Richter > Cryptocurrencies: Everybody is talking about them and everybody wants them, but what are the risks?

Cryptocurrencies: Everybody is talking about them and everybody wants them, but what are the risks?

By Bertrand Milot

Original, as it appears on Finance et Investissement – https://www.finance-investissement.com/

This article differs somewhat from previous articles and with good reason. We are at a pivotal point in the evolution of economic models.

 

This article differs somewhat from previous articles and with good reason. We are at a pivotal point in the evolution of economic models, where “free” (lawful and unlawful) communities are attempting to create dematerialized and virtual tools. The goal is to serve the community without the intervention of industry lobby groups (such as banks, energy companies, manufacturers and media outlets) or regulatory and government authorities. Clearly, this is wishful thinking involving flawed implementation and multiple interests ranging from the ideological to the outright criminal or purely financial.

So we are far from my usual topics. Nonetheless, the keen interest in and demand for cryptocurrencies was such that I felt an obligation to discuss this topic and answer your questions.

Cryptocurrencies, including Bitcoin, are based for the most part on the blockchain principle. This is a transaction encryption architecture in which every action carried out between two parties represents a transaction. Each transaction is part of a general ledger maintained by the community, which enables the existence of each party to be authenticated and recognized. As a concept, this sounds complicated, but try imagining a huge secret that only grows with time. Each person exchanging information “multiplies” their own secret, i.e. the transaction, among all the others listed in the general ledger, thereby continuously increasing the complexity and security of the secret through successive degrees of encryption.

At the same time, when someone “mines” the cryptocurrency, they are trying to find out in advance the future secret of a transaction that doesn’t even exist yet. If they find this secret, they keep it, claim it for themselves and, by claiming it for themselves, create a new transaction out of the blue, thereby ensuring the general principle is even more secure. In this way, the unauthorized attempts to hack or decrypt the secret, or transaction security, become an active component of the overall security. It’s a reward, since “mining” a cryptocurrency brings in money, but it becomes increasingly complex with every minute. When you dig a hole, the depth adds exponentially to the complexity of the effort required: You need to dig a wider area, faster and stronger to advance at the same pace. The principle is somewhat the same.

Is it profitable? Yes, but it all depends on how you mine, the type of cryptocurrency you’re mining and, in particular, on demand—and demand is exploding. Therefore, more and more people and organizations are asking themselves this very question, and the answer is YES! A cryptocurrency can disappear, but not all at once. You just can’t put all your eggs in one basket, or in this case, in the same “cryptowallet.”

Your wallet and your money can be stolen. In fact, it would appear that the money is not actually traceable (just like cash on a countrywide level). If your wallet is not well secured, then it can be stolen. The data (literally your cryptocurrency) must remain unique. If it’s copied by a third party, it will become worthless and you won’t be able to file a claim with any authorities.

If this data is not stored in a secure wallet, if your computer that accesses the data is itself not secure, you need to understand that your data, i.e. your cryptomoney, will be stolen. In previous articles, I talked about the basics to help protect your machines and your phones. In 2018, it’s more important than ever to require double authentication or multi-factor authentication, i.e. a password plus another secret (but not simply from memory) or unpredictable element. You have important data on the Internet, so you have to think about encrypting it (HTTPS) and the contractual obligations of your provider to guarantee the availability, integrity and privacy of your data.

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