Over the past couple of days, three incidents affecting decentralized finance (DeFi) projects have led to a total of around $2 million in losses.

The amount may not seem much in comparison to blow-ups such as FTX or some of the larger exploits to hit the sector, but the cases demonstrate the varied nature of the dangers faced by DeFi users.

Threats against DeFi protocols can come from all sides and they must defend against hackers, governance attacks, and potentially vulnerable third-party code, as these three incidents show.

Atlantis Loans is a lending platform on Binances BNB Chain, though it was abandoned by the developers earlier this year. On Saturday, former users were drained of approximately $1 million worth of crypto.

Once launched, DeFi protocols are self-executing, maintained or not, and the platform continues to function. As explained in its farewell Medium post, Atlantis Loans as a protocol is fully decentralized and the only way to make changes or turn things off will have to be done through governance.

With presumably little attention paid to Atlantis since the devs departed, the defunct project was susceptible to a governance attack targeting previous users.

Read more: Top DeFi hacks and exploits of 2022

In order to deposit funds into a DeFi lending pool, users must grant the pools smart contract approval to spend a certain token in their wallet. These approvals are often, by default, for an infinite quantity and last until theyre manually revoked by the user.

Any user who still had active approvals granted to Atlantis contracts, regardless of whether or not they had withdrawn their funds, was a potential victim if hackers took control of the contracts.

This is exactly what the attacker did, publishing and voting for a proposal that allowed them to upgrade existing Atlantis contracts to their own malicious version.

They then used the existing approvals to send around $1 million in a variety of tokens to their own address, directly from the wallets of previous Atlantis users.

DeFi projects often come into the crosshairs of hackers, both white- and black-hat, looking for loopholes in the code from which they can profit or earn a bounty.

Sturdy Finance, another lending protocol, came under attack on Monday via a known vulnerability, leading to 442 ETH in losses (approximately $800,000).

The exploit involved the manipulation of Sturdys price oracle, a system designed to calculate the value of a deposit token based on the balance of underlying assets in its pool. The hacker tricked the protocol into overvaluing their collateral, allowing them to borrow excess funds. The process was repeated for various pools.

Read more: DeFi has rough weekend with Aave and Tornado Cash chaos

The capital necessary to carry out the attack was obtained via a flash loan, whereby funds are borrowed and returned (with interest) within a single transaction. Flash loans allow arbitrage traders to balance minor price discrepancies profitably, but are often used in hacks to fund an attack.

The open-source nature of DeFi encourages projects to plug into one another, building layers of applications on top of established and battle-tested code. This permissionless composability is often cited as one of the main advantages of the sector when compared to traditional finance.

However, in the event of DeFi exploits, these structures act less like a fortress built of money legos, and more like a house of cards.

The Keep3r Network, itself a prime example of this composability, allows projects to outsource Jobs to a decentralized network of Keepers in order to effectively automate devops tasks, protocol maintenance, etc.

However, an address with control over a number of Keeper contracts was created via Profanity, a tool for creating vanity addresses, which was discovered to be insecure last summer.

On Monday morning, the compromised address was used to drain the contracts of around $200,000 worth of K3PR tokens to the attackers address.

Read more: Heres what on-chain messages reveal about the $200M Euler Finance hack

Decentralized exchange 1inch published a blog post warning of the vulnerability on September 15. Five days later, crypto market maker Wintermute lost $160 million to the bug after failing to adequately protect its assets (and mocking a hacker who had also lost funds).

Composability between projects leads to rapid and creative innovation, but can also create risks when depending on external code.

If a protocol upon which others rely is hacked, it can bring down others with it, as was the case with the $200 million Euler hack in March (most funds were later returned).

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Latest round of DeFi exploits display its wide range of vulnerabilities - Protos

Source: Midjourney

As the digital economy relentlessly expands its footprint, the Bitcoin ecosystem has sought innovative ways to keep pace. One of these innovations is Bitcoin Ordinals, a groundbreaking protocol that marks a paradigm shift in how the Bitcoin blockchain is utilized. Developed by Casey Rodarmor, Bitcoin Ordinals gives the ability to assign unique identifiers to individual satoshis the smallest unit of Bitcoin effectively transforming them into non-fungible tokens (NFTs) right on the Bitcoin blockchain. This novel concept is not just a technical feat but also a manifestation of the limitless possibilities of blockchain technology. In the ongoing dialogue about digital property rights, the advent of Bitcoin Ordinals could redefine the future of Bitcoin and its applications.

Before Bitcoin Ordinals, Bitcoins were fungible, with no way of differentiating one satoshi from another. This fungibility has always been a core characteristic of Bitcoin, mirroring the exchangeability of traditional fiat currencies. However, Bitcoin Ordinals has dared to disrupt this characteristic, a bold move which has been made possible by two significant updates to the original Bitcoin protocol: Segregated Witness (SegWit) and Taproot. These updates together have ushered in a new era for Bitcoin one where every single satoshi can carry its own unique identity and story.

The introduction of Bitcoin Ordinals might seem like a technical novelty at first glance, but it has the potential to redefine Bitcoins use beyond financial transactions. Ordinal NFTs, for example, could be used to attach ordinal satoshis to individual security tokens or stablecoins, enable Bitcoin smart contracts, and potentially help Bitcoin penetrate new markets and audiences. This is a far cry from the typical applications of NFTs on Ethereum or other Layer-2 chains/alternative Layer-1 chains, where tokens primarily document ownership and authenticity of a specific digital asset with the actual metadata stored off-chain.

Theres no denying the potential of Bitcoin Ordinals, but they are not without controversy. Critics have voiced concerns about inefficient use of block space, potential increase in transaction fees, and slower transaction times across the network. But regardless of these debates, Bitcoin Ordinals opens up a new chapter in the history of Bitcoin, signaling the potential for greater innovation and expansion of the digital economy.

In this article, we delve into the intricacies of Bitcoin Ordinals, exploring their potential to change the way we use the Bitcoin blockchain and why they may prove to be more effective than regular NFTs on Ethereum or other L2 chains/alternative L1 chains. As we unpack the technology behind Bitcoin Ordinals, we will strive to present a balanced view of this pioneering protocol and its implications for the broader cryptocurrency ecosystem.

Bitcoin Ordinals, conceived by Casey Rodarmor, present a groundbreaking approach to using the Bitcoin network, extending its use case from pure financial transactions to encompass a more diverse range of digital applications. They achieve this by uniquely identifying each satoshi, the smallest unit of Bitcoin, and enabling the inscription of arbitrary data onto individual satoshis, transforming them into non-fungible tokens (NFTs) or digital artifacts as Casey likes to call them.

Founded in 2022, the Ordinals project found inspiration in references to atoms in Bitcoins original codebase, developed by the pseudonymous Satoshi Nakamoto. The vision was clear: if every satoshi could be distinctly identified, it would pave the way for innovative applications beyond the realm of traditional financial transactions. Rodarmor and his team now work full time on the Ordinals project, pushing the boundaries of the Bitcoin protocol.

At its core, the Ordinal protocol sequentially numbers satoshis. Once a unique serial number is assigned, users can inscribe data onto these satoshis, creating NFTs that are unique in the Bitcoin ecosystem. Rodarmors NFTs differ from traditional ones primarily in their immutability the inscribed data is put directly on the blockchain, contrasting with other NFTs that typically store the JPG or text file elsewhere and place a link to that data on the blockchain.

Despite the inherent simplicity of this concept, its a paradigm shift for Bitcoin, previously known for its fungibility and transactional nature. This shift hasnt been without controversy, and some Bitcoin community members see Ordinals as an assault on Bitcoins foundational ethos. However, as we dive deeper into the underlying technologies that make this possible, we can begin to understand the potential impact of Bitcoin Ordinals on the broader cryptocurrency ecosystem.

The evolution of Bitcoin Ordinals would not have been possible without two significant updates to the Bitcoin protocol: Segregated Witness (SegWit) and Taproot. These technological advancements have served as the backbone for the development of Ordinals, playing crucial roles in their operation and application.

SegWit, implemented to rectify a bug known as transaction malleability and to increase the transaction capacity of each block, proved integral to the functionality of Ordinals. By segregating the witness data from the transaction data, SegWit fixed the transaction malleability issue, which was vital for ensuring the reliability of Ordinals by providing certainty about transaction identifiers.

The other piece of the puzzle, Taproot, enhanced Bitcoins privacy by making all transactions on the Bitcoin network look identical to external observers. Moreover, it introduced new scripting capabilities, used in the creation and revelation of inscriptions in Ordinals.

The combination of SegWit and Taproot allowed for the efficient tracking of Ordinals and the storage of inscription content. However, they also brought with them considerations about block size and the potential for inefficient use of block space, leading to increased transaction fees and slower transaction times across the network.

As we delve deeper into the practical implications of Bitcoin Ordinals, we must acknowledge the role played by SegWit and Taproot. Together, they have facilitated a new wave of innovation, enabling Bitcoin to adapt and evolve in a rapidly changing digital economy. This evolution is a testament to Bitcoins enduring capability to inspire new ideas, spur debates, and challenge the status quo, all while adhering to the ethos of decentralization.

Creating an Ordinal NFT involves inscribing arbitrary content onto individual satoshis, essentially transforming these smallest units of Bitcoin into unique digital artifacts. Inscriptions, just like Bitcoin, are durable, immutable, secure, and decentralized.

The creation process can be accomplished either through a series of manual steps involving the use of Bitcoin Core and an additional tool known as ord, or by utilizing more user-friendly services like Ordswap that simplify the inscription process significantly.

In the manual process, a series of steps are involved that require a Bitcoin full node, a wallet capable of inscription and sat control, and the ord tool for handling the inscriptions. This involves installing and configuring Bitcoin Core, syncing the Bitcoin blockchain, creating a Bitcoin Core Wallet, receiving sats, creating the inscription content, creating the inscriptions, and sending and receiving inscriptions.

However, as Ordinal NFTs have grown in popularity, user-friendly tools and services like Ordswap have emerged that streamline this process significantly. Ordswap allows users to easily inscribe files, text, BRC-20 tokens (similar to Ethereums ERC-20 tokens, but built on the Bitcoin network), and more onto satoshis. The process with Ordswap is as simple as uploading a file, then sending BTC to an address to pay for the inscription fee. Once the block containing the inscription is mined, the inscription is permanently on the Bitcoin blockchain.

This advancement in the user interface and ease of handling Ordinal NFTs represents a significant improvement in the creation process, making it far more accessible to a wider range of users. Whether one chooses the manual method or a service like Ordswap, the end result is the creation of a unique digital artifact inscribed on a satoshi that is as immutable and secure as Bitcoin itself.

The Ordinals project, which brings non-fungible tokens (NFTs) to the Bitcoin blockchain, has sparked intense debates within the Bitcoin community. The crux of the disagreement lies in whether Bitcoin should exclusively serve as a medium for financial transactions or if it should be used to support a variety of applications, including NFTs.

At the launch of the Ordinals protocol, a schism was noticeable between Bitcoin purists who believe the blockchain should be limited to financial transactions, and those who see the network as adaptable enough to host a variety of use cases, such as digital art and more.

Casey Rodarmor, the creator of Ordinals, explained that Ordinals leverages inscriptions arbitrary content like text or images that can be added to sequentially numbered satoshis (the smallest units of Bitcoin) to create unique digital artifacts. This wouldnt be possible without Bitcoins Segregated Witness (SegWit) upgrade in 2017 and the more recent 2021 Taproot upgrade, which allowed for larger amounts of NFT data to be stored on-chain.

The opposing camp argues that Ordinals, by adding non-financial data to the blockchain, may congest blocks and push up transaction fees, thereby impacting the financial transactions Bitcoin was originally designed to facilitate. Bitcoins creator, Satoshi Nakamoto, had previously rejected the idea of incorporating a domain name system (DNS) into Bitcoin for similar reasons, saying, Piling every proof-of-work quorum system in the world into one dataset doesnt scale.

Nonetheless, Ordinals has its supporters. Some see it as a potential solution to the declining Bitcoin block subsidy, which is the amount of bitcoin (BTC) a miner receives for solving a block. They argue that increased competition for block space, driven by Ordinals inscriptions, could result in higher transaction fees, thereby incentivizing miners to continue securing the Bitcoin network as the block subsidy decreases.

On this contentious issue, notable figures in the Bitcoin community have taken sides. Blockstream CEO Adam Back expressed disapproval, hinting that miners might even censor Ordinals inscriptions. Bitcoin Core developer Luke Dashjr labeled Ordinals as an attack on Bitcoin. On the other hand, Bitcoin educator Dan Held embraced the protocol, tweeting, Ordinals = NFTs on Bitcoin. This is good for Bitcoin.

The debate surrounding Ordinals underlines the larger philosophical discourse within the Bitcoin community regarding its future direction and its core principles. As Dennis Pourteaux, a surgeon and longtime Bitcoiner, noted, these technical debates are vital for keeping Bitcoin safe and progressing. Whether this progression includes new applications like NFTs or remains confined to the financial domain is a question the Bitcoin community continues to grapple with.

The introduction of Bitcoin Ordinals could lead to significant shifts in the use and user base of Bitcoin. By making the creation of NFTs possible on the Bitcoin blockchain, applications of Bitcoin may extend beyond financial transactions, transforming it into a platform for digital art, intellectual property rights, real estate, and much more. This mirrors the multifaceted applications witnessed in the Ethereum-based NFT realm. Moreover, the ability to inscribe arbitrary content on individual satoshis suggests the potential for these Ordinal satoshis to be tied to unique security tokens or stablecoins. This advancement could establish the foundation for asset tokenization on the Bitcoin blockchain, where each token or coin signifies a specific real-world asset or value.

Further broadening these possibilities is the potential integration of Discreet Log Contracts (DLCs) with Bitcoin Ordinals. Invented by Tadge Dryja, co-creator of the Lightning Network, DLCs are uncomplicated smart contracts engineered to transfer native Bitcoin in a decentralized and trustless manner. The amalgamation of DLCs into the Ordinals protocol could provide a programmable method for implementing trustless trading and lending of Ordinals.

DLCs, through conditional payments on Bitcoin, create a system akin to escrow but without the need for a centralized custodian or set of validators. This characteristic is particularly advantageous for the Ordinals market. While Ordinals function as base assets or NFTs, intricate transactions such as trading, borrowing, or lending necessitate an additional layer of technology this is where DLCs step in.

DLCs true strength lies in their programmability. They can be customized based on any type of input or smart contract signal, thereby allowing the creation of complex logic to interact with and transfer native Bitcoin. This enables more expressive applications of Ordinals in conjunction with DLCs.

However, the integration of DLCs with Ordinals is not without challenges. It requires the embedding of a DLC signing library into the Bitcoin wallet in use, in addition to a facilitation layer or a Bitcoin oracle network capable of interpreting smart contract commands, feeding data, and opening and closing these DLC escrows. Nonetheless, once these hurdles are overcome, DLCs could offer robust solutions for conducting finance on Ordinals, enabling practical applications akin to those seen with NFTs on Ethereum and Solana.

On the other hand, Partially Signed Bitcoin Transactions (PSBTs) offer an alternative approach for secure and decentralized transactions in the Bitcoin Ordinals ecosystem. PSBTs facilitate multi-party collaborative signing of a Bitcoin transaction without revealing private keys, ensuring that no single party has complete control. The procedure is fairly straightforward and involves creating a PSBT, sharing it with the other party, and then signing it. Once signed, the PSBT is ready to be broadcast to the Bitcoin network. PSBTs also enable decentralized listing of Ordinals for sale across multiple marketplaces simultaneously, adhering to the trustless model of DeFi.

While both DLCs and PSBTs come with their own unique advantages and potential applications, they also have specific challenges and constraints. The choice between the two would depend on the specific requirements and constraints of the transaction.

These transformations suggest an expansion of Bitcoins audience. As Bitcoin diversifies the types of transactions possible on its network with Ordinals, it could attract new markets. Stakeholders in the NFT space such as artists, creators, collectors, who have predominantly used Ethereum or other platforms, might start considering Bitcoin as an additional or alternative platform.

However, its crucial to remember that these are forward-looking projections given the novelty of Bitcoin Ordinals. Actual outcomes will likely hinge on various factors, including technological advancements, community acceptance, regulatory responses, and more. These developments underscore the dynamic and innovative potential of the Bitcoin Ordinals protocol.

Bitcoin Ordinals introduce a unique approach to tokenization compared to other existing systems. The underlying philosophies and mechanisms of Ordinals and ERC-721 have both similarities and differences.

A comparison of Bitcoin Ordinals with existing blockchain systems and protocols

ERC-721 (Ethereum): On Ethereum, ERC-721 has set the standard for non-fungible tokens. ERC-721 tokens are unique and are primarily used to represent ownership of a unique item or piece of content. Each token is unique and not interchangeable with any other token its non-fungible. The downside to this is that unless the contents of a token are completely on chain, they typically just point to an Arweave link, IPFS link or some other comparable service. Ethereum uses smart contracts to manage, transfer, and interact with these tokens. These smart contracts are programmable and can contain complex logic.

Bitcoin Ordinals: Bitcoin Ordinals take a different approach. Rather than using smart contracts, Ordinals make use of a new Bitcoin protocol that assigns identifiers to individual satoshis (the smallest unit of Bitcoin). This allows any piece of data, such as an image or text, to be inscribed directly onto a specific satoshi. This data is purely on-chain and does not rely on other protocols, which ensures its survival as long as the Bitcoin blockchain exists. This method, while it has its disadvantages, is much more robust and durable than ERC-721s due to the on-chain nature of Ordinals.

Benefits and disadvantages of Bitcoin Ordinals in relation to other systems

Benefits: The major benefits of Bitcoin Ordinals include robustness, transparency, and decentralization. Since Ordinals utilize the existing Bitcoin network, they inherit the networks security, infrastructure, and extensive decentralization. As Bitcoin has been around for longer and has a larger network, it is often seen as more secure than newer blockchains. Furthermore, Bitcoins transparency ensures that all inscriptions are publicly verifiable on the blockchain.

Disadvantages: However, there are also drawbacks to the Bitcoin Ordinals system. The major one is the high technical barrier to entry for users, as detailed setup and understanding of Bitcoins protocol are needed. Additionally, the practical limit for data inscriptions is quite low (around 400 KB), making it unsuitable for larger files. The cost of inscriptions can also be high, especially during periods of high demand for block space.

Case studies of successful uses of Bitcoin Ordinals

The release of the Bitcoin Ordinals protocol sparked a flurry of activity and rapid development of services around it. Various projects, such as Yuga Labs, GOLDRUSH, Ordinal Punks, Bitcoin Frogs and more have utilized Bitcoin Ordinals to create unique digital inscriptions or NFTs. Numerous services, wallets, and marketplaces have sprung up to support the inscription, management, and sale of these Ordinals. A range of new, user-friendly tools have emerged, enabling even non-technical users to create, manage, and trade Ordinals. Marketplaces like ordinals.market, ordswap.io, ordina.ls, and scarce.city allow users to buy and sell inscriptions.

Despite its relatively recent introduction, Bitcoin Ordinals have already demonstrated potential for success in several instances. However, more case studies and real-world examples are needed to further illustrate its capabilities and limitations. This will give a more holistic understanding of the Ordinals protocol and how it stacks up against other NFT protocols like ERC-721.

In closing, the introduction of Bitcoin Ordinals and their potential applications mark a significant paradigm shift in the Bitcoin landscape. Through this novel protocol, satoshis, the smallest units of Bitcoin, are given unique identities and become inscribable with arbitrary data, essentially transforming them into non-fungible tokens (NFTs) or digital artifacts. This breakthrough was made possible due to significant updates to the Bitcoin protocol SegWit and Taproot, which, while enabling this new functionality, also bring about concerns regarding inefficient block space usage, potentially increased transaction fees, and slower network speeds.

Unquestionably, Bitcoin Ordinals present a broader spectrum of applications for Bitcoin, going beyond mere financial transactions to encompass digital art, intellectual property rights, real estate, asset tokenization, and more. This paradigm shift not only introduces a new era of on-chain NFTs on the Bitcoin blockchain but also challenges traditional understanding of NFTs themselves. Unlike common methods where NFTs typically store links to off-chain data, Bitcoin Ordinals allow data to be stored directly on the Bitcoin blockchain, lending a higher degree of immutability to the NFTs.

However, the Bitcoin community remains divided on this evolution. While some view Ordinals as an innovative application that could supplement declining block rewards and attract a diverse range of users including artists, creators, collectors, and more, others see it as a deviation from Bitcoins core purpose and a potential threat to its performance and security.

In terms of technology, Bitcoin Ordinals diverge from established NFT protocols like Ethereums ERC-721. Ordinals reliance on direct inscription onto individual satoshis offers greater robustness and transparency. Still, these benefits come with challenges such as high technical barriers to entry, limitations on data size, and potential for increased transaction costs due to competition for block space.

Successful utilization of Bitcoin Ordinals in projects such as Yuga Labs, GOLDRUSH, and Ordinal Punks, and the development of Ordinals-focused services and marketplaces like Ordswap have shown promising initial signs. Yet, these are still the early days for this technology. More practical applications and case studies are needed to fully assess the potential and limitations of Bitcoin Ordinals.

The advent and application of Bitcoin Ordinals, despite the controversies and potential drawbacks, signify a transformative era in Bitcoins history. The concept expands the boundaries of the Bitcoin protocol and holds the potential to further foster innovation in the digital economy. It also reiterates the dynamic and ever-evolving nature of blockchain technology. The future of Bitcoin Ordinals will be influenced by multiple factors, including further technological advancements, community acceptance, regulatory responses, and market dynamics, thus serving as a compelling testament to the ongoing process of innovation and contention that drives the blockchain and cryptocurrency fields.

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Exploring the Potential of Bitcoin Ordinals: A Leap into the Era of On ... - Medium

A central bank digital currency (CBDC) is a digital or electronic form of fiat currency that is issued by a central bank. CBDCs are designed to offer the same legal tender status and user protections as physical cash, but with the added benefits of digital payments, such as speed, convenience, and security. CBDCs are still

A central bank digital currency (CBDC) is a digital or electronic form of fiat currency that is issued by a central bank. CBDCs are designed to offer the same legal tender status and user protections as physical cash, but with the added benefits of digital payments, such as speed, convenience, and security.

CBDCs are still in the early stages of development, but there is a growing interest in them among central banks around the world. Some of the potential benefits of CBDCs include:

However, there are also some potential risks associated with CBDCs, including:

Overall, CBDCs have the potential to offer a number of benefits, but there are also some potential risks that need to be considered. Central banks will need to carefully weigh the benefits and risks before deciding whether or not to introduce CBDCs.

Here are some examples of countries that are exploring the possibility of issuing CBDCs:

It is still too early to say when or if CBDCs will become widely adopted. However, the potential benefits of CBDCs are significant, and central banks around the world are taking a close look at this technology.

Central Bank Digital Currency (CBDC) and cryptocurrencies have the potential to boost public opinion on digital assets in several ways. Lets explore the details:

1. Enhanced Trust and Security: CBDCs are digital currencies issued by central banks, backed by the governments full faith and credit. Their introduction can instill greater trust and confidence in digital assets among the general public. CBDCs are designed with robust security measures, encryption techniques, and advanced blockchain technology, making them highly secure and resistant to fraud. This heightened security can alleviate concerns regarding hacking, theft, and scams, fostering a positive perception of digital assets.

2. Mainstream Adoption: The introduction of CBDCs can provide a government-backed and regulated digital currency alternative. As a result, individuals who may have been skeptical or reluctant to embrace cryptocurrencies due to their perceived lack of regulation can feel more confident in using digital assets. The endorsement of CBDCs by central banks can serve as a catalyst for widespread adoption of cryptocurrencies, as people become more familiar and comfortable with the concept of digital currencies.

3. Financial Inclusion: CBDCs have the potential to improve financial inclusion by providing access to banking services for the unbanked and underbanked populations. Traditional banking services may be inaccessible to certain individuals due to geographical limitations, lack of documentation, or high costs. By leveraging CBDCs, governments can offer secure and low-cost digital wallets to citizens, enabling them to participate in the digital economy and have access to essential financial services. This inclusive approach can generate positive sentiment towards CBDCs and digital assets.

4. Economic Efficiency: Cryptocurrencies, such as Bitcoin and Ethereum, have showcased the potential for fast, borderless, and low-cost transactions. These characteristics can significantly improve efficiency in cross-border remittances, international trade, and financial transactions. As CBDCs leverage similar technology, they can offer the same benefits while being backed by central banks. The increased efficiency and reduced costs associated with digital assets can garner public support and appreciation for their convenience and economic advantages.

5. Innovation and Technological Progress: The emergence of cryptocurrencies and CBDCs has spurred technological innovation in the financial sector. Distributed ledger technology, smart contracts, and decentralized finance (DeFi) platforms have gained prominence, offering new possibilities for financial services. The publics perception of digital assets can be positively influenced by the innovative solutions they bring, such as decentralized exchanges, tokenization of assets, and novel fundraising mechanisms like Initial Coin Offerings (ICOs) or Security Token Offerings (STOs). These advancements can lead to increased public interest, enthusiasm, and positive sentiment towards digital assets.

6. Investment Opportunities: Cryptocurrencies have demonstrated significant growth potential, with some individuals achieving substantial returns on their investments. As more people recognize the potential for wealth creation through digital assets, their perception and interest in cryptocurrencies can become more favorable. Additionally, as governments explore the integration of CBDCs with existing financial systems, investment opportunities related to CBDC infrastructure and supporting technologies may emerge. Such investment prospects can attract public attention and boost confidence in digital assets.

Overall, the introduction of CBDCs by central banks, combined with the ongoing development and adoption of cryptocurrencies, can enhance public opinion on digital assets. Factors such as increased trust, mainstream adoption, financial inclusion, economic efficiency, technological progress, and investment opportunities contribute to a positive narrative around digital assets, fostering greater acceptance and support among the general public.

Blockchain-based CBDCs and cryptocurrencies come with inherent risks and challenges that need to be carefully considered. Here are some of the key risks associated with these digital currencies:

1. Regulatory Uncertainty: The regulatory landscape surrounding blockchain-based CBDCs and cryptocurrencies is still evolving. Different jurisdictions may have varying approaches, creating uncertainty for users, businesses, and investors. Regulatory changes or restrictions can impact the adoption, operation, and value of these digital currencies.

2. Price Volatility: Cryptocurrencies are known for their price volatility. The value of cryptocurrencies can fluctuate dramatically within short periods, which can lead to potential financial losses for investors and affect market stability. Factors such as market demand, regulatory decisions, technological developments, and investor sentiment can greatly influence price movements.

3. Security and Hacking Risks: Blockchain technology itself is considered secure, but the surrounding infrastructure and user practices can introduce vulnerabilities. Cryptocurrency exchanges and digital wallets are potential targets for hackers, and instances of cyberattacks and theft have occurred. If not properly secured, private keys or access credentials can be compromised, resulting in the loss of funds.

4. Lack of Consumer Protection: Cryptocurrency transactions are irreversible, and in case of fraud or loss, it can be challenging to recover funds. Unlike traditional banking systems that offer various consumer protections and dispute resolution mechanisms, cryptocurrencies generally lack similar safeguards. Users need to exercise caution and responsibility when handling their digital assets.

5. Potential for Money Laundering and Illicit Activities: The pseudonymous nature of some cryptocurrencies can be exploited for illicit activities, including money laundering, tax evasion, and illegal transactions. While efforts are being made to enhance transparency and compliance, there are still concerns about the misuse of cryptocurrencies for illicit purposes, which can invite regulatory scrutiny and impact their reputation.

6. Lack of Scalability: Blockchain networks, especially those used for cryptocurrencies, face scalability challenges. As the number of transactions increases, the capacity of the network to process them efficiently can be strained. This can result in delays, increased fees, and reduced user experience. Scalability solutions, such as layer-two protocols, are being developed, but widespread implementation is still ongoing.

7. Environmental Impact: Some cryptocurrencies, such as Bitcoin, rely on energy-intensive mining processes. The significant energy consumption associated with mining has raised concerns about the environmental impact and sustainability of cryptocurrencies. Addressing these concerns will require the development and adoption of more energy-efficient consensus mechanisms and renewable energy sources.

8. Centralization Risks: While cryptocurrencies aim to be decentralized, certain aspects can exhibit centralization risks. Concentration of mining power, wealth distribution, and influence of large cryptocurrency holders (whales) can impact market dynamics and introduce vulnerabilities. Centralization can undermine the original principles of decentralization and result in market manipulation or control by a few entities.

9. Lack of Interoperability: The lack of standardized protocols and interoperability between different blockchain networks and cryptocurrencies can limit their usability and hinder their integration into existing financial systems. Fragmentation and compatibility issues can impede the seamless transfer and exchange of digital assets across different platforms.

10. Technology and Adoption Risks: Blockchain technology is still relatively new and rapidly evolving. There are risks associated with the development, implementation, and adoption of blockchain-based CBDCs and cryptocurrencies. Technical vulnerabilities, bugs, or flaws in the code could be exploited, leading to potential disruptions, loss of funds, or compromised security.

11. Perception and Reputation Risks: The reputation of blockchain-based CBDCs and cryptocurrencies can be influenced by negative media coverage, scams, fraudulent schemes, or market manipulations. Negative events or perceptions can erode trust and confidence in these digital currencies, hindering their widespread adoption and acceptance.

Its important to note that efforts are being made to address these risks and challenges through ongoing research, technological advancements, industry collaboration, and regulatory initiatives. Governments and regulatory bodies are actively working on implementing frameworks to address concerns such as investor protection, anti-money laundering, and market integrity.

Furthermore, industry players are investing in improving security measures, developing more user-friendly interfaces, and enhancing the scalability and interoperability of blockchain networks. Increased awareness, education, and best practices can also help mitigate risks associated with these digital currencies.

As with any emerging technology, blockchain-based CBDCs and cryptocurrencies carry inherent risks that require careful consideration and risk management. It is essential for users, investors, and policymakers to stay informed, understand the risks involved, and take appropriate measures to protect themselves and ensure the responsible and sustainable growth of these digital currencies.

Also, read 5 Primary Key Difference Between Stablecoin And CBDC

The future of Central Bank Digital Currencies (CBDCs) and cryptocurrencies holds significant potential for transformative changes in the financial landscape. Heres a detailed exploration of what lies ahead:

1. Increased Adoption and Integration: We can expect to see a wider adoption of blockchain-based CBDCs as central banks worldwide explore their potential. Several countries, including China, Sweden, and the Bahamas, have already made significant progress in developing and piloting CBDC projects. As more central banks recognize the benefits of CBDCs, we can anticipate increased integration of digital currencies into existing financial systems.

2. Enhanced Financial Inclusion: Blockchain-based CBDCs have the potential to improve financial inclusion by providing access to digital financial services for unbanked or underbanked populations. These digital currencies can enable individuals to participate in the digital economy, access banking services, and make transactions securely using mobile devices. This can help bridge the gap between traditional banking and the underserved populations, fostering economic empowerment.

3. Interoperability and Cross-Border Transactions: Efforts are underway to establish interoperability between different blockchain networks and digital currencies. This would enable seamless cross-border transactions and the transfer of value across different platforms. Interoperability can unlock new opportunities for international trade, remittances, and global financial integration, making cross-border transactions more efficient and cost-effective.

4. Improved Scalability and Efficiency: Blockchain technology is continually evolving to address scalability challenges. Solutions such as layer-two protocols, sidechains, and off-chain transactions are being developed to enhance the scalability of blockchain networks. These advancements will enable faster transaction processing, reduced fees, and improved overall efficiency, making blockchain-based CBDCs and cryptocurrencies more practical for everyday transactions.

5. Integration with Internet of Things (IoT): The convergence of blockchain technology and the Internet of Things (IoT) holds immense potential. Blockchain-based CBDCs and cryptocurrencies can be integrated with IoT devices, enabling autonomous machine-to-machine transactions and micro-payments. This integration can revolutionize sectors such as supply chain management, smart cities, and connected devices, facilitating seamless and secure transactions between IoT devices.

6. DeFi and Decentralized Applications (DApps): Decentralized Finance (DeFi) platforms and DApps are already gaining traction within the cryptocurrency ecosystem. These platforms enable users to access various financial services, including lending, borrowing, and trading, without the need for intermediaries. As blockchain-based CBDCs gain popularity, we can expect to see the development of DeFi platforms that incorporate both traditional and digital currencies, offering a broader range of financial services to users.

7. Enhanced Privacy and Security Features: Privacy concerns are being addressed with the development of more privacy-centric blockchain protocols. Innovations such as zero-knowledge proofs, secure multi-party computation, and advanced encryption techniques are being integrated into blockchain networks to enhance privacy and security features. This will provide users with greater control over their personal data and transactional privacy, ensuring a balance between transparency and individual privacy.

8. Regulatory Frameworks and Standards: Governments and regulatory bodies are actively working on developing regulatory frameworks and standards for blockchain-based CBDCs and cryptocurrencies. These frameworks aim to address concerns such as investor protection, money laundering, and market stability. The establishment of clear regulations can foster confidence among users, businesses, and institutional investors, leading to increased adoption and institutionalization of digital currencies.

9. Integration of Smart Contracts: Smart contracts, self-executing agreements coded on the blockchain, have the potential to revolutionize various industries. With the integration of smart contracts into blockchain-based CBDCs and cryptocurrencies, we can expect to see the automation of contractual agreements, simplified supply chain management, and improved transparency in financial transactions.

10. Innovation and New Use Cases: The future of blockchain-based CBDCs and cryptocurrencies will likely witness continued innovation and the emergence of new use cases. The versatile nature of blockchain technology allows for the creation of decentralized applications and the tokenization of real-world assets. We can anticipate the development of novel financial instruments, fractional ownership of assets, and the integration of blockchain into sectors such as healthcare, energy, and governance.

Its important to note that the future of blockchain-based CBDCs and cryptocurrencies will also be influenced by factors such as technological advancements, regulatory developments, market dynamics, and public perception. The successful realization of their potential will depend on striking a balance between innovation, security, and regulatory compliance, fostering trust and confidence in these digital currencies.

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How CBDC And Cryptocurrency Will Boost Public Opinion On Digital ... - Blockchain Magazine

If Ethereum is to expand how it's used, it will need to undergo three major transitions or risk undermining its own future, said Ethereum co-founder Vitalik Buterin.

In a blog post published on Friday, Buterin laid out his ideas for what it will take to help Ethereum mature if it is to expand in use. Calling them The Three Transitions, Buterin said they would need to evolve around transitions in layer-2, or L2, scaling solutions, a move to smart contract wallets, and greater privacy for fund transfers.

Buterins proposals bump into what has been called the "blockchain trilemma." A blockchain's most important traits are being decentralized, secure, and scalable, but it can only usually achieve two of these three.

To overcome this, Buterin said that it is acknowledged that these transitions would be challenging to coordinate, but said they were needed for Ethereum to survive.

Of the three, Buterin singled out a need to expand use of L2 solutions called rollups as an important part of this transition. An ordinary L2 function processes transactions off of the main Ethereum blockchain, or the L1.

A rollup is a scaling solution that bundles these transactions and then validates a proof of them as a much smaller piece of data on the mainnet to keep it from getting too clogged. As a result, the cost of an Ethereum transaction can be lower.

"Layer 2s are critical to the success of Ethereums vision of the world computer. Without L2s, Ethereum wont scale," CEO of OP Labs and co-founder of Ethereum scaler Optimism Karl Floersch told Decrypt. "Without scale, Ethereum will never be able to support the worlds compute demand, and until the worlds compute is fully supported, we cant fully realize Ethereums vision."

Critically, said Buterin, the version of Ethereum that does not address the move to rollups "fails," adding that transaction costs would only surge in the face of a bull run and encourage more centralization on its blockchain.

"The solution isn't simply 'move users off of mainnet.' Rather, the solution lies in extending the capabilities of the Ethereum network," Floersch said. "This means that instead of thinking about it as a migration from mainnet, we can think about it as load balancing the demand for Ethereum mainnet with other highly secure OP chains."

Eli Ben-Sasson, co-founder of the Israeli-based company StarkWare behind layer-2 scaling solutions StarkEx and StarkNet, said Buterin was right in his diagnosis of what it would take to see an expanded Ethereum.

He said his company was already using the smart contract wallets as part of its StarkNet, and believes more of this type of scaling is over the horizon.

Having the leadership from Vitalik which both appreciates the excitement of this moment and urges the community to get on board is a big part of what will propel Ethereums success, Ben-Sasson told Decrypt.

Buterin said the move to smart contract wallets has some "technical issues" to work through but is "not a large burden" to address.

With a smart contract, contracts automatically execute their terms when predefined conditions are met, and Buterin said they would make some processes easier like covering transactions for non-ETH tokens.

Of the three transitions, Buterin expressed concern that meeting privacy concerns would be among the bigger challenges. He said that without enough data privacy measures in place, users concerned about this will stay away from Ethereum.

Without [privacy], Ethereum fails because having all transactions available publicly for literally anyone to see is far too high a privacy sacrifice for many users," said Buterin.

To address this, Buterin suggested using "stealth address" to help protect user identities, but these methods are still maturing because of issues around cost and functionality.

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'Ethereum Fails' Without These 3 Changes, Says Vitalik Buterin - Decrypt

One of the most promising innovations in the blockchain industry is the smart contract. They provide a superior alternative to traditional contracts because theres no need for a third party to enforce the terms. Instead, everything is done through code, with smart contracts programmed to execute automatically only when certain, specified conditions are met.

From simple payments to complex, multi-step, and multi-party transactions, smart contracts enable more independence by removing the middleman. With traditional contracts, a third party such as the government or courts will get involved whenever theres a dispute. Third parties often play a role in creating the contract too. The downside, of course, is that the middleman always insists on taking a cut of the deal.

With automated smart contracts, the need for these third parties is eliminated. It means that smart contracts are more streamlined and cost-effective for the individual parties involved in any transaction. Its no surprise that multiple industries are beginning to recognize the benefits of smart contracts. In terms of real-world examples, we have already seen dozens of different use cases for smart contracts evolve.

In the music industry, emerging artists often have to rely on the income they get from fans who stream their music. With smart contracts, enforcing these royalty payments becomes much easier. Smart contracts can define what percentage of the royalty income is received by the artist and their record label and will enforce this each time someone downloads one of their songs.

A good example of this in practice is Tune.fm, which has built a tokenized music economy that ensures artists are paid in crypto directly for every second someone streams one of their tracks. Smart contracts will record the exact length of time someone listens to the song and then automatically pay the artist in JAM tokens.

Self-enforcing contracts can operate autonomously, and that makes them especially useful for tasks like supply chain management. For instance, when a product or component is delivered to its intended destination, be it a factory, warehouse, or store, it will trigger a pre-agreed escalation clause and record this delivery onto an immutable blockchain.

An Australian startup called Datahash is doing exactly this for the countrys agricultural supply chain. Its built on the Hedera Consensus Service that tracks products from one location to another and is designed to automate supply chain operations and prevent fraud that costs the Australian wine industry around $3 billion a year. Each time a delivery is made, a smart contract records it has happened, making it possible to trace each bottle of wine from the store shelf back to the vineyard where it was produced.

A fit and healthy population is essential for any economy, and so there are lots of good reasons to want to motivate people to keep fit. This is the goal of Sweat Economy, creator of the move-to-earn application Sweatcoin, which uses smart contracts to facilitate the transfer of rewards to users based on how many steps they take each day.

The Sweatcoin app is linked to a fitness tracking app such as Google Fit, which tracks the users number of steps. This movement is then validated by an oracle before passing on a message confirming the user has taken the required number of steps to the smart contract. This triggers the smart contract to calculate the exact amount of Sweat coins the user is due, then transfer them to their wallet. In this way, Sweat Economy is uniquely able to incentivize people to keep fit with financial rewards.

Smart contracts are also helping to improve the real estate industry in various ways, such as through streamlined transactions and fractional ownership. Rather than having just one person own a house, the ownership of that property can be segmented based on the number of tokens someone holds. So whoever owns tokens also owns a percentage of the related property. It enables micro-investing in real estate for the first time.

Transactions can also be performed through smart contracts. Once payment is made in crypto, the digital record of ownership for the property in question will automatically transfer to the wallet that paid for it and be recorded onto the blockchain. A startup called Propy facilitated the first-ever smart contract-powered real estate transaction back in 2017 when an apartment was sold for $60,000 worth of ETH. That same house was later transformed into an NFT and sold again for $93,000 in 2021.

The requirement to constantly show a government-issued identity document when signing up for a new service could one day be eliminated by smart contracts. Its possible to store such documents on a blockchain in an encrypted way, which also has the benefit of preserving user privacy while still validating their identity. When a user signs up for a new service, counterparties can use smart contracts to validate the individual without requesting their documentation.

This technology can even evolve to cover things like credit scores, enabling lenders to assess risk in a decentralized way. MyEarth ID is a good example of a decentralized identity platform, enabling users to retain control over their identity data while verifying it securely with trusted third parties.

Democracy itself can benefit from smart contracts, which create a secure environment for public voting that reduces the risk of fraud. In such a system, each vote is recorded by a smart contract and encrypted to ensure the privacy of the voter. While smart contracts have yet to be used in government elections, theyre often employed by decentralized autonomous organizations that allow for community governance.

If employed by a nation-state, its quite possible that smart contracts could increase voter turnout in national elections. Because the entire system is online, it would eliminate the need for voters to travel to a polling station to make their vote.

For now, traditional pen and paper-based contracts remain a lot more commonplace than their automated counterparts. Old habits die hard, after all. But its clear enough that smart contracts have incredible potential to streamline almost any kind of transaction, making them proceed more smoothly and with lower costs.

Its for this reason that companies and governments alike continue to experiment with potential use cases for smart contracts. They may not fully replace pen and paper, but theyll surely become far more commonplace.

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5 Ways Smart Contracts Are Making A Real-World Difference - HackRead