We have been in the fin-tech business for several years now. In the early days answering questions about who we are, what our business is, and how it works took up more time than actual work. Luckily, with technology and society evolving, explaining our field of expertise only gets easier.
With numerous fin-tech and blockchain businesses declaring being the future of banking, Bankomia crypto experts feel the need actually to explain the future of banking.
We continue our series of neobanking-related articles with answering 15 most frequently asked questions about Blockchain, decentralized finance, cryptocurrencies, etc.
- What is Blockchain technology?
What is a node? It’s a device with the mission of storing, disseminating and preserving the Blockchain data. A node makes the Blockchain accessible for all the networks
Nodes can be any hardware device connected to the Internet, such as personal computers, laptops, or servers.
Nodes have three specific functions in the Blockchain performance:
- Accept or decline a block by checking its legitimacy (validation of signature and transactions)
- Store transaction records of the Blockchain.
- Update the transaction records by sharing and syncing them with other nodes of the Blockchain.
In this context, the Blockchain is a public ledger. This distributed ledger works as a database with all the information of the transactions made on it:
- type of the transaction and involved currency,
- the transferred amount,
- transaction date,
- sender and recipient addresses,
- other related information.
2. What is a block in a blockchain?
We can compare a block with a safe box, only this one’s digital. In layman’s terms, a block is a lot of information safely stored on the digital network.
3. What are the benefits of blockchain technology?
A significant benefit is the transparent technology that fuels Blockchain. It means that any change made on the network will get noticed, no matter what. The key to transparency is millions of computers connected to the same network. Being decentralized contributes to its security and avoids wrongful intends.
Another perk of blockchain technology is the costs. Costs are lower thanks to the elimination of third-party verification and its associated costs.
Here’s a great example for that.
Typically, if you need a validation certificate issued to prove your financial eligibility, you have to get the competent authority’s signature. With Blockchain, there is no need for that.
Plus, traditional businesses work during scheduled hours, the Blockchain works 24/7. With transactions completed within minutes, it is efficient without taking days to transact an international transfer, for example.
Last but not least, networks on the Blockchain are confidential, but they are not anonymous. Anyone can see the list of transactions done; however, nobody can access its creators’ identity. When someone makes a transaction, the Blockchain registers its public key rather than the personal information.
4. What are the limitations of Blockchain?
To keep Blockchain running requires a considerable amount of electricity. The mining of cryptocurrencies is often expensive and demands a significant quantity of hardware.
The confidential feature of the Blockchain gives way to illegal trading and activities on it.
However, Blockchain’s main challenge was and still remains the archaic political and regulatory laws worldwide.
5. What is encryption? What role does it play in Blockchain?
Encryption helps to safely store data, while encrypted information can only be accessed or decoded by a second party. Also, they must possess a decrypted key to convert that information into a readable format.
6. What is decentralized finance (DeFi)?
DeFi is the abbreviation for Decentralized finance, and it is also known as open finance.
It is a term to define the current technology-influenced economic wave. Like Blockchain, it has no central authority involved.
DeFi opens the door to a renewed financial ecosystem that is more accessible and programmable through Blockchain open protocols. It works to create alternatives to traditional banking services, such as accounts, insurance, and loans.
7. What is cryptocurrency mining?
The person who does the action is called a miner. Mining requires a computer and an advanced software that helps miners solve mathematical problems, adding blocks to the network, and working peer-to-peer.
Cryptocurrency mining has two goals:
- To ensure and verify the transactions added to the Blockchain.
- To release new cryptocurrencies.
For those interested in mining, there are two ways to do it:
It describes a consensus work system that requires an amount of effort to avoid the abuses of the use of the computing ecosystem, such as a denial of service attacks or network spam.
It also requires exceptionally massive work and time from the miners to solve these complex equations.
An alternative way to mine, based on how many cryptocurrencies the miner has. A miner can validate a block of transactions only if they hold cryptocurrencies themselves.
This proof of stake represents less risk to the network because it works under a compensation structure, which depends on the percentage of cryptocurrencies that the miner has.
8. How is the value of a cryptocurrency determined?
Just like in any market, the flow between the offer and demand determines the asset price. Still, there’s more to it.
Any cryptocurrency network has an automatic offer flow control:
- The offer flow control runs on miners solving mathematical issues; solving one of these issues means gaining a new cryptocurrency.
- Miners earn cryptocurrencies if the mining costs are more than the cryptocurrency price they are working with.
The cryptocurrency demand flow depends on the habits of crypto users.
- Holding cryptocurrencies to make payments.
- Keeping cryptocurrencies as a valuable asset in the long-term to earn more in the future.
- Practice a purely speculative demand taking advantage of price rises and avoiding bumps.
Other facts that impact the value of cryptocurrencies, such as Bitcoin:
- Cryptocurrency mining costs and rewards.
- Cryptocurrency exchanges and trades.
- The number of different cryptocurrencies available on the market.
9. Who controls cryptocurrencies?
As mentioned above, cryptocurrencies are part of a decentralized network.
The Crypto community itself plays a limited part of the network’s processes. Still, the community could be divided in different parts:
- The central team who developed crypto. It could be the founders of it or the group who carried out the open-source for it.
- Public contributors who help to improve it by adding data to the codebase.
- Miners and their mechanisms which ensure the network.
10. What happens when the last Bitcoin is mined?
Let’s start with the fact that the mining of bitcoins is limited from its source code itself. In total, miners will mine 21 million bitcoins.
How many bitcoins are there now? It’s possible to check updated information at any time on the website www.buybitcoinworldwide.com. At this particular moment, the numbers are 88.025% BTC issued | 18,485,150 total BTC released | 2,514,850.0 BTC left.
When the last bitcoin is released, miners will not mine a satoshi more. Bitcoin owners will have three options to use their coins afterwards:
- Exchange them for other cryptocurrencies or fiat money;
- Hold their coins to speculate with them;
- Use them as a payment method.
Speaking about Bitcoin miners, they earn from the creation of a BTC and the confirmed transactions. Meaning, when the last Bitcoin is released, that will probably not be the end of Bitcoin miners. They will still be able to receive incomes by the Bitcoin transactions confirmed.
11. Can bitcoin be hacked?
It is not easy to hack bitcoins thanks to Blockchain technology’s security and the fact that bitcoin users regularly review the network. However, there is a possibility that hackers might steal BTC by getting access to digital wallets, breaking down such security factors like the user’s private key.
Have you heard about the 51% attack? It is known as the only possible way to hack bitcoin.
It is only a hypothetical attack on Blockchain that could work if only done by a miners group. They also should have control over more than 50% of the network’s mining hash rate (the network computing power).
The result of this attack might be:
- Breaking down the recording of new blocks;
- Avoiding other miners confirming recent transactions;
- Causing transactions to stop;
- Reversing transactions, while the attackers control the network which means double-spend of coins;
- Preventing the creation of new coins or the alteration of old blocks.
12. Can cryptocurrency be taxed?
Yes. It is better to study your country’s regulations about cryptocurrencies, as now they are taxed in many countries worldwide.
13. Will cryptocurrency replace fiat currencies?
It is a controversial question, but it is not possible in the short term, according to Bankomia experts.
People nowadays migrate towards cryptocurrencies because of the growing mistrust towards traditional banks and governments.
Many crypto community members believe that fiat money is not a reliable asset and won’t hold much value in the future.
However, the main issue is setting up a viable payment method with merchants worldwide.
Bankomia, among other neobanks, offers a solution with a full-service payment gateway: e-wallet, exchange, e-bank, custody, and statement for accounting.
Read more about it on Crypto Will Eventually Replace Fiat, but How Soon and Where? available con www.cointelegraph.com
14. Can cryptocurrency be traced?
There are two sides to this question to be considered when answering:
- The cryptocurrency networks are confidential but not anonymous.
Crypto users can take advantage of this confidentiality because they can check the record of all Blockchain transactions. Its data is open to anyone.
- The cryptocurrency flow is visible, but there’s no way to view the coin itself.
Read more about it on Yes, your Bitcoin transactions can be tracked – Here’s how available on www.coinrivet.com.
15. Can cryptocurrency be banned?
Yes and no.
Thanks to the decentralized features of cryptocurrencies, it is almost impossible to ban them. They can’t be removed nor taken away from their owners.
However, cryptocurrencies can be banned on the legal level, depending on the countries’ regulations.
An excellent example is Africa.
It is considered one of the promising regions for cryptocurrency adoption. Despite many restrictions that central authorities have forced on the African nations, cryptocurrencies are still popular among the people and deal with harsh limits to survive.
More resources where to find answers:
- Read more about the situation in Africa “The state of crypto- Africa” available on www.research.arcane.no
- Read more about this question on Countries Where Bitcoin Is Banned or Legal In 2020, available on www.cryptonews.com
- Bitcoin Regulation: Where is Bitcoin Legal in 2020? available on www.spendmenot.com
Bankomia shares with you these answers to the 15 most popular questions about Blockchain and cryptocurrencies in simple words because the crypto world shouldn’t be complicated.