A cryptocurrency is defined as a developing digital asset classwhich is designed as to function as a medium of exchange which utilizescryptography in securing its transactions, controlling creation of extra unitsand verification of transfer of assets (Sontakke & Ghaisas, 2017). Thesetype of currencies are categorized as a subset of virtual currencies andalternative currencies. This is the latest topic of discussion in the financialworld because people have become enlightened with this kind of currencies. Thecrypto currency market cannot be ignored because of its high growth rate andare trading across 40466 trading markets (Hileman & Rauchs, 2017).
Thesecurrencies are not subjected to any governmental intervention or regulations.The most important cryptocurrencies include Bitcoin and Ether (Hileman &Rauchs, 2017). A Blockchain platform is a base of cryptocurrency. It is aplatform where the transactions are held and validated (Underwood, 2016). Thispaper analyzes how the relatively unknown market of cryptocurrencies(Bitcoins& Altcoins) is expanding.Main body Bitcoin was first described byNakamoto in 2009 as ‘A purely peer-to-peer version of electronic cash that wouldallow online payments to be sent directly from one party to another withoutgoing through a financial institution (Sontakke & Ghaisas, 2017). It’smining functions on the Proof of Work System (Sontakke & Ghaisas, 2017).
During the verification process of the transaction, the miners are required tohave the whole date of previous transaction (block) and have to spend a notableamount of computing power on the ongoing transaction (Sontakke & Ghaisas,2017). Also, three consensustransactions are needed besides verification which also help in pricedetermination and expansion (Sontakke & Ghaisas, 2017). On the other hand,Ethereum was proposed by Buterin in 2013 and features smart contracts whichenhance online contractual agreements (Arvind Narayanan et al, 2017). It isdriven by proof of work system that is measured as ‘gas’ rather that directpower consumption (Arvind Narayanan et al, 2017). The prices retract after78.6% but have strong resistance at 226-241 price level (Arvind Narayanan etal, 2017). Ripple is the third most popular cryptocurrency (Arvind Narayanan etal, 2017). It offers blockchain platform to financial institutes toconsiderably reduce transaction time and costs (Arvind Narayanan et al, 2017).
Bitcoins and altcoin havesimilarities and differences when it comes to mining power also referred to as”harsh rate” (Arvind Narayanan et al, 2017). This is due to the eminence ofhash-based puzzles. For instance, Zeta coin which utilizes SHA-256 miningpuzzles the same as Bitcoins (Arvind Narayanan et al, 2017). However, Bitcoinshave powerful miners and mining pools which control more mining power than deployedfor the entire altcoins (Arvind Narayanan et al, 2017). In terms of allocationof currency to users, Bitcoin is done only through mining while for theAltcoins through mining and other ways such as pre-mining (Arvind Narayanan etal, 2017).A blockchain was established with the aim of creating the concept ofcryptocurrency (Sontakke & Ghaisas, 2017).
The system starts with onerequesting a transaction which is then broadcasted to p2p network thatcomprises of computers as nodes (Sontakke & Ghaisas, 2017). The next stepis validation which involves the network of codes which validates thetransaction and also the user status utilizing algorithms (Sontakke &Ghaisas, 2017). All the verified transactions are put together to form a blockof data which creates a chain of blocks. After the verification processcurrency or tokens of the platform are generated then the miners receive it asa contribution reward (Sontakke & Ghaisas, 2017).
According to a research, the current population of unique users ofcryptocurrency wallets is approximated to be between 2.9 million and 5.8 million(Hileman & Rauchs, 2017).
Also, the lines between the differentcryptocurrency industry sectors are inclining blurred (Hileman & Rauchs,2017). For instance, 31% of the cryptocurrency organizations surveyed arefunctioning across two cryptocurrency industry sectors or more (Hileman &Rauchs, 2017). This gives rise to an increasing population of globalcryptocurrency organizations. Also, it was found out that about 1,876 personsare working full-time in this industry (Hileman & Rauchs, 2017).There are two main price drivers of cryptocurrency namely supply anddemand (Sontakke & Ghaisas, 2017).
Since cryptocurrency is generated solelyas a reward for verification of transaction i.e. through mining its supply is regulated(Arvind Narayanan et al, 2017). The amount of currency that is generated in thelifetime is usually predetermined thus making it scarce and very valuable (Sontakke& Ghaisas, 2017). On the demandfactor, the prices are scaling new heights every day and are driven by globaldemand (Sontakke & Ghaisas, 2017).
The risks of cryptocurrencies include money laundering andtrafficking of illegal substances related to various types (Brezo &Bringas, 2012). This is because thistype of currency use of online entrainment platforms which uses proxy andanonymisation systems such as vpn – networks (Brezo & Bringas, 2012). It isalso associated with scams such as Pump-and –Dump whereby they use varioustechniques to exaggerate the potential of altcoin and also drumming up interests(Arvind Narayanan et al, 2017).An Initial Coin Offering (ICO) is utilized by startups to evade theburdensome and regulated capital-raising process needed by the banks or venturecapitalists (Sontakke & Ghaisas, 2017). Ethereum or Ether tokens is anexample of a successful ICO project which was profitable to the initial investors(Sontakke & Ghaisas, 2017). Additionally, an unsuccessful ICO is harmful tothe cryptocurrency platform (Sontakke & Ghaisas, 2017). Cryptocurrency is not issued by any non-governmental or governmentalorganizations hence it is immune to intervention and interferences by the said bodies(Chuen, 2015). Therefore, in case of any disputes or fraud the governmentcannot protect anyone (Chuen, 2015).
Cryptocurrency is decentralized and does not involve a lot of legalissues (Chuen, 2015). Other countries have ban coining of money hence in suchnations it is illegal.Conclusion In conclusion, from the aspects thathave been discussed in the paper, cryptocurrency market expanding involvesexplanation of the price determinants which include supply and demand. The main type of cryptocurrencies used are Bitcoinand Ether. The industry is expanding every day with more people being employedand using this type of currency which is a reward for their contribution.
Theworking of this kind of currency involves use of a blockchain that comprises ofverification process. After theverification process is when one is rewarded for what he or she hascontributed. This type of currencies also faces a number of risks includingmoney laundering and trafficking of illegal items but still the Cryptocurrencymarket is a fast growing market and probably will grow even further in thefuture.