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Crypto currencies explained by First Principle

Crypto currencies explained

 

If you look at Crypto currencies First Principle – what technologies are beneath it, you may escape of fishing schemes that use too much jargon. When you know the basics, you’ll search it in any new project that appears and you will be able to make better decisions.

Crypto currencies are spreadsheets

All types of money are spreadsheets – indicating that someone owns some amount of X. The tricky part is where does this information resides? If it is in the computer of the bank you are at the mercy of the bank and that the jurisdiction that it operates under.

Few famous people try to convince the public that the Bitcoin is property because – the approach that it is implemented, you could verify ownership in an algorithmic/mathematical manner. In my personal opinion the concrete storage where the spreadsheet is residing does not change the underneath basic principle.

Mathematics

Mathematical algorithms are the guardians of the blockchain. Public-private cryptography is the essence of crypto wallets. Your public key or some derivative of it is the identifier that is written in the crypto Excel sheet. Because the algorithm is so mathematically complex, it requires an imaginable amount of computing power and time to crack. It is hard to create a chip or software to hack it. Cryptography is used in all layers of software that is helping internet function. If some new technology like quantum computing enables hacking it fast and easy and cheap, the cryptocurrencies will be the smallest problem you’ll have. The same as if the power/electricity goes out.

Another type of important algorithms are the hashing ones. The crypto servers or miners are trying to guess sha256 hashes. Because computers are essentially specialised hardware for doing math, the industry created specialised chips that has raised the difficulty above the personal computer level. But, even with that specialised hardware, hacking the blockchain is more about the 3rd essence of the blockchain – community (51% of the computing power).

To make changing the Excel sheets nearly impossible – trees of of timestamped hashes is what is wrapping changes of the blockchain database. This adds a requirement – changing whatever transaction – to change also all the parent hash nodes. Not trivial and Time consuming.

Expanding torrent / server

Torrents usually share a static file that is never changed by any of the nodes. The blockchain is a torrent that updates the file (the database with transactions) only at the top. Hashing and coordination between the participants is protecting it. If a single node acquires 51% of the computing power, it will have the opportunity to change it. But, thanks to the solution of the Byzantine generals problem resolved by Satoshi and the network effect – the amount of miners – Bitcoin will be currently the hardest to conquer. Some people forgot this property of the blockchain and continue processing instances that are vulnerable to getting altered maliciously.

If there are no torrent seeders the network that shares a file and you’ll not be able to download a file. The resilience of the blockchain depends on the availability and control of the nodes.

  • If it is located in one jurisdiction,
  • on one computer,
  • if there is a software switch to turn it off.

It is not good – independent blockchain. Luna went bust, the Solana network may go offline as the past shown, and so on. If there is no server (miner) that will keep the blockchain going, you’ll end up with simple public/private key. Many people forget that. They will point to dummy amount of coins in a non existing network that has zero value. Think again – for all the layers that obfuscate your decision – when you talk or invest money in something.

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