Crypto, block chain, and CBDC

                   CRYPTOCURRENCY, BLOCK CHAIN, AND CBDC

                                                              2023-02-08

A.      Cryptocurrency

A friend of mine keeps asking me about cryptocurrency as the best investment at the moment. Thus I spent around ½ hour to google for details or ideas. Those notes from Goggle were indented and in italic fonts.

Quick google said that there are 2 types of wallet, i.e. software on a PC or phone AND wallet on USB (probably software too). Cryptocurrency would be kept in the wallet and traded at exchange.

Storing your coins at brokerage or exchange is not as safe as in your own wallet custody.

Anyway there are many cryptocurrencies out there; an exchange may offer users to trade many types of cryptocurrencies.

Is Binance a wallet or exchange?

Binance is an online exchange where users can trade cryptocurrencies. It supports most commonly traded cryptocurrencies. Binance provides a crypto wallet for traders to store their electronic funds. The exchange also has supporting services for users to earn interest or transact using cryptocurrencies.

This is what I don't understand

Does your crypto grow in a wallet?

Yes, your cryptocurrency will continue to grow while stored in your wallet. 

It was actually the value of your currencies may be appreciated or shrunk depending on the bidding price of your crypto at the moment, i.e. the coins didn’t reproduce by itself and its value could be higher/lower depending on the trading price at any moment like stock price? So crypto in a wallet grown/shrunk would depend on the price offered by buyers. It is not growing by itself. It was a misleading statement.
 

"What's the point of transferring crypto to a wallet?

Rather than keeping physical money, the wallet saves the cryptographic information needed to access Bitcoin addresses and send transactions. Other cryptocurrencies can be stored in some Bitcoin wallets. The device containing your Bitcoin wallet stores the private key, not the coins themselves." 

The way they do it, crypto owners don't have a number and coin ID in the wallet. If those addresses, private key or cryptographic information in their wallet were altered, owner lost everything.

"Why you should not leave crypto on an exchange?

 

The owners of the coins can't get them back from the exchange. While blockchain itself is very secure and essentially unhackable, the centralized nature of an exchange makes them vulnerable. In conclusion, it's not the smartest thing to do to keep your coins on an exchange." 

Then the wallet must be recognized as legitimate by an exchange, because user could connect his wallet to applicable/allowable exchanges to perform transactions. 

Crypto would face same inflation problem as other real currencies, it depends on the buyers of crypto to decide buying price, which could be lower at any time. 

I will take a look more on the mining of cryptocurrency. Somebody must insert more coins to the system for new buyers, i.e. similar to printing money. They said that miners introduced more coins to the system? 

It is like a stock, but there was no owner or anything, (e.g. EPS or PE) based on to determine buy/sell prices. Wallet is like a brokerage account, but the crypto/wallet owner is the broker and this type of account could be used to trade in any exchange similar to TSX/NYSE/NASDAQ with the same exchange rate. The only thing matter would be the offer buy/sell price.

 

How much crypto can I mine in a day?

Many people wonder how many Bitcoins can be mined by a person in a day. There are currently 6.25 bitcoins produced in each block, and a block is produced every 10 minutes. This means that there are 6.25 (Bitcoins per block) x 6 (blocks per hour) x 24 (hours per day) = 900 bitcoins produced each day.

 

How do I start mining cryptocurrency?

Crypto mining equipment requires heavy initial investments. The speed and power of your system will determine how profitably you mine Ether. Opting for a GPU mining rig will give you a better result than a CPU-based one. You can also opt for an application-specific integrated circuit (ASIC) miner.

 

Will mining destroy my laptop?

But mining is a much more strenuous activity. You need to factor in the fact that mining is usually a 24/7 process, and you're putting a lot of unneeded stress on your laptop. Not only can you damage your GPU in the long run, but you can also wear out the teeny tiny fans, which can further complicate things.

 

Bitcoin mining is a complex computational and technological process of validating the bitcoin transactions over the Bitcoin network. It is like a process of validating a block on the chain network and getting paid in Bitcoin. People who are involved in this process of mining are known as miners."

Free computers turn on 24/7 for the owner of this crypto network or block chain. 

Btw: do you know that MIT once invented a super computer by linking many personal computers (microprocessors) together? This is how block chain is formed by using/linking miners' computers?

B.      Cryptocurrency and block chain

 

But by the early 1980s, several teams were working on parallel designs with thousands of processors, notably the Connection Machine (CM) that developed from research at MIT. The CM-1 used as many as 65,536 simplified custom microprocessors connected together in a network to share data. Several updated versions followed; the CM-5 supercomputer is a massively parallel processing computer capable of many billions of arithmetic operations per second.

Source: https://en.wikipedia.org/wiki/Supercomputer

 

If one of miner is a hacker, data would be replicated over the block chain’s network and on his computer for hacking activity.

After mining periods, miner’s computers could be used as "validators" of cryptocurrencies, which could be a free computer for those cryptocurrencies in its block chain.

 

The USDT and USDC are stable coins, which were traded the same as the exchange rate of the US dollar. 

If the exchange rate is the same as the USD, then it’s better to do business transactions in USD. You can use USD for many stuff in USA or internationally. 

If a user holds USDT, USDC, or any cryptocurrency, they must find buyers of their crypto for cash then convert it into USD or any local currency, where they are located. 

Let's see if the current (a) block chain could handle weather forecast or analysis, because it has many free powerful mining computers. If those miners wiped out crypto stuff or reformat their computers, that block chain could no longer handle weather forecast as it used to be, because some of its processing power was removed. 

I have copied and pasted notes from Google. This showed me that bit coins or cryptocurrencies are not different than other currencies in terms of "inflation". It is also risky as miners could be hackers. Block chain processing power could be interrupted at anytime. 

Having wallet or mining algorithms installed is not guaranteed of its security either.

They "claimed" that only miners could introduce more crypto, but nobody could guarantee that the owner of that crypto didn't throw in large amount of bit coins at anytime. 

Notes: People do have different opinions about an issue. There is no need to convince others to have the same belief. As Warren Buffett once said that he didn't understand technology, so he avoided tech stocks. He saw Amazon's plan was too complex to execute. He also missed the opportunity to invest in Amazon. 

Anyway I think the same. I would stay with stock investment, which I understand more. I have never said that I understood stock market. 

It's like investment in a stock. You could be right and wrong about its future. You don't really need to convince others to believe in your view unless you're the CEO of that firm talking to your investors. 

Some people choose to invest in cryptocurrencies, because it is protected against inflation. They said that the British Pound (GBP) and US dollar are affected by inflation.

·         The British Pound was devalued due to the Brexit event for the UK leaving the European Union. How many Brexit events would happen to the UK?

·         How many financial crises such as 2008 happened to the USA? This time (2022-2023) inflation rate is currently very high, but the US dollar is traded higher as compared to other currencies.

·         Unless new crypto buyers are willing to pay more for a coin, the crypto would be devalued or flat too. Cryptocurrency is like other official currencies. There is no magic. 

There is no regulator for a cryptocurrency, i.e. nobody knew exactly how many coins existed in the system. They could claim that there were only 21 million coins as they liked. However algorithm’s inventors/owners of wallet/exchange could add in as many coins as they like at any time. They knew algorithms or encryptions of the cryptocurrencies and block chain. This is an act of printing money, but nobody controlled or reported it. 

Official currencies such as GBP, USD, CAD, or EUR have official mechanisms to report in the financial world. Therefore it is harder to manipulate the amount of money, which is released to the population. 

Crypto currency has swung wildly sometimes, i.e. -10% or +10%, in a couple of days. How could we quote our product’s price in crypto? Visible profit for a sale invoice could turn out to be a loss due to a negative swing in cryptocurrency.

We could develop software for generating an invoice with local currency, and link to any web site offering exchange rate such as https://www.oanda.com/ca-en/trading/cfds/forex, which is a known corporation for currency’s exchange rates. The software linked to this data center for spot currency exchange rate. The total mount on the invoice could be in the any "agreed" currency between buyers and sellers. They could include a percentage of commission fees, if needed for a special chosen currency. 

C.      Central Bank Digital Currency (CBDC) 

I saw a post about riots in Nigeria due to introduction of CBDC and discontinuation of old currency on March 8, 2023. 

Quotes from Internet:

1. Is CBDC a cryptocurrency?

Unlike cryptocurrencies, which are decentralized, CBDCs are state issued and operated.

 

2. What is CBDC in Canada?

We are building the capability to issue a digital version of the Canadian dollar—known as a central bank digital currency (CBDC) —that Canadians can trust and rely on so we can be ready should the need arise.

 

3. Countries Which Launched CBDC

As of now, a total of three countries have launched CBDC. Bahamas' GDP for 2023 is projected at 4.1 per cent, whereas both Nigeria and Jamaica are expected to grow at 3 per cent. Among the three, Nigeria has the largest economy in terms of size with GDP of $504.2 billion in 2022.

 

4. Is CBDC a Bitcoin?

Cryptocurrency Vs CBDC

Cryptocurrencies are independent digital currencies that run on the principle of decentralization and without predetermined value or backing. Bitcoin (BTC) and Ethereum (ETH) are examples of such cryptocurrencies. In contrast, CBDC has the backing of central banks. 

We should allow people continuing to use cash. There are still many applications or sale machines accepting coins or paper money. 

I like both cash and credit/debit card. I don't like to use a cell phone in purchased or debit transactions. 

Perhaps central banks have pushed for CBDC to compete with cryptocurrencies and bit coins. However, having cash in addition to CBDC would make them different or convenient.

Personally I don't see a need for CBDC. We could develop mobile app, if people preferred paying by a mobile phone, to convert the current currency to any local currency on the spot. This would be convenient and less troublesome to use block chain or any hurdles with wallets. 

Did you know anything about the owner of encryption algorithms used in wallets in case of using CBDC? You must install it on your mobile phone or laptop something that you didn't know anything about, but classified as "secrets". Is this software or encryption algorithms safe or secure? Let's those inventors say and you believe in it. 

In case of using mobile phone to pay for services or products in foreign countries using credit cards or debit cards, the credit card companies could include "estimated" conversion cost or commission fees to users or payers in advance, i.e. no surprised.