Blockchain and Cryptocurrencies are Revolutionising the Way We Deal With Money

Future of Industry
Cryptocurrency and blockchain (or was it money chain?)

The meteoric rise of Bitcoin (and some other digital currencies) has sparked a sudden interest in cryptocurrencies worldwide – as more people try to get on the (golden) bandwagon and regulators grapple with creating directives around it. Cryptocurrency is yet another modern-day portmanteau –  a combination of crypto ( short for cryptography) and currency. Cryptography is a technology used for protecting sensitive data. What was once used during wartimes to send secret, critical (and cryptic) information, is now used to control the number of coins that can be produced within a cryptocurrency network, and to authenticate transactions that take place within the network.

How it works

Cryptocurrencies do not have a governing body to generate money whenever required. Therefore, the company that creates a crypto network is responsible for setting up contracts and regulations in order to control the flow of cryptocurrency. These regulations will ensure a smooth flow of transactions as long as all parties adhere to them. A limited number of coins are allowed to be used within a cryptocurrency’s network so that the value of the coins does not diminish. This very concept of limited circulation of coins has led to the exponential boom in the value of cryptocurrencies like Bitcoin and Ether.

What’s it used for?

Cryptocurrency is being used in a variety of negotiations including, but not limited to, trading, web-based services, and e-commerce. Its primary backbone is privacy – it maintains the privacy of the users within a particular currency’s network, thereby ensuring transactional safety. Due to the digital nature of cryptocurrencies, the transactions are maintained on public ledgers known as a “blockchain”. The ledgers are publically accessible and every transaction recorded is viewable by the different users. The decentralized nature of the technology ensures transparency in the currency network at the cost of irreparability. Hashing functions (functions that are used to hide data behind harmless substitute values) are used to ensure that the data remains inaccessible to users other than the ones allowed within the networks. Blockchains employ the use of “blocks”, which contain the information regarding transactions and these blocks are added to the existing chain of blocks. Blockchains are used in a variety of applications including IoT systems, medical data exchange, real-time payment tracking, etc. Blockchain includes a lot more processes but the entire concept cannot be included here due to spatial constraints.

Cryptocurrency is exchanged for services availed, through different currency networks. This process requires the addition of blocks to a blockchain. One can also earn cryptocurrency through mining, staking, microtasks, buying crypto directly through wallets etc. The most popular way of earning crypto is through mining.

The king of digital gold

When we think of crypto, Bitcoin is the name that comes to mind first. . But not all cryptocurrencies are Bitcoins. Bitcoin is just one type of cryptocurrency and was the first cryptocurrency to have been developed. Today, it’s the most valuable cryptocurrency, – a reason why it’s more popular than the rest. It recently gained $100 billion (that’s $1 trillion), as the value of one Bitcoin crossed $54000 (has recently been fluctuating between $55,000 and $ 60,000).

Here’s how it works. Bitcoin circulates 21 million coins within its network. This number has, and will remain, constant, creating a huge demand among the users. There are more than 1000 different types of crypto networks in the market as of now. These include Ethereum, Litecoin, NEO, BitDegree, Cardano, etc (we’ve covered them here). These are generally termed “altcoins” as they were introduced as alternative versions of Bitcoin. Each of these coins provides different features when compared to the rest. For example, Ethereum provides a platform for developing applications on the network for which Ether (the currency used by Ethereum) can be used as the mode of payment. A case in point – Amazon Web services (AWS) has recently launched Amazon Managed Blockchain for Ethereum.

Big guns coming in...

One of the reasons for the popularity of cryptocurrencies is because many large organisations are now buying it. Some of these organisations have been striving to make it legal tender so that their goods and services can be bought and sold using cryptocurrencies. Companies like Tesla, Meitu, Square Inc., Visa, Mastercard, and PayPal, to name a few, have begun using cryptocurrencies for transactions. Square revealed that most of its revenue generated in the last year was through selling Bitcoin. A simple tweet from Elon Musk, the CEO of Tesla, raised the market value of Dogecoin, which saw its fortunes rise temporarily. Meitu, a Chinese photo-editing application developer bought US$40 million worth of cryptocurrency (Bitcoin and Ether). The organisation is currently exploring options to use crypto in its global business plans and the development of dApps (distributed applications) that are based on Ethereum’s network. Moreover, several hedge funds have been considering the use of Bitcoins as a store of value. JPMorgan Chase, Goldman Sachs, and UBS have bought exchange-trade product (ETP) that is tied to Polkadot’s “DOT” crypto, showing us that institutions have begun to experiment on using digital currency for transactions.

Recently, Ethereum developers have decided to update the network by including a protocol known as EIP 1559, which destroys some tokens for every transaction leading to a reduced supply of Ether that will, in all likelihood, increase the price of the existing Ether coins. Such developments point to a future where cryptocurrency networks will take over the role of primary financial systems. The day isn’t far where we may use cryptocurrencies instead of legal tender. In fact, this belief is shared by many market watchers who predict that cryptos can effectively be used as an international standard for exchange rates.

Practical applications

Cryptocurrencies depend on blockchain technology in order to maintain transparent and immutable ledgers, whose timestamps cannot be tampered with. These concepts can be implemented in different scenarios so that the processes can remain untampered.

Some examples where blockchain can be implemented include banking scenarios, voting systems where voter frauds can be avoided using immutable timestamps, etc. IBM’s food trust blockchain makes use of the technology to track the paths taken by food before reaching its destination. Due to blockchain’s abilities, the metadata is made easily available, thus providing information about important issues such as where a particular disease-related to food products was first observed, where a food product was sourced from etc.

Banking and finance sectors too stand to gain from the application of blockchain technology. The transactions can be done quickly and from anywhere in the world, at any time. This would reduce the need for a customer to physically visit banks for each and every transaction while ensuring that their data is secure through the encryption processes put in place by a blockchain. Healthcare industries stand to gain from the technology as it can be used to store permanent patient records. This can revolutionise the way patients are diagnosed as no matter where they are in the world, the physicians would have access to a particular patient’s entire medical history. This could include the patient’s previous diagnoses, diet plans, medical allergies, etc. Through the use of blockchain, it can also be ensured that the records are not made publicly available, thereby protecting the patient’s privacy. In fact, the areas where blockchain can be applied are innumerable. It is only our creativity that is stopping us from determining where to use them.

What’s important to note is that blockchain developers have a huge demand in the market today – a demand that is only set to grow further.

To become a blockchain developer, one must first deal with the basics. It is important to learn about how blockchain works, how distributed networks work, how cryptography works, and how databases work. Cryptocurrency is the amalgamation of all the above concepts, so it is important to learn about them individually. In order to begin investing in crypto, one must learn about the difference between the existing financial systems and crypto, how investments work, learn about the trends of the day, and most importantly, learn to play it safe.

Mining is yet another profession related to cryptocurrency. Cryptomining, or mining, is the process of verifying different blocks in a blockchain that contain information about the transactions that occur. The entire scheme involves verifying the different transactions and adding the transactions as entries into the digital ledger. It also involves solving complex mathematical problems and other puzzles in order to generate currency, which gets credited to the “miner’s” account on a particular crypto network. A computer or a set of computers at a particular location that verify blocks are called miners.  The process of mining is basically a competition where multiple miners compete to solve complicated mathematical puzzles in order to verify blocks in a network. Miners race to verify blocks in order to obtain coins. They are required to solve complicated problems in order to avail coins so it does require a certain level of mastery over mathematics and computer science in order to be on the top. The process of mining requires a lot of powerful and expensive hardware.

Many online courses are available for those interested in learning about investing in crypto, mining, blockchain development etc. It is quite possible that students with an accounting background may find themselves at a disadvantage if they do not possess a basic knowledge about blockchain and cryptocurrencies. Although there are many online courses for learning about the latest technologies, there are some universities that offer quality courses on different path-breaking concepts – these include,  Massachusetts Institute of Technology, New York University, Universidad Europea de Madrid, ETH Zurich, Royal Melbourne Institute of Technology, Stanford University etc.  UC Berkeley and Parity Technologies have come together in order to provide a platform for educational development of blockchain technology.

Crypto investing and volatility

The idea of investing in crypto is becoming more mainstream. It’s one of those high-risk-high-gain ventures that’s attracting both young and old investors.  But, although it’s created many millionaires, it’s fraught with risk, as it’s vulnerable to market value fluctuations. Though there have been talks about cryptocurrencies being deemed illegal, multiple reversals on the matter have been made in some countries due to the popularity of digital money and the potential economic surge they promise. The bottom line here is to tread with caution and at your own risks.

Bitcoin’s market value, for instance, has been wildly fluctuating since the beginning of 2021, crossing a highly anticipated $1 trillion. Interestingly, Meitu, the organisation that made headlines for buying a lot of cryptos last week seems to acknowledge the fact that the prices are indeed “volatile”. This could also be one of the reasons why they decided to buy crypto from both Ethereum and Bitcoin, as no one can predict which one’s going to be the winner in the long run. Janet Yellen, the US Treasury Secretary, recently made headlines when she was quoted saying that “Bitcoin is an extremely inefficient way of conducting transactions” – a statement that, predictably,  led to a sudden fall in the price of Bitcoins.

The risks..

The use of blockchain for cryptocurrency seems to be providing a breeding ground for a new era of data manipulation. Blockchain users have access to the publicly available ledger through a locally stored copy containing information about all the transactions within a currency network. This would mean that no matter what gets stored on the blockchain, a copy of it would be present on the systems of all active users. Technically, this mechanism could easily be misused to upload unwarranted data or applications that could steal information. Another research that reflected the disadvantages of crypto mining was carried out by Cambridge University, which showed that crypto mining used up more electricity than the whole country of Argentina did. Recently, Iran blamed Bitcoin for the blackouts it faced. The use of Bitcoins are deemed illegal in some places so the claims about its universality do not hold water. Talks in certain countries regarding blanket bans on the use of cryptocurrencies have begun to form cracks.

And then there are the believers.

Henrik Andersson, co-founder, and chief investment officer at Apollo Capital, believes that crypto is driving the next generation of computing systems and infrastructure. However, he does not advise investors to put all their wealth into crypto. Rahul Pagidipati, CEO of ZebPay, seems to believe that cryptocurrency will be used extensively in the future as exchange rates fall internationally. He also said that the “governments should work with the industry” so that innovations can be encouraged by addressing certain regulatory concerns.

Love it, hate it, can’t ignore it

The truth is that even if you are not a big believer in cryptocurrencies, it is something you cannot ignore, especially if you are in the finance domain. True, volatility is a part of the industry and there could be huge crashes before there are gains (if at all). However, a finance student needs to understand how crypto works, and its applications. It’s a part of our future – in what shape or form, it may not be all clear, but part it is.

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