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Cryptocurrency

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Cryptocurrency

Introduction

Cryptocurrency is a digital asset designed to work as a medium of exchange wherein

individual coin ownership records are stored in a ledger existing in a form of a computerized

database (Thakur & Banik, 2018). The computerized database uses strong cryptography to secure

transaction records, control the creation of additional coins, and verify the transfer of coin

ownership from one client to another. Cryptocurrencies do not exist in physical forms hence are

vulnerable to many security issues. Cryptocurrencies are not centralized like fiat currencies

(Thakur & Banik, 2018). There are limited guarantees on their stability as opposed to fiat

currencies. Cryptocurrencies used decentralized control involving blockchain systems serving as

financial transaction databases. This research paper provides an understanding of how

blockchain works and what technology supports it. The research project will describe the

technological advancements of cryptocurrencies in the future and also what organizations are

doing in the efforts of ensuring that cryptocurrency becomes a world mode of transactions. The

research paper will lead to an understanding of the security features that are put in place to

ensure the safety of cryptocurrencies from hackers. Understanding different methods of mining

crypto are also very important.

Research Hypothesis

Cryptocurrency is on the rise and a lot of people are adopting it in their business

transactions. A lot of organizations have also adopted the use of cryptocurrency in their

transactions. Therefore, there has been a lot of misconceptions that the technology behind it has

not been stable and it might collapse anytime, and it is risky to keep your wealth in form of
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crypto. This paper will discuss all the details and will explain how cryptocurrency works,

security issues, and also trends in cryptocurrency.

History of Cryptocurrency

In 1998, Wei Dai published an anonymous electronic cash system known as “b-money.”

Nick Szabo created “bit gold,” an electronic currency system that required users to complete

systems of proof of work function using cryptographic technology (Madey, 2017). In 2009, the

first decentralized cryptocurrency was established under the identity of developer Satoshi

Nakamoto (Brunton, 2020). This cryptocurrency used a cryptographic function known as SHA

256 to prove his work scheme. Namecoin was created to decentralize DNS and make internet

censorship hard to achieve. The use of cryptocurrencies increased significantly after the

invention of the most known cryptocurrency, Bitcoin. In 2009 Bitcoin, was developed and made

public. Interested parties were allowed to use the systems that created transactions, recorded, and

verified blockchain. In 2010, Bitcoin was given value for the first time. Bitcoin had never been

traded but was only available for mining. Therefore, it was hard to assign a value to it. Many

financial experts struggled with defining its value and offering it for financial activities. In the

same year, one person decided to trade in their Bitcoin. This trader swapped 10,000 Bitcoins for

a pizza. The value of the same amount of Bitcoins today is $100 million (Madey, 2017).

In 2011, rival cryptocurrencies emerged and the domination that Bitcoin had enjoyed was

threatened. As the popularity of Bitcoin increased, many people realized that they could that

decentralized currency system could be developed for the befits of global trade. Therefore, many

developers resulted in developing alternative cryptocurrencies. These have been developed to

create more anonymity, increasing speed, and improving on the Bitcoin design. Currently, over

1000 cryptocurrencies are in circulation and frequently, new ones are appearing making it easier
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for people to access them. the price of Bitcoin crashed in 2013 reducing from $1000 to $300. It

took two years for the price of Bitcoin to stabilize again. In 2014, a Bitcoin scam involving

Mt.Gox led to the theft of 850,000 Bitcoins increasing worries about the security of the crypto.

The emergence of Ethereum and ICOs in 2016 threatened the domination of Bitcoin in the

cryptocurrency industry (Madey, 2017).

Technology Behind Cryptocurrencies

Blockchain Technology

Blockchain is the technology that enables cryptocurrencies to exist and operate. The best-

known cryptocurrency is Bitcoin and it has one of the highest values. A cryptocurrency is a

medium of exchange like other normal currencies. For instance, the US dollar is used by various

traders to exchange goods for the value that corresponds to a given amount of dollars. However,

cryptocurrencies use encryption techniques to control the creation of units of money and

ascertain funds transfer (Yuan & Wang, 2018).

A blockchain is a decentralized ledger of transactions panning across a peer to peer

network (Nofer et al., 2017). Clients can confirm transactions without soliciting a central

authority to clear them. Blockchain can be applied in voting, transfer of funds, settling trades,

and other functions that require this high level of encryption. When someone requests a

transaction, the transaction is spread to a P2P network with computers and familiar nodes. The

nodes are arranged in-network and validate the requested transaction and status of the user with

the aid of known algorithms. The transaction is validated and verified then combined with other

transactions to establish a new block of data needed for the ledger. The newly created block is

added to the existing blockchain permanently and cannot be altered. The transaction is then
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considered complete and can be repeated for another transaction once requested by another

client.

Types of Cryptocurrencies

There are over 1000 types of cryptocurrencies but not all of them are well known to

people. Some of the best known ones are listed below.

Bitcoin

Bitcoin is considered the most popular type of cryptocurrency with high name

recognition more than any other type. Bitcoin is mostly associated with the system of

cryptocurrencies and can sometimes be used to analyze what cryptocurrencies include. The

capped limit of Bitcoin cryptocurrency circulations 21 million yet there are currently more than

17.6 million Bitcoins in circulation (Yuan & Wang, 2018).

Bitcoin Cash

Bitcoin Cash was introduced in 2107 and is one of the most popular cryptocurrencies in

the world today.

Litecoin

Litecoin practically functions in the same way as bitcoin. It uses the same breath as

Bitcoin and has increased its popularity among users of the currencies. Litecoin was created by

Charlie Lee in 2007. Charlie Lee was a former employee of Google who designed Litecoin to

improve on the existing Bitcoin technology. Litecoin has shorter transaction times, lower fees,

and has more concentrated miners.

Ethereum
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Ethereum has a focus on digital currency and decentralized applications making it operate

as an application store. It seeks to remove app management from middlemen like google and

apple and give developers a direct connection with their applications.

Ripple

Ripple is a common cryptocurrency that does not centrally use blockchain to ensure

transactions. It is created to assist large companies with complete transactions and is not suitable

for individual users. The coinage of Ripple is known as XRP and is used to complete very huge

transactions that only big companies can afford. It has a digital payment protocol that allows the

transfer of money in any form including dollar and even other cryptocurrencies like Bitcoin.

Ripple claims to have the ability to handle about 1500 transactions per second way above

Bitcoin’s ability of 3-6 transactions per second.

Stellar

Stellar has a focus on transferring money with a network designed to make the transfers

more efficient, faster, and easy across national borders. It is operated by a non-profit known as

Stellar.org and was established by Jed McCaleb. The goal of Stellar is to help users who come

from counties without established banking systems.

NEO

NEO was developed in China and has aggressively attempted to dominate the crypto

market since its establishment. It concentrates on smart contracts that enable users to create and

implement agreements without using middlemen.

Cardano
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This is a cryptocurrency sued to send and receive funds. It is a balanced and sustainable

system with a research-driven approach. It undergoes constant reviews by researchers and

scientists to ensure it operates effectively under its functions.

IOTA

Internet of Things Application (IOTA) was launched in 2016 and does not work with a

block and a chain-like its peers. IOTA works with the smart devices of the internet of things.

Security Features

A large sum of trade on cryptocurrencies and anonymous trading have made

cryptocurrency systems an easy target for cybercriminals. About 54% of cryptocurrencies have

security holes that have attracted theft of close to $1.7 billion. Security features have been

installed to ensure cryptocurrencies are safe and reassuring for customers. Some of the most

common security features include; registry lock, Domain Name System Security Extensions

(DNSSEC), Anti-DDoS modules, Web Protocol Security, and cold wallet.

Registry Lock

This feature locks the domain at the registry level to add a layer of security for

cryptocurrency exchange applications. Registry lock blocks hackers from accessing and making

unsanctioned changes in user domains and registration details. Any changes to the domain solicit

a three-way security check that incorporates the client, the service provider, and the registry.

Domain Name System Security Extensions (DNSSEC)

This is a set of protocols that offer authentication of DNS queries. DNSSEC uses a

combination of public keys and digital signatures to authenticate data. The system rejects
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illegitimate DNS entries and responses hence preventing clients from vising fraudulent websites

with the malicious process and cache poisoning.

Anti-DDoS Modules

Distributed Denial of service attacks is an overflow flooding of servers or networks with

fake traffic that prevents the normal operation of the systems. Many systems used in

cryptocurrencies have been targeted by DDoS attacks making leading to slow operation and

losses in the end. Anti-DDoS modules prevent configure website firewalls to ignore incoming

ICMP packets from external networks. Anti-DDoS hardware and software like load balancers

can help in preventing such crippling attacks.

Web Protocol Security

To make transactions secure cryptocurrencies incorporate security headers that ensure

transactions are prevented from external interference and attacks. HTTP Strict Transport Security

will ensure all websites are incorporated with HTTPS protocols. This will ensure that all

browsing activity is secured from external intrusion. X-Frame protects content from getting

embedded in other websites hence preventing clickjacking attacks. Content security policy

enables headers to determine the dynamic resources worth loading hence preventing XSS related

attacks. Cross-site scripting attacks can be prevented by enabling X-XXX-Protection.

Cold Wallet

A cold wallet stores cryptocurrency assets in an offline store. It adds a layer of security to

stored assets and prevents hackers from accessing such information. Biometric enabled

authentication and multi-signature validation are some of the security features enacted by cold

wallets to ensure systems are protected from external interference.

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Stability of the System

Ever since their invention, cryptocurrencies have invoked a huge debate that has often

sparked controversy. While advocates relish the freedom cryptocurrencies impart in economic

functions alongside protection against bad government policies, skeptics are wary of

environmental issues and the safety of investments in them. Many scholars have confirmed that

the share of transactions made by cryptocurrencies has not risen to the level that they can cause

global financial instability. Therefore, the systems are widely considered stable and valuable for

financial transactions. Cryptocurrencies have the promise to replace traditional currencies that

have government guarantees with private money protected by algorithms. While some people

have complained that this poses a huge threat to financial stability, experts have disagreed and

guaranteed the stability of the cryptocurrency systems. Some have argued that the asset class of

cryptocurrencies add are less than $200 billion which a small share of the overall asset markets

in the world.

Should there be widespread adoption of cryptocurrencies to the level where the whole

world considers them a major mode of financial exchange, instability concerns will be huge. Just

like the traditional currencies that are subject to instability, when cryptocurrencies are embraced

by the market for widespread use, market factors will highly push it to flow with the standards of

the market-leading to stability issues that have not been anticipated in the past. However, going

by current standards, cryptocurrencies are stable and sufficient for financial transactions by those

who have adopted them.

Value of Cryptocurrencies

Rank by Name Price Trade in the Trade in Market Cap

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Market last 24 hours the last 7

cap days

1 Bitcoin (BTC) $19,396.36 1.56% 6.72% $360,252,301,067

2 Ethereum (ETH) $584.54 0.20% 6.56% $66,639,733,665

3 XRP (XRP) $0.4518 -8.40% -17.78% $20,543,482,194

4 Tether (USDT) $0.9979 -0.05% 0.06% $19,790,847,244

5 Bitcoin Cash $286.31 4.93% 8.64% $5,338,631,115

(BCH)

6 Litecoin (LTC) $80.30 -1.19% 5.06% $5,311,189,576

7 Chainlink (LINK) $12.47 -1.04% 6.06% $4,952,657,315

8 Cardano (ADA) $0.1513 -2.13% 10.28% $4,709,562,240

9 Polkadot (DOT) $5.19 6.26% 9.36% $4,612,713,843

10 Binance Coin $29.22 -1.27% 5.90% $4,225,548,521

(BNB)

The highest valued cryptocurrency is Bitcoin with a value of $19.396 as of Wednesday,

December 16, 2020. Bitcoin is ranked the highest in market cap value at $360,252,301,067. This

means that people can transact in huge volumes of Bitcoin more than any other cryptocurrency.

The value of Bitcoin has been fluctuating at a rate of approximately 1.56% in 24 hours. In the

last 7 days the highest-ranked cryptocurrency, Bitcoin has added 6.72% in its value. Investing in

this particular currency seems profitable because its values are high and its appreciation seems to

be constant. Many other cryptocurrencies have high trade volumes but non rivals the

establishment of Bitcoin both in value and trade cap.

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Government Regulations

The concept of cryptocurrencies is new to many central banks, financial policymakers,

monetary experts around the world. Experts have been reeling from its consequences and many

have struggled to find an amicable solution to the disruption that it has caused (Girasa, 2018).

The idea that private run currencies can develop and overcome fiat money has left many

governments in an awkward position. Allowing people to freely use these standards for financial

transactions can create economic progress and reach levels unprecedented. On the other hand,

excessive penetration of cryptocurrencies into the financial system can jeopardize the stability of

many traditional currencies. There is no consistent middle ground that has been adopted by many

governments on the operations of cryptocurrencies. Therefore, diverse administrations have

taken different approaches in regulating the sector that has proved hard to manage. Some

governments have cracked down on them and stocked fear on the use of cryptocurrencies while

others have accepted them in their financial systems. However, the common feature is that all

governments have seen the gravity of the matter and acted in one way or another.

The United States Refusal to Directly Engage

The US has a lot to lose and gain at the same time from the operations of

cryptocurrencies. Lawmakers have majorly disengaged from the trend and delegated the duty to

states for action. The federal government has not reigned in the system with sweeping legislation

aimed to regulate it. States like Arizona, Maine, New York, Nevada, Vermont, and others have

introduced some forms of legislation aimed at defining the use of blockchain ledgers and other

smart records for purposes of keeping records. The Federal government has defined how people

should declare their profits from cryptocurrencies and how they should be taxed as property

(Girasa, 2018).
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Europe

Europe has taken a more direct engagement stand on cryptocurrencies. Following the

disasters of the 2008 financial crisis, the EU enacted various legislations aimed at defining and

regulating the trajectory of the financial sector including fintech and blockchain. There are many

laws designed to spark the growth of blockchain in Europe. Legislations have been enacted to

increase the transparency of information and data share between markets. The fintech sector is

quickly becoming the best performing and fastest developing startup sector in the European

Union. The executive arm of the EU parliament has adopted a decentralized ledger aimed at

monitoring the ongoing events and the operation of the system in its member countries.

Countries like Switzerland have encouraged legislation to determine the mode of usage,

the incorporation into the financial system and the mode of taxation of cryptocurrencies moving

forward. The industry has taken a foothold in Switzerland with many people embracing the use

of cryptocurrencies. Cryptocurrencies have been used in public transport hence making it a

genuine future direction of the country.

In Germany, Bitcoin has been incorporated as a unit of account and people are free to

trade with it. It is taxable must be subject to VAT when traded with the Euro. The government

regulators have not labeled cryptocurrencies s real currency and haw warned their people against

some forms of cryptocurrencies that can be subject to fraud and lack of accountability.

Asia

In Asia, Japan is the most notable proponent of cryptocurrencies giving the concept of

life and recognition to some extent. Bitcoin had been recognized in Japan as a legal means of

payment. It is however not a transactional currency and banks are not able to give customers
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bitcoin as money. It not unlawful to hold bitcoin in Japan hence living the system to be run by

many fintech innovators. China has restricted the use of Bitcoin in transactions by imposing

many regulations. China was sacred of the level of capital that was leaving the country through

cryptocurrency transactions and decided to impose regulations on it.

Successes of Cryptocurrencies

Autonomy

User autonomy of cryptocurrencies is the primary benefit of this technology. digital

currencies allow users to autonomously transact their money than normal currencies. Users can

control how to spend their money without intermediaries and authorities like governments and

banks. The purchase of Bitcoin is discrete unless a user out of their on will publishes the

transaction that they make in Bitcoin. Purchases are not associated with personal identity and

cannot be tracked to them in case of any attempts to establish their transactions. There

anonymous addresses that Bitcoin generates for every transaction made. This makes it hard to

establish the nature of each transaction and track them to a single person.

Peer-To-Peer Focus

The bitcoin payment system is peer-to-peer hence transactions can be completed without

the need for extra approval from external bodies. Governments and banks do not need to approve

transactions between individuals. This gives more financial freedom to people (Howell et al.,

2020).

Low Transaction Fees

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When people make wire transfers across different countries, they require high transaction

fees that are not always available for most people. cryptocurrencies have no intermediaries that

monitor transactions. The cost of sending money from one place to another reduces significantly.

The transfer happens very quickly unlike other international transactions that have to be flagged

and evaluated for days. There is the complete elimination of banking fees in Bitcoin transactions.

There are no overdraft charges and returned transaction fees. This makes cryptocurrencies

cheaper than other forms of financial transactions.

Accessibility

Users can send and receive cryptocurrencies at the comfort of their smartphone. One does

not need to travel to a bank building to initiate a cryptocurrency transaction. There is no

limitation of traditional banking systems involving credit cards and modes of payment. The

convenience of transactions even outside official working how is very convenient.

Trends in The Cryptocurrency Market

Volatility in the market capitalization

The evolving nature of the cryptocurrency market has created a volatile market that has

been a cause for concern in many financial markets. It is difficult to ascertain the size of the

cryptocurrencies based on the increasing rate of evolution and dynamism of the sector. There has

been a spread across the globe in the adoption of cryptocurrency trading and market exchanges.

This has been promoted by the assurance of privacy protection features, rapid growth, extreme

price volatility, and market liquidity.

The faster rate of blockchain technology adoption

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Enterprise adoption of blockchain technology has reached a tipping point in many usage

scenarios. Companies that sow the value of Blockchain from pilot projects have confirmed their

operational capacity and are moving forward with translating them into production. The adoption

of the technology in financial services, trade, and other markets is rising significantly even

though government regulation is still stagnating. The use of blockchain is taking a foothold in the

United States, Western Europe, and China. While Japan has the highest acceptance rate of the

technologies, it may soon be eclipsed in the industry (Fenwick & Vermeulen, 2019)

Competition

Within ten years, cryptocurrencies have developed leading to the adoption and use of

more than 1000 cryptocurrencies. The number of developers developing new cryptocurrencies

and improving on existing ones has increased tremendously. Today, there is almost a new type of

cryptocurrency being developed every day. The development has increased in coin production,

mining services, exchange of cryptocurrencies, the invention of wallet companies, and other

cryptocurrencies related business. The competition for the most efficient and accepted

cryptocurrency is getting so heated but bitcoin is so established that its position is almost

guaranteed.

Future Technological Developments in The Crypto Worlds

Increased Automation

The more cryptocurrencies infiltrate the psyche of the public, the more traditional

accounting services will cave and adopt automation to keep up with the increased workload. The

use of spreadsheets has been valuable in fiat currency transactions. However, in volatile

cryptocurrency environments, static tools do not effectively serve people. there is a need for
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increased automation of services to match the high volumes of transactions that cryptocurrencies

solicit. Filling tax returns in current systems is not complicated since advanced functionality is

not needed for simple IRS fillings. However, cryptocurrencies complicate things making

accountants seek automated tools that can track cryptocurrency complexities (Deepika & Kaur,

2017).

AI Accountants

The use of smarter tools in accounting will be a necessity to make better decisions in

huge corporations. However, the general public will not enquire not real accountants to complete

simple cryptocurrency investments. The use of artificial intelligence (AI) for simple

cryptocurrencies accounting will be needed by the general public. Therefore, AI is going to be a

major part of cryptocurrencies in the future. Consumers will interact with AI and machine

learning technologies to complete cryptocurrency transactions and related accounting.

Accountants will need to be more technologically innovative to match the advancements in

cryptocurrencies (Deepika & Kaur, 2017).

Knowledge Enrichment

Schools will start offering specific courses that target cryptocurrencies. There will

faculties in the technological and accounting faculties that concentrate on cryptocurrencies.

Future accountants, bookkeepers, and CPAs will have to specialize in cryptocurrencies to enable

them to successfully navigate the field. Universities will need to prepare graduates to effectively

run the industry and stick to standards of professionalism.

Mainstreaming of Stable Coins

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Stablecoins are digital tokens pegged to fiat currency used for hedging mechanisms

against a probable decline of underlying collateral prices of cryptocurrencies. Due to the

instability of cryptocurrencies and the fearmongering that many government agencies have

placed on them, their possibilities that people will flood stablecoins that offer more assurance

and stability to investors (Deepika & Kaur, 2017).

Cases of a Cryptocurrency Collapse

Being the most valued and most common cryptocurrency, Bitcoin has the biggest history

of crashes (Zhang & Wang, 2020). After its invention, the cryptocurrency rose to an all-time

high value of $19,783.06 on December 17, 2017. On December 22 the same year, the price of

Bitcoin fell below $11,000 indicating a 45% drop from its peak (Tu et al., 2020). The rise

depreciated by 12% in January 2018 amid rumors that South Kora would ban trade in bitcoins.

Japan's largest cryptocurrency OTC market was hacked in January 2018 and $530 million stolen.

Bitcoin prices have since risen to almost match the 2017 levels with the current valuation at

approximately $19,450 per coin.

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Conclusion

Cryptocurrencies use blockchain which is a decentralized ledger of transactions panning

across a peer-to-peer network. Clients can confirm transactions without soliciting a central

authority to clear them. blockchain can be applied in voting, transfer of funds, settling trades, and

other functions that require this high level of encryption. Cryptocurrencies have security features

that are meant to increase stability and prevent external access to client funds and information.

Some of the most effective cryptocurrency security features are; registry lock, Domain Name

System Security Extensions (DNSSEC), Anti-DDoS modules, Web Protocol Security, and cold

wallet. Many governments have not enacted comprehensive regulations to govern

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cryptocurrencies. There is no consistent middle ground that has been adopted by many

governments on the operations of cryptocurrencies. Therefore, diverse administrations have

taken different approaches to regulate the sector. Cryptocurrencies have had many successes by

disrupting the traditional transaction systems and introducing transaction autonomy, peer-to-peer

focus, reduced cost of the transaction, and high accessibility. There is a bright future for the

cryptocurrency market with expected inventions like the inclusion of AI and machine learning to

boost transaction capability and proper accounting.

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References

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technologists who created cryptocurrency. Princeton University Press.

Deepika, E. P. E., & Kaur, E. R. (2017). Cryptocurrency: Trends, Perspectives and

Challenges. International Journal of Trend in Research and Development, 4(4), 4-6.

Fenwick, M., & Vermeulen, E. P. (2019). Technology and corporate governance: blockchain,

crypto, and artificial intelligence. Tex. J. Bus. L., 48, 1.

Girasa, R. (2018). Regulation of cryptocurrencies and blockchain technologies: national and

international perspectives. Springer.

Howell, S. T., Niessner, M., & Yermack, D. (2020). Initial coin offerings: Financing growth with

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Madey, R. S. (2017). A Study of the History of Cryptocurrency and Associated Risks and

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Thakur, K. K., & Banik, G. G. (2018). Cryptocurrency: Its Risks And Gains And The Way

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Tu, C., D'Odorico, P., & Suweis, S. (2020). Critical slowing down associated with critical

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Yuan, Y., & Wang, F. Y. (2018). Blockchain and cryptocurrencies: Model, techniques, and

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