Artificial Intelligence, Blockchains, cryptography, Yogi Nelson

WHAT IS CRYPTOGRAPHY?

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered, mostly correct!   Here no question is too mundane.  As a bonus, a proverb is also included.  Today’s question, was submitted by William from La Puente, CA and he wants to know what is cryptography?

William, you came to the right place.  William the only reasonable place to start is with a definition.  Let me answer by referring to an awesome movie called My Big Fat Greek Wedding.  In the movie the father of the bride would constantly say, “… the Greeks invented that, the Greeks did that first, etc.”  Well perhaps the old man had a point because in the case of cryptography the word comes from the Greeks.  Kryptos means hidden and graphein is to write; hence, cryptograph is to write in a hidden manner.  Holy hidden message, Batman!

Okay the word has its origin in Greece, but what does cryptography do?  Essentially, cryptography provides information protection/security.  Using cryptography, data can be transformed by substitution.  For example, an early and primitive form of substitution cryptography was to shift every letter three spots.   A sentence that would normally read like this: “Encrypted using Caesar cipher” becomes Hqfubswhg xvlqj Fdhvdu fiskhu.  The other method, known as transposition, involves moving the order of characters of words by a pre-determined agreement.  No, it’s not pig Latin!  Lol.

Cryptography concepts are likely foreign; hence, we should start slowly. I’ll cover just three topics today and save the rest for later.  Let’s start with the security services of cryptography, there are four. 

First is authentication.  By authentication I mean the assurance the communicating entity is legitimate.  Second, data confidentiality.  In other words, the protection from unauthorized disclosure.  The third is data integrity.  In this context I mean the data has not been altered; it was received exactly as sent.  Last, comes non-reputation.  Non-reputation refers to the notion that the receiver can prove the alleged sender sent the message.  Impressive!

We are off to a fast start.  Let’s try two more topics beginning with cryptographic keys. 

In cryptography there are two types of key systems–symmetric and asymmetric.  Symmetric is where one key is used to encrypt and decrypt messages.  The keys are essentially shared by the two parties and the data is transferred via a secure network.  However, authentication nor non-reputation is provided, and the origin of the message cannot be determined.  Let’s compare that to asymmetric cryptography. 

In asymmetric there are public and private keys.  The public key is derived from the private.  As you can guess, asymmetric was developed due to the problems with symmetric cryptography.  Asymmetric wins the crypto security battle handily.  However, if you lose your private key there is no way to access the data, value, or information that was sent!  You best hold on tight!

Hashing is an ideal spot to end the lesson.  Hashing, (I don’t mean potatoes, although I love hash browns) in cryptography is the process of transforming data or a string of characters into a short and fixed length value.  The value produced is unique; no other record has it.  Hashing algorithms are used to perform the hashing process in three steps:  1) data input; 2) hashing function #; and 3) hash output (of a fixed length). By the way, blockchains make extensive use of hashing.  More on that later.

There is more to say but for now I’ll stop with a proverb from our friends in Tajikistan, where they say:  In every drop of water, there is a grain of gold.

Until next time,

Yogi Nelson

Blockchains

WHAT IS THE FUTURE OF DIGITAL FINANCE ADOPTION ACCORDING TO MOODY’S?

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered, mostly correct!   Here no question is too mundane.  As a bonus, a proverb is also included.  Today’s question, comes from Oswaldo, in New York, and he wants to know what does Moody’s Investor Service (Moody’s) forecast for digital finance adoption in 2024 and beyond?

Oswaldo, you came to the right place.  On December 14, the Decentralized Finance office of Moody’s released a report, titled: 2024 Outlook: Digital Finance Slowly, Steadily Moves Towards Interoperability and Standardization.  The research was led by Christiano Ventricelli; here is the link:  https://www.moodys.com/research/Decentralized-Finance-and-Digital-Assets-Global-2024-Outlook-Digital-finance-Outlook–PBC_1386273?cid=web-ntrnlbnnr-16640  Before jumping into their forecast, first let’s understand who is Moody’s?

Moody’s has been around since 1908 and it offers credit ratings, macro-economic forecasting, and several other services, including Investor Service.   Moody’s produces research papers across numerous financial topics, including digital finance.  With that short introduction, let’s examine Moody’s four findings.

Mass Adoption Will Need More Interoperability and Standardization.  According to Moody’s, blockchain technology has numerous potential benefits, including greater efficiency and potential cost savings.  Blockchain enthusiasts agree.  I concur with Moody’s that until and unless blockchains reach interoperability the benefits of blockchain may not materialize.  What Moody’s did not say, but I will, is blockchains need a “Wi-Fi moment”.  Imagine if Wi-Fi was not seamless and users had to switch constantly to maintain a connection?  What a mess!  This is the state of public blockchains today. There are bridges under construction to connect blockchains, but most are too tiny, weak, and not suitable at enterprise scale.

Asset tokenization will keep growing, but reliable digital cash options remain elusive. Yes, asset tokenization will result in convergence between traditional and digital finance.  Agreed. And, yes, it’s true there are tech and regulatory risk considerations.  However, I part ways with Moody’s regarding digital cash adoption options.  Moody’s believes Central Bank Digital Currencies are better positioned to be a secure form of digital cash over stable coins.  In the USA probably true. However, across the globe government creditability on matters of monetary policy is at rock-bottom; hence, let’s withhold judgment.

Cryptocurrency market’s revival hinges on monetary policy and service operators’ regulatory compliance. There are dozens, perhaps hundreds, of industries whose viability hinge on monetary policy.  Cheap money is positive for crypto, and all assets. What drives crypto goes beyond interest rates and monetary policy.  Crypto is also an ideological movement.  Crypto enthusiasts want a new monetary policy–an alternative that Jerome can’t control.  Hence, suggesting the crypto market hinges on traditional finance is missing the point. 

As former federal bank regulatory compliance officer, I am unaware of any industry that can operate at scale outside regulatory compliance other than organized crime!  Holy criminal enterprise, Batman! Hence, the findings are not surprising.  And yes, crypto needs clarity.  Is it a security?  Is it a commodity?  Etc.

Digital asset regulatory frameworks advance, though regional differences will persist. Bingo, Moody’s is on target.  Europe, Singapore, and the United Arab Emirates are all establishing regulatory clarity.  Therefore, regional differences will arise in crypto as they do in traditional securities regulations.  The U.S. Securities and Exchange Commission (SEC) is expected to approve a spot Bitcoin ETF soon.  An Ethereum spot EFT is on the horizon. The SEC recently sued Coinbase, the largest crypto exchange in the USA, for selling unregistered securities.  Between the Coinbase case, and the 2024 Presidential Election, clarity maybe on the horizon.

I close with a proverb from Moldova: Wine is a traitor.  It starts as a friend and ends as an enemy.

Until next time,

Yogi Nelson