Write an essay about cryptocurrency and explain at least one form of cryptocurrency.
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“If the cryptocurrency market overall or a digital asset is solving a problem, it’s going to drive some value is a famous quote by Brad Garlinghouse. According to Fang et al. (2022) “Cryptocurrency is a decentralized medium of exchange which uses cryptographic functions to conduct financial transactions and they leverage the Blockchain technology to gain decentralization, transparency, and immutability” (p.1). According to Vranken (2017) “People have been using currencies for thousands of years. Initially, currencies were minted directly from precious metals such as gold and silver and later on, paper money was introduced and the face value of cash was decoupled from its nominal value, but currencies were still backed up by gold depositories” (p.1). Vranken (2017) also stated that “Nowadays, fiat currencies are allowed to float freely, only backed up by the faith and credit of the states that issue them” (p.1).According to Giudici et al. (2020) “Cryptocurrencies continue to draw a lot of attention from investors, entrepreneurs, regulators and the general public and therefore, much recent public discussions of cryptocurrencies have been triggered by the substantial changes in their prices, claims that the market for cryptocurrencies is a bubble without any fundamental value, and also concerns about evasion of regulatory and legal oversight” (p.1). “As of December 20, 2019, there exist 4950 cryptocurrencies and 20,325 cryptocurrency markets; the market cap is around 190 billion dollars and in the wake of the pandemic, cryptocurrencies raised dramatically in value in 2020 and in 2021, the market value of cryptocurrencies has been very volatile but consistently at historically high levels” (Fang et al.,2022 p.1). Giudici et al. (2020) also stated that “these concerns have led to calls for increased regulation or even a total ban and further debates concern inter alia: the classification of cryptocurrencies as commodities, money or something else; the potential development of cryptocurrency derivatives and of credit contracts in cryptocurrency; the use of initial coin offerings (ICO) employing cryptocurrency technology to finance start-up initiatives; and the issue of digital currencies by central banks employing cryptocurrency technologies” (p.1). Cryptocurrency is very essential in shaping today’s financial status.
Cryptocurrency are decentralized and their security is built on cryptography. According to Fang et al. (2022) “In general, the security of cryptocurrencies is built on cryptography, neither by people nor on trust for example, Bitcoin uses a method called “Elliptic Curve Cryptography” to ensure that transactions involving Bitcoin are secure” (p.1). Fang et al. (2022) also stated that “Elliptic curve cryptography is a type of public-key cryptography that relies on mathematics to ensure the security of transactions when someone attempts to circumvent the aforesaid encryption scheme by brute force, it takes them one-tenth the age of the universe to find a value match when trying 250 billion possibilities every second (p.1). “Most cryptocurrencies limit the availability of their currency volumes. E.g. for Bitcoin, the supply will decrease over time and will reach its final quantity sometime around 2140 and all cryptocurrencies control the supply of tokens through a timetable encoded in the Blockchain” (Fang et al.,2022 p.1). “One of the most important features of cryptocurrencies is the exclusion of financial institution intermediaries and the absence of a “middleman” lowers transaction costs for traders; For comparison, if a bank’s database is hacked or damaged, the bank will rely entirely on its backup to recover any information that is lost or compromised” (Fang et al.,2022 p.1). “With cryptocurrencies, even if part of the network is compromised, the rest will continue to be able to verify transactions correctly and they cryptocurrencies also have the important feature of not being controlled by any central authority: the decentralized nature of the Blockchain ensures cryptocurrencies are theoretically immune to government control and interference” (Fang et al.,2022 p.1). Bitcoin is one of the forms of cryptocurrencies and it is the most popular cryptocurrency.
B itcoin is a form of cryptocurrency. According to Vranken (2017) “Bitcoin is an electronic currency that has become increasingly popular since its introduction in 2008” (p.1). Vranken (2017) also stated that “Bitcoin is a decentralized system that attempts to overcome the weaknesses of fiat and gold-based currencies and it is not governed by central authorities, such as governments or central banks, and intermediaries for currency issuance or settlement and validation of transactions, and can provide lower transaction fees for payments” (p.1). According to Nadarajah et al. (2017) “Introduced and first documented by Satoshi Nakamoto in 2009, Bitcoin is a form of cryptocurrency an electronic payment system based on cryptographic proof instead of traditional trust” (p.1). “The Bitcoin Foundation provides some centralized governance for standardization, protection and promotion of bitcoin, but it does not act as a central bank and does not issue currency” (Vranken 2017 p.1). According to Fang et al. (2022) “Cryptocurrencies like Bitcoin are conducted on a peer-to-peer network structure and each peer has a complete history of all transactions, thus recording the balance of each account” (p.1). “Transactions in the bitcoin system are stored in a public transaction ledger (‘the blockchain’), which is stored in a decentralized, peer-to-peer network and it provides decentralized currency issuance and transaction clearance” (Vranken 2017 p.1). According to John et al. (2021) “Bitcoin miners accrue revenues in two forms: block rewards and transaction fees” (p.4). “The security of the blockchain depends on a compute-intensive algorithm for bitcoin mining, which prevents double spending of bitcoins and tampering with confirmed transactions; This ‘proof-of-work’ algorithm is energy demanding” (Vranken 2017 p.1). Thus, Bitcoin is one of the forms of cryptocurrencies and it is a decentralized system that attempts to overcome the weaknesses of fiat and gold-based currencies.
In conclusion, cryptocurrencies are becoming more and more common in today’s society. Cryptocurrencies are a decentralized way of exchange which uses cryptographic abilities to conduct financial operations. Cryptocurrencies are an independent in the financial institutions. Bitcoin is one of the forms of cryptocurrencies and it is the most popular cryptocurrency. Investors and stakeholders should take in consideration the impacts of cryptocurrencies as their popularity grows.
Fang, F., Ventre, C., Basios, M., Kanthan, L., Martinez-Rego, D., Wu, F., & Li, L. (2022). Cryptocurrency trading: a comprehensive survey. Financial Innovation, 8(1), 1-59.
Giudici, G., Milne, A., & Vinogradov, D. (2020). Cryptocurrencies: market analysis and perspectives. Journal of Industrial and Business Economics, 47, 1-18.
John, K., O’Hara, M., & Saleh, F. (2022). Bitcoin and beyond. Annual Review of Financial Economics, 14, 95-115.
Nadarajah, S., & Chu, J. (2017). On the inefficiency of Bitcoin. Economics Letters, 150, 6-9.
Vranken, H. (2017). Sustainability of bitcoin and blockchains. Current opinion in environmental sustainability, 28, 1-9.