Category Archives: Knowledge Center

What Is Elliott Wave?

Ralph Nelson Elliott was regarded as one of the greatest technical analysts of the 20th century. In the early-1930s, Elliott began working on a systematic study of fluctuations in the stock market. Based on his analysis, he concluded that fluctuations in the stock market were mainly based on collective human behavior.

Elliott believed that all speculative markets followed fairly predictable price movements based on investor psychology and underlying social principles. In 1938, he combined all of his research into a book called The Wave Principal.

Elliott’s book was very well received within the investment community, particularly among traders who relied on technical analysis.

The Elliot Wave Principle

Elliott passed away in 1948, leaving behind a treasure trove of historical data and research based on his Wave Principal. Elliott’s original work in the field of human behavior actually became more popular in the years following his death.

Several technical analysts expanded on his research, particularly in the area of investor psychology. This additional research also looked at crowd psychology and the herd mentality of crowds. Today, Elliott Wave is one of the most popular forms of technical analysis used to forecast the stock market and other speculative markets.

The Elliott Wave Principal moves between optimism and pessimism in natural sequences. These mood swings create various patterns or waves. Based on Elliott’s model, all market prices fluctuate between impulse and corrective phases. These fluctuations occur regardless of the time frame. In other words, Elliott Wave can be successfully applied to long-term studies or short-term studies.

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Impulse Phases and Corrective Phases

Impulse phases are subdivided into five smaller waves. Corrective phases are subdivided into three smaller waves. In a bull market, waves #1, #3, and #5 of the impulse phase are bullish. Waves #2 and #4 are retracements of the primary bullish trend.

In a bear market, waves #1, #3, and #5 are bearish. Waves #2 and #4 are retracements of the primary bearish trend. The big move always occurs in wave #3.

Waves #1, #3, and #5 are also known as motive waves. These waves always move with the underlying trend. Waves #2 and #4 are also known as corrective waves. They move against the underlying trend. Please review Chart #15.

Each motive wave and corrective wave has its own sub-cycle. Each sub-cycle is divided into mini waves. An entire Elliott Wave motive pattern consists of 89 waves, followed by a completed corrective pattern of 55 waves.

During his initial research, Elliott subscribed to the idea that each completed wave pattern represented a degree of movement based on a specific time frame. Each degree of movement was given a name.

Elliott labeled nine different degrees of movement.

  • Grand Supercycle – multi-century
  • Supercycle – multi-decade
  • Cycle – multi-year
  • Primary – months
  • Intermediate – weeks to months
  • Minor – weeks
  • Minute – days
  • Minuette – hours
  • Sub-minuette – minutes

A grand supercycle is the longest degree of movement based on Elliott’s research. The reversal of a grand supercycle is incredibly rare. Most traders and investors will never see a grand supercycle reversal in their lifetime.

Although Elliott Wave has been extremely popular over the past several decades, the main criticism of this trading approach is based on the fact that the entry and exit levels are too subjective.

Additionally, the wave counts are open to interpretation. In an attempt to remedy this problem, many traders who use Elliott Wave on a daily basis prefer to combine the wave counts with Fibonacci ratios. Adding Fibonacci ratios to the mix provides specific entry and exit signals.

Elliott Wave is not perfect. It continues to remain one of the most widely followed trading techniques in the history of technical analysis.

Brief Summary of Elliott Wave

  • Ralph N Elliott is regarded as one of the greatest technical analysts of all time.
  • In the early-1930s, Elliott began to study fluctuations in the stock market.
  • He observed that fluctuations in the stock market were based on human behavior.
  • Throughout the 1930s, Elliott developed a systematic investment approach.
  • The investment approach was based on his observations concerning human behavior.
  • Following his death in 1948, traders continued to study Elliott’s original work.
  • Elliott’s methods actually became more popular during the years following his death.
  • His methodology became known as the Elliott Wave Principle.
  • Elliott Wave Principal moves between optimism and pessimism in natural sequences.
  • These mood swings create various patterns or “waves.”
  • All prices fluctuate between an impulse phase and a corrective phase.
  • According to Elliott, these fluctuations will occur regardless of the time frame.
  • Therefore, Elliott Wave can be applied to long-term studies or short-term studies.
  • In a bull market, waves #1, #3, and #5 are bullish.
  • Waves #2 and #4 are retracements of the primary bullish trend.
  • In a bear market, waves #1, #3, and #5 are bearish.
  • Waves #2 and #4 are retracements of the primary bearish trend.
  • An entire Elliott Wave motive pattern consists of 89 waves.
  • This is followed by a completed corrective pattern of 55 waves.
  • Elliott believed that each completed wave pattern represented a degree of movement.
  • Each degree of movement was based on a specific time frame.
  • Elliott labeled nine different degrees of movement.
  • Elliott Wave continues to remain extremely popular among technical analysts.

What Is Hashing?

In simple terms, a hash is a function that converts an input of letters and numbers into an encrypted output of a fixed length. A hash is an essential ingredient of blockchain technology. As you may recall, we discussed hashing during our conversation about cryptocurrency mining. Hashing plays a critical role in the mining process, as miners collect transactions and organize them into blocks.

The most important component of a cryptocurrency is the blockchain. We will discuss blockchain technology in a later section. For the purpose of our hashing conversation, it’s important to know that a blockchain is formed by linking together individual blocks of transaction data. To prevent fraudulent transactions, the blockchain only contains validated transactions. These validated transactions are a series of encrypted letters and numbers, known as a hash.

Hashing involves processing the data from a block through a mathematical function, thus creating a fixed-length output. This increases security based on the fact that anyone trying to decrypt the hash won’t be able to determine the length of the input based solely on the length of the output.

A great way to think of how hash functions work on a blockchain is that they act as a digital signature. For the next block to be made, the signature (hash) from the previous block MUST match that of the next block. This is why blockchain tech is considered so secure.

Cryptographic Hash Function

In addition to cryptocurrencies, hashing and hash functions are used across many industries. A cryptographic hash function is a special class of hash function that has unique properties making it well suited for cryptography. A cryptographic hash function contains three specific properties needed to ensure security. Let’s briefly review each property.

Deterministic

This means that you will always receive the same result no matter how many times you pass a particular input through a hash function. This property is very important because it becomes impossible to track the input properly if you receive different hashes.

Quick Computation

The hash function must be capable of returning the hash of input quickly and accurately. If the process isn’t fast enough, the system becomes inefficient.

Preimage Resistance

It is infeasible to find two different messages with the same hash value.

Summary

Without question, hashing is a difficult concept to understand. Thankfully, it’s not necessary for the average crypto user to fully grasp the idea of hashing. In reality, miners are the only people in the crypto community who work with hashing and hash functions daily.

Hashing and hash functions have been in existence well before Bitcoin arrived on the scene in 2009. Bitcoin (and cryptocurrency in general) has used hashing to create a decentralized money system that will one day be viewed by financial historians as arguably the greatest innovation in the history of money.

Brief Summary of Hashing

  • A hash converts an input of letters and numbers into a fixed-length encrypted output.
  • Hashing plays a critical role in the mining process.
  • Through hashing, miners are able to validate all transactions on the blockchain.
  • Hashing and hash functions are used across many industry groups.
  • A cryptographic hash function is a special class of hash functions with unique properties.
  • Cryptographic hashes are deterministic, quick, and have preimage resistance.

Everything You Need To Know About Binance Coin

What is Binance Coin?

Blockchain and cryptocurrency cover a wide range of assets and projects that serve different purposes. For instance, there are several types of crypto exchanges, with each crypto being unique in terms of construction and features.

Binance coin is a cryptocurrency issued by the Binance exchange and trading as a BNB symbol. Similar to other cryptocurrencies, Binance Coin offers multiple uses beyond the Binance Exchange. For instance, it can be used for trading, credit card payments, transaction fees, booking travel arrangements, entertainment, investment, and loans and transfers. It is currently among the most prominent cryptocurrencies globally, with over 1.4 million transactions per second.

Suggested Read: What Is an ICO, and What is it for? – Cryptobite

Who Created Binance Coin?

Binance Coin was created in 2017 by Changpeng Zhao, a developer who had created high-frequency trading software.

When was Binance Coin launched?

Binance Coin was launched in July 2017.

What Is The Price of Binance?

Binance
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How Does Binance Coin Work?

Being a cryptocurrency, BNB operates the same way as digital assets in the market—it rises and falls in value depending on how people use and trade it. It can be held in compatible wallets off crypto exchanges and sent directly to others as a form of payment or for other uses. It can be traded for other currencies or cryptos on various exchanges.

Binance Coin can also be used as a form of payment for crypto credit card bills through the Crypto platform. Businesses can also offer BNB as a form of payment for the goods and services they sell as an alternative to the traditional currency; for instance, book travel arrangements such as flights and hotels and buy lottery tickets. BNB is a sought-after option for investing in EFTs, stocks, and other investment opportunities.

How does one get BNB? Having understood the several purposes of the Binance Coin, where and how to get it is a question that crosses many people’s minds. It can be acquired through various platforms, and the most notable way is through Binance Exchange, the crypto’s own exchange. One can get BNB in four critical steps.

  • Get a Binance Coin wallet, also known as coinomi or ledger
  • Locate your own BNB address
  • Sign up for Binance
  • Buy Binance Coin with either a credit card or another crypto

BNB works in tandem with two blockchains—Binance Chain and Binance Smart Chain (BSC). While BSC is a separate blockchain built into the Binance Chain, it runs parallel to BC and carries different features like smart contract capability.

BC was designed for optimal performance. In fact, BC was based on a decentralized exchange (DEX) owned by Binance. Nonetheless, it was limited in allowing developers to build solutions. Therefore, BSC was designed to add more capabilities to the BNB ecosystem, thereby giving developers more functionality. An example is the smart contract functionality available on BSC and not BC.

How To Keep Your Binance Coin Safe?

Binance is currently the most popular and most used exchange to buy and sell coins and tokens. However, is it safe to leave or hold coins on the platform? Cryptosec confirms that Binance is safe and maintains its security in two ways. Firstly, Binance has cold storage where most of the funds are stored, making it significantly difficult to steal funds. Secondly, it has a SAFU fund used to store 10% of trading fees received on their emergency fund. This ensures that users who get their funds stolen can be compensated.

Despite the measures above, being the most popular cryptocurrency exchange means Binance will continue to be a target for hackers. Therefore, it offers guidelines on how users can secure their cryptos. For instance, using regulatory compliant centralized exchanges by AML and KYC checks when trading cryptos. However, prioritize peer-to-peer trading and decentralized exchanges with audits.

Binance offers multiple security options for storing cryptos. One of the ways includes keeping cryptos on regulated exchanges, especially if someone is a newcomer. Using a non-custodial wallet where a user owns the keys provides more security. A more secure option is to keep it in a wallet not connected to the internet. Also, using audited DApps can improve security.

Is Binance Coin A Good Investment?

We do not provide investment advice, only objectively presenting factual data around virtual currencies. That said, even though cryptocurrencies are highly volatile, BNB can be an excellent investment for long-term investors. It is the most popular crypto for a reason; it is attractive to investors. Binance Coin was only introduced to the market less than four years ago, and it has since rapidly grown. It also aims to revolutionize the cryptocurrency space through tokenomics and utilities.

What Is a Decentralized Autonomous Organization (DAO)?

Arguably, the main benefit of blockchain technology is the removal of a centralized authority. This is particularly true in the area of financial systems and financial applications.

Other industries include healthcare, education, retail, supply chain management, and legal. All of these industries could be largely impacted by the removal of a centralized authority.

Over the past few years, corporate governance has received a great deal of attention.

Corporate Governance and Blockchain Technology

Corporate governance is the system used to control companies, corporations, and other businesses. The system consists of various rules, processes, and mechanisms established to direct and guide the company. The main goal of corporate governance is to serve the interests of the company’s shareholders, senior executives, employees, customers, suppliers, and the local community. Typically, the board of directors has the greatest influence on corporate governance.

Blockchain has the potential to radically alter the world of corporate governance by creating new types of organizations that can run autonomously. This is done without the need for a centralized authority such as a board of directors. One such example is a Decentralized Autonomous Organization (DAO).

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Introducing DAO

A centralized organization relies on a small group of people to manage and dictate the interest of the company. Essentially, each person within the group is acting as an agent for the company. Employment contracts are used to determine the relationship each person has with the company. Their rights and responsibilities are specifically defined within the contract. If the contract is not fulfilled, a court of law decides who is responsible.

In contrast to a centralized organization, a DAO is governed by computer code and programs through the use of blockchain and smart contracts. People interact with each other according to an open-source protocol.

Keeping the network safe is one of the primary objectives of the DAO. In addition to maintaining the security of the network, members are responsible for performing various tasks within the network. In exchange for these services, the DAO rewards the members with native tokens attached to the network. This type of incentive structure is much less expensive compared to the centralized organization of using a board of directors.

Transparency

In addition to a reduced centralized incentive structure, DAOs create a higher level of transparency between the company and its shareholders. The interests of all shareholders are coordinated with the consensus rules attached to the native token. DAO members are rewarded with tokens when they collectively work for the common good of the shareholders.

All rules are fully available and 100% transparent based on the fact that they are written into the smart contract. This type of arrangement eliminates the need for a centralized legal contract enforced by a court of law. Instead, a DAO relies on the smart contract where an error can’t be made. Either the contract is fulfilled, and the reward is paid, or it isn’t, and the reward is withheld.

Hierarchies

A centralized organization is based on a hierarchical structure consisting of several layers of bureaucratic coordination. This type of corporate hierarchy has been in existence for centuries. It can be extremely inefficient, wasteful, and prone to corruption.

If this type of organization is so ineffective, why does it continue to dominate the corporate landscape? Because there is no financial incentive to make any drastic changes. The participants inside the centralized organization are paid a salary to perform certain tasks. As long as they continue to work within the hierarchical structure, they will continue to receive a salary.

DAO is the Future

Even though a DAO offers a more transparent structure for shareholders. It could take several years for this type of organization to penetrate the centralized world of traditional businesses.

Centralized organizations have been the pillar of the global business community since the beginning of modern economics, dating back to the late-1700s. People’s salaries and livelihoods are attached to this centralized approach. As a general rule, people dislike major changes in their daily lives. Therefore, it’s highly unlikely that DAOs will be adopted by major corporations at any time soon.

Brief Summary of Decentralized Autonomous Organizations (DAOs)

  • DAOs can operate autonomously without the need for a centralized authority.
  • DAOs are governed by computer code through the use of blockchain technology.
  • People interact with each other according to an open-source protocol.
  • The primary objective of DAO members is to maintain the safety of the network.
  • DAO members perform certain tasks in exchange for native tokens.
  • DAOs have the potential to dramatically alter corporate governance.
  • Corporate governance is mainly dictated by the board of directors.
  • Boards of directors could be replaced by decentralized autonomous organizations.
  • Compared to boards of directors, DAOs offer a higher level of transparency.
  • Concerning transparency, the needs of shareholders are better represented by DAOs.
  • Centralized organizations can be inefficient, prone to corruption, and wasteful.
  • DAOs would be a radical shift for most centralized businesses and corporations.
  • Therefore, the adoption of DAOs will take several years or longer.

What Is an ICO, and What is it for?

An Initial Coin Offering (ICO) is a type of funding that usually involves cryptocurrency. An ICO can be used as a source of capital for start-up companies or projects, particularly projects involved in cryptocurrencies, blockchain technology, decentralized finance, and digital assets. A typical ICO involves the issuance of tokens or coins in exchange for fiat currency. Contrary to popular belief, the investor in an initial coin offering does not receive an ownership stake in the company or start-up business. Instead, investors simply receive tokens or coins based on the amount of their fiat investment. The main purpose of an ICO is to raise start-up capital. The owner is exchanging tokens for fiat, using the fiat to launch the new business or project.

White Paper

If a cryptocurrency start-up company wants to participate in an ICO, the first step is to create a white paper. It is a document designed to fully describe the project. Typically, a start-up company is launched with the primary purpose of solving a problem or improving upon an existing business. The white paper aims to provide potential investors with a detailed analysis of the project.

The white paper should answer the following questions:

  • What is the purpose of the project?
  • What is the problem this project can solve?
  • When is the estimated launch date of the project?
  • How much money is needed?
  • What type of funds will be accepted as payment?
  • How many tokens will be issued?

The white paper is very important because it provides investors with detailed information concerning the ICO. Still, investors should be aware that the white paper is not a legal document and it has not been approved by any type of regulatory agency.

ICO VS IPO

The main difference between an initial coin offering (ICO) and an initial public offering (IPO) is regulation. ICOs are largely unregulated, depending on the country of origin. However, during the past two years, ICO regulation has increased substantially, particularly in the United States. Concerning IPOs, regulation has always been required regardless of the country. For example, in the United Kingdom, IPOs are regulated by the Financial Conduct Authority (FCA). The IPO regulator in the United States is the Securities and Exchange Commission (SEC). The IPO process is very expensive and time-consuming. Consequently, a small company can’t participate in an IPO.

Another important distinction between ICO and IPO is ownership of the company. When an investor participates in an ICO, they receive tokens issued by the start-up company. However, the tokens do not represent ownership in the company. Regarding an IPO, the investor receives shares in the company which represents ownership. The investor owns a percentage of the company based on the number of purchased shares.

ICOs and IPOs are very speculative investments. Investors should never participate unless they can financially afford to lose their entire investment. Also, always do your own research concerning the company involved in the ICO or IPO before investing. Ask questions and read all of the available information. The company should be able to answer all of your questions. ICOs and IPOs can be incredibly profitable for investors. Still, you can’t be too careful.

The Future of ICOs

The first ICO was conducted in July 2013. Additional ICOs were launched during the next three years, slowly gaining popularity. However, the real explosion occurred in 2017, when Bitcoin was setting new price records. ICO activity peaked in 2018, followed by a complete collapse in 2019. The number of ICOs in 2019 fell 91% compared to the record amount of activity in 2018.

What happened? Why did the ICO market experience such a dramatic decline in 2019? There are two reasons why ICO volume collapsed. First, the public enthusiasm for cryptocurrencies began to wane following the brutal price decline of Bitcoin beginning in 2018. Second, financial regulators began to crack down on ICO activity to minimize the amount of fraud and abuse among several unscrupulous business owners and ICO fundraisers. Despite their general disdain for over-zealous regulators, the vast majority of the crypto community welcomed the crackdown from the regulatory industry. Why? Because ICO fraud was ruining the good name of cryptocurrencies and digital assets. This explains why there was very little pushback from the crypto community when regulators stepped in.

ICO activity in 2020 has remained non-existent. Investors have completely lost interest in ICOs. Additionally, crypto start-up companies didn’t have the financial resources to hire a legal team to clear all of the ICO regulatory hurdles. Therefore, companies involved in crypto, blockchain, and decentralized finance are moving away from initial coin offerings, particularly companies with customers in the United States.

At least for now, it appears that initial coin offerings will no longer be used by start-up companies as a method to raise capital. Until financial regulators can provide a more coherent regulatory picture for the entire digital asset universe, crypto companies will find other sources of capital.

Brief Summary of ICOs

  • Initial Coin Offering (ICO) is a type of funding that usually involves cryptocurrency.
  • Typically, ICO is used as a source of capital for start-up crypto companies.
  • ICO involves the issuance of coins or tokens in exchange for fiat money.
  • The white paper provides investors with information concerning the ICO.
  • The main difference between ICO and IPO is in regulation.
  • ICO is largely unregulated, while IPO is highly regulated.
  • ICO investors do not receive an ownership stake in the company.
  • IPO investors own shares in the company, which represents percentage ownership.
  • ICOs and IPOs are highly speculative investments.

Everything You Need To Know About Chainlink

What is Chainlink?

Chainlink (LINK) is a cryptocurrency designed as a smart contract solution to increase security and reliability. Its purpose is to verify assets in decentralized blockchain oracle networks. The founders designed LINK cryptocurrency technology with on-chain infrastructure and off-chain infrastructure.

On-chain infrastructure or “oracles” process offline data requests and verify real-world data to users on the Ethereum blockchain. Chainlink’s off-chain infrastructure comprises proprietary “nodes” that collect and report real-world data.

Founders of Chainlink say that it supports smart contracts on any blockchain. It provides users with cryptographic proofs for on-chain smart contracts. They use custom-built APIs to connect Chainlink to real-world assets and data information sources offline.

The Chainlink technology is a scalable proof-of-reserves solution designed to work with all current and future blockchains.

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Who Created Chainlink?

Chainlink’s authors include Sergei Nazarov, Steve Ellis, and Dr. Ari Juels.

When Was Chainlink Launched?

The founders announced the Chainlink protocol in 2017 via white paper. Chainlink officially launched in 2019 on the Ethereum network.

What Is The Price of Chainlink?

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How Does Chainlink Work?

Built on the Ethereum platform, Chainlink is a cryptocurrency solution designed to provide tamper-proof data from on-chain and off-chain sources. Chainlink uses the decentralized blockchain oracle network and APIs to verify proof-of-reserves for smart contracts.

It links with real off-chain assets to make sure traders on the platform have enough collateral off-chain to cover on-chain trades.

This technology integrates with all known blockchains in the cryptocurrency ecosystem to verify the reserves of stablecoins like Wrapped Bitcoin (WBTC).

Secure features reduce the risk of hacking and breakdowns in centralized servers.

They tasked Chainlink’s Keeper nodes with the job of automating smart contracts. The platform helps stakeholders verify stablecoin collateral using a proof-of-reserves system.

Proof-of-reserves is an audit system that allows the Chainlink system to integrate with and audit the reserves of leading off-chain cryptocurrencies like Wrapped Bitcoin WBTC.

Chainlink’s proof-of-reserve provides proof of cryptocurrency collateralization that verifies smart contracts against the records of off-chain reserves.

It operates using its proprietary “Keeper” nodes and a built-in proof-of-reserves audit system to automate smart contracts and provide proof-of-collateralization for a wide variety of cryptocurrencies using blockchain technology.

They originally built Chainlink on the Ethereum network using an extension of an ERC-20 token known as ERC-677. ERC-677 tokens issued by LINK keep the same capabilities and functionality as their ERC-20 counterparts. Users holding ERC-677 tokens can use them interchangeably in the Ethereum ecosystem.

Chainlink Features

  • Uses tokens as data feeds to connect on-chain smart contracts with off-chain reserves.
  • Tamper-proof system
  • Reduces the likelihood of theft, lack of collateralization, and duplicate transactions.
  • Rewards node operators for retrieving the data from on-chain smart contracts.
  • Integrates with all blockchains
  • Connects to web data sources using secure HTTPS
  • Operates using zero-knowledge proofs to protect personally-identifying information

How to Keep Your Chainlink Safe

Chainlink operates on the Ethereum blockchain. This makes it easy for LINK token holders to secure and store their value in ERC-20 compatible smart wallets. ERC-20 tokens and ERC-677 tokens in the Ethereum ecosystem have the same functionality, including the option for secure storage in hardware wallets and cold storage wallets.

These secure storage technologies provide traders with private keys that only they can access. Secure wallet technologies offered by third-party’s offer LINK holders secure storage solutions where cryptocurrency investments are trackable online via desktop and laptop computers.

Is Chainlink a Good Investment?

We do not provide investment advice. This historical analysis of performance is for informational purposes only. It’s important to do your research before investing in Chainlink or any other cryptocurrency. They designed Chainlink to address issues of tampering, theft, and fraud on the Ethereum blockchain. This cryptocurrency has received mostly positive reviews about its technology since its official launch in 2019.

Chainlink’s total supply hovers around 1 billion LINK. It has a market dominance of just under 0.40%. The LINK token started out with a value of around $0.11. It reached its all-time high of $52.88 in May 2021. Chainlink currently ranks at number 22 in the top 50 cryptocurrencies by market cap.

There is a potential risk involved in any investment. Think about how much you can afford to invest. Before you invest, figure out how much you can afford to lose. Learn more at: https://chain.link/

What Is a Digital Signature?

A digital signature is a cryptographic mechanism used to validate the authenticity and integrity of digital data. This includes such things as a message, software, or digital document.

Essentially, it is the digital equivalent of a handwritten signature or a stamped seal. However, a digital signature offers far more inherent security. In many countries, a digital signature is legally binding in the same way as a traditional handwritten signature.

How Digital Signatures Work

Digital signatures are based on public-key cryptography (PKC), which is used to generate two keys that are mathematically linked: a public key and a private key. The keys can be used for both data encryption and digital signatures.

As an example, let’s assume ABC Mortgage Company is creating a document requiring Jane’s signature. The mortgage company uses its own private key to encrypt (secure) the necessary electronic documents. The only way to decrypt (access) the documents is with Jane’s public key. Jane provides an electronic signature, and the transaction is complete.

Digital signature technology is only effective if all parties in the transaction trust that the individual (or company) creating the document was able to maintain the integrity of the private key by keeping the key secret. Let’s return to our example involving ABC Mortgage Company. Jane is trusting that the mortgage company did not allow a third party to gain access to the private key. If the key is compromised, fraudulent digital signatures could be created in the name of the private key holder.

Suggested Read: What Is Decentralized Finance? – Cryptobite

Classes of Digital Signatures

There are three different classes of digital signature certificates. Let’s briefly review each class.

Class 1

These digital signatures provide a basic level of security. They are used in environments with a low risk of data compromise. Class 1 signatures cannot be used for legal business documents because the validation process does not meet the high level of security required for such documents.

Class 2

These digital signatures provide a moderate level of security. They are used for both businesses and individuals. Authentication of a class 2 signature would include verifying the individual’s signature against a pre-verified database such as Equifax, TransUnion, or Experian. Class 2 digital signatures are used for such things as e-filing of tax documents, insurance documentation, mortgage applications, loan documents, and other paperless banking.

Class 3

These digital signatures provide the highest level of security. Class 3 signatures require a person or organization to appear in front of a certifying authority to prove their identity prior to signing the document. These signatures are used in cases involving high-value transactions or where a high level of fraud exists. Examples include e-auctions, court filings, e-ticketing, and highly secure government documents.

Digital Signature Versus Electronic Signature

There seems to be some confusion between digital signatures and electronic signatures. Although the two terms sound rather similar, there is a distinct difference between digital and electronic signatures. Let’s review the details.

A digital signature is a technical term based on a cryptographic process that is used to authenticate a sequence of data. As we discussed earlier, digital signatures are based on public key cryptography (PKC).

An electronic signature, also known as an e-signature, is a legal term that is defined by lawmakers through the legislative process. In fact, the United States Congress officially defined an electronic signature as, “An electronic sound, symbol or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”

The main takeaway from this rather definition is that a digital signature can also be an electronic signature. But an electronic signature is often not a digital signature. A digital signature can provide cryptographic proof that a document was signed. However, an electronic signature cannot provide the same guarantee. This explains why not all electronic signatures can be digital signatures.

Summary

Digital signatures are used to sign and authorize cryptocurrency transactions. In terms of Bitcoin, digital signatures are particularly important because they protect the BTC owner by allowing only the holder of the private keys to access the crypto.

A digital signature is another example of how technology has completely changed the way consumers interact with businesses and with other consumers. A few decades ago, the idea of using an electronic device to replace a hand-written signature would have been unthinkable. Advances in technology continue to move forward, despite our occasional reluctance to embrace new technology. We can only imagine where technology will take us a few decades from now.

Brief Summary of Digital Signature

  • A digital signature uses cryptography to validate the authenticity and integrity of digital data.
  • Signatures are based on public-key cryptography (PKC).
  • PKC is used to generate two keys that are mathematically linked – the public key and the private key.
  • The keys are used for data encryption and digital signatures.
  • Digital signature technology is only effective if the integrity of the private key is maintained.
  • There are 3 classes of digital signature certificates.
  • Class 1 certificates are used in environments with a low risk of data compromise.
  • Class 2 certificates are used for e-filing tax documents, insurance, and banking documents.
  • Class 3 certificates require a certifying authority to verify physical identity before signing.
  • A digital signature can also be an electronic signature.
  • An electronic signature is not necessarily a digital signature.
  • Concerning blockchain, digital signatures are used to authorize crypto transactions.

Blockchain and Artificial Intelligence

Artificial intelligence (AI) is the ability of a computer program to think, learn and mimic human thought. Introduced in 1955 by John McCarthy, artificial intelligence has several different fields of study. These fields include computer science, mathematics, psychology, and philosophy, among many others. AI is linked to several different use cases. The most prominent use cases include machine learning, supply chain optimization, speech recognition, self-driving cars, and manufacturing optimization.

Now we know a bit about AI, let’s review a few examples of how AI is improving decentralized networks like blockchain.

Cryptocurrency Trading

During the past few years, artificial intelligence has substantially increased its presence in the area of crypto trading. This is particularly true with high-frequency trading (HFT). Essentially, HFT is a type of algorithmic financial trading characterized by high speeds and high turnover rates. High-frequency trading is a perfect vehicle for cryptocurrency trading because the crypto universe has several different exchanges.

HFT uses artificial intelligence to analyze multiple technical indicators across various exchanges in an effort to take advantage of market opportunities. AI is still in its infancy stage in regard to crypto trading. Going forward, artificial intelligence will play a pivotal role within the crypto trading community. These are commonly known as trading bots.

Suggested Read: What Are Public, Private, and Consortium Blockchains? – Cryptobite

Blockchain Security

Unfortunately, industries that find themselves in a hyper-growth phase are more susceptible to cyberattacks and malware. Without question, blockchain technology, along with digital assets, is currently experiencing an explosive rate of growth. Consequently, the blockchain industry has endured an exponential increase in malware, phishing, fraud, and digital theft. Based on data provided by industry experts, $9 million is lost to cryptocurrency scams on a daily basis.

The key to successfully thwarting a blockchain hack is to identify the threat and understand the nature of the attack as quickly as possible. Hackers are acutely aware that they must strike quickly in order to launch a profitable attack. Unfortunately, crypto exchanges have a poor track record in preventing cyber-attacks. AI-based cybersecurity systems are designed to detect a hack in real-time and dramatically increase the likelihood of stopping the attack. AI systems are far superior to traditional cybersecurity systems because AI has the ability to detect patterns from previous attacks. This information can be used to prevent future cyber threats.

Bitcoin Mining

As you know, all crypto transactions are verified and added to the blockchain by Bitcoin miners to maintain the integrity of the network. In exchange for their work, miners are rewarded with Bitcoin. Crypto mining requires energy consumption and computing power. Over the past few years, Bitcoin miners have explored the idea of using artificial intelligence to reduce energy waste and computing power to reduce costs.

A few of the largest mining companies have created AI-based systems, allowing companies to share power and increase profitability. AI algorithms have made crypto mining faster, more profitable, and more efficient. Without question, artificial intelligence will continue to play an essential role throughout the crypto industry.

Brief Summary of Blockchain and Artificial Intelligence

Artificial intelligence (AI) was introduced in 1955 by John McCarthy

  • AI is the ability of a computer program to think, learn and mimic human thought.
  • AI encompasses several different fields of study.
  • AI has increased its presence in cryptocurrency trading.
  • High-frequency trading uses AI to analyze technical indicators across many exchanges.
  • AI-based cybersecurity systems are designed to detect a hack in real-time.
  • Bitcoin miners use AI to reduce energy consumption and computing power.
  • A few of the largest mining companies have created AI-based ecosystems.
  • AI algorithms have made crypto mining faster, more profitable, and more efficient.

What Is Selfish Mining? 

On October 31, 2008, Satoshi Nakamoto unveiled Bitcoin to the world through his now-famous Bitcoin white paper. According to Nakamoto’s paper, the goal of Bitcoin was to create a decentralized production and distribution of money.

If Bitcoin had to be summed up in a single word, it would be “decentralization.” Unfortunately, the act of selfish mining can greatly hinder the decentralization process.

What is selfish mining, and why is it so dangerous?

In simple terms, selfish mining is a strategy involving a small group of miners designed to increase their Bitcoin revenue through collusion. Collusion is a secret agreement between two or more parties to limit open competition by deceiving and misleading others in an attempt to gain an unfair advantage.

How big a problem is selfish mining in crypto? According to a paper written by researchers from Cornell University, the initial conclusion suggested that selfish mining was occurring within the BTC mining community. However, the overall problem was minimal.

The Cornell researchers provided substantial evidence that small groups of miners were earning more Bitcoin by hiding newly generated blocks from the main blockchain and creating a separate fork. Essentially, miners can increase their share of overall revenue by hiding new blocks and making them available to systems within their private network.

Could the Problem Escalate?

Initially, the fear within the Bitcoin community was that all miners would eventually join the private network because the mining rewards were greater. Ultimately, the Bitcoin blockchain would lose its decentralized nature, and a group of selfish miners would control the system. However, economists have argued that if all miners engaged in selfish mining, it would eventually lose its revenue advantage, and miners would return to the public blockchain.

The economists were correct in their argument because, during the past 11 years, the Bitcoin network has always remained a fully functioning public blockchain.

Selfish mining still exists, but it’s such a small proportion of the overall mining network that it has absolutely no effect on the public blockchain. Additionally, selfish mining is not as profitable today compared to 2013, when the Cornell researchers released their initial report.

Suggested Read: How Does Blockchain Compare to Other Innovations? – Cryptobite

China and Bitcoin Mining

Experts within the Bitcoin community agree that selfish mining will most likely never become a major problem within the network because of China. This is because China has mined approximately 70% of all Bitcoins in existence. Because there has never been a major outbreak of selfish mining within China, economists conclude that if selfish mining was so profitable, it would have already occurred in China.

Selfish mining goes against the very essence of Bitcoin, blockchain technology, smart contracts, and decentralization. It completely destroys the tireless efforts of the crypto community to create a new system of money. Therefore, the cryptocurrency community must always remain vigilant against selfish mining.

Brief Summary of Selfish Mining

  • Selfish mining is a strategy designed to increase Bitcoin revenue through collusion.
  • The strategy involves hiding newly generated blocks from the main blockchain.
  • A separate fork is created for the newly generated blocks within a private network.
  • Bitcoin experts agree that selfish mining does exist within the BTC network.
  • However, the number of selfish miners is very small.
  • 70% of all Bitcoins have been mined in China.
  • China has never experienced a major problem with selfish mining.
  • If selfish mining was so profitable, it would have already occurred in China.
  • The crypto community must constantly remain vigilant to selfish mining.

What Is Decentralized Finance?

Decentralized finance (DeFi) are decentralized platforms that have financial applications built on public blockchains. They have been created with the purpose of competing against centralized financial institutions like banks.

As we discussed earlier, centralized finance can be traced all the way back to the Bank of England in 1695. Very little effort has been made to modernize the financial services industry. Decentralized finance has the potential to become a major disruptive force in this multi-trillion-dollar industry.

DeFi Products

Through its vast array of decentralized networks and open-source software, DeFi is capable of creating multiple types of financial services and products.

Currently, the top 3 categories of DeFi include;

  • Developing monetary banking services.
  • Offering peer-to-peer lending and borrowing.
  • Enabling tokenization and derivatives.

An example of monetary banking services would involve the issuance of stablecoins. DeFi is also quite prevalent in peer-to-peer lending and borrowing. DeFi platforms connect borrowers and lenders directly, thus removing centralized intermediaries from the equation.

Perhaps the biggest opportunity for DeFi can be found in the tokenization of assets. The list of assets would include such things as stocks, commodities, real estate, precious metals, fine art, and other types of alternative investments. Tokenization would allow assets to be owned and traded on a blockchain using decentralized exchanges. This type of format would provide investors with the opportunity to have complete control of their funds at all times. It would eliminate the need for centralized exchanges and brokerage firms.

Suggested Read: What Is Blockchain Consensus Algorithm? – Cryptobite

DeFi Benefits the Unbanked

Arguably, the most important benefit of DeFi is the fact that it would allow the unbanked to have access to affordable financial services. The unbanked represents the approximately 1.7 billion people in the world who lack the ability to obtain basic financial services. These services include such things as checking accounts, business loans, personal loans, merchant services, mortgages, retirement planning, and access to capital markets.

As we briefly discussed, the financial services industry has made little effort to change the basic structure of its own industry. This is because there has been no financial incentive to make any radical changes. As you know, the current structure of financial services is centered around the use of intermediaries. The vast majority of financial products require the presence of a middleman between the buyer and seller.

This type of system has been incredibly profitable for financial services companies over the course of the past several decades. A tremendous amount of wealth has been created for individuals and businesses. However, very little of this wealth has been used to build the basic infrastructure needed to provide financial services to the unbanked.

Thanks to decentralized finance, the unbanked actually have an opportunity to receive basic financial services. DeFi is substantially cheaper than traditional financial services because it does not require the use of an intermediary. Consequently, these savings can be passed on to customers.

Despite the huge potential that DeFi brings to the table, a tremendous amount of work lies ahead before decentralized finance becomes a mainstream product. This includes such items as regulatory hurdles, infrastructure, public education, consumer protections, and creating a unified DeFi marketplace. All of these things will take time and a tremendous amount of effort. At least for now, though, it certainly appears as though DeFi is headed in the right direction.

Brief Summary of Decentralized Finance

  • DeFi is a decentralized platform with financial applications built on public blockchains.
  • DeFi is in direct competition with centralized financial institutions.
  • The top 3 categories of DeFi: monetary banking services, P2P lending, and tokenization.
  • Tokenization would allow assets to be owned and traded on a decentralized exchange.
  • DeFi would eliminate the need for centralized exchanges and brokerage firms.
  • DeFi would allow the unbanked to have access to affordable financial services.
  • The removal of intermediaries explains why DeFi can afford to service the unbanked.
  • Realistically, DeFi is years away from becoming a mainstream product.

How Does Blockchain Compare to Other Innovations?

Probably, the most innovative discoveries of the past 100 years are the world wide web (i.e., internet) and the mobile phone. By now, both these things have become a must-have of modern human beings. Let’s look at the stats. In 1995, only 17% of USA residents were using mobile phones. By 2018, only 5% of US residents still did not have this device in use. While in 1995, only 16 million people (0,4% of the world’s population) were internet users, by 2018, this number increased to 4.2 billion, which is more than half of all people. Interestingly, during the first 5 years of the internet’s existence, only 5% of all people have found it worthy enough to use.

These numbers indicate how we interact with new technologies. As a general rule, most people are skeptical of discoveries and innovations at the early stages of their existence. Still, when the benefits of using a certain technology become obvious, it spreads all over the world with the speed of light.

Typically, it takes about 10 years before the average consumer makes an effort to research a new product or service. By this time, approximately 10% to 20% of the overall population had adopted the innovation. The remaining 80% to 90% of the population is still on the sidelines, unwilling to implement this new technology into their daily lives. Within 20 years of the new product’s existence, the majority of the population finally adopted it. Without question, consumers are very slow to implement new technologies.

Suggested Read: Blockchain and the Banking Industry – Cryptobite

Adoption of Blockchain Technology

But should we wait another 20 years to see the adoption of blockchain technology? Most likely, it will occur much faster than the internet, mobile phones, automobiles, or air travel. Why? Because once the blockchain infrastructure is in place, the old ledger system becomes useless. Therefore, soon, consumers will not have to choose between the new digital ledger and the old manual ledger. Companies that won’t migrate to the blockchain will be left behind and eventually forced out of business.

Within the next decade, blockchain technology will permeate our daily lives. For example, everyday things like voting, purchasing a vehicle or a home, visiting a medical care provider, investing in the stock market, obtaining a bank loan, going to college, or shopping at a retail establishment, will encounter blockchain technology.

Most probably, within the next five to 10 years, we will encounter blockchain technology daily. This explains why it will be exponentially larger than the internet.

Brief Summary of Blockchain In Comparison to Other Innovations

  • As a general rule, people are skeptical of discoveries and innovations.
  • It takes approximately 10 years for the average consumer to become a regular user of innovations.
  • Full adoption of a new product or service takes 20 to 30 years.
  • The adoption rate of blockchain will occur much faster.