Crypto

Is cryptocurrency the next internet bubble you hope to burst? – Tech Tribune France

Photo credit: Federal Trade Commission.

Blockchain and DeFi are in their infancy and have a long way to go

It looks like another perfect storm is building on the horizon. This time it will be the next generation internet ecosystem based on Blockchain technology, first introduced by the Bitcoin system development team 12 years ago. There is no doubt that, in theory, this is a promising innovation.

The problem is that blockchain is touted as a panacea for all the ills of the Internet, such as data security, privacy, network vulnerability and hacking, and ransomware. It is too early to predict your own long-term well-being.

The danger lies in the widespread adoption of this unproven innovation, with the exception of the limited movements of cryptocurrencies, in the world of financial systems without demonstrating its effectiveness in the global financial network that is the backbone of the current economic order.

This time, it may be a combined hurricane and tsunami, as internet innovation in blockchain technology facilitates Ponzi-like schemes in the name of cryptocurrencies and decentralized financing.

Cryptocurrencies can be a new form of legitimate asset or a perfectly organized deck of cards waiting for a domino effect to fall. We must wait and see.

Read: As Bitcoin Slows Speed, Blockchain Advances Into Next Generation (Sep 10, 2021)

For the uninitiated, Blockchain is an innovative technology that can democratize the centralized and authoritarian world of financial systems. In theory, it can bring transformative changes to financial transactions by creating fairer and more egalitarian market systems. Operating autonomously without central control, you can reduce the cost of all financial transactions. In other words, it may seem like a dream come true.

What is blockchain?

Blockchain is a software enhancement of today’s internet infrastructure. Blockchain protocols impose some additional features on the current internet establishment.

It is primarily a system of decentralized peer-to-peer network architectures that communicate with each other. There is no central computer, as in the case of client-server cloud computing.

All the node computers are connected to a network and all have the same privilege as the same software that runs them.

Data transmission is enabled via TCP / IP as usual, but the data is cryptographically programmed for data privacy.

The data is stored in a chained ledger with a creation timestamp. Data chaining is used by mathematical algorithms called cryptography to maintain confidentiality and ensure the identity of the parties involved. This concept is called hash.

Recorded data is immutable, which means that it cannot be updated, modified, or removed from the chain.

User identity is managed by PKI, which stands for Public Key Infrastructure Technique, a tedious process that guarantees the authority and authenticity of the system user.

The most important feature of this network system is that it works autonomously based on software consensus algorithms and does not require any manual intervention at any time.

Additionally, all computer and network operating costs are paid for through individual transactions upon completion.

What are cryptocurrencies?

Cryptocurrencies or digital currencies are virtual currencies generated by a system based on Blockchain technology.

They are privately promoted digital currencies without government authorization or control. Its value is very volatile and can fluctuate depending on its supply and demand. Bitcoin is the first cryptocurrency. Today, there are tens of thousands of cryptocurrencies valued at more than $ 2 billion on the market.

Read: Bitcoins Lure: Greed Blinds Even the Wisest at Risk (Feb 24, 2021)

What is DeFi?

DeFi is a buzzword for decentralized finance. It is an approach to develop a network of systems to independently operate financial transactions that are distributed around the world without central control.

The DeFi community is organized in the form of wallets, exchanges, data miners. The wallet is where the assets of an individual user are recorded and stored. An exchange is the system in which a person can exchange fiat currency for crypto assets and vice versa. A Data Miner is the computer facility where data is cryptographically recorded and distributed in chained record blocks. All these three entities are connected by a secure peer-to-peer network.

Financial applications can be developed using Blockchain technology to enable all existing financial and asset-based transactions independent of central control.

These applications are developed using a concept called Smart Contract.

Smart Contract is a software module, similar to Internet AAP, called Dapp String Codes, developed in one of the appropriate programming languages ​​to execute full terms, binding conditions and actions to complete a transaction initiated by the ‘user’.

There are various cryptocurrency platforms developed using Blockchain for DeFi applications. The first was Bitcoin, followed by Ethereum.

Some of the other DeFi platforms are Avalanche, Hyperledger, Polkodot, Solano, and Cardano. Popular crypto exchanges are Coinbase, Coinbureau, and Binance.

ICO, or Initial Coin Offering, is the process by which cryptocurrencies originate. Its counterpart in the DeFi ecosystem includes Altcoins and digital tokens.

Altcoin Tether stands for Stable Coin, which is proclaimed as a supported dollar reserve. A stablecoin is equivalent to one US dollar in the world of cryptocurrencies. However, there is no accountability, transparency, traceability, or oversight under GAAP over such claims.

Recently, US government regulators demanded that cryptocurrency exchange exchanges capture basic identity. This regulation is called KYI, or “know your customer”, AML – “anti-money laundering”.

There are many flaws in this DeFi ecosystem. Noteworthy is a story published in the media about the Tether-Stable coin issued by Tether Holdings, an offshore company. The company has issued more than $ 66 billion in Tether to date. Company officials cannot positively demonstrate their reservations to US authorities in New York. The crypto community is concerned that if investors run for their money, the system could crash and investors will stay dry.

A recent IMF research article criticized the sale of these assets under the shadow of cryptocurrencies to unsuspecting investors out of nowhere.

It can be noted that there are many crypto experts and gurus who regularly promote cryptocurrencies, including the one in question, Tether, through YouTube and similar media platforms.

Read: 10 Reasons The Cryptocurrency Bubble Is Shattering (May 24, 2021)

Investors must be aware of the danger inherent in this innovation. It is a potential bubble that can not only devastate crypto investors, but can also affect the normal financial system around the world. The liquidity of cryptocurrencies directly or indirectly concerns some of the main international banks.

To conclude, if the bubble bursts, it is again technology, a demon embodied in the form of the DeFi protocol. Blockchain and DeFi are in their infancy and have a long way to go.

(The author is not an opponent or supporter of DeFi ecosystems. He is passionate about technology and curious about the effectiveness of such transformative changes. Opinions expressed here are based on his own reading and on articles and documents. Publicly available research) .

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