11 Things You Need To Know About Cryptocurrency, According To Israel Keys Of Bloom Solutions
Bloom Solutions was also one of the first to offer a service enabling people to use crypto to send remittance payments in the Philippines, a market with huge potential given that payments sent home by the Philippines' 2.2 million overseas workers account for more than 10 per cent of the country's GDP.
This year, Bloom is launching a platform that will enable Filipinos to use pesos to purchase over 250 cryptocurrencies.
Here, Keys helps demystify the topic and break down the jargon, answering some of the most common questions people have about cryptocurrency.
1/11 What is the blockchain? Why is it so secure?
The word blockchain describes the way information is structured and stored—blocks of information that are linked, or chained, together in a sequence.
The technology more broadly makes use of cryptography, or mathematical techniques, to encrypt information to ensure privacy and verifiability. These techniques are used to order the blocks in the chain and make them tamper-proof. As the chain of blocks gets larger it becomes increasingly difficult and next to impossible to make changes to the information stored in each block—making them “immutable” or unchangeable. Combining cryptography with decentralisation makes the information stored on a blockchain system safer and more secure than traditional information systems.
2/11 Why is it a positive that crypto, and blockchain in general, is decentralised? Who or what is held accountable?
Firstly, let’s distinguish between cryptocurrencies and blockchain. Deriving its name from the cryptography employed, cryptocurrencies, or “crypto” for short, are currencies built on the blockchain. When you have a store of information that is immutable, it’s immediately useful as a way to store financial or monetary information.
In contrast to a database or a file that may reside on a single computer, blockchain technology distributes information across the internet, on thousands of computers, to ensure there isn’t a single point of failure. If a single computer in the network were to fail, the data is safe on the thousands of other computers that are participating in the system. This network of computers enforces mutual accountability, with a coordination system called mining to protect against rogue and potentially malicious actions on the network.
3/11 What does it mean to mine bitcoin? And is there a finite number of coins out there?
For Bitcoin, the first and the most popular of cryptocurrencies, the process of mining is used to coordinate the recording of information on the blockchain and mint, or create, new coins. There are currently more than 18 million Bitcoin coins in circulation, with a new coin minted roughly every ten minutes. These coins are created as a reward for solving a cryptographic problem; the algorithm is designed to stop mining new coins at 21 million.
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4/11 Why is Bitcoin the most famous and most valuable cryptocurrency?
Bitcoin was the first cryptocurrency. It was the first digital currency to solve the “double-spend” problem. It combined a number of different ideas to ensure that a person can’t spend more than they have. Its value is determined by a market, but being first I think made it dominant.
5/11 Crypto is still such a volatile market. Is it a prudent long-term investment?
Yes, it is volatile. Absolutely, I think a long-term view is both necessary and prudent. I subscribe to the adage that time in the market is wiser than trying to time the market.
[At Bloom Solutions] we’re not financial advisors, but we recommend that newcomers invest a small portion of their net worth by “averaging in”. Dollar-cost-averaging (DCA) has long been a standard way to invest in volatile assets. You can do this by buying a small amount of crypto every time you make money. For example, one could buy US$200 worth of Bitcoin on the 20th of each month. The price of bitcoin will be different on each purchase: when it’s higher you’ll acquire less, and lower you’ll acquire more. The net effect will be that you will average out your acquisition cost and reduce the risk of purchasing it at a high price.
6/11 Why are people accepting these new cryptocurrencies?
There are close to 10,000 cryptocurrencies listed on Coin Market Cap—a popular information site for crypto enthusiasts.
With a little know-how, from a technical perspective, it’s relatively easy to create your own digital currency. However, a currency is only useful if people accept it, want to buy it, and can trade it for other things they want. This effect, I think, will always skew towards having only a handful of dominant currencies and a long-tail of other currencies with less interest.
There’s a lot of innovation going on at the moment and it’s interesting to see the variations of currencies and blockchain applications being built.
7/11 Why has crypto become popular for remittances?
Our first product at Bloom in 2015 enabled remittances through the use of Bitcoin.
I think it's quickly becoming an alternative to remittances because it reduces the number of intermediaries involved in transferring money. Traditionally, when money is transferred, it may go through a number of intermediary correspondent banks and multiple currency exchanges. The cost of this adds up and can be significant for small transactions.
As more legitimate crypto exchanges are established in different countries, and crypto becomes more mainstream, I think more individuals will transfer their money themselves by buying crypto in one country and selling it in another.
8/11 How do taxes work with cryptocurrencies?
Generally, an individual or company is taxed on gains made when trading it. That is, if a cryptocurrency is bought and then later sold, tax is often applicable on the difference in price between those two events.
If you have a lot of crypto, it would be best to talk with a financial advisor or consultant who is knowledgeable on the tax laws in your country.
9/11 What are hot and cold wallets?
Any cryptocurrency wallet that is online is considered a hot wallet. Crypto wallets that are not online are called cold wallets, or hardware wallets, or better yet, signing devices.
There are multiple ways that one can keep their cryptocurrencies: on an exchange where you are entrusting someone else to hold it for you; in your own hot wallet, which would give you full custody; or in a cold storage device, which would give you further protection by disconnecting it from the internet.
10/11 What are keys in the cryptocurrency world?
The actual amount of crypto you own is stored on the blockchain, and what you hold when you have a cold storage device are keys for accessing it. Keys give you the authority to make transactions—or move the crypto around. Think of it as the keys to a vault. These keys are known as “private keys”; they should never be shared unless you want someone else to access your crypto.
11/11 How can people keep their cryptocurrencies safe?
We advise storing crypto in multiple places, depending on the amount and a person’s technical knowhow. Similar to non-crypto money, an individual wouldn’t normally carry their entire wealth in the wallet in their back pocket. If they have a lot and are technically knowledgeable, they can employ the use of cold-storage devices and multiple signatures.
See more honourees from the Finance & Venture Capital category of the Gen.T List 2020