Cryptocurrency and Blockchain: A Comprehensive Overview

Cryptocurrency is a digital or virtual currency that uses cryptography for security and is decentralized, meaning it's not controlled by any government or financial institution.

The first cryptocurrency, Bitcoin, was created in 2009 by an individual or group of individuals using the pseudonym Satoshi Nakamoto. It was launched as an open-source project, allowing anyone to contribute to its development.

Blockchain technology is the underlying system that enables cryptocurrency transactions. It's a public ledger that records all transactions made with a particular cryptocurrency, making it transparent and secure.

The blockchain is maintained by a network of computers around the world, rather than a central authority, which ensures the integrity and security of the transactions.

Cryptocurrency is a system that doesn't require a central authority, instead maintaining its state through distributed consensus. This means that there's no single person or group in charge, but rather a network of computers working together to keep track of everything.

According to Jan Lansky, a cryptocurrency is defined by six key conditions, which are:

The concept of cryptocurrency has become widely accepted, as evidenced by its inclusion in the Merriam-Webster Dictionary in March 2018.

Blockchain technology is a type of digital ledger that records transactions across a network of computers. It's the backbone of cryptocurrency and has the potential to revolutionize the way we conduct business.

A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block contains a hash pointer as a link to a previous block, a timestamp, and transaction data.

The validity of each cryptocurrency's coins is provided by a blockchain, which is essentially a virtual spreadsheet on which all buying and selling of crypto is recorded. This spreadsheet is arranged in blocks linked together in a giant chain.

Blockchain technology has the potential to result in a radically different competitive future, with improved management of resources, access to capital, and increased transparency. It's also secure by design, with decentralized consensus achieved through a network of volunteers verifying transactions.

Here are some of the key benefits of blockchain technology:

However, blockchain technology also has its challenges, including complex technology, regulatory implications, implementation challenges, and competing platforms.

Cryptocurrencies work by combining digital signatures and hash functions to create a tamper-proof trail of ownership, solving the double spend problem.

Blockchain is the technology that enables the existence of cryptocurrency, and it's the backbone of digital currencies like Bitcoin.

A cryptocurrency is a digital medium of exchange, similar to the US dollar, but it uses cryptographic techniques to verify transactions and control the creation of new units.

Bitcoin is a type of digital currency that's not controlled by centralised financial institutions. This makes it popular for people who think decentralisation can bring financial freedom.

Bitcoin's price can be extremely volatile, rising and falling in value at the whim of buyers and sellers. It's not uncommon for its price to plummet just as quickly as it spikes.

In 2024, Bitcoin's price climbed in value, particularly in November when Donald Trump won the US Election. On 5 December, Bitcoin's price topped $100,000.

The amount of bitcoins that can be mined is capped at 21 million, and most are already in circulation. This means that roughly every four years, the number of bitcoins rewarded to those who validate transactions is cut in half.

Here's a brief timeline of the most recent Bitcoin "halving" event:

This event ensures Bitcoin's supply is drawn out for longer while demand, in theory, goes up over time. However, with fewer rewards for miners, it can also lead some to consider whether it's financially worthwhile for them to continue the costly operation of running their powerful computers.

Altcoins are alternative cryptocurrencies that emerged after Bitcoin's innovation in 2008. There are thousands of altcoins, with over 5,000 as of early 2020.

Altcoins often have underlying differences compared to Bitcoin. For example, Litecoin processes a block every 2.5 minutes, faster than Bitcoin's 10 minutes.

Ethereum is another notable altcoin with smart contract functionality, allowing decentralized applications to run on its blockchain. It was the most used blockchain in 2020, according to Bloomberg News.

Altcoins are often referred to as "shitcoins" or "alt coins", but they can also be considered alternative versions of Bitcoin, as described by Paul Vigna of The Wall Street Journal in 2020.

Significant market price rallies across multiple altcoin markets are often referred to as an "altseason", which can be a major event in the cryptocurrency world.

Memecoins are a category of cryptocurrencies that originated from Internet memes or jokes. Dogecoin is a notable example, featuring the Shiba Inu dog from the Doge meme.

Memecoins are known for extreme volatility. The record-high value for a Dogecoin was 73 cents.

Scams are prolific among memecoins.

Bitcoin is pseudonymous, not anonymous, which means your cryptocurrency is tied to a specific key or address, but not to your personal identity.

Transactions are publicly available in the blockchain, so while you're not immediately identifiable, your transactions are out there for anyone to see.

Cryptocurrency exchanges often require users to provide personal information, which can compromise your anonymity.

Some cryptocurrencies, like Monero, Zerocoin, Zerocash, and CryptoNote, have additional measures to increase privacy, such as zero-knowledge proofs.

A 2020 study showed that anonymity techniques in cryptocurrencies aren't foolproof, and researchers suggested new ideas to improve privacy, including new cryptographic schemes and hiding IP addresses.

Mining on a blockchain involves the validation of transactions, and successful miners receive new cryptocurrency as a reward. This reward decreases transaction fees by creating a complementary incentive to contribute to the network's processing power.

The rate of generating hashes, which validate any transaction, has been increased by the use of specialized hardware like FPGAs and ASICs. The arms race for cheaper-yet-efficient machines has existed since bitcoin was introduced in 2009.

Mining is measured by hash rate, typically in TH/s, and a 2023 IMF working paper found that crypto mining could generate 450 million tons of CO2 emissions by 2027, accounting for 0.7 percent of global emissions.

Some miners pool resources, sharing their processing power over a network to split the reward equally, according to the amount of work they contributed to the probability of finding a block. A "share" is awarded to members of the mining pool who present a valid partial proof-of-work.

Transaction fees for cryptocurrency depend mainly on the supply of network capacity at the time, versus the demand from the currency holder for a faster transaction. The ability for the holder to be allowed to set the fee manually often depends on the wallet software used.

The median transaction fee for Ether corresponded to $2.2845 in February 2023, while for bitcoin it corresponded to $0.659.

The Double Spend Problem is a major issue in cryptocurrencies, where someone can make multiple copies of their digital tokens and spend them more than once.

This problem doesn't exist with paper money because once the recipient has the paper bill, the spender no longer has it.

Bank transfers also eliminate the risk of double-spending, as a centralized party is involved in deducting funds from the sender's account and depositing them into the recipient's.

The decentralized nature of cryptocurrencies makes it difficult to prevent double-spending without a centralized intermediary.

Blockchains address this problem by having a tamper-resistant ledger of who owns what that anyone can verify.

Mining is a crucial process in blockchain technology, and it's not just about finding the next big cryptocurrency. Mining is the validation of transactions, and successful miners obtain new cryptocurrency as a reward.

The reward for mining has been decreasing over time, and it's not always enough to justify the investment in equipment and cooling facilities. In fact, the rate of generating hashes has been increased by the use of specialized hardware like FPGAs and ASICs.

Mining is measured by hash rate, typically in TH/s, and the 2023 IMF working paper found that crypto mining could generate 450 million tons of CO2 emissions by 2027. This is equivalent to 0.7 percent of global emissions or 1.2 percent of the world total.

To mitigate the heat and electricity costs, miners pool resources, sharing their processing power over a network to split the reward equally. This is done to increase the chances of finding a block.

Some popular regions for mining include those with inexpensive electricity, a cold climate, and jurisdictions with clear and conducive regulations. For example, Iceland has become a haven for cryptocurrency miners due to its cheap electricity.

The cost of electricity is a significant factor in mining, and it's estimated that bitcoin's electricity consumption was approximately 7 gigawatts by July 2019. This is equivalent to the energy consumed nationally by Switzerland.

In an effort to preserve natural resources, the city of Plattsburgh, New York, put an 18-month moratorium on all cryptocurrency mining in March 2018.

Transaction fees for cryptocurrency depend mainly on the supply of network capacity at the time versus the demand from the currency holder for a faster transaction.

The ability for the holder to be allowed to set the fee manually often depends on the wallet software used, and central exchanges for cryptocurrency (CEX) usually do not allow the customer to set a custom transaction fee for the transaction.

LiteBit, a cryptocurrency exchange previously headquartered in the Netherlands, was forced to cease operations due to market changes and regulatory pressure.

The "recommended fee" suggested by the network will often depend on the time of day due to depending on network load.

For Ethereum, transaction fees differ by computational complexity, bandwidth use, and storage needs, while bitcoin transaction fees differ by transaction size and whether the transaction uses SegWit.

In February 2023, the median transaction fee for Ether corresponded to $2.2845, while for bitcoin it corresponded to $0.659.

Some cryptocurrencies have no transaction fees, such as Nano (XNO), which relies on client-side proof-of-work as the transaction prioritization and anti-spam mechanism.

The first bitcoin ATM was launched in the United States on 20 February 2014 by Jordan Kelley, founder of Robocoin. This kiosk was installed in Austin, Texas, and is similar to a bank ATM, but with scanners to read government-issued identification.

These scanners are used to confirm users' identities, which is an important step in using a bitcoin ATM.

A cryptocurrency wallet is a means of storing the public and private "keys" (address) or seed, which can be used to receive or spend the cryptocurrency.

There are multiple methods of storing keys or seed in a wallet, including using paper wallets, hardware wallets, digital wallets, and exchanges.

A crypto wallet is a place where investors hold their cryptocurrency, much like a traditional wallet holds cash.

Hot wallets are connected to the internet and are ideal for quick transfers and easy access, but come with a higher risk of being hacked. Cold wallets, on the other hand, are physical devices that store crypto offline, providing a safer and longer-term storage option.

Stablecoins are designed to maintain a stable level of purchasing power, but they're not foolproof. A notable example is Terra's stablecoin UST, which fell from $1 to 26 cents on May 11, 2022, resulting in the loss of nearly $40B invested in Terra and Luna coins.

The subsequent failure of Terraform Labs led to a request from South Korean prosecutors for an Interpol Red Notice against the company's founder, Do Kwon. This incident highlights the risks associated with stablecoins.

Stablecoins are typically controlled by companies that provide them, with transactions recorded on digital ledgers. In theory, their price is linked to an existing asset, such as the US dollar or Pound Sterling, making them more stable in price.

However, high-profile price collapses of stablecoins have alerted regulators to risks for investors and prompted scrutiny over their supposed stability. The crash of TerraUSD and Luna tokens is a notable example, with Terraform, the company behind them, filing for bankruptcy.

Stablecoins' supposed stability is being shaped by regulatory frameworks, such as the one being developed in Hong Kong for 2023/24.

A crypto wallet is a digital or physical container that stores your cryptocurrency, similar to a traditional wallet holding cash. It's a crucial part of investing in cryptocurrency, as it allows you to receive, store, and spend your digital assets.

A cryptocurrency wallet stores the public and private "keys" (address) or seed, which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency.

There are multiple methods of storing keys or seed in a wallet, including paper wallets, hardware wallets, digital wallets, and hosting your wallet information on a digital medium such as plaintext.

A hot wallet is connected to the internet, making it more accessible for quick transfers and easy access, but it's also more vulnerable to hacking.

You can lose your wallet in a crowded place, like a concert or a festival, and it's gone in seconds.

According to the article, over 12 million people reported losing their wallets in 2020.

Theft is a major concern when it comes to wallets, with 75% of people reporting that they've had their wallet stolen at some point.

A wallet can be stolen from your pocket or purse while you're distracted, like when you're on public transportation.

Fraud is also a risk, with 1 in 5 people reporting that someone has used their credit card without their permission.

If your wallet is stolen, it's essential to cancel your credit cards and report the incident to the police.

In some cases, you may be liable for up to $500 in unauthorized transactions, but most credit card companies will cover you for this amount.

The legality of cryptocurrencies varies greatly from country to country. At least one study has shown that broad generalizations about the use of bitcoin in illicit finance are significantly overstated.

Some countries have explicitly allowed the use and trade of cryptocurrencies, while others have banned or restricted it. An absolute ban on trading or using cryptocurrencies applies in 9 countries, including Algeria, Bangladesh, and China.

An implicit ban applies in another 39 countries or regions, including Bahrain, Benin, and Burkina Faso. In the United States and Canada, state and provincial securities regulators are investigating "Bitcoin scams" and ICOs in 40 jurisdictions.

The US Congress is expected to prioritize cryptocurrency legislation in 2025, with a focus on the Stablecoin Act and the Financial Innovation and Technology for the 21st Century (FIT21) Act. This legislative push is anticipated to be the most supportive of the crypto industry to date.

The Stablecoin Act aims to establish a regulatory framework for stablecoins, while the FIT21 Act focuses on decentralized standards and broader crypto regulation.

Cryptocurrency exchanges allow customers to trade cryptocurrencies for other assets, such as conventional fiat money. They also enable trading between different digital currencies.

A crypto exchange is the digital platform where investors can buy, sell, and trade cryptocurrencies. Most transactions are accompanied by fees.

Cryptocurrency exchanges are digital platforms where you can buy, sell, and trade cryptocurrencies. They act as a middleman between you and the cryptocurrency market.

You can use these exchanges to trade cryptocurrencies for conventional fiat money or trade between different digital currencies. This means you can swap one cryptocurrency for another, like trading Bitcoin for Ethereum.

Exchanges don't guarantee you're getting the best price for your trades. In fact, as of 2020, it was possible to find price differences across several markets and make a profit by arbitraging.

Most transactions on exchanges come with fees, which means you'll need to pay a small amount of money to use the service. These fees can add up, so be sure to factor them into your trading decisions.

Atomic swaps are a mechanism where one cryptocurrency can be exchanged directly for another cryptocurrency without the need for a trusted third party, such as an exchange.

This innovation allows for peer-to-peer transactions, eliminating the risk of counterparty failure that can occur with traditional exchanges.

Atomic swaps are a game-changer for cryptocurrency traders who want to exchange their assets quickly and securely.

They work by creating a smart contract that ensures the exchange is executed simultaneously on both parties' nodes, preventing any single point of failure.

This means that traders can exchange their cryptocurrencies with confidence, knowing that the transaction will be completed as long as both parties follow the agreed-upon protocol.

Atomic swaps have the potential to revolutionize the way we exchange cryptocurrencies, making it faster, cheaper, and more secure.

Initial Coin Offerings are a way for new cryptocurrency ventures to raise funds, but they're often shrouded in controversy. An ICO can be used by startups to avoid regulation, but in many jurisdictions, including the U.S. and Canada, it's considered a security and is subject to securities regulation.

ICOs involve selling a percentage of cryptocurrency, usually in the form of "tokens", to early backers of the project in exchange for legal tender or other cryptocurrencies. This is often done in exchange for bitcoin or Ether.

Switzerland has become a popular base for ICOs, with four of the 10 biggest proposed ICOs using the country as their base. The Swiss regulatory agency FINMA has stated that it will take a "balanced approach" to ICO projects.

A legislative ICO working group in Switzerland began issuing legal guidelines in 2018 to remove uncertainty from cryptocurrency offerings and establish sustainable business practices. These guidelines are intended to help legitimate innovators navigate the regulatory landscape.