Chapter 3
The history and development of cryptocurrency
Before investing in cryptocurrency, you need to learn more about it to
ensure you’re going in equipped with knowledge and are able to make
better and informed decisions because of it. In this article we will dive
deeper into what crypto is and why it’s so important to become part of
the crypto market.
What is cryptocurrency?
Crypto is basically a string of coded data used as a currency unit.
Cryptocurrency can be used as money and accounting systems due to the
encryption technology that powers them. Blockchain, for example, is
used to securely record all of the transactions made by its users. In
simple words, it’s a form of digital currency or virtual medium of
exchange.
Who invented it and where did it come from?
Government and financial institutions have established and maintained
the currency we typically we use today as a medium of exchange. It is
predicted that cryptocurrencies will replace traditional paper money in
the future just as it replaced barter systems.
In 2008 when the financial crisis hit, people were frustrated and a
distrust developed with the banks. A group of tech-savvy individuals
wanted to build a mechanism by which people could send money to one
another without using banks. Satoshi Nakamoto, a Japanese American
developed the bitcoin, authored a bitcoin white paper and invented the
idea of cryptocurrency, a new electronic cash system with no trusted
third party.
Over the past few years, cryptocurrency has gained popularity and is
steadily rising over time. By 2030, cryptocurrency is expected to
represent 25% of all national currencies, according to futurists. The
majority of the global population is expected to start accepting
cryptocurrencies in exchange for goods and services. Customers and
retailers will begin to view it as a viable choice despite its inherent
instability.
Recent developments
Recent developments in cryptocurrencies have presented PayPal and
other players in the global economy with both new opportunities and
challenges.
● PayPal (money on the internet)
One of the newest financial institutions to start taking Bitcoin as payment
is PayPal which may a better options for both the business and the
customers it serves. Customer satisfaction with the company's goods and
services is more likely to go up by integrating bitcoins into PayPal's
financial system.
● Bitcoin is digital money (BTC)
Bitcoin is "a type of digital money that operates without the use of a
central bank and uses encryption techniques to handle the management
of the creation of units of currency and verify the transfer of cash."
In simpler terms, bitcoin is a decentralised digital currency that can be
exchanged between two people without third part interference. You can
either purchase Bitcoin using real money, which is the more time-
consuming and complicated option, or you can mine them. All you need is
a Bitcoin wallet to complete a transaction using Bitcoin.
How is it worth anything?
People learning about crypto frequently ask, "How can something virtual
be worth anything?" The possibility to exchange an item for one of higher
value or that it is regarded as valuable in and of itself can measure an
object's value.
Let me break it down for you. Cryptocurrency can be exchanged for
something of inherent value, and therefore is regarded as something
valuable itself.
What is the worth of money
Anything's value is solely based on what someone else is willing to pay.
Money's exchangeability, whether used for commodities or services,
determines its value. Because money is frequently utilised in these
transactions, there is a requirement for universal acceptance of money
among buyers and sellers of products and services.
Value of Bitcoin today
The supply of cryptocurrency like Bitcoin is not regulated by a
centralised body like a government. As a result, only the number of users
of the network may determine how much supply can be exchanged. The
Bitcoin community, not central banks or governments, determines the
currency's value.
What exactly is "money"?
There are two ways to describe the amount of money in circulation:
money supply comprises the most liquid forms of money, including cash,
demand deposits, and traveller's checks or the money supply includes
savings and time deposits, certificates of deposit, and money market
funds. Here are some hallmark characteristics of money.
• Scarcity:
There should be a balance between the difficulty of obtaining money and
its scarcity. A surplus of money in circulation is the root cause of inflation
and rising prices. Governments frequently set monetary circulation limits
to guarantee a continuous supply of money. Consider the printing of
dollars as an illustration, to help you grasp this idea. An estimated $3.38
TRILLION ($3,380,000,000,000) worth of funds—or 25% of all the money
ever printed—has been created in the previous 24 months. Throughout
this time, Fed has been printing money at an alarming rate, which has
had disastrous effects on the economy and the purchasing power of the
average American.
Bitcoin has almost doubled in value in 2022 as compared to 2021, a year
that saw a rise in mainstream knowledge and interest in cryptocurrencies
because there is a finite quantity, According to macroeconomic theory, a
good's price will grow in reaction to a rise in demand if there is a limited
supply. Its long-term value could consequently increase. For instance, the
rarity of a pair of limited-edition sneakers or even a Hermes handbag
may increase their worth. Thus, there would never be more than 21
million Bitcoin created overall.
• The capacity of divisibility
You need to be able to split and subdivide money into smaller amounts
before you can use it. After being split up into various denominations, the
money's overall value must remain constant. One major drawback of
using gold as money is that it is difficult to divide into many different
denominations due to its intrinsic properties. To maximise the usefulness
of monetary resources during monetary exchanges, the US dollar is
printed and distributed in various denominations, including coins.
Despite this, transporting coinage is challenging, which reduces the
dollar's usability.
As a digital asset, Bitcoin may be divided into an unlimited number of
smaller units. The most minor monetary units on the Bitcoin blockchains,
which keeps track of transactions, are satoshis. It is crucial to remember
that splitting up cash into smaller sums does not cause inflation, whether
the currency in question is satoshis or US dollars.
• Portability characteristics of money
The term "portability" describes an object's ease and speed of movement.
A currency must have the freedom to move freely between people,
nations, and large distances to be widely accepted. If money is
challenging to carry, it won't be used as widely. As you know Gold was
tough to transfer, which limited its usefulness. Bitcoin is the most
transferable asset among all monetary assets. Nothing anyone could do
to prevent someone from transferring huge amount. Nobody else can
transfer so much value so cheaply, in such a short amount of time, and on
their own.
• capacity for recognition
Everyone must acknowledge the presence of money. Users should be
able to agree on the object's identity and quantity since monetary things
need to be different. The parties involved will incur transaction costs if it
is difficult to tell the difference between real money and counterfeit
money from the commodity.
Bitcoin is often not used by people who aren't actively involved in the
cryptocurrency business in their regular financial activities. The fact that
so many companies now accept Bitcoin payments may therefore surprise
many customers. There are presently 15,174 companies that accept
Bitcoin as a form of payment.
• Indestructibility
If you think about it, you wish that money won’t lose its quality because
of its nature and the fact that it's continuously being transferred and
kept. For this purpose, gold is an excellent choice because it can't be
destroyed as swiftly as paper money can. As long as the cash remains
intact, it retains its worth. This makes paper currency unappealing.
There are various benefits to utilising Bitcoin because it is so difficult to
manipulate the cryptocurrency network, which makes it more secure.
The Bitcoin blockchains' decentralised, historical and computing-power-
intensive qualities make it difficult to alter or erase previously spent
Bitcoin blocks. Even though Bitcoin can't be destroyed, users' Bitcoin
holdings are at risk.
Why do people use it?
Bitcoin has risen to the status of an asset because many investors believe
it will appreciate more rapidly than existing asset classes. The growing
adoption of cryptocurrencies is mainly due to their decentralised
structure. They do not require the aid of a bank, they can be transported
rapidly and discretely, even across international borders, at no cost.
Stablecoin, on the other hand, has the potential to rival fiat currencies as
the most widespread form of payment. Bitcoin is noteworthy for the
following reasons: A unit of account that transcends national boundaries.
In contrast to using credit cards or money transfer services such as
Western Union, their value is relatively constant. They may be
transferred instantaneously without incurring any transaction fees.
Because stablecoins may be used on any smartphone, many people who
lack access to regular bank accounts can use them.
Using Western Union, money transactions from the United Kingdom to
Spain are entirely free, as are money transfers from France to Moldova.
Transferring 1,000 Euros will cost you 49.50 Euros. However, you can
transmit the same amount using bitcoin for as low as 0.00005 Euros.
What are stable coins?
The value of stablecoin is fixed, or "pegged," to another currency,
commodity, or financial instrument, such as the dollar. Stablecoin are an
attempt to supply a solution to the excessive volatility of the most
prominent cryptocurrencies, notably Bitcoin (BTC), which has made
investments in cryptocurrencies less practical for widespread use in
transactions. In the form of a cryptocurrency, stablecoin hopes to provide
a viable alternative to fiat currencies.
Types of stablecoin
There are two types of stable currencies:
• Crypto-collateralized
Stablecoin are backed by a broad spectrum of other cryptocurrencies,
including Bitcoin. Due to the reserve crypto currency’s potential for
severe volatility, these stablecoin have excessive collateral. Therefore,
the cryptocurrency held in reserves has a more excellent value than the
issued stablecoin.
• Non-collateralized stability
Stablecoin developed on algorithms may also be referred to as "non-
collateralized stablecoin" Algorithmic stablecoin may or may not be
backed by reserve assets. An algorithm is utilised to sustain the value of
a stablecoin, simply computer software that runs a defined formula to
govern the generation of stablecoins.
A crucial point to note is a central bank like the Federal Reserve has the
credibility to determine public monetary policy since it operates within
well-defined boundaries and produces legal money.
Discussion on what took place with Luna and the demise of UST.
For a brief period in May 2022, the Terra network and its leader
succeeded in the highest echelons of the cryptocurrency business, only to
quickly implode. It began to vary on May 7 and plummeted to 35 cents on
May 9 for the then-$18 billion algorithmic stablecoin terraced (UST),
designed to maintain a $1 peg. To keep UST's worth intact, the price of
its partner token, LUNA, plummeted from $80 to a few cents by May 12.
TerraUSD's (UST's) pricing is anticipated to remain stable at $1.
Terraform Labs, the firm behind Terra, developed a plan to buy $10
billion worth of bitcoin and other crypto assets through the LFG if
something like this happened Between UST and LUNA, about $40 billion
in assets were destroyed. Terra's inability to cope with adverse events is
the most critical factor. Even if a stablecoin is functional for a lengthy
period, it will eventually collapse owing to its lack of backing and
algorithmic nature. On the other hand, UST and LUNA are not large
enough or tied enough to us, which is a huge benefit. Is there anything
else we can take away from the fall of the UST?
On the other hand, the market for Bitcoin did not entirely collapse. Over
80,000 bitcoins (BTC) from the approximately $4 billion treasury may
have been sold amid the feverish push to return UST $1. As a result,
there was a rapid price decline. However, the entire cryptocurrency
market was hit because of problems with a big cryptocurrency project
(LUNA was formerly the 10th most valuable coin). The market worth of
over $500 billion for Bitcoin is practically unimaginable because of the
macro economy’s precarious position and the players' tremendous risk
aversion.
Consider These Five Pointers When Studying Cryptocurrencies
Everyone in the cryptocurrency community has an opinion on which
coins are on the verge of exploding and which ones are already losing
steam. So, who do you listen to?
This book covers the basics and more to empower you with knowledge
and equip you to analyze cryptocurrencies, make informed decisions, and
uncover potentially lucrative opportunities when investigating them on
the internet.
Step #1: Make the most of your social media potential first.
Use social media networks when undertaking crypto research to obtain a
better picture of the variety of viewpoints that have found momentum in
the community and get a more holistic perspective.
Twitter is one of the best techniques to understand how the market feels
and what people think about various cryptocurrencies. Facebook, on the
other hand, demands a totally new technique. Limit your participation to
only a few of the most popular crypto Facebook groups, such as Crypto
Coin Trader and Crypto Trader News, which each boast tens of
thousands of regular users.Conversely, Telegram may be an excellent
tool for acquiring the most up-to-date information and insight into
business trends.
Step # 2: analyse the fundamentals
While researching cryptocurrencies, you have to examine the underlying
principles of any potential altcoin in which one may have a long-term
financial investment interest is critical. Make sure you understand how
smart contracts function and what the innovation is; this can assist you in
determining whether or not they can keep half of the contract.
Step # 3: It’s also crucial to keep an eye on upcoming events
You should Use a cryptocurrency calendar like CoinMarketCal to receive
all the information you need about any coin you're interested in investing
in. You'll be able to learn about forthcoming events that could have an
immediate impact on the coin's value. Future occurrences might be a
valuable source of information when attempting to forecast a particular
cryptocurrency's short-term movement or the whole market.
Step# 4: Put your belief in the numbers
Another fantastic method is to use statistics as your primary guidance.
The volume of transactions involving a currency over a specific period is
essential to observe. Another critical factor you should consider while
conducting cryptocurrency research is which key research is currently
trendy. Keyword tools like KWFinder and Ahrefs may be used to correctly
evaluate the sentiment of the Bitcoin market. Using these tools, it is
possible to see which currencies and events are most popular at any
given time.
Step # 5: considered automated crypto investment platform
You can make use of ArbiSmart, an EU-licensed platform that is entirely
automated. It participates in crypto arbitrage, which takes advantage of
transient price inefficiencies across exchanges. This occurs when a
currency is offered on various exchanges simultaneously, yet the price of
that coin varies between them. It is connected to 35 exchanges, and
ArbiSmart's algorithm searches for inefficiencies on hundreds of different
coins 24 hours a day, every day. It then buys coins on the lowest-priced
exchange and swiftly sells them on the highest-priced market, making a
profit.
To create more informed and well-informed market decisions, use all of
the methodologies above and data sources. Watch out for misleading
advertising, as well as a wide range of opposing points of view. You
should be proud of your knowledge of cryptocurrencies if you've made it
this far in your adventure.
