In Brief: Developments in Digital Assets Space

This week has been an exciting week for the digital assets space. The following developments have been important to note for those with a keen interest in how this story is getting written into history:

  1. The CEO for Nasdaq, the second biggest stock exchange after NYSE announced that they are open to becoming a crypto-currency exchange once regulations are in place. She further stated that cryptocurrencies are a new class of assets and this appears to show a shift in how digital assets have been perceived previously. For those interested in reading the full article, this can be found on CNBC news here.
  2. According to Bloomberg, billionaire investor George Soros is about to enter the crypto-currency space. He is referred to as “the man who broke the Bank of England” after he made $1 billion in one day, September 16th, 1992 (known as Black Wednesday). It would be interesting to follow how this story will unfold. To read full story on Bloomberg news
  3. CNBC news reports that a recent survey commissioned shows that 20 percent of financial firms such as banks and hedge funds are looking to trade crypto-currencies in 2018. If these intentions are translated into action, digital assets are likely to soar in value by the end of 2018.
  4. Pantera Capital, a credible hedge fund company estimates that cryptocurrencies market cap will reach $40 Trillion – the cap currently stands at $400bn according to CoinMarketCap
  5. Goldman Sachs, one of the biggest US banks hired the head of cryptocurrency helpdesk in the past week and Barclays is rumoured to be planning to do the same. The story appeared in Business Insider and other news outlets. This is an early sign that traditional institutions are warming up to the idea of digital assets. It shows a shift in the line of thinking
  6. Myetherwallet confirmed that some wallets got compromised and 150k worth of assets were lost due to sever related security issues. This highlights what has been a continuing risk in the digital assets sector-security. Article appeared in Cryptoslate

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Debunking Mysteries About Digital Assets (Series 1 of 7)

Ledger Nano Hardware wallet

Digital Assets Wallets

A digital asset wallet works in the same way as a cash, credit cards and other physical assets wallet. The only difference is that it is a software program-a smart wallet which has its own security features. These wallets can be made to store only one asset class or different assets. The digital wallet interacts with the blockchain and allows sending and receiving of assets. Before you can own any digital asset you would require a wallet which enables you to get a unique address which acts like an account- to receive digital assets. You can only send an asset to a wallet address which can support that asset class, sending to a non-supported class can result in total loss of the asset.

How does a wallet work

A wallet contains a public key and a private key and when a person sends an asset such as bitcoin or ethereum or VFC, they are essentially signing off ownership of the coins they are sending to your wallet address. If the private key and the public key match, the balance gets updated in the incoming wallet and increases whilst in the sender’s outgoing wallet the balance reduces. There is no exchange of real coins- it all happens through a transaction getting recorded on the blockchain to confirm the transfer.

Visual illustration of matching wallet keys

Private Key

The private key (referred in other terms as the seed) is an integral component of the wallet and it is a number (integer). Wallet software often attempts to shield the need to understand what the private keys are and how they work, however, most users eventually encounter private keys too often with unpleasant results. An understanding of private keys is essential in preventing loss of assets. A private key is used together with the public key to create an unforgettable message signature. The private key must be kept secret. Public and private keys are mathematically linked through a signature algorithm, a mathematical procedure used for creating identities, signing messages, and validating signatures. Anyone who steals the private key can steal the funds/assets.

Public Key

A public key is generated through a mathematical transformation of the private key. The public key identifies a sender or recipient and this is used to generate the wallet address which can be distributed to others.

Types of wallets

Now that we have a brief idea of the keys, we can explore the different types of wallets. Wallets can exist in different forms and this could be a desktop wallet, online wallet, mobile wallet or a hardware wallet.

  • Desktop wallet– downloaded and installed on a PC or laptop and normally come free of charge
  • Mobile wallet– can run as an app on a smartphone and can be useful for making transactions (peer-to-peer and monitoring assets on the go. Most of the wallets are available free of charge.
  • Hardware wallet- these differ in the way the private key is stored –private keys are normally stored on the hardware device like a USB stick. Hardware wallets make transfers online, however the assets are stored offline (cold storage) and you would have to connect to a computer using several web interfaces which may be available. The Nano S is an example of a popular hardware wallet. Hardware wallets are still quite expensive and for the Nano wallet you would be looking at around 100USD. However, for someone trading assets which carry a high value this can be a worthy investment for peace of mind.
  • Paper Wallet-paper wallets are easy to use and provide a very high level of security. The term simply refers to a printout of your public key and private key but can also refer to a piece of software used to securely generate a pair of keys which are then printed. If you lose the printed paper it means you cannot recover your assets.

Security of Wallets

Wallets have varying levels of security depending on the type. A web based wallet is riskier as this can be susceptible to hacking. Offline wallets are relatively more secure as once offline, they become less vulnerable to hacking. No matter which wallet is used, losing private keys can lead to loss of funds.

Hope everyone finds the information useful and our next series will be open to suggestions on what to cover. Remember to follow this blog to get alerts for new posts.

Blockchain Technology for dummies

What is the Blockchain?

Blockchain network concept , Distributed ledger technology , Block chain text and computer connection with blue matrix coded backgroundTechnology has brought a lot of benefits to various sectors and no one would have ever thought that there could be another discovery capable of revolutionising the world again to the same extent as the internet, and then came along blockchain technology. Blockchain technology is now dubbed the ‘re-discovery of the internet’ due to the varied application to which it can be put.

The starting point to understanding blockchain technology is to understand the problem it was intended to solve. It is almost impossible to mention the term blockchain technology and avoid a discussion of bitcoin as this is the technology underlying the famous crypto-currency. Bitcoin was founded by Satoshi Nakamoto- mystery still shrouds who Satoshi Nakamoto is or whether it is an individual or an organisation. Nevertheless, the problem solved is that of double spending. The easiest way to explain this concept is through fiat (conventional currency eg USD, GBP) transactions. Every money bill gets issued with a serial number meaning that only one note of the same denomination bear the unique serial number and any other note with the same number would be a counterfeit note. With digital money, this question was of fundamental importance as this was required to avoid the same digital money being used to honour different transactions without a way of checking. Through a whitepaper, Satoshi proposed a way of solving this problem through a public ledger which records a transaction as it occurs in real time.

To ensure the integrity of the ledger, Satoshi proposed a network of computers (commonly known as miners) spread all over the globe to be ‘guardians’ of the ledger who validate a transaction when it occurs. It is for this reason that blockchain technology has proven to be hacker-proof as one would have to conspire with the entire network in order to compromise the chain. Information on this ledger is stored in blocks which bear all details about the transaction and is filed on the network. A series of these blocks of information when filed is what makes a block chain.  Once the filing has taken place, there is no way of changing the transaction as one would have to also change all previous and subsequent transactions.

Although crypto-currencies have become the most popular application of block-chain, this is only a tip of the iceberg. Block-chain has proven to have far much wider application and the rise of crypto-currencies, though a positive development,  fails to do justice to the wider use of this technology. In order to demonstrate how widely this technology can be applied a few examples would be useful.

Recently in Sierra Leone, the power of blockchain was put through the paces through the first trial for election use case of blockchain technology through a permitted blockchain. In terms of aid distribution, the United Nations recently delivered aid in Syria using Ethereum, one of the major crypto-currencies. Looking to the law, the legal sector stands to go through immense transformation and in groundbreaking ways. In Carlifornia, blockchain technology is under trial for land registry purposes to record land ownership, which is likely to reduce the ability of fraudulent disposals in land transactions. In relation to Intellectual Property (IP) rights, block-chain technology is expected to afford effective protection to IP rights as once ownership is recorded on the blockchain, it will become difficult to claim ownership of the same invention. Lastly, smart contracts have already taken off and will eventually remove the need for lawyers to draft lengthy and costly agreements as this can simply get executed with precision as a computer code once conditions are met. Some go to the extreme of declaring that lawyers will soon get replaced by blockchain technology.

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