CHAPTER-I

INTRODUCTION

41
 INTRODUCTION OF CRYPTOCURRENCY

A crypto currency (or crypto currency) is a digital asset designed to work as a medium of
exchange that uses strong cryptography to secure financial transactions, control the creation
of additional units, and verify the transfer of assets. Crypto currencies use decentralized
control as opposed to centralized digital currency and central banking systems.[4]

The decentralized control of each crypto currency works through distributed

ledger technology, typically a blockchain, that serves as a public financial transaction
database.[5]

, first released as open-source software in 2009, is generally considered the first decentralized
crypt currency.[6] Since the release of , over 4,000 altcoins (alternative variants of , or other
crypto currencies) have been created.

There have been many attempts at creating a digital currency during the 90s tech boom, with
systems like Flooz, Beenz and DigiCash emerging on the market but inevitably failing. There
were many different reasons for their failures, such as fraud, financial problems and even
frictions between companies’ employees and their bosses.

Notably, all of those systems utilized a Trusted Third Party approach, meaning that the
companies behind them verified and facilitated the transactions. Due to the failures of these
companies, the creation of a digital cash system was seen as a lost cause for a long while.

Then, in early 2009, an anonymous programmer or a group of programmers under an

alias Satoshi Nakamoto introduced . Satoshi described it as a ‘peer-to-peer electronic cash
system.’ It is completely decentralized, meaning there are no servers involved and no central
controlling authority. The concept closely resembles peer-to-peer networks for file sharing.

One of the most important problems that any payment network has to solve is double-
spending. It is a fraudulent technique of spending the same amount twice. The traditional
solution was a trusted third party - a central server - that kept records of the balances and
transactions. However, this method always entailed an authority basically in control of your
funds and with all your personal details on hand.

42
In a decentralized network like , every single participant needs to do this job. This is done via
the Blockchain - a public ledger of all transaction that ever happened within the network,
available to everyone. Therefore, everyone in the network can see every account’s balance.

Every transaction is a file that consists of the sender’s and recipient’s public keys (wallet
addresses) and the amount of coins transferred. The transaction also needs to be signed off by
the sender with their private key. All of this is just basic cryptography. Eventually, the
transaction is broadcasted in the network, but it needs to be confirmed first.

Within a cryptocurrency network, only miners can confirm transactions by solving a

cryptographic puzzle. They take transactions, mark them as legitimate and spread them across
the network. Afterwards, every node of the network adds it to its database. Once the
transaction is confirmed it becomes unforgeable and irreversible and a miner receives a
reward, plus the transaction fees.

Essentially, any cryptocurrency network is based on the absolute consensus of all the
participants regarding the legitimacy of balances and transactions. If nodes of the network
disagree on a single balance, the system would basically break. However, there are a lot of
rules pre-built and programmed into the network that prevents this from happening.

Cryptocurrencies are so called because the consensus-keeping process is ensured with strong
cryptography. This, along with aforementioned factors, makes third parties and blind trust as
a concept completely redundant.

43
What can you do with crypt currency?

Buy goods

In the past, trying to find a merchant that accepts crypto currency was extremely difficult, if
not impossible. These days, however, the situation is completely different.

There are a lot of merchants - both online and offline - that accept as the form of payment.
They range from massive online retailers like Overstock and Newegg to small local shops,
bars and restaurants. s can be used to pay for hotels, flights, jewelery, apps, computer parts
and even a college degree.

Other digital currencies like Litecoin, Ripple, Ethereum and so on aren’t accepted as widely
just yet. Things are changing for the better though, with Apple having authorized at least 10
different crypto currencies as a viable form of payment on App Store.

Of course, users of crypto currencies other than can always exchange their coins for BTCs.
Moreover, there are Gift Card selling websites like Gift Off, which accepts around 20
different crypto currencies. Through gift cards, you can essentially buy anything with a crypt
currency.

Finally, there are marketplaces like Bitify and OpenBazaar that only accept crypto currencies.

Read more in the article “What can I buy with s?”

44
Invest

Many people believe that cryptocurrencies are the hottest investment opportunity currently
available. Indeed, there are many stories of people becoming millionaires through their
investments. is the most recognizable digital currency to date, and just last year one BTC
was valued at $800. In November 2017, the price of one exceeded $7,000.

Ethereum, perhaps the second most valued crypto currency, has recorded the fastest rise a
digital currency ever demonstrated. Since May 2016, its value increased by at least 2,700
percent. When it comes to all crypto currencies combined, their market cap soared by more
than 10,000 percent since mid-2013.

However, it is worth noting that crypto currencies are high-risk investments. Their market
value fluctuates like no other asset’s. Moreover, it is partly unregulated, there is always a risk
of them getting outlawed in certain jurisdictions and any cryptocurrency exchange can
potentially get hacked.

If you decide to invest in cryptocurrencies, is obviously still the dominant one. However, in
2017 its share in the crypto-market has quite dramatically fallen from 90 percent to just 40
percent. There are many options currently available, with some coins being privacy-focused,
others being less open and decentralized than and some just outright copying it.

While it’s very easy to buy s - there are numerous exchanges in existence that trade in BTC -
other crypto currencies aren’t as easy to acquire. Although, this situation is slowly improving
with major exchanges like Kraken, BitFinex, BitStamp and many others starting to sell

45
Litecoin, Ethereum, Monero, Ripple and so on. There are also a few other different ways of
being coin, for instance, you can trade face-to-face with a seller or use a ATM.

Once you bought your crypto currency, you need a way to store it. All major exchanges offer
wallet services. But, while it might seem convenient, it’s best if you store your assets in an
offline wallet on your hard drive, or even invest in a hardware wallet. This is the most secure
way of storing your coins and it gives you full control over your assets.

As with any other investment, you need to pay close attention to the crypto currencies’
market value and to any news related to them. Coinmarketcap is a one-stop solution for
tracking the price, volume, circulation supply and market cap of most existing crypto
currencies.

Depending on a jurisdiction you live in, once you’ve made a profit or a loss investing in
crypto currencies, you might need to include it in your tax report. In terms of taxation, crypto
currencies are treated very differently from country to country. In the US, the Internal
Revenue Service ruled that s and other digital currencies are to be taxed as property, not
currency. For investors, this means that accrued long-term gains and losses from crypto
currency trading are taxed at each investor’s applicable capital gains rate, which stands at a
maximum of 15 percent.

INTRODUCTION
Since time immemorial, human civilization has been transacting with each other. Though the
medium of this has changed, the entire essence has remained same. Starting from barter
system, to coins to paper currency, we have reached an era where we are talking about
cashless transactions. With the birth of word “E” in E-business, the entire way of transacting
has underwent a sea change. And today, we have reached to a state where we talk about
Digital payments.
Digital Payment system is a way of making transaction or paying for goods and services
through an electronic medium without the use of cheque or cash. It makes the payment easier
and saves time. It eradicates the use of paper currency and risks associated with it. It is very
user friendly and convenient. There has been a sharp rise in the usage various digital medium
like E-wallet, UPI, and Internet banking etc to make payment.

46
In all these digital payment tools, there is another one called Crypto currency which is slowly
but steadily taking the news headlines. Let’s first analyze what exactly is this
Cryptocurrency. It is the new form of digital money, designed to be safe, secure and — most
importantly — anonymous. Using cryptography, mathematical theory and computer science,
crypto-currencies like (BTC) allow users to store money and make secure payments without
using a bank or having their name associated with transactions.
So, the question here arise is that,” Is Cryptocurrency a 21St century unicorn or future’s
money?” Today it has become global phenomena known many associated with the trade.
According, to Thomas Carper, “It is a virtual currency, most notably (BTC)”. They are
called “Cryptocurrency” because the consensus-keeping process is secured by strong
cryptography.
(BTC) is most famous of all of the crypto currencies. It is the first and still most important
crypto currency invented by Satoshi Nakamoto (Fictional name). His goal was to invent
decentralized digital cash system which many people fail to create. So after seeing all
centralized attempts failing, Satoshi tried to build digital cash system without a central entry,
like a PEER-TO-PEER NETWRORK for file sharing. And this gave birth to crypto currency.
CRPYTOCURRENCY like (BTC) consists of a network of peers. Every peer has a record of
the complete history of all transaction and thus balance of every account. A file named which
will be signed by one of the person privately after which the transaction is broadcasted in the
network sent from one peer to every other peer. This is basic P2P-technology.the transaction
will be known almost immediately by the whole network but only after a specific amount of
time it gets confirmed.
According to the data from coinmarketcap.com, “the total Cryptocurrency market cap
reached $96.5 billion in this year and (BTC) has increased his value by 5.2%. Another digital
currency,Etherum skyrocketed this year.Its price hit a new record of $25.41 a coin.” There
are many different types of crypto-currencies. Each has a specific identity, and denomination,
or value. There’s (BTC), Namecoin, Litecoin, Dotcoin, Etherum and many others.
Cryptocurrency still has numerous significant obstacles to overcome before they could totally
replace current currency system.In addition to battling the current economic
system,CRYPTOCURRENCY has some internal challenges to overcome.This research paper
probes into this particular aspect of the financial string, Cryptocurrency and does it has any
future market.

47
OBJECTIVE OF THE STUDY
The result of this study is aimed to contribute theoretical and practical implication of
(BTC)and most importantly Cryptocurrency, in today's era. It also aims at drawing
conclusion that whether emergence of CRYPTOCURRENCYas a whole will be success or
failure. So, the objectives of this study are:
Objective 1: Is (BTC) (BTC) the best Cryptocurrency? – Examining the rise of (BTC) and
analysis as to whether it is the best form of currency to use block-chain technology.
Objective 2: What's next for the Cryptocurrency market? – Providing insights as to what’s
next in this Cryptocurrency market and will other currencies provide better usage application.
Cryptocurrency has been the new talk of the town in the financial sphere. (BTC), which is
allegedly been the first currency to use Block-chain technology, has its own shortcomings
and is being eclipsed by various other such currencies. So, is BTC still the best
Cryptocurrency and if not, what does the block chain currency market has in stores for
future?

SCOPE FOR FUTURE RESEARCH:

Further studies need to be conducted on a much larger scale, so as to get more reliable results.
One can conduct a primary survey among the respondents in touch with financial track to
understand the impact of Crypto currency better. Alongside, interviewing industry experts
would help in getting a deeper insight on this topic. Studies could also be conducted to
identify the various effects that the adoption of crypto currency would have on different
aspects of the economy. Considering that crypto currencies are volatile in nature and operate
in an ever-changing market, the scope for further studies is extremely broad..

48
RESEARCH METHODOLOGY
Introduction--
In brief terms, Research methodology is defined as a process involving the collection of
relevant information and data in order to take informed business decisions. The methodology
may include referring to publication research, interviews, surveys and other research
techniques, and could include both present and historical information. The methodology
basically talks about the logic behind the method used in the context of the research study and
providing an explanation as to why particular method or techniques are used.
Research Design-
For the study, Descriptive research design is followed which describes the characteristics in
detail. Longitudinal research study of data is incorporated. Through this, the aim is to
provide insights into and understanding of the research problem.
Secondary Data-
For the purpose of this study, we have used secondary data from reports, Journals, previously
published papers and articles duly mentioned in the bibliography (reference)in order to
provide insights into the research study. Charts and Graphs used have been duly citied.
Time Frame-
Time frame of 2012 to November 2017 was chosen to probe and look for the growth in usage
of Crypto currency and find out any key growth.

49
LIMITATIONS OF THE STUDY:
Firstly, no study is free from any limitation and this study is also no exception. The study is
majorly based on secondary data taken from various journals and previously published work
including articles. This may distort the reliability of the result obtained since primarily these
data supported that work. So, data obtained in some cases may be biased.
The absence of Primary data mitigate the chance of hypothesis testing or for that matter any
other statistical tool.
Also, time limitation for compelling the project is also a factor that might have affected the
study. This being said, since BTC is always on the rise, there is no proper time frame to
measure the impact. Moreover, the researchers’ biasness cannot be totally ruled out.

50
 CHAPTER-II
REVIEW OF LITERATURE

51
LITREATURE REVIEW
In thearticlewritten by Sarah Granger (2017) talked about (BTC) being the first as well as the
most famous CRYPTOCURRENCY till now. It highlighted the facts that led to rise in such
currency. It has been growing its roots since the beginning and is expected to stay in the
market for long.
In the work by Ryan Farell, “An Analysis of the Cryptocurrency Industry” (2015), talks about
the Crypo-currency industry which is expanding dramatically in the number of coins
currently in circulation. It further elucidated that the industry is coming up with new solutions
to various deficiencies. It states that (BTC) may not dominate the industry in the long run,
but the industry will remain intact.
The work by KEVIN MANEY (2014) on (BTC) was concerned with author assertion that
(BTC) exemplifies the future of money and the article concluded with the disadvantage of
cash and credit cards and also talks about the fail past attempts at creating digital currencies
such AS FLOOZ.
Harwick Cameron, in his work, “CRYPTOCURRENCY and the problem of intermediation”
(2016) aims to explore the popularity of CRYPTOCURRENCY as the “technological
monetary system for current international regime of central bank issued monies and the
article concluded with the information that it may be valuable to have a
CRYPTOCURRENCY with a stable purchasing power to allay fears of adoption, even if the
currency would not sustain widespread growth until the regulation preventing the
intermediation is relaxed”.
The article “The usage of CRYPTOCURRENCY as an alternative solution of issue of the
world monetary system”(2014, SEITIM AIGANYM)was concerned with the tropical matter
of CRYPTOCURRENCY, mechanism of emission and its catch in the present market and the
article concluded with the information that the traditional currencies being not so stable as
before, (BTC) although unrecognized money has its own stock exchange, users and carriers
and therefore presents itself as the alternative solution to the present system.
RICHAEL WITKOWSKI (2016), in his work concerning CFPB talks about warning on
virtual currencies like (BTC)with (BTC) was posing significant risk to consumer and the
article concluded with saying that “federal agencies had begun to collaborate on virtual
currency issue through informal discussions and interacy working groups primarily
concerned with money laundering and other law enforcement matters.”

52
The work by Alexander D’Alfonso, Peter Langer, Zintis Vandelis (2016) gave a 5 year
forecast for some of the major cryptocurrencies. They found that (BTC) would most likely
experience a 301%growth rate, to reach a value of $2550.On the other hand, Ethereum is
expected to have a 634% growth rate to reach the forecasted value of approximately $88.
Both values represent an absolutely incredible growth rates due in large part to the dramatic
growth driven by hype and adoption in the early stage of the life cycle
In the article by KEVIN DOWD, (2015) it was mentioned about (BTC) being a failure. The
article concluded with the information that underlying of (BTC) economic means is
unsustainable and in all likelihood will be remembered as a failed experiment and it can only
be brought down by knocking out the whole network or one of the block on which the
network depends.
In his work,“ (BTC) future in financial services written fortune.com”, KIA KOKALICHEVA
throws light on (BTC)'s technology having potential have a bigger impact on finance. The
article talked about how NYSE (New York Stock Exchange) listed on its exchange.
The study conducted by GLOBAL MANAGEMENT REVIEW (2016) talks about the
challenges faced in using (BTC) with an Indian perspective. It highlighted that India is
witnessing an great growth in the field of digital payment and Indian rupee is still struggling
to get a grip on its declining value which can lead to several investment in digital currency.
HARWARD BUSSINESS REVIEW (2016)work by DON TAPSCOTT AND ALEX
TAPSCOTT was concerned with introducing new (BTC) technology and it concluded with
saying that it is vast database running on million of devices where not only info but anything
of value can be moved and stored securely and privately and it also is the first native digital
medium for information.
The paper on “European vat case” (INTERNATIONAL TAX REVIEW, 2016) discusses
intersection of the use of (BTC) and VAT and concludes with the point that many number of
income tax officers were most probably going to issue guidance on the vat liability of trading
in and using (BTC).
The article “Prominent (BTC) developer declares the digital currency a failure”(2016) by
KIA KOKALITCHEVA aimed on (BTC)’s failure and it concluded with saying that even
the developers of (BTC) understood (BTC) as a failure and according to them (BTC) could
boost its value but in long term it can't.

53
History
See also: History of

In 1983, the American cryptographer David Chaum conceived an anonymous

cryptographic electronic money called ecash.[7][8] Later, in 1995, he implemented it

through Digicash,[9] an early form of cryptographic electronic payments which required user

software in order to withdraw notes from a bank and designate specific encrypted keys before it

can be sent to a recipient. This allowed the digital currency to be untraceable by the issuing bank,

the government, or any third party.

In 1996, the NSA published a paper entitled How to Make a Mint: the Cryptography of

Anonymous Electronic Cash, describing a Cryptocurrency system first publishing it in a MIT

mailing list[10] and later in 1997, in The American Law Review (Vol. 46, Issue 4).[11]

In 1998, Wei Dai published a description of "b-money", characterized as an anonymous,

distributed electronic cash system.[12] Shortly thereafter, Nick Szabo described bit

gold.[13] Like and other cryptocurrencies that would follow it, bit gold (not to be confused with

the later gold-based exchange, BitGold) was described as an electronic currency system which

required users to complete a proof of work function with solutions being cryptographically put

together and published. A currency system based on a reusable proof of work was later created by

Hal Finney who followed the work of Dai and Szabo.[citation needed]

The first decentralized cryptocurrency, , was created in 2009 by pseudonymous developer Satoshi

Nakamoto. It used SHA-256, a cryptographic hash function, as its proof-of-work scheme.[14][15] In

April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would

make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was

the first successful cryptocurrency to use scrypt as its hash function instead of SHA-256. Another

notable cryptocurrency, Peercoin was the first to use a proof-of-work/proof-of-stake hybrid.[16]

54
On 6 August 2014, the UK announced its Treasury had been commissioned to do a study of

cryptocurrencies, and what role, if any, they can play in the UK economy. The study was also to

report on whether regulation should be considered.

Formal definition
According to Jan Lansky, a cryptocurrency is a system that meets six conditions:[18]

1. The system does not require a central authority, its state is maintained through distributed

consensus.

2. The system keeps an overview of cryptocurrency units and their ownership.

3. The system defines whether new cryptocurrency units can be created. If new

cryptocurrency units can be created, the system defines the circumstances of their origin

and how to determine the ownership of these new units.

4. Ownership of cryptocurrency units can be proved exclusively cryptographically.

5. The system allows transactions to be performed in which ownership of the cryptographic

units is changed. A transaction statement can only be issued by an entity proving the

current ownership of these units.

6. If two different instructions for changing the ownership of the same cryptographic units

are simultaneously entered, the system performs at most one of them.

In March 2018, the word cryptocurrency was added to the Merriam-Webster Dictionary.[19]

Altcoin

The term altcoin has various similar definitions. Stephanie Yang of The Wall Street

Journal defined altcoins as "alternative digital currencies," [20] while Paul Vigna, also of The Wall

Street Journal, described altcoins as alternative versions of .[21] Aaron Hankins of

the MarketWatch refers to any cryptocurrencies other than as altcoins.[22]

Crypto token

55
A blockchain account can provide functions other than making payments, for example

in decentralized applications or smart contracts. In this case, the units or coins are sometimes

referred to as crypto tokens (or cryptotokens).

Architecture
Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a

rate which is defined when the system is created and which is publicly known. In centralized

banking and economic systems such as the Federal Reserve System, corporate boards or

governments control the supply of currency by printing units of fiat money or demanding

additions to digital banking ledgers. In case of decentralized cryptocurrency, companies or

governments cannot produce new units, and have not so far provided backing for other firms,

banks or corporate entities which hold asset value measured in it. The underlying technical

system upon which decentralized cryptocurrencies are based was created by the group or

individual known as Satoshi Nakamoto.[23]

As of May 2018, over 1,800 cryptocurrency specifications existed. [24] Within a cryptocurrency

system, the safety, integrity and balance of ledgers is maintained by a community of mutually

distrustful parties referred to as miners: who use their computers to help validate and timestamp

transactions, adding them to the ledger in accordance with a particular timestamping scheme. [14]

Most cryptocurrencies are designed to gradually decrease production of that currency, placing a

cap on the total amount of that currency that will ever be in circulation. [25] Compared with

ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be

more difficult for seizure by law enforcement.[1] This difficulty is derived from leveraging

cryptographic technologies.

Blockchain

Main article: Blockchain

The validity of each cryptocurrency's coins is provided by a blockchain. A blockchain is a

continuously growing list of records, called blocks, which are linked and secured
56
using cryptography.[23][26] Each block typically contains a hashpointer as a link to a previous

block,[26] a timestamp and transaction data.[27] By design, blockchains are inherently resistant to

modification of the data. It is "an open, distributed ledger that can record transactions between

two parties efficiently and in a verifiable and permanent way".[28] For use as a distributed ledger, a

blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for

validating new blocks. Once recorded, the data in any given block cannot be altered retroactively

without the alteration of all subsequent blocks, which requires collusion of the network majority.

Blockchains are secure by design and are an example of a distributed computing system with

high Byzantine fault tolerance. Decentralized consensus has therefore been achieved with a

blockchain.[29] Blockchains solve the double-spending problem without the need of a trusted

authority or central server, assuming no 51% attack (that has worked against several

cryptocurrencies).

Timestamping

Cryptocurrencies use various timestamping schemes to "prove" the validity of transactions added

to the blockchain ledger without the need for a trusted third party.

The first timestamping scheme invented was the proof-of-work scheme. The most widely used

proof-of-work schemes are based on SHA-256 and scrypt.[16]

Some other hashing algorithms that are used for proof-of-work

include CryptoNight, Blake, SHA-3, and X11.

The proof-of-stake is a method of securing a cryptocurrency network and achieving distributed

consensus through requesting users to show ownership of a certain amount of currency. It is

different from proof-of-work systems that run difficult hashing algorithms to validate electronic

transactions. The scheme is largely dependent on the coin, and there's currently no standard form

of it. Some cryptocurrencies use a combined proof-of-work/proof-of-stakescheme.

57
Mining

Hashcoin mine

In cryptocurrency networks, mining is a validation of transactions. For this effort, successful

miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating

a complementary incentive to contribute to the processing power of the network. The rate of

generating hashes, which validate any transaction, has been increased by the use of specialized

machines such as FPGAs and ASICs running complex hashing algorithms like SHA-256 and

Scrypt.[30] This arms race for cheaper-yet-efficient machines has been on since the day the first

cryptocurrency, , was introduced in 2009.[30] With more people venturing into the world of virtual

currency, generating hashes for this validation has become far more complex over the years, with

miners having to invest large sums of money on employing multiple high performance ASICs.

Thus the value of the currency obtained for finding a hash often does not justify the amount of

money spent on setting up the machines, the cooling facilities to overcome the enormous amount

of heat they produce, and the electricity required to run them.[30][31]

Some miners pool resources, sharing their processing power over a network to split the reward

equally, according to the amount of work they contributed to the probability of finding a block. A

"share" is awarded to members of the mining pool who present a valid partial proof-of-work.

As of February 2018, the Chinese Government halted trading of virtual currency, banned initial

coin offerings and shut down mining. Some Chinese miners have since relocated to

58
Canada.[32]One company is operating data centers for mining operations at Canadian oil and gas

field sites, due to low gas prices.[33] In June 2018, Hydro Quebec proposed to the provincial

government to allocate 500 MW to crypto companies for mining.[34] According to a February

2018 report from Fortune,[35] Iceland has become a haven for cryptocurrency miners in part

because of its cheap electricity. Prices are contained because nearly all of the country's energy

comes from renewable sources, prompting more mining companies to consider opening

operations in Iceland. The region's energy company says mining is becoming so popular that the

country will likely use more electricity to mine coins than power homes in 2018. In October 2018

Russia was to become home to one of the largest legal mining operations in the world, located

in Siberia.[citation needed]

In March 2018, a town in Upstate New York put an 18-month moratorium on all cryptocurrency

mining in an effort to preserve natural resources and the "character and direction" of the city. [36]

GPU price rise

An increase in cryptocurrency mining increased the demand of graphics cards (GPU) in

2017.[37] Popular favorites of cryptocurrency miners such as Nvidia's GTX 1060 and GTX

1070 graphics cards, as well as AMD's RX 570 and RX 580 GPUs, doubled or tripled in price –

or were out of stock.[38] A GTX 1070 Ti which was released at a price of $450 sold for as much as

$1100. Another popular card GTX 1060's 6 GB model was released at an MSRP of $250, sold for

almost $500. RX 570 and RX 580 cards from AMD were out of stock for almost a year. Miners

regularly buy up the entire stock of new GPU's as soon as they are available.[39]

Nvidia has asked retailers to do what they can when it comes to selling GPUs to gamers instead

of miners. "Gamers come first for Nvidia," said Boris Böhles, PR manager for Nvidia in the

German region.

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Wallets
An example paper printable wallet consisting of one address for receiving and the corresponding private key

for spending

Main article: Cryptocurrency wallet

A cryptocurrency wallet stores the public and private "keys" or "addresses" which can be used to

receive or spend the cryptocurrency. With the private key, it is possible to write in the public

ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for

others to send currency to the wallet.

Anonymity

is pseudonymous rather than anonymous in that the cryptocurrency within a wallet is not tied to

people, but rather to one or more specific keys (or "addresses"). Thereby, owners are not

identifiable, but all transactions are publicly available in the blockchain. Still, cryptocurrency

exchanges are often required by law to collect the personal information of their users.

Additions such as Zerocoin, Zerocash and CryptoNote have been suggested, which would allow

for additional anonymity and fungibility.

Fungibility

Main articles: Fungibility and Non-fungible token

Most cryptocurrency tokens are fungible and interchangeable. However, unique non-fungible

tokens also exist. Such tokens can serve as assets in games like CryptoKitties.

Economics
Cryptocurrencies are used primarily outside existing banking and governmental institutions and

are exchanged over the Internet.

Transaction fees

Transaction fees for cryptocurrency depend mainly on the supply of network capacity at the time,

versus the demand from the currency holder for a faster transaction. The currency holder can

60
choose a specific transaction fee, while network entities process transactions in order of highest

offered fee to lowest. Cryptocurrency exchanges can simplify the process for currency holders by

offering priority alternatives and thereby determine which fee will likely cause the transaction to

be processed in the requested time.

For ether, transaction fees differ by computational complexity, bandwidth use, and storage needs,

while transaction fees differ by transaction size and whether the transaction uses SegWit. In

September 2018, the median transaction fee for ether corresponded to $0.017,[44] while for it

corresponded to $0.55.

Exchanges

Main article: Cryptocurrency exchange

Cryptocurrency exchanges allow customers to trade cryptocurrencies for other assets, such as

conventional fiat money, or to trade between different digital currencies.

Atomic swaps

Atomic swaps are a mechanism where one cryptocurrency can be exchanged directly for another

cryptocurrency, without the need for a trusted third party such as an exchange.

ATMs

ATM

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Jordan Kelley, founder of Robocoin, launched the first ATM in the United States on 20 February

2014. The kiosk installed in Austin, Texas is similar to bank ATMs but has scanners to read

government-issued identification such as a driver's license or a passport to confirm users'

identities.[46]

Initial coin offerings

An initial coin offering (ICO) is a controversial means of raising funds for a new cryptocurrency

venture. An ICO may be used by startups with the intention of avoiding regulation. However,

securities regulators in many jurisdictions, including in the U.S., and Canada have indicated that

if a coin or token is an "investment contract" (e.g., under the Howey test, i.e., an investment of

money with a reasonable expectation of profit based significantly on the entrepreneurial or

managerial efforts of others), it is a security and is subject to securities regulation. In an ICO

campaign, a percentage of the cryptocurrency (usually in the form of "tokens") is sold to early

backers of the project in exchange for legal tender or other cryptocurrencies, often or

ether.[47][48][49]

According to PricewaterhouseCoopers, four of the 10 biggest proposed initial coin offerings have

used Switzerland as a base, where they are frequently registered as non-profit foundations. The

Swiss regulatory agency FINMA stated that it would take a "balanced approach" to ICO projects

and would allow "legitimate innovators to navigate the regulatory landscape and so launch their

projects in a way consistent with national laws protecting investors and the integrity of the

financial system." In response to numerous requests by industry representatives, a legislative ICO

working group began to issue legal guidelines in 2018, which are intended to remove uncertainty

from cryptocurrency offerings and to establish sustainable business practices.

Legality
Main article: Legality of by country or territory

The legal status of cryptocurrencies varies substantially from country to country and is still

undefined or changing in many of them. While some countries have explicitly allowed their use
62
and trade,[51] others have banned or restricted it. According to the Library of Congress, an

"absolute ban" on trading or using cryptocurrencies applies in eight countries: Algeria, Bolivia,

Egypt, Iraq, Morocco, Nepal, Pakistan, and the United Arab Emirates. An "implicit ban" applies

in another 15 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican

Republic, Indonesia, Iran, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and

Taiwan.[52] In the United States and Canada, state and provincial securities regulators, coordinated

through the North American Securities Administrators Association, are investigating " scams"

and ICOs in 40 jurisdictions.

Various government agencies, departments, and courts have classified differently. China Central

Bank banned the handling of s by financial institutions in China in early 2014.

In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any

currency other than the Russian ruble. Regulations and bans that apply to probably extend to

similar cryptocurrency systems.

Cryptocurrencies are a potential tool to evade economic sanctions for example

against Russia, Iran, or Venezuela. In April 2018, Russian and Iranian economic representatives

met to discuss how to bypass the global SWIFT system through decentralized blockchain

technology.[56] Russia also secretly supported Venezuela with the creation of the petro (El Petro),

a national cryptocurrency initiated by the Maduro government to obtain valuable oil revenues by

circumventing US sanctions.

In August 2018, the Bank of Thailand announced its plans to create its own cryptocurrency, the

Central Bank Digital Currency (CBDC).

Advertising bans

and other cryptocurrency advertisements were temporarily banned

on Facebook,[58] Google, Twitter, Bing, Snapchat, LinkedIn and MailChimp.[61] Chinese internet

platforms Baidu, Tencent, and Weibo have also prohibited advertisements. The Japanese

platform Line and the Russian platform Yandex have similar prohibitions.

63
U.S. tax status

On 25 March 2014, the United States Internal Revenue Service (IRS) ruled that will be treated as

property for tax purposes. This means will be subject to capital gains tax.[63] In a paper published

by researchers from Oxford and Warwick, it was shown that has some characteristics more like

the precious metals market than traditional currencies, hence in agreement with the IRS decision

even if based on different reasons.

The legal concern of an unregulated global economy

As the popularity of and demand for online currencies has increased since the inception of in

2009, so have concerns that such an unregulated person to person global economy that

cryptocurrencies offer may become a threat to society. Concerns abound that altcoins may

become tools for anonymous web criminals.

Cryptocurrency networks display a lack of regulation that has been criticized as enabling

criminals who seek to evade taxes and launder money.

Transactions that occur through the use and exchange of these altcoins are independent from

formal banking systems, and therefore can make tax evasion simpler for individuals. Since

charting taxable income is based upon what a recipient reports to the revenue service, it becomes

extremely difficult to account for transactions made using existing cryptocurrencies, a mode of

exchange that is complex and difficult to track.

Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to

launder money. Rather than laundering money through an intricate net of financial actors and

offshore bank accounts, laundering money through altcoins can be achieved through anonymous

transactions.[66]

Loss, theft, and fraud

Main article: Cryptocurrency and security

In February 2014 the world's largest exchange, Mt. Gox, declared bankruptcy. The company

stated that it had lost nearly $473 million of their customers' s likely due to theft. This was
64
equivalent to approximately 750,000 s, or about 7% of all the s in existence. The price of a fell

from a high of about $1,160 in December to under $400 in February.

Two members of the Silk Road Task Force—a multi-agency federal task force that carried out the

U.S. investigation of Silk Road—seized s for their own use in the course of the

investigation.[68] DEA agent Carl Mark Force IV, who attempted to extort Silk Road founder Ross

Ulbricht ("Dread Pirate Roberts"), pleaded guilty to money laundering, obstruction of justice, and

extortion under color of official right, and was sentenced to 6.5 years in federal prison. [68] U.S.

Secret Service agent Shaun Bridges pleaded guilty to crimes relating to his diversion of $800,000

worth of s to his personal account during the investigation, and also separately pleaded guilty to

money laundering in connection with another cryptocurrency theft; he was sentenced to nearly

eight years in federal prison.

Homero Josh Garza, who founded the cryptocurrency startups GAW Miners and ZenMiner in

2014, acknowledged in a plea agreement that the companies were part of a pyramid scheme, and

pleaded guilty to wire fraud in 2015. The U.S. Securities and Exchange Commission separately

brought a civil enforcement action against Garza, who was eventually ordered to pay a judgment

of $9.1 million plus $700,000 in interest. The SEC's complaint stated that Garza, through his

companies, had fraudulently sold "investment contracts representing shares in the profits they

claimed would be generated" from mining.

On 21 November 2017, the Tether cryptocurrency announced they were hacked, losing $31

million in USDT from their primary wallet.[71] The company has 'tagged' the stolen currency,

hoping to 'lock' them in the hacker's wallet (making them unspendable). Tether indicates that it is

building a new core for its primary wallet in response to the attack in order to prevent the stolen

coins from being used.

In May 2018, Gold (and two other cryptocurrencies) were hit by a successful 51% hashing attack

by an unknown actor, in which exchanges lost estimated $18m.[72] In June 2018, Korean

exchange Coinrail was hacked, losing US$37 million worth of altcoin. Fear surrounding the hack

65
was blamed for a $42 billion cryptocurrency market selloff. [73] On 9 July 2018 the exchange

Bancor had $23.5 million in cryptocurrency stolen.

The French regulator Autorité des marchés financiers (AMF) lists 15 websites of companies that

solicit investment in cryptocurrency without being authorised to do so in France.

Darknet markets

Main article: Darknet market

Properties of cryptocurrencies gave them popularity in applications such as a safe haven in

banking crises and means of payment, which also led to the cryptocurrency use in controversial

settings in the form of online black markets, such as Silk Road.[66] The original Silk Road was

shut down in October 2013 and there have been two more versions in use since then. In the year

following the initial shutdown of Silk Road, the number of prominent dark markets increased

from four to twelve, while the amount of drug listings increased from 18,000 to 32,000.

Darknet markets present challenges in regard to legality. s and other forms of cryptocurrency

used in dark markets are not clearly or legally classified in almost all parts of the world. In the

U.S., s are labelled as "virtual assets". This type of ambiguous classification puts pressure on law

enforcement agencies around the world to adapt to the shifting drug trade of dark markets.

Reception
Cryptocurrencies have been compared to Ponzi schemes, pyramid schemes[77] and economic

bubbles, such as housing market bubbles.[79] Howard Marks of Oaktree Capital

Management stated in 2017 that digital currencies were "nothing but an unfounded fad (or

perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has

little or none beyond what people will pay for it", and compared them to the tulip

mania (1637), South Sea Bubble (1720), and dot-com bubble (1999).

While cryptocurrencies are digital currencies that are managed through advanced encryption

techniques, many governments have taken a cautious approach toward them, fearing their lack of

central control and the effects they could have on financial security. [81] Regulators in several
66
countries have warned against cryptocurrency and some have taken concrete regulatory measures

to dissuade users.[82] Additionally, many banks do not offer services for cryptocurrencies and can

refuse to offer services to virtual-currency companies. Gareth Murphy, a senior central banking

officer has stated "widespread use [of cryptocurrency] would also make it more difficult for

statistical agencies to gather data on economic activity, which are used by governments to steer

the economy". He cautioned that virtual currencies pose a new challenge to central banks' control

over the important functions of monetary and exchange rate policy.[84] While traditional financial

products have strong consumer protections in place, there is no intermediary with the power to

limit consumer losses if s are lost or stolen. [85] One of the features cryptocurrency lacks in

comparison to credit cards, for example, is consumer protection against fraud, such

as chargebacks.

An enormous amount of energy goes into proof-of-work cryptocurrency mining, although

cryptocurrency proponents claim it is important to compare it to the consumption of the

traditional financial system.

There are also purely technical elements to consider. For example, technological advancement in

cryptocurrencies such as result in high up-front costs to miners in the form of

specialized hardware and software.[87]Cryptocurrency transactions are normally irreversible after a

number of blocks confirm the transaction. Additionally, cryptocurrency private keys can be

permanently lost from local storage due to malware, data loss or the destruction of the physical

media. This prevents the cryptocurrency from being spent, resulting in its effective removal from

the markets.

The cryptocurrency community refers to pre-mining, hidden launches, ICO or extreme rewards

for the altcoin founders as a deceptive practice.[89] It can also be used as an inherent part of a

cryptocurrency's design. Pre-mining means currency is generated by the currency's founders prior

to being released to the public.

67
Paul Krugman, Nobel Memorial Prize in Economic Sciences winner does not like , has repeated

numerous times that it is a bubble that will not last [92] and links it to Tulip mania. American

business magnate Warren Buffettthinks that cryptocurrency will come to a bad ending. In

October 2017, BlackRock CEO Laurence D. Fink called an 'index of money laundering'. " just

shows you how much demand for money laundering there is in the world," he said.

Academic studies

Main article: Ledger (journal)

In September 2015, the establishment of the peer-reviewed academic journal Ledger (ISSN 2379-

5980) was announced. It covers studies of cryptocurrencies and related technologies, and is

published by the University of Pittsburgh.

The journal encourages authors to digitally sign a file hash of submitted papers, which will then

be timestamped into the blockchain. Authors are also asked to include a personal address in the

first page of their papers.

68
Mine

Miners are the single most important part of any cryptocurrency network, and much like
trading, mining is an investment. Essentially, miners are providing a bookkeeping service for
their respective communities. They contribute their computing power to solving complicated
cryptographic puzzles, which is necessary to confirm a transaction and record it in a
distributed public ledger called the Blockchain.
One of the interesting things about mining is that the difficulty of the puzzles is constantly
increasing, correlating with the number of people trying to solve it. So, the more popular a
certain cryptocurrency becomes, the more people try to mine it, the more difficult the process
becomes.
A lot of people have made fortunes by mining s. Back in the days, you could make
substantial profits from mining using just your computer, or even a powerful enough laptop.
These days, mining can only become profitable if you’re willing to invest in an industrial-
grade mining hardware. This, of course, incurs huge electricity bills on top of the price of all
the necessary equipment.
Currently, Litecoins, Dogecoins and Feathercoins are said to be the best cryptocurrencies in
terms of being cost-effective for beginners. For instance, at the current value of Litecoins,
you might earn anything from 50 cents to 10 dollars a day using only consumer-grade
hardware.
But how do miners make profits? The more computing power they manage to accumulate,
the more chances they have of solving the cryptographic puzzles. Once a miner manages to
solve the puzzle, they receive a reward as well as a transaction fee.
As a cryptocurrency attracts more interest, mining becomes harder and the amount of coins
received as a reward decreases. For example, when was first created, the reward for

69
successful mining was 50 BTC. Now, the reward stands at 12.5 s. This happened because the
network is designed so that there can only be a total of 21 mln coins in circulation.
As of November 2017, almost 17 mln s have been mined and distributed. However, as
rewards are going to become smaller and smaller, every single mined will become
exponentially more and more valuable.
All of those factors make mining cryptocurrencies an extremely competitive arms race that
rewards early adopters. However, depending on where you live, profits made from mining
can be subject to taxation and Money Transmitting regulations. In the US, the FinCEN has
issued a guidance, according to which mining of cryptocurrencies and exchanging them for
flat currencies may be considered money transmitting. This means that miners might need to
comply with special laws and regulations dealing with this type of activities.
Read more in the article “How to Mine : Everything You Need to Know”.
Accept as payment (for business)

If you happen to own a business and if you’re looking for potential new customers, accepting
cryptocurrencies as a form of payment may be a solution for you. The interest in
cryptocurrencies has never been higher and it’s only going to increase. Along with the
growing interest, also grows the number of crypto-ATMs located around the world. Coin
ATM Radar currently lists almost 1,800 ATMs in 58 countries.
First of all, you need to let your customers know that your business accepts crypto coins.
Simply putting a sign by your cash register should do the trick. The payments can then be

70
accepted using hardware terminals, touch screen apps or simple wallet addresses through QR
codes.
There are many different services that you can use to be able to accept payments in
cryptocurrencies. For example, CoinPayments currently accepts over 75 different digital
currencies, charging just 0.5 percent commission per transaction. Other popular services
include Cryptonator, CoinGate and BitPay, with the latter only accepting s.
In the US, and other cryptocurrencies have been recognized as a convertible virtual currency,
which means accepting them as a form of payment is exactly the same as accepting cash,
gold or gift cards.
For tax purposes, US-based businesses accepting cryptocurrencies need to record a reference
of sales, amount received in a particular currency and the date of transaction. If sales taxes
are payable, the amount due is calculated based on the average exchange rate at the time of
sale.
Legality of cryptocurrencies
As cryptocurrencies are becoming more and more mainstream, law enforcement agencies, tax
authorities and legal regulators worldwide are trying to understand the very concept of crypto
coins and where exactly do they fit in existing regulations and legal frameworks.
With the introduction of , the first ever cryptocurrency, a completely new paradigm was
created. Decentralized, self-sustained digital currencies that don’t exist in any physical shape
or form and are not controlled by any singular entity were always set to cause an uproar
among the regulators.
A lot of concerns have been raised regarding cryptocurrencies’ decentralized nature and their
ability to be used almost completely anonymously. The authorities all over the world are
worried about the cryptocurrencies’ appeal to the traders of illegal goods and services.
Moreover, they are worried about their use in money laundering and tax evasion schemes.
As of November 2017, and other digital currencies are outlawed only in Bangladesh,
Bolivia, Ecuador, Kyrgyzstan and Vietnam, with China and Russia being on the verge of
banning them as well. Other jurisdictions, however, do not make the usage of
cryptocurrencies illegal as of yet, but the laws and regulations can vary drastically depending
on the country.
Read more: Is Legal

71
 Most common cryptocurrencies
 — The first ever cryptocurrency that started it all.
 Ethereum — A Turing-complete programmable currency that lets developers build different
distributed apps and technologies that wouldn’t work with .
 Ripple — Unlike most cryptocurrencies, it doesn’t use a Blockchain in order to reach a
network-wide consensus for transactions. Instead, an iterative consensus process is
implemented, which makes it faster than but also makes it vulnerable to hacker attacks.
 Cash — A fork of that is supported by the biggest mining company and a manufacturer of
ASICs mining chips. It has only existed for a couple of months but has already soared to the
top five cryptocurrencies in terms of market cap.
 NEM — Unlike most other cryptocurrencies that utilize a Proof of Work algorithm, it uses
Proof of Importance, which requires users to already possess certain amounts of coins in
order to be able to get new ones. It encourages users to spend their funds and tracks the
transactions to determine how important a particular user is to the overall NEM network.
 Litecoin — A cryptocurrency that was created with an intention to be the ‘digital silver’
compared to ’s ‘digital gold.’ It is also a fork of , but unlike its predecessor, it can generate
blocks four times faster and have four times the maximum number of coins at 84 mln.
 IOTA — This cryptocurrency’s breakthrough ledger technology is called ‘Tangle’ and it
requires the sender in a transaction to do a Proof of Work that approves two transactions.
Thus, IOTA has removed dedicated miners from the process.

72
 NEO — It’s a smart contract network that allows for all kinds of financial contracts and third-
party distributed apps to be developed on top of it. It has many of the same goals as
Ethereum, but it’s developed in China, which can potentially give it some advantages due to
improved relationship with Chinese regulators and local businesses.
 Dash — It’s a two-tier network. The first tier is miners that secure the network and record
transactions, while the second one consists of ‘masternodes’ that relay transactions and
enable InstantSend and PrivateSend type of transaction. The former is significantly faster
than , whereas the latter is completely anonymous.
 Qtum — It’s a merger of ’s and Ethereum’s technologies targeting business applications. The
network boasts ’s reliability, while allowing for the use of smart contracts and distributed
applications, much how it works within the Ethereum network.
 Monero — A cryptocurrency with private transactions capabilities and one of the most active
communities, which is due to its open and privacy-focused ideals.
 Ethereum Classic — An original version of Ethereum. The split happened after a
decentralized autonomous organization built on top of the original Ethereum was hacked.

73
Cryptocurrency market cap
(stats retrieved on Nov. 10, 2017)

Circulating Change
Name Market Cap Price Volume
Supply (24hrs)

$112,735,453 $5,136,770,0 16,674,425

$6760.98 -5.43%
,936 00 BTC

-
95,6
$3 $894 4.
$29,227,540 47,3
Ethereum 05. ,988, 8
,706 70
58 000 4
ETH
%

16,7 3
$15, $4,5
$9 79,4 7.
121, 00,6
Cash 01. 13 6
119, 40,0
17 BC 8
942 00
H %

74
 38,5 -
$8,0 $0.
$140 31,5 3.
88,1 20
Ripple ,243, 38,9 4
55,3 99
000 22 7
35 10
XRP %

-
$3,2 53,7
$6 $294 5.
97,3 67,7
Litecoin 1.3 ,950, 7
43,8 32
3 000 5
25 LTC
%

7,68
$2,6 3.
$3 $115 0,80
01,5 1
Dash 38. ,739, 1
63,9 8
71 000 DAS
86 %
H

65,0 -
$1,8
$2 $59, 00,0 8.
93,4
NEO 9.1 589, 00 1
95,5
3 000 NE 6
00
O %

75
 8,99
-
$1,8 $0. 9,99
$10, 6.
04,0 20 9,99
NEM 806, 3
86,0 04 9
300 2
00 54 XE
%
M

15,3 -
$1,6
$1 $87, 35,9 8.
75,8
Monero 09. 656, 01 1
61,2
28 500 XM 1
01
R %

$1,4 97,3 5.
Ethereu $1 $299
57,7 18,1 6
m 4.9 ,410,
87,4 82 9
Classic 8 000
39 ETC %

2,77 -
$1,4 $0.
$48, 9,53 5.
41,7 51
IOTA 539, 0,28 4
75,7 87
100 3 6
12 12
MIO %

76
 TA

73,6 -
$862 $1 $132 51,8 1.
Qtum ,271, 1.7 ,988, 04 8
130 1 000 QT 5
UM %

How to store
Unlike most traditional currencies, cryptocurrencies are digital, which entails a completely
different approach, particularly when it comes to storing it. Technically, you don’t store your
units of cryptocurrency; instead it’s the private key that you use to sign for transactions that
need to be securely stored.
There are several different types of cryptocurrency wallets that cater for different needs. If
your priority is privacy, you might want to opt for a paper or a hardware wallet. Those are the
most secure ways of storing your crypto funds. There are also ‘cold’ (offline) wallets that are
stored on your hard drive and online wallets, which can either be affiliated with exchanges or
with independent platforms.
Read more in the article “ Wallets for Beginners: Everything You Need to Know”.
How to buy
There are a lot of different options when it comes to buying s. For example, there are
currently almost 1,800 ATMs in 58 countries. Moreover, you can buy BTC using gift cards,
cryptocurrency exchanges, investment trusts and you can even trade face-to-face.

When it comes to other, less popular cryptocurrencies, the buying options aren’t as diverse.
However, there are still numerous exchanges where you can acquire various crypto-coins for

77
 flat currencies or s. Face-to-face trading is also a popular way of acquiring coins. Buying
options depend on particular cryptocurrencies, their popularity as well as your location.
Read more in the article “How to Buy : Best Practices, Where to Buy, Tips”.
Opinion leaders to follow
 Vitalik Buterin (@VitalikButerin) – the genius behind the world's second most valuable
cryptocurrency today – Ethereum.
 Andreas M. Antonopoulos (@aantonop) – evangelist and author of 'Mastering '.
 Charlie Lee (@SatoshiLite) – creator of Litecoin.
 Nick Szabo (@NickSzabo4) – Szabo’s expertise with cryptocurrency started back in 1998
with the creation of the BitGold proposal, the predecessor of .
 Brian Armstrong (@brian_armstrong) – co-founder and CEO of Coinbase.
 Brock Pierce (@brockpierce) – co-founder of Blockchain Capital.
 Barry E. Silbert (@barrysilbert) – founder & CEO of Digital Currency Group.
 Don Tapscott (@dtapscott) – president and CEO of The Tapscott Group, Inc.
 Erik T. Voorhees (@ErikVoorhees) – founder and CEO of ShapeShift.io.
 Laura Shin (@laurashin) – senior editor at Forbes and co-lead reporter of the Forbes Fintech.
 Alex Tapscott (@alextapscott) – co-founder and CEO of the Blockchain Research Institute.
 Roger K. Ver (@rogerkver) – angel investor and evangelist.
 Jihan Wu (@JihanWu) – co-founder and director of Bitmain Technologies, Ltd.
 Marc L. Andreessen (@pmarca) – co-founder of Netscape Communications and co-founder
of LoudCloud.
 Gavin Andresen (@gavinandresen) – chief scientist at Foundation and lead developer of
Core.
 Adam Back (@adam3us) – co-founder and president of Blockstream.
 Oliver T. Bussmann (@obussmann) – president of Crypto Valley Association and founder of
Bussmann Advisory.
 Tuur Demeester (@TuurDemeester) – editor-in-chief at Adamant Research.
 Meltem Demirors (@Melt_Dem) – director of development at Digital Currency Group.
 Fred Ehrsam (@FEhrsam) – co-founder of Coinbase.
See the full list here: Top People In Blockchain.
Where to discuss cryptocurrencies?
 CryptoCompare
 Cryptocurrency Talk
 Talk
78
 Coingage
 Wealth Club
 BTC Warriors
 Subreddit
 Ethereum Subreddit
 Litecoin Subreddit
 Cryptocurrency Subreddit
Future of cryptocurrency
Bill Gates, co-founder of Microsoft, investor and philanthropist:
“ is exciting because it shows how cheap it can be. is better than currency in that you don’t
have to be physically in the same place and, of course, for large transactions, currency can
get pretty inconvenient.” [SOURCE]
Richard Branson, founder of Virgin Galactic and more than 400 other businesses:
“Well, I think it is working. There may be other currencies like it that may be even better. But
in the meantime, there’s a big industry around . — People have made fortunes off , some have
lost money. It is volatile, but people make money off of volatility too.” [SOURCE]
Al Gore, former Vice President of the United States:
“When currency is converted from currency into cash, that interface has to remain under
some regulatory safeguards. I think the fact that within the universe an algorithm replaces
the function of the government …[that] is actually pretty cool.” [SOURCE]
Eric Schmidt, executive chairman of Google:
“[] is a remarkable cryptographic achievement… The ability to create something which is
not duplicable in the digital world has enormous value…Lot’s of people will build businesses
on top of that.” [SOURCE]
Peter Thiel, co-founder of PayPal:
“PayPal had these goals of creating a new currency. We failed at that, and we just created a
new payment system. I think has succeeded on the level of a new currency, but the payment
system is somewhat lacking. It’s very hard to use, and that’s the big challenge on the side.”
[SOURCE]

79
 CHAPTER-IV
DATA ANALYSIS

80
  A CRYPTOCURRENCY

From the Review of the literature, it is of course clear that (BTC) has a very distributed

opinion when its future is concerned. There are various facts that goes against the (BTC)

being the prospect of longer run.

One of the biggest benefits of (BTC) it that it is supposed to be private, secure, and

untraceable. Obviously, this was a huge benefit for criminals on the Dark Web.

Cryptocurrency got a really bad reputation once news broke that (BTC) was being used to

send money anonymously on the drug trafficking website Silk Road. Also it was identified

as source of saving tax. In 2013, 44 percent of the (BTC) supply belonged to people who

identify as Libertarian. (listverse.com)

Various Governments’ approach:

- India has already ruled out of Cryptocurrency being a fiat money and RBI has issued

a warning. (www.theguardian.com)

- In March’17 when the SEC rejected an ETF proposal from Winklevoss Trust, stating

that (BTC) markets weren’t transparent or well-regulated enough.

(www.theguardian.com)

- The Reserve Bank of Zimbabwe is opposing the mainstream adoption of digital

currencies like (BTC). (cointelegraph.com)

- In October 2017, the central bank of Namibia has announced that it will prohibit the

use of (BTC) as a payment option for goods and services. (cointelegraph.com).

- In September’17, China banned mainland residents from trading in (BTC) on

exchanges and made it illegal for Chinese start-ups to raise funds via initial coin

offerings (www.forbes.com)

81
This goes without saying that various governments are afraid of (BTC) being a bubble. This

is primarily based on the fact that BTC is having an unprecedented rise.

Figure 1: The Rise in the Value of BTC Source-

CoinDesk (26/11/17)

From Graph 1, it can be inferred that the rise in BTC is very steep. From a starting value of

USD $ 7750, it went up to USD $ 9000, in just 5 days. The rise is simply because of the

demand-supply matrix and has no backing. Graph 2 looks at the growth rate in last 2 years

where it has grown up by 645%. There is no solid reason backing this growth up. It is mere

on speculation and demand-supply matrix.

Figure 2: BTC Growth over the years

82
Moving over, BTC has been generally at the eyes of users and miners for its energy

consumption. According to the report by Dutch Bank ING (https://news. (BTC).com/dutch-

bank-upset-about-the-amount-of-electricity- (BTC)-consumes/) (BTC) transactions

consume as much electricity as a house does in a month. (BTC) trades use a lot of

electricity as a means to make verifying trades expensive, therefore making fraudulent

transactions costly and deterring those who would seek to misuse the currency. When

compared with other currencies, it is almost fives times the electricity consumption. (Graph

3)

Figure3: Electrical consumption of various crypto-currencies. Source-

Business Insiders

 Cryptocurrency Market as a whole:

Crypto currencies are traded via public ledgers known as blockchains. The operators are

known as ‘miners’ and are responsible for generating newer coins.

Despite being initially waived off as another internet boom, cryptocurrenices have proven

their worth. The most famous of all cryptocurrencies is , and its initial success gave rise to

newer variants such as Ethereum, Rippple and Litecoin.

83
This is because blockchain is an attractive option when it comes to hosting secure attractions.

And the new generation of cryptocurrencies aim at positioning themselves as a safer option

than .whatever problems was faced by , Ethereum and Ripple aim to solve it.

Storage and scalability was a major problem, which Ethereum plans to solve by its newest

process of sharding.

Slowly and steadily, major business houses and governments across the globe are opening up

to the idea of accepting cryptocurrencies. Companies such as Dell, DISH and Overstock.com

have started accepting it due to the aggressive marketing campaigns done by third-party

virtual service houses, such as Bitpay and Cryptpay. They act as middlemen, and help the

companies access the cryptocurrency market.

Despite being considered as a ‘high-risk investment’ due to its volatile fluctuations,

Cryptocurrency is considered to be a ‘disruptive tech’ in the field of digital currencies. There

has been a constant rise in its usage.

Figure 4: Coin base Usage rise Source- Business Insider (May

2017)

In fact, even major economies have become more liberal in their approach towards crypto-
currencies. The U.S. Department of Treasury’s FinCEN has been issuing guidelines related to
usage since 2013. The Canada Revenue Agency has brought it under the anti-money
laundering acts, by accepting it as a commodity. While Finland has classified it as a financial
84
service, Ukraine has brought forth legislations before the Parliament to treat it as a financial
asset. (www.news..com).

In India itself, news had surfaced that Government is considering its own Cryptocurrency,
Lakshmi, currently to fall in the domain of Reserve Bank. (Ref- Business Standard, 16th
September). Moreover, The Malaysian central bank, Bank Negara Malaysia (BNM), is
expected to issue a directive to regulate the use of digital currencies in the country in early
2018. (www.cointelegraph.com). Russia on the other hand is on its way to introduce its own
Cryptocurrency, CryptoRuble.

Alexander D’Alfonso, Peter Langer, Zintis Vandelis (2016) conducted a study that comprised
of linear regression, Monte Carlo analysis and interviews with industry professionals. The
study concluded that Ethereum will have a wide range of outcomes, both positive and
negative. This indicated that investors looking to diversify their investment portfolio should
invest in it in orderto take advantage of this fact while will simply rise in the value.

85
 DEMOGRAPHIC DETAILS
This questionnaire is a part of the exercise conducted for the academic purpose as a part of
project work
Table-4.0
Total No.of
Name :
Respondants
Age a) 25-35 [ 40 ] b) 35-45 [ 30 ]
100
c) >45 [ 30 ]

Gender a) Male [ 30 ] b) Female [ 70 ] 100

Educational Qualification

a) Post-graduation [ 20 ] 100
b) Graduation [30 ]
c) Intermediate [ 50 ]
Department
a) HR Dept. [ 20 ]
b) Finance Dept. [ 25 ] 100
c) Marketing Dept. [ 30 ]
d) Logistic Dept. [ 25 ]

86
1. Are you an active investor?
Table-4.1
ACTIVE INVESTOR % OF RESPONDANTS

YES 47

NO 53

TOTAL No. OF 100

RESPONDANTS

ACTIVE INVESTOR

% OF RESPONDANTS

47
YES

NO
100

TOTAL No. OF
53 RESPONDANTS

Fig.4.1

Interpretation:-
In our study we came to know that 47% of the people were active investor, whereas 53%
of the people were generally students and were not active investor.

87
2. What kind of investment you prefer the most?
Tabel-4.2
INVESTMENT PREFERED % OF RESPONDANTS

EQUITY COMMODITY 13
MUTUAL FUNDS 20

FIXED DEPOSITS 27

GOLD/SILVER 40

TOTAL NO. OF RESPOND 100

INVESTMENT YOU PREFER THE MOST

% OF RESPONDANTS

13
20
EQUITY COMMODITY
MUTUAL FUNDS
27
100 FIXED DEPOSITS
GOLD/SILVER
TOTAL NO. OF RESPOND
40

Fig.4.2

Interpretation:-
From the study we can make out that, most of the people prefer secured investment like
gold/silver or fixed deposit , which can provide them sort of fixed returns and few
people investment in highly flexible market with high risk.

88
3. What is proportion of investment in your income?
Table-4.3

Proportion on Investment in % OF
Income RESPONDANTS

Payments 50
Dividends 24
Capital Gains 26
TOTAL No. OF RESPONDANTS 100

% OF RESPONDANTS

50 Payments

100 Dividends
24
Capital Gains
26
TOTAL No. OF
RESPONDANTS

Fig.4.3
Interpretation:-
From the study we can make out that, most of the people prefer secured payments which
can provide them sort of fixed returns and few people investment in highly flexible
market with high risk.

89
4. What is your profit margin?
Table-4.4
PROFIT MARGIN % OF RESPONDANTS

BELOW 10% 73

10-15% 20

15-20% 7

TOTAL No. OF 100

RESPONDANTS

PROFIT MARGIN

% OF RESPONDANTS

BELOW 10%

73 10-15%

100
15-20%

TOTAL No. OF
20 RESPONDANTS
7

Fig.4.4

Interpretation:-
The profit margin of our respondents were not that high , most of them were below 10% ,
hence it is beneficial for them to invest into currency , as with low profit margin , they
can invest into something with good and secured returns

90
5. Do you know about CRYPTOCURRENCYas an investment option?
Table-4.5
KNOWLEDGE ON % OF
INVESTMENT OPTION RESPONDANTS

YES 47

NO 53

TOTAL No. OF 100

RESPONDANTS

CRYPTOCURRENCYAS AN INVESTMENT OPTION

% OF RESPONDANTS

47
YES
100
NO
53
TOTAL No. OF
RESPONDANTS

Fig.4.5

Interpretation:-In the whole research process, we derived that, 47% of the people were
aware about CRYPTOCURRENCY as an investment option whereas, 53% of the people
were unaware…it means CRYPTOCURRENCY as an investment option is growing at
high rate in terms of awareness.

91
1. What factors that attract you to invest in currency?
Table-4.6
FACTORS ATTRACTING TO % OF
INVEST IN CURRENCY RESPONDANTS

GOOD RETURNS 80

HIGH LEVERAGES 20

TOTAL No. OF RESPONDANTS 100

FACTORS THAT ATTRACT YOU TO INVEST IN CURRENCY

% OF RESPONDANTS

GOOD RETURNS
80
HIGH LEVERAGES
100

TOTAL No. OF
RESPONDANTS

20

Fig.4.6

Interpretation:-
From past 5 years currency has shown high depreciation in indian rupee vis a vis usd,
hence most of the importers and exporters have preferred CRYPTOCURRENCY as an
option of investment as it has shown high returns & good leverages.

92
2. Where do you find yourself as CRYPTOCURRENCY investor?
Table-4.7
AWARNESS ON CD % OF
INVESTMENT RESPONDANTS

FULLY AWARE 7

UNAWARE 46

PARTIALLY AWARE 47

TOTAL No. OF 100

RESPONDANTS

CRYPTOCURRENCY Investor

% OF RESPONDANTS

7
FULLY AWARE
46
UNAWARE

100
PARTIALLY AWARE

TOTAL No. OF
47
RESPONDANTS

Fig.4.7
Interpretation:-
Not many of our investor, were quite aware about currency derivative. Hence they were
unaware about the good returns associated with this investment option. Hence it gve us a
varied market to tap those customers too

93
8. Do You Know About the Current Scenario Of Returns In Currency Derivative?

Table-4.8

KNOWLEDGE ON RETURNS % OF
OF CD RESPONDANTS

YES 33

NO 67

TOTAL No. OF REPONDANTS 100

Current Scenario of Returns In Currency Derivative

% OF RESPONDANTS

33
YES
100
NO
67
TOTAL No. OF
REPONDANTS

Fig.4.8

Interpretation:-

33% of our respondents knew about current scenario of returns in

CRYPTOCURRENCY, whereas 67% of our respondents are unaware.., so we could
derive that there is huge scope for our organization to tap these unaware respondents ,
and tell them about the high and secured returns in CRYPTOCURRENCY market.

94
9. From which sector does your respondants belong?

Table-4.9

Sector % OF
RESPONDANTS

public 30

private 40

government 30

Sector Respondents

% OF RESPONDANTS

33
YES

NO
100

TOTAL No. OF
67 REPONDANTS

Fig.4.9

Interpretation:-
Not many of our investor, were quite aware about currency derivative. Hence 40% of
them are from private sector. Hence it give us a varied market to tap those customers too.

95
TABLE

Table of Correlation between Rates of Inflation &USD/INR EXHANGE Rate

Table-4.10

Year Annual Averages of Currency rate GDP growth (annual %)

2004 43.11 7.39

2005 44.95 4.03
2006 47.19 5.22
2007 48.6 3.77
2008 46.55 8.37
2009 45.33 8.28
2010 44.11 9.32
2011 45.33 9.27
2012 41.29 9.82
2013 43.41 4.93
2014 48.35 9.1
2015 45.65 8.81
2016 46.61 7.2

Year
1
2016 2004 2
2015 2005 3
2014 2006 4
5
2013 2007
6
2012 2008
7
2011 2009 8
2010
9

Fig.4.10

96
CHAPTER-V
FINDINGS

97
 FINDINGS
The Crypto Currency is still establishing where it will complete its 10 years the next coming
year in 2018. It is struggling to be made as a normal mode of transaction. But there are many
markets and medium that is not accepting Crypto Currency as a regular mode of buying and
selling. This is happening because the Crypto Currency is volatile with the price fluctuations due
to supply and demand. It is not governed by any legal or government organization that has a
regular check and balance on the rate of return. The digital marketers are working on the
accepting of this digital currency that can operate worldwide.

 Thus higher Inflation leads to weakening of Domestic Currency.

 INR has appreciated with every upward movement shown by Nifty Index over a
period of time.
 People are not much aware about CRYPTOCURRENCY as an investment
option, hence there is scope for a wider market , by creating awareness
 Higher GDP leads to appreciation of Domestic Currency.
 Higher contribution of CRYPTOCURRENCY leads to better returns, which
strengthens the investor market (i.e. b.s.e & n.s.e)
 CRYPTOCURRENCY is an secure investment , and from our study we could
derive that people generally prefer those investment option which has low risk
and better returns
 There is a limit of USD 100 million on open interest applicable to trading
member who are banks. And the USD 25 million limit for other trading members
so larger exporter and importer might continue to deal in the OTC market where
there is no limit on hedges.
 In India RBI and SEBI has restricted other CRYPTOCURRENCY except
Currency future, at this time if any person wants to use other instrument of
CRYPTOCURRENCY in this case he has to use OTC.
 Cost of carry model and Interest rate parity model are useful tools to find out standard
future price and also useful for comparing standard with actual future price. And it’s
also a very help full in Arbitraging.

98
 New concept of Exchange traded currency future trading is regulated by higher
authority and regulatory. The whole function of Exchange traded currency future is
regulated by SEBI/RBI, and they established rules and regulation so there is very safe
trading is emerged and counter party risk is minimized in currency Future trading.
And also time reduced in Clearing and Settlement process up to T+1 day’s basis.
 Larger exporter and importer has continued to deal in the OTC counter even exchange
traded currency future is available in markets because,
 There is a limit of USD 100 million on open interest applicable to trading member
who are banks. And the USD 25 million limit for other trading members so larger
exporter and importer might continue to deal in the OTC market where there is no
limit on hedges.
 In India RBI and SEBI has restricted other CRYPTOCURRENCY except Currency
future, at this time if any person wants to use other instrument of
CRYPTOCURRENCY in this case he has to use OTC.

99
 SUGGESTIONS
The global economy is inevitably moving towards a digital eco-system. From investment to
money transfer, everything is going paperless. The newest and most promising addition to the
digital payment sector is crypto currency.

A cryptocurrency is a medium of exchange like normal currencies such as USD, but designed
for the purpose of exchanging digital information. Crypto currency is defined by
Investopedia.com as a decentralized “digital or virtual currency that uses cryptography for
secur ..
The global economy is inevitably moving towards a digital eco-system. From investment to
money transfer, everything is going paperless. The newest and most promising addition to the
digital payment sector is crypto currency.

A crypto currency is a medium of exchange like normal currencies such as USD, but
designed for the purpose of exchanging digital information. Crypto currency is defined by
Investopedia.com as a decentralized “digital or virtual currency that uses cryptography for
security” making it difficult to counterfeit. Since it is not issued by a central authority,
governments can’t take it away from you.

• Fraud-proof: When crypto currency is created, all confirmed transactions are stored in a
public ledger. All identities of coin owners are encrypted to ensure the legitimacy of record
keeping. Because the currency is decentralized, you own it. Neither government nor bank has
any control over it.

• Identity Theft: The ledger ensures that all transactions between “digital wallets” can
calculate an accurate balance. All transactions are checked to make sure that the coins used
are owned by the current spender. This public ledger is also referred to as a “transaction
blockchain”. Blockachain technology ensures secure digital transactions through encryption
and “smart contracts” that make the entity virtually unhackable and void of fraud. With
security like this, block chain ..

100
CONCLUSION:
Speaking of futures, they're likely to be big problems for (BTC) especially going forward.
The BTC is rising everyday and is achieving new heights and concerns regarding its volatility
is actually plummeting the users. Central Banks and Governments are already wary of this.
The decentralized and anonymous nature of has challenged many governments on how to
allow legal use while preventing criminal transactions. Though it had been the poster name
for Cryptocurrency, the future for this looks uncertain.
Although, irrespective of the fall of BTC, other forms of crypto-currencies will exist a little
loger. Crypto-currencies have been in existence for over five years, but majority of the
nations across the globe still do not have explicit systems in place that restrict, regulate, or
ban the usage and trade of crypto-currencies.. Most countries are still analyzing ways to
properly regulate the Cryptocurrency. Overall, they remains in a grey area as the
technological leap has left lawmakers far behind. But, definitely, from a single page that was
created and named World Wide Web (WWW), we had Internet. This Cryptocurrency maybe
the new World Wide Web.

101
 BIBLIOGRAPHY
REFERENCES:
1. SARAH GRANGER (SEPTEMBER 2017), INTRODUCTION TO S Retrieved From
BLOCKGEEKS.
2. RACHEL WITKOWSKI (2016).CFPB Issues Warning on Virtual Currencies like ”.
Retrieved From Ebscohost.Com
3. GEORGE YACIK. (2016). JPM Settles With CFPB:CBOELooks To Trade Futures
Retrieved From Ebsohost.Com
4. KIA KOKALICHEVA (2016)Future In Financial Services Written Retrieved From
Fortune.Com
5. DON TAPSCOTT AND ALEX TAPSCOTT (2016, May 10). THE IMPACT OF
BLOCKCHAIN GOES BEYOND FINANCIAL SERVICES. HARVARD BUSINESS
REVIEW.
6. SWAMY SHUKHLA (2016, May). EMERGENCE OF (BTC) IN INDIA GLOBAL
MANAGEMENT REVIEW.
7. KEVIN DOWD (2015). (BTC) Will Bite The Dust. CATO JOURNAL.
8. GEMINI AELBRECHT(2017, August 28) CBOE cuts Deal With Market. Global
Investor

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