Cryptocurrency, An on-going craze

        I consider it necessary to write about the on-going craze about cryptocurrencies among young people, investing six figures blindly for the sole-purpose of reward and outcome, and also promoting others to do what they have done. First off, lets discover what cryptocurrency actually is.

Cryptocurrency

        'Crypto' means hidden, and as the name confirms, cryptocurrency means hidden currency. It's completely anonymous, it has no physical shape, nor it has an intrinsic value. It's not redeemable for another commodity, as fiat currency is, like gold. Cryptocurrency work on the principle of supply and demand. When supply is high, its price would be low, and when demand is high, its price would be high as well.

        Satoshi Nakamoto, a Japanese scientist invented Bitcoin in 2009. It uses peer to peer network, and is based on de-facto law. There were attempts in the 90's to make a digital cash, but all failed. Now-a-days, there are many cryptocurrencies, like Bitcoin, Ethereum, Ripple, Monero, NEM and Dash etc. Cryptocurrencies are fluctuating all the time. Imagine, you purchase a bitcoin for Rs.100000 pkr and the next morning you find, its worth Rs.75000 pkr. What would you do?

As cryptocurrency uses peer to peer network, lets find out what peer to peer network is.

Peer to peer network

       You can see any video or blog on your mobile or personal computer through the servers. You request a server to find a specific video in the You Tube, and get a lot of videos from the You Tube server. But, in peer to peer technology, there is no server, only computers known as nodes. The connection between you and the other computer is totally secure, and there is no server to track you or the other computer.

        But the problem to use peer to peer technology is, that if one peer has a minor query about the whole system, the whole system would be shut down. To improve this, you need to achieve consensus, but it would be difficult without a central authority. However, Satoshi has achieved consensus by making some rules. This was his major innovation.

        Virtual currency has no server but its data is not kept in a specific location, but it revolves around a block-chain, as being a peer to peer technology. Which becomes difficult for the hackers to locate, but not impossible.

What are miners?

       In a cryptocurrency, there are miners who use a powerful computer to mine coins. Every peer has the record of all the transactions, and thus the balance of every account, but it can only access it if it has the private key, a public key cryptography. You can only make transactions, if a miner confirms the transaction, and the company rewards them for their work, with some coins. For this purpose, they have to solve cryptologic puzzles, using algorithms. 

        Principally, every peer can be a miner because there's no server. Imagine, if somebody creates thousands of peers and spread all the forged transactions, the whole system will break down. To prevent this, Satoshi made a rule that miners need to invest in their computers to qualify for the hash- a product of cryptographic function, that connects a block with its predecessor. 

      

       Mining is simple when a small number of computers are connected to mining and gradually becomes difficult for the miners to mine, when number of computers become more, causing the cryptologic puzzle to get to another difficulty level. It becomes more and more difficult for the miners to maintain their powerful computers, and eventually, they lose their business, so-called network marketing. 

        "Virtual currencies, perhaps most notably Bitcoin, have captured the imaginations of some, struck fear among others, and confused the heck out of the rest of us."-Thomas Carper, US-Senator

          It is banned in some countries across the globe including Pakistan. It was banned in Pakistan on 7th April, 2018.

      

       Cryptocurrencies are built on cryptography, they don't have an owner, just some math. So the cryptocurrencies' addresses should be kept as secure as possible. 

Transaction properties

1. Irreversible

       The transactions are irreversible, if you have sent someone money, you can't undo it by any means. Neither the president of US nor its government. If you have sent it to a scammer or hacker its done. Nothing else can be done after you have made a transaction. 

2. Pseudonymous

      Neither transaction, accounts nor your cryptocurrency wallet is connected to the real world entries. You cannot get any information of your transactions in bitcoin by any bank or government, if your data has gone to a scammer or a hacker. The cryptocurrency is based on codes not on golds. 

3. Permissions

      You don't need any permissions for transactions. Permissions from government, banks or any other institution to make transactions or investments.

Monetary Properties

1. Limited Supply

      The supply of cryptocurrencies is limited, as only 21 million bitcoins can be mined, 16 million has been mined and it's expected that its limited supply will be completed by the year 2140. As bitcoins, every other cryptocurrency has limited supply.

2. No debt

     We see our fiat money is based on debts, on the other hand, virtual currency only represents itself. It attacks the central banks monetary policies. They take on inflation and deflation by manipulating monetary supply. 

  

      As discussed above, virtual currency has no intrinsic value and cannot be redeemed for another commodity, however it's considered as commodity in USA. Which, to me, is a false concept. It manipulates a country's monetary policy. Why can't it be banned?

    Imagine, if you invested a lot of money to get bitcoins, and a hacker hacks it or you send it to a hacker or scammer without knowing, who will be held responsible? Who will be sued?

    Don't waste your hard-earned money. Feel free to comment below