October 3, 2022

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Digital trust on shaky ground - E24

Digital trust on shaky ground – E24

Bitcoin ATM in Florida, USA.

Technological optimism moves the world forward and is an important characteristic when dealing with new technology. It provides space to explore new and challenging hard facts.

  • Christopher O. Hernes

    Director of Skanska Digital

Posted: Posted:

This is history

The record expresses the writer’s position. You can send articles and discussion entries to E24 here.

At the same time, it is also important to be aware of weaknesses in technology as well The ability to imagine how technology can be exploited for malicious purposes. Nothing is perfect, least of all technology. Blockchain technology represents a technological revolution when it comes to digital proof of ownership, but without taking the fundamental weaknesses of the technology and the surrounding ecosystem seriously, we are unlikely to gain enough confidence in the technology to see widespread adoption.

For more than a decade, cryptocurrency and underlying technology have been expected to solve global problems such as creating a fairer financial market across borders, contributing to financial inclusion for all those without access to traditional financial services, and forming the basis for decentralized digital identities. And much more, most recently last week the regular crypto columnist at E24.

But nothing is infallible, not even blockchain technology, and as the years passed and the technology became more mature, the limitations of the technology also became more and more apparent.

In the absence of regulatory institutions, cryptocurrency markets have become a haven for exchange rate manipulation

Columnist E24 does not take By noting that international money transfers seem outdated and separate in the digital age in terms of transfer speed, exchange rates, and fee structures. Where some of this can be explained by outdated technology and high fees set by exorbitant brokers, crypto still operates in an unregulated market without the same sanctions requirements and anti-money laundering controls. Mass adoption of blockchain-based payments will require those payments to also be subject to the same regulations as traditional banks and payment companies, while reducing speed and increasing costs.

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This is also important here To keep in mind that since its inception, cryptocurrencies have been deeply rooted in the belief in a fully decentralized financial system for a digital age. A financial system born from the ashes of the financial crisis in which a deep mistrust in existing institutions such as central banks, the governing authorities and conventional banks. Here, cryptocurrency has been seen as a technology-led deliverance from the control of governing institutions, inequality, and injustice.

In fact, I have shown He said that in the absence of regulatory institutions, cryptocurrency markets have become a haven for price manipulation in the form of pumping and discharging And the pulls ryewhere a small group of speculators push the price up and evaporate when the price reaches a certain level. For every story we hear about fortunes created with cryptography Really At least from the savings that were lost Believing in quick money in an unregulated market. The view of cryptocurrency as a countercyclical asset class has also been flatly refuted, cryptocurrency markets have been correlated with developments in global stock exchanges, and cryptocurrencies are only a safe haven in the face of rising interest rates and rising inflation.

decentralized finance (DeFi) as an alternative to traditional financial institutions also have It has proven to be far from being as decentralized and transparent as the name suggests. BIS (Bank for International Settlements), an organization made up of the world’s leading central banks Specified in a report already last year That a large percentage of DeFi players operate with internal structures made up of so-called “voting tokens” that allow for the concentration of power among selected investors. Confidence in DeFi also collapsed in the wake of the collapse of the stablecoin Terra, a type of cryptocurrency that promised to have value directly related to the value of the dollar and Contributed to NOK 400 billion that evaporated almost overnight.

The lack of critical voices in the crypto community has created an echo chamber

From a purely artistic point of view has the basis Technology has proven to be much less secure than initially thoughtand that Doesn’t take long Between each intrusion where values ​​equal to billions of networks are drained. This is especially true of decentralized finance, where Before the first half of 2022, more than 1.6 billion US dollars were already stolen Through a combination of successful hacking and fraud attempts.

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Based on Blockchain Solution It is often referred to as the Holy Grail when it comes to digital identity solutionsthere Everyone has full ownership of their own digital identityalso called self-dominant identity (among those of us who have been a little bit down the blockchain rabbit hole). The challenge in such a solution is ourselves as human beings. We tend to be forgetful, and at times frankly untrustworthy, toward others and ourselves. Leaving it up to an individual to access digital documents such as identity papers is a recipe for disaster when someone forgets the password. No customer support or a forgotten password button in a fully decentralized solution.

For those who follow cryptocurrency This week is especially important as the next big one The cryptocurrency Ethereum is undergoing a fundamental change in its consensus algorithms To reduce the power required to validate transactions, but not without sacrificing a bit of the decentralized nature of the blockchain. Moving from the so-called proof of work to me proof of stake In practical terms, it means that instead of anyone being able to help verify an ethereum transaction, this is reserved for specific nodes where they are required to own at least 32 ETH, which is equivalent to $48,000 USD. When all animals were equal, by the end of this week some animals will be more equal than others.

E24 columnist is absolutely right In that many of the counter-arguments against cryptocurrency come from a distinct point of view. Here in Norway, we live in a society based on trust. Trust in each other, trust in institutions. It’s a good thing that not many people have. On the other hand, it is naive at best to refer to a technology as almost a salvation from basic societal problems. We humans have a desire to search for perfectionBlind belief in the properties of crypto and blockchain technology and its unimaginable possibilities is no exception.

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ten years ago The same narrative about the unimagined possibilities of blockchain technology is being repeated by a new generation of missionaries. The difference is that after ten years of testing and hands-on experience with the technology, we also know more about the vulnerabilities in it as well. The lack of critical voices in the crypto community created an echo chamber where inflated claims were allowed to stand unchallenged until they became established facts, and skeptics were quickly silenced by fear of falling on the wrong side of history. This cryptography and the blockchain today is where the internet in the mid-nineties had almost established itself as an accepted fact, and who would end up in the same category as Those who predicted the failure of the Internet?