Crypto & DeFi Frequently Asked Questions

11 Mar 2020 | Bitcoin, Blockchain

Which problem does blockchain technology solve?

The problem with internet technology was that valuable digital assets could easily be copied and redistributed. This has been a major problem for the music and movie industry because anyone can copy songs and movies and distribute them without the real owner profiting from it.  Blockchain technology solves this problem by providing a database which is shared and managed by many different people and in which every entry is unique. This way valuable digital things like songs or movies, can be distinguished from one another and are unique. This way everyone knows when something is original or not. Fraud is not an option. This is the perfect technology for managing a digital currency. With the ability to distinguish one token (like a Bitcoin or a digital dollar) from another, money can now be managed without the need for central authority.

Why’s Bitcoin worth anything?

Bitcoin is valuable because it is cheaper and faster to use than regular currency. Bitcoin, in contrast to dollars or euro’s, can not be censored; any transaction you make will always be executed. Bitcoin is a global payment system which everyone has access to. These inherent characteristics is what attracts people to using and buying Bitcoin. It’s also a speculative investment, which is interesting as a diversification within a portfolio of investments.

What’s the difference between blockchain and crypto?

Crypto can’t exist without blockchain. A blockchain is what manages crypto currency. Usually, if you want to use a blockchain you must pay something for it. This payment is done with the crypto currency that is native to the blockchain you are using. So, if you want to use the Bitcoin blockchain you need Bitcoin to pay the fee. If you use the Ethereum blockchain you need Ether to pay the fee. In theory you could build a blockchain without a crypto currency. But if there’s no fee and no inherent incentive to contribute to the security of the blockchain, it’s doomed to fail. On the other hand, you can’t make a crypto currency without a blockchain to manage it.

Why can’t Bitcoin be shut down?

Theoretically Bitcoin can be shut down, but practically is has become near impossible. Nowadays there are many thousands of people around the globe contributing to the Bitcoin network so it has become near impossible that Bitcoin will stop working. Only when all these thousands of people for some reason stop their contribution to the network, will Bitcoin go offline. But they probably won’t do that, because when you contribute to Bitcoin, you get paid Bitcoin. So, people are incentivized to keep Bitcoin working.

Can Bitcoin be hacked?

The Bitcoin blockchain has never been hacked. Hacking a blockchain is not the same as hacking a computer. Hacking Bitcoin would mean that someone, in some way, can make alterations in the underlying code of Bitcoin. A hacker would be able to revert transactions or change the way Bitcoin behaves. To achieve this, a hacker must become owner of more than 50% of the Bitcoin network. This means that thousands of computers need to be hacked and controlled. This is nearly impossible to realize. Far more likely is the risk of being hacked personally. It’s a lot easier for a hacker to try and gain access to an individual’s Bitcoin than to hack the Bitcoin blockchain.

How much people are using crypto currency?

There are many tens of thousands of people around the world using crypto currency today. Unfortunately, we can’t track unique users, but we can track the number of transactions performed on a specific network. Bitcoin is doing an average of 330,000 transactions a day, and Ethereum is doing 650,000 transactions a day.

What is the relation between DeFi and blockchain?

‘DeFi’ is an abbreviation for Decentralized Finance. It’s much like our normal financial system, but then managed without big centralized institutions. Decentralized finance is possible because of blockchain technology. For finance to become decentralized it must make use of a blockchain. This can be the Ethereum blockchain or the Bitcoin blockchain. Currently, most of DeFi applications are being build on the Ethereum blockchain. For instance, lending, saving, borrowing is all possible on the Ethereum blockchain.

Bitcoin is not stable enough to be used as a currency. Why would you expect crypto currency to be used for payments?

We see Bitcoin as the prototype crypto currency. It’s proven, it’s secure and robust. But unfortunately it’s very volatile. That’s why we also think that Bitcoin currently is not suitable for longer term payment commitments like salaries or lending agreements. It’s price fluctuations are too great for this to work. But there are already solutions. For instance, one of the most important DeFi projects called MakerDAO provide a cryptocurrency that has the same value of a dollar. So, it has all the benefits of a decentralized currency like Bitcoin and it is stable at the same time. We think these kinds of innovations will eventually be used for everyday payments worldwide.

Will crypto currency become more valuable over time?

We expect that the whole of traditional finance will find their way to blockchain technology. Housing, stock markets, derivatives, etc. There’s a lot of value in traditional markets and this will become part of the crypto economy. Every major shift from traditional finance to decentralized finance is an implicit affirmation for the projects already out there, so many projects will benefit from this and rise in value. We believe that Bitcoin and Ethereum especially, are well positioned for an increase in value. It’s because they are already serving as a foundation for many projects that make the shift from traditional finance to decentralized finance.

Any more questions?

We hope we have answered some of your important questions. If you have any questions left, don’t hesitate to ask us. You can reach us through our contact page or follow us at LinkedIn, where we will periodically post blogs and related information.

 

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