Hello Steemians and special regards to all members of SteemitCryptoAcademy it was once again a great opportunity to partake in the SteemitCryptoAcademy lectures again this week, especially this lecture by Professor @levycore in which he taught about Cryptocurrencies, what they are, their uses, their advantages and disadvantages and even their development in a country like Indonesia.
Cryptocurrencies have come a long way and with everything gradually going digital it is quite important that we have a knowledge of cryptocurrencies.
Cryptocurrencies are digital currencies which are completely virtual meaning that they cannot be seen or touched but yet maintains its value online and transactions done with this currencies are verified and its records kept by a decentralised system.
Cryptocurrencies are used as a means of legal tender especially on many online platforms although they are not officially accepted by some countries and they can only be transferred between two places or two persons electronically.
WHAT IS THE FUNDAMENTAL DIFFERENCE BETWEEN CRYPTOCURRENCY AND CONVENTIONAL FINANCIAL SYSTEMS?
Apart from the major difference between Cryptocurrency and Conventional financial systems being that Cryptocurrencies are virtual and cannot be touched or seen while the traditional currencies can be touched, the most significant between the two is that Cryptocurrencies are controlled by a Decentralised system while traditional financial systems are controlled by Centralized systems.
Cryptocurrencies are not controlled by any institution or by the government, while traditional financial currencies are controlled by the government through the central banks and other government controlled financial institutions and laws.
Also when dealing with Cryptocurrencies no intermediaries or third parties are needed rather transactions are confirmed personally through peer to peer systems relying on decentralised ledger technology known as Blockchains.
While for traditional financial systems, banks and other financial institutions or brokers acts as intermediaries while executing transactions.
In addition, traditional financial institutions most times charge high transaction fees and even other charges like account and card maintenance charges and these charges put together make transaction fees of traditional financial systems very high and expensive.
While for cryptocurrencies, the absence of centralized controlling bodies reduces the fees charged to the barest minimum and in some cases zero fees.
Furthermore, in traditional financial systems transactions sometimes takes hours or even days to confirm or clear but for cryptocurrencies, transactions are conducted over the Internet and transactions are confirmed within a very short space of time if not almost immediately.
Also for traditional financial systems, the presence of third parties in transactions exposes the systems to risks as the third party could be compromised and even the centralised control system could be hacked and peoples money stolen.
While for cryptocurrencies the absence of third parties during transactions makes it safe as the peer to peer system protects a person and their assets from risks and compromise making it super safe.
Cryptocurrencies also gives it's users anonymity, for traditional financial systems, account holders have to submit their credentials and also have to be given credit and debit cards, and hence the information of the account holders are in the system and their identity known.
But for Cryptocurrencies it gives the users anonymity as they don't have to store their information on the system, hence protecting their identity.
Why is a decentralised system needed?
There are so many reasons why a decentralized system is needed and these reasons are what puts them above and better than centralized systems, those reasons include:
- Faster performance:
Requests and transactions are executed faster on a decentralized network, even when there are increased demands or requests, this does not slow down the system performance as more nodes and master nodes can always be added when there are more requests or transactions to be executed in certain areas.
- Increased flexibility, scalability and interoperability:
A decentralized unit does not have a single failure point meaning that the system can continue to function even if a node or a master node in the chain fails or is shut down.
In the same way more nodes or devices can be added to the network in order to increase the computing power making it very much more scalable, and network maintenance can also happen without completely shutting down the system even for a second.
- Enhanced safety:
The entire system is hack proof since all the information is not stored on a single central unit or node and any node suspected to have been compromised can be shut down or removed from the chain and that will not affect the performance or reliability of the decentralized system.
- Absence of a central control unit:
In decentralised units there is no central control unit hence no limits can be put on people's transactions and no control whatsoever on people's accounts. No controls or limitations on how people run their accounts and no one can close or shut down anyone's account.
- Anonymity of users:
Due to the absence of bureaucratic processes, there are no submissions of users credentials or identity, giving users complete anonymity on decentralized systems, hence eliminating the risk of purposely and maliciously targeting a user or account holder.
What affects the value of cryptocurrencies?
There are a lot of factors that can affect the value of cryptocurrencies and these include:
When certain powerful governments try to make laws or rules to regulate cryptocurrency, it affects the value of cryptocurrency either positively or negatively.
For instance when Japan announced the legalisation of Bitcoin in 2017, the price of Bitcoin shot up very quickly, but then when there is an adverse law it affects the value like when there is a crackdown like the recent crackdown on cryptocurrency by the Chinese government leading to the current dip we are having in cryptocurrency recently.
- Power of the Media:
The media plays a great role in driving the price of cryptocurrencies, what they write about a certain cryptocurrency has a way of affecting the value.
A good news can increase the demand of the crypto hence increase the price but a bad news or bad report could cause a panic among investors and cause a reduction in demand and a reduction in the value of the cryptocurrency.
- Supply and demand:
This is one of the main factors that drives or affects the the value of cryptocurrency. The higher the demand and lower the supply, then the prices definitely would go higher, but then when the demand is lower and the supply is higher, there will be a definite decrease in price.
- Scarcity of the cryptocurrency:
This is when there is a finite or little amount of the cryptocurrency in circulation and this makes the little amount of the coin available to become very very valuable.
- Coin utility:
This has to do with a cryptocurrency serving a particular purpose within a particular Blockchain Ecosystem or within the society like Ripples (XRP) playing a vital role in the financial sector filling up a vaccum in currency exchange & remittance; once a cryptocurrency is serving a specific purpose, it helps to increase its value.
Why can't everyone be a miner?
Mining is the process of verifying transactions between users and adding same to the blockchain public ledger. Mining is also the process used for introducing new coins into the existing supply in circulation.
The miners take part in solving of computational puzzles with high powered computer devices, and at the end they are rewarded by earning cryptocurrencies.
In cryptocurrency, not everyone can be a miner and below are some of the reasons for that:
- The cost of the computing equipments ùsed for minning is quite expensive and hence not affordable to the common man hence not everybody can take part in minning.
- Mining requires a very high level of expertise as the mathematical computations involved are quite complex and not everyone can take part in it.
- Mining also requires a high level of energy consumption, for instance mining of Bitcoin involves the burning of large quantities of fossil fuels and not everyone can handle that.
- The cost of maintaining the computing systems are also very expensive and not affordable to the average income people.
- Some countries have not legally adopted or approved cryptocurrency hence mining of cryptocurrencies cannot really go on in such countries.
Why are cryptocurrency transactions called more transparent?
It is generally believed that cryptocurrency transactions are more transparent and this is because:
- There is no single entity that controls cryptocurrency and hence no one can influence the transactions on cryptocurrency.
- The transactions on cryptocurrency are open to public view and audits any time of the day.
- Information stored on the Blockchain cannot be changed, altered or edited
Cryptocurrency Development in Nigeria my country:
In my country Nigeria, cryptocurrency has really come a long way, so many young people in the country are involved in crypto trading as a source of livelihood, and so many of them are currently learning about crypto and learning how to trade crypto, although the Nigerian Federal Government has come forward to place a complete ban on cryptocurrency.
Despite the ban on cryptocurrency in Nigeria, Nigerian youths have continued undeterred in dealing with cryptocurrency and have devised ways to circumvent the government ban.
Cryptocurrency has come to stay, although some governments are cracking down on cryptocurrency, and some are placing an outright ban on it, investors and dealers would always find a way to bypass these bans.
I think cryptocurrency has come to stay and is the currency for the future and sooner than later governments are going to start opening up and buying into cryptocurrency.
Thanks Professor @levycore for the wonderful lecture.
I am @the-patriarch
Thanks for reading