Introduction to cryptocurrency

Introduction to cryptocurrency

Report on Cryptocurrency

Hello Everyone back again but this time with the report on cryptocurrencies so without wasting much time let's start. I have prepared this report ahead of presenting a technical seminar on the topic at my college. I am uploading it here to receive feedback and to assist others in learning or getting started with cryptocurrencies.

ABSTRACT

Cryptocurrency is a rapidly evolving financial phenomenon that has stirred considerable debate about its potential role in shaping the future of money. Despite its inherent risks and chaotic nature, cryptocurrencies operate without reliance on traditional banking institutions, governments, or other intermediaries. This decentralized nature has enabled them to serve various purposes, including capital raising, digital asset management, and support for innovative processes and businesses. The global landscape regarding cryptocurrencies is currently divided into three categories of countries: those actively embracing crypto, those outright banning it, and those adopting a cautious "wait-and-watch" approach. This divergence highlights the complex regulatory environment that surrounds cryptocurrencies. One of the key features of cryptocurrencies is their ability to disrupt traditional financial institutions. Decentralized applications (DApps) running on blockchain technology exemplify the potential for transformative changes in the financial landscape. The question arises: will cryptocurrencies eventually replace traditional money? Cryptocurrencies represent not just a new form of investment but also a disruptive innovation that the world should consider adapting to. However, the pace of this adoption is uncertain, given the varied global regulatory responses and ongoing technological advancements.

Keywords: Cryptocurrency, Decentralization, Blockchain

Sr No.

Title

1

Chapter 1

2

    Introduction

3

Chapter 2

4

    Cryptocurrency

5

            2.1 The Current World of Cryptocurrency

6

            2.2 Bitcoin and the Double Spend Problem.

7

            2.3 Blockchain: The power behind cryptocurrencies

8

            2.4 crypto tokens and tokenomics

9

    Conclusion

10

    Future Scope

 11

References

CHAPTER - 1

INTRODUCTION

Money has been a way for us to exchange things over time, taking various forms like coins, credit cards, and digital payments. Different institutions, including governments, banks, and financial bodies, set rules to regulate these transactions. But since 2009, a new player has emerged in the form of cryptocurrency. Unlike traditional money, cryptocurrency operates in a digital space, sidestepping intermediaries. This could potentially shape the future of money.

CHAPTER - 2

Cryptocurrency

Cryptocurrency, or cryptos for short, is a type of digital or virtual currency that uses cryptography for security. Unlike traditional money issued by governments, cryptocurrencies operate on decentralized networks based on blockchain technology. This means that no central authority, like a bank or government, controls or regulates them. Cryptocurrencies enable secure and transparent peer-to-peer transactions in the digital realm.

2.1 The Current World of Cryptocurrency

The current state of cryptocurrencies is marked by chaos, risk, and rapid change. Since the emergence of the original cryptocurrency, Bitcoin, thousands of new currencies, known as altcoins, have appeared. People use these coins for buying, selling, investing, raising capital, managing digital assets, and even engaging in transactions for illicit goods.

Traditional organizations, ranging from small companies to giants like JP Morgan and Wells Fargo, are gradually embracing cryptocurrencies. Governments, however, have varied responses, from outright bans to considering cryptocurrencies as national currencies. For instance, China and Bangladesh have implemented absolute bans, while El Salvador has become the first nation to adopt Bitcoin as legal tender.

Several countries, including China, Britain, and Sweden, are actively exploring their cryptocurrencies. Despite the emergence of thousands of coins like Litecoin, Ripple, Ethereum, Cardano, Polkadot, and others, many will succeed, and many will fail, making it a high-risk investment.

Despite the risks, the cryptocurrency industry is fostering innovation, with a growing number of exchanges. A new sector has emerged for developers, focusing on decentralized applications (dApps) and Web3—the next generation of the internet running on blockchain technology.

One notable feature of cryptocurrencies is their anonymity and limited oversight, contributing to their appeal. Despite the potential for economic significance in the future, it remains to be seen how cryptocurrencies will shape the global economy.

2.2 Bitcoin and the Double Spend Problem.

In 2008, a paper was written and published online by Satoshi Nakamoto proposing a 100% digital monetary system without any involvement of banks or governments, facilitating peer-to-peer transactions. This system could manage transactions with a digital ledger. The breakthrough was enabling individuals to seamlessly send and receive digital payments, with distributed ledgers synchronizing all transactions.

The challenge Satoshi aimed to solve was the "double-spend problem." In the digital realm, any digital file can be easily copied. While this is acceptable for many digital assets, creating duplicate copies of digital money poses a serious issue. The double-spend problem refers to the risk of spending the same digital currency more than once. Satoshi's paper focused on developing a system to keep track of transactions and individuals' coin balances. In 2009, this system was built, featuring digitally distributed ledgers running on Bitcoin users' computers. These distributed ledgers would later become known as blockchains. Additionally, the system incorporated the use of cryptography.

2.3 Blockchain: The power behind cryptocurrencies

Blockchain is the technology that most cryptocurrencies use to function. For example, Cardano, a cryptocurrency, runs applications on blockchain technology, like how applications run on the Android operating system.

Think of a blockchain as a shared digital ledger containing time-stamped transactions. You can picture it like a fancy database. Blockchains are distributed among all users, supporting a common record of transactions between participants on a network without central management. The magic of blockchain lies in its ability to queue up, validate, and add transactions to the ledger.

In the early days, anyone who wanted to participate would download the Bitcoin blockchain, broadcast their transaction to the network, and then have it validated and added to the ledger if legitimate. To ensure clear ownership of transactions, a ledger system uses public and private keys.

It's a way for everyone involved to keep track of transactions without needing a central authority, and it relies on secure keys to make sure everything stays in the right hands.

Note: - These keys are randomly generated for demonstration purposes only.

Public Key:

04a9e97a4a150dcb639a34f4c9648927e1b5a1e322908d44ae25dbde52f8c07e24c5c1f5c1b3a62e8f27d8d7780b8d26a71a1ee69c63b1a7408626c0e3afcaab6e

Private Key:

f95211e86b7c61f8a2e746dc88e20aa3ccf1505a5ad439e92978a1b378e2d5b3

Public and private keys are unique strings of numbers and letters. As the above example demonstrates, public keys are generated from private keys. Public keys are shared widely, serving as an address for others to send cryptocurrency to. On the other hand, the private key must be kept secret, known only to the owner. This ensures ownership and control over the associated digital assets.

The use of public and private keys is crucial for secure transactions in the cryptocurrency world. When someone wants to receive funds, they share their public key, allowing others to send cryptocurrency to that specific address. However, to access and spend the funds associated with that public key, the owner uses their private key, which should remain confidential. The private key essentially acts as a digital signature, providing cryptographic proof that the owner has authorized the transaction.

2.4 crypto tokens and tokenomics

Tokens can represent more than just money. They can stand for things like ownership of physical or digital stuff, services, or even a share in a company. For instance, someone could own a token that says they own a part of a famous painting. A new and popular kind of token is called a non-fungible token or NFT. These tokens prove ownership of unique digital or physical items, like a digital picture. NFTs have created new ways for people, especially digital creators, to make money online.

There used to be something called an initial coin offering or ICO, which helped startups raise money by selling tokens. However, ICOs became less popular because many people lost money, and regulators started paying more attention. Now, we have something called a security token offering or STO. STOs issue tokens that represent ownership in a real investment, like stocks or bonds, and they have more rules to follow.

Recently, blockchain, especially Ethereum, is being used for a new set of financial services called decentralized finance or DeFi. These are new and more accessible financial services, from lending to insurance. DeFi tokens have different roles, like facilitating trading, payments, and investments. One popular type is governance tokens, which give users voting rights to influence how a DeFi solution operates.

Understanding how the supply and demand of cryptocurrencies and tokens work is called tokenomics. This helps us figure out what role we might play as consumers, developers, investors, or business leaders. For example, when looking at a cryptocurrency, we might ask questions like how many of them exist or if there's a limit to how many can be created. Bitcoin, for instance, has a maximum limit of 21 million coins. For investing in tokens, it's important to understand the people and technology behind them.

In 2009, Bitcoin started as the only cryptocurrency. Now, after over a decade and thousands of different cryptos and tokens, the market is worth trillions of dollars, and it's still growing.

CONCLUSION

Cryptocurrencies, powered by blockchain technology and secured using public and private keys, have revolutionized the way we perceive and conduct financial transactions. The decentralized nature of blockchain ensures transparency, security, and efficiency in peer-to-peer transactions, eliminating the need for traditional intermediaries like banks. Public keys serve as transparent addresses for receiving funds, while private keys, kept confidential, grant exclusive access and control over digital assets.

The journey from the inception of Bitcoin in 2009, as outlined by Satoshi Nakamoto, to the myriad of cryptocurrencies and applications running on blockchain technology today, signifies a remarkable evolution. Traditional institutions are gradually recognizing and adopting these innovations, reflecting a dynamic shift in the financial landscape.

FUTURE SCOPE

Looking ahead, the future of cryptocurrencies and blockchain technology appears promising. Ongoing developments in scalability, interoperability, and sustainability are addressing some of the current challenges. As more countries explore the creation of their digital currencies and major corporations integrate blockchain into their operations, the technology's mainstream acceptance seems imminent.

The potential applications of blockchain extend beyond finance, with industries such as healthcare, supply chain, and governance exploring its transformative capabilities. Continued research and development will likely lead to enhanced security protocols, making cryptocurrencies even more resilient to cyber threats.

In the coming years, we can anticipate further integration of blockchain into everyday life, paving the way for a more decentralized, transparent, and efficient global financial system. While challenges and regulatory considerations persist, the trajectory suggests that cryptocurrencies and blockchain technology will play a substantial role in shaping the future of finance and beyond.

REFERENCES

[1] Satoshi Nakamoto “Bitcoin: A Peer-to-Peer Electronic Cash System”, https://bitcoin.org/bitcoin.pdf , 2008