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Crypto is a form of currency that exists digitally. Cryptocurrency doesn't have a central regulatory body.
Well, that is the definition you can easily find on the internet. But today, we are going to dive deep and learn about everything Crypto. I will try and answer all the burning questions when it comes to crypto like, What are the other alternatives to Bitcoin? Is cryptocurrency bad for the environment? Why is the crypto market so volatile? Let's take them on one by one, first-
What problem is cryptocurrency solving?
Have you ever wondered how exactly one piece of paper has so much value that you can buy commodities with it? We have all heard of the British Pound, right? The word "pound" literally comes from the fact that back in the day 1 pound used to be exactly 1 pound of silver. So, it was the precious metal that held the value.
After banks were introduced we didn't really need to carry the silver in our pockets anymore, instead, we stored them in the banks in exchange for their receipts aka paper currency.
But, there is a big loophole in this system and that is, trust is essential.
So, your currency has value because the government says that it has value.
This means, that one single point of failure can collapse the entire financial system. This is exactly where cryptocurrency comes in to save the day. Cryptocurrencies are decentralised networks based on a technology called blockchain, making them immune to any government intervention and double expenditure.
History of Bitcoin
In 2008, a pseudonymous person or persons under name Satoshi Nakamoto developed Bitcoin. As a part of the development, he also created the first ever Blockchain database. Nakamoto was active until 2010.
Now, this was the beginning of the "Peer-to-Peer Electronic Cash System."
According to Wikipedia, Nakamoto owns between 750,000 and 1,100,000 bitcoin. In November 2021, when bitcoin hit its highest value of over $68,000 it would have made his net worth around $73 billion, making him the 15th-richest person on the globe at that time.
How does Cryptocurrency work?
Blockchain
Blockchain also referred to as Distributed Ledger Technology (DLT) is a digital ledger that is maintained by a network of computers making the history of any transaction unalterable. When the digital asset is distributed there is always a risk of that asset getting manipulated by someone, blockchain dissolves that problem by storing and chaining the assets together to provide a single source of truth for the data.
So, the information is stored in blocks and when one block is maxed out, it is then interconnected to the next block which stores new information, forming a chain of data known as the blockchain. A regular database stores data in the form of tables, however in a blockchain data is stored in chunks or blocks and when the block is connected to the next, it is given an exact timestamp, recording every detail.
Benefits of Blockchain
Transparency
The fact that no one ledger is being maintained, allows everyone involved in the transaction to view all transactions occurring in real-time.
Reduced Costs
Blockchain technology has been revolutionary when it comes to running businesses. It reduces manual tasks like amending data as well as audits. This means businesses can now skip all third-party providers and vendors and rely on this technology to do all the work.
Cryptography
Cryptography is the essential mechanism of encrypting certain data so that it can be kept secret from third parties. It is mostly the science behind hiding information. Modern cryptography uses certain mathematical theories and concepts to encrypt and decrypt data. This process helps maintain the authenticity of any data that is being stored.
Mining
A single unit of cryptocurrency is created through a process called mining. Mining is the process of using very powerful computers to solve complicated mathematical problems that generate coins. The mathematical problems are called cryptographic hash and the hash is solved with Application Specific Integrated Circuit (ASIC). ASIC refers to a computer hardware device specifically made for a purpose, in this case, mining. A miner validates a crypto transaction by solving the hash.
What's in it for the miner you ask? Well, Crypto, duh!
Risks of using cryptocurrency
Volatility
Crypto is still relatively new, making people really sceptical when it comes to investing in crypto. Certain influencing personalities and events are also adding to this volatility. Who am I kidding? When I say personalities I mean Tesla Motor CEO, Mr Elon Musk, who is a known champion of the world's newborn currency and when I say events I am mostly referring to his tweets. Musk's tweets have played a huge role in sometimes boosting the currency and sometimes sending it into a downward spiral.
Tax Concerns
The Internal Revenue Service in the US sees cryptocurrency as a capital asset. This means there are certain taxes to be paid when it comes to profits obtained from selling the currency. Countries like Germany have been ranked among the most crypto-friendly country on the planet. However, not all countries view cryptocurrency in the same manner.
So, this is why it's wise to go through your national tax policies before stepping into the world of crypto.
What are the types of Cryptocurrencies?
Bitcoin has seen better days, with its price plunging below $19,000 from $68,000 in late 2021. Bitcoin's declining dominance in correlation to other cryptocurrencies has led people to invest in its alternative (Altcoins).
Before getting into the different types of cryptocurrencies let's take a moment to understand the difference between "coins" and "tokens."
A digital coin is created in the blockchain and is pretty much like traditional money but only, virtually and is used as a currency to buy things and do business. Examples of coins are, Bitcoin and Litecoin.
Tokens, on the other hand, do not stop at being just digital money. Tokens are created on an existing blockchain. That means Tokens aren't mined like coins. They are created and distributed by the creators. Once the Tokens are in the hand of the customers, they can be then used in numerous ways. So tokens move from one place to another while in the case of coins, only the account balance changes.
So, while coins mostly represent a digital version of money, tokens can mean assets or deeds.
Ethereum (ETH)
The first bitcoin alternative that comes to anybody's mind is Ethereum. It is a decentralized software platform that allows digital contracts and decentralized applications (dApps) to be built and successfully run without any lag. The goal is to create a blockchain of financial digital products that can be accessed by anybody and from any corner of the world.
The application on Ethereum is run on their platform-specific crypto-token called ether (ETH). Ether is currently the second-largest digital currency that comes after bitcoin.
1 ETH is 1,28,275.22 INR as of September 2022.
Tether (USDT)
Tether is the third-largest cryptocurrency that comes after Bitcoin and Ethereum. It's also important to note that tether is a stablecoin. Stablecoins are a type of cryptocurrency that is pegged to a commodity or currency to maintain a stable price.
1 USDT is 79.71 INR as of September 2022
USD Coin (USDC)
This is again, a Stablecoin that is pegged to the United States dollar. USD Coin is managed by Centre, founded by a group of members from the cryptocurrency exchange Coinbase and another company called Bitmain which mostly mines Bitcoin. Circle says that USD Coin is backed by either Dollar that is held in reserve or some kind of "approved investment."
1 USDC is 79.62 INR as of September 2022
Binance (BNB)
Binance was founded in 2017, by Changpeng Zhao a Chinese-Canadian developer. In 2021, the United States Department of Justice and Internal Revenue Services pressed charges against Binance on allegations of money laundering and tax offences. As a result, Binance was barred from operating in the US.
1 BNB is 22,465 INR as of September 2022
Cardano (ADA)
Cardano is to Ethereum what Nothing is for OnePlus. Developed by Ethereum's co-founder Charles Hoskinson, Cardano has emerged as one of the best alternatives to Ethereum. Both platforms are used for similar things, such as smart contracts. Cardano uses a technology called Ouroboros consensus protocol. "Ada" is Cardano's digital currency named after the world's first computer programmer, Augusta Ada Lovelace.
1 ADA is 39.69 INR as of September 2022.
Ripple (XRP)
Ripple was founded by Jed McCaleb, Arthur Britto, David Schwartz and Ryan Fugger. The platform was first launched in 2005 as a financial service to provide secure payment options. Ripple relies on a shared ledger, a decentralised database that stores information about all Ripple accounts. The platform's native digital currency is XRP.
1 XRP is 27.89 INR as of September 2022.
Honourable Mention
Meme coins
Named after Shiba Inu, a Japanese breed of dog. Shiba Inu cryptocurrency comes under the umbrella of Meme coins.
Meme coins are cryptocurrencies inspired by memes floating on the internet. The first meme coin ever created was Dogecoin which also features a Shiba Inu as its symbol. A major characteristic of meme coins is that they have an unlimited supply which explains their relatively low prices.
1 Dogecoin is 5.08 INR, and 1000 Shiba Inu is 1 INR as of September 2022.
Before I move on to the environmental impacts here are some more things you should know.
NFTs (Non-Fungible Tokens)
How are NFTs different from crypto coins?
You see, a bitcoin is a bitcoin, as in one bitcoin is identical to any other bitcoin making them fungible. On the other hand, a Non-Fungible Token is not identical to any other NFT, making it unique and not interchangeable.
NFTs are more of an asset than a currency. How people use them is far more complex than
that. Last year NFTs exploded in popularity, and everybody started buying them. Most NFTS that exist today, are a part of the Ethereum Blockchain. NFTs can literally be anything, from the digital art of an ape to, 2 per cent rights of a song, you name it, they have it.
Coinbase
Coinbase is a trusted online platform designed to buy, sell, store and transfer digital currency. So, if you are looking to trade the most popular cryptocurrency I would suggest you head to this exchange.
Can we sustainably power a crypto-rich future?
With cryptocurrencies going from something so small to this scale in a very short span of time, it's important to ask ourselves this question. Cryptocurrency mining has some major environmental ramifications. The energy-intensive process of mining generates about 30.8 kilotons of e-waste every year.
But, the sad truth is that bitcoin mining cannot be made energy efficient. However, there are new sustainable cryptocurrencies emerging every day. So, it's safe to say that we might be able to power our ambitious crypto future sustainably
With that I come to the end of this article, I hope you have something to take away from this. I will be covering more such articles in the future. Stay tuned.
What do we know, What have we learnt?
a) Cryptocurrencies are taxable
b)The total amount of bitcoin is limited
c)NFTs are not really currencies.
d)Watch out for Elon Musk's tweets, this man can do anything.
e)Cryptocurrencies have no financial backing, except for stablecoins, of course.
d)"Is crypto legal?" is still a legit question to ask in a lot of countries.
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