The new reality of cryptocurrency
Published on: Sunday, January 14, 2018
IMAGINE a society where transparent business deals prevail. Imagine also transparent governance in high places become the norm. It looks like inventors of new financial technology have created the means to take things to that direction.
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For example, the invention of blockchain for bitcoin first implemented in 2009 made it the first digital currency to solve the double spending problem without the need of a trusted authority or server. As an inevitable march of the digital revolution, Sabah finally realised use of digital currency is real following probably the first ever land transaction done using cryptocurrency bitcoin as Pol Chan and Alex Yee signed a Memorandum of Transfer, Sale and Purchase Agreement, on January 8.The breaking news To recap the breaking news which hit the headlines in Daily Express, Pol Chin agreed to pay half or RM40,000 at then current price (Luno) for a piece of 1.210-hectre land in Libaran island about an hour off Sandakan.
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Chin deposited 10pc of the total price which is 0.05 bitcoin or RM3,883.25 at the point of transaction that day.
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The land belongs to Yee, known for his entrepreneurial private efforts in Libaran's sea turtle conservation but the land deal stops short of the leased turtle hatchery land. In fact, Pol Chin said he purposely used the appreciating cryptocurrency bitcoin to buy the adjacent land to help his friend of 40 years Alex to finance his turtle conservation drive. On what triggered his first interest, Alex said: "When I read two articles in a Finance magazine in August 2017 how the price of bitcoin was shooting up, I thought – well, that looks interesting," Alex said."Then I noticed Pol also posted messages on bitcoin in Facebook so I looked him up. He explained the whole gamut of it while the market is abuzz with a lot of people talking about mining of bitcoin," Yee said.However, bitcoin is only one of 1,400 cryptocurrencies floating around.When he heard about the largest Financial Tech Show last November on cryptocurrency in Singapore, Alex said: "I flew up there to attend the show and I got all excited."So I said to Pol, 'okay, why not take this opportunity to open up just one trading account with cryptocurrency'."It led to the historic land transaction in January using cryptocurrency bitcoin. Convinced, he said: "Now, I am not sure anybody knows about blockchain." Bitcoin – the hottest topic"But let me explain: Bitcoin right now is the hottest topic. It is also the most expensive of all the cryptocurrencies. It is the first one started on January 4, 2009 and so they celebrated their 9th anniversary a week ago." "The prime purpose of that genesis block that came off that day was to have transparency in business transactions and to cut off middle-man bureaucracy. Thereafter, all the thousand over cryptocurrencies that followed used the same principle," Alex said. He highlighted the "peer to peer" nature of cryptocurrency.Alex on blockchain "Blockchain is when you have a transaction going on, you write down the transactions, such as Transaction (1), I pay Agnes 10 sen, (2) you pay me 20 sen, (3) Kan pays me 30 sen, (4) Mugu pays me 30 sen , (5) Pol gets involved and pays me 40 sen. In all these transactions 1,2,3,4,5, you cannot have (5) without having (4). So it becomes (4), (5), (6) or until the whole page or block is filled up, then we go to the next block which is linked up against the previous block which creates a chain effect and that's why it is called 'blockchain'!" Alex explained.A blockchain is a continuously growing list of records called block, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to previous block, a timestamp and transaction data.Therefore, given the latest blocks, it is possible to access all previous blocks linked together hence a blockchain database retains the complete history of all assets and instructions executed since the first one. One can Google all these information. Transparency by design By design, blockchains are inherently resistant to modification of the data. So no one can tamper with the records.It is an open, distributed digital ledger (debits, credits, balance accounts) that can record transactions between two parties efficiently and in a verifiable and permanent way, according to Wikipedia. The blockchain, first conceptualised in 2008 by anonymous person or group known as Satoshi Natamoto and implemented in 2009 as a core component of bitcoin where it serves as a public ledger for all transactions. Satoshi Natamoto defines the electronic coin the bitcoin as " a chain of digital signatures known as blockchain" which enables each coin owner to transfer an amount of currency directly to any other party connected to the same network without the need for financial institution to mediate the exchange. So although it looks dauntingly complex, a blockchain is just another database for recording transactions – one that is copied to all the computers in a participating network. As Alex Yee noted, a blockchain data base is managed autonomously using a peer to peer network and a distributed timestamping server. Insight for Pol Chin Pol Chin offered reporters an indepth look at blockchain technology.He said: "Its peer to peer, so no middleman.""Two problems," he said. "One – Trust. What if there is no middleman, who maintains the system? Somebody has to maintain it, because if nobody is getting paid, who does the maintenance?" "Immediately people ask these two questions," he said."Trust is in the ledger, it's an open source, it's transparent. Say, I send somebody X amount of this coin. He says:'I never received it'. But I have the transaction record. I can go into the blockchain and say, 'Look, it's there, it went through at this or that time, the micro signature, no one can cheat. Anybody can go into the blockchain. It's an open source," Chin explained. Unconventional built-in maintenance system "Secondly, maintenance – how the whole system is maintained. blockchain is not maintained by one computer or one server."You cannot go and shut it. That's why I call it distributed, decenctralised. Every time somebody makes a transfer, it is broadcast to the network. Every single computer in the network will add that transfer to their ledger. "So you have hundreds of thousands of ledgers at the same time updated constantly so basically you have to shut down the Internet to shut down everything. "That's why blockchain bitcoin and other coins you cannot shut them down. That's why some governments are scared because there's nothing they can do. And just like you cannot shutdown the Internet, similarly there is no bitcoin company," Pol Chin elaborated. He asked : "So who maintains this whole thing?"Pol said since transactions are recorded in the ledger, somebody has to maintain the ledger. That's where mining comes in as far as bitcoin is concerned. To do it, whoever cracks the mathematical puzzles, solve the puzzles and rewarded with the bitcoin are the ones maintaining the code. He said every 10 minutes or so, 50 bitcoins are released into the blockchain."And that is what fuels the transactions," Pol said."From the year 2009 to 2012, every 10 minutes 50 bitcoins were released into the blockchain – the same principle for the other cryptocurrencies." Where 'mining' comes in"So people who use their computers to verify the transactions to enable the system to exist get certain amount of bitcoin so this is where mining comes in," Pol explained."You mine by solving mathematical equations which also maintains the whole network," Pol pinpoints the unconventional maintenance.Cryptocurency miners are no more than people with high-powered computers who are competing against other people with high-powered computers to solve complex math equations. These equations are product of the encryption designed to protect transaction data on the digital ledger.The first miner to solve these equations, and in the process verify transactions on the ledger, gets a reward, which is known as 'block reward'.This reward is paid out in virtual coins, and is an example of how bitcoin transactions are verified.This process is referred to as 'proof of work.'But there is another verification process called 'proof of stake' which instead of paying verification of transactions with virtual coins, it pays transaction fees tied to a particular block of transactions. "So this is a win-win situation – you are being paid to do a job!"Stay up-to-date by following Daily Express’s Telegram channel.
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