Basics of Cryptocurrency and Blockchain
What is blockchain and cryptocurrency?
A cryptocurrency, at its most basic level, is a digital asset that uses computer code and blockchain technology to operate independently of a central entity — whether it is a person, company, central bank, or government — to control the system.
A blockchain is a public ledger that records bitcoin transactions. This transaction ledger is kept on multiple computers connected by a dispersed network. In bitcoin protocols, transactions are aggregated into blocks, which are then linked together to create a historical record of everything that has transpired on the blockchain.
Bitcoin, the first cryptocurrency, was founded to serve beans as a payment system for the internet world. Faster, cheaper, censorship-resistant, and unaffected by the whims of any government or central bank
There are thousands of cryptocurrencies available now. These are still payment systems, but they’ve also been designed for additional uses including lending and borrowing, as well as digital storage. One of the most common applications for this technology is speculation, which involves buying in the hopes that the price will rise and the holders will profit.
Cryptocurrency characteristics
Cryptocurrency is envisioned as a peer-to-peer electronic currency system that is not controlled by a central authority and hence is fast, inexpensive, and immune to censorship (for example, PayPal’s ban on gun purchases) and other forms of corruption or control.
While the definition is nebulous, a crypto asset often has the following characteristics:
1. Cryptography:
The term “crypto” is derived from this. Cryptography is used in a cryptocurrency (or crypto for short). Cryptography is a technique for safeguarding information or communications. Public key cryptography is used by cryptocurrencies. There is a public key in public key cryptography systems that may be shared with others; in cryptocurrencies, this is the key you share with others so they can send you cryptocurrency. You also have a private key that you don’t share with anyone. Consider the private key to be a password. It protects your cryptocurrency assets and is used to sign transactions you send to others.
2. Transparency:
Cryptography is based on the principle of transparency. Much of the code that these protocols are based on is open source, meaning it can be freely redistributed and modified. Furthermore, every crypto transaction is timestamped on the blockchain, resulting in a public provenance or chronology of asset ownership or custody.
3. Incentives:
Cryptocurrency protocols use game theory components to ensure that all system users act in a way that maintains the system running. Bitcoin miners, for example, must employ computer processing power to verify transaction blocks. When miners verify a block of transactions, newly generated coins are immediately handed to them as a reward for their efforts. Miners are rewarded for continuing to devote computing resources to transaction verification in this fashion.
What makes cryptocurrencies the financial future?
Cryptocurrencies are the first alternative to the existing banking system, and they provide significant benefits over traditional payment systems and asset classes. Consider them Money 2.0: a new type of money that is native to the internet, with the potential to be the world’s fastest, easiest, cheapest, safest, and most universal means of exchanging value.
Cryptocurrencies can be used to purchase goods and services or held as part of an investment strategy, but they cannot be manipulated by a central authority because none exists. Your cryptocurrency will stay secure regardless of what happens to a government. Regardless of where you were born or where you live, digital currencies guarantee equal opportunity. You have the same crypto access as everyone else if you have a smartphone or other internet-connected device.
Cryptocurrencies provide one-of-a-kind chances for people all around the world to increase their economic freedom. The intrinsic borderlessness of digital currencies encourages free trade, especially in countries where the government has strict control over residents’ finances. Cryptocurrencies can provide an alternative to malfunctioning fiat currencies for savings and payments in countries where inflation is a major issue.
Crypto can be used in a variety of ways as part of a larger investing strategy. One strategy is to buy and keep a cryptocurrency such as bitcoin, which has gone from being virtually worthless in 2008 to being worth thousands of dollars today. Another option is to use a more active strategy, such as purchasing and selling volatile cryptocurrencies.
USD Coin, which is tied 1:1 to the value of the US dollar, is one alternative for crypto-curious investors wishing to limit risk. It combines the advantages of crypto, such as the ability to send money globally fast and cheaply, with the security and stability of a regular currency. Customers that hold USDC on Coinbase get rewards, making it a more enticing option than a standard savings account.
Traditional vs. Cryptocurrency Currencies
Consider the following scenario: you wish to thank a buddy who bought you lunch by sending money to his or her account via the internet. There are several ways this can go wrong, including:
1. There could be a technical issue with the financial institution, such as its systems being down or its machines not working properly.
2. Your or your friend’s account may have been hacked, resulting in a denial-of-service attack or identity theft, for example.
3. Your or your friend’s account’s transfer limits may have been exceeded.
This is why the cryptocurrency is the currency of the future. Consider a comparable transaction involving two persons who are using the bitcoin app. A message displays asking if the user is certain he or she is ready to send bitcoins. If yes, processing begins: the system verifies the user’s identification, determines whether the user has sufficient funds to complete the transaction, and so on. The payment is then transferred, and the funds are deposited in the receiver’s account. It only takes a few minutes for all of this to happen.
As a result, cryptocurrency solves all of modern banking’s problems: There are no restrictions on the amount of money you can spend, and your accounts cannot be hacked. There is also no single point of failure. As previously stated, there are over 1,600 cryptocurrencies accessible as of 2018, with Bitcoin, Litecoin, Ethereum, and Zcash being among the most prominent. And every day, a new cryptocurrency emerges. Given how much growth they’re seeing right now, there’s a high chance there will be lots more to come!
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Cryptocurrency Criticism
Because cryptocurrency market values are determined by supply and demand, the rate at which a cryptocurrency can be exchanged for another currency might vary greatly, especially since many cryptocurrencies are designed to be scarce.
Bitcoin’s value has risen and fallen rapidly, reaching a peak of $17,738 per Bitcoin in December 2017 before plummeting below $7,575 in the following months. As a result, some economists regard cryptocurrency as a fad or speculative bubble.
There is fear that cryptocurrencies such as Bitcoin are not backed by any tangible assets. According to a certain study, the cost of generating a Bitcoin, which consumes a growing quantity of energy, is directly tied to its market price.
Although bitcoin blockchains can be quite secure, other components of the cryptocurrency ecosystem, including as exchanges and wallets, are vulnerable to hacking. Several online exchanges have been hacked and stolen during Bitcoin’s ten-year lifespan, with millions of dollars in “coins” lost in certain cases.
Despite this, many analysts consider cryptocurrencies as having potential benefits, such as the ability to preserve value against inflation and facilitate exchange while being easier to carry and divide than precious metals and existing beyond the power of central banks and governments.
Bitcoin vs. Ethereum
You now know that Bitcoin is a decentralized digital currency that runs on blockchain technology and employs a peer-to-peer network to conduct transactions. The Ethereum network accepts Ether, which is another prominent digital currency. The Ethereum network is an open-source platform for developing and deploying decentralized applications based on blockchain technology.
1. Likenesses
At the moment, bitcoin and ether are the most popular and valued cryptocurrencies. Both use blockchain technology, in which transactions are added to a container known as a block, and a chain of blocks is formed in which data cannot be changed. The currency is mined via a mechanism known as proof of work, which involves solving a mathematical challenge before a block can be added to the blockchain. Finally, bitcoin and ether are both widely used worldwide.
2. Disparities
Bitcoin is a digital currency that may be used to send money to other people. It functions in a manner that is very similar to that of real-world currency. Within the Ethereum network, Ether is used as a currency, but it can also be used for real-world transactions. Bitcoin transactions are done manually, which means you must complete them yourself when you want them completed. With ether, you can make transactions either manually or automatically—they’re programmed, which means they’ll only happen if specific conditions are met. A bitcoin transaction takes roughly 10 minutes to complete, which is the time it takes for a block to be added to the blockchain. It takes roughly 20 seconds to complete a transaction with ether.
The number of bitcoins that can exist is limited to 21 million. By the year 2140, this figure is expected to be reached. Ether is expected to last a long time and will be limited to 100 million units. Bitcoin is used for goods and services transactions, while ether makes use of blockchain technology to create a ledger that triggers a transaction when a certain condition is met. Finally, the SHA-256 algorithm is used by Bitcoin, while the hash algorithm is used by Ethereum.
1 bitcoin is worth 8741.81 dollars in May 2020, while 1 ether is worth $190.00.
What is Blockchain in a Nutshell?
A blockchain is a decentralized database that is shared among computer network nodes. A blockchain acts as a database, storing information in a digital format. Blockchains are best known for their critical role in maintaining a secure and decentralized record of transactions in cryptocurrency systems like Bitcoin. The blockchain’s innovation is that it ensures the fidelity and security of a data record while also generating trust without the need for a trusted third party.
The way data is structured differs significantly between a traditional database and a blockchain. A blockchain organizes data into groups called “blocks,” each of which contains a set of data. Blocks have specific storage capacities, and when they’re full, they’re closed and linked to the previous block, forming a data chain known as a “blockchain.” All new information added after that newly added block is compiled into a new block, which is then added to the chain once it is filled.
A database organizes data into tables, whereas a blockchain organizes data into chunks (blocks) that are strung together, as the name suggests. When implemented in a decentralized manner, this data structure creates an irreversible data chronology. When a block is filled, it becomes permanent and part of the chronology. When a block is added to the chain, it is assigned a precise timestamp.
The purpose of blockchain is to enable the recording and distribution of digital data without the ability to modify it. In this sense, a blockchain serves as the foundation for immutable ledgers, or transaction records that can’t be changed, erased, or destroyed. Blockchains are also known as distributed ledger technology because of this (DLT). The blockchain concept was first proposed as a research project in 1991, and it predated its first widespread application, Bitcoin, in 2009. The creation of various cryptocurrencies, decentralized finance (Defi) applications, non-fungible tokens (NFTs), and smart contracts has exploded the use of blockchains in the years since.
Decentralization of the blockchain
Consider a company that owns a server farm with 10,000 computers that is used to keep track of all of its clients’ account information. This corporation owns a warehouse facility that houses all of these computers under one roof, and it has complete control over each of them and the data they hold. However, this creates a single point of failure. What happens if the power goes out at that location? Is it possible that its internet connection has been lost? What if it all goes up in flames? What if a bad actor uses a single keystroke to wipe everything clean? The data is either lost or damaged in either situation.
A blockchain allows the data in a database to be distributed across multiple network nodes in different places. This not only adds redundancy to the database, but it also ensures the accuracy of the data contained there: if someone tries to change a record in one instance, the other nodes will not be affected, preventing a bad actor from doing so. If one user tampers with Bitcoin’s transaction record, all other nodes will cross-reference each other, making it easy to find the node that has the erroneous data. This system aids in the establishment of a precise and visible sequence of occurrences. In this manner, no single node in the network may change the data it contains.
As a result, a cryptocurrency’s information and transaction history are irreversible. A blockchain can store a range of information, including legal contracts, state identifications, and a company’s goods inventory, in addition to a list of transactions (such as with a cryptocurrency).
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Is Blockchain a Safe Option?
In numerous ways, blockchain technology delivers decentralized security and trust. First and foremost, new blocks are always kept in a linear and chronological order. That is, they are always added to the blockchain’s “end.” It is exceedingly difficult to go back and change the contents of a block once it has been appended to the end of the blockchain unless a majority of the network has agreed to do so. That’s because each block has its hash, as well as the hash of the block preceding it and the time stamp described before. A mathematical function converts digital data into a string of numbers and letters, resulting in hash codes. The hash code changes if that information is changed in any way.
Let’s imagine a hacker who also controls a blockchain node wants to change a blockchain and steal cryptocurrency from everyone else. If they changed their single copy, it would no longer match the copy of everyone else. When everyone else compares their copies, they’ll see that this one stands out, and the hacker’s version of the chain will be discarded as invalid.
To succeed with such a breach, the hacker would have to control and alter 51 percent or more of the blockchain copies at the same time, ensuring that their new copy becomes the majority copy and so the agreed-upon chain. An assault like this would cost a lot of money and resources because they’d have to recreate all of the blocks. After all, the timestamps and hash codes would be different today.
The expense of pulling off such a feat would almost certainly be impossible, given the scale of many cryptocurrency networks and how quickly they are developing. This would not only be prohibitively expensive, but it would also be futile. Such actions would not go unnoticed by network participants, who would detect such significant changes to the blockchain. Members of the network would then “hard fork” off to a new, unaffected version of the chain. This would cause the value of the targeted token to collapse, rendering the attack futile because the bad actor now has control of a worthless asset. If a bad actor attacked Bitcoin’s fresh fork, the same thing would happen. It’s designed this way so that participating in the network is significantly more financially rewarding than attacking it.
Bitcoin vs. Blockchain
Stuart Haber and W. Scott Stornetta, two researchers who aimed to develop a system where document timestamps could not be manipulated, initially proposed blockchain technology in 1991. Blockchain didn’t have its first real-world application until almost two decades later, with the debut of Bitcoin in January 2009.
A blockchain is the foundation of the Bitcoin protocol. Bitcoin’s pseudonymous developer, Satoshi Nakamoto, described it as “a new electronic cash system that is peer-to-peer, with no trusted third party” in a research paper introducing the digital currency.
The important thing to remember is that Bitcoin only uses blockchain to create a transparent ledger of payments; however, blockchain can theoretically be used to immutably record any amount of data items. As previously said, this might take the shape of transactions, election votes, goods inventories, state identifications, home deeds, and much more.
There are currently tens of thousands of initiatives attempting to use blockchains in several ways other than just documenting transactions to assist society. For example, blockchains could be used to vote in democratic elections securely. Because of the immutability of blockchain, fraudulent voting would become much more difficult. A voting system, for example, maybe set up so that each citizen of a country receives a single coin or token. Each candidate would then be assigned a unique wallet address, and voters would send their tokens or crypto to the address of the candidate they wish to support. Because blockchain is transparent and traceable, it eliminates the need for human vote counting and the ability of bad actors to interfere with physical votes.
How Are Blockchains Used?
Blocks on Bitcoin’s blockchain, as we now know, store data about monetary transactions. More than 10,000 additional cryptocurrency systems are currently running on blockchains. However, it turns out that blockchain can also be used to store data about other types of transactions.
Walmart, Pfizer, AIG, Siemens, Unilever, and a slew of other corporations have already adopted blockchain technology. IBM, for example, has developed the Food Trust blockchain to track the path that food goods travel to reach their final destination.
Why are you doing this? Countless outbreaks of E. Coli, salmonella, and listeria, as well as hazardous compounds mistakenly introduced to meals, have occurred in the food business. It used to take weeks to figure out what was causing these outbreaks or what was causing people to get sick from what they were consuming. Brands can follow a food product’s journey from its origin to each stop it takes, and eventually to its delivery, thanks to blockchain. If food is determined to be tainted, it can be traced back to its source through each stop. Not only that, but these companies can now see everything else they’ve come into contact with, perhaps saving lives by allowing the problem to be identified far sooner.
This is one example of a blockchain in action, but there are many other ways to implement a blockchain.
Finance and banking
Banking is perhaps the industry that stands to gain the most from incorporating blockchain into its business operations. Financial institutions are only open five days a week during business hours. That means that if you try to deposit a check at 6 p.m. on Friday, you’ll probably have to wait until Monday morning to see the funds in your account. Even if you make your deposit during business hours, it may take one to three days for the transaction to be verified due to the high volume of transactions that banks must process. Blockchain, on the other hand, is awake all the time.
Consumers can see their transactions processed in as little as 10 minutes by integrating blockchain into banks, which is the time it takes to add a block to the blockchain, regardless of holidays or the time of day or week. Banks can now exchange funds between institutions more quickly and securely thanks to blockchain. The settlement and clearing process in the stock trading industry, for example, can take up to three days (or longer if trading internationally), which means that the money and shares are frozen during that time.
Because of the large sums involved, even a few days in transit can result in significant costs and risks for banks. The potential savings, according to European bank Santander and its research partners, range from $15 billion to $20 billion per year. According to Capgemini, a French consulting firm, blockchain-based applications could save consumers up to $16 billion in banking and insurance fees each year.
Does Bitcoin serve the purpose of speculation or dollarization?
The US dollar has made an impact around the world, with many countries adopting the US currency alongside their own. So, what exactly is the term “dollarization”? The term “dollarization” refers to the use of the US dollar alongside a local, fiat currency, which is common when the local currency has lost value.
But, thanks to advancements in technology, we now have a more futuristic form of money in the form of Bitcoin and other cryptocurrencies. Experts disagree about whether Bitcoin is a speculative asset, which means it is riskier than most other assets.
When Satoshi Nakamoto first presented the Bitcoin project, he didn’t intend for it to be a speculative investment. Bitcoin was created by Satoshi Nakamoto as a substitute for traditional fiat currencies.
The world is still debating what Bitcoin is and how it should be classified twelve years after its inception. What is the purpose and function of Bitcoin? Is Bitcoin, the world’s first cryptocurrency, a speculative asset due to its volatility, or is it a new form of dollarization?
Furthermore, why do some people believe Bitcoin is solely for speculation? Will cryptocurrencies coexist with traditional fiat currencies or will they completely replace some of them?
This article will look at the current state of Bitcoin and whether it has what it takes to replace the dollar or if it should be kept in the shadows as a more speculative investment.
1. Bitcoin’s original purpose
The white paper for Bitcoin was released in 2009 by the pseudonymous Satoshi Nakamoto, as all cryptocurrency enthusiasts are aware. What is Bitcoin and what does it do? According to the document, Nakamoto envisioned Bitcoin as a “pure peer-to-peer” electronic cash system. According to the paper, Bitcoin is intended to be an anonymous alternative payment method that does not require the intervention of a third party.
However, it is debatable if Bitcoin has accomplished Nakamoto’s original, daring ambition more than a decade after its founding. After all, the Bitcoin network has scalability concerns and high transaction fees, leading many people to assume that Bitcoin is more of a store of value than a form of money.
Bitcoin has undeniably increased in value, surpassing competitors such as gold (a commodity) in terms of price. However, Satoshi’s vision of Bitcoin as an alternative currency may not have been realized. During periods of network congestion, Bitcoin struggles to perform more than seven transactions per second (TPS) and still incurs hefty fees.
Visa processed an average of 84 million transactions per day as of March 2021. During the same period, Bitcoin only processed 350,000 transactions on average. 350,000 daily transactions is a very modest criterion to meet to provide a global alternative to fiat.
Bitcoin’s lack of significant daily transaction value over the past 12 years has led some to suggest that the world’s first cryptocurrency is supposed to be a store of value rather than an alternative currency. While Bitcoin does have some characteristics that make it a currency — such as the potential to be used as a means of exchange — scalability limitations, among other issues, appear to be preventing Bitcoin from reaching new heights as a global alternative currency.
2. What long-term valuable purpose may Bitcoin serve?
A dependable store of value is an asset that steadily increases in value over time. Gold, for example, is the most widely used store of value. Many people regard Bitcoin to be “digital gold.” But, what is the goal of Bitcoin, and how is Bitcoin used?
One may argue that Bitcoin, the world’s first cryptocurrency, is a very reliable store of value based on its overall price history. Since its conception, Bitcoin has steadily increased in value, starting at less than $1. Bitcoin couldn’t even break through to one dollar in 2010. Bitcoin rose to $220 in 2013 before plummeting to below $100 in 2014. By 2017, Nakamoto’s assets had surpassed $20,000, and by 2021, they had surpassed $64,000.
Long-term holders, or HODLers, are responsible for a portion of Bitcoin’s price success. HODLers are Bitcoin investors who have no plans to sell their coins. Whales are HODLers who hold millions of dollars in Bitcoin and can single-handedly influence the asset’s market with a single sell-off. Dedicated whales, on the other hand, are aware that they are keeping Bitcoin’s price high and appear to have no plans to sell for a long time. HODLers see Bitcoin as an ever-appreciating form of money, similar to gold investors and others who put money into a store of value asset.
When the COVID-19 epidemic hit in early 2020, practically every financial asset experienced a price drop as investors withdrew their funds in fear. Nonetheless, investors have poured money into Bitcoin and gold at shockingly similar rates throughout the years.
While a good connection between Bitcoin and gold would lead you to believe that Bitcoin is a haven asset, the two assets had an unfavorable correlation the next year.
When two variables move in lockstep or the same direction, they have a positive correlation. During a financial crisis, a safe-haven asset is a financial instrument that is expected to maintain or even gain in value. These assets may appreciate in the event of a market crash because they are uncorrelated or negatively linked to the wider economy.
A significant number of corporations believe that Bitcoin’s goal is to become the next global reserve asset. For example, both JPMorgan Chase and Blackrock feel that the first cryptocurrency is eating into gold’s market share.
In contrast, Peter Schiff, the chief economist and global strategist of Europac, believes Bitcoin is nothing more than a “massive pump and dump.” Schiff debated Anthony Scaramucci, the founder of the SkyBridge investment firm, in public in mid-2021. Because of its physicality, gold, according to the former, will have a use case even 1,000 years from now, meaning that another asset might easily replace Bitcoin in the short run.
Scaramucci supported Bitcoin, claiming that the digital asset’s scarcity is more than enough to ensure its long-term worth. Unfortunately for Bitcoin, Schiff’s presentation pushed the audience’s opinion toward gold, with only 32% backing Bitcoin.
Schiff makes an excellent point. Historically, all stores of value have been physical goods that have stood the test of time, such as real estate, diamonds, and art. Bitcoin’s digital nature may mean that if everyone abandons the first cryptocurrency, it will serve a little function and may as well cease to exist. Physical assets, on the other hand, have various uses that add to their worth.
However, as the world progresses toward a more digital future, Bitcoin supporters say that a digital store of value is merely a continuation of what has come before. After all, Bitcoin is a globally accessible asset with a market capitalization of over $1 trillion. Bitcoin’s scarcity can’t diminish over time, and as long as people invest in the cryptocurrency, the asset’s scarcity could be beneficial for Bitcoin price speculation or Bitcoin investment speculation.
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3. The case for Bitcoin as a medium of exchange
Despite Bitcoin’s ongoing volatility, there is a case often off is made that it exists as a currency in the form that Nakamoto first proposed.
After all, Bitcoin appears to be a reasonably simple item to obtain on paper. To work with Bitcoin, potential Bitcoin holders don’t require a bank account or to engage with a controlling third party. Bitcoin’s financial infrastructure is already in place on a global scale. Merchants can simply choose to take Bitcoin if their local regulators allow it, and anyone from anywhere in the globe can easily spend it.
However, a currency’s case is based on more than just its capacity to be spent. Bitcoin is not considered an alternative form of cash by its opponents when measured against the three elements of traditional currency: store of value, medium of exchange, and unit of account.
4. Bitcoin as a monetary unit
Bitcoin’s volatility makes it difficult to use as a monetary unit. After all, an asset that can fluctuate by tens of thousands of dollars in a single day can hardly be considered a reliable way to transact value in a local economy.
Due to Bitcoin’s constant price swings, a product might be worth $0.00034 in Bitcoin one day and then completely change in the next hour.
It’s also difficult to estimate Bitcoin’s current value at any given time. At any given time, different cryptocurrency exchanges list different prices for Bitcoin, with price differences ranging from hundreds of dollars to thousands of dollars. Retailers won’t be able to keep up with Bitcoin’s price fluctuations if the world can’t agree on a single price point.
Then there’s the average Bitcoin denomination. How can retailers price their goods when the price of one Bitcoin is far above $10,000, let alone one dollar? Customers and retailers would struggle to determine the true value of a coffee if the price is $0.00034 worth of Bitcoin on Tuesday and $0.000012 worth of Bitcoin on Thursday.
Current financial systems around the world are presented in the simplest possible way for accounting and convenience reasons. In Bitcoin, asking merchants to adopt yet another form of perplexing, fluctuating accounting is unlikely to go over well.
5. Bitcoin as a means of storing value
Even though there are some issues with this moniker, Bitcoin may be best viewed as a store of value, as previously stated. For one thing, Bitcoin speculation emphasizes the currency’s volatility, making citizens wary of Bitcoin as a long-term storage option.
When people buy gold, they expect the price of the precious metal to gradually rise from the time they buy it. At the very least, gold investors anticipate being able to resell the metal at a comparable beginning price.
Bitcoin, on the other hand, can lose almost 100% of its value from the time it was purchased. While Bitcoin’s volatility can be beneficial, such a high level of risk does not speak well for the future of Bitcoin as a store of value.
The lack of a physical representation of Bitcoin must also be considered. Gold, art, and other valuables can be concealed or safely stored for the duration of their possession. Although Bitcoin can be safely held in some places, such as a hardware wallet, the majority of investors keep their funds in a cryptocurrency exchange or another internet-connected wallet. Bitcoin is always at risk of theft because to the ongoing connectedness of online wallets, which is completely beyond of the holder’s control.
Bitcoin insurance does exist to some extent, however, the amount of coverage available is dependent on where the consumer keeps their cryptocurrency. Traders are still at the mercy of Bitcoin’s extreme volatility, even if they find the safest means to store their Bitcoin. All of this is based on the assumption that Bitcoin will continue to be in high demand. While the cryptocurrency’s limited supply is expected to keep demand high if a superior crypto project emerges, what will people do with their now worthless Bitcoin?
6. Bitcoin’s Case as a Speculative Asset
Bitcoin can be deemed speculative for the first 12 years of its existence. While Bitcoin’s classification may alter in the future, the cryptocurrency’s unpredictability makes it difficult to categorize as anything other than speculative.
Most cryptocurrencies, including Bitcoin, are purely speculative, according to Rosa Rios, the former US treasurer, because the bulk of cryptocurrencies do not fulfill the main purpose. Rios described Ripple as less than speculative, given that the asset is designed to promote global cross-border payments.
Surprisingly, Gary Gensler, the chairman of the US Securities and Exchange Commission, has stated that Bitcoin is largely a speculative store of value. Bitcoin and other cryptocurrencies, according to Gensler, do not serve citizens in the same manner that the dollar does. Nonetheless, we should regard Bitcoin as a distinct asset class rather than a vehicle for broad dollarization.
7. Bitcoin vs. the dollar
For many reasons, the promise of a digital alternative to the traditional currency that is not controlled by a government or central party has polarized opinions. For one thing, it’s understandable that a merchant might choose not to accept Bitcoin over their native currency. If a merchant takes Bitcoin in exchange for a good or service, the value of Bitcoin could plummet the next day. If a company is having difficulty, it will likely choose the steady income provided by the established dollar.
However, proponents of Bitcoin may argue that refusing to accept it means that it will only increase in value as it gets scarcer, claiming that Nakamoto’s money is a deflationary asset. The US dollar, on the other hand, is inflationary and will lose value over time. Bitcoin may very well be the long-term asset to hold in the long run, if demand for Bitcoin continues to grow.
Why should you be concerned about cryptocurrency?
The ecosystem surrounding bitcoin and blockchain technology has grown into a billion-dollar industry since its inception in 2009, with cryptocurrencies having a total market valuation of over $1 trillion.
Technology has pushed financial services companies and other businesses to adapt their processes to better reflect people’s expectations for transacting and interacting online, both internally and publicly. The speed and low cost of cross-border crypto transactions, for example, has caused many to reconsider the remittance sector and other payment networks, such as Western Union.
One of the purposes of cryptocurrencies, as an open system, is to provide access to financial services tools to many people who are unable to access the traditional banking system. And the industry promotes individual self-sovereignty or the ability for people to maintain ownership over their data, whether it’s personal information or money.
Even yet, there are risks when dealing with cryptocurrency and unregulated financial systems, such as hackers and lost wallet passwords, which can result in consumers being locked out of their accounts and/or losing their money. Keep in mind that these accounts are not FDIC-insured.
Individuals and organizations can avoid laws, prohibitions, and regulatory supervision by using cryptocurrency because it is not controlled by the government. After the US government persuaded the card networks, Visa and Mastercard, to stop processing transactions to WikiLeaks, bitcoin was utilized to make donations to the group. Since the Venezuelan government has inflated bolivars to near worthlessness, some Venezuelans have converted bolivars to bitcoin as a means of storing value. Cryptocurrencies, on the other hand, have facilitated illegal operations such as money laundering.
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Things to consider before investing in cryptocurrency
Although there is no single silver bullet for discovering the next big thing, there are many ways to analyze crypto assets and projects. While researching cryptocurrencies, keep the following points in mind:
1. Data: The industry generates a lot of data because it is based on transparency. The total value of all the coins or tokens that have been minted, known as market capitalization, is a key indicator in the space. On sites like CoinGecko and CoinMarketCap, you can compare cryptocurrency data.
2. Examples of applications: It’s useful to know how many active users a network has and what they’re doing on the network. Is the project addressing a real issue? How widespread would a protocol’s adoption be, both among individuals and businesses?
3. Developer activity: Separately, protocols with a large developer ecosystem are typically regarded as better projects, as this indicates that the codebase is maintained and improved by a large number of people.
The group consists of: Investigating a cryptocurrency project’s crew might be beneficial, but it can also be difficult. Because the crypto ecosystem has a strong privacy culture, many users, developers, and even the C-suite prefer to remain anonymous, using simply a pseudonym. And this does not always imply that the projects are untrustworthy.
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[…] Basics of Cryptocurrency and Blockchain […]
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