Cryptocurrencies

NESC TEC Science Bits – Episode 4

PODCAST INESC TEC Science Bits (16:27 – 22.6 MB)

Guest Speakers:

Francisco Maia, High-Assurance Software Lab

Francisco Cruz, High-Assurance Software Lab

Keywords: Cryptocurrencies | Bitcoin | Blockchain | Keyruptive | Digital Wallet

Cryptocurrencies: digital currencies that are here to stay.

Cryptocurrencies are digital currencies without physical materialisation, and whose existence and transactions are based on a set of cryptographic primitives.  There are different types of cryptocurrencies, each with potentially different technology and goals. The first digital currency based on this technology, and with some worldwide recognition, was bitcoin.

Digital currencies are here to stay; there is no doubt about that. However, we cannot predict which digital currency system or systems will become the most dominant, since there are many factors at play. Current technology still requires development, and this process will be very interesting to follow.

Decentralisation: freedom and power, but also responsibility.

The purpose of digital currencies is make the management and transaction of money completely independent from governments, banks or any middle institutions. The design of this type of currency focuses on direct transactions between people, without boundaries or limitations.

Decentralisation gives power to the individual, who no longer depends on any third party to receive or complete monetary transactions.  In opposition, it also fails to include all positive aspects in mediation systems, with suitability and security getting lost in the process.

Blockchain: decision making based on a distributed agreement.

Blockchain is not new in the literature, and many perceive it as the main technology innovation in cryptocurrencies. As the name says, it means blocks of information validated through a chain process.

In digital currency systems, there is a record of all transactions made over time. In practice, this record says who owns a certain currency, and the corresponding amount. If the user “A” wishes to make a transaction to user “B”, he/she has to register the transaction and the amount, and then sign said transaction. Moreover, blockchain technology is the method all those involved can use to reach an agreement on the validation of said transaction. Metaphorically speaking, the transaction becomes “written in stone” i.e. it is immutable and cannot be tainted or erased.

Satoshi Nakamoto: the “faceless element” that ignited this new market.

In 2008, Satoshi Nakamoto published a scientific article; however, nobody knows who he is. It can be a person or a set of people. In fact, there are so many theories that even if the real Satoshi appeared, there would be people doubting it. One thing is for sure: this article proposes a system, composed of multiple pre-existent elements and technologies that had never been arranged that way, thus helping to address the issue of distributed agreement: scaling. This design enables the “writing on stone” for thousands of users – something impossible with the classic algorithms.

Simply put, the system is based on a computational puzzle that takes (on average) ten minutes to solve. The puzzle solving gives people the right to “write on stone”, thus leading to a new puzzle. This process automatically controls access to the record, whose integrity is ensured by the public character of it, since everyone can verify it. There is also a financial incentive to solve the puzzle, which ensures that there are always participants keeping this record active. In fact, it’s a very interesting design, even with all its limitations, such as the waste of energy. Another attractive fact is that puzzles get harder over time, in order to keep up with the evolution of global computing power, and preserve a constant solving time of 10 minutes.

Money or card? Digital currencies, please.

The value of the currencies is defined in the free market. Anyone can buy and sell cryptocurrencies. The price you are willing to pay in FIAT currencies (euros, dollars, etc.) has a direct influence on the market. About five years ago, for example, the value of bitcoin was only $200, but with the increasing worldwide interest in currencies and technology, demand has increased dramatically. As the money supply is limited, this led to an astronomical increase in the value of a bitcoin, reaching a maximum of $19.000 in late 2017 – an increase of about 9500% in two years. After this peak, there was a global awareness of the fact that perhaps bitcoin and blockchain could not solve all the problems in the world. Due to this decrease in interest and, consequently, demand, we have witnessed a devaluation of the currencies to approximately half their value.

This unpredictability means that, in practice, digital currencies are perceived more as an investment instrument. There’s a significant number of places that already accept direct payments in bitcoin; however, they are not very sought after nowadays, given the instability of the currencies’ value. In this sense, a new type of digital currency is emerging – the stable coins, whose value is constant and can be used as a physical currency.

Keyruptive: INESC TEC spin-off creates a mobile wallet to store digital currencies

The launch of the Keyruptive mobile application is scheduled for late July, for Android and iOS. This application offers security and convenience to digital currency enthusiasts.

The decentralisation of the cryptocurrency market requires people to save and manage their own funds. In fact, interaction with all of these systems depends on the secure storage of a private key, which users can use to move their digital funds. In a simplified, but factual way, we can even say that the private key represents the users’ funds. However, the difficulty of keeping a piece of digital information safe and accessible at the same time is, obviously, a very interesting challenge. In fact, it’s so difficult that even today, the safest way to do this is resorting to physical devices or the materialisation of the key – which is uncalled for in the 21^st century.

Keyruptive, a mobile wallet for digital currencies, was launched to address this question. The main goal of this project is combining maximum security in the management and storage of keys with convenience, by enabling the users to access it anywhere and anytime.

Keyruptive: technology gets a US patent

We use a reliable distribution algorithm i.e. the key is “broken” into two or more random pieces, and stored in different physical locations, but available online. Only the users can reconstruct and materialise the key on their mobile phones, whenever they wish to make and sign a transaction. After said transaction, the key disappears from the mobile phones. This way, even if the users lose their mobile phones, the key won’t be associated with their devices. Thanks to this technological innovation, we have achieved a very interesting balance between security and convenience, which we are happy to provide to our users. Moreover, this technology allowed us to obtain a US patent.