Cryptocurrency

Brief overview

Crypto currency was invented in 2009 by a guy or group named Satoshi Nakamoto.
The first ever crypto currency is Bitcoin, and the technology used in running this Bitcoin is a blockchain.

The nature of blockchain technology is that it is a decentralized system where different users (nodes), have the capacity of performing transactions amongst themselves, such as transfers if funds, without having to go through a third party (banks). These transactions are also recorded on a digital ledger, which is the stored in a block with other transaction, and this block is tied to other block, hence the term blockchain.

Because these ledgers are recorded digitally, everyone who is part of the network is privy to such information, they can view as much transaction that has taken place in the past. Also when transferring funds, users don't have to be worried about how long or how the person the funds is being sent to would access it, because transactions on blockchain are borderless and less time consuming.

Finally, there are different types of protocols for which a blockchain network operates. For example, Bitcoin's blockchain use the proof-of-work consensus mechanism, while Ethereum blockchain uses the proof-of-stake consensus mechanism and Stellar Lumens blockchain uses the Stellar Consensus Protocol SCP.

The different types of consensus protocols has to do with how the network is run through mining, without mining the blockchain structure won't work. It is through mining that crypto currencies are minted and different blocks are created.

Fundamental difference between Cryptocurrencies and Conventional financial systems

Answer: Decentralized Systems

The advent of crypto currency brought about a different systems for processing payments and transactions. These systems are decentralized in nature and they run on networks known as blockchain technology.
With such systems, transactions run on the network are Peer-2-Peer, that means you don't need third parties such as banks to run the transaction. These transaction are recorded on ledgers in a block, where other users in the network are aware of such transaction, and more blocks are formed as transactions takes place, hence, the term blockchain.
Fees paid for such transactions and very low when compared to using traditional financial systems. Lastly, transaction are borderless, that is, an individual in say Togo can transfer tokens to another individual in a different country say Japan, and the transaction would take place within minutes.

Conventional financial systems are centralized in nature and the network is run by servers.
These servers needs maintenance for the system to run efficiently, because of this, users pay high amounts of fees for services rendered by these institutions. Transactions using traditional financial systems are not borderless, when you decide to transfer Fiat currencies, you have to wait for sometime, while the banks has to communicate with the bank in the other country to let them know that certain amounts of currency is coming into their country. Their services are not Peer-2-Peer, because you need to go through a banking hall for you to be able to do any transaction with another person somewhere else.

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The system is trustless

In centralized systems, you need to give data about yourself in other to be able to use their platforms. Examples include, Facebook, Twitter, Central Bank, PayPal etc. As an effect, you need to trust these systems and the central authority behind them with your data.
In recent time trust in such institutions have reach low points historically. And users have become uncomfortable putting sensitive data, personal property etc. in the hands of central authorities.

With Decentralization such problems has been eliminated. Decentralization makes users to manage the system. Users don't have to trust central authorities to manage their data for them. The system makes the users do this by themselves. The protocols in a decentralized system is designed to prevent bad actors from participating.

Risk of systemic failure reduced

This is another aspect where decentralized systems are needed much.
Monetary systems in countries are also loosing trust from their citizens. Systemic failure occurs in hyperinflationary countries such as Venezuela and Zimbabwe.

Because of the confidence users have in decentralization, digital currencies are fast becoming a thing. And the rise in the value of crypto currencies shows that people are giving second thought to competences of central banks in respective economies.
In finance, single points of failure can bring down an economic system. In technology single points of failure can stop the flow of a network, such as website or an ATM software crash.
But in decentralized systems, a node that develops faults, passes its workload to other nodes which means that the network applications would still be up and running.

Resistance of Censorship

Honest concerns, views regarding proposals and practices, that if implemented, can improve an industry or organization are shut down by central authorities. Whereas with decentralization giving rise to Peer-2-Peer communication which hard to censor. And it foster an environment which allows meritocracy and constructive feedback.

Also decentralized networks are usually open sourced projects, this means that anyone can use the platform and build decentralized applications dApps, products and services on them, such as Tronlink Wallet, Tronscan, JustLend & JustSwap on the Tron network.
Under centralized systems, central authorities dictates what developers should build.

Why the value of crypto currencies increase

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The value of crypto currencies can increase based on the involvement of users within and without the network, such as user demands, scarcity and coin utility—usefulness of coin.
We should also note that most of the crypto coins in the market are issued by private blockchain-related companies, some factors of crypto value such as project viability and perceived value, will come from the image and efficiency of these companies.

We shall be looking at some factors that makes for the value of crypto currencies to increase

Coin's Utility/Usability

For a crypto currency to be valuable it has to be utile. Since crypto coins is a manifestation of blockchain technology. It is only right that for a crypto currency to be utile it needs to be usable within a certain blockchain ecosystem.

Taking Tron for instance, you cannot go on the Tron network without having the TRX coin, which is used as a resource to power transactions on the Tron network. Because of this the value of TRX depends on the demand for it due to services rendered by the platform.

Crypto currencies utilities includes:

Voting rights
Mode of transaction within a blockchain ecosystem
Dividends payments
Scalability
Scarcity of the coin

Scarcity defined is the finite number of coins to be made available. For an object to be made valuable, the demand for it has to be more than its supply. Bitcoin has a finite supply of 21 million coins which it never goes beyond that. The effect of this is that Bitcoin has a good amount of demand and thus causes the value to rise.

Real Value

This real value of a crypto currency depends on the overall viability and progress of
the project development. When a project is developed and it reaches some milestones thereby establishing partnerships and launching user-friendly software, this make the project more valuable in the eyes of the market.

Mass adoption

If a crypto currency gains mass adoption then it can make the value of the crypto currency to be very high. This is so because by design crypto currency have been created to have limited coins in circulation. So if there is an increase in demand for a Crypto-currency coin through mass adoption, then the value of the coin would surely increase.

But for it to get adopted by the masses, the crypto coin has to be applicable in real life situations. For instance, companies begins to accept crypto coins like the way Fiat currencies are being accepted. An example was the announcement by Elon Must and Tesla accepting Bitcoin recently.

Demand and Supply

For every product or service its value is derived from the demand of it as well as the supply of them. Crypto currency is no different, if more people are willing to buy Bitcoin and there is enough supply then the value would increase.
The nature of crypto coins is that it is limited, so if there is high demand for it, the ultimately the value of it would increase.

Production costs

There are costs associated with producing crypto coins and this has an effect on the value of the crypto coin. For example, Bitcoin has a high cost of production, this is because the resources needed to mine Bitcoin are very costly. It is because of these resources and the energy put into mining Bitcoin that makes it more valuable.

Why everyone can't be a Miner

Although crypto currency is a convenient way to conduct transactions, however the crypto coins are not made free.
You need to mine these coins in order for the crypto currency network to run smoothly.
Every crypto currency has its own method of mining coins, and this depends on the protocol which the crypto currency platform is using to run its network. The resources needed to mine coins varies with each crypto currency, it is left for the Miner to determine if he would partake in such activity or not.

Bitcoin Mining

For instance, on the Bitcoin platform, it uses the Proof-of-work protocols as a means of mining. The resources needed for this mining process to take place are high amounts of electricity and highly sophisticated computers which are also known as rigs.

High electricity usage

In the process of mining, miners consumes vast amounts of electrical power.
This activity has raised concerns as some experts talks about how harmful this activity is to the environment.

The process known as mining requires computers of those involved in this activity to try to solve the same puzzle. The time taken for this puzzle to be solved is 10 minutes, after that the winner is rewarded with Bitcoin. Then a new puzzle is generated and the mining process restarts again.

In August 2018, an associate professor expert in crypto currency from Princeton University, testified at a hearing of the U.S. Senate Committee of Energy and Natural Resources that mining Bitcoin accounts for up to 5 gigawatts of energy use, or 1% of the total world's energy's use.

To get full disclosure on the electrical energy used to power the Bitcoin network, you would need to understand how Bitcoin is created. Firstly, you need to calculate the number of sums that are conducted to solve the puzzles. Secondly, you would now calculate how much electrical energy is required to do one sum.

These sums are regarded as Hashes. These hashes are so numerous that you need to think of them in millions of hashes (megahashes) or billions (gigahashes). For more perspective, by early 2020, computers on the Bitcoin network was giving out close to 120 exahashes per second.
Exahash is one quintillion hash per second, that is, 1,000,000,000,000,000,000 / second .

Now that we have calculated the sum, let look at the enegy consumed in relation to the sum(hashes) conducted. Companies that mine Bitcoin, especially those that use the ASIC mining computers claims that they only use one Watt of power for every gigahash of computing when mining Bitcoin. Therefore, in early 2020, Bitcoin mining consumed 120 gigawatts per second.

Research have shown that the cost of electricity need for mini g Bitcoin ranges between $400 million to $6.2 billion per year.

Sophisticated computers

Miners need to have the most recent hardware upgrade to enable them partake in the mining process successfully.
There are so many computers out there that are used for Bitcoin mining, but the most common ones are the Application-Specific Integration Circuit (ASIC) mining computers. These was ASIC mining computer hardware are very costly. The price of the latest ASIC mining rig cost upwards of $1,500 per computer. And these computing resources can become obsolete in a matter of years.

Why crypto currency transactions are more transparent

A user of a blockchain ecosystem is given a public address that in no way show or indicates that it is such user that operates that address. These public address are completely open, so other users can look at the transactions from the users public address at will. And each time a transaction takes place, a record of it is stored on the digital ledger of a blockchain, and every user of this blockchain ecosystem can interact with it.
This is unprecedented, because before the existence of blockchain, you cannot have such access.

In centralized systems such as banks, users cannot go and ask that they view the transactions of another user, as this would be liable to a breach of privacy of the other user.

Also these banks could anonymously do anything they wanted to do with the funds from other users accounts, sometimes without the users go ahead.

Cryptocurrency in Nigeria

The Nigerian Government through the Central Bank of Nigeria CBN released a circular to banks and financial institutions, on the 5th of February. This letter addressed to the banks and financial institutions stated that dealing with crypto currencies and facilitating payments for crypto currency payments is prohibited. This means that bank and financial institutions in Nigeria are not to engage in any transaction whatsoever regarding crypto currencies. So that means if I have money in my account I can't use it to trade any crypto on any exchange directly, I would have to look for a means to convert my funds in to a crypto coin before engaging in crypto related trading activity. It also means that transactions involving crypto currencies in Nigeria would be difficult, because the borderless nature of the crypto coins means I can receive crypto coins from anyone in the world here in Nigeria, however I can't go to the bank and exchange it for Naira, just like the way Fiat currencies are exchanged.

The excuse of the Nigerian Federal Government is crypto currencies are issued by unregulated and unlicensed entities, so because of this, the use of crypto currency in Nigeria contravened the existing laws as they are not legal tender.

Anonymity and lack of KYC were other issues that was brought up in the letter. Because of the anonymous nature of crypto currency, they claimed that crypto currency are susceptible to illegal activities such as money laundering and sponsoring of terrorism.
They also added that because of volatility of crypto currencies, it has threatened the stability of centralized financial systems in other countries.

Effect of Trading crypto currency in Nigeria
Nigeria is the second largest Bitcoin market in the world. It has traded over $500 million worth of Bitcoin in the past 5 years. So with this directive from the Central Bank of Nigeria, it would ultimately have an effect on the Nigerian crypto currency market. Essentially it prevents traders from buying crypto currencies from anywhere with their credit/debit cards issued by the Nigerian banks. It also prevents traders from receiving proceeds from the sale of crypto currencies from exchanges which facilitates the buying and selling of crypto currency.

Some exchanges have found a way around this directive by going the peer-2-peer trading route, which makes traders alike to buy and sell crypto currencies amongst themselves, while the exchanges monitor the transaction.

Conclusion

Crypto currencies through blockchain technology brought about a revolution in the financial industry. Now transactions are seamless, borderless, faster and recorded on a public ledger.

It brought about decentralized systems, which is proving to be more efficient and transparent than centralized systems.

Once the mass adoption and scalability improves the value of crypto currencies would be much more. This would lead to a decentralized economy, because so many people would be participating in the crypto currency world.

Thank you @levycore for this wonderful opportunity to do this exercise.