Wednesday, November 18, 2020

Of Blockchain, Crypto and Coins – The Dinosaur’s Edition


Many do not understand what is these hype all about, of Bitcoin, Ledger and stuff like that and even worse, in the 21st century, even financial institutions are adopting the Blockchain technologies that come with it. So here is the brief run down for everyone to be up to speed.

 

Cryptography is the method of ENCRYPTING or shuffling of data into a scrambled piece of information that only the sender and receiver can understand. Something like the Nazi Germany’s Enigma machines during WW2. It contains a cipher text and a Private Key which is needed to unlock or decode the message. Crypto Coins are tokens or coins in a casino minted off a factory called a Mine which the limit is defined in the initial definitions or Contract, something like the Constitution. There is a limit to how many can be mined and / or circulated.

 

Coins or Tokens are what these assets are called and in the defined currency. Usually we will hear BITCOIN , ETHEREUM or tokens and the currency code will be like BTC , ETH or others. They are minted by means of a REWARD SYSTEM or MINING where each block they mined, they get a certain number of coins + the mining fees.

 

What is a Miner and Mining Fees. To pay for a transaction or send a message, you need to pay some sort of fee, like electricity tariffs to the producer. The Miners will mine the block, encode and sign the ledger collectively and share the rewards and finders fee. Think of it as the Postman who collects your checks for the bank to process and gets a fee on the postage stuck to the envelopes. Whoever pays higher fees gets their transactions through first and the cheapest will take the last priority, mainly there is a limit to the size of the queue.

 

A Block is a group of transactions , bound together as a collective and at the end of the specified block, defined as either by size of the block or time is signed at the end of the block and encoded to the chain. Think of your class homework is checked by the teacher , signed off and results *(Hash of the Transactions) is recorded into the Report Book and the report book is signed by the headmaster. So before next year starts, your headmaster checks the report book signed by the teacher, add that to the start of the next year report and it goes on and on. That is called a Chain.

 

Because it’s been signed off by the Headmaster, the results cannot be changed on your homework or test results because everyone can have a copy of the report books. That is called the Ledger. The ledger sits on the block chain.

 

There are some coins that piggy back on some other infrastructure. It may be sitting on the XCP CounterParty network which rides on Bitcoin BTC network or Ethereum based ERC-20 for Tokens or ERC-721 for non-fungible tokens *(more like a fantasy coin or other uses). The coin or token require a smart contract to create and issue the coins and some due diligence is needed. A transaction fee of satoshis *(about USD7 worth of BTC at current time) or Ether Gas *(called wei ~ approx. 25c in fees) are needed to encode the message into the chain.

 

DAX or commonly known as Digital Asset eXchange is an exchanger of assets. Think of it as a stock market where you trade your money for future contracts like Oil etc or Forex like USD-GBP-JPY etc. A DAX sometimes sell you assets in your local currency and at times allow you to trade in different pairs such as USDT-BTC-ETH or other major pairs.

 

Note that USDT is a TEETHER where the asset is pegged against USD safely kept in a custodian.

Do check and do a proper full due diligence. Think of them as Promissory Notes by the Central Banks. There are stable coins for currencies like the Singapore Dollar xSGD which are acceptable by exchangers such as Cryto.com, CoinHako, Luno and others.

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