Dec
02
2021
Basic Attention Token (BAT) Guide: Definition, History, & Investing Today

Basic Attention Token (BAT): What It Is, How It Works, & Investing Today

By | Growing Wealth, invest, Investing | Comments Off on Basic Attention Token (BAT): What It Is, How It Works, & Investing Today

The world of cryptocurrency is much wider than Bitcoin. While Bitcoin and its descendants and offshoots are focused on payments and transferring value, other coins and cryptos are based on the Ethereum blockchain, which is designed for software-based contracts and provides a platform for coding. One such crypto is the Basic Attention Token (BAT).

Here is your guide to crypto for BAT.

What is the Basic Attention Token (BAT) Coin?

The Basic Attention Token (BAT) is the native cryptocurrency of the Brave browser. Brave is a privacy-focused web browser based on Chromium, the open-source version of Google Chrome. The browser provides an ad-free experience thanks to its built-in “shields” feature that blocks most ads and tracking cookies. But this begs the question: how do websites and content creators make money if there are no ads? That’s where BAT comes in.

The Basic Attention Token is an ERC-20 token built atop the Ethereum network. The cryptocurrency falls into the category of “utility tokens,” those cryptocurrency types that are intended to be used for a specific purpose. BAT crypto enables a brand-new advertising revenue model that preserves user privacy and freedom of choice.

People browsing the web on Brave can earn BAT coin by choosing to click on the non-intrusive ads that periodically appear. Users can then use this BAT to send tips to their favorite content creators. Or, they could buy BAT from an exchange and deposit it to the wallet stored in their browser, giving them a larger supply of tokens to use for tipping.

BAT Price

At the time of writing in late November 2021, the Basic Attention Token price was $1.59. The BAT token price was only $0.20 per coin at the start of 2021, meaning the coin has more than tripled in value.

The all-time high BAT token price was $1.76, reached on November 26, 2021. The all-time low BAT coin price was $0.06, reached on July 16, 2017.

How Does BAT Crypto Work?

BAT coin powers the Brave browser (though Brave users can opt out of the BAT coin advertising model entirely and not even touch the BAT crypto wallet if they choose). Brave users periodically receive advertisements in the form of push notifications on their screen while browsing the internet. The notification contains a snippet of the ad. Users can choose whether or not they want to click on the notification and see the full advertisement.

If they do click on the ad, they will be rewarded with some BAT. The coins get deposited into a wallet hosted by Uphold, a company that creates wallets for both fiat and crypto.

The Brave browser also has a BAT wallet. If a user enjoys the content created by a certain website, they can choose to send a tip in the form of BAT. This can either be done manually, one tip at a time, or automatically, with users choosing to regularly contribute a set amount of BAT.

For example, if you visit Twitter in the Brave browser, you can press a button that says “Tip” and send BAT directly to a Twitter user. Similar functionality exists for Twitch streamers and YouTube creators.

This idea may be catching on: Brave claims some 22.2 million users every month employing BAT within the Brave browser, and over 7 million doing so every day.

Websites that have verified themselves as Brave content creators will have the coins deposited into their wallets. Websites that have yet to verify will have the coins held in a wallet for them until such time as they do decide to get verified.

Understanding the Brave Browser

The mission of the Brave browser is to provide a better advertising experience that doesn’t invade users’ privacy and gives them something for their trouble.

In some sense, it’s “free” to see ads on a typical browser on a typical website with no paywall. A given webpage may be littered with display ads, pop-ups, and autoplay videos. The way Brave and BAT see it, these ads aren’t really free at all. The “publisher” — i.e. the website — is selling your attention, your time, your energy to an advertiser, who pays for the right to dominate your sense and mental capacity.

Brave is designed around privacy and blocks trackers to prevent typical advertiser surveillance on websites, blocking some ads entirely. Brave also claims it doesn’t collect private browsing data, unlike other popular web browsers.

Additionally, when users download the Brave browser, they can sign up for “Brave Rewards” . Brave will track (on your device’s local storage only) “the attention you spend on sites you visit.” You can earn BAT crypto when you change your settings to view ads (delivered to your browser-based wallet), and you can tip content creators you like with BAT from your wallet.

History of BAT Cryptocurrency

The Brave browser and its BAT coin were created by Brendan Eich and Brian Bondy, who both had esteemed careers in the software industry long before Brave was born.

Brendan Eich is the CEO of Brave’s parent company, Brave Software, Inc., founded in May 2015. Before being a part of the Brave team, Eich was the founder and CTO of Mozilla and invented Javascript in 1995. He helped launch Mozilla Firefox in 2004, which has become one of the world’s most popular web browsers.

Brian Bondy is the CTO of Brave Software Inc., and he also has a long history as a software engineer.

BAT crypto first came to be after its “initial coin offering” (ICO) in May 2017, selling 6,400 BAT per 1 ETH. ICOs can raise money for an enterprise or project while also giving potential future customers the tools to participate in the project. This ICO raised about $36 million worth of Ethereum in around 30 seconds, indicating the excitement for the project and credentials that Eich brought to the crypto world.

What Can You Use BAT Coin for?

BAT can be used to tip content creators. At present, the tips can be sent to individual users on Twitter or to individual websites. Brave browser users also receive BAT as a reward for opting in to advertisements.

Traders can use BAT for speculative purposes, trying to buy low with the hope of selling later at a higher price.

Is BAT Crypto a Good Investment?

While BAT and Brave do not encourage trading or speculating in the tokens — explicitly stating in its whitepaper that BAT tokens are not “securities or for speculation” — it moves up and down in price with Ethereum, with which it has a fixed exchange rate of 6400 BAT per ETH.

Altcoins are generally considered to be speculative investments that carry high risk. There are few other investments available to the average person that carry greater risk and volatility.

If an investor has done all the research necessary to understand what the BAT cryptocurrency is, how it works, and what it was designed for, then those with the necessary capital and risk tolerance could choose to take a chance on BAT. It’s common investment advice to never risk more than you can afford to lose.

How and Where to Buy and Sell BAT Coin

Acquiring BAT doesn’t have to involve an exchange. Anyone can download the Brave browser and earn BAT over time by clicking on the ads that pop up. This would be a slow process for anyone looking to accumulate large amounts of BAT, however. In that case, an exchange might be the best way to go.

Basic Attention Token (BAT) trades on many popular exchanges like Coinbase, Binance, Huobi Global, and Upbit. Big exchanges like these can generally be trusted to follow all crypto regulations, of course.

Buying BAT is not unlike buying most other cryptocurrencies. Here are the basic steps involved, beyond learning the investing in crypto basics and how crypto exchanges work.

1.    The first thing required is an exchange account. Make sure the exchange provides trading for the Basic Attention Token cryptocurrency.

2.    After creating an account, a user can then deposit either some bitcoin, dollars (or other local fiat currency), or a stablecoin, depending on what trading pairs the exchange currently trades. Buying crypto directly with a credit card might also be an option, but doing so often involves higher fees (not only might the exchange charge additional fees, but credit cards often treat crypto purchases as a cash advance, which comes with even more fees).

3.    At this point, a user can buy BAT. Simply select the trading pair that includes BAT and the currency deposited during step number two. For example, if a user had bitcoin and wanted to buy BAT, they would select the pair called “BTC/BAT.” If they had dollars, it might be “USD/BAT.” For a stablecoin like USDC, it might be “USDC/BAT.” Enter a buy order for the desired amount of coins at a desired price. Remember that selling crypto can result in crypto taxes being due the following year.

After buying BAT tokens, some users may want to consider moving their crypto off of an exchange and into a hardware wallet that supports BAT. This method of crypto storage could provide extra security, as the coins can be taken offline and put into cold storage where they should be inaccessible to hackers.

The Takeaway

Basic Attention Token is a method of payment used between users, advertisers, and content creators on the open-source Brave browser. BAT is built on Ethereum’s blockchain technology and while its creators did not intend for it to be traded, it is currently available on some crypto exchanges.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Nov
29
2021
What Is a Bitcoin Address? Can You Track Them?

What Is a Bitcoin Address? Can You Track Them?

By | Growing Wealth, invest, Investing | Comments Off on What Is a Bitcoin Address? Can You Track Them?

In the early days of Bitcoin, users would send funds to each other using Internet Protocol (IP) addresses. Each device connected to the internet has a unique IP address.

This method worked, but developers soon realized it wasn’t secure. It would be too easy for a hacker to intercept the funds and reroute them to his own device in what’s known as a “man-in-the-middle” attack.

The IP address method was eventually discontinued and the Bitcoin address was born.

Recommended: What is Bitcoin and How Does it Work?

What Is a Bitcoin Address?

A Bitcoin address can come in the form of either a string of 26-35 alphanumeric characters or a QR code. Bitcoin addresses are meant to be used as one-time tokens for single blockchain transactions.

To receive coins, a user must provide an address from their crypto wallet. The technical term for a Bitcoin address is a “public key.”

Wallets contain a collection of public keys that are derived from the private key, which is the key that can unlock the wallet and provide access to its funds.

💡 Recommended: Check out our crypto glossary of terms and guides.

Why Bitcoin Addresses Exist

Addresses exist as a more secure way for people to send and receive Bitcoin.

The history of transactions on the blockchain is recorded in the form of Bitcoin addresses. Every transaction that has ever been made on the Bitcoin blockchain has been recorded, including the following information:

•   The sending address

•   The receiving address

•   The time the transaction was sent

•   The amount of bitcoin sent

•   The number of network confirmations

Addresses make it possible for this information to be recorded pseudonymously, in what looks like a bunch of random characters and bitcoin amounts.

Recommended: How Bitcoin Transactions Work

How Does a Bitcoin Address Work?

A Bitcoin address is used to send or receive Bitcoin. Most wallets will automatically create a Bitcoin address with the click of a button.

When we talk about Bitcoin addresses, we’re talking about public keys. Public keys are one half of an asymmetric cryptographic key pair. The other half is the private key. Wallet users sign transactions using the private key and receive transactions using the public key.

Wallet software derives a public key from the private key using cryptographic operations, so it’s safe to share any public key. But sharing a private key can result in theft, as anyone with the private key can access the funds held in that wallet.

A wallet can create many public keys. That’s because receiving coins to the same public key again and again would make it easier for outside observers to link a wallet to a user’s identity.

Are Bitcoin Addresses Traceable?

A Bitcoin address by itself is not traceable, as there is no identifying information stored directly on the blockchain. But there are ways that the identity of an individual can be linked to specific wallets they own and transactions they have made.

This is why Bitcoin is not anonymous — it’s pseudonymous. Wallets and transactions are not linked to someone’s identity, but that doesn’t mean the transactions can’t be traced back to the person who made them.

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Tracing a Bitcoin Address

In certain circumstances, it can be easy and simple to track a Bitcoin address. In others, not so much.

Tracing a Bitcoin Address from an Exchange

Because virtual asset service providers (VASPs) like crypto exchanges require users to comply with know-your-customer (KYC) regulations, the exchanges provide one Bitcoin wallet per user. Any transactions going in or out of that wallet will be associated with the person who registered that account — even if the person uses a different public key address for each transaction received.

If someone were to use a crypto exchange-hosted wallet, in theory law enforcement could simply subpoena the exchange for their records and all the user’s transactions would be made transparent.

The exchange knows every public key that the user has ever utilized for their exchange wallet, and anyone can then look at the blockchain data and see every transaction that was ever sent to or from those addresses.

Tracing a Bitcoin Address Without a VASP

If an individual manages to only use wallets of their own, and no VASP is involved, the process becomes more complicated. Advanced computer algorithms can still manage to conduct blockchain money flow analysis. Using sophisticated software to analyze large swaths of blockchain data, companies like Chainalysis could potentially link transactions back to a single user — even if the person used dozens of different wallets and addresses.

Say someone steals a large amount of bitcoin from an exchange. The initial hack will have to take place with a single wallet because the coins that are stolen all at once can only go to one place at first.

From there, hackers usually send coins to many wallets and employ other methods to try and cover their tracks. But being able to identify the first wallet used in the hack often means that blockchain analysis companies can track down most or all of the stolen funds.

Still, there are measures users can take to make it much more difficult for anyone to trace their transactions.

Challenges of Tracing a Bitcoin Address

Although Bitcoin is only pseudonymous, there are ways for users to come close to total anonymity on the network. Here are a few of the most common ways to try to reach this goal.

•   Coin mixing: Some wallets lump in several transactions together, making it more difficult to tie a single user to any transaction.

•   Multiple wallets: Creating hundreds or even thousands of wallets and using them as intermediaries for many transactions could eventually remove the source identity of the original transactions.

•   Running a full node: This requires some technical expertise but is relatively inexpensive and can be done by just about anyone. Routing Bitcoin transactions through a personal node increases anonymity because an outside observer will have trouble distinguishing between the many transactions running through the node. Not only would that user’s transactions go through the node, but also the transactions of thousands of other users.

Combining two or more of these methods may potentially make it very difficult for Bitcoin transactions to be traced. But doing so takes a lot of time, effort, and some extra technical know-how.

The Takeaway

People need Bitcoin addresses to transfer Bitcoin to one another — and the process is similar for most other cryptocurrency types as well.

Privacy in crypto isn’t as universal as many people think, and most transactions can, in fact, be traced. That said, there are methods to make transactions potentially less traceable.

Photo credit: iStock/BT Series

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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Nov
23
2021
What Is a Block Explorer? Blockchain Explorer, Explained

What Is a Blockchain Explorer? Guide to Block Explorers

By | Growing Wealth, invest, Investing | Comments Off on What Is a Blockchain Explorer? Guide to Block Explorers

A blockchain is a public ledger of transactions. Whenever someone sends Bitcoin or another cryptocurrency from one wallet to another, the transaction is recorded on the ledger.

But how does anyone view the transaction? The simplest way is by using something called a block explorer.

What Is a Block Explorer?

A cryptocurrency block explorer is an online blockchain browser that can show the details of all transactions that have ever happened on a blockchain network.

There are block explorers for Bitcoin and also for individual altcoins. Some block explorers can be used on multiple different networks, while others are only for one specific blockchain. A BTC block explorer, for example, would only be able to find information from the Bitcoin network, such as when someone is sending Bitcoin to another wallet.

A block explorer can be used to find any specific transaction or view the recent history of the chain more generally.

What Can You Do With a Blockchain Explorer?

A blockchain explorer allows users to view blockchain activity. Users might use block explorers to track the status of a pending transaction (technically referred to as exploring Mempool status, since the transaction has not yet been recorded in a block and added to the chain) or to view the balance of a wallet they hold without having to use the crypto wallet itself.

Beyond these types of tasks, block explorers can also be used to:

•   Examine the history of any wallet address, including all transactions sent to and from that address.

•   Explore change addresses, which are transaction outputs that return coins to the spender in an effort to prevent too much of the input value being spent on transaction fees.

•   View blocks that aren’t attached to the main blockchain and whose parent blockchain is unknown. These are called “orphaned blocks.”

•   Explore the largest transaction that was sent in the last 24 hours.

•   Explore the number of double-spend transactions happening in a blockchain.

•   Discover the individual or mining pool who mined a specific block.

•   Explore the genesis block, or the first block that was ever mined on a given chain.

•   See other information specific to a blockchain, such as average transaction fees, hash rate, mining difficulty, and other data.

There are also more advanced use cases for block explorers, but these are mostly utilized by companies that create sophisticated software to track criminal activity or try to predict cryptocurrency prices.

How Do Blockchain Explorers Work?

An explorer is basically a blockchain search engine. It can be used to search for just about any information pertaining to the state of a specific blockchain that someone might want to know. The details of every crypto wallet and all of its transactions and more can all be found using a blockchain explorer.

Before we get into the step-by-step of this process, there are a few key terms worth knowing.

•   Rational Database: Allows for the storage of data in a table in terms of how each piece of data is related to others. Rather than having one giant block table with all details for each block, entries can be organized according to their type and relation to similar entries, for example.

•   Structured Query Language (SQL): A protocol for searching a database, or giving a query. Software of this nature can create a table in a database, insert records into that table, search for a given term, then create a new table with relevant results and present them on a web page.

•   Application Programming Interface (API): A protocol that makes it possible for users to communicate with computers through software. APIs define the formatting details for responses that are sent and received by the software being used.

How a Blockchain Explorer Works, Step by Step

From a technical perspective, here’s what it looks like:

1.    Blockchain explorers use application programming interfaces (APIs), rational databases, and SQL databases alongside a blockchain node to retrieve information from a network.

2.    The software organizes this information into a database and displays things in a searchable format.

3.    The explorer can then be used to perform searches through an organized table in response to user demands through a simple user interface (think: search engine) that allows people to conduct searches.

4.    The explorer server creates a web page through which it can interact with users.

5.    An API also allows the explorer to interface with other computers.

6.    Search requests are sent to the backend server, which then responds to the user interface.

7.    Finally, the user interface and API sends web pages in HTML format to the user’s browser so the results can be read in a manner that is easy to understand.

Examples of Blockchain Explorers

What follows are some of the most popular blockchain explorers. There are different explorers for different types of cryptocurrency, though some explorers can be used to search multiple chains.

Blockchain.org

Blockchain.org, formerly known as Blockchain.com, is a popular Bitcoin block explorer. It allows users to search the Bitcoin blockchain by transaction, address, or block. Many Bitcoin users have probably used Blockchain.org at some point to monitor or record their Bitcoin transactions.

Blockchair

While most block explorers work on only one blockchain, Blockchair can be used to search multiple chains. This explorer allows for searches on the Ethereum, Bitcoin Cash, and Bitcoin blockchains. Users can look up words, mining difficulty, Mempool size, and nodes.

Tokenview

Tokenview also allows for searches to be conducted on multiple blockchains — more than 20 of them, in fact. This explorer is based in China and was launched in 2018.

Etherscan

Etherscan might be the most popular blockchain explorer for the Ethereum network. It allows users to conduct searches for ETH addresses, wallet balances, transactions, smart contracts, and more.

The Takeaway

A block explorer can be thought of as a search engine for a blockchain — allowing a user to find lots of different information about that blockchain.

To use a block explorer, you simply visit its website and enter the information you’re looking for. To look up a pending transaction currently stored in the Mempool, for example, you could enter the transaction hash ID provided by your wallet or exchange.

Or, those curious about blockchain technology could just use the block explorer to “explore” the blockchain in general and look at things like the largest transactions, the most recently mined block, or hash rate.

Photo credit: iStock/solidcolours

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Nov
19
2021
What Is Encryption and What Is Its Impact on Cryptocurrency?

What Is Encryption in Blockchain and Its Impact on Cryptocurrency?

By | Growing Wealth, invest, Investing | Comments Off on What Is Encryption in Blockchain and Its Impact on Cryptocurrency?

Encryption is the technical process that prevents sensitive or private information from falling into the wrong hands. When it comes to cryptocurrency messages and transactions, encryption and decryption between two parties means that a third party can’t make sense of it or misuse it.

When it comes to blockchain technology, however, encryption is a bit more complicated than password-protecting a file, or adding two-factor authentication to a platform. Encryption is one of the features that makes blockchain such an exciting technology for different types of users.

Encryption is an important part of crypto transactions, and it’s helpful to have a basic understanding of how it works. Here’s what you need to know:

How Is Encryption Used in Crypto?

You may have noticed that the words “encryption” and “crypto” share a common root: “Crypt.” Instead, it relates to cryptography, or the practice of anonymizing and protecting sensitive data.

Broadly speaking, cryptocurrencies use encryption methods to make transactions anonymous and secure. Proponents of crypto cite its security as one of its major benefits.

Using blockchain cryptography, two parties can complete a transaction without sharing their own information or having to use a middle man such as a bank or government. Different types of cryptocurrencies use different types of encryption.

Recommended: A Brief History of Cryptography

What Type of Encryption Does Blockchain Use?

There are a few ways that a system might encrypt data: Symmetric encryption, asymmetric encryption, and hashing.

Symmetric Encryption

If the users employ the same key for both encrypting and decrypting the data then the system uses symmetric encryption. This is also sometimes referred to as “secret-key encryption.”

The key used in this sort of cryptographic system may be called a “common key,” as it’s used to both encrypt and decrypt data. Such a system, however, has greater potential for a security breach.

Asymmetric Encryption

Conversely, an asymmetric system uses two keys — a public key, and a private key. The Bitcoin network is an asymmetric system, since it issues users a private key which then generates a public key. It may also be called “public-key encryption.”

The way that an asymmetric encryption system would work then, is that the public key can be used for encrypting or encoding data, but the users would need a private key to decrypt or decode the data. In other words, the public key turns plaintext into ciphertext, but a user’s private key turns the ciphertext back into plaintext.

Hashing

Hashing does not utilize keys at all. Instead it uses an algorithm that generates a “hash value” based on the plaintext input. Hash functions are very secure, and the hash value generated often makes it difficult, if not impossible, for users to recover the plaintext to once encrypted.

The actual technical process behind hashing is fairly complicated, and because of that, can be used as a method of mining for some cryptocurrencies. The computational resources being expended on a network to contribute to the hashing process is referred to as the hash rate, and a good hash rate generally means that the network is secure.

The Importance of Plaintext and Ciphertext in Blockchain Encryption

Blockchain encryption is the process of securing and obscuring data, systems, or networks, making it difficult for unauthorized parties to gain access. The technical process behind encrypting data usually requires a crypto algorithm to convert “plaintext” into “ciphertext.”

What Is Plaintext?

Plaintext is what you type into your phone when you send a text or even the words that you’re reading right now. Plaintext is found everywhere and can contain sensitive information — like the password to your crypto wallet.

What Is Ciphertext?

Ciphertext is encrypted text. The encryption process converts into ciphertext — it’s turned into a code, in other words — by a program or algorithm called a cipher. In order to decrypt a message in ciphertext, a second party needs an algorithm or cipher to turn ciphertext back into plaintext. Decrypting is the opposite of encrypting.

The Role of Blockchain Encryption Algorithms and Keys

As mentioned, systems and networks that incorporate encryption use algorithms, and sometimes keys to do it. For instance, the Bitcoin encryption issues users a private key or a seed phrase, which generates a public key, too. That public key is like a Bitcoin address, and anyone can access it. It is what you would give to other people in order to execute a Bitcoin transaction.

Recommended: What Is a Bitcoin Seed Phrase?

Many cryptocurrencies use asymmetric encryption to ensure that the transactions on their network are secure. So, those “keys” are a user’s encryption tool — they can encode or decode encrypted data. Again, a network (like Bitcoin) may incorporate both public and private keys, so that transactions can occur, and so that users can ensure that their holdings remain secure (by never sharing their private key).

Algorithms do the actual encrypting and decrypting. There are several methods through which this can occur, but on a basic level, cryptographic algorithms scramble data or information, turning plaintext into ciphertext. Users then employ keys to turn unreadable or scrambled data back into something readable.

The Takeaway

The technical side of cryptocurrency networks — including encryption and security — can be a lot to digest. There are numerous methods to encrypt data, and different blockchain networks may incorporate different types of cryptography, which are more or less secure than others.

Photo credit: iStock/Olemedia

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
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1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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Nov
19
2021
Virtual Asset Service Providers (VASP): What Are They?

Virtual Asset Service Providers (VASP): What Are They?

By | Growing Wealth, invest, Investing | Comments Off on Virtual Asset Service Providers (VASP): What Are They?

We live in a world of service providers: health service providers, cloud service providers, internet service providers — the list goes on. And when we’re talking about cryptocurrency, virtual asset service providers (VASP) are inevitably part of the conversation.

Just what exactly is a VASP? And why should you know about them if you’re interested in cryptocurrency? This article will cover everything you need to know.

What are Virtual Assets (VAs)?

Most, if not all, cryptocurrencies and digital tokens are virtual assets. As outlined by the Financial Action Task Force (FATF) , a virtual asset fits the following criteria:

•   It’s a digital store or representation of value.

•   It can be digitally traded or transacted, or used for payment or investment.

•   It doesn’t include a digital representation of fiat currency or securities.

Virtual assets that can be traded or exchanged require a medium upon which those trades can be executed. That’s where VASPs come into play.

What is a Virtual Asset Service Provider (VASP)?

A VASP is a platform used to buy, sell, exchange, or otherwise interact with the cryptocurrency market. In other words, VASPs are crypto exchanges — or, at least the framework and theory behind a digital currency exchange.

The acronym “VASP” was coined by the FATF, which is an intergovernmental, international body that shores up standards and regulations — or promotes the use of them — in an effort to curb money laundering and stop the financing of terrorism.

Given that different types of virtual currency can and may be used for illicit or illegal activities, the FATF is stepping in to create some rules and frameworks for entities in the crypto space to operate within. Just as many cryptocurrency platforms must abide by existing regulations and compliance protocols, they may also be subject to additional guidelines and scrutiny from the FATF.

What Makes VASPs Unique?

In order for an organization to be classified as a VASP, it must tick certain boxes. In guidance issued in June 2019, the FATF asserted that a VASP is a business that conducts at least one of the following activities:

•   Acts as an exchange for virtual assets or fiat currencies

•   Acts as an exchange between one or more types of virtual assets

•   Acts as a medium of transfer for virtual assets

•   Provides safekeeping or administration of instruments that allow entities to control virtual assets

•   Participates in or provides financial services related to an offer or sale of a virtual asset

What Are Some VASP Types?

The FATF guidelines clearly describe crypto exchanges, as well as other participants in the crypto markets, including:

•   Mining pools

•   Investment vehicles

•   Digital wallet providers

•   Companies offering escrow services (transferring digital assets between two parties, ensuring a transaction goes down smoothly). And yes, companies providing these services may be classified as VASPs, after the FATF expanded and clarified its definition of a VASP in.

In an early 2021 update , the FATF also stated that decentralized exchanges, decentralized platforms, and DApps may also be considered VASPs, as well as platforms that facilitate peer-to-peer crypto transactions.

Recommended: What is a dApp?

What Businesses are Not VASPs?

There are numerous types of crypto-related entities that are not VASPs, including but not limited to:

•   Individual crypto miners

•   Individuals participating in a Bitcoin mining pool

•   Individual traders

•   Central banks

In short, if you’re just a regular Joe who’s trading or otherwise participating in the crypto markets or validating a blockchain network, you’re not a VASP.

Other Key Terms to Know When Talking About VASPs

In order to get a full picture of VASPs, it’s important to understand a couple of other terms: Digital Asset Entity (DAE), and Digital Asset Customer (DAC).

The distinction between these specific types of entities — which may exist in more than one type of classification (an entity could be both a DAE and a VASP, for instance) — can have an impact on how the entity is regulated.

What is a Digital Asset Entity (DAE)?

A Digital Asset Entity refers to some of the various businesses and organizations in the digital transaction space. For example, a VASP is a DAE. But the DAE umbrella includes many other types of organizations, such as gambling platforms, that may not necessarily be labeled as traditional financial institutions.

What is a Digital Asset Customer (DAC)?

A Digital Asset Customer is an entity that makes use of the services of a DAE. You or anyone else can be a DAC, as you may utilize a financial institution’s services to engage with the cryptocurrency markets.

What Are Some Examples of VASPs?

There are several different types of businesses or platforms that can fit the description of a VASP, or that may take some role in the transaction process. Those can include centralized and decentralized exchanges, mining pools, investment vehicles, and more.

Here are some examples of companies or platforms that fit the description of a VASP:

•   Centralized exchange: These exchanges that act as a third party between crypto buyers and sellers. Examples include Coinbase and Kraken .

•   Decentralized exchange: These exchanges eliminate the need for a third-party middleman to execute trades or transactions. Examples include Uniswap and Venus .

•   Escrow service: There are also a lot of companies that provide escrow services (many exchanges offer the service, too) for digital asset transactions, such as Escaroo or Bitrated .

•   Investment vehicles: Crypto-tied investment vehicles, which may take the form of securities like crypto ETFs, are becoming more common and mainstream. One example: BITO , a Bitcoin-linked ETF that hit stock exchanges in October 2021.

The Takeaway

VASPs are businesses or companies that facilitate the exchange of virtual assets. Virtual assets can include things like cryptocurrency (Bitcoin, for example), non-fungible tokens (NFTs), or utility tokens.

Photo credit: iStock/Yuri_Arcurs

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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