SteemitCryptoAcademy Season2 Week 6 Homework Post for (@levycore) - Learn About Cryptocurrency

Thank you, professor, @levycore for this awesome lecture.

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What is the fundamental difference between cryptocurrency and conventional financial systems?

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CRYPTOCURRENCY
A cryptocurrency is coined from two words; crypto and currency. It is a virtual asset that is secured by cryptography on a network that is spread across so many computers. Lots of cryptocurrencies are based on blockchain technology in decentralized networks. The supremacy of cryptocurrencies comes from the fact that they are not issued by the government or any central authority.

Cryptocurrencies allow payments online by use of tokens. There are basically two types of cryptocurrencies which are Bitcoin and Alternate cryptocurrencies (Altcoins). Bitcoin remains the most popular, valuable, and first blockchain-based cryptocurrency. Altcoins include Ripple, DOGECOIN, Cardano, Ethereum, Litecoin, and many more. The main advantage of cryptocurrency is the ease of work. Funds can be easily transferred directly between two people without a third party (bank or credit card company). However, the disadvantage is that it is well suited for illegal activities such as tax evasion and money laundering due to the semi-anonymous nature of its transactions.

CONVENTIONAL FINANCIAL SYSTEMS
These are a set of institutions such as banks, insurance companies, and stock exchanges that allow the exchange of funds. These institutions can exist on global, regional, or firm-specific levels.
Financial systems can be organized using market principles, central planning, or a combination of both. It involves borrowers, lenders, and investors negotiating transactions and there are laid down rules that govern them on their transactions and financial deals. There are three forms of money traded and they include

• Current money (cash)
• Future money (credit)
• Future income potential (equity).
  Each national government issues money in her nation having its own fiats such as Euro, Naira, Pound, dollar, and more. This simply means that the stability of these fiat depends on the government issuing them.

DIFFERENCE BETWEEN CRYPTOCURRENCY AND CONVENTIONAL FINANCIAL SYSTEMS

There are notable differences between cryptocurrency and conventional financial systems and they include;

Centralization
This is a major difference between these two. While conventional financial systems are centralized, cryptocurrencies are decentralized. This simply means that there is an intermediary body such as the government and central banks governing the affairs of the conventional financial system while in cryptocurrency, there is no intermediary, it works outside banks and government control and has independent peer-to-peer transactions.

Fees and transaction time
Cryptocurrency transactions are done over the internet, charge very little or no fees at all, and have no prolonged transaction times. Financial systems on the other hand charge high fees for operations and have prolonged transaction duration which could be days.

Safety
Cryptocurrency is considered safe because users are in charge of their finances while conventional financial systems require an intermediary like I already stated and if there is a compromise, the security of financial data can be jeopardized.

Anonymity
There is no personal information in cryptocurrency transactions hence privacy is highly respected and the currency is easily accessible. While in financial systems, credit/debit cards are issued with user’s personal details and can be used to track transactions and in addition, conventional currencies require a set time to access financial institutions.

Why is a decentralized system needed?

A decentralized system is needed for so many reasons and a few of them are;

1. Quick decision making
   Decentralization enhances a faster decision-making process. This is solely because the decisions do not have to go through a hierarchy as observed in centralized systems.

2. A trustless system
   It is needed to solve trust issues by empowering so many users to manage a network. Users do not have to worry because there is no central authority governing them.

3. Curb systemic failure
   Decentralized systems are needed to curb systemic failures. People have become skeptical about central banks and government and with a decentralized system, trust is built. There is no haul in the network due to an ATM software or website crashing and a node that goes off simply passes its workload to other nodes hence the application continues to run smoothly.

4. Peer to Peer Trading:
   A decentralized system enhances transactions between users and allows for decision-making within themselves without the involvement of intermediaries.

What affects the value of cryptocurrencies?

There are some factors that affect the value of cryptocurrencies and they are

• Rising demand
  The more there is demand for cryptocurrencies, the higher the chances of their increase in value. Demand can be in two phases; overbought and oversold. When there is high demand and a lot of people are trying to buy currencies, it will lead to scarcity and scarcity favours the market and increases value. On the other hand, if it is oversold, i.e., everyone is selling, there will be abundance and the value of the cryptocurrency will drop.

• Supply and Inflation
  Inflation and supply increase the value of cryptocurrencies. Low inflation creates a shortage of cryptocurrencies in the market and causes the value of cryptocurrencies to increase due to the supply-demand balance and vice versa.

• Competition
  The creation of more cryptocurrencies actually reduces the value of the existing ones. Take, for instance, the dominance of BTC has decreased over the years with the creation of other currencies. The widespread competition keeps the prices low.

• Cost of production
  The value of cryptocurrencies is also influenced by the cost of producing them. If it required more miners to close the gap of the time interval, the price will definitely upshoot.

• Speculations
  Trending news and current affairs are known to affect the value of cryptocurrencies the most. Take, for instance, the market has been very volatile with high fluctuations following the statements of Elon Musk about cryptocurrencies.

• Availability on exchange systems
  The popularity of coins also increases their value. It is easier to draw in additional participants to create a network effect when the cryptocurrency is popular. It can now leverage this advantage to set rules on how other currencies are added.

Why can't everyone be a miner?

Mining cryptocurrencies may sound very easy but it isn’t exactly. It varies in blockchain protocol and works in different consensus algorithms which includes

• Proof of Burn.
• Proof of Stake,
• Delegated Proof of Stake
• Proof of Work
  The crux of the matter is that not everyone can readily meet up these criteria.

Mining in Proof of Work consensus algorithm being knowledgeable and having various devices. In the Proof of Stake consensus algorithm, funds must be locked in the blockchain network, and in a situation where you do not have sufficient assets, it won’t work.

Mining in the DPos consensus algorithm demands that you meet all of its requirements. Mining in the Proof of Burn consensus algorithm, the blockchain’s cryptocurrency must be sent to an address that is unreachable.

Furthermore, mining costs a lot of money and there are many uncertainties. You will be required to foot the high cost of electricity and purchase devices and instruments. In addition, it can be frustrating because one can spend so much time and money on mining and not achieve anything. This is why everybody cannot be a miner.

Why can Cryptocurrency transactions be called more transparent?

Cryptocurrency transactions are very transparent. It can be attributed to blockchain technology which is a digital ledger where transactions are recorded and accessible. This transparency provides users with great confidence because all transactions can be monitored and accessible. Users of the system both trusted/untrusted usually come to a consensus to verify transactions occurring on the blockchain. Some of the highlights are as follows:

Accessibility: Transactions are recorded on the blockchain and open for all to see.
Decentralization: orders are not taken from a central authority and each node operates independently.
No intermediaries: peer-to-peer transactions and lack of middlemen makes it more credible with little or no interruptions.

Explain how the development of cryptocurrency in your country?

Cryptocurrency has now been widely accepted in my country Nigeria, users utilize cryptocurrency for making transactions of choice and at least 7 out of 10 youths have knowledge of what cryptocurrency is and how it works.
There was a ban on trading cryptocurrency in February 2021 and in March, the Central Bank of Nigeria actually came out to state that it did not outrightly ban the trade of cryptocurrencies but only advised citizens to tread with caution and that it should not be used in the banking sector or for any official purposes.

The ban does not necessarily affect our trading of crypto as we have devised other means to go about our transactions. What we now do is use the peer-to-peer trading platform for transactions. More so, we engage the use of decentralized exchanges to make independent transactions and when there are profits, we use the fiat currency that is listed in the DEX to save them and possibly convert them to the country’s currency at wish.

Conclusion

Cryptocurrency has become very popular over the conventional financial system and has shown to be more credible, transparent and investors are making more profits. Users of cryptocurrency in Nigeria are not excluded from trading cryptocurrency and enjoying the proceeds as we still carry out our transactions irrespective of the ban.

Cc: @levycore