Crypto Academy Week 14: Homework task for @levycore | Learn About Cryptocurrency

It is always interesting to think about the future and how things would be different from our current reality. What is equally thrilling is comparing the way we live now with how it could have been a few years ago.

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Within the last few years, several drastic changes have happened before our very eyes. The internet have revolutionised human behaviour.

We have seen the traditional television channels lose viewership to YouTube channels and other online alternatives. We see movies being released on online streaming platforms instead of the conventional DVD format. Funny thing is, I can’t remember the last time I saw a DVD plate.

Internet media outlets have made physical magazines and newspapers obsolete. We see handsets; I mean smartphones, doing things traditional computers could only dream of. Maybe someday Google and Apple will let us mine crytos on your smart phones.

Speaking of cryptos, it may one day restructure an essential aspect of our current reality. In fact, it is already redesigning our financial system. See what happened to Bitcoin when just fewer than 7% of the world’s population accepted it; BTC price flied into space like a Telsa Rocket.

One might wonder: Why are cryptocurrencies doing so well generally?

To answer that question succinctly, let’s take a look at some fundamentals; such as the differences between cryptocurrency and traditional financial system, why the world needs a decentralized system, and other important questions raised by the crypto professor @levycore.

Cryptocurrency vs. Conventional Financial System

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_{Photo by Bermix Studio on Unsplash.com}

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What we know as money is continually evolving. It all started with the barter system over 4000 years ago, to the use of cowry shells in 1350 B.C. Later on, the use of copper, silver, and gold coins became a thing during the 600s B.C. Centuries later, paper money became a globally accepted medium of exchange.

Now, we are on the verge of moving on from paper money to digital currencies. Although cryotocurrency and the conventional financial system share some similarities they are inherently different in so many ways.

• Issuance and Governance

Cash (Fiat)	Cryptocurrency
Central bank	Protocols

The central authorities in a country, such as the central banks and governments use different policies (monetary and fiscal policy) to control the amount of cash in circulation.

Also, traditional money (fiat currency) is issued by the central bank of a country. For example, the Bank of England in the UK issues the British pounds, while the Federal Reserve in the US issues the American dollars.

Rather than using a central authority, cryptocurrencies are governed by a necessary agreement of all the nodes or computers that contains a copy of all the transactions in a network. This is also know as consensus algorithm, mechanism or protocol.

• Speed of Transfer

PayPal to Bank	Binance P2P to Bank
3 to 7 days	Within 10 minutes

In the conventional financial system, it can take hours or even days to receive money sent from overseas. This is because the amount sent has to pass through several financial institutions and the currency is often converted before it gets to the receiver.

Whereas, sending cryptocurrency to someone in an entirely different continent is almost like sending an online text message. It takes just a few minutes to receive crypto sent from abroad.

For example, if I try to transfer 1,000 Ukraine hryvnia to Mexico. That amount will have to be converted to US dollars first, then it will be converted to Mexico peso by the time it enters the receiver’s bank account. If that was STEEM, it would take below 10 seconds to send STEEM or SBD to another account on Steemit.

• Commission Fees

MoneyGram	Poloniex
High	Low

Few days ago, I transferred some USDT from Poloniex to another address and I didn't pay any transaction fee. I was amazed. You can see it in the screenshot below:

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_{Screenshot of my transaction on Poloniex}

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If this was PayPal, I would have paid some fees for this transaction. In addition to that, the cost of converting one cryptocurrency to another is relatively cheaper than the cost of converting one fiat currency to another.

• Weekends and Holidays Transactions

PayPal	Poloniex
No Payment	Continuous Operation

Are you trying to send money from your bank to PayPal on a holiday? Well, I wish you goodluck! The fact is, most conventional financial institutions do not make payments on weekends and holidays.

However, cryptocurrency can be transferred to anyone, any time of the year, be it holidays or weekends. It works seamlessly and without any long wait.

I can probably write a book about the differences between cryptocurrency and conventional financial systems because they are so many. Some other differences include;

• Transparency,
• Accountability,
• Unrevokable transaction.

The list goes on...

Now, let us see some of the reasons why we need decentralized system.

Why Decentralized System is Needed

Some might argue that the decentralized system is intrinsically flawed. Well, as a counter arguement, same can be said of the centralized system. Even worse, the centralized system has contributed a great deal to the series of stock market crashes in modern history, namely:

• Panic Crash of 1907 and 1908;
• Wall Street Crash of 1929;
• Financial Crisis of 1973;
• Stock Market Crash of 1987;
• Stock Market Crash of 2002;
• Financial Crisis of 2007 to 2008;
• Stock Market Crash of 2008 to 2009;
• Flash Crash of 2010;
• Chinese Stock Market Crash of 2015 to 2016; and
• Pandemic Stock Market Crash of 2020.

In my honest opinion, the decentralized system can solve some of the problems experienced in the centralized system. Here is why I think so:

1. We need to have total control of our savings

Normally, we are save funds in the bank. The sad reality is, the very people we entrust with our savings are fond of using our hard earned money to do things we are not aware of, things we didn't even give them the consent to do. Worse still, we are not even compensated with reasonable interests.

This is contrary to what happens in a decentralized system. For example, by saving your funds on MetaMask wallet, you have absolute control of your funds. And no one can use your funds without your consent.

2. We need the ease to perform data analytics on financial information

It is nearly impossible to query the data in the conventional financial system. How can you query data you do not have access to. In a decentralized system, things work differently. There is openness and anyone can have access to transactions made on the blockchain. This makes it easy to perform data analytics on the information.

3. We don't need restriction for investment

Centralized system is designed with several laws that governs investment in securities. This make it difficult to invest in companies your may like. For instance, you live Europe and want to invest in a company in Asia, you will have to comply will the rules and regulations of the government.

In a decentralized system, there is no central authority that put up restrictions on investment. I can invest in any DeFi project like. This makes sense because it is my money and I have the right to choose what investment I'm interested in, provided I have done my research on the project.

4. We need information that cannot be manipulated

In the centralized financial system, financial information can be changed or altered to suit the interest of some people. The reason for this is that the books of account is kept in a central location and can be changed by the people in charge.

However, this cannot happen on the blockchain. Information about transaction cannot be changed in a decentralized system because information is not stored in one place. Also, there need to be an agreement between all the nodes of a network for new blocks to be created. This means that the info on all the several nodes must correspond.

5. We need better interest rates on our savings

The interest rates that is gotten from savung money in the bank is relatively low. Whereas, decentralized platforms provide better interest rates. For example, you can earn good interest from DeFi Staking, Fixed and Flexible Savings on Binance.

These are some of the reasons why we need decentralized system. Okay, now may be thinking; if cryptocurrencies are so good, why are the prices always fluctuating? Well, let's talk about that next.

What Affects the Value of Cryptocurrencies?

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The fact is, cryptocurrencies are not immune to some issues the conventional financial market face. Some common causes of the fluctuation of crypto prices are;

1. Opinion of Public Figure

The crypto world is barely ten years old and at this early stage it is very sensitive to the opinions of pupular persons. For instance, when Elon Musk tweets a photo of a dog and adds a caption "to the moon," Dogecoin prices start going up.

It is believed that as more people begin to accept cryptocurrencies, the price will continue to go up until it reaches a stage of equilibrium. When it reaches this point, the prices will become fairly stable.

2. Fear Of Missing Out (FOMO)

Many newbies who do not fully understand crypto rush to buy coins because they don't want the miss the opportunity to get it for cheap.

This surge in buying can lead to a drastic increase in the price of crypto asset.

3. Decisions of the Government

While I was writing this article I received a notification that the Chinese government have banned Bitcoin. Later on, I decided to check my cryto wallet and guess what I saw; the price of BTC has gone down to as low as $42k. This is an example of how governmental decisions and policies can affect the prices of cryptocurrencies.

4. Burning of some tokens in circulation

The forces of demand and supply have an impact on the prices of cryptocurrencies. That said, it isn't just the burn that affect the prices of cryptos, the news of burn also affect it. Once traders hear news of burning a particular cryptocurrency, they start buying more of that coin and this increase in purchase can raise the price of the coin.

Another reason is, burning coins reduces the amount of coin in circulation, this thereby causes an inflation in the coin's price because the fewer coins remaining can no longer meet up to the demand.

5. Market Manipulation (Pump and Dump)

When a group of whales (big money investors) decide to pump the price of a coin by buying huge amounts, this can cause a sudden increase in the price of that coin. However, these whales may also decide to dump the price of the same coin by selling all their positions and making profits from the pump and dump.

These are some of the reason why the prices of cryptocurrencies are unstable.

Why Can't Everyone Be a Miner?

When we hear the words "crypto miner," it sounds like luxury in our ears, like all you have to do as a miner is to turn on your computer and press a button. Voila! We start making money like water.

The truth is, it takes a lot more to be a crypto miner. Some reasons why everyone cannot be a miner are;

1. You need specialised high-end gadgets (ASIC)

Mining takes a lot of computing power. Unfortunately, the kind of computers that is needed to mine blocks in a blockchain is very expensive. It cost thousands of dollars and not everyone can afford it.

ASIC stands for Application Specific Integrated Circuit. It is an efficient machine that is used to mine Bitcoin.

2. Too expensive to maintain mining equipment

Say for instance, you want to become an mine Ether for Ethereum blockchain. Bear in mind that the amoumt of momey you will spend for electricity would be more than 50 times the amount you are currently.

Imagine one of the equipment gets faulty. To repair such a high-end device, you will need the assistance of an expert who would definitely drill a whole in your pocket with his charges.

3. Google and Apple banned mining crypto on mobile devices

Apple stated that it cannot allow users mine crypto on their phones because stress and strain it can cause on the phone. It would increase battery usage and can even shorten the durability of your phone. Google also give similar reason to Android users.

The only mining apps you find on Android Play Store are apps to monitor a computer your are currently using to mine coins. So you cannot find any app of Play Store or Apple Store to mine crypto on your smartphone.

4. The government may not allow you to mine crypto

In some countries, cryptocurrencies are illegal. So, mining cryptos is also illegal. If you choose to go against this law, you may face jail term and loose your freedom.

5. You will need to find a mining pool

Even if yoy have the hardware to mine Bitcoin, you chances of success if you go solo can be very slim. It can take you months or years to find just a single block. Besides, most mining pool will not accept you unless you have mouthwatering computing power that can convince them to let you in.

6. You may not make any profit

There are two reasons why you may not make profit while mining cryptocurrencies. First of all, not all people who mine crypto get rewarded for it. Secondly, your cost for electricity and maintenance would most likely be greater than any reward you may get.

Why Can Cryptocurrency Transactions Be Called More Transparent?

It can be said that cryptocurrency transactions are more transparent because of the following reasons:

1. Openness

The data of cryptocurrency transactions is available to everyone. To look up transactions made on the Tron Blockchain simply visit https://tronscan.org. What if I wanted to know the transactions made on PayPal, how do I look up? The simple truth is I can't.

2. Information about transactions cannot be changed

On the blockchain, the information about transactions cannot be changed, deleted, manipulated or altered. However, the information on traditional financial system can be altered or deleted.

3. Independent financial analysis

We rely on financial institutions give us information about how they used funds. This is how things work in the conventional financial system. For cryptocurrencies, an independent party can perform data analytics on the transactions on the blockchain. This gives room for honesty and accuracy of the report.

Crypto Development in Ukraine

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_{Screenshot from Bitcoin.com}

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I live in Ukraine. Within the passed few years more and more people have invested in cryptocurrencies, namely Bitcoin and Ether. Our currency, hryvnia, isn't as strong as we would like it, especially when compared to dollar and euro. So we prefer to save our money in crypto.

That said, not all cryptos are accepted by us. The majority of us only recognise the big names (BTC, ETH and XRP) in the crypto space. In fact, one politician whose name is Dmitri Golubov has over 4,000 BTC. While Maksim Kutsy have over 11,000 ETH and 300 BTC.

Punishment for not revealing your crypto

You can spend up to two years in jail for not disclosing your crypto asset. On top of that, the government may still fine you. The fines can be up to 5.5 million hryvnia which equivalent to over two hundred thousand dollars.

We are subjected to paying taxes on the capital gains on our crypto holdings.

Tax Law on Crypto

We are expected to pay 18% tax on any profit we make from from the sale of cryptocurrency. However, for the next five years we can pay a personal income tax of 5% on the profit made from cryptocurrency.

As for tokenized assets, it doesn't fall under the law of cryptocurrencies. So the tax paid is tied to the physical property backing the crypto asset.

Monitoring of crypto transactions

Any transaction that is more than 32,900 UAH (1,200 USD) is subject to scrutiny by the government. The government is trying to make sure there are no illegal activities conducted using crytocurrencies.

Final Words

What we know as money is continually evolving. It all started with the barter system, to the use of cowry shells, then to pieces of copper, silver, and gold. And then to paper money. Now, cryptocurrencies may soon replace paper money.

We have seen several reasons why a decentralized system is better than a centralized one. Transparency, accessibility, speed of transfer, reliability, and many more reasons were stated.

Additionally, we talked about how the government is taxing us in Ukraine, how government officials hold cryptocurrencies, the punishment for not revealing your crypto holdings and how crypto transactions are monitored by the government.