5 things every Bitcoin beginner should know about

No idea about crypto currencies? Doesn’t matter. The following are some of the most important concepts when it comes to Bitcoin and other crypto currencies.

Attention: The following lines neither replace your own research nor want and can they be complete in any way. There are only five concepts from the area of crypto currencies, which everyone should know, who deals with the topic.

FOMO – The Fear of Missing Something

Especially when prices explode – as was last the case at the end of 2017 – people become nervous: “If I had bought yesterday, I would have made a profit”. In the worst case, you can buy any token you want without finding out about it. The concept behind it is called FOMO and stands for the fear of missing something (Fear of Missing Out).

My tip: Take a deep breath and inform.

FUD – Fear, uncertainty and doubt

Just as unhealthy as FOMO. Fear, insecurity and doubt occur when prices suddenly collapse. Then you think: Quickly, I have to sell before things get worse. And if negative headlines are added, for many it’s over very quickly.

HODL, HODL, HODL

The way out of FUD and FOMO: just muddle through. The idea behind it: Simply keep your Bitcoin in your digital wallet instead of selling it in a panic.

My tip: Better than FUD and FOMO, worse than looking at analyses, reading about the topic and making rational decisions. In case of doubt: do it.

Watch out for the shitcoins!

Currently Coinmarketcap lists a total of 2,072 crypto currencies, the number of unreported cases is uncertain. Sometimes you can tell by their names that they are not serious projects. Or would you invest in HollyWoodCoin, TrollCoin or PonziCoin? Hopefully not.

Pump & Dump: In case of doubt, things can happen very quickly

What is prohibited in regulated finance is not a problem in the Bitcoin ecosystem. The principle: Some people agree on a certain time and date, when they put a lot of money into a project in a short time (pump). This drives up the price. Then they wait until others become aware of it and sell their tokens again, the price falls (dump). They mainly rely on FUD, FOMO and Shitcoins. What remains are a few who were able to enrich themselves and many more who are glued. Appointments take place in messengers, mainly telegrams.

My tip: hands off. Otherwise: money away.

Ethereum blockchain to help hurricane victims

The USA, in particular, is repeatedly confronted with severe natural catastrophes such as extreme hurricanes. The east coast is currently preparing for the arrival of “Florence”, a hurricane larger than Germany. In order to accelerate subsequent insurance processes, a Swiss start-up now wants to use the Ethereum blockchain.

In Switzerland, the devastation that a hurricane can cause is only known from the media. The aisles that such a hurricane pulls into the countryside or even into cities testify to the immense destructive rage. After the storm has passed, the insurance industry comes onto the scene. These include insurance agents and agents who are supposed to minimize possible fraud on behalf of insurance companies. But reinsurers, who protect insurance companies, and retrocessionaires, who in turn serve reinsurance companies, are also involved in the processes that trigger such natural disasters.

Minimizing post-disaster chaos
The surviving victims of natural disasters are often dependent on rapid assistance. Especially for those who have literally lost their roof over their heads, any delay in the insurance process means another catastrophe. Due to the complicated insurance system, in which a lot of time is spent checking the actual damage, it can often take weeks or even months before sums insured are paid out.

The Swiss blockchain start-up Etherisc has now set itself the goal of defusing this insurance chaos so that the injured parties can receive help more quickly. To this end, it wants to shift the insurance workflow to a common, distributed ledger of transactions and enable the automatic payment of certain types of support.

Etherisc was founded in 2017 as an open source platform. The start-up is dedicated to the creation of insurance products with the Ethereum blockchain. Having raised $3.6 million through its ICO, Etherisc is already helping other companies create insurance policies that use smart contracts. The blockchain is mainly used to store numerous data such as wind speed or cancelled flights tamper-proof. In this way, they can be made available for automatic payment processes.

First cooperation in Puerto Rico
Puerto Rico’s InsurTech start-up HurricaneGuard is already using Etherisc technology, Forbes reported on September 11. In order to minimize the suffering of victims like those of Hurricane Maria, they are using special policies to ensure that the next hurricane season will have less dramatic consequences. In September last year, Puerto Rico was hit by the particularly powerful tropical cyclone Maria. Even four months after the disaster, there were still 225,000 unprocessed insurance claims. Even worse are the 3,700 people who did not die directly as a result of the hurricane, but died due to lack of medication or other shortages.

The idea of blockchain-based automatic payments is not new. The French insurance giant AXA is already using a flight insurance tool that automatically pays for cancelled flights on an Ethereum basis.

The victims of Florence will not yet be able to benefit from the Etherisc solution. The damage is currently predicted to be up to 759,000 houses with a reconstruction cost value of 170.2 billion US dollars.

What are Soft and Hard Fork?

A fork is the classic development of open source software. Since open source software is of course freely accessible and downloadable by everyone, everyone has the possibility to make their own copy of the software and to modify it for their own purposes. That would have forced the software.

Modifying the software is by no means a malicious intervention, but even an elementary and desirable part of open source projects. Users with programming knowledge can add new functionalities according to their own needs – so different distributions of a software can exist.

What do forks have to do with blockchains?

Starting from a public blockchain like that of the bitcoin, it is ultimately based on open source code that can be modified locally by developers as described above. However, it is essential with blockchain technologies that the network participants agree on certain points. So it would be problematic if some miners in the network use e.g. the SHA-256 hash function and other network participants use a different hash function. After all, you don’t just want to write transactions in your own “household book”, but to carry them out in such a way that they are recognized by as many network participants as possible.

In practice, this is as follows:

  • There is a generally accepted Bitcoin version.
  • Users want new functionalities, e.g. an increase in the block size to solve capacity problems.
  • Any user copies the current Bitcoin software and modifies it with a higher block size.
  • He makes the software available to other users, who can also use it.
  • Now there are two versions of Bitcoin software on the network and users can decide which one to use.

But attention: It is important to differentiate between blockchain forks and forks of software. While forks are used in the latter case to develop new or additional services based on existing ones, forks in the blockchain context rather aim to represent an alternative.

Forks must be classified in particular in terms of their effect on the existing software or on the blockchain network:

Types of Forks

To understand the explanations, you should know what Nodes is all about. Briefly explained, the nodes store the blockchain as network nodes and make it available to the network. In the best case, the current consensus of the blockchain, i.e. the most current transaction history, is stored decentrally on all nodes.

All nodes in the network must be operated with compatible software so that they can communicate on a blockchain. If an amendment proposal is submitted, there are two ways to carry out the fork:

Soft Fork

A Soft Fork is characterized by its backwards compatibility. So there may be nodes in the network that work with the new software. This does not lead to compatibility problems: The nodes with the old software also accept the opinions of the users who have now opted for the new software. On the other hand, users want to establish their standard with the new software and therefore rely on their new method for all blocks.

As soon as the majority in the network is reached, all nodes agree on the new blocks.

Hard fork

This type of fork is not backward compatible – and therefore brings special challenges to guarantee consensus in the network. Existing nodes would have to update their software in order to take the new blocks into account (with the Soft Fork, the existing nodes could simply take the new blocks into account due to their compatibility). The incompatibility of the versions leads to the fact that the network can be split to a certain extent: Users who are in favour of or against acceptance of the changes will then operate on different block chains. This is called a blockchain fork (not comparable to a software fork). It is important to emphasize that a new, stable blockchain is not formed with every hard fork. Ethereum now has five Hard Forks behind it and only one of them has formed a new blockchain with Ethereum Classic.

How is a fork performed?

Let’s have a look at a fork like Bitcoin. The Bitcoin Core Team may be able to suggest changes – but not enforce them alone. In the end, the miners decide which blockchain they follow. This ensures decentralisation, as the network is also left the decision-making authority here. The Core Team can certainly push ahead with further developments – but it has to pitch again and again before the miners and hope for acceptance.

In the past, Ethereum and Ethereum Classic have indeed been a decisive split in the Ethereum Blockchain: After the DAO hack, the community intensively discussed reversing the transfer of the hacked coins by agreeing on a blockchain that does not include this transfer. Of course, option A) hackers may keep their loot with option B) action of the hacker will be reversed incompatible. The procedure therefore requires a hard fork. And as long as 100% of the participants do not agree on a version, the blockchain is split. This happened because there are now two Ethereum blockchains: Ethereum Classic (without hard fork: the hacker remains in possession of the stolen coins) and Ethereum (with hard fork: unwanted transaction was undone).

Miner Activated fork

In this case, the miners in the network decide whether a fork is performed. You signal that you want to perform the fork by appending this information to confirmed blocks. If within the last 1000 blocks a sufficient amount of miners has signalled the fork, the changes are enforced. For example, the new version is valid from 75% approval, from 95% even old blocks that are not marked with the new version are rejected.

User Activated Soft Fork (UASF)

The User Activated Soft Fork (UASF) is a fork that is brought about by a majority decision among the full nodes. It is scheduled to a certain date on which the majority of the full nodes must agree in order for the fork to actually take place.

Miner Activated Soft Fork (MASF)

With a Miner Activated Soft Fork (MASF), the miners decide on the fork with their computing power as voting rights and initiate it. This makes the process more efficient, as the full nodes can accept the changes afterwards. However, MASF involves risks because the network relies on computing power as a benchmark. For example, the computing power can tell you that the soft fork is taking place, but the miners actually continue to work with the old version without the soft fork.

ETH Classic defuses difficulty bomb

The Ethereum Classic Project (ETC) recently defused the difficulty bomb. Ethereum Classic is thus further away from its younger brother Ethereum. What’s the deal with this bomb and the decision to disarm it?

The radical origin of Ethereum Classic

The year is 2016, Ethereum is already making waves in the crypto world and preparing for the DAO. At first everything looks good, but then a hack stands out. Panic is spreading in the markets. The Ethereum Foundation acts quickly and wants to undo the hack to save investors’ trust.

On July 20, 2016, just over a month after the attack on the DAO, a non-reverse compatible update will be installed in the Ethereum network – a hard fork. The champagne corks are already popping all over the world when it suddenly becomes clear that the old blockchain is being mined further. Instead of all participants being on the updated chain, there are some rebels who want to live in a different reality under the slogan “Code is Law”. A reality in which the Ethereum Foundation does not have the power to turn back time and change laws.

That was the split between Ethereum and Ethereum Classic. Even then it was all about a radical difference of opinion: “Is computer code a fixed law in the blockchain world or changeable?” The ETC representatives were happy to pay the price of the DAO hack for their conviction.

The Proof of Stake and the Difficulty Bomb

With the launch of Ethereum, the idea of the Proof of Stake (POS) was born. First, Ethereum should run with Proof of Work (POW) until the details of the Proof of Stake have been worked out. ETH is still in this phase and preparing for the POS. However, ETC has now decided to stick with the proof of work. The main reason for this is the decentralization that the POW brings.

The so-called difficulty bomb was originally built into the Ethereum protocol to move the miners from POW to POS. If it were lit, the difficulty of proof of work would double after each new block.

However, Ethereum Classic had already put the bomb on ice with the so-called “Diehard Upgrade”. Now the bomb has been finally defused and the decision has been made that ETC will remain with the proof of work.

The corresponding software for this hard fork has already been released three months in advance. The ETC community has also discussed this decision in detail. So this is not a night and fog action, but a well-considered and planned software update.

Ethereum Classic vs. Ethereum?

As a result, ETC and ETH are developing further and further apart. Both projects have the same origin, but similar to BTC and BCH there are different views on the future of the Protocol.

The ingenious thing about the blockchain technology comes out: instead of having to choose one or the other, enthusiasts can simply use both systems. ETH can prove in the future whether the Proof of Stake works.

Kryptonights with Dr. Julian Hosp

On Monday, June 4 and Wednesday, June 6, 2018, the renowned crypto and blockchain expert Dr. Julian Hosp will once again come to Germany and give a lecture on the topics of blockchain, crypto currencies and decentralization in two major cities.

  • Monday, 04 June 18:30 – 20:30 h in Köln – Tickets
  • Wednesday, 06 June 18:30 – 20:30 in Hamburg – Tickets

Tickets for the lectures can currently be purchased (25 EUR per person). However, the number is limited and the rush is enormous. So if you want to be in Cologne or Hamburg, I would get you a ticket as soon as possible.

The exact venue is not yet known and will be announced by Julian in the next few days. I will fly to the Kryptonight in Hamburg and will inform you as soon as the exact location becomes known. I will also write another blog entry about visiting the Kryptonights.

Website of Julian Hosp

Location:

Bundesstraße 55
20146 Hamburg
Uni Hamburg
Geomatikum, Hörsaal 1

What is Proof-of-Stake?

The proof-of-stake mechanism is a form of so-called consensus mechanisms to achieve consensus in the network and to jointly agree on an identical version of the blockchain.

The decisive factor is the stake of a user, i.e. the share of the total amount of tokens he possesses. The larger the share, the more likely it is that this user will be selected to mine the next block. Roughly speaking, compared to proof-of-work, the proof-of-stake mechanism can be compared to a public limited company – those who own a larger stake in the company normally receive more voting rights that entitle them to make decisions.

An important difference, however, is that a random algorithm is used in the proof-of-stake mechanism for building consensus in a blockchain network. He draws a participant who then has the right to mine the block. Simply put, each token is a winning ticket – so users with a higher stake (= more winning tickets) are more likely to be selected. More precisely, proof-of-stake mining is called forging.

What is the difference between proof-of-work and proof-of-stake?

proof of work
The proportion of computing capacity in the entire miner network is decisive for the probability of successfully mining a block.

proof-of-stake
The proportion of tokens in the entire miner network is decisive for the probability of successfully mining a block.

To mine a block, it is usually a question of using hash functions to find a certain value. Since the hash functions are not reversible, you cannot simply calculate which X you have to use in the function to get the desired Y. Instead, the miners solve the problem by trying out many values. Although there are different types of these calculations, the following analogy can be used in a simplified form:

“Find a hash value that matches the given properties”

The stricter the desired properties are, the more difficult it becomes to find a value that meets all these requirements. With proof-of-stake, however, we influence the difficulty with a user’s stake, among other things – the larger the stake, the lower the demands on the result. This makes it easier for users with higher stakes to hit results with these properties.

Ethereum: First Casper version is available

The developers of Casper have now released the update. The community and the network’s stakeholders now have the opportunity to track the current status and make comments. Casper is to bring about a change in the Ethereum consensus mechanism from PoW to PoS.

The Ethereum community has been expecting the Casper update for some time. The innovation in the network is intended to replace the proof-of-work algorithm inherited from the viewpoint of many users. Instead, the proof-of-stake is intended to establish a new way of reaching a consensus. The proof-of-work mechanism is accused of being too energy-intensive and thus causing sustained damage to the environment.

Now it seems that another step has been taken on the way to Casper. Danny Ryan, developer of Casper FFG, has made a first release of the code on Github available on May 8th. This is version 0.1.0, which is intended to provide a clearer guideline and enable clients and external auditors to track the contract and changes more easily.

How does the update work?
The update is not intended to replace the PoW algorithm completely, but to introduce a hybrid mixture of proof-of-work and proof-of-stake algorithms. In the initial phases, Casper will therefore use the proof of work to carry out most of the transactions. The proof-of-stake should first of all only be used for the regular validation of “checkpoints”. Because the network can only manage a few validating nodes, the minimum deposit will start at 1,500 ethers or $1.1 million.

Ethereum: Vitalik Buterin announces sharding technique

Ethereum founder Vitalik Buterin has announced that there could soon be a new solution to the scaling problem of his platform. The technique known as sharding is therefore nearing completion. Similar to Bitcoins Lightning Network, Ethereums Shards will make the scaling of the entire network more efficient.

Sharding: Briefly explained

Sharding is a concept in which the mainnet blockchain is split into different shards. These then run separately on different servers at the same time, which would make scaling the entire network a lot easier. Faster transactions and lower costs should, as so often, be the result of the update. In this respect, Sharding is very similar to the Lightning Network, which is set up on the Bitcoin blockchain. Sharding, however, is not an off-chain solution, but simply a division of the Mainnet.

Similar to Bitcoin, where the Segregated Witness Update has created the basic prerequisite for the Lightning Network, the Ethereum blockchain must also have the necessary infrastructure. The Ethereum community must be patient with the implementation of Sharding until the Casper update is activated. In the course of this update, the final change from the proof-of-work algorithm to the proof-of-stake algorithm is to be completed. This is necessary because each shard requires a higher-level node: the so-called beacon.

According to Buterin, a shard consists of a proof-of-stake beacon chain tied to the main chain. Each beacon chain block must specify a current main chain block. The beacon chain forms a new block every two to eight seconds. All in all, there are to be “about 100 shards” on Ethereum in the future, all of which should have the same capacity as the previous Ethereum Mainnet – possibly even more. So the community can be curious.

Ethereum offline transaction

Safety first! In this article I will explain how to send Ethereum or ERC20 tokens comfortably and securely offline. During this process, the private key is never connected to the Internet, therefore unavailable to hackers. To start this transaction you need 2 computers. One that is connected to the Internet online and the other that is completely offline. To completely disconnect the 2nd computer from the Internet, it is best to deactivate all network adapters.

To help you understand what you need to do on the online computer or offline computer, all actions from the online computer are displayed here in normal font and all actions from the offline computer in italics. This will help you to distinguish between the two systems.

Reward for readers

In addition, I have deliberately included a small reward in this post. Whoever sees it first, owns it 🙂

Download MyEthereumWallet

First download the website “MyEtherWallet” from Github. -> Here

Now copy this offline website via USB stick to your offline computer and open it.

generate information

Now click in the menu pocket of MyEtherwallet.com on the menu item “Send offline” on both computers.

Now copy in the field: “From Address:” the Ethernet address from which the ethers are sent. In this example:

0x3bcd6A99FaeE7B616b5b5b94c2c146e8464c42Abd9

Now 2 numbers are displayed. You either have to remember them or copy them into a text file which you save on the USB stick and make available to the offline computer.

Generate Transaction

Now switch your workstation to the offline computer and enter the following information under “Step 2: Generate Transaction”.

To Address: The desired recipient address
Value: Ethereum (or also ERC20 token) Amount
Gas Price: The number displayed on the online computer under point 1
Nonce: The number displayed on the online computer (number of transactions to date)

Unlock Wallet

Now you have to open your wallet with a private key. In this example: 69ea179e5f4b27a65b6f7be11bddae7207602efbc7f1fc8e2f8ade69a9e9e4fa

Then click on “Generate Transaction” to receive the signed transaction. Then copy it to a USB stick and paste it to your online computer.

Send transaction to network

Now switch your workstation back to the online computer. Now insert the previously saved transaction (from the USB stick) into the field in step 3 and send the transaction to the Ethereum network.

If you follow exactly these instructions and always use your private key only on the offline computer that never has a connection to the Internet, this method of sending Ethereum is extremely secure. This is especially recommended for wallets with a high value.

MyEtherWallet – Set up ETH Wallet

MyEtherWallet, also known as MEW, is the most common wallet for sending, receiving and storing Ethereum and ERC20 tokens.

With MEW you can currently participate in almost all ICOs that accept Ethereum and issue ERC20 tokens.

  • 1 – Install MEW offline
    Nowadays it is safer if you create your MEW-Wallet offline, or at least on a freshly installed PC or Linux operating system. If you create your Private Key ONLINE, you may be at risk.

It is never recommended to create your wallet and the associated private key online. A virus or malware could read everything and empty your MEW Wallet later because you were ONLINE.

To run MEW offline, you must download the complete website. I already explained this in this post: Bitcoin Paper Wallet

  • 2 – Choose password
    After you open the downloaded page, you will be prompted for a password. Be sure to use a strong password!

  • 4 – Save wallet file
  • Now download your corresponding Keystore (UTC / JSON) file.
  • To do this, click on “Download Keystore File (UTC / JSON)”.
  • You will now find the file in your download folder.
  • Save the file immediately to a USB stick and delete it from your computer.
  • It is best to copy the file to two or three USB sticks. Better be safe than sorry.

How do I log in to my wallet?

To log in to your wallet, click on:

  1. Show Wallet Info.
  2. Click Keystore File (UTC / JSON).
  3. Select your wallet file.
  4. Enter the password.
  5. Unlock your wallet.

If you now switch from the tab “Show Wallet Infos” to “Send Ether and Tokens“, you have to select your Wallet file again and enter your password.