Issue link: https://maltatoday.uberflip.com/i/933296
11 maltatoday SUNDAY 28 JANUARY 2018 News PAUL COCKS HISTORICALLY, when it comes to transacting money or anything of value, people and businesses have relied heavily on intermediaries like banks and governments to ensure trust and certainty. The need for intermediaries is especially more ap- parent when making a digital trans- action, because digital assets like money, stocks and intellectual prop- erty are essentially files and they are incredibly easy to reproduce. This creates what's known as the double spending problem (the act of spending the same unit of value more than once) which until now has prevented the peer to peer trans- fer of digital assets. But what if there was a way of con- ducting digital transactions without a third party intermediary? Well, a new technology exists today that makes this possible. Blockchain and Bitcoin Cryptocurrencies first appeared in a 2008 white paper – authored by a person, or persons, using the pseudonym Satoshi Nakamoto – detailing an innovative peer to peer electronic cash system called Bitcoin that enabled online payments to be transferred directly, without an in- termediary. While the proposed Bitcoin pay- ment system was exciting and inno- vative, it was the mechanics of how it worked that was truly revolution- ary. Shortly after the white paper's release, it became evident that the main technical innovation was not the digital currency itself but the technology that lay behind it, known today as blockchain. Although commonly associated with Bitcoin, blockchain technol- ogy has many other applications. Bitcoin is merely the first and most well-known. In fact, Bitcoin is only one of about 750 applications that use the blockchain operating sys- tem today. One example of the evolution and broad application of blockchain, beyond digital currency, is the de- velopment of the Ethereum public blockchain, which is providing a way to execute peer to peer contracts. Getting started with Bitcoin The first thing you need is a Bitcoin wallet, which is basically the Bitcoin equivalent of a bank account. It al- lows you to receive bitcoins, store them, and then send them to others. There are two main types of wallets. A hot wallet is one that you install on your own computer or mobile device. You are in complete control over the security of your coins, but since they are on a device that is connected to the internet they are less secure. The second type of wallet is a hard- ware wallet. They mostly look like pen-drives, and maintain high lev- els of security to protect your coins by storing your coins offline. Of- fline storage keeps your coins out of reach from hackers. The two most popular hardware wallets are the Ledger Nano S and TREZOR. Coinbase is a web wallet with a simple design and a number of very useful features that make it excellent for beginners. You can send and re- ceive bitcoins via email and buy and sell bitcoins directly from Coinbase. It is a good place to buy bitcoins and learn how it works, but not a good solution for long-term storage. Electrum is a software wallet that enables you to set up a strong level of security very quickly. During the simple installation process, you are given a twelve-word phrase that will allow you to recover all of your bit- coins in the event that your comput- er fails. Your wallet is also encrypted by default which helps protect your coins against hackers. Electrum is available for Windows, OSX, and Linux. Once you set up a wallet, you will be given a wallet address, which is like your bank account number, and which you will use to make transac- tions. Today it is relatively easy to buy Bitcoin directly by using a credit or debit card, like VISA and Master- Card. You will need to use a Bitcoin exchange or broker like Coinbase itself, Bit Panda and CoinMama. These make buying – and selling – Bitcoin a simple matter of following a number of basic steps, much like when using online banking to trans- fer money. Malta setting the stage Earlier this week, Malta's Financial Services Authority (MFSA) pub- lished the feedback it received on its proposed rules for collective invest- ment schemes involving cryptocur- rencies. The MFSA first sought feedback on its proposed rulebook last October as part of a bid to regulate professional investor funds (PIFs) that focus on cryptocurrencies. The proposal no- tably changed the structure from a stand-alone rulebook to a supple- mentary document for existing in- vestor rules based on industry com- ments, according to the document. The change came as a result of the "ample feedback" MFSA received requesting this change, according to the agency. While the final set of rules has not yet been released, the MFSA did state that, based on industry feed- back, it has updated its existing rules proposal to allow for investments in both cryptocurrencies and tokens released as part of an initial coin of- fering (ICO). Despite feedback to the contrary, the MFSA has decided to only al- low qualifying investors to invest in cryptocurrency-based funds, mean- ing only investors who meet specific minimum requirements, such as a net value of at least 750,000 euros, among other factors. The full set of rules is still being written and will be released pend- ing further review, according to the Maltese government. Parliamentary Secretary for Finan- cial Services, Digital Economy and Innovation, Silvio Schembri wel- comed the publication of the rules, saying this was another step towards sustaining Malta's digital economy. "This is the first step towards hav- ing a Virtual Currency Act," he said, adding that work was being carried out for regulating virtual curren- cies, ICO's, exchanges and the use of blockchain technology. Changing the world Blockchain is a highly disruptive technology that promises to change the world as we know it. The tech- nology is not only shifting the way we use the Internet, but it is also revolutionising the global economy. By enabling the digitisation of assets, blockchain is driving a fundamental shift from the Internet of informa- tion, where we can instantly view, ex- change and communicate informa- tion, to the Internet of value, where we can instantly exchange assets. A new global economy of immedi- ate value transfer is on its way, where big intermediaries no longer play a major role. An economy where trust is established not by central inter- mediaries but through consensus and complex computer code. Blockchain has applications that go way beyond obvious things like digital currencies and money trans- fers. From electronic voting, smart contracts & digitally recorded prop- erty assets to patient health records management and proof of owner- ship for digital content. Blockchain will profoundly disrupt hundreds of industries that rely on intermediaries, including banking, finance, academia, real estate, in- surance, legal, health care and the public sector – amongst many oth- ers. This will result in the complete transformation of entire industries. But overall, the elimination of in- termediaries brings mostly positive benefits. Banks and governments for ex- ample, often impede the free flow of business because of the time it takes to process transactions and regula- tory requirements. The blockchain will enable an increased amount of people and businesses to trade much more frequently and efficiently, sig- nificantly boosting local and interna- tional trade. Blockchain technology would also eliminate expensive inter- mediary fees that have become a bur- den on individuals and businesses, especially in the remittances space. Perhaps most profoundly, block- chain promises to democratise and expand the global financial system by giving people, who have limited exposure to the global economy, better access to financial and pay- ment systems and stronger protec- tion against corruption and exploi- tation. The potential impacts of block- chain technology on society and the global economy are hugely signifi- cant. With an ever-growing list of real-world uses, blockchain technol- ogy promises to have a massive im- pact. This is just the beginning. pcocks@mediatoday.com.mt The technology likely to have the greatest impact on the next few decades has arrived. And it's not social media. It's not big data. It's not robotics. It's not even AI. You'll be surprised to learn that it's the underlying technology of digital currencies like Bitcoin. It's called the blockchain. - Don Tapscott, Canadian business executive, author, consultant and speaker, specialising in business strategy and the role of technology in business and society BLOCKCHAIN AND BITCOIN In the new world order, math is king Cryptocurrencies, some- times called virtual curren- cies, digital money/cash, or tokens, are not really anything like the Euro, dollar or British pound. They live online and are not backed by a govern- ment. They're backed by their respective networks. Created with cryptography, the entries are secured with math, not people. Restricted entries are published into a database, but it's a special type of database that is shared by a peer-to- peer network. The peer-to-peer network solves the "double-spend" problem in most cases by hav- ing every peer have a com- plete record of the history of all the entries made within the network. The entire his- tory gives the balance of every account including yours. The innovation of cryptocurrency is to achieve agreement on what the history is without a central server or authority. Cryptocurrencies are gener- ated by the network in most cases to incentivise the peers, also known as nodes and min- ers, to work to secure the net- work and check entries. Each network has a unique way of generating them and distrib- uting them to the peers. Bitcoin, for example, rewards peers (known as miners on the Bitcoin network) for "solv- ing the next block". A block is a group or entries. The solving is finding a hash that connects the new block with the old one. This is where the term block- chain came from. The block is the group of entries, and the chain is the hash. Hashes are a type of cryptologic puzzle. Cryptocurrencies Blockchain Simply put, a blockchain is a type of distributed ledger or de- centralised database that keeps continuously updated digital re- cords of who owns what. When a digital transaction is carried out, it is grouped together in a crypto- graphically protected block with other transactions that have oc- curred in the last 10 minutes and sent out to the entire network. The validated block of trans- actions is then time-stamped and added to a chain in a linear, chronological order. New blocks of validated transactions are linked to older blocks, making a chain of blocks that show every transaction made in the history of that blockchain. The entire chain is continually updated so that every ledger in the network is the same, giving each member the ability to prove who owns what at any given time. Blockchain's decentralised, open and cryptographic na- ture allows people to trust each other and transact peer to peer, making the need for intermediaries obsolete. This also brings unprecedented security benefits. Hacking at- tacks that commonly impact large centralised intermediar- ies like banks would be virtu- ally impossible to pull off on the blockchain.