THE DAWN OR HYPE OF CRYPTOCURRENCY | ayeyouth.com


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In February 2021, Elon Musk lost a hefty sum of $15.2 billion after a single tweet on Bitcoin and he was also relinquished from the title of 'World's Richest Man'. In his tweet, he stated that the prices of Bitcoin and smaller rival Ether "do seem high". Over the years, cryptocurrency has made its own space in the world in which everything is getting digitized. The story started from the purchase of 2 pizzas by a man for 10,000 bitcoins in 2010. Today, investors from all over the world are watching over developments in cryptocurrency and its tremendous opportunities in the fintech industry. 


The cryptocurrency was a creation of a pseudonymous inventor or inventors who went by the name Satoshi Nakamoto. In 2008, Nakamoto announced that he had developed "A Peer-to-Peer Electronic Cash System". He decided to name it "Bitcoin". Unknowingly, Nakamoto started a financial revolution that changed the way human civilization viewed money. 


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Cryptocurrency is a digital currency that uses strong cryptography encryptions to secure transaction records. Cryptocurrency has no central authority and it works on the model 'distributed trust' to maintain its credibility. According to this model, each person involved in the transaction plays an important role. Cryptocurrency uses blockchain technology to maintain its flow of transactions without interruptions in a secured format. Blockchain is a specific type of database and it stores information in blocks that are then chained together in chronological order. Hence, the name 'blockchain'. Blockchain works on a "proof of work system".


Markus Jakobsson and Ari Juels wrote a paper called “Proof of Work and Bread Pudding Protocols” according to which proof of work system is: “a protocol in which a prover demonstrates to a verier that she has expended a certain level of computational effort in a specified interval of time. Although not defined as such or treated formally, proofs of work have been proposed as a mechanism for several security goals, including server access metering, construction of digital time capsules, and protection against spamming and other denial-of-service attacks”. With the increase in digitalization, blockchain technology has taken a huge leap.


It is reported that the global blockchain technology market is anticipated to offer an incremental opportunity valuing over US$ 55 Bn from 2020 to 2030.

Mining is the term used to denote the release of new units of cryptocurrency into the world, generally in exchange for validating transactions. The mining sites require huge amounts of energy to mine. It's estimated that 0.21 % of the world's electricity is consumed by Bitcoin farms. Bitcoins aren't mined abundantly because under the hood it needs large prime numbers to create its unique serial called 'hash'. Bitcoin uses prime numbers of very long length (256 digits or more). Moscow, Russia is considered to have the world's most powerful mining farms. 


Section of a mining centre in Moscow, Russia.

Cryptocurrency has come up as an alternative to traditional methods of transactions, i.e, cash, credit cards, etc. Unlike the traditional medium, the blockchain technology used by cryptocurrency is a secured ledger in which every block is immutably related to the last block, so if a hacker tries to hack the system, he would need to change the entire chain. The decentralized system removes the need for intermediaries or middlemen, therefore, removing the hassle of payment of additional charges for transactions. The valuation of cryptocurrencies is closer to the valuation of assets like gold, silver compared to fiat currencies, government-issued currency. With no middlemen intervening in the process of transaction, the transaction processing is fast and it takes place within a fraction of seconds. The cryptocurrency which is often referred to as the currency of the future has immense growth potential and hence it has successfully attracted many investors. 


Despite the various benefits of digital currency, it has come under the scrutiny of the government due to security concerns. In 2013, the FBI cracked an illegal drug marketplace, famously known as 'silk road', which was operating in the online 'dark web' from February 2011 until October 2013. Cryptocurrency was used as the mode of transaction to carry out this illegal operation. In India, the Supreme Court refused to address this digital currency as legal tender, following which it was banned in 2018.


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However, with the pressure of digitization, and the increase in popularity of cryptocurrency, the Supreme court finally lifted the ban in March 2020. According to reports published by Bloomberg, as of 2021, the Indian government is set to put a complete ban on cryptocurrency investments citing the recently introduced cryptocurrency bill that introduced a framework for the creation of government-backed digital currency. The bill also proposed a ban on private asset transactions. The requirements of mining farms of cryptocurrencies include high computational power and electricity input that has to lead to an increase in concern in the minds of the environmentalist for the fear of environmental exploitation. 


At present, there are over 8400 cryptocurrencies available and many more are getting added to the list every day. Bitcoin is leading the race while Etherium is following up closely. Statistics have shown an increase in the popularity of meme-based cryptocurrencies. One of the examples of meme-based cryptocurrency is Dogecoin. Dogecoin was launched in 2013 and it features the Shiba Inu dog as its symbol, it was inspired by the Shiba Inu meme. Unobtanium and Trumpcoin are examples of other cryptocurrencies that were inspired by famous figures or fictional objects.


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The emphasis on digitalization pre-COVID and post-COVID was a major boost for the cryptocurrency industry. People are hoping to mitigate inefficiencies and power abuses with cryptocurrency. Despite government skepticism, the interest of investors in the cryptocurrency industry looks inevitable due to its decentralized nature and huge market potential. 

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