Crypto Academy Week 14 - Homework Post for @levycore || Learning About Cryptocurrency
It’s a great privilege to read your lecture again this week. Cryptocurrency is a broad topic to cover and I’m happy you did justice to it a great deal. Thank you for your effort.
I am here to present my homework for the week, please permit me to take one question each till I completely answer all. Join me.
1.Fundamental Difference Between Cryptocurrency and Conventional Financial System
When talking about the conventional financial system, we talk about banking and fiat currency. In order to dray a contrast between the digital money and the fiat money, we need to dive into the system through which it is built and operated.
To do this, we will be looking at the two systems separately.
Cryptocurrency and blockchain
Cryptocurrency is the general name given to a digital currency built on a blockchain. It is virtual money that can only be transferred as figures online between users in the ecosystem. Example include Bitcoin, Ethereum, BNB, Litcoin, among others.
The blockchain technology, on which cryptocurrency is built is decentralized. This means that the system is not controlled by a single governing entity. Thus, transactions can not be hindered by a third party.
The Conventional Banking System
The banking system is a centralized entity that controls the transactions with fiat currency. By fiat currency, I mean money that can be in form of physical paper, coins or plastic. The banking system is controlled and monitored by the government from a central server and transactions can be hindered when fraudulent transfers are suspected.
To give a vivid contrast between the two systems, let’s enumerate them:
a)Cryptocurrency is build on blockchain, while conventional banking system is build with physical structures.
b)Cryptocurrency has decentralized applications where transactions can be done, while banking system use central servers to conduct transactions.
c)It is difficult to hack into a cryptocurrency blockchain and steal funds since no single server is involved, but banks can be hacked easily through the single server system.
d)Most cryptocurrency transactions are P2P(Person to Person), thus it is operational even on holidays, but conventional banking system do not operate every time.
e)Cryptocurrency gives financial freedom to users in that one can have access to his money any time, but banks don’t allow access to funds at all times, especially on holidays and during server upgrades.
f)Trading with cryptocurrency gives the user full control of his funds, while banking system places retrictions on how much one can gain access to in a day. Example my bank places a maximum withdrawal limit of 5,000,000 naira in a day.
Why Decentralized System is needed: Benefits
The decentralized system is need for the following reasons:
a)It provides a trustless financial environment: this is to say that you don’t need to trust the party you are sending money to, as the system is conditioned to complete the transaction with evidence through smart contracts. Here, frausters can not fake transactions or deny it because it is open for everyone to trace.
b)It improves data reconciliation: In the case of uncertainties, data stored by different servers of a decentralized system can be collated and reconciled. That way error from one server can not alter the records, as several other servers store similar information.
c)Reduction of points of weakness: the decentralized blockchain reduces the work load on a single server, as different servers share the load equally. That way, if a point of weakness is detected on one server, other servers can handle the internet pressure and ensure activities in the system are not twarted.
d)Security of users’ profile: The decentralized network does not expose users’ data to third party. As such personal data are secured.
What Affects the Price Of Cryptocuerrency
The following factors affect the price of cryptocurrency:
a)Decentralization: This ensures that no single individual has the power to shut it down, as such the price can not crash. People tends to invest more on decentralized digital asset because of the confidence that ir will not crash.
b)Safety: when a digital asset is safe to trade with, it attracts investors. The opposite is the case for unsafe ones. Safety can be traced to the roadmap, whitepaper and track record of the company in charge of the asset.
c)Node Count: This is the number of wallets actively holding the asset. It can be gotten from the website of the asset or etherscan and bscscan for tokens on Ethereum and Binance smart chain networks respectively. The more holders, the higher the price of the asset.
d)Rising Demand: This is an important factor. It has to do with how many people are buying or selling the asset.
e)Community adoption: The number of people that adopt the asset either pushes the price up or down. If the adoption is high, the price will increase and vis versa.
f)Production cost: The cost of production is another factor. For example, the cost of producing Bitcoin is high, hence the cost of what is produced is also high. Low cost of production will make the asset sell cheap in the market.
g)Government Regulation: When an asset goes mainstream, chances are that the government will come after it. For example, the case against Ripple by US security service brought down the price of XRP and after the case was over, the price picked up again.
Why We Can’t All Be Miners
Mining involves a lot of power and resources. Thus it is capital incentive. To set up the equipment for mining, one needs a lot of money. Not everyone have such huge capital.
Besides the capital, the technology involved is sophisticated and require much learning and experience.
Most people are afraid of losing their capital, thus they don’t go into mining.
Why Cryptocurrency transactions could be said to be more transparent
1.Transactions are done on decentralized system where no third party is needed, thus there is trust.
2.Every transaction can be traced in the blockchain, hence nobody can deny it or falsify figures.
Development of Cryptocurrency in Nigeria
Nigeria have a fast growing market for cryptocuerrency. The number of traders are increasing. For exchanges like Binance, Houbi, Hotbit, Poloniex, Okex, among others present in Nigeria, most activities there are done by Nigerian traders.
On Binance for instance, the number of buyers and sellers with Naira (Nigerian currency) is increasing by the day with over a thousand online today.
Moreso, every average Nigerian is holding a particular cryptocurrency on their wallets, with Trust Wallet being the
dominant one.
Conclusion
Cryptocurrency is a wide ecosystem that can never be covered in one piece. This is the future and early adopters will continue to be happy they did.
Thank you for reading.
Hi @greatness96, Thanks for submitting your homework
Feedback: You have completed every point but, You are still lacking in explaining each point
Rating: 5
Thank you very much.