1. i
A Seminar Report
On
Introduction To Cryptocurrency
in partial fulfillment for the award of the degree
B. Tech
IN
COMPUTER SCIENCE AND ENGINEERING
Submitted by:
SANJAY KUMAR
1551110051
G.L. BAJAJ GROUP OF INSTITUION
MATHURA, U. P. (INDIA)
April, 2018
2. ii
G.L. BAJAJ GROUP OF INSTITUION
MATHURA, U. P. (INDIA)
Certificate
This is certified that the Seminar Report on “Introduction To Cryptocurrency“
by SANJAY KUMAR of VI Semester branch Computer Science and Engineering
in the partial fulfillment of the requirements for the award of the degree
B.Tech. in the stream of Computer Science and Engineering by Dr. A.P.J.
ABDUL KALAM TECHNICAL UNIVERSITY, Lucknow is an authentic work.
Date: APRIL 26, 2018 Ankur Saxena
Assoc. Prof. & Head- CSE Department
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TABLE OF CONTENTS
CHAPTER
NO.
TITLE PAGE No.
I Cover Page i
II. Certificate ii
III. Abstract iv
1. Introduction To Cryptocurrency…………..1
1.1 Introduction………………………………………...1
1.2 Definition…………………………………………….1
1.3 Overview……………………………………….…….2
1.4 History………………………………………………...3
2 Properties Cryptocurrency…………………...5
2.1 Transactional Properties……………………….5
2.2 Monetary Properties……………………………..7
3 Cryptocurrency Basics…………………………..8
3.1 Public Leadgers……………………………………..8
3.2 Mining………………..………………………………….9
3.3 Block Chain………………….………………………..9
4 Cryptocurrency Mining………………….………10
4.1 How Miners create Coins?...............................10
5 Dawn Of new Economy……………………………12
5.1 List Of Cryptocurrency…………………………….12
5.2 Top 10 Cryptocurrency……………………………15
6 Advantages Of Cryptocurrency…………………16
7 Disadvantages Of Cryptocurrency………….…18
8 Future of Cryptocurrency…………………………18
9 Conclusions………………………………………………19
10 Referencs…………………………………………………20
4. iv
Abstract
In this article, we give a short introduction to
cryptocurrencies and blockchain technology. The focus of
the introduction is on Bitcoin, but many elements are
shared by other blockchain implementations and
alternative cryptoassets. The article covers the original
idea and motivation, the mode of operation and possible
applications of cryptocurrencies, and blockchain
technology. We conclude that Bitcoin has a wide range of
interesting applications and that cryptoassets are well
suited to become an important asset class.
This article explains the most important thing about
cryptocurrencies. After you‘ve read it, you‘ll know more
about it than most other humans.
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Chapter- 1
Introduction to Cryptocurrency
1.1 Introduction:
A cryptocurrency (or crypto currency) is a digital asset designed to work
as a medium of exchange that uses cryptography to secure its
transactions, to control the creation of additional units, and to verify
the transfer of assets. Cryptocurrencies are a type of digital currencies,
alternative currencies and virtual currencies. Cryptocurrencies use
decentralized control as opposed to centralized electronic money and
central banking systems.
The decentralized control of each cryptocurrency works through a
blockchain, which is a public transaction database, functioning as a
distributed ledger.
1.2 Definition:
A cryptocurrency is a system that meets six conditions:
1. The system does not require a central authority, distributed
achieve consensus on its state.
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.
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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.
.
1.3 Overview:
Decentralized cryptocurrency is produced by the entire cryptocurrency
system collectively, at a rate which is defined when the system is
created and which is publicly known. In centralized banking and
economic systems such as the Federal Reserve System, corporate
boards or governments control the supply of currency by printing units
of fiat money or demanding additions to digital banking ledgers. In the
case of decentralized cryptocurrency, companies or governments
cannot produce new units, and have not so far provided backing of
other firms, banks or corporate entities which hold asset value
measured in it. The underlying technical system upon which
decentralized cryptocurrencies are based was created by the group or
individual known as Satoshi Nakamoto.
As of October 2017, over a thousand cryptocurrency specifications
exist; most are similar to and derived from the first fully implemented
centralized cryptocurrency, bitcoin. Within cryptocurrency systems the
safety, integrity and balance of ledger are maintained by a community
of mutually distrustful parties referred to as miners: members of the
general public using their computers to help validate and timestamp
transactions adding them to the ledge in accordance with a particular
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timestamping scheme. Miners have a financial incentive to maintain
the security of a cryptocurrency ledger.
Most cryptocurrencies are designed to gradually decrease production
of currency, placing an ultimate cap on the total amount of currency
that will be in circulation mimicking previous metals (Andy, 2011).
Compared with ordinary currencies held by financial institutions or kept
as cash on hand, cryptocurrencies can be more difficult for seizure by
law enforcement (Andy, 2011). This difficulty is derived from leveraging
cryptographic technologies. A primary example of this new challenge of
law enforcement comes from the Silk Road case, where Ulbricht’s
bitcoin stash “was held separately and encrypted”8. Cryptocurrencies
such as bitcoin are pseudonymous, though additions such as Zerocoin
have been suggested, which would allow for true anonymity.
1.4 History:
In 1998, Wei Dai published a description of "b-money", an anonymous,
distributed electronic cash system.10 Shortly thereafter, Nick Szabo
created "bit gold".11 Like bitcoin and other cryptocurrencies that would
follow it, Bit Gold was an electronic currency system which required
users to complete a proof of work function with solutions being
cryptographically put together and published. A currency system based
on a reusable proof of work was later created by Hal Finney who
followed the work of Dai and Szabo. The first decentralized
cryptocurrency, bitcoin, was created in 2009 by pseudonymous
developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash
function, as its proof-of-work scheme.12 In April 2011, Namecoin was
created as an attempt at forming a decentralized Domain Name Servers
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(DNS), which would make internet censorship very difficult. Soon after,
in October 2011, Litecoin was released. It was the first successful
cryptocurrency to use script as its hash function instead of SHA-256.
Another notable cryptocurrency, Peercoin was the first to use a proof-
of-work/proof-of-stake hybrid.13 IOTA (Distributed Ledger Technology)
was the first cryptocurrency not based on a blockchain, and instead
uses the Tangle.14 Many other cryptocurrencies have been created
though few have been successful, as they have brought little in the way
of technical innovation.15 On 6 August 2014, the UK announced its
Treasury had been commissioned to do a study of cryptocurrencies,
and what role, if any, they can play in the UK economy. The study was
also to report on whether regulation should be considered.
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Chapter- 2
Revolutionary Properties of Cryptocurrency
If you really think about it, Bitcoin, as a decentralized network of peers
which keep a consensus about accounts and balances, is more a
currency than the numbers you see in your bank account. What are
these numbers more than entries in a database – a database which can
be changed by people you don‘t see and by rules you don‘t know?
Basically, cryptocurrencies are entries about token in decentralized
consensus-databases. They are called CRYPTOcurrencies because the
consensus-keeping process is secured by strong cryptography.
Cryptocurrencies are built on cryptography. They are not secured by
people or by trust, but by math. It is more probable that an asteroid
falls on your house than that a bitcoin address is compromised.
2.1 Transactional properties:
1.) Irreversible: After confirmation, a transaction can‘t be reversed. By
nobody. And nobody means nobody. Not you, not your bank, not the
president of the United States, not Satoshi, not your miner. Nobody. If
you send money, you send it. Period. No one can help you, if you sent
your funds to a scammer or if a hacker stole them from your computer.
There is no safety net.
2.) Pseudonymous: Neither transactions nor accounts are connected to
real-world identities. You receive Bitcoins on so-called addresses, which
are randomly seeming chains of around 30 characters. While it is
usually possible to analyze the transaction flow, it is not necessarily
possible to connect the real world identity of users with those
addresses.
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3.) Fast and global: Transaction are propagated nearly instantly in the
network and are confirmed in a couple of minutes. Since they happen
in a global network of computers they are completely indifferent of
your physical location. It doesn‘t matter if I send Bitcoin to my
neighbour or to someone on the other side of the world.
4.) Secure: Cryptocurrency funds are locked in a public key
cryptography system. Only the owner of the private key can send
cryptocurrency. Strong cryptography and the magic of big numbers
makes it impossible to break this scheme. A Bitcoin address is more
secure than Fort Knox.
5.) Permissionless: You don‘t have to ask anybody to use
cryptocurrency. It‘s just a software that everybody can download for
free. After you installed it, you can receive and send Bitcoins or other
cryptocurrencies. No one can prevent you. There is no gatekeeper.
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2.2 Monetary properties:
1.) Controlled supply: Most cryptocurrencies limit the supply of the
tokens. In Bitcoin, the supply decreases in time and will reach its final
number somewhere in around 2140. All cryptocurrencies control the
supply of the token by a schedule written in the code. This means the
monetary supply of a cryptocurrency in every given moment in the
future can roughly be calculated today. There is no surprise.
2.) No debt but bearer: The Fiat-money on your bank account is
created by debt, and the numbers, you see on your ledger represent
nothing but debts. It‘s a system of IOU. Cryptocurrencies don‘t
represent debts. They just represent themselves. They are money as
hard as coins of gold.
To understand the revolutionary impact of cryptocurrencies you need
to consider both properties. Bitcoin as a permissionless, irreversible
and pseudonymous means of payment is an attack on the control of
banks and governments over the monetary transactions of their
citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit
someone to accept a payment, you can‘t undo a transaction.
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Chapter- 3
Cryptocurrency Basics
Cryptocurrencies like Bitcoin are in essence a series of virtual ‘tokens’
that can be exchanged just like normal money except all the
transactions take place over the internet.
Unlike normal money, Bitcoin isn’t regulated by any one country, or
stored in banks. Instead it follows a shared set of rules that every
owner must agree to.
In order to understand how cryptocurrency works, you’ll need to
understand a few basic concepts. Specifically:
3.1 Public Ledgers:
All confirmed transactions from the start of a cryptocurrency’s
creation are stored in a public ledger. The identities of the coin owners
are encrypted, and the system uses other cryptographic techniques to
ensure the legitimacy of record keeping. The ledger ensures that
corresponding “digital wallets” can calculate an accurate spendable
balance. Also, new transactions can be checked to ensure that each
transaction uses only coins currently owned by the spender. Bitcoin
calls this public ledger a “transaction block chain.”
3.2 Transactions:
A transfer of funds between two digital wallets is called a
transaction. That transaction gets submitted to a public ledger and
awaits confirmation. When a transaction is made, wallets use an
encrypted electronic signature (an encrypted piece of data called a
cryptographic signature) to provide a mathematical proof that the
transaction is coming from the owner of the wallet. The confirmation
process takes a bit of time (ten minutes for bitcoin) while “miners”
mine (ie. confirm transactions and add them to the public ledger).
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3.3 Mining:
In simple terms, mining is the process of confirming
transactions and adding them to a public ledger. In order to add a
transaction to the ledger, the “miner” must solve an increasingly-
complex computational problem (sort of like a mathematical puzzle).
Mining is open source, so anyone can confirm the transaction. The first
“miner” to solve the puzzle adds a “block” of transactions to the ledger.
The way in which transactions, blocks, and the public blockchain ledger
work together ensures that no one individual can easily add or change a
block at will. Once a block is added to the ledger, all correlating
transactions are permanent and a small transaction fee is added to the
miner’s wallet (along with newly created coins). The mining process is
what gives value to the coins and is known as a proof-of-work system
3.4 Blockchain:
The validity of each cryptocurrency's coins is provided by
a blockchain. A blockchain is a continuously growing list of records,
called blocks, which are linked and secured using cryptography. Each
block typically contains a hash pointer as a link to a previous block,
a timestamp and transaction data. By design, blockchains are inherently
resistant to modification of the data. It is "an open, distributed ledger
that can record transactions between two parties efficiently and in a
verifiable and permanent way". For use as a distributed ledger, a
blockchain is typically managed by a peer-to-peer network collectively
adhering to a protocol for validating new blocks. Once recorded, the
data in any given block cannot be altered retroactively without the
alteration of all subsequent blocks, which requires collusion of the
network majority.Blockchains are secure by design and are an example
of a distributed computing system with high Byzantine faut
tolerance. Decentralized consensus has therefore been achieved with a
blockchain.It solves the double spending problem without the need of
a trusted authority or central server.
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Chapter – 4
Cryptocurrency Mining
Production of cryptocurrencies isn't anything like that of regular
money. There's no central authority that issues new notes; instead,
bitcoins (or litecoins, or any of the other so-called 'alt-coins') are
generated through a process known as 'mining'. So what is
cryptocurrency mining, and how does it work?
4.1 How miners create coins:
A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and
is signed by Bob‘s private key. It‘s basic public key cryptography,
nothing special at all. After signed, a transaction is broadcasted in the
network, sent from one peer to every other peer. This is basic p2p-
technology. Nothing special at all, again.
The transaction is known almost immediately by the whole network.
But only after a specific amount of time it gets confirmed. Confirmation
is a critical concept in cryptocurrencies. You could say that
cryptocurrencies are all about confirmation.
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As long as a transaction is unconfirmed, it is pending and can be forged.
When a transaction is confirmed, it is set in stone. It is no longer
forgeable, it can‘t be reversed, it is part of an immutable record of
historical transactions: of the so-called blockchain.
Only miners can confirm transactions. This is their job in a
cryptocurrency-network. They take transactions, stamp them as legit
and spread them in the network. After a transaction is confirmed by a
miner, every node has to add it to its database. It has become part of
the blockchain.
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Chapter- 5
Cryptocurrencies: Dawn of a new economy
Mostly due to its revolutionary properties cryptocurrencies have
become a success their inventor, Satoshi Nakamoto, didn‘t dare to
dream of it. While every other attempt to create a digital cash system
didn‘t attract a critical mass of users, Bitcoin had something that
provoked enthusiasm and fascination. Sometimes it feels more like
religion than technology.
Cryptocurrencies are digital gold. Sound money that is secure from
political influence. Money that promises to preserve and increase its
value over time. Cryptocurrencies are also a fast and comfortable
means of payment with a worldwide scope, and they are private and
anonymous enough to serve as a means of payment for black markets
and any other outlawed economic activity.
5.1 List of Cryptocurrencies:
The number of cryptocurrencies available over the internet as of
10 April 2018 is over 1565 and growing. A new cryptocurrency can be
created at any time. By market capitalization, Bitcoin is currently (April
10, 2018) the largest blockchain network, followed
by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS.
-) Bitcoin
The one and only, the first and most famous cryptocurrency. Bitcoin
serves as a digital gold standard in the whole cryptocurrency-industry,
is used as a global means of payment and is the de-facto currency of
cyber-crime like darknet markets or ransomware. After seven years in
existence, Bitcoin‘s price has increased from zero to more than 650
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Dollar, and its transaction volume reached more than 200.000 daily
transactions.
There is not much more to say: Bitcoin is here to stay.
-) Ethereum
The brainchild of young crypto-genius Vitalik Buterin has ascended to
the second place in the hierarchy of cryptocurrencies. Other than
Bitcoin its blockchain does not only validate a set of accounts and
balances but of so-called states. This means that Ethereum can not only
process transactions but complex contracts and programs.
This flexibility makes Ethereum the perfect instrument for blockchain -
application. But it comes at a cost. After the Hack of the DAO – an
Ethereum based smart contract – the developers decided to do a hard
fork without consensus, which resulted in the emerge of Ethereum
Classic. Besides this, there are several clones of Ethereum,
and Ethereum itself is a host of several Tokens like DigixDAO and Augur.
This makes Ethereum more a family of cryptocurrencies than a single
currency.
-) Ripple
Maybe the less popular – or most hated – project in the cryptocurrency
community is Ripple. While Ripple has a native cryptocurrency – XRP –
it is more about a network to process IOUs than the cryptocurrency
itself. XRP, the currency, doesn‘t serve as a medium to store and
exchange value, but more as a token to protect the network against
spam.
Ripple Labs created every XRP-token, the company running the Ripple
network, and is distributed by them on will. For this reason, Ripple is
often called pre-mined in the community and dissed as no real
cryptocurrency, and XRP is not considered as a good store of value.
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Banks, however, seem to like Ripple. At least they adopt the system
with an increasing pace.
-) Litecoin
Litecoin was one of the first cryptocurrencies after Bitcoin and tagged
as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger
amount of token and a new mining algorithm, Litecoin was a real
innovation, perfectly tailored to be the smaller brother of bitcoin. “It
facilitated the emerge of several other cryptocurrencies which used its
codebase but made it, even more, lighter“. Examples are Dogecoin or
Feathercoin.
While Litecoin failed to find a real use case and lost its second place
after bitcoin, it is still actively developed and traded and is hoarded as a
backup if Bitcoin fails.
-) Monero
Monero is the most prominent example of the cryptonite algorithm.
This algorithm was invented to add the privacy features Bitcoin is
missing. If you use Bitcoin, every transaction is documented in the
blockchain and the trail of transactions can be followed. With the
introduction of a concept called ring-signatures, the cryptonite
algorithm was able to cut through that trail.
The first implementation of cryptonite, Bytecoin, was heavily premined
and thus rejected by the community. Monero was the first non-
premined clone of bytecoin and raised a lot of awareness. There are
several other incarnations of cryptonote with their own little
improvements, but none of it did ever achieve the same popularity as
Monero.
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5.2 Top 10 Crypto currency:
In this rich ecosystem of coins and token, you experience extreme
volatility. It‘s common that a coin gains 10 percent a day – sometimes
100 percent – just to lose the same at the next day. If you are lucky,
your coin‘s value grows up to 1000 percent in one or two weeks.
While Bitcoin remains by far the most famous cryptocurrency and most
other cryptocurrencies have zero non-speculative impact, investors and
users should keep an eye on several cryptocurrencies. Here we present
the most popular cryptocurrencies of today.
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Chapter- 6
Benefits of Cryptocurrency
Here are several of the benefits of using cryptocurrency, and how doing
so can change your outlook on money altogether:
Fraud: Cryptocurrencies are digital and cannot be counterfeited or
reversed arbitrarily by the sender, as with credit card charge-back.
Identity Theft: Credit cards operate on a “pull” basis, where the store
initiates the payment and pulls the designated amount from your
account. Cryptocurrency use a “push” mechanism that allows the
cryptocurrency holder to send exactly what he or she wants to the
merchant or recipient with no further information
Immediate Settlement: Purchasing real property typically involves a
number of third parties (Lawyers, Notary), delays, and payment of fees.
In many ways, the bitcoin/cryptocurency blockchain is like a “large
property rights database,” says Gallippi. Bitcoin contracts can be
designed and enforced to eliminate or add third party approvals,
reference external facts, or be completed at a future date or time for a
fraction of the expense and time required to complete traditional asset
transfers.
Access to Everyone: There are approximately 2.2 billion individuals
with access to the Internet or mobile phones who don’t currently have
access to traditional exchange systems. These individuals are primed
for the Crytocurrency market. Kenya’s M-PESA system, a mobile phone-
based money transfer and micros financing service recently announced
a bitcoin device, with one in three Kenyans now owning a bitcoin
wallet.
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Lower Fees: There aren’t usually transaction fees for cryptocurrency
exchanges because the miners are compensated by the network (Side
note: This is the case for now). Even though there’s no
bitcoin/cryptocurrency transaction fee, many expect that most users
will engage a third-party service, such as Coinbase, creating and
maintaining their own bitcoin wallets. These services act like Paypal
does for cash or credit card users, providing the online exchange
system for bitcoin, and as such, they’re likely to charge fees. It’s
interesting to note that Paypal does not accept or transfer bitcoins.
MOST IMPORTANT. YOU OWN IT:
There is no other electronic cash system in which your account isn’t
owned by someone else. Take PayPal, for example: if the company
decides for some reason that your account has been misused, it has the
power to freeze all of the assets held in the account, without consulting
you (Trust me, this has happen to me many times) It is then up to you
to jump through whatever hoops are necessary to get it cleared, so that
you can access your funds. With cryptocurrency, you own the private
key and the corresponding public key that makes up your
cryptpcurrency address. No one can take that away from you (unless
you lose it yourself, or host it with a web-based wallet service that loses
it for you).
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Chapter- 7
Disadvantages Of Cryptocurrency
Lack of Security. There is no safety net or perfect way to protect your
bitcoins from human error (passwords), technical glitches (hard drive
failures, malware), or fiduciary fraud. According to an article in the UK
edition of Wired, 18 of 40 web-based businesses offering to exchange
bitcoins into other fiat currencies have gone out of business, with only
six exchanges reimbursing their customers. The authors of the study
estimate that the median lifespan of any bitcoin exchange is 381 days,
with a 29.9% chance that a new exchange will close within a year of
opening.
Increased Regulation. While relatively benign guidelines are currently
in place, law enforcement agencies could decide that bitcoins are a
“giant money laundering scheme,” and enact more stringent
regulations that would diminish the currency’s value.
Limited Scaling. The design of the system limits the speed and number
of transactions processed, making it unlikely that bitcoins will replace
conventional credit card transactions.
Lack of Applications. While acknowledging bitcoins’ popular use for
illegal transactions, Lee questions how useful bitcoins really are. To be
truly disruptive to existing fiat currencies or electronic payment
systems, Bitcoin would need applications for low-cost international
money transfers, the creation of complex electronic contracts, or use in
Kickstarter-style fundraising campaigns or micropayment transfers.
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Chapter – 8
Future Of Cryptocurrency
The market of cryptocurrencies is fast and wild. Nearly every day new
cryptocurrencies emerge, old die, early adopters get wealthy and
investors lose money. Every cryptocurrency comes with a promise,
mostly a big story to turn the world around. Few survive the first
months, and most are pumped and dumped by speculators and live on
as zombie coins until the last bagholder loses hope ever to see a return
on his investment.
Markets are dirty.But this doesn‘t change the fact that cryptocurrencies
are here to stay – and here to change the world. This is already
happening. People all over the world buy Bitcoin to protect themselves
against the devaluation of their national currency. Mostly in Asia, a
vivid market for Bitcoin remittance has emerged, and the Bitcoin using
darknets of cybercrime are flourishing.
More and more companies discover the power of Smart Contracts or
token on Ethereum, the first real-world application of blockchain
technologies emerge.
The revolution is already happening. Institutional investors start to buy
cryptocurrencies. Banks and governments realize that this invention has
the potential to draw their control away. Cryptocurrencies change the
world. Step by step. You can either stand beside and observe – or you
can become part of history in the making.
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Conclusion:
Cryptocurrency is fast becoming a true rival to traditional currency
across the world. The digital currency is available to purchase in many
different places, making it accessible to everyone, and with retailers
accepting Bitcoin it could be a sign that money as we know it is about to
go through a major change.
The total market capitalization of cryptocurrencies, as of September
2017, is worth more than 100 billion USD, and currently has a record
high daily volume of larger than 6 billion USD.
Making currency decentralized is very appealing within the world of
hacking and tampering of which we live. If protecting our money means
taking it away from the centralized banks, it’s highly likely that the
market capitalization of cryptocurrencies will continue to grow.
As more retailers start accepting cryptocurrency, and more
cryptocurrencies come into circulation, people have more choice than
ever when it comes to managing their own money which is something
which is pulling more people into the cryptocurrency world than ever
before.
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References:
o https://blockgeeks.com
o https://blockonomi.com/
o https://en.wikipedia.org/wiki/Cryptocurrency
o https://www.investopedia.com/articles/investing/043014/what-
bitcoin-mining.asp
o https://en.wikipedia.org/wiki/List_of_cryptocurrencies
o https://coinmarketcap.com/