Crypto-currencies – new warnings on the rise

Following the Israel Securities Authority’s chairman, Shmuel Hauser’s speech on November 8, 2017,  during the Fintech conference, potential investors would now have reasons to worry about the rise of crypto-currencies, soon to replace the outlawed Binary Options in the exact same companies, where they once used to be a flourishing business, as you can see with some companies that were given the Knesset 3 months notice, which have instead changed their names and products. Designed to be decentralised digital or virtual exchange systems, which use cryptography to secure, verify transactions and create new units of transactions, even if by themselves crypto-currencies are not fraudulent, the sales process bears some staggering similarities with the Binary Option scam script. The first question we should thus ask ourselves is the following : how can a company previously specialised in making profits off scams, turn around and set out to offer clean and respectable services?

Crypto-currencies could easily become the next scam, not because they are not legal, but because most times, investors are not well-informed. They are told to buy tokens or digital coins, without realising who exactly is behind these tokens and who to turn to if their money is never returned. Because of its growing popularity as the “currency of the future”, most investors eager to make profit could rush into a new trap and become victims of the same companies, that once already extorted money from them without even knowing it. It would go without saying that where there is a multibillion dollar profit opportunity to be made, there is irremediably a possibility for scam. Once again, in the same way as with Binary Options, there is little proof that the value of a crypto-currency will indeed go up, just because a trader says so. Beyond the growing hype, the Israel Securities Authority shows concerns, as potential investors are left with little guaranty to protect them. They are at risks if they invest in a product that’s new on the market, as its evolution is not set in stone and could leave the potential investors in debts to the very companies they invested in.

Cryptocurrency

By now, Cryptocurrency have become a global phenomenon although it is still not understood by most people.

Governments, banks and companies are aware of its importance, in fact, in 2016 most major banks, governments and accounting firms have published papers about cryptocurrency and even some started a so called blockchain project.

Although cryptocurrency got such a huge coverage in the media, still people fail to understand this currency even the basic concepts.

What is cryptocurrency?

Cryptocurrency is actually digital money, the main idea with cryptocurrency is that the system allow users to make secure transactions anonymously.

This system is using strong cryptography as a process to convert information in to an unbreakable code, to securely track transactions.

Back in the 90’s many have tried to create digital money but failed.

Once the Blockchain system was imbedded, many different alt-coins were created.

We all think about Bitcoin when we hear the word cryptocurrency, although Bitcoin got the most media coverage, for it was the first cryptocurrency, making it the most popular cryptocurrency, there are other strong cryptocurrencies, such as; Ethereum, Ripple, Litecoin, Monero etc. that are as strong and secure as Bitcoin and worth learning about.

What is Bitcoin?

Bitcoin as the most popular digital coin with an estimated market cap of 169$ billion and it’s occupying 32% in total market share.

In 2008, Satoshi Nakamoto, the inventor of Bitcoin (or one of them, no one knows for sure) announced that he developed a ‘peer-to-peer electronic cash system’.

Satoshi have failed to build a centralized digital cash system, so he tried to build a system without a central entity- just like peer-to-peer file sharing system.

In centralized money we have a third party to check if the funds are available for the transaction, that third party approve and finalize transactions through a server that keeps track of the transaction history and balance.

In cryptocurrency- decentralized system, this third party server is not needed thanks to the ‘peer-to-peer’ technology; every peer in the system keeps record of all transactions to check if future transactions are valid.

These peers must be in consensus regarding the transaction information to approve the transaction, if in fact just one peer finds a miss match in the transaction data the system will break and the transaction will be canceled.

Really Satoshi’s innovation was to achieve consensus without a central authority and cryptocurrency is a part of this solution.

When sending Bitcoin to another person you simply send a file stating that you are sending X bitcoin to another person, for example; “John gives 2 bitcoin to David” AKA a peer-to-peer transaction.

In that time, this information is sent to all peers and the whole network is updated about this transaction but only after a certain amount of time (few short minutes) the transaction gets confirmed.

Only after confirmation, this transaction is a part of an immutable record of historical transactions of the blockchain.

Every transaction must be approved by a miner and every peer have to update the transaction in their database, in return, miners are rewarded with cryptocurrency tokens.

Through this system there is no one person or organization that can affect the value of cryptocurrency.

That database cannot be affected of changed by people you don’t know or events and rules that are out of your power, unlike the money we hold with the bank.

Cryptocurrencies are built on cryptography; they are secured by a mathematical system and not by people or people managing organizations.

Through this method it would be more likely you will get struck by lightning then that a bitcoin address will be compromised.

Transactional properties:

Irreversible-

Once a transaction is confirmed it cannot be reversed.

There is no ‘Charge-back’s’, no safety net.

While the transaction is pending for confirmation the cryptocurrency is exposed to hackers, and if a hacker manage to hack your computer and steal cryptocurrency even Satoshi himself can’t help you recover back your money.

Anonymity — Accounts and transactions are not connected to ‘real world identities’, it is possible to analyze the transaction flow but it’s extremely hard to impossible to connect to the ‘real world identity’ of the users that hold the addresses.

Fast and global — Transactions are propagated almost instantly and confirmed within minutes.

It makes no difference if you’re sending bitcoin to your next door neighbor or to a friend from the other side of the world, as long as both parties have internet connection the receiving side will be able to get his bitcoin within minutes.

Security — Cryptocurrency funds are locked in a public cryptography key system.

To send cryptocurrency, every owner have a privet key and thanks to strong cryptography a bitcoin address is more secure than Fort NOx.

Freedom —

There is no ‘gate-keeper’ for cryptocurrency.

No one, person or authority, can prevent you from using cryptocurrency. No one can cancel or disapprove your transaction.

Anybody can download this free software (wallet) and start sending and receiving bitcoins, if the peers and miner confirm the transaction it’s a done deal.

Monetary properties

Controlled supply — All cryptocurrency’s control the supply of their token by scheduled written code, for example; the supply of bitcoin will decrees over time and will reach its final value around 2140.

That’s why future cryptocurrency value can be roughly calculated today, there are no surprises.

Debt free — Our centralized money, value is created through debt and credit etc. it is a system of I.O.U.

Cryptocurrency represent themselves, not a government debt.

As well you can’t hinder anyone to use bitcoin, neither can’t you prohibit anyone to accept a payment and of course no one can undo a transaction.

Cryptocurrency takes away the control central banks take on inflation or deflation by manipulating the monetary supply.

If you wish to get personalised advice on how best to avoid falling victim to Binary and Crypto-currency scams, contact us, so we could help you take legal action and recover your financial health.