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Student’s Name SAP ID Roll No
Riya Verma 45401180110 054
Yasha Vora 45401180090 055
Aaliah Khanchey 45401195001 056
Arjun Jain 45401170037 057
Declaration of Originality
We, hereby declare that this assignment titled ‘Fundamentals of Cryptocurrency’ is entirely
our own work and that any additional sources of information have been duly cited.
We hereby declare that any offline/online sources, published or unpublished, from which we
have quoted or drawn references have been referenced fully in the bibliography list. We
understand that failure to do so will lead to plagiarism and severe disciplinary action will be
initiated against us.
We understand that we may be required to present the assignment and /or appear for viva
(Offline and/ or Online). We acknowledge it is our responsibility to keep ourselves updated
with the schedule of the presentation/ viva and we will ensure we are available during the
same.
Cryptocurrency are systems that allow for the secure payments online which are denominated
in terms of ‘Virtual Tokens’ which are represented by ledger entries internal to the system.
The word ‘crypto’ refers to the various encryption algorithms and cryptographic techniques
that safeguard these entries such as elliptical curve encryption, public – private key pairs and
hashing functions. It uses cryptography to secure an verify transactions as well as to control
the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are
limited entries in a database that no one can change unless specific conditions are fulfilled. It
is a digital or virtual currency which is nearly impossible to counterfeit or double spend, only
by cryptography this is possible. Many cryptocurrencies are decentralized networks based on
a blockchain technology which is a distributed ledger enforced by a disparate network of
computers. A cryptocurrency consists of network of peers, every peer has a record of the
complete history of all transactions and thus of the balance of every account.
In late 2008, a group of anonymous programmers under an alias Satoshi Nakamoto published
the white paper called ‘Bitcoin: A peer-to-peer electronic cash system describing the
functionality of the bitcoin blockchain network thus lead to the birth of the first ever
cryptocurrency.
On 3rd January 2009 Satoshi Nakamoto mined the first block of the bitcoin network which is
also known as the genesis block.
On 2nd May 2010, the first recorded purchase of goods was made with bitcoin when Laslo
Henyocz brought two pizzas for 10,000 BTC, this day is still commemorated to date as the
Bitcoin Pizza Day
In March 2010, first cryptocurrency appeared in the name of bitcoinmarket.com now defunct.
Later in July that year Mt Gox was launched as well
In June 2011, Mt Gox got Hacked for the first time. 2000 BTC was stolen having a value at
around $30000 at the time
In 2013, Mt Gox became the largest cryptocurrency exchange, thereafter in 2014 it was the
site of the first major cryptocurrency hack, having 850000 BTC stolen from it which was
valued at $460,000,000 at the time
In 2014 – 2016, Bitcoin price plummeted by 50% and did not recover to its initial price till
late 2016. Cryptocurrency Hacks have been present ever since
On 30th July 2015, the Ethereum network currently number 2 in market capitalisation was
launched
In August 2015 First Coin Offering (ICO) took place being the Augur crypto asset,
Cryptoassets created through ethereum’s smart contracts are generally known as ERC 20
tokens
From 2015 – Present more and more ERC – 20 tokens have been created
From there on prices reached an all – time highs in the beginning of January of 2018 and
many new crypto assets have joined since including EOS ( July 2017), TRON (September
2017 and Cardano (October 2017)
Fundamentals Of Cryptocurrency
Cryptocurrency works a lot like a bank credit or debit card, in both cases a complex
system that issues currency and records transactions and balances, the main difference
is that instead of banks issuing currency and keeping ledgers and algorithm does.
Transactions are sent between peers using software called cryptocurrency wallets. The
person creating the transaction use the software to transfer balances from one account
to another. To transfer funds, knowledge of a private key ( password ) is needed.
Transactions between peers are encrypted and then broadcast to the cryptocurrency’s
network and queued up to be added to the public ledger. Transactions amount are
public, but who sent the transaction is encrypted
The keys that move balances around the blockchain utilize a type of one-way
cryptography called public key cryptography. The “hashes” (the one-way
cryptographic codes that tie together blocks on the blockchain) use a similar type of
cryptography. Meanwhile, transaction data sent and stored on the blockchain is
tokenized (tokenization is a type of one-way cryptography that points to data but
doesn’t contain all the original data). The key to understanding these layers of
encryption which ensure a system like Bitcoin’s (some coins work a little differently)
is found in one - way cryptographic functions (cryptographic hash functions,
cryptographic tokens, and public-key cryptography are all names for specific, but
related, types of one-way cryptographic functions). The main idea is that
cryptocurrency uses a type of cryptography that is easy to compute one way, but hard
to compute the other way without a “key.” For example, it is easy to create a strong
password if you are in your online bank account, but very hard for others to guess a
strong password after it has been created.
Properties Of Cryptocurrency
Fast and Global: Transactions are propagated nearly instantly in the network and are
confirmed in a couple of minutes. Since they happen in a global network of computers
they are completely indifferent to your physical location. It doesn‘t matter if one
sends Bitcoin to my neighbor or to someone on the other side of the world.
Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a
software that everybody can download for free. After you install it, you can receive
and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no
gatekeeper.
Secure: Cryptocurrency funds are locked in a public key cryptography system. Only
the owner of the private key can send cryptocurrency. Strong cryptography and the
magic of big numbers make it impossible to break this scheme.
Controlled Supply: Most cryptocurrencies limit the supply of the tokens. In Bitcoin,
the supply decreases in time and will reach its final number sometime around the year
2140. All cryptocurrencies control the supply of the token by a schedule written in the
code. This means the monetary supply of a cryptocurrency in every given moment in
the future can roughly be calculated today. There is no surprise
No Debt But Bearer: The Fiat-money on your bank account is created by debt, and
the numbers you see on your ledger represent nothing but debts. It‘s a system of IOU.
Cryptocurrencies don‘t represent debts, they just represent themselves.
Cryptocurrency Mining
Cryptocurrency Mining is the process in which transactions between users are verified and
added into the blockchain public ledger. The process of mining is also responsible for
introducing new coins into the existing circulating supply and is one of the key elements that
allow cryptocurrencies to work as peer to peer decentralised network, without the need for a
third party central authority.
People who are running software and hardware aimed at confirming transactions to the
digital ledger are cryptocurrency miners. A miner is a node in the network that collects
transactions and organizes them into blocks. Whenever transactions are made, all network
nodes receive them and verify their validity. Then, miner nodes gather these transactions
from the memory pool and begin assembling them into a block The first step of mining a
block is to individually hash each transaction taken from the memory pool, but before starting
the process, the miner node adds a transaction where they send themselves the mining reward
(block reward). This transaction is referred to as the coinbase transaction. Only miners can
confirm transactions. This is their job in a cryptocurrency-network. They take transactions,
stamp them as legit and spread them in the network. After a transaction is confirmed by a
miner, every node has to add it to its database. It has become part of the blockchain. For this
job, the miners get rewarded with a token of the cryptocurrency. Cryptocurrency can only be
created if miners solve a cryptographic puzzle. Since the difficulty of this puzzle increases
the amount of computer power the whole miner’s invest, there is only a specific amount of
cryptocurrency token that can be created in a given amount of time. This is part of the
consensus no peer in the network can break.
TYPES OF CRYPTOCURRENCIES
What is it?
It is a digital currency that you can send to other individuals. This may be as a gift, for
services or for a product. it's just like the money we use in our bank accounts (USD, EUR,
etc.). It's digital, though; it's not physical. That is not all that makes it different, though. It is
also decentralised, meaning that it does not rely on a bank or a third party to handle it,
With Bitcoin, it's called a peer-to-peer network, each transaction occurs directly between
users. Thanks to the blockchain, this is all possible. Bitcoin introduced blockchain technology
to allow users to send and receive Bitcoin without using a third party.
When someone sends Bitcoin, the transaction is verified and then stored on the
blockchain (the shared database). The information on the blockchain is encrypted —
everyone can see it, but only the owner of each Bitcoin can decrypt it. Each owner of Bitcoin
is given a ‘private key’, and this private key is how they decrypt their Bitcoin. But, if the
banks don’t verify/process the transactions, then who does?
Blockchains are run by lots of different people and companies instead of one single
company/person? Well, the people and companies that run the blockchain do it using
computer power.
They run special software on a computer that processes transactions on the blockchain.
Running this software uses a lot of electricity, though. So, how do the people and companies
running the nodes pay for their electricity bills? It is done through Mining.
The nodes are rewarded for verifying transactions — they’re rewarded with new Bitcoin.
This is how new Bitcoins are created. You can compare it to gold mining, in which the
miners are rewarded with gold. In Bitcoin mining, the nodes are the miners — they mine for
new Bitcoin. When a new block of transactions is sent to the blockchain, the miners/nodes
will verify the block using an algorithm called PoW (Proof-of-Work). In PoW, the first miner
to verify the block is rewarded with new coins.
Distribution-The key differences between Bitcoin and Litecoin concern the total number of
coins that can be generated by each crypto-currency. That's where Litecoin differentiates
itself. The Bitcoin network can never reach 21 million coins, although up to 84 million coins
can be accommodated by Litecoin.
Transaction Speed - The average transaction confirmation period of the Bitcoin network is
currently just under 9 minutes per transaction, according to data from Blockchain.info, but
this can vary widely when traffic is large. The equivalent figure for Litecoin is approximately
2.5 minutes In theory, this gap in confirmation time may make Litecoin more appealing to
traders.
Algorithms - By far the most fundamental technical difference between Bitcoin and Litecoin
are the different cryptographic algorithms that they employ. Bitcoin makes use of the
longstanding SHA-256 algorithm, whereas Litecoin makes use of a comparatively new
algorithm known as Scryp.
Purpose of creation - Though, the Bitcoin and Ethereum networks are different with respect
to their overall aims. While bitcoin was created as an alternative to national currencies and
thus aspires to be a medium of exchange and a store of value, Ethereum was intended as a
platform to facilitate immutable, programmatic contracts, and applications via its own
currency.
Block Time - An Ether transaction is confirmed in seconds compared to minutes for Bitcoin.
Mining - Bitcoin uses a proof-of-work system and mining for releasing new BTC tokens,
forming an essential part of the validation process, while all of the XRP tokens are pre-mined
For this reason, XRP mining does not exist in the same way that bitcoin mining does.
Real World Application - While bitcoin is seeing increasing use by individuals and
organizations as a virtual currency, the Ripple payment system is more popular among banks.
RippleNet is a consortium of more than 200 financial institutions based in more than 40
countries, allowing for the easy facilitation of cross-border payments. The Ripple network
continues to see growth among financial institutions.
Overall, XRP is better for lower processing times and lower transaction charges than bitcoin.
Block size – BCH has a increased blocksize of 8 MB to accelerate the verification process
however Bitcoins block size is 1 MB.
Cheaper transfer fees - (around $0.20 per transaction), so making transactions in BCH will
save you more money than using BTC. A BTC transaction can cost around $1 USD per
transaction, although it previously went up to around $25 per transaction.
CHALLENGES FACED BY CRYPTOCURRENCY –
Security threats: Hackers and malicious users can create as much as they want from virtual
currency if they break the system and know the method of virtual currency creations. This
will lead to the ability to create fake virtual currency or steal virtual currency by just
changing the accounts balances.
Money laundering: Money laundering is one risk that is very likely to rise with the use of VC
especially with platforms that enable users to exchange virtual currency with real money. In
practical case occurred in Korea in 2008, the police arrested a group of 14 persons for
laundering $38 million obtained from selling virtual currency. The group converted the
amount of $38 million, which is generated by gold farming, from Korea to a paper company
in China as payments for purchases.
Unknown Identity Risks - Since creating an account in most of virtual currency platforms
such as social games and social networks is not authenticated, financial transactions cannot
be monitored very well. Gamers and users can create more than one account with unknown
identities and use them for illegal transactions.
Black market for cryptocurrency - The financial position of some companies are mature
enough to create black market for buying and selling their virtual currency. The increasing
popularity of virtual currency in online environment has led to a thriving black market for
trading virtual currency with real money. The way of receiving the payments is risky since
many malicious users may not complete the payment or they dispute after paying. In this
case, they will get their money back plus the virtual currency.
LEGALITY OF CRYPTOCURRENCY
Every single fiat currency in the world is created, released and controlled by a single entity –
in most cases a central bank. By law, ordinary citizens are only allowed to buy, sell or keep
the currency. If someone tries to create any amount of money, they will inevitably find
themselves behind bars.
When Bitcoin was introduced, it created a completely new and unique paradigm. The world’s
first digital, decentralized currency that isn’t controlled by anyone at all. Moreover, the very
concept of Bitcoin implies that anyone with enough computing power can create coins by
simply being an active part of the community.
As it’s becoming more and more mainstream, law enforcement agencies, tax authorities and
legal regulators all over the world are trying to wrap their heads around the concept of
cryptocurrency and where exactly does it fit in existing regulations and legal frameworks.
The legal status of bitcoin (and related crypto instruments) varies substantially from state to
state and is still undefined or changing in many of them. Whereas the majority of countries
do not make the usage of bitcoin itself illegal, its status as money (or a commodity) varies,
with differing regulatory implications.
While some states have explicitly allowed its use and trade, others have banned or restricted
it. Likewise, various government agencies, departments, and courts have classified bitcoins
differently.
The legality of Bitcoin depends on who you are, where you are in the world, and what you’re
doing with it.
Before jumping into the details of countries, it is important to define the legal statuses:
● Legal – Regulations are in place to govern the use of cryptocurrencies and the
operation of exchanges. ICOs may or may not be regulated.
● Uncertain/Restricted – There are no regulations surrounding the use of
cryptocurrencies and the government may have issued warnings against
cryptocurrencies, without outright banning the use of them.
● Illegal – Any use of cryptocurrencies, including purchase and trading, is considered
illegal and prosecutions may be applied if discovered.
The most interesting situation is uncertain because of the market basis at stake if governments
turn away from digital gold. The majority of “uncertain” countries where no regulation is
implemented do not recognize cryptocurrencies as a legal means of payment and have
expressed concern about the risks the currencies present, even if they have not prohibited the
use for a personal medium of exchange. In contrast, some others, such as Denmark, Ireland,
and Colombia, have asserted that bitcoins are not a currency and the governments will not
regulate a digital currency market. Still others prefer to take no official position on
cryptocurrencies. For those countries with some official recognition of cryptocurrencies,
several approaches for regulating the market are being tested with varying levels of
favourability toward fostering the growth of digital currency. No consensus approach has yet
emerged from amongst early regulators, including India. Some countries, such as the United
Kingdom and Italy, are following a model under which business operations based on
cryptocurrencies are taxed as such.
Germany is one of the few European countries that not only allow cryptocurrencies but are
also actively involved in the development of blockchain solutions.
Germany has completely legalized bitcoin allowing citizens to transact and trade in this coin.
The recognition of Bitcoin by the German government has also improved the value of these
coins in the worldwide market.
Canada
In August 2017, the Canadian government accepted Impak Coin as its first legalized
cryptocurrency. The Quebec regulation authority had previously legalized bitcoin for some
limited business models including ATMs and exchanges.
It is legal to own, buy and trade cryptocurrencies in Canada and is regulated under Canadian
anti-money laundering legislation. It is not considered money or currency but a commodity,
and subject to capital gains tax.
Japan
Being one of the fastest developing technology markets in the world, Japan had to legalize
cryptocurrencies sooner or later. Japan is one of the very few countries where Bitcoin is
recognized as a legal form of payment. In 2017, the tax on Bitcoin trading was eliminated and
Japanese financial authorities started issuing cryptocurrency exchange licenses. The country’s
government has set up a specific PSA (Payment Services Act) based framework which allows
some cryptocurrencies and a number of exchanges to be used for payment and trading
purposes. Japan is now widely considered a hub for cryptocurrency trading/exchange in Asia.
Ecuador
The Ecuadorian government has banned Bitcoin and all other digital currencies, due to the
establishment of a new state-run electronic money system. The project is designed to be
directly tied to the local currency and is controlled by the government.
Bolivia
In 2014, El Banco Central de Bolivia outright banned any currency that wasn’t issued by or
regulated by the government. The ban specifically mentioned Bitcoins as well as some other
digital currencies, but the ban extends to all cryptocurrencies.
Bolivian authorities have recently cracked down on cryptocurrency use, labelling it a pyramid
scheme and arresting 60 people. An accompanying statement emphasized that the action was
necessary to remind the population that any kind of digital currency is prohibited.
Columbia
India
India’s interest in cryptocurrency coincided with 2017’s massive spike in prices when 1
Bitcoin surged to nearly $20,000 in valuation. Until then, the concept of cryptocurrencies in
the country had been a relatively obscure concept. The sudden popularity and massive
movement, drew the attention of the RBI and the government, which issued a warning in
December 2017, with the then Finance Minister Arun Jaitley confirming that the government
did not see Bitcoin, or any other cryptocurrency as legal tender. In early 2018 the Reserve
Bank of India (RBI) announced a ban on the sale or purchase of cryptocurrency for entities
regulated by RBI. In March 2020, the Supreme Court of India revoke the RBI ban on
cryptocurrency trade. Cryptocurrencies are not legal tender in India, and while exchanges are
legal, the government has made it very difficult for them to operate.
Russia
In an announcement made in November 2016, the Federal Tax Service of Russia declared
bitcoins as “not illegal”. Even though it doesn’t say that bitcoins or any other Cryptocurrency
Is Legal & Illegal in the country, people are allowed to purchase, sale or trade in virtual
currencies at their own risk.
The Chief Executive of Hong Kong Monetary Authority (HKMA) deemed Bitcoins a virtual
commodity, stating that the HKMA will not regulate the cryptocurrency.
The Secretary for Financial Services and the Treasury of Hong Kong has said that the
existing laws don’t directly regulate Bitcoins and other similar digital currencies, but provide
sanctions for unlawful acts involving those currencies, such as fraud and money laundering.
INTERESTING FACTS
1. Malta- First country to regulate cryptocurrency in 2018 which officially makes it a
fully-fledged crypto-legal country.
2. USA- USA has the highest bitcoin trading volume in the world.
3. India- India is looking to introduce a law to ban cryptocurrencies, despite its Supreme
court revoking a previous ban recently.
4. New Zealand- First country to legalize salary payments in Bitcoins starting
September 2019.
5. China- China has plans in motion to launch its own cryptocurrency and become the
first country to launch digital currency.
6. Holland- There is a special region, called “Bitcoin City” in Holland where all bitcoin
transactions including retail purchases, trading and business are completely legal.
OBJECTIVES OF CRYPTOCURRENCY:
5. Travel:
As Bitcoin becomes accepted by more and more retailers, people are going to have
the chance to use them for a huge number of transactions. Cheapair.com, a travel
agency where you can purchase flights, hotels, car rentals and cruises, has been
accepting Bitcoin since 2013.
6. Going Green:
Cryptocurrency can be used to make the world greener For example, there's
the Brooklyn Microgrid. With this system, people who already have solar panels are
able to sell environmental credits through a phone app, to residents who don't have
direct access -- which means using less carbon-based power and more solar-based
energy.
7. Augmented Reality:
Thanks to the Pokemon Go craze and companies like Candy Lab, which have paved
the way for location-based AR, a whole new breed of startups has evolved. Location-
based augmented reality experiences will be the future of experiential
marketing. Fluffr.io, is another company to keep your eyes open for, as it has
partnered with Blendar and Candy Lab to drive revolutionary in-person experiences,
using a social currency based on the blockchain.
What is Libra?
The Libra project was announced in June ‘18 as a bold yet risky endeavour to
revolutionize money transfer and position Facebook and its partners on the ground
floor of a new, blockchain-based digital payments industry. It had two parts: a Libra
token, designed broadly similar to other cryptocurrencies like Bitcoin but with
fundamental differences intended to make it more stable and less of a speculative
asset, and a blockchain network that would be the technical foundation of the token
and the tool for verifying transactions and token ownership.
The name Libra comes from the basic Roman measurement of weight. The
abbreviation lb for pound is derived from Libra, and the £ symbol originally comes
from an ornate L in Libra.
Facebook will launch Calibra, the Libra digital wallet, to allow users to send money to
and from each other.Apart from transactions on the app itself, Facebook wants to
facilitate the use of Libra at various vendors for day-to-day transactions.Ride-hailing
firms Uber and Lyft are early investors in the project, suggesting that perhaps users
will be able to pay for services on the apps using Libra
In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the
promise of disrupting how things are bought and sold by eliminating transaction fees
common with credit cards. That comes dangerously close to Facebook’s ad business
that influences what is bought and sold. Meanwhile, the 1.7 billion people who lack a
bank account might choose whoever offers them a financial services alternative as their
online identity provider too. Yet existing cryptocurrencies like Bitcoin and Ethereum
weren’t properly engineered to scale to be a medium of exchange. Their unanchored
price was susceptible to huge and unpredictable fluctuations, making it tough for
merchants to accept as payment. But with Facebook’s relationship with 7 million
advertisers and 90 million small businesses plus its user experience prowess, it was
well-poised to tackle this juggernaut of a problem. Libra will is simpler to set up, more
ubiquitous as a payment method, more efficient with fewer fees, more accessible to the
unbanked and more flexible.
Libra is decentralized — which means it is run by many different organizations instead of just
one, making the system fairer overall. It is available to anyone with an internet connection and
has low fees and costs. And it is secured by cryptography which helps keep one’s money safe.
This is an important part of Facebook’s vision for a privacy-focused social platform.
By default, Facebook won’t import one’s contacts or any of his/her profile information, but
may ask if one wishes to do so. It also won’t share any of the transaction data back to
Facebook, so it wont be used to target ads, rank News Feed, or otherwise earn Facebook money
directly. Data will only be shared in specific instances in anonymized ways for research or
adoption measurement, for hunting down fraudsters or due to a request from law enforcement.
And one does not even need a Facebook or WhatsApp account to sign up for Calibra or to use
Libra.
In case an account is hacked, scammed or lost access to account, Calibra will refund for lost
coins when possible through 24/7 chat support because it is a custodial wallet.
Libra Incentives:
The Libra Association wants to encourage more developers and merchants to work with
its cryptocurrency. That is why it plans to issue incentives, possibly Libra coins, to
validator node operators who can get people signed up for and using Libra. Wallets that
pull users through the Know Your Customer anti-fraud and money laundering process
or that keep users sufficiently active for over a year will be rewarded. For each
transaction they process, merchants will also receive a percentage of the transaction
back.
Businesses that earn these incentives can keep them, or pass some or all of them along
to users in the form of free Libra tokens or discounts on their purchases. This could
create competition between wallets to see which can pass on the most rewards to their
customers, and thereby attract the most users.
Associations with the right brands, having potential to grow along with Libra
will be a win-win situation for both the parties.
REFERENCES
Anonymous. (2019, October 23rd). A brief history on bitcoin and cryptocurrency. Ledger
Academy. Retrieved October 13th, 2020, from https://www.ledger.com/academy/crypto/a-
brief-history-on-bitcoin-cryptocurrencies
Leemoon, B. (2017, December 8th). Research Gate. Pictoral History Of Bitcoin. Retrieved
October 13th, 2020, from https://www.researchgate.net/figure/Pictorial-History-of-Bitcoin-
Timeline-of-blockchain-technology-development_fig8_321831572
Rosic, A. (2016, November 14th). What is Cryptocurrency? Block Geeks. Retrieved October
13th, 2020, from https://blockgeeks.com/guides/what-is-cryptocurrency/