Debunqed

Tag: dencentralised

  • Banking on Crypto

    Banking on Crypto

    The world is slowly realizing that it needs to rely less on old systems in order to manage its way out of financial crises. One of the oldest systems which saw the US dollar as the vehicular currency of the world may be slowly coming to an end.

    Enter the Bitcoin: the brainchild of cryptocurrency, a means of exchange that is less regulated and which is built on the Blockchain, a technology that is supposedly difficult to hack into.

    A quick recap for those of you not familiar with the tech: A Bitcoin is a computer file that can be stored in a ‘digital wallet’ app on your smartphone or computer. With this technology, every single transaction you make is recorded in a public list or publicly distributed ledger.

    This makes it easier for authorities to track and record your transactions but not you personally. We will not, however, get into the potential abuse of such anonymity in this article.

    Adoption

    We have been very slow to adopt new financial technologies for two reasons. First, there are many regulations that help maintain the US dollar as the vehicular currency, used by central banks and other financial institutions to secure assets. Second, many developers of the technology are hesitant to throw it upon us – yet.

    But this will change as the robustness and reliability of cryptocurrencies is proved study by study and case by case. One method is by using cryptology.

    Cryptology is used to protect your information from hackers. In fact, the protection of your data is more important than ever before. We have made our lives more public thanks to social media.

    While you may not mind so much if hackers get unauthorized access to your pictures and social media profiles, some information is actually valuable. This includes your banking details, birth certificate, licenses, and intellectual property.

    The Covid-19 pandemic has forced us all to work from home. Those employees of numerous companies are accessing commercial information using personal computers instead of office computers. But personal computers might lack anti-virus software, firewalls, and other security measures.

    Right now, cybercrime is costing companies at least $45bn a year worldwide.

    This is why now is cryptology’s time to shine. It will also be used to protect your online purchases made using cryptocurrencies instead of traditional money. It will help ensure that funds go from your bank account to a retailer’s quickly but securely.

    Using Crypto for daily activities

    Digital Cash

    Let’s face it, we are going to use Blockchain for shopping: Lamborghini already accepts purchases in Bitcoin. The concept might still be difficult for you to grasp, but they are still being developed and soon it will be near impossible to live without them.

    Read more about Distributed Applications ‘DApps’ here

    Gaming companies are already embracing cryptocurrencies. Fortnite, a popular online game, with more than 250-million players, allows you to buy in-game products using cryptocurrencies.

    Beyond regular shopping, you could soon buy a house using a cryptocurrency. Blockchain technology and the underlying distributed ledger technology is being used to increase transparency in real estate transactions using smart contracts.

    To reiterate the use case for Crypto, many countries like Germany are relaxing laws and giving licenses to allow ‘Crypto Banks’ to operate. This is one effort to ensure that your Cryptos are properly taxed when used for investment purposes.

    One such bank, Bitwala, allows you to purchase Bitcoins or Etheruem securely and quickly from a charges-free bank account which they provide.

    Your transactions are then documented so that you can seamlessly submit reports of the purchases to the local tax authorities (Finazamt) to avoid penalties. You can do this all directly from the Bitwala App.

    The blockchain and cryptocurrency are even being explored on national levels: China is allegedly creating its own national digital currency.

    The way forward

    Monetary systems will continue to be tested every day. Banks the world over are spending big bucks to protect themselves from hacks. But one day, a hacker could throw them into turmoil.

    When that happens, you might be unable to withdraw your money. A central bank’s database could be hacked making it difficult for it to work with other banks. In the meantime, alternatives to classic monetary systems need to be developed.

    Cryptocurrencies backed by cryptology could be a very strong alternative. There are also some valid cases for using Bitcoin as a global currency. This, however, will only become a reality if it shakes off its high trading volatility to become more stable.

    We live in a world where we need to be cognisant of our health and how viruses can spread easily and quickly like wildfire. It equally is imperative to realize that cyber attackers could get and infect our data just as swiftly. Using modern technologies can help prevent these intruders from creating a ‘digital security collapse’ pandemic.

  • A digital force awakens

    A digital force awakens

    When it comes to providing means of storing, sending, and receiving money, banks and their affiliated institutions, have enjoyed a monopoly for centuries.

    They (especially central banks which allegedly are owned powerful families) have the authority to influence countries and their governments.  We will not go into the level of control as this paves the way for conspiracy theories which though not proven – are not farfetched.


    So, it’s only expected that when some new and unknown entity threatens their prosperity, they start to react.

    Blockchain frenzy

    How banks are responding is evident by how they are fervently building their own blockchains. This, however, defeats the purpose of a having decentralized system.


    Bitcoin and cryptocurrencies get their appeal not just because they are very secure.  But because unlike fiat money, they are not heavily regulated and can be mathematically restricted.


    The 21 million unit limit on Bitcoin by default places it closer to the status of gold (which is also not infinite). But what happens when all are mined in 2041?
    Bitcoin’s current ‘value’ of over $30 000 (adjusted), could move up again, according to the traditional laws of supply and demand as it becomes rare.


    To unlock more value the creators will split it again. The first major splits (forks) gave rise to Litecoin and Bitcoin Cash.  Both cryptocurrencies are racing to newer heights daily.

    How banks operate

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    Now back to the banks – they make money from our deposits and these deposits are backed up by our reserve banks.
    Reserve banks lend retail banks money which they essentially just print. The banks must ‘turn it’ and pay it back with interest (repo rate).


    So, technically we ‘empower’ banks by depositing our money so they can invest the funds in all sorts of mechanisms. Such mechanisms include the credit and loans to you, your businesses, equities, and property.


    Then, they also invest in high-risk investment vehicles like currency trading, derivatives (futures). They are essentially the biggest regulated and legal Ponzi-schemes. They also make a significant amount of the daily fees they charge you.

    A quick example

    Let’s quickly put things into context. A bank with over a million customers transacting daily. Let’s say they charge you a 10 cent (conservative figure) transaction fee for depositing, withdrawing from another bank, or an intra-bank transfer.


    They then make 0.10c  x 1 000 000 = 100 000 units of the currency on the day. This equates to 1,2 million Euros, Dollars, Rands, or Yen annually. And that is just off your transactional fees!

    Then they also charge you monthly service/maintenance fees. Those are to cover the convenience of you having an account and, for services like online banking.


    This is what cryptocurrencies can potentially wipe away from banks we all go the digital currencies route.  Granted, how you acquire and transfer Cryptocurrencies are not as straightforward as receiving paper money – yet.


    That, coupled with the stigma around ‘Cryptos’, means there is still a barrier to entry for the ‘open-source’ monetary system.


    Banks will try and bring about their own blockchains to address security concerns around making transactions. For them, however, it would still be business as usual when it comes to the charges.

    Birth of Fintech

    Some newer financial institutions, however, are already progressing in the favour of you and me – one such is the European based N26 Bank.


    We often end up paying for things all month without even having to go to an ATM. It works as a traditional bank would, however, allows the (smart) card to be used as a credit card (backed by Mastercard) would.


    This allows you to quickly purchase goods online, book events, flights ticket, and accommodation. Basically, all things you still can’t do with your debit card.

    In countries like Sweden and Estonia, card and digital systems have been a thing for a long time now.


    Some of these Fintechs are adopting or partnering with Cryptos companies to deliver their services. One such as the relationship the one between a German bank and the crypto Ripple.

    Click image to purchase Ripple here

    It would be interesting to see what governments and financial institutions do to ‘protect’ their payment systems. Likewise, it will be equally fascinating to observe how they adapt in general to the new digital era upon us.

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