Episode 139: Cybersecurity and Cryptocurrencies

Crypto Mining

Crypto mining is a fundamental process in cryptocurrency systems, where miners compete to solve complex puzzles to validate transactions and add blocks to the blockchain. James Fodor explains that this process is akin to finding a valuable item, like a diamond, and miners are rewarded with new cryptocurrency for successfully generating a block 1. This incentivizes miners to process transactions, ensuring the system's security. The proof of work system requires significant computational power, as miners must demonstrate they've done the work by solving mathematical problems, which acts as a costly signal to prevent fraudulent activities 2.

You have to prove that you've done the work by crunching a lot of these numbers and trying a lot of possibilities until you happen on the correct one.

--- James Fodor

This intensive process is why crypto mining consumes vast amounts of electricity and computational resources.

   

Crypto Challenges

Cryptocurrencies face several challenges, including the risk of forks and extreme volatility. James Fodor describes forks as splits in the cryptocurrency system, creating new versions of the currency, which can lead to confusion and fragmentation 3. Volatility is another significant issue, with cryptocurrencies like Bitcoin experiencing dramatic price swings, making them unreliable as a store of value 4. This instability complicates their use in transactions, as prices can vary wildly from one week to the next.

Cryptocurrency prices have proved to be very volatile, going up and down very considerably.

--- James Fodor

These challenges highlight the difficulties in using cryptocurrencies as a stable financial tool.