Steemit Crypto Academy Contest / S2W1 - How Cryptocurrency has Shaped the Financial Realm. What is Its Future? by @phlexygee
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Users are expected to briefly give an overview of cryptocurrency.
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Cryptocurrencies are volatile and unique digital assets with real life monetary value, that are traded with the main goal of making profits, as well as to be used as a medium of exchange for online transactions.
The idea of cryptocurrency came up around 2008-2009 when the world was experiencing some financial challenges associated with intermediaries and limited access to financial services.
The unknown brainmaster Satoshi Nakamoto, developed the first ever cryptocurrency known as Bitcoin in 2009 which uses blockchain technology to ensure security and decentralization.
All cryptocurrencies operates on blockchains with different consensus mechanisms, but possess Peer-to-peer feature. Meaning transactions only take place between individuals in the absence of an intermediary.
Cryptocurrency transactions are confirmed by block miners or validators who receive some partial income for their contributions to the blockchain networks.
After the introduction of Bitcoin, there have been different preceding cryptocurrencies such as Ethereum, Tron, Steem, and Ripple which follows the patterns of Bitcoin with some innovations, but Bitcoin remains the overall boss of cryptocurrencies. In fact all succeeding cryptocurrencies aside Bitcoin are regarded by some people as shitcoins, simply because Bitcoin is the father of all cryptocurrencies, and therefore more reliable and trustworthy over the others.
Most of these preceding cryptocurrencies are built for blockchain projects, whereby they serve as utility tokens.
Currently the crypto exchanges entails about 106 million users, which signifies the essence of crypto and its enthusiasts.
Cryptocurrency is profitable and also risky due to its volatility, as people who know its inner workings seize the opportunity to attain financial freedom, whiles others get doomed along the lines for some other reasons such as scam, market crash and unfavorable tradings.
As cryptocurrencies are extremely volatile, there are others that have been built and labeled as stable coins, which are pegged with the value of conventional currencies, although they also have some level of tendency to depreciate. Examples are USDT, USD etc.
Draw a comparison between cryptocurrency and conventional currencies.
Of course, there are some dichotomies and similarities between cryptocurrency and traditional or conventional currencies, of which I will be pondering on.
Similarities
As their names suggest, they are currencies, and therefore serves as a medium of exchange. Both crypto and conventional currencies are acceptable and used for trading.
Crypto and conventional currencies come in different folds. Thus, both currencies have different brands with their associated value.
Crypto: Bitcoin, SBD, Tron etc. Conventional: Ghana Cedis, US Dollars, Euros etc.All have the ability to be broken down into decimal values. Meaning both crypto and conventional currencies can be divided into smaller units. For example, a conventional currency like Ghana Cedis can be divided into pesewas, whiles 1 SBD can be shared into two by 0.5
Both cryptocurrencies and traditional currencies can be utilized as a store of value.
Dichotomy
| Crypto | Conventional Currency |
|---|---|
| Decentralized with no influence of government regulations | Centralized and managed by governments |
| Demand and supply dictates their value | Governments controls their value |
| Transactions only take place on blockchains | Mostly involves non-blockchain transactions |
| It has limited supply | whiles fiat currencies have unlimited supply |
| Speedy transactions, due to the absence of intermediaries | Slow mode of transaction, as transactions involves the activities of third parties. |
| Only digital currencies | real currencies, but can be digital |
| Borderless transactions | Country specific. They are used for specific states. |
| Easy financial access | Complicated protocol for financial access |
| 24/7 financial services. There are no holidays or closing periods | Limited financial services. |
Explain the distinctive innovations of cryptocurrency and its downsides.
Cryptocurrency has tackled the concept of double spending with the help of its main pillar known as Blockchain. The blockchain technology ensures secure, transparent fast and immutable transactions which is a great innovation in the financial sector.
All challenges associated with intermediaries in terms of accessing financial services have been cutoff. Challenges such as slow transactions, specific days and times of transactions have been eliminated by cryptocurrencies, therefore given unlimited and swift mode of transactions to people. All thanks to the peer-to-peer and consensus mechanism feature of blockchain.
The standard of living for many people have been uplifted for just engaging in crypto trading, investing or mining. The wealth people accumulate in the activities of crypto is mind blowing, and therefore acts as a key innovation.
Cryptocurrencies have brought borderless means of transactions with regard to trading, unlike the conventional currencies which have limited use cases.
Challenges of Cryptocurrencies
The fact is anything that has merits possesses some level of demerits and cryptocurrencies are of no exceptions.
Below are some challenges associated to cryptocurrencies.
Low scalability; aside the permission of swift transactions, cryptocurrencies lags behind conventional currencies in terms of throughput.
Avalanche, Algorand and Polkadot which are known as sone of the fastest blockchain networks aren't close to the transactions that a company like Visa can handle per second.
The entertainment of malicious attackers; cryptocurrencies in general paves way for the smooth activities of hackers and scammers, which in turn leaves many victims of successful attacks in huge loss and shackles.
Extreme volatility; as mentioned earlier, cryptocurrencies are volatile and nature and therefore have the tendency to result in huge loss. A practical example is the Luna crash that just happened recently. All investors and traders who didn't used proper risk management lost a lot of funds. Many people have been victims such circumstances, whereby even some lives have been lost.
Government restrictions; some states have banned crypto, whiles others are working towards banning them. Such policies can contribute to low prices of crypto and limit the activities of crypto holders of such countries.
Market manipulation: the volatile nature of crypto grant some institutions and individuals known as whales to manipulate the market to their benefit, leaving the small investors and traders in loss.
How do you think major problems with cryptocurrency can be handled? Let this be a response to the downsides highlighted earlier.
The good news is that some of the major challenges related to cryptocurrencies have been addressed, whiles the others are been worked upon.
Below are some existing solutions together with my suggested ones.
In response to the extreme volatility nature of cryptocurrencies, some states have created stable digital currencies aligned to their conventional currencies. Example is the E-naira of Nigeria.
Proper risk management, and confluence trading can reduce the probability to fall as a victim of market manipulation, issues related to volatility and false signals.
With the low scalability, different mechanisms such as Layer 2 solutions have been employed to tackle it.
An example is the introduction of the lightning network, State Channel and Sharding.
These enable off-chain transactions and record the transaction on-chain when completed to create space for speedy transactions.
On the part of hacks and scams, I will submit that people shouldn't fall for unreliable projects that claims to give huge interests on small investments. I will recommend thorough research before engaging in any crypto investment.
Again, users should store their long term investment funds in decentralized wallets, whiles they keep their private keys safe in both online and offline, out of the reach of others, and shouldn't click on suspicious links.
There have been several successful crypto hacks, and instances where users receive compensations from their exchanges in such situations, therefore, it is better to trade on official and reliable exchanges, instead of trading outside the box, because in case there is a loss of funds due to hacks or scams, there is no hope of getting something back.
The fight against cryptocurrencies in some countries can be addressed by states coming together to creat an international law that will support this full operations of cryptocurrencies, as crypto is the new world order, or better still, such countries can equally create their own cryptocurrencies.
Do you believe in the future of cryptocurrency? State your reasons. Any Recommendations?
Yes of course, I really believe in the future of cryptocurrency, and beneath are my reasons.
Cryptocurrency has come a long way with positive developement, since its introduction, of which crypto analysts suggests that the crypto market would be at least tripled in value by 2030, thus $5 billion, irrespective of whatever happens.
Bitcoin which is the father of all cryptocurrencies started with a value less than $0.08 in 2010, but now we can witness the evolution of its value.
Even after the recent crash, Bitcoin hangs around $28.000 to $31.000
In fact the change from the onset is spectacular and beyond reasoning. There are instances of pullbacks and retracements, but in general crypto is flourishing, regardless.
Good and more use cases: over the years, cryptocurrencies have gained momentum in terms of their use cases. Bitcoin, Ethereum and other cryptocurrencies have been accepted as means of payment for the purchasing of goods and services, aside being traded in pairs for profits. Some well renowned institutions and companies in the world like Tesla, Microsoft, Paypal and Home Depot accept crypto as payment, aside the conventional currencies, whiles even some give preference to crypto, due to their benefits.
The number of crypto enthusiasts keeps increasing drastically, and that confirms the interest people have in trading and learning about cryptocurrencies. More renowned and wealthy people in the field of crypto serves as an assurance to its future.
The endorsement of crypto by some countries can not be looked down upon, when it comes to determining the future of the currencies. Bitcoin has been accepted by countries such as US, Denmark, Australia and Paraguay as a legal tender.
NFT's, Web3 and Meterverse are subsection of crypto that have gained recognition and attention worldwide, as people with less crypto knowledge even find themselves utilizing the projects.
Artists around the world have gotten the opportunity to make meaningful life by selling their works at more valuable prices.
In fact, if for nothing at all the emergence of these three key innovations will keep crypto going for life.
In a nutshell, the numerous reliable blockchain projects wouldn't permit the diminishing of crypto, because most people have developed taste for them.
There is an undiscovered future Bitcoin, so we will keep investing in crypto till death, and that will help save crypto for the future generation, who would take the barton from there.
Conclusion
My recommendation is that, crypto has travelled a long way, it is here to stay and therefore everyone should try their possible means to be acquainted with anything related to crypto.
As a matter of fact, it saddens me that I didn't know of crypto earlier, but it's all good as there are equal opportunities ahead.
We should note that, the market doesn't move in a straight line, so definitely there will be ups and downs, but proper technical analysis and risk management will always increase our chances of making the best out of the market.
I think this is the best time to invest, as the market is struggling in a bearish trend, because I know in know time time the market will experience an extreme bullish trend which will favor the early investors.
Thank you, here comes the end of my article.
You've Explained about cryptocurrency very well. Your article is well articulated. I really enjoyed reading it. Thanks for sharing with us!
You are welcome, bro.
I am much grateful that you have found my article interesting.
That is a very detailed explanation for cryptocurrency, I really like your perspective on the future of cryptocurrency
Thank you.
Crypto is the new world order, and the trend must flourish.