The Banking Executive Magazine - October Issue 2022

Virtual Assets Basics The decentralized virtual assets are particularly vulnerable to money laundering and terrorism financing abuse, due to easy convertibility and distributed architecture, which pro- vides anonymous transfer of funds without passing through a central au- thority. THE TRANSACTION CYCLE OF VIRTUAL ASSETS The transactions of virtual assets rely on public and private keys (provided through Virtual Asset Wallet) to trans- fer value from one person to another. The safety, integrity and balance of virtual asset ledgers is ensured by a network of mutually distrustful par- ties (miners) who protect the network in exchange for the opportunity to obtain a randomly distributed fee. The transaction cycle to transfer vir- tual asset such as bitcoin from one person to another involves: 1. Virtual Asset Wallets: The individuals (sender and re- ceiver) require Virtual Asset Wal- lets for performing a transaction in virtual assets. A Virtual Asset Wallet contains a public key and a private key. 2. Address Creation: The receiver randomly generates a new address (public key) for the sender using the Wallet. 3. Payment Submission: The sender will enter the unique address (public key) shared by the receiver in the wallet along with amount of virtual asset to be sent. 4. Signature: The sender will digitally sign the transaction with unique private key, which will prove the integrity of transaction. 5. Propagation and validation: The transaction will flood through the distributed network to nodes who perform verification checks and re-propagate the verified transaction to other peers in the network. 6. Creation of Block: After validation, the miners will include the transaction in the next block to be mined. 7. Proof-of-Work: The miners will compete each other to calculate a hash that will solve the Proof-of-Work. This process takes 10 minutes on av- erage. the BANKING EXECUTIVE 10 ISSUE 166 OCTOBER 2022