Steemit Crypto Academy Season 2 Homework by professor @levycore: Learn About Cryptocurrency

Hi everyone! It's another new week with professor @levycore. This is my homework post on the topic "Learning about Cryptocurrencies".

What are Cryptocurrencies?

They are virtual money used in monetary transactions such as buying and selling. These transactions are recorded in an online ledger which is secured by cryptography. Hence there is no third-party organization like bank involved and also, there is minimal possibility of being manipulated.

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

Money is a medium of exchange used primarily for exchange of goods and services. The difference between Cryptocurrency and Conventional financial System lies in the way they deal with money.

Conventional financing systems are monetary mechanism used by different financial institutions and banks. They differ from country to country and from region to region and are principally regulated by the central bank in a country. Money is printed on papers, polymers or coins and distributed to commercial banks which take up the role of further dispensing it to the citizens of the country. These commercial bank acts as intermediary in the conventional financial system by keeping records of people's money, and as well helping them transfer it to other persons. They also provides other services such as exchange to currencies of other countries and loan services. Accounts are opened for different individuals and transaction records are stored on a single server.

Cryptocurrency are virtual money. They are not printed on papers or produced as coins and are not regulated by any governmental bodies. They are completely digital money which are kept in digital wallets instead of conventional bank accounts. Cryptocurrency transactions are stored in the blockchain which has different servers, hence, it can not be manipulated like the conventional financing system which is stored on a single server. The transactions on the blockchain are protected by a technology known as cryptography.

A lot of differences exist between Cryptocurrency and Conventional Financing systems, and these difference makes cryptocurrencies the ideal money of the future:

1. Cryptocurrency are digital: They are not produced physically. While conventional money know as Fiat can be printed. Fiat currency can be used for physical and digital payments as well as transfers.


2. Cryptocurrency are not native or bound to any countries: You don't have to convert from one currency to another in order to transact when moving from one country to another. BTC IS BTC everywhere.


3. There is Elimination of Third-parties in Cryptocurrency: Banks are intermediary in conventional financial system but they do not exist in Cryptocurrency. This means there is no money delays time caused by banks, money enters the recipient's wallet directly and not through any third party and money in Cryptocurrency can not be frozen by bank.


4. There is no limit to supply in Conventional financial system: There is no limit to the supply of Fiat currency. It is printed constantly and also recycled as well. That's is not the case in Cryptocurrency. For example, Bitcoin has a maximum supply of 21 million coins, there can exist more than 21 million Bitcoins in circulation. It is fixed.


5. Transaction Record of cryptocurrency is stored on a blockchain: While conventional financial system stores records in tabular databases. These tables can be edited while the blockchain can not be edited. There can only be creation of new blocks. The blockchain doesn't exist on a single server, so if a server is manipulated, it won't become valid because other servers are contradicting it.

Tabular Difference Between Conventional Financial System and Cryptocurrency

2. Why is a decentralized system needed?

A decentralized system of finance is a monetary system that has a ledger in distributed network of computers or servers. Hence no one computer is a sole possessor of transaction records. I'll be discussing why decentralized system is need based on the following subtopics-

• Individual:
  1. There is no governmental authority over assets, the user has full control of his assets
  2. Assets is secure. Thanks to decentralization, presence of multiple servers and cryptography, assets are safe from manipulation and cyber fraudster.
  3. International transfers are cheaper and faster. People don't have to wait for days when transferring cryptocurrencies.
  4. Transaction is free from bank charges and taxes. It is also universal.
  5. Transactions can not be interrupted by a third-party.


• Government:
  1. A decentralized system helps the government to secure sensitive data. In 2017, a major cybersecurity breach occured in Equifax. Hackers gained access to sensitive informations which can be used to perpetuate fraud. This risk of losing or manipulating data reduces with decentralized systems
  2. Decentralized system help create trust between citizens and its government. Blockchain allows participating parties to see and verify stored data. Distrust decreases when not only the government but also the citizens have access to records.
  3. Decentralized system helps reduce cost. There is reduction in delays and reduction of auditing problem.


• Organizational:
  1. Decentralized system ensure accuracy and safety of company's data and transactions.
  2. Obvious and commendable reduction in operational cost due to elimination of intermediaries and administrative cost of keeping transactions.
  3. Auditing become less burdensome and almost not required.

3. What affects the value of cryptocurrencies?

Volatility in the prices of cryptocurrencies is caused by a number of factor, which are all human activities. The following are a number of factors that affect the value and price of a cryptocurrency-

1. Acceptance of a cryptocurrency: The popularity of any cryptocurrency will definitely raise it's price. This shows it is valuable, when a cryptocurrency begin to loose popularity among a population, the value begin to significantly decrease.
2. Demand Supply Curve: When there is a higher demand for a limited supply of a particular cryptocurrency, the value tremendously increases while a lower demand decreases its value. Hence, it is safe to say cryptocurrencies with limited supply have potentials of become highly valuable in the future.
3. Laws and Regulations: When laws are being passed from country to country on any cryptocurrency or cryptocurrencies in general, it affects the price, even if its just an announcement/speculation. For example, the price of bitcoin rised to $1,130 in 2017, when Japan announced it was going to recognize Bitcoin as a legal payment method. Chinese government have repeatedly crashed the cryptocurrency market, for example in 2018 when China banned all websites that trade and accept Cryptocurrencies, the prices of major cryptocurrencies were affected.
4. Speculative trades by whales: This is an investment made by investors who purchase large quantity of a cryptocurrency to make profit. Sometimes, they buy and sell off very quick which affects the market often causing a price swing that lasts for a short time.
5. Hacking into cryptocurrency exchanges and wallet: Every major hack into cryptocurrency exchanges like Binance and wallets causes a crash in the value of cryptocurrencies. This poses a serious problem for investors. However, security technology is advanced on a daily bases, but the hackers also are on their game.

4. Why can't everyone be a miner?

Mining of cryptocurrency is the art and process of verifying the legitimacy of transactions between users recording it in the public ledger, in turn, the miner is rewarded some token or coins. Certain necessities are required to start mining.

In many countries, mining is banned, so many people are not able to participate in mining cryptocurrencies.

To be a miner, you need to have computers to do this verifying, and not just any computer but powerful ones, hence there is a minimal specification the computer must have.

Everybody can not be a miner because of the high standard requirements of being a successful miner. Mining requires high resources. One need to possess highly sophisticated dedicated computers in order to compete with other miners out there who have invested so much in their technology. Imagine owning just a computer of $3,100 and competing to mine with someone who has invested millions of dollars in his hardwares. And there are thousands of such investors. This is why it is impossible to use regular devices to mine.

Another huge factor to consider is the cost of electricity. These computers and accessory hardwares consume a lot of power which can be uneconomical depending on the average electricity bill of your region. This is one of the reasons why Bitcoin's proof of work is not efficient, it consumes huge amount of electricity which can be used to power a city. Not everybody can afford this energy bills especially mining being a probability game.

There is also the cost of Data center management and also expensive mining program which needs periodic maintenance as well.

There is a high risk involved in mining compared to investing one's money. One might end up with nothing when you remove all maintenance fee from your earnings. Also, the mining is very random especially in the case of bitcoin. Miners compete to solve cryptograhic puzzles, and the first person to solves the puzzles is granted the chance to mine the new blocks and rewarded. So cracking the puzzle first is a low probability.
Hence, it is adviceble to invest money in Cryptocurrency holding and trading that starting a mining rig.

5. Why can cryptocurrency transactions be called more transparent?

Transparency in Cryptocurrency talks about the transparent trading system whereby transactions made is publicly visible. This can pose a problem for companies that want to keep things hidden such as tax declaration. In every Cryptocurrency network, there is a public ledger that keeps account of every transaction. It goes as far as giving details of asset ownership history and worth.

For example, an real estate investor might decide to acquire some assets. His acquisition of this assets will be timestamped on the blockchain and made visible to the public. He can then decide in the future due to personal reasons or sales to transfer his assets' ownership to another person digitally, bypassing the need of any paperwork. The new owner of the asset is then transfered to it new owner. No third-party intermediary, no time wasted due to paperwork and the transaction is very true and secure.

These data can't be easily manipulated because of its distribution in the network. To alter data on one server doesn't make it valid because every other data contradicts the manipulated blockchain, hence transparency work in line with the decentralization.

For example also, the Steemit blockchain. Everybody has access to view other's wallet on the blockchain and as well monitor the transactions in the wallet. Though other users can see these transactions, they have no power over transfering of funds on the wallet. All this is not possible in conventional financial system as only the account owners have access to transaction history and account balance.

A governmental body can receive and withdraw money in their official conventional bank account without disclosing the transaction history. There is no transparency compared to using cryptocurrencies. Using Cryptocurrencies reduces need for auditing.

6. Explain how the development of cryptocurrency in your country?

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Image Source: PIXABAY}
I am from Nigeria. It is a country in West-Africa and it happens to have the largest economy in Africa. Nigeria has a GDP of 448.1 billion USD as at the year 2019. The official currency in Nigeria is Naira and the governing Financial body is the Central Bank of Nigeria.

During October, 2020. There was a massive movement in Nigeria against police brutality. The movement was named #EndSars. During this time, the Nigerian government blocked all forms of financial donation towards the prostest. Then donations switched to using cryptocurrencies. The crptocurrency wallets were not under the authority of the government so it was a good way of fundraising. The bitcoin donated accounts for 40% of the total donation towards the protest. The transactions on the wallet was transparent as everyone could see and monitor how money was deposited and withdrawn.

Nigeria ranks the third among the top ten countries with the highest trading volume in the world, this is after the US and Russia. The most popular cryptocurrencies in Nigeria include Bitcoin, Ethereum, Dash, Ripple and True USD. For the past five years, Nigeria traded 60,215 bitcoin on paxful. This is the largest trading volume after the united states.

Even with the popularity of cryptocurrencies among the Nigeria youths, the government has been hostile to it and its users.

The Central Bank of Nigeria as at the 5th February, 2021released a broadcast to all commercial banks and financial institutions labelling involvement in Cryptocurrencies as illegal. It further instructed them to identify individuals who transact in cryptocurrency or make use of crptocurrency exchanges and consequently close their accounts. This brought about many youths involved in Cryptocurrencies having their bank accounts frozen.

A lot of appeal is going on but it seems the banning of cryptocurrencies in Nigeria won't be reversed anytime soon.

Conclusion:

Cryptocurrencies pose a treat to currently existing financial instituitions including the governments. Many government try to prevent its widespread and use, however, this is impossible because of the transparency and ease that comes with the blockchain. We don't have to go through stress and verification when sending money from one continent to the other. And just like the Nigerian government froze people's conventional bank accounts, this act is impossible on any cryptocurrency account or wallet. Instead of curbing the widespread and use of Cryptocurrencies, the government are enlightening the citizens on the user freedom existing in decentralized systems. Cryptocurrency mining: It is more adviceable to invest one's asset than setting up a mining station especially because of its cost and possibility of making profits.

Thank you!