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30 October, 2017 11:46:32 AM


Cryptocurrencies: The frontier in payment system

The first decentralised cryptocurrency, bitcoin, was created in 2009 by pseudonymous developer Satoshi Nakamoto
Masihul Huq Chowdhury
Cryptocurrencies: The frontier in payment system

Nowadays, we can complete our transaction across the country in a seamless and faster manner by way of various popular mobile payment systems. As we know that the broad money (money available in the economy) is a function of money in circulation and velocity of transaction.

With this speed in transaction through the fast track transactions, the size of economy is growing. The next level in the form of crypto currencies are at our door step waiting to bolster the pace of growth.
Cryptography prior to the modern age was effectively synonymous with encryption, the conversion of information from a readable state to apparent meaningless message. The originator of an encrypted message shared the decoding technique needed to recover the original information only with intended recipients, thereby precluding unwanted persons from doing the same. The cryptography literature often uses the name Alice ("A") for the sender, Bob ("B") for the intended recipient, and Eve for the adversary. Since the development of rotor cypher machine in World War I and the advent of computers in  World War II, the methods used to carry out cryptology have become increasingly complex and its application more widespread. The Greeks of Classical Time are said to have known of ciphers (e.g., the scytale transposition cipher claimed to have been used by the Spartan military). Steganography (i.e., hiding even the existence of a message so as to keep it confidential) was also first developed in ancient times. An early example, from Herodotus, was a message tattooed on a slave's shaved head and concealed under the regrown hair. More modern examples of steganography include the use of invisible ink, microdots and digital watermarks  to conceal information. Cipher texts produced by a classical cipher  (and some modern ciphers) will reveal statistical information about the plaintext, and that information can often be used to break the cipher. After the discovery of frequency analysis, perhaps by the Arab mathematician Alkindus in the 9th century, nearly all such ciphers could be broken by an informed attacker. Different physical devices and aids have been used to assist with ciphers.

One of the earliest may have been the scytale of Ancient Greece, a rod supposedly used by the Spartans as an aid for a transposition cipher. In medieval times, other aids were invented such as the cipher grille, which was also used for a kind of steganography. Many mechanical encryption/decryption devices were invented early in the 20th century, and several patented, among them rotor machine famously including the Enigma machine used by the German government and military from the late 1920s and during World War II. The Data Encryption Standard (DES) and the Advanced Encryption Standard( AES) are block cipher designs that have been designated cryptography standard set by the US government (though DES's designation was finally withdrawn after the AES was adopted in the post  World War II scenario where computers used the binary language to decipher.

Bitcoin is a worldwide crypto currency and digital payment system, the first decentralised digital currency, as the system works without a central repository or single administrator.  It was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open source software in 2009.The system is peer to peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a block chain.  Created as the technology architecture for Bitcoin in 2008, blockchain solves some of the immediate issues of digital economies. The security, data preservation, and networking capabilities of blockchain can circumvent traditional cybersecurity barriers and enable the information-sharing requirements of contemporary business. Due to the regulatory, processing, and connection efficiencies available with blockchain, Santander Bank estimates savings of USD Twenty billion per year from using the technology. But while blockchain can streamline the processing of fees, payments and costly intermediaries, as well as the network exclusions inherent in financial systems, the applications for the technology are capable of larger cultural and political shifts. All forms of commerce and anything of value is set to be changed by blockchain, allowing consumers the protection they require in a new economy. The role of the individual and consumer is already shifting  in the digital marketplace. With the support of machine learning, connected devices and analytics, consumers are more connected, with fewer barriers, than ever before. The risks for these types of interactions are impossible to overcome without the beneficial structure of blockchain to address and mitigate the threats. Allowing this level of intimacy without the traditional risks is one reason blockchain is the key to widespread digital transformation. The appeal of Blockchain technology for financial-services industry applications comes from the security, efficiencies and data validity inherent in the technology. Blockchain can leverage efficiencies beyond contracts and financial calculations and will enable more efficient relationships in automation and industrial applications as well. Machine to Machine Communication (M2M) that uses blockchain technology can operate autonomously with the full support of historical data. Using the example of smart devices connected to oil lines, Kramer notes that “with the data stored from past years, blockchain technology could automatically adjust or reroute oil flowing through the line based on weather patterns or the current need for the oil.” Understanding the ability of blockchain architecture to support and integrate cloud, M2M and IoT applications reveals seemingly endless industrial, commercial and consumer-driven possibilities. While blockchain is essential to support these digital tools, its role as integrator brings additional benefits for innovation. One of the first supporters, adopters, contributor to bitcoin and receiver of the first bitcoin transaction was programmer Hal Finney, who downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction. Other early supporters were Wei Dai, creator of bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit gold.
Currently, finance offers the strongest use cases for the technology. International remittances, for instance. The World Bank estimates that over $430 billion US in money transfers were sent in 2015. The blockchain potentially cuts out the middleman for these types of transactions.  Personal computing became accessible to the general public with the invention of the Graphical User Interface (GUI), which took the form of a “desktop”. Similarly, the most common GUI devised for the blockchain are the so-called “wallet” applications, which people use to buy things with Bitcoin, and store it along with other cryptocurrencies. Transactions online are closely connected to the processes of identity verification. It is easy to imagine that wallet apps will transform in the coming years to include other types of identity management. A global network of computers uses blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The forms of mass collaboration this makes possible are just beginning to be investigated. By storing data across its network, the blockchain eliminates the risks that come with data being held centrally. Its network lacks centralized points of vulnerability that computer hackers can exploit. Today’s internet has security problems that are familiar to everyone. We all rely on the “username/password” system to protect our identity and assets online. Blockchain security methods use encryption technology. The basis for this are the so-called public and private “keys”. A “public key” (a long, randomly-generated string of numbers) is a users’ address on the blockchain. Bitcoins sent across the network gets recorded as belonging to that address. The “private key” is like a password that gives its owner access to their Bitcoin or other digital assets. Store your data on the blockchain and it is incorruptible. This is true, although protecting your digital assets will also require safeguarding of your private key by printing it out, creating what’s referred to as a paper wallet.
The development of mobile payment system in our country has taken a deep root with wider acceptability among the users. The convenience, faster delivery, wide distribution channel has seen the mobile payment system to get wider attraction. The development of cards have also got wider acceptability hand on hand. We can expect to see the use of contactless cards in our country. With the rapid digitisation, we can expect to see the use of blockchain technology and use of crypto currencies like bitcoins to be used for the convenience, security and transparency. Are we ready as a country to accept this technological advent remains to be seen in the coming days.

The writer, a banker by profession, has worked both in local and overseas market with various foreign and local banks in different positions


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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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