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What Is Cryptocurrency And Why Is It Important?

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Cryptocurrenncy guide for beginners

Cryptocurrencies are a disruptive innovation that is changing the way we send and receive money and pay for goods and services online. The recent development in the crypto world shows this new form of digital currencies can be a viable tool to provide other forms of financial services.

If you are new to the concept of cryptocurrency, or you are wondering what it’s all about. Search no further. This is a straightforward guide that will introduce you to the concept of cryptocurrencies, without all those technical words. Let’s get started.

What is cryptocurrency

Cryptocurrencies are digital currencies that can facilitate the exchange of value between person-to-person on the internet in a secure and decentralised way that doesn’t require the involvement of a third party like a bank. 

Crypto coins are a medium through which we can buy and pay for goods and services on the internet. You may ask, what so special about cryptocurrencies? Since we have other means of payment and exchanges like Paypal online. 

What makes cryptocurrency important

  • First off, cryptocurrencies transactions take place between peer-to-peer networks (between two parties).
  • Second, the transactions with cryptocurrencies track and immutably recorded on top of a cryptographically created ledger known as the blockchain.
  • Third, it secures the sender and receiver identity with cryptographic encryption.

Also, transactions involving cryptocurrencies are fast, cheap and easy. Consider this; 112,027.29942359 bitcoin (millions of dollars’ worth) transferred in a single transaction for a transaction fee of 0.00046743 BTC ($3.84 as at then).

Source: BitInforCharts

How much do you think the fee will cost if the transaction happens in a bank?

Blockchain – The Underlying Technology that powers cryptocurrencies

What makes cryptocurrencies unique is the technology behind it. Blockchain has been around for a long time, but its first practical application was bitcoin; the most dominant cryptocurrency in the market. Let’s take a brief look at blockchain, the features and how it used to power cryptocurrencies.

We can describe blockchain as a digital, distributed public ledger that records and secure valuable information.

With cryptocurrencies, the blockchain ledger stores and protects the transaction that takes place.

Blockchain features in cryptocurrency

Cryptocurrency possesses certain unique features, which we can trace back to its underlying blockchain technology. Let’s look at the key ones.

  • Cryptocurrency transactions are decentralised. Blockchain does not operate on a single (central) server, but a network of millions of computers connected globally across the world. 
  • The transactions are immutable. Every computer connected to the network, have equal access to the transaction history. Each block on the network links to the other in the form of a chain. So, altering the information stored on chain becomes nearly impossible.
  • Cryptocurrency transactions are transparent. The blockchain that powers cryptocurrency, is permissionless and open to the public. Everyone can access the details of the transaction on the network.

A brief history of cryptocurrencies

Before cryptocurrencies, they were other forms of digital currencies (Digi Cash) that existed. However, they were short-lived because of various reasons. First, the currencies were created by third-party systems and managed on a single server vulnerable to hacks. But a notable reason attributed to their failure was their inability to prevent the double-spending problem; how to prevent the spend of the same amount twice.

An unknown person or group by the alias ‘Satoshi Nakamoto’ published a white paper in late 2008, detailing how he solves all of this problem with a new digital currency invented. And that was bitcoin. In January 2009, Satoshi Nakamoto (the anonymous inventor of bitcoin) released the bitcoin software and mined the first bitcoin block. The success of bitcoin paved the way for the invention of new cryptocurrencies. Today, there are over a thousand cryptocurrencies created with varying use cases. Below is a list of some crypto coins in the market.

Source: CoinMarketCap

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Bitcoin.org gets hacked, scammers run BTC giveaway scam

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Earlier today, Bitcoin.org, the oldest cryptocurrency website registered by the founder of Bitcoin, Satoshi Nakamoto, recently got hacked. Scammers ran a BTC giveaway scam with a promise to return double the amount users send to the named address. In the end, the scammers were reported to have collected $17,764 before the website was taken down. The website was inaccessible for a few hours after the incident, but normal service has been resumed.

To bring users’ attention to the hack, a pseudo-anonymous Twitter account with the name Cobra took to Twitter to reveal the news and claimed that the website may be offline for some days. He also clarified through his tweets that Bitcoin.org has never been hacked and that the breach must have been due to a lapse on the part of Cloudflare- the web provider that the website is hosted on.

“Bitcoin.org hasn’t been hacked, ever. We move to Cloudflare, and two months later we get hacked. Can you explain where you were routing my traffic too? Because my actual server didn’t get any traffic during the hack” he tweeted.

The scam on the website was perpetrated through a giveaway. Visitors on the website were greeted with a popup, asking them to send crypto to a Bitcoin wallet via a QR code and receive double the amount in return. The fake message showed that the Bitcoin Foundation was giving back to the community and that the giveaway will be limited to the first 10,000 people. This was made to draw more people into the scam.   According to an analysis on the scam address done by Reddit Sleuth, it was presumed that a chunk of the 0.4BTC came from the scammers themselves to add an element of credibility to the claim. At the time of writing this report, Bitcoin.org is once again, back to life.

How popular is the Bitcoin giveaway scam?

Bitcoin giveaway scam is quite popular among hackers as it allows them to make fast money without tampering with anyone’s wallet. In 2020, Twitter handles of top crypto celebrities, politicians and influencers were hacked to run Bitcoin giveaways. While the scammers were apprehended, the value of Bitcoin was not affected.

Today’s scam on Bitcoin.org did not affect the price of the coin either. Despite the Evergrande debt crisis and the fluctuations bedevilling the crypto market within the week, Bitcoin increased by 2.05% within the last 24 hours, thereby moving from $42,789 to $44,378.

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Crypto prices drop as global market fear increases

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Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.

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El Salvador’s Bitcoin adoption – What you need to know

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El Salvador made history (and headlines) after becoming the first nation to endorse and approve the world’s most popular cryptocurrency, Bitcoin, as a legal tender. The move makes Bitcoin acceptable for transactions within the Central American country alongside the U.S dollar, which has been serving as the paper currency since 2001. This comes after the so-called “Bitcoin Law” came into force after passing legislation in June of 2021. El Salvador’s government announced that it had purchased 400 Bitcoin in 2 tranches of 200 each and plans to get more in the future.

The move to adopt Bitcoin has been justified by the government’s need to boost financial inclusion in the country. It is estimated that 70% of El Salvadorans do not have access to financial services and the government believes that Bitcoin can help close the gap. The Bank of America has outlined a few benefits that they believe will result from El Salvador’s bitcoin adoption. These include promotion of financial digitization, streamlining remittances as well as opening the country to digital currency miners. However, not all agree that the move is a step in the right direction.

Amongst the detractors of the scheme are the International Monetary Fund and the World Bank, each having warned El Salvador about the risks of Bitcoin’s use as legal tender. The World Bank has been irked by what it described as “environmental and transparency shortcomings” with bitcoin, while the IMF cited “economic and legal concerns” in relation to the move.

Other than the push back from these international bodies, there has been some internal opposition to the adoption of Bitcoin. Citizens had held protests over Bitcoin’s adoption in August and about 67.9% of respondents in a poll said they disagreed with the government’s decision to adopt crypto. The results of the poll showed that 8 in 10 people had little confidence in the use of bitcoin as the currency.

In spite of the criticism, El Salvador’s government is moving forward and has reportedly installed 200 Bitcoin ATMs across the country. And in response to the World Bank’s environmental concerns, El Salvador’s president, Nayib Bukele, has said the country plans to power mining activities using renewable energy from the country’s volcanoes. In order to incentivize the use of Bitcoin in the country, any citizen who signs up for the country’s “Chivo” wallet will get 30$ worth of bitcoin.

All in all, the adoption of a cryptocurrency by a sovereign nation is seen as a testing ground for many, as this is a use case Bitcoin has never experienced in its 12-year history. Countries such as Brazil and Panama seem to be watching the move to draw insights on whether to follow suit.

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