Cryptocurrency

Economics Annual Project (draft)

~ Arnav XII-C
 What Is Cryptocurrency?
A cryptocurrency is a digital virtual currency that is secured by cryptography,
which makes it nearly impossible to counterfeit or double-spend. Many
cryptocurrencies are decentralized networks based on blockchain technology
—a distributed ledger enforced by a disparate network of computers. A
defining feature of cryptocurrencies is that they are generally not issued by
any central authority, rendering them theoretically immune to government
interference or manipulation.

 Understanding Cryptocurrencies
Cryptocurrencies are systems that allow for secure payments online which are
denominated in terms of virtual "tokens," which are represented by ledger
entries internal to the system. "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.

 Types of Cryptocurrency
The first blockchain-based cryptocurrency was Bitcoin, which still remains the
most popular and most valuable. Today, there are thousands of alternate
cryptocurrencies with various functions and specifications. Some of these are
clones or forks of Bitcoin, while others are new currencies that were built from
scratch.

Bitcoin was launched in 2009 by an individual or group known by the

pseudonym "Satoshi Nakamoto". As of March 2021, there were over 18.6
million bitcoins in circulation with a total market cap of around $927 billion. A
Satoshi is the smallest unit of the Bitcoin currency.

1 Satoshi = 0.00000001 BTC

Some of the competing cryptocurrencies spawned by Bitcoin’s success,

known as "altcoins," include Litecoin, Peercoin, and Namecoin, as well
as Ethernum, Cardano, and EOS. Today, the aggregate value of all the
cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently
represents more than 60% of the total value
Fun Fact: Some of the cryptography used in cryptocurrency today was
originally developed for military applications. At one point, the government
wanted to put controls on cryptography similar to the legal restrictions on
weapons, but the right for civilians to use cryptography was secured on
grounds of freedom of speech.

 Advantages and Disadvantages of Cryptocurrency

 Advantages
Cryptocurrencies hold the promise of making it easier to transfer funds directly
between two parties, without the need for a trusted third party like a bank or
credit card company. These transfers are instead secured by the use of public
keys and private keys and different forms of incentive systems, like Proof of
Work or Proof of Stake.

In modern cryptocurrency systems, a user's "wallet," or account address, has

a public key, while the private key is known only to the owner and is used to
sign transactions. Fund transfers are completed with minimal processing fees,
allowing users to avoid the steep fees charged by banks and financial
institutions for wire transfers.

 Disadvantages 
The semi-anonymous nature of cryptocurrency transactions makes them well-
suited for a host of illegal activities, such as money laundering and tax
evasion. However, cryptocurrency advocates often highly value their
anonymity, citing benefits of privacy like protection for whistle-blowers or
activists living under repressive governments. Some cryptocurrencies are
more private than others. 

Bitcoin, for instance, is a relatively poor choice for conducting illegal business
online, since the forensic analysis of the Bitcoin blockchain has helped
authorities arrest and prosecute criminals. More privacy-oriented coins do
exist, however, such as Dash, Monero, or ZCash, which are far more difficult
to trace.

 Special Considerations
Central to the appeal and functionality of Bitcoin and other cryptocurrencies
is blockchain technology, which is used to keep an online ledger of all the
transactions that have ever been conducted, thus providing a data structure
for this ledger that is quite secure and is shared and agreed upon by the entire
network of an individual node, or computer maintaining a copy of the ledger.
Every new block generated must be verified by each node before being
confirmed, making it almost impossible to forge transaction histories. 

Many experts see blockchain technology as having serious potential for uses
like online voting and crowdfunding, and major financial institutions such as
JPMorgan Chase (JPM) see the potential to lower transaction costs by
streamlining payment processing. However, because cryptocurrencies are
virtual and are not stored on a central database, a digital cryptocurrency
balance can be wiped out by the loss or destruction of a hard drive if a backup
copy of the private key does not exist. At the same time, there is no central
authority, government, or corporation that has access to your funds or your
personal information.

 Criticism of Cryptocurrency 
Since market prices for cryptocurrencies are based on supply and demand,
the rate at which a cryptocurrency can be exchanged for another currency can
fluctuate widely, since the design of many cryptocurrencies ensures a high
degree of scarcity. 

Bitcoin has experienced some rapid surges and collapses in value, climbing
as high as $19,000 per Bitcoin in Dec. of 2017 before dropping to around
$7,000 in the following months. Cryptocurrencies are thus considered by
some economists to be a short-lived fad or speculative bubble. 

There is concern that cryptocurrencies like Bitcoin are not rooted in any
material goods. Some research, however, has identified that the cost of
producing a Bitcoin, which requires an increasingly large amount of energy, is
directly related to its market price.

Cryptocurrency blockchains are highly secure, but other aspects of a

cryptocurrency ecosystem, including exchanges and wallets, are not immune
to the threat of hacking. In Bitcoin's 10-year history, several online
exchanges have been the subject of hacking and theft, sometimes with
millions of dollars’ worth of "coins" stolen.

Nonetheless, many observers see potential advantages in cryptocurrencies,

like the possibility of preserving value against inflation and facilitating
exchange while being easier to transport and divide than precious metals and
existing outside the influence of central banks and governments.

 Best cryptocurrencies by market capitalization

These are the 10 largest trading cryptocurrencies by market capitalization
as tracked by CoinMarketCap, a cryptocurrency data and analytics provider.
Cryptocurrency Market Capitalization
Bitcoin $735.3 billion
Ethereum $324.2 billion
Tether $61 billion
Binance Coin $57.5 billion
Cardano $54.6 billion
XRP $46.5 billion
 Cryptocurrency Market Capitalization
Dogecoin $44 billion
Polkadot $22.1 billion
USD Coin $21.9 billion
Internet Computer $16.7 billion
Data current as of May 27, 2021. 

 Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their supporters for a variety of reasons. Here
are some of the most popular:
 Supporters see cryptocurrencies such as Bitcoin as the currency of
the future and are racing to buy them now, presumably before they become
more valuable
 Some supporters like the fact that cryptocurrency removes central
banks from managing the money supply, since over time these banks tend
to reduce the value of money via inflation
 Other supporters like the technology behind cryptocurrencies, the
blockchain, because it’s a decentralized processing and recording system
and can be more secure than traditional payment systems
 Some speculators like cryptocurrencies because they’re going up in
value and have no interest in the currencies’ long-term acceptance as a
way to move money

 Are cryptocurrencies a good investment?

Cryptocurrencies may go up in value, but many investors see them as
mere speculations, not real investments. The reason? Just like real
currencies, cryptocurrencies generate no cash flow, so for you to profit,
someone has to pay more for the currency than you did.
That’s what’s called “the greater fool” theory of investment. Contrast that to
a well-managed business, which increases its value over time by growing
the profitability and cash flow of the operation.

“For those who see cryptocurrencies such as bitcoin as the currency

of the future, it should be noted that a currency needs stability.”
As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not
be that safe, and some notable voices in the investment community have
advised would-be investors to steer clear of them. Of particular note,
legendary investor Warren Buffett compared Bitcoin to paper checks: “It's a
very effective way of transmitting money and you can do it anonymously
and all that. A check is a way of transmitting money too. Are checks worth a
whole lot of money? Just because they can transmit money?"
For those who see cryptocurrencies such as Bitcoin as the currency of the
future, it should be noted that a currency needs stability so that merchants
and consumers can determine what a fair price is for goods. Bitcoin and
other cryptocurrencies have been anything but stable through much of
their history. For example, while Bitcoin traded at close to $20,000 in
December 2017, its value then dropped to as low as about $3,200 a year
later. By December 2020, it was trading at record levels again.
This price volatility creates a conundrum. If bitcoins might be worth a lot
more in the future, people are less likely to spend and circulate them today,
making them less viable as a currency. Why spend a bitcoin when it could
be worth three times the value next year?

 How do I buy cryptocurrency?

While some cryptocurrencies, including Bitcoin, are available for purchase
with U.S. dollars, others require that you pay with bitcoins or another
cryptocurrency.
To buy cryptocurrencies, you’ll need a “wallet,” an online app that can hold
your currency. Generally, you create an account on an exchange, and then
you can transfer real money to buy cryptocurrencies such as Bitcoin or
Ethereum.
Coinbase is one popular cryptocurrency trading exchange where you can
create both a wallet and buy and sell Bitcoin and other cryptocurrencies.
Also, a growing number of online brokers offer cryptocurrencies, such as
eToro, Tradestation and Sofi Active Investing. Robinhood offers free
cryptocurrency trades.

 Are cryptocurrencies legal?

There’s no question that they’re legal in the United States, though China
has essentially banned their use, and ultimately whether they’re legal
depends on each individual country. Also be sure to consider how to
protect yourself from fraudsters who see cryptocurrencies as an
opportunity to bilk investors. As always, buyer beware.

 Latest news on BTC

 As on May 20th, 600 billion dollars were wiped from the cryptocurrency
market. The price of bitcoin fell below 30,000 dollars in a flash crash.
Ethereum temporarily dropped below $1900 whereas Dogecoin dipped
to a low of 24 cents. China banned financial, payment institutions from
cryptocurrency business. Crypto and blockchain must accept they have
in problem then lead in sustainability. Elon Musk played a major role in
the charts of Bitcoin. Even his tweets influenced the price of bitcoin as it
convinced people to buy it. When he paid 1.5 billion dollars for bitcoin
and started accepting cryptocurrency for payment for Tesla, the value of
bitcoin went up. On May 12th he decides to stop accepting payment in
bitcoin for Teslas and the price drops. On May 16 th he hints that he
might be selling his bitcoin and the price drops. Coinbase along with
several other exchanges were temporarily down with reduced
performance due to all the demand.

 Statement of purpose
It really does need to be taken into account that crypto is a
form of currency that has been in existence for approximately 12
years. This is brand new technology which has already illustrated
its ability to fundamentally disrupt the global financial system.
But it isn’t perfect by any stretch.

Crypto, or digital, or virtual currencies have created a paradigm

shift in the way we look at money. The way we look at potentially
buying it. The way we look at potentially spending it.

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 cryptocurrency.

For all the present and future investors, knowledge on

cryptocurrency is a must as when it comes to cryptocurrencies,
one of the biggest challenges for investors is not getting caught
up in the hype. Digital currencies have quickly risen to a place of
prominence in the portfolios of many retail and institutional
investors. At the same time, analysts have continued to caution
investors about their volatile nature and unpredictability.
If you've decided to invest in the cryptocurrency market, as with
any other investment, it's important to do your research before
you hand over any money. Below, we'll explore the things you
should know before you invest.

 Impact of cryptocurrency on the Indian economy

Conveyers

The times of india

The economic times

Investopedia

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