CRYPTOCURRENCY – ALL ABOUT IT

- MEANING OF CRYPTOCURRENCY:
Cryptocurrency is a digital currency in which transactions are verified and records
maintained by a decentralized system using cryptography, rather than by a centralized
authority.
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which
makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are
decentralized networks based on blockchain technology—a distributed ledger enforced by
a disparate network of computers.
According to Jan Lansky, a cryptocurrency is a system that meets 6 conditions:
1. The system does not require a central authority; its state is maintained through
distributed consensus.
2. The system keeps an overview of cryptocurrency units and their ownership.
3. The system defines whether new cryptocurrency units can be created. If new
cryptocurrency units can be created, the system defines the circumstances of their origin
and how to determine the ownership of these new units.
4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
5. The system allows transactions to be performed in which ownership of the
cryptographic units is changed. A transaction statement can only be issued by an entity
proving the current ownership of these units.
6. If two different instructions for changing the ownership of the same cryptographic
units are simultaneously entered, the system performs at most one of them.

- HISTORY OF CRYPTOCURRENCY:
Cryptocurrencies first emerged in 2009 when the world’s first decentralised currency,
Bitcoin, was created. The core idea behind cryptocurrency was to create a secure and
anonymous way to transfer currency from one person to another, and since then its value
has skyrocketed and it’s been heralded as ‘digital gold’ amongst its users.
Initially created by a Software Developer with the pseudonym Satoshi Nakamoto, to
promote the anonymity of the currency, Satoshi Nakamoto had to develop something new,
this is when Blockchain, the digital ledger of Bitcoin transactions, was created. Ripple, a real
– time gross settlement system was introduced shortly after this. The currency itself is
meant to enable the near instant and direct transfer of money between two parties. Any
type of currency can be exchanged, from fiat currency to gold, to even airline miles. They
claim to avoid the fees and wait times of traditional banking and even cryptocurrency
transactions through exchanges. It’s become so popular within the market that Banks are
actually using this digital asset today worldwide.

- EVOLUTION OF CRYPTOCURRENCY:
In 2011, rival cryptocurrencies started to emerge into the market, with Litecoin, Namecoin
and Swiftcoin to name a few all making their debut. This is not surprising considering the
market value as of today for the Bitcoin currency is a whopping $44 billion. Because of this,
there are new cryptocurrencies being created every single day by Software Developers
worldwide, all hoping to become the next Bitcoin star.
While 2017 saw the biggest spikes in value across the thousands of live Cryptocurrencies,
they are still not entering our day – to -day lives. Most individuals who own substantial
amounts of Bitcoin are doing so as an investment, rather than looking to utilize the
currency as a new way to purchase things online.
Shortly after the unprecedented boom in 2017, the beginning of 2018 saw a different story.
The market crashed and fell by 65% leaving newcomers to the market unsettled as to
whether it will ever pick up again.

- HOW DOES CRYPTOCURRENCY WORK?

According to Satoshi Nakamoto, the founding father of Bitcoin, it is a peer-to-peer
electronic cash system. In that, it is much similar to peer-to-peer file transactions, where
there is no involvement of any central authority or regulator.
Ergo, cryptocurrencies are mere transactions or entries in a shared ledger that can only be
changed upon meeting certain prerequisites. Typically, in a blockchain technology like the
Bitcoin network, each transaction consists of the involved parties’ – sender and receiver –
wallet addresses or public keys and the amount of such transaction.
What attributes the safety net in such a network to avoid fraud is that the sender needs to
confirm a transaction with their private key. After confirmation, the transaction is reflected
in the shared ledger or database.
However, only miners are authorised to confirm transactions within a cryptocurrency
network. They need to solve cryptographic puzzles to confirm any specific transaction. In
exchange for their service, they receive a transaction fee in that particular type of
cryptocurrency and a reward.
Once miners confirm a transaction, they spread it to the network, and every node in that
automatically updates its ledger accordingly. Furthermore, once a miner confirms a
particular transaction, it becomes irreversible and non-modifiable.
However, there is a crucial catch in mining. It is that as a particular type of cryptocurrency
gains popularity and more and more miners join the bandwagon, the miners’ fees and
reward per transaction go down. For instance, initially, miners could get 50 bitcoins (BTC)
as a reward for mining; however, due to the recent halving in May 2020, miners’ rewards
have gone down to 6.25 BTC.

- WHAT IS THE USE OF CRYPTOCURRENCY?

It is worth wondering if the popularity that cryptocurrency has garnered over the years is
hollow or not. However, even though it is still nowhere near to replacing institutionalized
cash, cryptocurrency, especially Bitcoin, has found wide acceptance across the world.
Initially, Bitcoin had little value as a mode of payment to merchants. However, with
time, several merchants worldwide like restaurants, flights, jewelers, and apps have come
to accept it as a viable payment medium. One of the most notable acceptors of
cryptocurrency as a viable medium of payment is Apple Inc. It allows 10 types of
cryptocurrencies for carrying out transactions in the App Store.
However, India, as an economy is still to explore cryptocurrency as a viable payment mode
extensively. Nevertheless, with big companies like Apple and Facebook hoisting its cause, it
is expected that cryptocurrency will gain traction in India soon.
Cryptocurrencies, especially Bitcoin, is one of the most lucrative investment options
currently present. Its value appreciation is supremely dynamic and can prove to be an
excellent avenue for capital expansion. However, individuals must also note the volatility
of this investment avenue. Bitcoin, the most popular cryptocurrency with the largest
market share, has experienced some of the most erratic price changes as an asset. For
instance, in December 2017, Bitcoin’s value plunged from $19000 per BTC to $7000 per BTC.
Since cryptocurrency is not rooted in any material change but a change in popularity and
fad, such price fluctuation is natural.

- MERITS AND DEMIRTS OF CRYPOCURRENCY:

As the scope of cryptocurrency increases, with more usage of it in our daily lives such as
online payment (PayPal, BitPay) as well as trading in cryptocurrency in established
platforms, here is a look of merits and demerits of cryptocurrency:
Let’s start positive, what are the advantages of cryptocurrency?
1. PROTECTION FROM DEBASED CURRENCIES AND THE THREAT OF RISING INFLATION:
When it comes to Bitcoin, there is a fixed maximum number (21 million Bitcoins), and no
authority can change this number. The increasing demand for cryptocurrency, will result in
its increased value, and hence keeping up with the market and limiting the risk of inflation.
This is the opposite of the Global Financial Crisis 2008/09.
2. PRIVACY AND DATA PROTECTION
Anonymity and data protection have been the main concern of cryptocurrency. Thanks to
the Blockchain and its strong encryption, a hacker will need one’s private keys to put them
at risk. In comparison, hacking a bank system (although it is still very hard) could give
access to more than one bank account. Also, you can create Bitcoin addresses without
reference to personal information (name, address).
3. GROWING ACCEPTANCE AND USAGE
A 2020 article on Coindesk.com claimed that Coin base had seen $135 billion in
cryptocurrency merchant transactions in 2019, a 600% increase over 2018. There has also
been a significant increase in the number of bitcoin electronic wallets created over the past
few years and there are an increasing number of well-known investors who are looking to
invest in cryptocurrencies, the latest being Blackrock and Bridgewater.
4. LIMITED SUPPLY
There is a maximum of 21 million coins that can be created or “mined”. At the moment
around 18.5 million bitcoins have been mined leaving less than three million still to come
into existence. A related feature is that the rate of production of bitcoins slows over time
via a process known as halving. In 2009 each block mined was worth 50 bitcoins, and now
the value is 6.25 bitcoins per block!
5. SPEED AND ACCESSIBILITY
Since there are no third-parties involved, the transfer speed is much more important than
for a regular transaction. You can also track it 24/7
Now for the disadvantages of Cryptocurrency:
1) NOT USER FRIENDLY
Cryptocurrency is the product of computer science - this can make the vocabulary very hard
to understand, as well as how it functions, without dedicating an important amount of
time. Also, even though more and more people become familiar with the idea of
cryptocurrency, its use is still limited and regulation policies vary from country to country.
2) NO REFUND POLICY
One of the biggest cons is that there is no refund policy for cryptocurrencies: if you
mistakenly pay someone, there is nothing to guarantee your money back. Since the Bitcoin
era and because of the many stories of getting rich thanks to Bitcoin, cryptocurrencies have
gained much attention and have, unfortunately, attracted many scammers. The lack of
refund policy makes it easier to fraud people.
3) REGULATION ISSUES
Cryptocurrency combines strong encryption and anonymity and decentralization. This
makes it very hard for the government to track down users, and even if this can be great
for the regular person, this occasion could be used for money laundering and by criminals.
4) STRONG VOLAILITY
Most cryptocurrencies, such as Bitcoin, have strong volatility. Because its value can change
rapidly and unpredictably, the time of investment is very important. The volatility in
cryptocurrency can be hard to handle, especially for investors and amateur traders who
don’t have much knowledge in the domain and can lead to losses of funds.
5) POOR STORE OF VALUE
Whilst bitcoin and some other cryptocurrencies are now accepted across a growing
number of payment platforms, the number of places where one can exchange
cryptocurrencies for real goods or services remains very limited. For similar reasons the
volatility inherent in cryptocurrencies makes them a poor store of value.

- WHO IS USING CRYPTOCURRENCY?

The cryptocurrency industry has come closer than it ever had before with the adoption of
cryptocurrency. The introduction of Facebook’s Libra, Binance’s Venus, and
announcements of plans by China and other nations around the world to begin or continue
developing blockchain-based national currencies brought crypto further into the
“mainstream” than ever.
And indeed, there does seem to be a cyclical nature in the way that new
technology is adopted into the “mainstream”–and it can take time. For example, although
email was invented in the early 1970s, it did not become widely available or widely used
until the 1990s, and its usage has grown considerably since then; if cryptocurrency is
operating on a similar timeline, it could be ten to twenty years before it becomes truly
ubiquitous.
So–here, now–who’s actually using Bitcoin? And what are they using it for?
According to the popular narrative, the ways in which cryptocurrency is used, to some
degree, seem to fall along several lines, including the line between the developing world
and the developed world, and the line between users and traders.
Let’s start with the first of these lines. There is, arguably, a major and important difference
between the ways that crypto is used in countries with developed, stable economies and
those without.
‘2gether’, a cryptocurrency payments app based in Spain, told Finance Magnates that
according to a recent survey of its own users, “the everyday crypto user is a highly
educated millennial.” Indeed, according to the results of the survey, “the majority of crypto
spenders are between 26 and 45 years old”, and work in white-collar professions “the most
common professions among users are lawyers, accountants, and economists. Typically,
these users don’t pay for necessities, like housing or bills, with their crypto; instead,
2gether’s users “spend their cryptocurrency mostly on food and at restaurants.”
Of course, this doesn’t mean that using cryptocurrency primarily for paying for things in
restaurants couldn’t eventually lead to widespread adoption, particularly within developed
countries. However, in developing countries around the world, the adoption of
cryptocurrency is arguably higher than in developed countries.
Additionally, the manner of usage by the average crypto user seems to be quite different.
Charles Phan told Finance Magnates that “the main use cases for cryptocurrency are as an
alternative to currencies experiencing hyperinflation, as an alternative to gold or the
banking system as a store of value, and as a convenient and fast payment system to send
money internationally.” As such, “we’re increasingly seeing bitcoin and crypto used as a
hedge against political and economic instability in countries like Argentina, Turkey, and
Venezuela.”
Indeed, a survey from Germany-based data analytics company Statista found that Turkey
has the highest number of individuals who had owned or used cryptocurrency at some
point in their lifetime.

- WHERE IS CRYPTOCURRENCY USED?

Some of the places where cryptocurrency is used:
• AXA Insurance
• Pavilion Hotels & Resorts
• Microsoft
• Starbucks
• Tesla
• Amazon
• Visa
• PayPal
• AirBaltic
• Coca Cola
• LOT Polish Airlines
• Expedia
• Lush

- WHAT ARE THE RISKS OF TRADING IN CRYPTOCURRENCIES?

The risks of trading cryptocurrencies are mainly related to its volatility. They are high-risk
and speculative, and it is important that you understand the risks before you start trading.
 They are volatile: unexpected changes in market sentiment can lead to sharp and
sudden moves in price. It is not uncommon for the value of cryptocurrencies to
quickly drop by hundreds, if not thousands of dollars.
 They are unregulated: cryptocurrencies are currently unregulated by both
governments and central banks. However, recently they have started to attract more
attention. For example, there are questions about whether to classify them as a
commodity or a virtual currency
 They are susceptible to error and hacking: there is no perfect way to prevent
technical glitches, human error or hacking.
 They can be affected by forks or discontinuation: cryptocurrency trading carries
additional risks such as hard forks or discontinuation. You should familiarize yourself
with these risks before trading these products. When a hard fork occurs, there may
be substantial price volatility around the event, and we may suspend trading
throughout if we do not have reliable prices from the underlying market.

- EFFECT ON THE ECONOMY:

Crypto currencies could provide a significant benefit by overcoming the lack of social trust
and by increasing the access to financial services (Nakamoto, 2008) as they can be
considered as a medium to support the growth process in developing countries by
increasing financial inclusion, providing a better traceability of funds and to help people to
escape poverty (Ammous, 2015).
1. 1. A Beneficial Rise in Economic Activities: There is already an entire industry built
around cryptocurrencies and it’s held by institutions dedicated to supervising all the
 digital coin exchanges taking place throughout the world. Bitcoin, the most famous
of these cryptocurrencies, has already permitted many people and companies to
develop and flourish, while many also rely on trading as their source of income. The
economy is slowly shifting to adapt to these needs and cryptocurrencies have a great
potential in satisfying them.
2. Great Opportunities for Poorly Banked Countries: More than a third of the world
population does not have access to basic banking services that can help them out in
case of a personal financial crisis. These people that in most cases are already
financially disadvantaged typically resort to doubtful and dangerous lending
practices. This is where cryptocurrencies come in with their high volatility and ease-
of-use.
3. Increased Transparency of Transactions: Since all blockchain and cryptocurrencies
transactions are automated and digitized, they are all tracked in a distributed ledger.
The best part about it is that it cannot be manipulated by either people or companies,
which greatly diminishes the risk of fraud and corruption. This means that
underdeveloped countries also have a greater chance of entering the financial
transactions
4. Low Transaction Costs: - Because cryptocurrencies and blockchain don’t need an
actual brick-and-mortar building to exist, the costs associated with their transitioning
are minimal. There is no need for employee wages, utility bills or rent to be paid, so
these savings naturally morph into low transaction fees. Which encourages people to
invest
5. More Power to Entrepreneurs: The aim is to help small and medium business
everywhere get better financial coverage and a liberated financial connection with
the rest of the world. By using BitPesa and TenX’s digital wallet, entrepreneurs are
able to quickly convert altcoins into fiat currencies that they can later redirect to
business investments, purchases and payments.
It will only be a matter of time until these cryptocurrencies definitively find a way into our
lives, shaping them for the better, with economic growth and inclusion in mind. Millions of
people will now have the opportunity to invest, send money across borders, save money
and start a business thanks to the amazing possibilities that cryptocurrencies bring to the
table.

- BITCOIN:
What is Bitcoin?
Bitcoin is a digital currency created in January 2009. It follows the ideas set out in a
whitepaper by the mysterious and pseudonymous Satoshi Nakamoto. The identity of the
person or persons who created the technology is still a mystery. Bitcoin offers the promise
of lower transaction fees than traditional online payment mechanisms and, unlike
government-issued currencies, it is operated by a decentralized authority. There is no
physical bitcoin, only balances kept on a public ledger that everyone has transparent access
to. Bitcoin is not issued or backed by any banks or governments, nor is an individual bitcoin
valuable as a commodity. Despite it not being legal tender in most parts of the world,
bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies.
Bitcoin is commonly abbreviated as "BTC."
Understanding Bitcoin
The bitcoin system is a collection of computers (also referred to as "nodes" or "miners")
that all run bitcoin's code and store its blockchain. Metaphorically, a blockchain can be
thought of as a collection of blocks. In each block is a collection of transactions.
Balances of bitcoin tokens are kept using public and private "keys," which are long
strings of numbers and letters linked through the mathematical encryption algorithm that
was used to create them. The public key (comparable to a bank account number) serves as
the address published to the world and to which others may send bitcoin.
The private key (comparable to an ATM PIN) is meant to be a guarded secret and only
used to authorize bitcoin transmissions. Bitcoin keys should not be confused with a bitcoin
wallet, which is a physical or digital device that facilitates the trading of bitcoin and allows
users to track ownership of coins.
Who Is Satoshi Nakamoto?
No one knows who invented bitcoin, or at least not conclusively. Satoshi Nakamoto is the
name associated with the person or group of people who released the original bitcoin
whitepaper in 2008 and worked on the original bitcoin software that was released in 2009.
In the years since that time, many individuals have either claimed to be or have been
suggested as the real-life people behind the pseudonym, but as of June 2021, the true
identity (or identities) behind Satoshi remains obscured.
Bitcoin Mining
Bitcoin mining is the process by which bitcoin is released into circulation. Generally, mining
requires solving computationally difficult puzzles to discover a new block, which is added to
the blockchain. Bitcoin mining adds and verifies transaction records across the network.
Miners are rewarded with some bitcoin; the reward is halved every 210,000 blocks. The
block reward was 50 new bitcoins in 2009. On May 11th, 2020, the third halving occurred,
bringing the reward for each block discovery down to 6.25 bitcoins.
A variety of hardware can be used to mine bitcoin. However, some yield higher rewards
than others. Certain computer chips, called Application-Specific Integrated Circuits (ASIC),
and more advanced processing units, like Graphic Processing Units (GPUs), can achieve
more rewards. These elaborate mining processors are known as "mining rigs."
One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and
this smallest unit is referred to as a Satoshi.5 If necessary, and if the participating miners
accept the change, bitcoin could eventually be made divisible to even more decimal places.

- CRYPTOCURRENCY IN INDIA:
As per data from blockchain analytics firm Chainalysis, Indian investments in cryptocurrency
have surged to US$6.6 billion in 2021, driven by a shift in the thinking of young investors –
moving away from gold and other precious metals. Another reason is the security and
transparency provided by this technology.
As per a report, over 10 million crypto investors were added by India in 2021. This is
noteworthy in light of speculation that the federal government plans to impose a ban on
the use of cryptocurrency. However, nothing can be said conclusively unless the law
regulating the digital currency is passed.
Legality of cryptocurrencies in India
In 2018, the Reserve Bank of India (RBI) banned the use of cryptocurrency as legal tender in
India by issuing a circular. However, this decision was overturned by the Indian Supreme
Court in March 2020, permitting banks to handle cryptocurrency transactions from traders
and exchanges. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 has
been tabled by the government in the parliament and will most probably be taken up for
discussion in the monsoon session
The Reserve Bank of India (RBI) has not yet granted Bitcoin or any other cryptocurrency the
status of legality in India. Hence, there are no clear rules or guidelines defining taxability for
cryptocurrencies, which calls for specific clarification from the Income Tax (IT) department.
However, experts have speculated upon various possibilities in which cryptocurrency
transactions can be taxed under the Income Tax Act 1961 as well as the Central Goods and
Services Tax (CGST) Act, 2017 – depending on the type of transaction. Meanwhile, the
Ministry of Corporate Affairs (MCA) has made it mandatory for companies to disclose
cryptocurrency trading/investments during the financial year.
Since the cryptocurrency is not recognized as legally by the government, employers cannot
make salary payments using this digital currency. Similarly, payment of rent using this
currency is not legal and hence not recognized. Therefore, it will not have any tax liability in
India under the present law, unless specific guidelines for the same are announced.
The cryptocurrency craze which has taken over the world in the past few years has reached
a point where even middle-school students in India are participating and excelling. One
such student, 13 year old Gajesh Naik, the creator of PolyGaj, a cryptocurrency money
managing ecosystem is the manager of millions of dollars in cryptocurrency! Gajesh is a
Class 8 student at People's High School in Panaji. Last year, he started creating online
educational content when the country was under lockdown due to the first wave of the
COVID-19 pandemic. The content produced by Gajesh was meant to help primary school
students from vernacular schools as physical classes were shut down due to the pandemic.
This year, Gajesh has developed two dapps (decentralized applications) on the Polygon
network. The apps -- PolyGaj and StableGaj -- provide users access to crypto-investing.
PRICES OF CRYPTOCURRENCY ON THE INDIAN STOCK MARKET (To be added the day
before submitting the assignment)

- FUTURE OF CRYPTOCURRENCY:
What Does the Future Hold for Cryptocurrency?
Bitcoin and some other cryptocurrencies’ values have skyrocketed in recent years. Bitcoin’s
price has more than doubled in 2021, and Ethereum has more than quadrupled in value this
year.
But whether that growth is sustainable, and what it means long-term, is still in question.
“This crypto, blockchain technology, the public interest in it right now is being driven by a
kind of speculative fever,” says Dr. Richard Smith, executive director of the Foundation for
the Study of Cycles, a nonprofit organization dedicated to studying recurring patterns
throughout economies and cultures.
Still, an increasing number of big, powerful players are validating crypto’s potential.
“Every single day, the concept that it could be worth something, it could be a store of value
is being continually approved by more large, powerful entities,” Johnson says, pointing to
established financial institutions holding digital currencies and large corporations adding
them to their corporate balance sheets. “The idea that it’s actually worth something is
continuing to grow as adoption and acceptance continues to grow as well.”
Ultimately, the future of cryptocurrencies — their value, security, and staying power — is
still up in the air. But the experts we spoke to believe owning some crypto could create
value over time. Whatever your interest or motivation, experts stress the importance of
making sure you understand the unique volatility and risk factors of cryptocurrency before
investing.
“I think it’s really important to keep your eyes open,” Johnson says. “Don’t get the FOMO
at a fever, because it’s very volatile. No one should invest anything that they can’t afford to
lose, and that’s the same advice I give for any kind of an investment.”