What is cryptocurrency
It is disgraceful that very few people seem to understand what cryptocurrencies are. Satoshi Nakamoto, is credited as the inventor of Bitcoin in 2008, when he developed “A Peer-to-Peer Electronic Cash System. “ His goal was to invent something that could not be used by a central power to overspend and to create it in a digital form and platform. Therefore, it is a key issue that an electronic cash system uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.
Every attempt at creating digital currencies with a “Trusted Third Party based systems” such as Digicash, failed miserably. Let us hope Ecuador makes the right decision and I will try to explain in the easiest possible way because people need to understand this.
The most important issue that the President of Ecuador and the National Assembly have failed to understand is that to realize digital cash you need a “payment network with accounts, balances, and transactions”. So, in short, you need mining operations, miners and a network that joins everyone. If Ecuador does not operate or adopt a blockchain system in the Ethereum platform for example then there is no way to operate a crypto coin. It must be done within an exchange system, otherwise, the Ecuadorian digital currency cannot possibly be accepted anywhere else. Without a payment network and without an exchange system it could easily become a double spending Ponzi scheme. Another feriado bancario and nothing else.
In a decentralized network, you don‘t have a server from a central Bank or a private bank. So, you need every single entity of the network to do this job. Every peer in the network needs to have a list of all transactions to check if future transactions are valid or an attempt to double spend.
Paper money is a system of physical verification, a verified entry in some kind of database of accounts, balances, and transactions at your bank. Based on those entries in a database that can only be changed under specific conditions? You can even take physical coins and notes: What are they else than limited entries in a public physical database that can only be changed if you match the condition than you physically own the coins and notes?
How miners create coins and confirm transactions
A cryptocurrency like Ethereum depends on a “network of peers”. Every peer has a record of the complete history of all transactions and thus of the balance of every account. That way people can’t be cheated.
Every transaction becomes a file that says:
“Joe gives X liberties to Sue“ and is signed by Joe’s private key. It‘s basic public key cryptography.
After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is basic p2p-technology.
Let me go over that in a different way. First understand that an address is an “email username” no difference, that you can share with anyone. Now your key is the equivalent of your password. So never give your KEY to anyone or you can lose all your money. It does not matter what anyone says. NEVER ever give your KEY to anyone.
Now, let’s say you want to buy “liberties” after the CIO. You will need a “wallet” to keep your money. To get such wallet you will go to “myetherwallet.com”. Register here. That wallet is yours and you can keep your money there regardless of where you buy your currency if you buy in coinbase or Kraken. Even if your computer gets stolen, broken that wallet is yours, is your money.
Now you must understand this and it will become clear that what your government in Ecuador is trying to do is utterly STUPID. If they want to keep your wallet and control the value of the cryptocurrency, and they are the ones dictating the amount of money supply and all controlled by a central bank or worst a private bank then it is as close as complete stupidity. Now see the difference of Liberty.
Let’s assume you decide to buy 100 coins of “liberty” for $10 dollars. That is the price PRE ICO. You can buy that at the time of PRE-ICO. You will need be sent instructions on how to open your wallet, or you will send a request from your wallet to get your one hundred liberties. When you want to buy more or you want to invest in bitcoin, Ethereum etc you open an account in an exchange like Kraken, Coinbase, Changelly or whichever you choose. Only then you can transact. It does not matter if you say you are buying bitcoins or Ethereum or liberty coins, you can decide whichever coin you want to buy. The wallet is like a personal locker where you keep your tokens. Again, how is Ecuador going to operate a so-called digital currency if they reject the platform?
Your liberty or ETH & tokens are on the blockchain, regardless of what service you use to access them. When you move them, you are sending them from one address on the blockchain to another. These are simply lines of code. Your wallet file, the user interface you interact with, the private key—these do not have funds in them. The private key gives you the ability to prove ownership over coins that are on the blockchain.
If you use a client-side tool like MyEtherWallet or Mist, Metamask, Exodus, or Jaxx, then you have the private key & you control your funds and your key. You do not rely on Coinbase or Gemini sending your funds from their account to yours. Again, let me explain in other terms. Think of Ethereum as windows. An operating system to deal with your cryptocurrencies. So just like windows, whatever software you use that operates under windows will work, In the same way, whatever coin or digital currency that works in Ethereum platform will work: Liberties, and many other currencies will operate on the Ethereum platform.
Therefore, the question is how is Ecuador going to operate? Are they going to create their own unique system that will not work anywhere else? Again, total stupidity.
if Ecuador tries to operate a so-called digital currency outside the “network” and based on the central bank or a private bank it is never going to work, it is never going to gain value, and it will become a massive fraud. Understand that the intrinsic value of digital currencies is created through “smart contracts” like shares into a corporation that will build a car, proof of work like in a mining operation. What will be the intrinsic value of a digital currency in Ecuador? ¿The promises of Alianza Pais? The value will be -000000000000000000000000000001
When you have coins on the blockchain only you, control your keys. If any of the exchanges gets hacked it won't affect you. The downside is that you, and only you, control your keys. No one else has them, nor can recover them, should you lose them. That is why you will need to be sure that you have your cell phone active to record your private key and never lose your money.
As a matter of fact, your humble servant. Yes me will create a company that will have face recognition and retina recognition with voice combined, only then you will access your account. For now, If you do lose your private key or wallet file or password, you cannot prove ownership of an account and therefore you cannot ever send your coins again. So, keep two or three instances of said keys: Print one copy, keep another on your computer, and keep another on your phone.
If you use an exchange like Coinbase, Gemini, Kraken, Polonix, Bittrex, then you have an account with that company, and they hold your ETH and your keys for you. They have their own account on the blockchain with all their and their customers' funds in it. Then you have a username/password with them, on their servers, and they keep track of how much ETH they "owe" you. This leads us to the next issue. If the computer network, the science by contributions of the best minds in the world have already created the system, then please tell me why Ecuador would want to spend billions trying to create a system that will be utterly and complete failure.
Under the system, in place, the address/ key system is used for any wallet. For places like coinbase you still use the traditional username/password situation and do things like reset your password if you forget it, change your password if your password is compromised, and turn on 2FA. However, it also means that if the exchange loses ETH, it's your ETH that is lost. So, use exchanges just to make transactions, do not keep your Ethereum or liberties with them. Transfer to your wallet. Once again, how is Ecuador going to create a cryptocurrency?
I have several questions for President Lenin Moreno and every single member of the Assembly.
Is Ecuador going to create a mining operation of the cryptocurrency?
Is Ecuador going to create the companies, exchanges, software, ID system, security against hacking?
Is Ecuador going to guarantee the losses if the system is hacked and drained of all coins?
Is Ecuador going to be able to have his coin accepted in another exchange system if it does not operate in the network or the blockchain, then it can’t be traded?
So, my challenge is very simple. Allow Liberty to operate in Ecuador for six months, let people learn how it works, allow people invest $10 dollars, that is all I ask, let Ecuadorians invest $10 dollars in Liberties and I will make sure every Ecuadorian gets ten free liberties.
For now, let us continue explaining cryptocurrencies.
If you choose to move from an exchange to a wallet where you control your keys, you need to make sure that you have multiple backups, stored in separate locations, of your private key + password. This will prevent loss in case your computer crashes or your house burns down or anything else.
You also need to ensure you keep these keys securely. This means:
Don't enter it on random websites
Always ensure you are on the correct site or downloading from the legitimate repo/website.
Don't email your key, send it to anyone or post it online
Don't save it to cloud storage
Don't have Team Viewer or other remote access software on your computer
If this seems very overwhelming, don’t be. Use a service like a metatask to keep everything organized.
Once you have made your purchase. The transaction is known almost immediately by the whole network. But only after a specific amount of time it gets confirmed.
Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all about confirmation.
As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain.
For this job, the miners get rewarded with a token of the cryptocurrency, for example with Bitcoins. Since the miner‘s activity is the single most important part of cryptocurrency-system we should stay for a moment and take a deeper look at it.
While the Federal Reserve and national governments may want to take large steps towards instituting a cashless society, the biggest issue is that people may not be willing to transact using centralized digital currencies. Simultaneously, the decentralized cryptocurrencies may hold enough intrinsic value that could not be prohibited.
Mining and miners
Any smart person can become a miner. Since a decentralized network has no authority to delegate this task, a cryptocurrency needs some kind of mechanism to prevent one ruling party from abusing it. Imagine someone creates thousands of peers and spreads forged transactions. The system would break immediately.
So, Satoshi set the rules that the miners need to invest some work of their computers to qualify for this task. In fact, they have to find a hash – a product of a cryptographic function – that connects the new block with its predecessor. This is called the Proof-of-Work. In Bitcoin, it is based on the SHA 256 Hash algorithm. Once again, Ecuador is not allowing this knowledge to be acquired, learn and taught how are they going to operate a system.
While it is true that you don‘t need to understand computer programming or details about SHA 256. It‘s only important you know that it can be the basis of a cryptologic puzzle the miners compete to solve. In the case of Ethereum, the smart contracts become the proof of work. After finding a solution, a miner can build a block and add it to the blockchain. In Ethereum each smart person that establishes a smart contract that becomes part of the blockchain.
Bitcoins can only be created if miners solve a cryptographic puzzle. Since the difficulty of this puzzle increases the amount of computer power the whole miner’s invest, there is only a specific amount of cryptocurrency token that can be created in a given amount of time. This is part of the consensus no peer in the network can break.
If you really think about it, Bitcoin and Ethereum are a decentralized network of peers which keep a consensus about accounts and balances, they are platforms that are more a currency than the numbers you see in your bank account. What are these numbers more than entries in a database – a database which can be changed by people you don‘t see and by rules you don‘t know?
“It is that narrative of human development under which we now have other fights to fight, and I would say in the realm of Bitcoin it is mainly the separation of money and state.”
Basically, cryptocurrencies are entries about token in decentralized consensus-databases. They are called CRYPTOcurrencies because the consensus-keeping process is secured by strong cryptography. Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by math. It is more probable that an earthquake will destroy the central bank of Ecuador and all the data they have that cryptocurrencies addresses are compromised because they are shared all over the world.
To describe the properties of cryptocurrencies we need to separate between transactional and monetary properties. While most cryptocurrencies share a common set of properties, they are not carved in stone.
1.) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner and certainly not Correa or Lenin. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer or if you send to Belgium. There is no safety net.
2.) Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real-world identity of users with those addresses.
3.) Fast and global: Transaction is propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they happen in a global network of computers they are completely indifferent to your physical location. It doesn‘t matter if I send Bitcoin to my neighbor or to someone on the other side of the world.
4.) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.
5.) Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper. In fact, this is the absurdity that has happened in Ecuador. The Assembly has declared that cryptocurrencies are prohibited, but in reality, there is nothing they can do to stop all the exchanges, the software and people could literally pour billions in Cryptos and the country will have no clue and there is nothing they can do to stop it. What are they going to do, shut down all computers?
1.) Controlled supply: Most cryptocurrencies limit the supply of the tokens. In Bitcoin, the supply decreases in time and will reach its final number somewhere in around 2140. All cryptocurrencies control the supply of the token by a schedule written in the code. This means the money supply of a cryptocurrency in every given moment in the future can roughly be calculated today. There is no surprise.
2.) No debt but bearer: The Fiat-money on your bank account is created by debt, and the numbers, you see on your ledger represent nothing but debts. Take the dollar. The dollar is not currency issued by the USA government. The Federal Reserve is an independent institution that issues the “Federal Reserve Note” known as the dollar. Such note is created by selling bonds or so-called treasuries to other countries to be able to print dollars which they charge 12% interest to the USA or Ecuador. It‘s a system of IOU. Cryptocurrencies don‘t represent debts. They have the advantage that no bonds or securities and no percentage are charged for its use. Our crypto Liberty just represent itself. They are money created and issued on the intrinsic value of the “smart contracts” and valued as hard as coins of gold. But if that was not enough we are backing out currency with Gold/silver/and platinum.
To understand the revolutionary impact of cryptocurrencies you need to consider both properties. Bitcoin as a permissionless, irreversible and pseudonymous means of payment is an attack on the control of banks and governments over the monetary transactions of their citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit someone to accept a payment, you can‘t undo a transaction.
As money with a limited, controlled supply that is not changeable by a government, a bank or any other central institution, cryptocurrencies attack the scope of the monetary policy. They take away the control of central banks, take away the power of a government to cause inflation or deflation by manipulating the monetary supply.
While it’s still fairly new and unstable relative to the gold standard, cryptocurrency is definitely gaining traction and will most certainly have more normalized uses in the next few years. Right now, in particular, it’s increasing in popularity with the post-election market uncertainty. The key will be in making it easy for large-scale adoption (as with anything involving crypto) including developing safeguards and protections for buyers/investors. I expect that within two years, we’ll be in a place where people can shove their money under the virtual mattress through cryptocurrency, and they’ll know that wherever they go, that money will be there.
Now a lot of people worried what is being said on the news that bitcoin and cryptos are nothing but a Ponzi scheme. The answer to that is very simple. Is the Bible in every single book ever written a Ponzi scheme? It has an intrinsic value, It is not worth nothing. It can be sold, commercialized, monetized and transactions will happen. Basically, that is a smart contract, the ability to transact those contracts.
Cryptocurrencies: Dawn of a new economy
Cryptocurrencies are digital gold. Sound money that is secure from political influence. Money that promises to preserve and increase its value over time. Cryptocurrencies are also a fast and comfortable means of payment with a worldwide scope, and they are private and anonymous enough to serve as a means of payment for black markets and any other outlawed economic activity.
But while cryptocurrencies are more used for payment, its use as a means of speculation and a store of value dwarfs the payment aspects. Cryptocurrencies gave birth to an incredibly dynamic, fast-growing market for investors and speculators. Exchanges like Okcoin, poloniex or shapeshift enables the trade of hundreds of cryptocurrencies. Their daily trade volume exceeds that of major European stock exchanges.
At the same time, the praxis of Initial Coin Distribution (ICO), mostly facilitated by Ethereum‘s smart contracts, gave life to incredibly successful crowdfunding projects, in which often an idea is enough to collect millions of dollars. In the case of “The DAO” it has been more than 150 million dollars.
In this rich ecosystem of coins and token, you experience extreme volatility. It‘s common that a coin gains 10 percent a day – sometimes 100 percent – just to lose the same at the next day. If you are lucky, your coin‘s value grows up to 1000 percent in one or two weeks.
While Bitcoin remains by far the most famous cryptocurrency and most other cryptocurrencies have zero non-speculative impact, investors and users should keep an eye on several cryptocurrencies. Here we present the most popular cryptocurrencies of today.
What is the future of Cryptocurrency?
The market of cryptocurrencies is fast and wild. Nearly every day new cryptocurrencies emerge, old die, early adopters get wealthy and investors lose money. Every cryptocurrency comes with a promise, mostly a big story to turn the world around. Few survive the first months, and most are pumped and dumped by speculators and live on as zombie coins until the last bagholder loses hope ever to see a return on his investment.
In 2 years from now, I believe cryptocurrencies will be gaining legitimacy as a protocol for business transactions, micropayments, and overtaking Western Union as the preferred remittance tool. Regarding business transactions – you’ll see two paths: There will be financial businesses which use it for it’s no fee, nearly-instant ability to move any amount of money around, and there will be those that utilize it for its blockchain technology. Blockchain technology provides the largest benefit with trustless auditing, single source of truth, smart contracts, and color coins.
Markets are dirty. But this doesn‘t change the fact that cryptocurrencies are here to stay – and here to change the world. This is already happening. People all over the world buy Bitcoin to protect themselves against the devaluation of their national currency. Mostly in Asia, a vivid market for Bitcoin remittance has emerged, and the Bitcoin using darknets of cybercrime are flourishing. More and more companies discover the power of Smart Contracts or token on Ethereum, the first real-world application of blockchain technologies emerge.
The revolution is already happening. Institutional investors start to buy cryptocurrencies. Banks and governments realize that this invention has the potential to draw their control away. Cryptocurrencies change the world. Step by step. You can either stand beside and observe – or you can become part of history in the making.
If the trend continues, the average person will not be able to afford to purchase one whole bitcoin in 2 years. As global economies inflate and markets exhibit signs of recession, the world will turn to Bitcoin as a hedge against fiat turmoil and an escape against capital controls. Bitcoin is the way out, and cryptocurrency as a whole is never going away, it’s going to grow in use and acceptance as it matures.