30th December 2021 > > Cryptography.

tl;dr

A short explanation of my understanding of the cryptography underling the BTC revolution, and the shortcomings of mainstream press coverage of cryptos.

Market Snap

Market Wrap

10-year yields cause nearly a point of pain to bond funds and equities rally yet further. Thin trading markets don’t tell us a lot.

Curious Cryptos’ Definition of the Day – Introduction

It has been suggested that a “Definition of the Day” section might be useful and informative. Let me know if it isn’t. I expect an overwhelming number of Wikipedia links in this section going forward.

Curious Cryptos’ Definition of the Day – Cryptography

Cryptography is a broad subject that concerns itself with the development of communications between parties in a secure manner that prohibits malicious actors from accessing those communications:

https://www.kaspersky.com/resource-center/definitions/what-is-cryptography

As an example, to secure an email message, Party A uses Party B’s public key to encrypt the message. Only those who know Party B’s secret key can decrypt and read the message.

Note that cryptography is turned on its head in the application to cryptos.

To broadcast a crypto message to the blockchain (i.e. send this amount of BTC from A’s wallet to B’s wallet) the sender encrypts the message using A’s private key, allowing the whole world to unencrypt it using A’s public key (aka A’s wallet address).

This proves to the world that the sender has the authority to transfer BTC from A’s wallet to B’s wallet (i.e. the sender knows the private key to A’s wallet).

Curious Cryptos’ Commentary – Press coverage of cryptos

In general, I find that most mainstream press coverage of cryptos leaves a little to be desired.

The Financial Times, almost as illiberal as the Morning Star in its editorial policy towards life, has a knee-jerk hatred of all things crypto.

But that’s ok, it has never held any interest for me as it is highly opinionated and low on facts and truth. And that’s just the Morning Star.

…

The Times reported yesterday that:

“Banks … (are) essentially allowing fraud to proliferate by accepting Bitcoin into accounts”.

Putting aside the fact that using BTC, or any other crypto, does not automatically make one a fraudster, I know of no high street bank account that directly accepts BTC. Please correct me if I am wrong.

“The Advertising Standards Agency … censured Arsenal for failing to highlight the risks of holding crypto-related fan tokens”.

The problem here is that the ASA failed to understand the lack of correlation risk between the value of an Arsenal fan token (valued in GBP for obvious reasons) and the market price of ETH. Clearly, this concept had not occurred to the journalist either.

“…it’s time regulators … did something about it to protect the vulnerable”.

Any casual reader of the CCC knows full well the regulators are “doing something about it”. But the “vulnerable” will not be protected by crypto regulation whilst spot trading of currencies remains an unregulated activity.

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The Daily Telegraph’s latest report repeated many of the usual fallacies about cryptos and BTC.

For instance:

“The (Financial Conduct Authority) stymied Binance’s plans to launch in the UK earlier this year …”

That sentence is totally misleading, by design or through ignorance.

Spot trading of cryptos, like currencies, is an unregulated product in the UK. Binance has been operating in that space for years.

The FCA did warn Binance, and all other exchanges, that they could not launch derivatives of cryptos in the UK without authorisation, but it seems that understanding this difference is beyond most, though not all, financial journalists.

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And another example from the Torygraph:

“Digital coins (sic) also face a regulatory crackdown as officials become increasingly concerned that criminals are exploiting them to fund illicit activities”.

The use of the phrase “digital coins” tells you all you need to know really.

Cryptos can be used to fund illicit activities, but this problem is as equally relevant to all fiat, gold, property, stocks, and bonds. It is even a bigger problem for cash equivalents especially high value notes:

“Today (4th May 2016) the Governing Council of the European Central Bank (ECB) concluded a review of the denominational structure of the Europa series. It has decided to permanently stop producing the €500 banknote and to exclude it from the Europa series, taking into account concerns that this banknote could facilitate illicit activities.”

There is not a “regulatory crackdown” in most liberal countries, there is a desire to improve the regulatory landscape to allow development and innovation in the crypto space.

But that doesn’t sound nearly as exciting.

And the biggest mistake in this article is the claim that the recent sell-off in BTC “comes as investors retreat from highly speculative assets”. That is a bold and unjustified statement when stock markets are at or very close to all-time highs.

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You might want to accuse me of whingeing, and you may very well be right. But large, responsible news agencies are failing in their basic duty to report accurately using truth and facts.

It does annoy me intensely.

Reserve Treasury Protocols (before they all go to zero)