Hello (Hola) to you all amazing steemians!
Hopefully, all of you will be having a good time.
After attending a very informative and beneficial lecture by Professor @ Levycore, I am here to submit my homework to our respected professor.
Before starting my homework let me tell you a little about cryptocurrencies.
"Edited in Canva.com"
What are Cryptocurrencies?
Cryptocurrency is digitally formed and managed currency, used in monetary transactions such as buying, selling, and trading. Its transactions are recorded and managed in an online ledger. The transaction of cryptocurrencies is virtual and emerged as a decentralized movement which do not require any third parties such as any banks or any governmental institutions.
Like any conventional currency, there are so many different types of cryptocurrencies such as Bitcoin, Etherium, Steem, litecoin, Ripple, and many more.
What is the fundamental difference between cryptocurrency and conventional financial systems?
Currency or money is an asset, which is used as a medium of exchange mainly used against goods or services. It has been evoloved around so many different forms and its exchange systems for a long time since its usage have been started such as Physical coins, paper money or bills, digitally managed money like in banks and in ATM, and now currently developed cryptocurrencies which are based decentralized mechanism such as Bitcoin, Altcoins, etc.
There is so many differences between both cryptocurrency and conventional financial systems. I will try to elaborate it in simple words to convey my message. Following are some of the major differences,
1 - The major difference between both systems is their control mechanism and how and on what they are based upon. I mean if it is Centralized or Decentralized, by explanation we get to know that Cryptocurrency is mostly based on decentralized systems, which does not require any third party or intermediaries for its transaction to be completed, and its transaction is directly placed between a sender and receiver with no third party such as bank, etc.
While talking about the conventional financial system, there is a high level of centralization with involvement of third parties in almost every transaction to be completed. The central authority remains with the state bank of every state, which controls all the monetary policies, their implementation, management, and availability of physical or electronic money to the public, which is then used by them in daily transactions for goods or services.
2 - The second major difference in both the systems is that conventional financial institutions have a break every week on weekend in general, on which the general public can not perform most of their transaction other than using ATM, online banking, etc but in Cryptocurrency, you can have the service 24 hours and seven days a week in which you can perform any type of transaction you want to be performed. It is a very beneficial side of Cryptocurrency over a normal conventional financial system.
3 - In the conventional financial system there are certain restrictions on the general public to be eligible to perform any transaction such as a minor cannot open a bank account unless he/she reaches the age of a major as the process required all the identities and background details to open an account in a bank through which he/she can perform a transaction in the conventional financial system. While in cryptocurrency there are no restrictions upon age or any background to perform any transaction. It means every single person can deal in cryptocurrencies if they want to. etc
Why is a decentralized system needed?
The decentralized system is needed for so many reasons but some of them will be mentioned here today,
No central controlling authority: It means there is no central authority who can control or manipulate the whole decentralized system. which shows up some transparency in the system and everyone can feel independent doing their own transaction and making their decisions. In the centralized system, there is always a central authority that regulates every single policy regarding the creation, management, and control of conventional money but in the decentralized system, it is not the case such as in cryptocurrencies. Another point would be that a centralized system does have a guidelines and conditions to follow while performing your transactions or managing your accounts and if there are any violations then the account might be frozen or blocked for a definite or indefinite time but in the decentralized system, there are no such restrictions to follow any guidlines or any such consequences.
Safe Data with secured Transactions: It means all the assets of any individual in decentralized system is safe because of multiple servers are in used which restrict anyone from manipulating the assets, its transactions or system and it becomes more hard and tough for any hacker or cyber attack to take place. It also provides the commercial organization to keep their data in a very safe and secured form in decentralized system, which might not be unable to do so in conventional centralized system.
Independence: There is no third party involvment in the decentralized system whatsoever, which makes it an independednt system for every user of it to perform any transaction with full authority and confidence without any restrictions. In decentralized system all users can access to the data to verify its secured position of storage and it does reduce the trust issues between both the parties along with any state government if involved when they all have access to the stored data for any sort of verification if they required. It is a transparent process because system can be monitored by anyone at any point of time.
Swift and cheap with no complementary charges: Now this point means that every transactions on decentralized system inclucding international transactions are very fast with so minimum charges than any other conventional centralized system. Which does not require any complementary charges of any tax or transaction fee. Decentralized system has reduced every sort of cost and there is no such delays in the transactions as compared to centralized system which waste most of the user time in unneccassory wait to respond. In decentralized system the auditing is also reuced as all the data and transaction are open to public at any point of time. The operational and administrative cost is reduced to a very minimum level because there is third parties involvment which is a very expensive part of a centralized system.
All these points shows that how a decentralized system is more suitable than a centralized system. Which depicts the need of a decentralized system over a centralized system.
Question - 3:
What affects the value of cryptocurrencies?
There has been a very huge increase in the users as well as the number of Crypyocurrencies in a very short period of time and it is still growing with a rapid speed. But the most important and worrisome thing about cryptocureencies is its value and volatility in it. There are so many reasons and factors behind it but I will try to discuss some most important of them here,
1 - Public Acceptance:
Anything will have an increase in its value when the public accept its usage in their daily life, Same as the case with cryptocurrencies. Cryptocurrencies are highly accepted by most of the public in the recent times, which gave so much popularity to its name and increased its worth but there are other factors which affects its volital nature and it results in defamation of the cryptocurrency which causes a decline in its value.
2- Governmental rules and laws:
The governmental laws has a high affect of the value of any currency. When a state announced any legal law or regulation about any specific currency or overall a monetary policy, they bring a high level of affect on its value and public responce to it. In most countries Cryptocurrencies are accepted as a legal method of payment but in some countries it is not the case and they have different types of bans over its usage. If there is only a speculation or any news or announcment regarding cryptocurrencies, only that can affect its value. For example, If a country announce that they will accept the cryptocurrencies as legal payment method for trade and goods & services then there will be a very high jump in its value as every person will try to buy and trade in cryptocurrencies and vice versa. As happened in China few years back when they officialy announced banned on all those websites which were accepting and trading in cryptocurrencies, that all brought a high level of decline in the value of most of the cryptocurrencies.
3 - law of Demand and Supply of economics :
This law states that demand of a specific product (currency) will have a propertionate affect on its supply. It means that if demand of a specific limited currency is increased then its supply will be automatically increased and the increase in supply will have a direct affect on its value.
For example, like in the above example any country announce that they will accept cryptocurrency as a legal method of payment for trade then there will be a high increase in its demand, which will directly have an increase in its supply and the final result will be a very high affect in its value.
4- Hackers attacks into the wallets and exchanges plateform of cryptocurrencies:
The cryptocurrencies exchanges plateform are based on decentralized systems which are highly secured but in todays world techonlogies has a major affect on every sides including hacking and cyber attacks, which makes hackers able to find leaks and push an attack into the exchange systems and wallets. If the hackers become successful in their attacks then that has a huge impact on the value of the cryptocurrencies.
5 - Any emotional news and decisions by any related high profiles about cryptocurrencies:
Like most of us knows the owner/founder/CEO of Tesla, Mr. Ellon Musk who has recently a very impactful tweets regarding the cryptocurrencies. The tweets of Ellon Musk has both bearish and bullish affects on the value of the cryptocurrencies depending upon there statments. The value of Bitcoins in specific was highly increased when Ellon Musk announced that his company Tesla will accept bitcoins as a means of exchange for its products but when he reannounce that Tesla will not accepnt bitcoins as a means of exchnage then there was a huge decline in the cryptyocurrencies.
Question - 4:
Why can't everyone be a miner?
As discussed in the lecture by Proffessor, Mining is a process done by solving complex mathematical calculations to add blocks to the blockchain system of the cryptocurrency.
Let me discuss with you some of the factors which restricts the possibility for everyone to become a minor,
- In certain countries there is a ban on mining which restricts people to participate in the mining process of the cryptocurrencies.
- You need highly powerful computers with so much special specifications to be able to accept the challenge of mining with an obvious special skills to perform the complex calculations to participate in the process of mining, which are not in everyones hands.
- If you find such specially powerful computers, then the cost of assembling and setting is also very high and expensive , which are not affordable for everyone.
- As mentioned above, the mining process involved highly powerful computers to initiated the process of mining, but its complentary requirement will be high level of energy consumptions, which is also not available to everyone.
- There is a high cost of maintenance of these powerful systems used for mining which depicts another drawback of the mining process which will make everyone rethink on their idea to start mining.
- The requirement of highly expertise is also a crucial point. If anyone is in to the process of mining he will still required high expertise to earn from the highly complex process of mining.
- There is a high risk involoved in investing in the mining process but also if you want to dismantle it, there is a possibility that you'll get nothing out of it and you'll lose all your invesment in a one-off moment unlike a normal investment in other business in which you still regain some part of the investment even if you have a loss in your business.
Why can Cryptocurrency transactions be called more transparent?
As discussed above, Cryptocurrency are based on decentralized blockchain systems. In decentralized blockchain data are stored in nodes which are available to all connected systems to the network of the blockchain. In this way everyone is able to see the data and transaction which comes up with the meaning of transparency in the transactions because it is publicaly visible and not hidden from anyone.
In cryptocurrency network, there is a public ledger that keeps record of every single transaction, which can update you about the history of ownership of the asset and also the worth it possess. Through this every transaction is publicaly available which proves the transparency principle.
In the cryptocurrency blockchain, the transaction and information are available to all public from any part of the world. As blockchain are open source which allows its data anytime for audit, it shows that its transparency can not be compromised.
This transparency is not useful for everyone, because some people might want that there transactions shall be kept hidden to avoid tax implications but it is not possible in cryptocurrency blockchain.
In cryptocurrency every person is independent and you can see the transactions and their processing by yourself but in conventional financial system you will not be provided with the hidden information about the procedures they perform or data stored as they mark them as confidential, which is mostly the cases in normal conventional banks too.
Question - 6:
Explain how the development of cryptocurrency in your country?
I belong to Pakistan, here the idea and terminalogies of cryptocurrency are still at initial stages for most of the people. Cryptocurrency is a bit complex than normal conventional currencies, which makes it tough for a newcomer to understand all its functions and features. But still the usage of cryptocurrency is increasing day by day with a high rate.
From legal perspective there is no such hard and fast rule specified in pakistan. In 2018, a statment issued by the state bank of pakistan stated that digital or virtual currencies like Bitcoins etc are not legal tender, issued or gauranteed by the government of Pakistan Source.
But on march 19 2021, there came a news that a provisional government in pakistan is
planning to build two hydroelectric-powered pilot “mining farms” to capitalise on a bullish global cryptocurrency market source.
It means that cryptocurrency has a new begining in Pakistan and very soon there will be mining farms of cryptocurrency. In pakistan till now no company has announced any planning about trading in cryptocurrency but very soon it will also be started as if the government clears its stance on the legal form of cryptocurrencies. I have seen an increase in trading on individual basis in pakistan which shows the interest of people in joining it as full time exchange currency in near future.
But mostly, pakistani people are not aware of the idealogy of crypto till now and I hope it will increase very soon and people will be provided with the awarness as I am personally doing it in my circle and so many other, who have joind cryptocurrencies through @Steemit.
Cryptocurrency is achieving its fame day by day and its popularity graph is on an increasing trend since a long time, which shows the interest of people in joining it. In many countries, the trading in cryptocurrencies is still not legalised which should be done as soon as possible because Cryptocurrencies will be one of the mainstream used currency in the near future.
Most of the companies will adopt it as its exchange method of trading once it is legalised in their country. I hope it will be possible very soon.
Cryptocurrency has alot of advantages with respect to normal conventional financial systems. The transparency factor is the most important one, every investor wants to see what and how is the procedure applied on his investments and where is it placed, which are possible in cryptocurrency and not in normal financial system.
There are some complications involved in mining and performing transactions for the first time of cryptocurrencies, but when you get involved in some transaction and gained some expertise then it will not be that difficult to perform and offcourse mining is a very tough process which is not for everyone but yes if you try nothing is impossible.
I hope, Cryptocurrencies will be one of the most used currencies used in the world very soon.
Thank you professor @ Levycore for such an amazing and knowlegable lecture,
I hope my homework will be upto your expectations.
Thanks and Regards: