Crypto Academy Week 14 - Homework Post for @levycore, Learn About Cryptocurrency

^{Created using Canva}

Hello, steemians & fellow learners,

This is going to be my first assignment in the SteemitCryptoAcademy community. I wanted to see how much I know about this topic first, so I tried to write my assignment without doing any research but after some time I came to the conclusion that I don’t know much about the topic. So I started researching about the topic on the internet, and I found a very good way to help everybody understand this topic.

First of all, we need to understand “Why do we need money in the first place? And what gives money its value?”

The answer to that would be because we don’t have any other (better) way of solving our trading problems, and there are many problems when you trade without money.

Let us consider that there is no money in this world. What problem would we face without money?

1. First of all, let us consider a scenario where two people are providing some value to the world by producing some goods or providing some kind of service.

   A. First person (A) - knows about all the rules and regulations of the land and gives consultation to others, and in a way contributes to the society with his skills.

   B. Second person (B) - produces tables and other furniture items for individuals and businesses, also helping the economy in its own ways.

   Now, person A needs a table for their office and goes to person B for buying that, and there may also be a teeny-tiny possibility that B also wants A’s services. So they exchange their products and services because both of them want what other has to offer.

   This is known as the double coincidence of wants.

   ^{Created using Canva}

   But the problem here is that person A can not always sell their services in return for the goods or services they purchase from others, as it is not always the case that the other person who they are trading with (like B) also want the goods and services A has to offer.

   So, money does solve this issue easily as it becomes the medium of exchange for the goods and services bought or sold.

2. Money also solves the problem of storing the value a person has been producing through their goods or services, helping the economy.

   In a world where there is no money, it would be hard to find a thing to store your produced value in. Like if there was a consistent demand for tables, you would hoard tables for as long as you could to hold on to the value it possesses. So that later in your life, if you were to buy a house or pay for your children’s education, you would just sell all your tables to a buyer.

   Human history has taught us that people have always found some way or the other to store their produced value using shells, metals, bonds, land, and other similar assets.

3. Another problem that arises in the world without money is that the goods and services a person offers to the economy can never estimate the number or amount of goods or services they have to offer in order to get something in return.

   Let us understand it this way. A is a lawyer, now how many hours of legal services he has to offer in order to buy a table from B. And if B wants to buy eggs, then how many eggs does he get for one table.

   This looks very hard to solve and very hard to carry on for a long time. But money solves it easily as when A sells their legal services, they get money equal to the worth of services. And they can just use that earned money to buy whatever they want.

---

What is the fundamental difference between Cryptocurrency and the conventional financial system?

---

While a cryptocurrency can only be in digitally encrypted form and is not governed by a single entity, a fiat or traditional currency is backed by a country’s government and can be in physical form ( like hard cash, coins, bonds, etc) or in electronic form.

^{Source: Gemini}

So now the question is what are the main differences between traditional money and blockchain money, everybody is using it these days, right?

1. Fiat currencies are issued by the central bank of a country, while cryptocurrencies are issued independently by a blockchain algorithm.

2. To move fiat currencies to other locations in less time, we need an intermediary agent. Cryptocurrencies do not require any intermediary agent for the movement of assets.

3. While a local fiat currency is legal in every other country, cryptocurrencies are illegal in some countries.

4. Governments can ask central banks to generate more fiat currencies to increase the supply in the market, but cryptocurrencies have limited supply or in some cases (e.g. steem) calculated an increase in supply after a certain amount of time.

5. While fiat currency transactions can only be tracked by the sender and the receiver of the currency, cryptocurrency transactions can be tracked by anyone on the public blockchain explorers.

6. Fiat currencies are safer for storing the amount of value in them than cryptocurrencies because fiat currencies are backed by the governments.

---

Why is a decentralized system needed?

---

Decentralization systems have attracted more and more investors in the past few years.

^{Source: Medium}

The reasons why decentralized systems have become so much popular are:

1. No central authority - Decentralized systems are run by algorithms that help users to make all the transactions without the need for any authority to do that for them as intermediaries.

2. While centralized systems have some sort of geographical barriers like states or countries, decentralized systems enable their users to make transactions worldwide charging them a negligible fee* (some blockchains are costly than the others) or no fees at all, as we have in Steem.

3. Centralized systems follow a schedule for their operations. On weekdays and holidays these systems do not work, and in a way hampers the liquidity of assets. Decentralized systems work all the time, throughout the year, as they are run by algorithms and processing powers of the machines.

4. Blockchains can only be hacked if the person who is trying to hack has more than 50% of the total resources used by the blockchain. And it is very much impossible to have such processing power, as millions of people are involved in the mining and millions of hardware resources are allocated to the blockchains making it more secure than centralized systems.

---

What affects the value of cryptocurrencies?

---

Mostly speculation. But there are other factors too.

1. Demand & Supply: As in any economic system we have prices fluctuating according to the demand and supply of a certain product or service, cryptos also depend upon the same demand and supply equation.

2. Big Whales: A person who has a huge amount of tokens on hold can make or break the market.

3. Uncertainty: Many times people are uncertain about the decisions made on the blockchains, and this might also be a big factor in increasing or decreasing demand for a particular token.

4. Influence of Rich: Many times influential people play a huge role in the evaluation of a currency. Like John McAfee and Elon Musk have already shown us in the past that even their single tweet can make huge fluctuations in the market.

---

Why can't everyone be a miner?

---

Mining is the process where a person allocates some hardware required to help run the blockchain, and in return, they get rewards in cryptocurrencies.

^{Source: Energy Central}

In Proof of Work blockchains, miners use graphic cards or other mining hardware to share processing power with the blockchain. These mining hardware equipment are really costly, and an average earning person cannot simply just buy them like groceries.

In Delegated Proof of Stake blockchains, a witness is elected through votes from the users, and they allocate their processing power to be used by the blockchain, but to become a witness, a person has to gain trust and get votes from as many high stake accounts as possible. To do this an average person has to put a lot of time and energy into the blockchain environment, and not many people have the knowledge and resources to do that.

---

Why can cryptocurrency transactions be called more transparent?

---

Cryptocurrency transactions are transparent because every transaction made on the blockchain can be verified by third parties easily. Many blockchain explorers are also available online to check the transactions made on a particular blockchain.

Steemd.com is a blockchain explorer for steem blockchain. Anybody can use this online tool to verify any transaction made on the blockchain from the beginning of the Steem blockchain.

Tronscan.com is another blockchain explorer for the Tron blockchain. Tron ecosystem started giving out Tron tokens to steem users and now steemians can use them for any purpose. To verify all the transactions made on the Tron blockchains, you can use Tronscan.

---

Explain how the development of cryptocurrency in your country?

---

Earlier in maybe 2017 or early 2018, the Reserve Bank of India, the central financial authority ordered all the banks to not indulge in crypto transactions. The reason as far as I remember was that cryptocurrencies are a kind of Ponzi scheme and a very risky method for investing hard-earned money.

^{Source: India Briefing}

Recently the Supreme Court of India has allowed all cryptocurrency transactions and has made it legal to buy and sell cryptocurrencies using Indian Rupee.

There are also talks in the way to introduce a state-owned digital currency, but I have not heard or read more about it in recent times.

I hope that the government of India allows individual investors to invest in cryptocurrencies without any restriction and only regulate the incoming and outgoing transactions from the banks.

Thank you for reading my post

CC: @levycore