CRYPTOCURRENCY

HISTORY

• In early 2009, an anonymous programmer

or a group of programmers under an
alias Satoshi Nakamoto introduced Bitcoin.
Satoshi described it as a ‘peer-to-peer
electronic cash system.’ It is completely
decentralized, meaning there are no
servers involved and no central controlling
authority. The concept closely resembles
peer-to-peer networks for file sharing.
DEFINITION
• A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of
exchange that uses strong cryptography to secure financial transactions, control the creation
of additional units, and verify the transfer of assets.(Wikipedia definition)
• In layman terms you find it to be just limited entries in a database no one can change without
fulfilling specific conditions.
• Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are
all about confirmation.
TRANSACTION MECHANISM

• One of the most important problems that any

payment network has to solve is double-spending. It
is a fraudulent technique of spending the same
amount twice. The traditional solution was a trusted
third party - a central server - that kept records of
the balances and transactions. However, this method
always entailed an authority basically in control of
your funds and with all your personal details on
hand.
• Blockchain - a public ledger of all transaction that
ever happened within the network, available to
everyone. Therefore, everyone in the network can
see every account’s balance.
• Miners: Within a cryptocurrency network, only
miners can confirm transactions by solving a
cryptographic puzzle. They take transactions, mark
them as legitimate and spread them across the
network. Afterwards, every node of the network
adds it to its database. Once the transaction is
confirmed it becomes unforgeable and irreversible
and a miner receives a reward, plus the transaction
fees.
TRANSACTIONAL PROPERTIES
• 1) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank,
not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help
you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
• 2) Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called
addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it
is not necessarily possible to connect the real world identity of users with those addresses.
• 3) Fast and global: Transaction are propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they
happen in a global network of computers they are completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to
my neighbor or to someone on the other side of the world.
• 4) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send
cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is
more secure than Fort Knox.
• 5) Permission less: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free.
After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
MONETARY PROPERTIES

• 1) Controlled supply: Most cryptocurrencies limit the supply of the tokens. In Bitcoin, the supply decreases in time and will
reach its final number sometime around the year 2140. All cryptocurrencies control the supply of the token by a schedule
written in the code. This means the monetary supply of a cryptocurrency in every given moment in the future can roughly be
calculated today. There is no surprise.
• 2) No debt but bearer: The Fiat-money on your bank account is created by debt, and the numbers, you see on your ledger
represent nothing but debts. It‘s a system of IOU. Cryptocurrencies don‘t represent debts. They just represent themselves. They
are money as hard as coins of gold. To understand the revolutionary impact of cryptocurrencies you need to consider both
properties. Bitcoin as a permission less, irreversible and pseudonymous means of payment is an attack on the control of banks
and governments over the monetary transactions of their citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit
someone to accept a payment, you can‘t undo a transaction. As money with a limited, controlled supply that is not
changeable by a government, a bank or any other central institution, cryptocurrencies attack the scope of the monetary
policy. They take away the control central banks take on inflation or deflation by manipulating the monetary supply.
ADVANTAGES
• Easy to Use.

You know the procedure for opening a simple bank account they are asking you several documents if there are any mistakes in documents then they refuse to open an
account, also accessing your funds in different geographical location is a little bit hard. In the case of cryptocurrency you just need a device that able access the internet with
the help of the device, you can create your wallet and use where ever and whenever you want.

• Decentralization.

You know that most of the cryptocurrencies have no central authority to control, the network is distributed to all participants, each computer mining nodes is a member of this
system. This means that the central authority has no power to dictate rules for owners of coins. And even if some part of the network goes offline, the payment system will
continue to operate stably.

• Low Operation Cost.

Transferring money by using any other online forum or bank gateway is expensive as they levy considerable fees for the transaction. If you transfer crypto no need to pay commission and fees
to banks and other organizations. That does not mean cryptocurrencies are free for transactions, crypto is charging a very small amount of the transaction as a fee, and in crypto’s, it is the
buyer paying the small fee. The issue with these fees is that they often pile up and could quickly pile up. Transaction fees are very small and only the buyer gets hit with it.

• Transparency.

In cryptocurrency, every transaction recorded on the blockchain. The blockchain keeps information about everything. If anyone has publicly used the crypto address, then anyone can see how
much crypto is owned. If the address is not publicly confirmed, then no one will ever know that it belongs to someone.

• Anonymity.

In cryptocurrencies, you’re able to create an infinite number of wallets without reference to the name, address or any other information.

• Highly Secured.

All your transactions will be secure as it is using cryptography. It is next to impossible for any person other than the owner of the wallet to make any payment from the wallet unless they were
hacked, don’t worry there are many ways to protect yourself.

• No Inflation.

Coins are limited to use and mine in cryptocurrencies therefore neither political forces nor corporations able to change this order, there is no possibility for development of inflation in the
system.

• Peer-to-Peer Cryptocurrency Network.

Cryptocurrencies do not have any master server to manage all transactions. Exchange of information is between 2-3 or more software clients. All installed by users program-wallets are part of
a crypto network. Each client stores a record of all committed transactions and the number of crypto in each wallet. Transactions are made by hundreds of distributed servers. Neither banks or
taxes nor governments can control the exchange of money between. Above are some Advantages of Cryptocurrencies, now move on and look at some disadvantage of cryptocurrencies.
Disadvantages
• Strong Volatility.
Since from the beginnings, cryptocurrencies having highly volatile nature. This is one of the main reasons mass adoption is taking longer than it should.
Many corporations don’t want to deal with a form of money that is going to go through huge swings in volatility.

• Large Risks of Investing in Cryptocurrency.

Crypto investments are involved high risk because of its volatile nature and terrorist and other illegal activity financings, lack of a central issuer, which
means that there is no legal formal entity to guaranty in case of any bankruptcy.

• Not Accepted Widely.

Still, cryptocurrencies are not acceptable in countries and online websites, Very few countries have legalized the use of cryptocurrencies. It makes it
impractical for everyday use. Due to a lack of acceptance. Not Able to Reverse the Payment. If you mistakenly pay someone by using cryptocurrency,
then there is no way to get a refund of the amount paid. All you can do is to ask the person for a refund and if your request is turned down, then just
forget about the money.

• Storage
If you have stored digital currency on your phone or computer, you better remember your password and not lose those devices. Losing your coins
means you won’t be able to retrieve it.That’s why to use secure offline wallets like Ledger Nano. There is always pros and cons to everything in life and
this is why you need to weigh both actions thoroughly before making a decision. Cryptocurrencies are here because of making our day to day
transactions easy now as time passes technology usage also getting a wide range as well as more and more pros and cons added to the technology, it
totally depends upon us how we use technology to make our lives better and easier.

• Lack of knowledge
Most people are not aware of how to use cryptocurrency and hence open themselves to the hacker. The digital currency technology is somewhat
complex and therefore one needs to be mindful of it before investing.
VOLATILE RISE OF CRYPTOCURRENCY
• 2008 :The first two milestones for cryptocurrency take place. On 18 August, the domain name bitcoin.org is registered. Then, on 31 October,
the mysterious and so-called “Satoshi Nakamoto”, who designed bitcoin, publishes a paper that sets the ball rolling: Bitcoin: A peer-to-peer
Electronic Cash System.

• 2009 :The first bitcoin transaction occurs when Nakamoto sends Hal Finney, a computer programmer, 10 bitcoin (BTC) on 12 January.
• 2010: On 15 August, bitcoin is hacked, exposing a major vulnerability in the system. A highly unusual transaction involving 184 billion BTC is
noted by bitcoin developer Jeff Garzik, who acknowledges it by saying: “We’ve had a problem here”. Later that year, the inaugural bitcoin
sale takes place, enabling a monetary value to be attached to cryptocurrency for the first time. A bitcoin user swaps 10,000 coins for two
pizzas. Given that 10,000 bitcoin would be worth more than £55m today, these would be the most expensive pizzas in history.

• 2014:Cryptocurrency trading exchange Mt Gox, which is based in Japan, goes offline and files for bankruptcy protection, leaving investors out
of pocket. As an illustration of bitcoin’s growing popularity, Microsoft allows users to buy games with the currency.

• 2015: New cryptocurrencies emerge, including ethereum and coinbase (which raised $75m in a funding round, the largest amount for a bitcoin
company). Bitstamp, a European based bitcoin exchange, is the victim of a security breach after being hacked, but resumes trading a few days
later, assuring customers that they have not lost their funds.

• 2016: Cryptocurrencies continue to become more mainstream. The number of bitcoin ATMs rises from around 500 at the beginning of the year
to just under 900 by the end of the year; Uber in Argentina switches to bitcoin payments, and the Swiss national railway and software website
Steam are among new users accepting the currency.

• 2018: Samsung confirms it is making chips to mine coins. Various European governments join forces to cooperate on cryptocurrency regulation,
and many continue to launch innovative partnerships with high-street names, including Ripple’s 2018 app launch with Santander for international
money transfers.
GLOBAL IMPACT OF CRYPTOCURRENCY
• The official response to cryptocurrencies has been lukewarm at best across central banks and financial institutions. While
there are some organizations that have been supportive of the cryptocurrency, many central banks remain cautious given the
market’s extreme volatility and the high-profile security issues faced in the recent past. The aforementioned issues with tax
evasion and capital controls has also led to some widespread concerns.
• United States Federal Reserve: U.S. Federal Reserve Chairman Jerome Powell believes that technical issues remain, and
governance and risk management will be crucial before cryptocurrencies become part of mainstream society.
• European Central Bank: European Central Bank VP Vitor Constancio called Bitcoin a “tulip” in reference to the 17 century
bubble in the Netherlands and many other governors have expressed similar skepticism.
• People’s Bank of China: The People’s Bank of China believes that conditions are “ripe” to embrace cryptocurrencies, but the
central bank wants full control and authorities are cracking down on the cryptocurrency ecosystem in the country.
• Bank of Japan: The Bank of Japan doesn’t see a market for cryptocurrencies.
• Bank of England: The Bank of England Governor Mark Carney called cryptocurrencies part of a “revolution” in finance,
making the central bank one of the few governmental proponents of the technology.
• The Venezuelan government, facing capital restrictions of its own, recently launched its own cryptocurrency—called the
Petra—that’s allegedly backed by barrels of crude oil. While official sources indicate that the country raised billions of
dollars, many analysts are skeptical of these figures and the United States has outlawed U.S. citizens from purchasing the
cryptocurrency.
 HOW CRYPTOCURRENCY IS DISRUPTING THE
GLOBAL ECONOMY
• Challenging the Dollar Standard: For those who do not know, the global economy primarily relies on the US Dollar.. The US Dollar is the
reserve currency of the global economy. Every single mainstream financial actor from all over the globe function in the US market. It is for this
reason that any upheavals in the US financial market always sends shockwaves around the world. Case in point, the 2008 global financial crisis
which saw widespread economic hardship in countries as far away from the US as Iceland. Countries like Russia and Venezuela have
considered creating State-owned cryptocurrencies. In December of last year, the Venezuelan President announced the launch
of an oil-backed cryptocurrency to help move the country out of a crippling inflation brought on by US-led economic
sanctions. This provision of an escape route for nations out of stiff economic sanctions and back into the global economic
theatre is a massive attack on the dollar.
• Cutting out the Middleman:By cutting out the middleman in the payment processing market, cryptocurrencies are causing a
huge disruption to the global payment system. One of the reasons for the centralized payment processing protocol is to prevent funding for
money laundering, terrorist activities, and illicit trade in drugs and ammunition. With cryptocurrencies, it becomes that much harder to trace
transactions and ascertain the identities of the participants. Central banks and other financial institutions seem to have no control over its
operations In September of 2017, Christine Lagarde, head of the International Monetary Fund (IMF) warned that cryptocurrencies have the
potential to disrupt the Central Banking system and to revolutionize the concept of money.

• Simplifying the Crowdfunding Process:Initial Coin Offerings (ICOs). In 2017, ICOs have become the leading crowdfunding method for
technology-based start-ups. No longer do developers and entrepreneurs want to spend time trying to convince venture capitalists, banks, and
angel investors to put up equity in their start-ups. These days, once a seemingly tangible idea is conceptualized, it is tokenized and sold to the
public directly. Such has been the massive spike in ICOs that it has become one of the core focus of government agencies around the
world. China banned ICOs in late 2017 and the SEC issued a ruling some ICOs were in fact securities. Many countries have placed tighter
restrictions on ICO. If it wasn’t disrupting the market, it wouldn’t cause this much of an uproar.
RBI APPROACH TO CRYPTOCURRENCY
• A document circulating on social media details five questions as well as their answers by Shri Pon Radhakrishnan,
Minister of State in the Ministry of Finance. According to the document, the questions were to be answered on Dec.
28.

• One of the questions concerns the composition of the panel established to draft crypto regulations, its
recommendations, and “the timeline for the expected release of the regulation,” the document reads.
• The minister explained that the government has constituted an inter-ministerial committee “under the chairmanship of Secretary,
Department of Economic Affairs, with representatives from concerned departments to study all aspects of cryptocurrencies and crypto-
assets including bitcoin.” The committee includes representation from the Ministry of Electronics and Information Technology, the Reserve
Bank of India (RBI), the Securities and Exchange Board of India, and the Central Board of Direct Taxes. The answer to this question
reads: “In absence of a globally acceptable solution and the need to devise [a] technically feasible solution, the department
is pursuing the matter with due caution. It is difficult to state a specific timeline to come up with clear recommendations.”

• “No decision on licensing and authorizing any entity or company to operate such schemes or deal with bitcoins or any
virtual currency has been made as yet.”