.

Furthermore, stablecoins are a better choice for speedy transactions than options like Bitcoin and its rivals. The consistent pricing, quick turnaround, and accelerated processing make it suitable for paying for groceries or ordering pizza. The key method of grabbing market attention is to embed stablecoins in daily life and make them function for the user, which has shown to be effective so far.

Problems

Stablecoin, although being a hopeful development in the crypto industry, is not without its drawbacks. There’s no getting around the reality that many of the best stablecoins forego decentralization in favor of the same stability that makes people want them. This, in and of itself, contradicts the original ideology of cryptocurrencies and puts the market at risk of monopolization or cornering.

To be sure, some solutions advocate for decentralization while still attempting to retain the objectives of crypto’s creators. Those, however, confront the challenge of obtaining adequate funding. Essentially, if you rely on a bank to handle collateralization, you may anticipate value stability but at the expense of decentralization. Similarly, crypto-backed stablecoins are decentralized, but they must make certain concessions in terms of stability.

It’s always a balancing act, and not every business can pull it off.

Last but not least, while a crash in the underlying currency or asset is less likely than one in the crypto market, it is nevertheless possible. Stablecoins are not immune to nationwide currency value drops, which have historically occurred all over the world, thus they are not immune .However, if you have analytics on your side, you can generally detect this type of disaster well in advance. Just keep in mind that stablecoins aren’t magically guaranteed to remain stable indefinitely, and you’ll be OK.

Wrap up

Stablecoins are similar to traditional currencies, with the exception that they do not have any centralized qualities and instead utilize smart contracts and blockchain, which are written in computer code, to replace the functions of traditional investment and currency platforms. Finally, stablecoins provide greater benefits in terms of hedging the value as well as many methods to invest in DeFi-based smart contracts. Stablecoins eliminate centralization and become the bridge between the real economy and the encrypted economy, allowing users to focus solely on their earning strategy and never worry about the fluctuation in the crypto world.

What is DeFi?

What is DeFi?

DeFi, or decentralized finance, is a blockchain-based financial system capable of stripping out traditional financial middlemen such as banks, brokerages, and exchanges.

It makes use of smart contracts to enable users to lend or borrow funds from others, bet on price fluctuations on a variety of assets using derivatives, insure against risks, and earn interest in savings-like accounts.

Because of it nature, a government-issued ID, social security number, or proof of address are not required. DeFi allows buyers, sellers, lenders, and borrowers to interact with one another or with a strictly software-based middleman rather than with a company or institution that facilitates a transaction.

To achieve the aim of decentralization, a variety of technologies and protocols are employed. A decentralized system, for example, might be made up of open-source technology, blockchain, and proprietary software. These financial products are made feasible by smart contracts, which automate agreement terms between buyers and sellers or lenders and borrowers. DeFi solutions, regardless of the technology or platform employed, are intended to eliminate middlemen between transacting parties.

Decentralized finance makes use of technology to disintermediate centralized models and enable the delivery of financial services to anybody, regardless of race, age, or cultural identity.

It lowers the barrier to admission.

Simultaneously, DeFi applications provide consumers more control over their money through personal wallets and trading platforms that cater to individual users rather than institutions.

How does it work?

DeFi provides services without the need of intermediaries by utilizing cryptocurrency and smart contracts. In today’s financial environment, financial institutions serve as transaction guarantors. Because your money flows through them, this gives these institutions enormous influence. Furthermore, billions of individuals throughout the world do not have access to a bank account.

A smart contract substitutes the financial institution in the transaction in DeFi. When a smart contract is live, no one can change it; it will always execute as planned. Smart contracts are also open to the public for inspection and auditing. As a result, defective contracts are frequently scrutinized by the community. This does imply that there is now a need to rely on more technical members of the community who can understand code. The open-source community helps keep developers in check, but this requirement will fade as smart contracts become simpler to comprehend and alternative methods of proving code’s integrity are created.

Main elements

There are certain DeFi “building blocks” that create a software stack, with every layer building upon another. These layers work together to create DeFi and its related applications that serve users in a variety of different ways. If one layer is off, so are the other layers.

The five layers that make up DeFi include:

1. Settlement: Foundational layer of the blockchain and its specific native asset. This layer provides security and a set of rules to follow.

2. Asset: Refers to all the tokens and digital assets that are native to the blockchain.

3. Protocol: Sets the protocols or guidelines for smart contracts.

4. Application: Brings the protocols to life with a user interface that is consumer-facing.

5. Aggregation: Consists of aggregators that connect the various dApps and protocols which make up the foundation for borrowing, lending on and other financial services.

Advantages and disadvantages

  • Decentralization: It is difficult to censor or stamp out, but it does need some heavy-duty computer. Maintaining a database and records over a network of numerous computers slows things down and increases the cost of transactions.
  • No intermediaries: There is no need for a third party to safeguard the assets. That means you don’t have to worry about a financial institution failing and taking your tokens with it — or about the government seizing and confiscating your tokens. On the other side, you and your passcode are the only things keeping your assets secure. If you lose (or someone steals) your passcode, your valuables are gone for forever.
  • Available to anyone: Without typical financial credentials such as identification or a credit score, you may be able to obtain a loan or exchange virtual currency. That openness promises to bring financial services to sections of the world where they haven’t always been available, or where they are prohibitively expensive or prone to fraud or confiscation. However, the disadvantage is obvious: if nobody is keeping track of who is utilizing a service or where they are situated, the systems might be utilized by criminals or run counter to penalties. The regulatory crackdown is already in effect.

Applications

  • Send money around the world quickly: Because blockchain technology is used, money may be moved in a safe and worldwide manner.
  • Borrowing: Borrowing money from decentralized providers comes in two main varieties.
  1. Peer-to-peer, meaning a borrower will borrow directly from a specific lender.
  2. Pool-based where lenders provide funds (liquidity) to a pool that borrowers can borrow from.
  • Lending: You can earn interest on your crypto by lending it and see your funds grow in real time.
  • Access to global funds: When you utilize a decentralized lender, you have access to funds deposited from all over the world, not simply those held by your selected bank or institution. This increases the availability of loans and lowers interest rates.
  • Stable coins: Volatility in cryptocurrencies is a concern for many financial products and ordinary spending. Stablecoins have been developed by the DeFi community to address this issue. Their value is fixed to another asset, generally a prominent currency such as the US dollar.
  • Grow your portfolio: There are fund management products that will try to grow your portfolio based on a strategy of your choice. This is automatic, open to everyone, and doesn’t need a human manager taking a cut of your profits.
  • Advanced trading: For traders who like a bit more control, there are more complicated alternatives. Limit orders, perpetual orders, leveraged trading, and more options are available. Decentralized trading gives you access to global liquidity, the market never closes, and you always have complete control over your assets. When you utilize a centralized exchange, you must deposit your assets prior to the deal and rely on them to protect them. Your funds are at danger while they are deposited because centralized exchanges are appealing targets for hackers.
  • Exchange tokens: Decentralized exchanges let you trade different tokens whenever you want. You never give up control of your assets. This is like using a currency exchange when visiting a different country. But the DeFi version never closes. The markets are 24/7, 365 days a year and the technology guarantees there will always be someone to accept a trade.
  • Insurance: The goal of decentralized insurance is to make insurance more affordable, faster to pay out, and more transparent. With more automation, coverage becomes very inexpensive and payouts become much faster. The information utilized to make a decision on your claim is totally transparent. Bugs and exploits are possible, like with any program. So, for the time being, many insurance products in the market are focused on safeguarding their customers from financial loss. However, programs are being launched to provide coverage for all life may throw at us. People who are typically priced out of standard insurance might benefit from decentralized insurance.

Final thoughts

DeFi is a vast financial ecosystem that aims to eliminate the intermediary and enable financial transactions between users. There is now a lot of buzz about DeFi and cryptocurrency. If you wish to participate, be sure you understand not just the benefits but also the hazards before you begin.

What is a Smart Contract?

What is a Smart Contract?

Smart contracts are essentially programs, recorded on a blockchain, that run when certain criteria are satisfied. They are often used to automate the implementation of an agreement so that all participants are instantly confident of the outcome, without the participation of an intermediary or the waste of time.

Smart contracts allow trustworthy transactions and agreements to be carried out between disparate, anonymous individuals without the requirement for a centralized authority, legal system, or external enforcement mechanism.

While blockchain technology has come to be thought of primarily as the foundation for Bitcoin​, it has evolved far beyond underpinning the virtual currency.

Origin

Smart contracts were first proposed in 1994 by Nick Szabo, a computer scientist who invented a virtual currency called “Bit Gold” in 1998. Szabo defined smart contracts as computerized transaction protocols that execute terms of a contract. He wanted to extend the functionality of electronic transaction methods, such as point of sale (POS), to the digital realm.

Many of Szabo’s predictions in the paper came true in ways preceding blockchain technology. For example, derivatives trading is now mostly conducted through computer networks using complex term structures.

How smart contracts work?

Smart contracts operate by executing basic “if/when…then…” statements typed into code on a blockchain. When preset circumstances are met and validated, a network of computers conducts the activities. These activities might include transferring payments to the proper parties, registering a vehicle, providing alerts, or issuing a ticket. When the transaction is completed, the blockchain is updated. This implies that the transaction cannot be modified, and the results are only visible to persons who have been granted permission.

Participants must agree on the “if/when…then…” rules that govern those transactions, investigate any conceivable exceptions, and create a framework for resolving disputes in order to set the terms.

Finally the smart contract can be coded by a developer; however, firms that use blockchain for business are increasingly providing templates, web interfaces, and other online tools to facilitate smart contract construction.

Advantages of Smart contracts

  • Speed, efficiency and accuracy: When a condition is satisfied, the contract is instantly executed. Because smart contracts are digital and automated, there is no paperwork to handle, and no time wasted correcting errors that frequently occur when filling out forms manually.
  • Security: Blockchain transaction records are encrypted, making them extremely difficult to hack. Furthermore, because each record on a distributed ledger is linked to the preceding and subsequent entries, hackers would have to modify the entire chain to change a single record.
  • Trust and transparency: There is no need to question if information has been manipulated for personal gain because there is no third party engaged and encrypted records of transactions are transmitted between participants.
  • Savings: Smart contracts eliminate the need for middlemen to conduct transactions, as well as the time delays and fees that come with them.

Future

For the time being, the most significant hurdle to widespread smart contract use is scalability. Processing data for thousands of internet firms would need a substantial amount of processing power. And capacity and speed are restricted on Ethereum. However, the future of blockchain is only around the corner. Capacity and speed appear to be no longer a problem as initiatives like the Internet of Things (IOTA) and the Internet of Services (IOST) show promising outcomes. This might imply that whole decentralized businesses function on smart contract technology, processing payments, moving assets, and managing day-to-day operations in a safe and distributed manner. Gartner, a research firm, definitely believes so. According to their annual report, smart contracts will be employed in more than 25% of worldwide businesses by 2022. It might be time to start thinking about how smart contracts could help your company.

What is Bitcoin?

What is Bitcoin?

Bitcoin is a decentralized digital currency created in January 2009. It promises reduced transaction costs than standard online payment channels and, unlike government-issued currencies, is controlled by a decentralized authority.

Bitcoin employs peer-to-peer technology to function without a central authority or banks; the network manages transactions and issues bitcoins collectively.

Bitcoin is open-source, it means that its design is available to the public, no one owns or controls it, and everyone may participate.

In practice, bitcoin is a type of digital money that exists independently of any government, state, or financial institution, can be transmitted internationally without the need for a centralized intermediary, and has a known monetary policy that is arguably unchangeable.

There are no physical bitcoins; rather balances are recorded on a public ledger that everyone can see, although each record is encrypted.

A large amount of computational power is used to verify all bitcoin transactions, this process is known as mining. Bitcoin is neither issued or guaranteed by any banks or governments, nor is it worth anything as a commodity.

The bitcoin system is comprised on a network of computers (also known as nodes) that all execute bitcoin’s code and store its blockchain. A blockchain may be seen metaphorically as a collection of blocks, each block contains a set of transactions. No one can trick the system since all the machines running the blockchain have the same list of blocks and transactions and can observe these new blocks as they’re filled with fresh bitcoin transactions.

Bitcoin token balances are maintained using public and private “keys”, which are lengthy strings of numbers and characters connected by the mathematical encryption method that generates them.

The public key (like a bank account number) acts as the address that is made public and to which others may transfer bitcoin.

The private key (similar to an ATM PIN) is designed to be kept private and is only used to approve bitcoin transactions.

Bitcoin keys are not to be confused with a bitcoin wallet, which is a physical or digital device that facilitates bitcoin trade and allows users to track coin ownership. Because bitcoin is decentralized, it is never held “in” a wallet, but rather distributed on a blockchain.

Origin

Bitcoin is based on the ideas laid out in a 2008 whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System.

The article described how to “allowing any two willing parties to deal directly with each other without the necessity for a trusted third party”.

The technology used solved the “double spend” problem, allowing for the first time in the digital world scarcity.

The bitcoin network’s initial growth was mostly driven by its usability as a revolutionary mechanism of exchanging value in the digital realm. Early supporters were mostly “cypherpunks”, or those who supported the employment of strong encryption and privacy-enhancing technology as a means of effecting social and political change.

However, speculation over bitcoin’s future worth quickly became a big motivator of adoption.

Mining

Mining is the process of releasing bitcoin into circulation. In general, entails solving computationally complex riddles to discover a new block, which is then added to the blockchain. Bitcoin mining adds and validates transaction records throughout the network.

Miners are rewarded with bitcoins, which is half every 210,000 blocks. In 2009, the block reward was set at 50 new bitcoins. On May 11, 2020, the third halving happened, reducing the reward for each block discovery to 6.25 bitcoins.

To mine bitcoin, a variety of hardware may be utilized. Some, however, provide greater benefits than others. Certain computer chips, known as application-specific integrated circuits (ASICs), as well as more complex processing units, such as graphic processing units (GPUs), can reap more benefits. These complex mining processors are referred to as “mining rigs.”

One bitcoin may be divided to eight decimal places (100 millionths of a bitcoin), and the lowest unit is known as a Satoshi.

How Many Bitcoins Are There?

The maximum amount of bitcoins that will ever be generated is 21 million, with the final bitcoin mined around the year 2140. More than 18.85 million (almost 90%) of the bitcoins had been mined as of November 2021. Furthermore, analysts believe that up to 20% of those bitcoins were “lost” as a result of someone forgetting their private key, dying without leaving access instructions, or transmitting bitcoins to invalid addresses.

Basic features

  • Decentralized: The bitcoin network is not controlled or owned by anyone, and there is no CEO. Instead, the network is made up of consenting individuals who follow the rules of a protocol (which takes the form of an open-source software client). Changes to the protocol must be approved by the protocol’s users, and there is a diverse range of contributing voices, including nodes, end users, developers, and adjacent industry participants such as exchanges, wallet providers, and custodians. As a result, Bitcoin is a quasi-political system.
  • Transparent: According to the protocol’s principles, the addition of new transactions to the blockchain record and the status of the Bitcoin network at any given moment is reached by agreement and in a transparent way.
  • Distributed: All Bitcoin transactions are recorded on a public ledger known as the “blockchain”. The network is based on volunteers keeping copies of the ledger and operating the bitcoin protocol software. These nodes help to ensure that transactions are correctly propagated over the network by adhering to the protocol rules as established by the software client.
  • Peer-to-peer (P2P): Although nodes maintain and disseminate the network’s state (the “truth”), payments are made directly from one person or organization to another. This eliminates the requirement for a “trusted third party” to operate as an intermediary.
  • Censorship resistant: Because all bitcoin transactions that adhere to the protocol’s rules are legitimate, transactions are pseudo-anonymous, and users own the ‘key’ to their bitcoin holdings, it is impossible for authorities to prohibit individuals from using it or take their assets. This has significant consequences for economic freedom and may potentially operate as a worldwide counterforce to dictatorship.
  • Permissionless: Anyone may use bitcoin; there are no gatekeepers, and no ‘Bitcoin account’ is required. The network will confirm all transactions that adhere to the protocol’s requirements using the established consensus procedures.
  • Fixed supply: One of the major characteristics is that the supply would gradually increase to a total of 21 million coins. This fixed and known total quantity, it is said, qualifies bitcoin as a ‘hard asset,’ one of numerous features that have led to its perceived value as an investment.

What is digital money?

What is digital money?

Any form of money or payment that exists entirely in electronic form is referred to as digital money or digital currency. Digital money, unlike a dollar bill or a coin, is not physically palpable. Online systems are used to account for and transfer it. Digital currencies have qualities comparable to traditional currencies, but unlike printed banknotes or minted coins, they do not have a physical form. The lack of a tangible form allows for near-instantaneous transactions over the internet and eliminates the cost of distributing notes and coins.

Nowadays, a type of digital money is already present in the form of currency held in online bank accounts. This cash can be sent to others or received from them. It can also be used for online transactions.

The origins of digital money may be traced back to the development of the internet. In the beginning, it was difficult to persuade individuals to use digital money; but, as people get more familiar with technology, and the technology itself becomes more safe and secure, more people are now eager to use digital currencies. PayPal is widely regarded as one of the first successful firms to popularize the concept of simple digital financial transactions.

Digital money is comparable to cash in concept and use in that it may be used as a unit of account and a medium for daily transactions. However, it is not money. Dollars in your online bank account, for example, are not digital money since they have physical form when you withdraw them from an ATM.

Digital money streamlines the monetary transaction process. For example, as compared to traditional money, the technical rails of digital money can make monetary transactions across borders easier and faster. Such transactions are expensive and time-consuming because they involve the use of disparate processing systems.

One of the goals of digital money is to eliminate the time lag and operational costs associated with such transactions by utilizing distributed ledger technology (DLT). To execute transactions in a DLT system, nodes or shared ledgers link to establish a common network. This network may easily be extended to other jurisdictions, reducing transactions processing time. It improves the robustness of a financial network by reducing the need for a centralized database of records, providing transparency to regulators and stakeholders.

As a result of these benefits, digital money has become a priority for various governments around the world. According to a poll by the International Monetary Fund (IMF) a February 2021, around 111 countries from its 159 member nations are investigating or preparing to use digital money soon.

Advantages of digital money

  • It does away with the need for physical storage and safekeeping which is a common in cash-intensive systems. You do not need to invest in a wallet or bank vaults to ensure that your money is not stolen.
  • Through technology, it streamlines transaction accounting and record-keeping. As a result, there is no need for manual accounting or separate entity-specific ledgers to keep track of transactions.
  • Digital money eliminates middlemen in monetary policy execution and allows previously excluded individuals to participate in the economy. Unbanked people, for example, can still participate in the economy by utilizing digital money in their online wallets or on their mobile phones.

Disadvantages of digital money

  • Digital money is susceptible to hacking. Even though digital money eliminates the need for physical storage, its technological roots make it a target for hackers who can steal from digital wallets
  • The usage of digital money may jeopardize user privacy. Cash is untraceable and tracking and tracing its users is practically difficult. Digital money, on the other hand, can be tracked.

Summary

Digital money is a significant advancement in financial technology.It solves cash’s shortcomings and makes payment systems faster and cheaper.
However, it comes with the accompanying technological issues, since digital money may be hijacked and can undermine privacy.
While digital money is still in its early stages, it will play an essential role in the future of finance.

Patricio Aguirre
Proactive Computer Engineer - Blockchain Enthusiast & Crypto Learner