Steemit Crypto Academy Season 2: Learn About Cryptocurrency: Homework submission
These SteemitCryptoAcadamy leassons are going to be very useful to lockdown. Not only helps us to utilize time in a productive manner but also enhance our knowledge about crypto.
Question 1
What is the fundamental difference between Cryptocurrency and the conventional financial system?
Answer
The fundamental difference between Cryptocurrency and Conventional system is that unlike conventional system crypto is a completely digital system which has no physical existence.
In detail, we can understand the differences in the following table-
| Fiat | Crypto | |
|---|---|---|
| Supply | Unlimited and no physical commodity baking, Government can print as much as required | Have some cap e.g. Bitcoin's max supply will be 21 million and could not be produced more than this |
| Value | Somewhat highly stable until and unless there is not any big issue | Highly volatile, the price fluctuates according to demand and supply. |
| Regulation | Centeralize currency. Totally regulated by governments | Decentralize currency. No governing authority runs on a consensus algorithm |
| Security | Available in physical form so can be destroyed or stolen | Highly secured by encrypted technology |
| Transaction | Banking system required to send and receive money. It takes some time | No mediator necessary, it works on P2P basis, anybody can send or receive money quickly anytime, anywhere |
| Limitations | Have geographical boundaries, as each country has their own currency | No geographical boundaries, accepted anywhere on the planet |
| Identity | Required KYC | Anonymus |
Question 2
Why is a decentralized system needed?
Answer
Before going through in detail about the benefits of a decentralized system, we must understand that what is decentralize system and how it is different from a centralizing system.
Source
A centralised system has a single authority and takes all decisions where a decentralised system is a network of computer nods and has multiple authoritative nodes.
There are a lot of benefits of a decentralized system that's why we need this system. The main advantages of a decentralized system are -
Empowerment
People are empowered by being a part of the decentralised system. E.g. in a money transaction, no middle authority like a banking system or government is required and one can send money to another within seconds and even without any charges. However not all crypto transactions are free of cost but one can choose from many free or very affordable P2P transaction, as on steem blockchain sending and receiving steem is completely free and takes only a few seconds.
No Geographical limit
In a centralized system, there is a barrier of the country. In fiat currency transfer, the permission of the government is a must wherein crypto there are no such geographical boundaries exist. Crypto can be send and received from all over the world irrespective of geographical boundaries.
Security and transpiriency
Any transaction done through a decentralised system is encrypted which makes it highly secure. All transaction are recorded on the blockchain which makes the system transparent.
Unintrupted service
Unlike conventional banking system decentralize system works 24 hours and 7 days a week. This system is free from any server down issue in any rush hours so one can perform transaction any time as per their convenience.
Question 3
What affects the value of cryptocurrencies?
Answer
Like other markets here also cryptocurrency market decides the value of any crypto. Other than the market there are several factors that decide the value of cryptocurrencies.
Demand and supply
It is a fundamental factor to decide the value of any asset, so in the crypto also. E.g. Bitcoin has a maximum cap of 21m BTC and as the demand for BTC increasing but supply is limited so the value is increasing.
Utility
Bitcoin is the pioneer in cryptocurrency but Etharium has deployed the smart contract so the utility of Ether increasing day by day. Due to this, we have seen the all-time high of Ether in this bull market.
Sentiments
Despite strong fundamentals sentiments play a major role to decide the value of any asset. Crypto is at its initial stage right now and in so many countries there are no regulations about it. Some countries have banned, some have regulated but most of the countries have not taken any decision on it. This uncertainty affects the crypto market more volatile and ultimately it affects the value of cryptocurrencies.
If some positive news breaks value increases all of sudden while in case of any negative news its value decrease drastically.
Question 4
Why can't everyone be a miner?
Answer
Before answering this question we must understand the basics of cryptocurrency mining. Mining is a type of reward for those who run the nodes of any blockchain also known as witnesses. Blockchain reward for each block creation but not all nodes rewarded and they compete for the block creation.
How the block is created is dependent on that blockchain's consensus algorithm. E.g. in the case of Bitcoin, its algorithm runs on the PoW consensus algorithm which requires solving complex mathematical problems.
To run a node and become a miner consumes high resources. As it required high processing computing machines which can solve problems in seconds, not everybody can afford to have such advanced machines.
To run such machines requires high power consumption and maintenance which is also very expensive.
There are some legal issues in some countries regarding mining of crypto, so in such countries mining is not possible for any miner.
As mining is a reward system that has very high competition among nodes so it is not beneficial for those who want to do mining for a short period of time. As it required high investment and returns are not consistent.
Question 5
Why can Cryptocurrency transactions be called more transparent?
Answer
All cryptocurrency transaction happens on blockchain. Once a transaction is successfully validated it is registered in all nodes. After that it is impossible to make any changes in the transaction by anybody. As blockchain is an opensource technology so anybody who joins blockchain can see all the transaction.
We can understand by an example, in 2008 the one of the main contributing factors of recession in the USA was the improper use of customer funds by financial bodies. If all these transactions happen on blockchain anybody could track all the transaction. What can be more transpearent than this?
Question 6
Explain how the development of cryptocurrency in your country?
Answer
Despite Indians hold around 1.5 Billion worth of cryptocurrency, future of cryptocurrency is uncertain. Bitcoin, the first cryptocurrency was introduced in 2008 but in India it came into limelight after 2012. When during 2012-2017 BTC jumped from $5 to $1000 people started to notice and some crypto exchanges like Zebpay, Unocoin, Koinex etc also came into existences.
Personally I came to know about crypto in 2017 and my first crypto was Steem.
In 2018's bull run when Bitcoin become very famous and people came to know about cryptocurrency and its trading Reserve Bank of India came into action and unanimously imposed a ban on transaction on fiat to crypto exchanges. As a result people were unable to trade and invest in crypto and trading volume fall drastically. At the same time exchanges introduced P2P trading.
In May 2018 some crypto exchanges filled a petition in Supreme Court against RBI's banking ban.
In March 2020 Supreme Court strikes down RBI’s banking ban on crypto.
In 2021 Indian goverment is drafting a bill regarding trading, mining and investment in cryptocurrency. Bill's content is still not available and it is proposed to be submitted in the monsoon session of parliament this year.
Thus future of cryptocurrency in India is still unclear.
Conclusion
Cryptocurrency is still a mystery for most of the people in the world. As it is in very early stage there are a lot of confusion among people as well as governments of different countries.
Despite of a revolutionary technology blockchain and crypto is struggling to find its suitable place to serve the humanity.
I hope in coming year crypto and blockchain would be a leading technology to solve the problems of the real world.
I am thankful to Prof. @levycore for this informative session about cryptocurrency.
Hi @chetanpadliya, Thanks for submitting your homework
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