The Inyang Effiong Show

The PodCast About People and Events around Nigeria and West Africa

Tag: banking system

Understanding Money and Cryptocurrencies (Blockchain applications part 2)

Bundle of Money

A cryptocurrency is simply currency/money that is based on strong cryptography to secure its use for transactions, to control the creation of additional units and to verify any operations done with it. Most definitions like to add that cryptocurrencies operate independently of a central bank, but there is no intrinsic reason for it to be so.

In part one, we defined cryptography as a way of encoding or hiding information so that only the person with the correct key can have access to it. No one else can access your encrypted information without the key. Now, this single way of accessing your information is very important to keep in mind. In a traditional banking system, you can access and recover your account even if you lose your bank account details, as far as you can satisfactorily show proof of identity. But the very nature of cryptocurrency means that proof of identity is not required. The only way to show you own your cryptocurrency is to have the digital key!

With currently available technology, the present cryptographic systems are for all intent and purposes immune to hacking and other methods of compromises. This makes cryptocurrencies a very secure way of keeping your valuables safe and secured!

What is the link between cryptocurrency and the blockchain? The validity of the cryptocurrency coin is provided by the blockchain. Currency creation, management, issuance and control is all done on the blockchain. Since there is no central bank managing the cryptocurrency coins (for now), the blockchain provides the security and database that any form of currency needs to satisfy the users that it is actually worth using as a means of exchange and store of value.

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A simple explanation of blockchains and crypto currencies

Chained to a bank?, not anymore.

What is the blockchain?
Say you have an account with Union Bank of Nigeria, every time you pay in money, the bank records it on your account sheet (ledger), every time you do a transfer to another account, it is recorded too. At any point in time, your account statement has a record of all the money inflow and money outflow which then gives your bank balance.
What happens if your record of inflow and outflow does not match with what the bank has? Well, you have to bring all your payment receipts and as much evidence as you can get, the bank looks at this and decides if it should change your balance or not. If you do not agree with their figure, your options are quite limited

 

The bank has a single database keeping all your transaction records and that of millions of other customers money too. The integrity of the data depends solely on the bank (and the competence of its IT department)

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