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Introduction to the World of Cryptocurrency (Summary)

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Introduction to the World of Cryptocurrency (Summary)

  1. 1. Introduction to the World of Cryptocurrencies Summarized by : Syeirabani Hatta – 2401181038 MM – Eksekutif 36 Telkom University 2019
  2. 2. INTRODUCTION Today, payments have become a “commodity,” with consumers embracing models that offer greater value. A combination of consumer demand, emerging technologies, market competition and regulatory push has boosted the electronic payments segment. Some of the global dynamics and trends that are transforming the payments value chain are: •Divergence in payments acceptance and nonphysical interfaces •Emergence of real-time payments and alternate technologies •Harmonisation of standards and simplification of payments •Emergence of integrated digital payments and third-party ecosystems •Evolution of cross-border payments • Tighter regulations
  3. 3. CASH, DIGITAL CASH, AND ELECTRONIC PAYMENT •Cash is represented by a physical object, usually a coin or a note. When this object is handed to another individual, its unit of value is also transferred, without the need for a third party to be involve •The great advantage of physical cash is that whoever is in possession of the physical object is by default the owner of the unit of value. This ensures that the property rights to the units of value circulating in the economy are always clearly established, without a central authority needing to keep accounts. •Cash also has disadvantages. Buyers and sellers have to be physically present at the same location in order to trade, which in many situations makes its use impracticable. CASH
  4. 4. CASH, DIGITAL CASH, AND ELECTRONIC PAYMENT •An ideal payment system would be one in which monetary value could be transferred electronically via cash data files. Such cash data files retain the advantages of physical cash but would be able to circulate freely on electronic networks. A data file of this type could be sent via email or social media channels. •A specific feature of electronic data is that it can be copied any number of times at negligible cost. This feature is highly undesirable for money. If cash data files can be copied and the duplicates used as currency, they cannot serve as a payment instrument. This problem is termed the “double spending problem.” DIGITAL CASH
  5. 5. CASH, DIGITAL CASH, AND ELECTRONIC PAYMENT •To counteract the problem of double spending, classical electronic payment systems are based on a central authority that verifies the legitimacy of the payments and keeps track of the current state of ownership. In such systems, a central authority (usually a bank) manages the accounts of buyers and sellers. The buyer initiates a payment by submitting an order. The central authority then ensures that the buyer has the necessary funds and adjusts the accounts accordingly. •Centralized payment systems solve the double spending problem, but they require trust. Agents must trust that the central authority does not misuse the delegated power and that it maintains the books correctly in any state of the world—that is, that the banker is not running away with the money. Furthermore, centralized systems are vulnerable to hacker attacks, technical failures, and malicious governments that can easily interfere and confiscate funds. ELECTRONIC PAYMENT
  6. 6. CRYPTOCURRENCY •Cryptocurrency is a digital currency that uses encryption (cryptography) to generate money and to verify transactions. Transactions are added to a public ledger – also called a Transaction Block Chain – and new coins are created through a process known as mining. •Cryptocurrency - A digital currency in which encryption techniques (cryptography) are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. •Digital currency or digital money is an Internet-based medium of exchange distinct from physical (such as banknotes and coins) that exhibits properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer-of-ownership. •The first cryptocurrency to be created was Bitcoin back in 2009. Today there are hundreds of other cryptocurrencies, often referred to as Altcoins.
  7. 7. The History of Cryptocurrency • The first decentralized digital cryptocurrency can be traced back to “bit gold” (not to be confused with Bit Gold), which was worked on by Nick Szabo between 1998 and 2005 but was never implemented. • Although bit gold is considered the first precursor to bitcoin, cryptocurrency pioneer David Chaum’s company DigiCash (a company founded in 1989 which attempted to innovate digital currency), Wei Dai’s b-money (a conceptual system published in 1998 which Satoshi cites it in the Bitcoin white paper), and “e-gold” (a centralized digital currency that started in 1996) are all notable early mentions. • With that history noted, modern digital currency starts in 2008 when Satoshi Nakamoto (an anonymous person and/or group) released their paper detailing what would become Bitcoin. Bitcoin became the first decentralized digital coin when it was created in 2008. It then went public in 2009. • As of 2018, Bitcoin is the most commonly known and used cryptocurrency. Meanwhile, other coins including Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and more are notable mentions. • As of January 2015, there were over 500 different types of cryptocurrencies – or altcoins – for trade in online markets. However, only 10 of them had market capitalizations over $10 million. • As of September 2017, there were over 1,100 cryptocurrencies and the total market capitalization of all cryptocurrencies reached an all-time high surpassing $60 Billion. Then, by December 2017, the total market cap reached $600 billion (a multiple of 10 in only two months).
  8. 8. The Best Cryptocurrencies To Invest in 2019 Right now, Bitcoin is still the best cryptocurrency to invest in 2019. However, it’s also a good time to diversify your portfolio and invest in altcoins rather than just Bitcoin.
  9. 9. Bitcoin • First ‘decentralized’ digital currency. They are digital coins you can send through the internet. • No one controls it. Bitcoins aren’t printed, like rupee or dollars – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. • An anonymous software developer called Satoshi Nakamoto proposed bitcoin in 2009, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees. • In simple words, bitcoin is an open source software to transfer money over the internet.
  10. 10. Bitcoin Blockchain • The Bitcoin Blockchain is a data file that carries the records of all past Bitcoin transactions, including the creation of new Bitcoin units. It is often referred to as the ledger of the Bitcoin system. • The Bitcoin Blockchain consists of a sequence of blocks where each block builds on its predecessors and contains information about new Bitcoin transactions. The average time between Bitcoin blocks is 10 minutes. The first block, block #0, was created in 2009; and, at the time of this writing, block #494600 was appended as the most recent block to the chain. Because everyone can download and read the Bitcoin Blockchain, it is a public record, a ledger that contains Bitcoin ownership information for any point in time.
  11. 11. Bitcoin Mining •A miner collects pending Bitcoin transactions, verifies their legitimacy, and assembles them into what is known as a “block candidate.” The goal is to earn newly created Bitcoin units through this activity. •The miner can succeed in doing this if he or she can convince all other network participants to add his or her block candidate to their copies of the Bitcoin Blockchain. Bitcoin mining is permissionless. •Anyone can become a miner by downloading the respective software and the most recent copy of the Bitcoin Blockchain. In practice, however, there are a few large miners that produce most of the new generally accepted blocks.
  12. 12. Bitcoin Transaction • The complexity of the present material is due to interdisciplinarity. To understand the Bitcoin system, it is necessary to combine elements from the three disciplines of economics, cryptography, and computer science. • Berentsen and Schär (2017) argue that transaction processing demands that three requirements are satisfied: transaction capability, transaction legitimacy, and transaction consensus. These three requirements will now be considered. In particular, we will explain how these conditions can be satisfied in the absence of a central authority.
  13. 13. RISKS -Forks : the Bitcoin protocol can be altered if the network participants, or at least a sufficient number of them, agree on the suggested modification. It can happen (and in fact has happened) that a blockchain splits because various groups cannot agree about a modification. A split that persists is referred to as a “fork.” -Energy Wastage : Proof-of-work mining is expensive, as it uses a great deal of energy. - Bitcoin Price Volatility The price of Bitcoin is highly volatile. The price of Bitcoin also depends on aggregate demand. If a constant supply of money meets a fluctuating aggregate demand, the result is fluctuating prices. It display much higher short-term price fluctuations than many government-run fiat currency units. •Much like any other key innovation, blockchain technology introduces some risks. The following sections will consider some of these risks :
  14. 14. CONCLUSION • The Bitcoin creators’ intention was to develop a decentralized cash-like electronic payment system. In this process, they faced the fundamental challenge of how to establish and transfer digital property rights of a monetary unit without a central authority. They solved this challenge by inventing the Bitcoin Blockchain. • Bitcoin Blockchain technology allows us to store and transfer a monetary unit without the need for a central authority, similar to cash. • Price volatility and scaling issues frequently raise concerns about the suitability of Bitcoin as a payment instrument. As an asset, however, Bitcoin and alternative blockchain-based tokens should not be neglected. The innovation makes it possible to represent digital property without the need for a central authority. • Blockchain technology provides an infrastructure that enables numerous applications. Promising applications include using colored coins, smart contracts, and the possibility of using fingerprints to secure the integrity of data files in a blockchain, which may bring change to the world of finance and to many other sectors.
  15. 15. Main sources and link to access : -A Short Introduction to the World of Cryptocurrencies : Aleksander Berentsen and Fabian Schär, Federal Reserve Bank of St. Louis Review, First Quarter 2018, 100(1), pp. 1-16. https://doi.org/10.20955/r.2018.1-16 - Payments in The Digital Age: https://www.accenture.com/t20180717T083406Z__w__/us-en/_acnmedia/PDF- 81/Accenture-Payments-in-the-Digital-Age.pdf
  16. 16. THANK YOU

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