Crypto Academy Week 14- Homework Post for Professor @levicore on "Learn About Cryptocurrency"

Hello Steemians, welcome to week 14 of Steemit Crypto Academy. It is always a pleasure to be part of the lessons delivered by our wonderful professors. Today's lesson was delivered by professor @levycore on "Learn About Cryptocurrency". The lesson was educative and I'm here to present my homework task in this post.

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Cryptocurrency is no doubt developing to solve the setbacks encountered in the traditional financial system. The major goals of cryptocurrency are the decentralization of the financial system. Power and control are vested in individuals in carrying out transactions without any intermediary like the banks or financial institutions. Though this technology is yet to be adopted globally, it is no doubt that cryptocurrency is the future of our present-day financial system where everyone has equal right and control. To further discuss cryptocurrency technology, let's look at the fundamental difference between cryptocurrency and the conventional financial system.

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

Though cryptocurrency is immune to the conventional financial system as both system share some similarities. There's a medium of exchange which includes the transfer of money, value and also as a means of purchasing goods. But these two systems differ in a way which I will explain below.

Decentralization

When we talk about decentralisation, we mean the ability to have control over your own decision. Cryptocurrency is fully decentralized which means that the users have full control of the activities and transactions they perform. Unlike the conventional system where the central banks and financial institutions are in control of transactions and activities going on in the system. Central banks issue monetary policies, fiscal policies, exchange rates, interest rate etc, making them have full control of the system. But the case is different in cryptocurrency as there's no third party or central body in charge. Users have full control and power over their decisions and activities.

Speed of Transactions

Have you ever wanted to make an international transfer of money to your friend in another country? We know the time it takes to meet the requirements of banks and the amount of time it takes to verify and settle the transaction. But in cryptocurrency, transactions are carried out very fast within seconds. The financial systems hours before a transaction can be verified and reach the recipient. Similarly, the fees incurred in a cryptocurrency transaction is much lower and cheaper than the conventional traditional system.

Transparency

There are so many financial crimes carried out in the conventional financial system. These data manipulation, financial statements frauds, hacking, financial theft etc. These crimes are easily carried out by those in charge because there's no transparency in the system as records of transactions are kept in registers where they can be easily manipulated. But cryptocurrency, transactions are records on distributed ledger and made available for everyone on the blockchain. This makes it very difficult to manipulate or make changes to data. Also, the transparency nature of cryptocurrency restores trust among users despite the anonymity nature of the system.

No transaction barrier

Sometimes we find it very difficult to transfer funds to friends abroad or make purchases online using our conventional financial system. Similarly, the banks also have protocols to be observed before a user can access these services. Furthermore, some regions are restricted to make online international transfers. For example, my country Nigeria is banned from using Paypal. But with cryptocurrency, there is no such restrictions and barriers in making transfers. Anyone in any region can carry transfer money to another user seamlessly in a faster and more secured manner.

Access to Financial services

In the conventional financial setting, users need to meet some requirements, KYC verification and undergo other protocols before they can have access to financial services like loan, lending, borrowing and staking. Sometimes, they are denied these services despite meeting the requirements. But in cryptocurrency, the DeFi ecosystem has solved this problem and make it very easy for anyone to access these services in a decentralised manner. This means that users access financial services while still having full control over their funds.
From the differences discussed above, it is no doubt that cryptocurrency is shaping the conventional financial system. Though there are still some advantages of the conventional system, we hope to see more developments in the future.

Why is a decentralized system needed?

There are so many reasons why a decentralized system is needed. Have you ever woken up and found out that your account has been frozen for susceptible fraud? Or maybe you woke and notice that the central bank has changed the monetary policy and hiked the interest rate. Or maybe you woke up and notice your bank account has been hacked. All these pitfalls in the conventional system are reasons why we need a decentralised system and we will elaborate on some of the reasons.

Ownership and Control

Due to fraudulent activities and unfavourable government policies, users do not have control over their funds and transactions. The central body governs and controls every transaction using its set rules. But the advent of decentralization in cryptocurrency have given users power and control over their funds.

Data Security

In the centralized system, data are stored and recorded in a single server which makes it prone to hacks. Decentralisation has made it impossible to hack or manipulated transaction records. Transactions are stored and recorded on the blockchain using a distributed ledger. This enhances the security of the system and data manipulation. With this, fraud can be eliminated in the financial system.

Access to Financial Services

The centralized system makes it very difficult to obtain financial services like loans, lending, borrowing, lending and staking services. Similarly, users find it difficult to take advantage of investment opportunities available in other regions due to restrictions placed by the centralised bodies. The decentralized system makes it easy to take advantage of these investment opportunities as there are no intermediary or central body in control. User can easily have access to these services while still having control of their funds.

Reliability

Reliability is high in a decentralized setting due to the fact that transactions and data are stored in several servers. This makes the system faster and eliminates system downtime or maintenance. Unlike the centralized system where data are stored in a single server which causes congestion in the network and makes operations lower.

What affects the value of cryptocurrency?

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Cryptocurrency is highly volatile and can be affected by so many factors. Below are some of the factors that can affect the value of cryptocurrency.

Market Sentiments

The cryptocurrency is yet to be adopted globally and not every region have accepted the use of cryptocurrency. For this reason, users questions if cryptocurrency is really the future of present-day finance. This doubt hovering around the industry creates volatility and panic among investors and make them sell - off their assets causing a decline in the price of cryptocurrencies. People are still sceptical about the future of cryptocurrency, that is why any little news or information causes volatility in the price of cryptocurrency.

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The picture above shows Elon Musk twitter about tesla and Bitcoin. This particular information created volatility and panic among traders and we saw a major sell-off in the price of cryptocurrencies.

Government Policy

Cryptocurrency is yet to be adopted and there countries that have banned the use of cryptocurrency. Just few hours ago, China banned Bitcoin and there was a massive dip in the prices of cryptocurrencies. Though cryptocurrency is decentralized and there's no third party in control of it. Government policies and decisions can create panic among investors which affect the price of cryptocurrency.

Burning of Coins

Some cryptocurrency companies burn tokens to reduce the excess supply in circulation. When the supply is reduced, the demand rises which increases the value of the cryptocurrency. Most cryptocurrency projects used this technique to increase the value of their coin. Last week, safemoon announced it has burnt 420 million tokens which is 42% of its total supply. This information attracted more investors to the project and this affected the price positively.

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Partnership and Exchange listing

When cryptocurrency projects announce a partnership with other companies, it is seen as a good development that can attract investors into the project. Let's take for instance, we saw a massive increase in the price of Dogecoin after Elon Musk and Tesla started discussing its future. Similarly, when cryptocurrencies are listed in major exchanges like Binance, Coinbase, Houbi etc, we tend to see a development in the price of these cryptocurrencies. This is because investors already know that these exchanges access the reliability and authenticity of cryptocurrencies before listing them.

Market Manipulation by Whales

Because cryptocurrency trading is not regulated by financial institutions, large investors take advantage of this opportunity to manipulate the price of cryptocurrencies by pumping and dumping. These whales acquire a huge amount of cryptocurrency which can have a significant influence on the price of the cryptocurrency. Imagine an individual in possession of 30% of crypto circulating supply. When these individuals dump their coins, the price of the cryptocurrency drops drastically which create panic among other investors to also sell.

Why can't everyone be a miner?

Mining involves solving complex algorithms to verify transactions on the blockchain. Due to the complexity of these algorithms, computers are being used to solve these algorithms. Mining might sound easy and you can't wait to start mining Bitcoin from your computer. But the difficulty involved in mining has made it very difficult for anyone to do. Below are the reasons why everyone can't be a miner.

High Cost of Energy

Mining cryptocurrencies requires a high amount of energy. These computers used for mining run 24/7 and generates high energy cost. This makes it very difficult for individuals to engage in mining as they can't cope up with the running cost.

High equipment cost

As the demand for cryptocurrency is increasing, there are connections and difficulties in solving these algorithms. Advanced machines and hardware are required to perform these operations faster. These machines are very costly and not affordable for everyone. This makes mining to be in the hands of mining companies and not individuals.

Low Return of Investment

Sometimes, miners end up not covering their running cost due to the low mining rate. Similarly, miners who own advanced computers have more chances of solving the puzzle and claiming rewards. So this makes it very difficult especially for those who can't afford advanced machines to compete in the pool.

Government regulation

Due to the high cost of energy consumed, some countries ban cryptocurrency mining in some regions. This will be a barrier to anyone looking to set up a mining rig. Also, some government decisions do not favour mining operations.

Google ban on cryptocurrency mining App

Though cloud mining has made it easy for anyone to mine cryptocurrency. This means we can mine cryptocurrency over the internet by buying some hash from mining companies. Google has banned cryptocurrency mining apps. According to Google, mining operations subject smartphones to overheating due to intense processing that will cause battery depletion. Similarly, malware gangs and hackers can take advantage of mining on smartphones to have users account.

Why can cryptocurrency transactions be called more transparent?

Cryptocurrency transactions are more transparent due to the fact that transactions are recorded and stored using a distributed ledger on the blockchain. Every on the blockchain has a copy of this transaction which is made public. Below are other reasons why cryptocurrency transactions are more transparent.

Immutability

Cryptocurrency transactions are immutable. All transactions carried out on the blockchain indelible which means that nobody can manipulate or change the transaction data. Changing cryptocurrency transactions is nearly impossible as every other block in the network will also be amended. This creates transparency and trust among users.

No single entity in control

Unlike the conventional financial system where theirs a central body in control of transactions. Cryptocurrency is decentralised and built on a blockchain peer-to-peer network. Validations of transactions are performed by users (miners) and every node kn the network work together to validate a transaction.

Transaction records

Every transaction and operation on the blockchain can be tracked. Transactions history, the number of wallets addresses, no of transactions are made public. Different cryptocurrency projects are built on different blockchains and every recorded on this blockchain can be tracked.

Explain how the development of cryptocurrency in your country?

Cryptocurrency development in Nigeria

The global market data tracker reported that more than $400 million worth of cryptocurrency was traded in Nigeria in 2020. Nigeria ranked 3rd after USA and Russia as countries with the highest traded volume of cryptocurrency. Though our government has issued a warning to financial institutions to stop facilitating cryptocurrency transactions with claims that they are used for money laundering. But these haven't stopped cryptocurrency development in Nigeria. The number of users keeps increasing as many found this as an alternative way to create job opportunities.
Similarly, the decentralised nature of the system has made it very safe against government restrictions. Even though the banks have been issued a warning against cryptocurrency transactions, users still transact using peer-to-peer trading in some exchanges. I believe cryptocurrency is the future of our present-day finance and Nigeria won't be left out in this emerging development.

In conclusion, cryptocurrency is shaping the financial system by bringing down control to users. Similarly, blockchain technology has helped to ensure transparency in cryptocurrency transactions and this will, in turn, develop a financial ecosystem built on trust and openness. Finally, we hope to see the adoption of cryptocurrency as the technology continues to grow and I believe Nigeria won't be left out to enjoy the amazing opportunities it will bring.

Thank you professor @levycore for this wonderful opportunity.