– What is blockchain technology
– Blockchain application to cryptocurrency
– How cryptocurrency affects the traditional banking system
– How to buy your first crypto-asset
History of cryptocurrency
Prior to the conventional monetary system, transactions were conducted on a trade-by-barter model, in which a person who owns a valuable decides to exchange it with another person’s valuable through mutual agreement. This used to be the norm, but the system had numerous flaws.
– In order for a person to get what he desires through the trade-by-barter system, he must find another person who has what he wants and is interested in his property. This can be exhausting, if not impossible at times.
– Furthermore, because there is no absolute metric for quantifying a person’s property relative to another person’s, an individual may have to sacrifice more as a tradeoff in order to get what he wants.
– Aside from the fact that the period was primitive and there was no good mechanism to transport a good to another person sometimes the property is simply not moveable. In the case of land, houses, and so on.
People began exploring alternative methods of transaction that would be beneficial to everyone and be widely acknowledged as a solution to these issues and others like it. As a result, gold became a legal tender at the time. People were able to pay in gold and keep their other possessions instead of transacting using a trade-by-barter model and having to give up their valuables merely to receive what they need. Due to its scarcity and durability, gold was adopted; nevertheless, there are some complications with it as well:
Gold is a hefty item that is difficult to keep or transport; in fact, if a person has a lot of it, he would have to hire people to safeguard it.
Additionally, carrying a large amount of gold can be laborious and requires transportation facilities, and security, among other things.
With this, there was a need for a less demanding mode of transaction, and it was decided that the United States Treasury would hold all the gold in reserve for people and then issue a receipt stating the amount of gold each person had in the treasury, and they, the people, could go about spending that receipt instead of a physical gold
The receipt can then be presented to the US Treasury to obtain physical gold as needed. This became the norm until a bank run occurred and people flocked to the Treasury to claim their gold in large numbers but were denied.
The treasury was discovered to have loaned out their gold, and there was no gold to give everyone, ushering in the fiat monetary system. The US Treasury began issuing paper money to the public that was not backed by gold.
This quickly spread around the world and evolved into the conventional monetary system we have today, in which banks can print an infinite amount of money, loan money into existence, and so on.
This model is obviously flawed because total monetary power is concentrated in the hands of a small group of people. Some of the flaws of the conventional monetary system are
– The banks get to print an infinite amount of money, causing the currency to depreciate and inflation to rise.
– People’s funds are loaned out and the banks operate on a fractional reserve model, so in the event of a bank run, the people lose.
– The community must rely on a select few and a centralized ledger that can be manipulated.
– The system has a single point of failure
The 2008 financial crisis exemplifies these shortcomings, as the US economy collapsed due to banks’ excessive leverage. Because of the opportunity they saw in the housing market that they could potentially profit from, the banks lent out more money than they had, and when the borrowers defaulted, the banks had no money to pay depositors, resulting in a bank run that crashed the financial markets and the economy as a whole.
This resulted in the emergence of cryptocurrencies. As a result of the clearly flawed system of operation in the banking system, a random person or group of people known only by the pseudonym Satoshi Nakamoto created the first cryptocurrency, bitcoin, which is intended to replace the banking system and create a peer-to-peer digital currency on the blockchain.
What is blockchain technology?
Blockchain technology is a type of distributed ledger system in which transactions are recorded simultaneously on multiple computers all over the world, making the system impossible to change, hack, or cheat. Blockchain stores digital records of data.
Let’s paint an illustration: Mary and John are in a romantic relationship, and Peter is documenting everything that happens in the relationship.
One day, John promised to marry Mary, and Mary, in keeping with that promise, rejected all suitors who approached her. After many years, John stated that he is no longer interested in the relationship and that he never promised Mary that he would marry. Unfortunately, Peter did not record John’s promise, and Mary was forced to accept her fate because there was no evidence that John made the promise.
Assuming John made this promise in the presence of Peter, Ruth, Alex, Paul, and ten others. They all documented John’s promise on their personal ledgers, if John later denies making that promise, they can all pull out their ledgers to prove him wrong.
This is how centralized ledgers and distributed ledger technology work.
Blockchain technology is essentially a distributed or decentralized form of the ledger in which transactions and data are stored simultaneously in multiple computers (ledgers), preventing a single point of failure. Blockchain, as a type of ledger, operates in blocks rather than rows and columns as traditional ledgers do.
How blockchain works
Blockchain operates in “blocks”. Every block in a Blockchain contains several numbers of transactions and every time a new transaction occurs on the Blockchain, a record of that transaction is added to every block that was created previously, which is made public and easy to access and monitor by anyone, anywhere, and anytime.
Every transaction is made up of a different block and numbers, known as “Hash” the hash in each block can’t be repeated.
In blockchains, the hash function is used for encryption. It accepts data and generates an alphanumeric output that is constant regardless of the size of the imputed data.
This makes determining the hash function’s imputed data nearly impossible. Because blocks are chained together if one block in the sequence is tampered with, it affects the other hash in other blocks, and all the blocks would have to be changed before the network could be hacked, which is impossible. As a result, Blockchain is extremely secure and immutable.
What is cryptocurrency?
Cryptocurrency is a digital payment system that does not rely on banks for transaction verification. It’s a peer-to-peer payment system that allows anyone, anywhere to send and receive money.
Cryptocurrency payments exist solely as digital entries to an online database describing specific transactions, rather than as physical money carried around and exchanged in the real world. Transactions involving cryptocurrency funds are recorded in a public ledger.
Bitcoin was the first cryptocurrency, and it was built on a Blockchain to address the problem of money transfer and payment. There are no governments, central banks, or groups of people that act as intermediaries or custodians of bitcoin, nor can the supply of bitcoin be altered.
Blockchain application to cryptocurrency
Blockchain allows cryptocurrency (digital money) to exist, making it decentralized and peer-to-peer. This means that, unlike the traditional financial system, no intermediary is involved in the transactions, only an open, publicly verifiable line of codes. This renders the system trustless
In the traditional financial system, the banks act as intermediaries between two people when transferring or storing money.
This means that if Mary wants to send money to John, she must first take the money to the bank, where the transaction is recorded on a ledger as the money is sent to John.
This demonstrates that if john later claims that Mary did not send her the money, the ledger can be looked into proving that Mary did indeed send the money to john. The problem with this Is that all parties must have faith in the bank and its ledger. This is a centralized database that could be manipulated.
Banks also save money on behalf of their customers. They are not required and, in most cases, do not have the depositor’s money on hand, which means that if there is a bank run, the banks will be unable to repay their customers, as happened in the United States of America during the 2008 housing crisis.
This resulted in the development of cryptocurrencies. Blockchain technology powers a trustless decentralized money and transaction mode.
As such, cryptocurrency is a type of decentralized digital currency based on Blockchain technology. Instead of banks maintaining individual ledgers of transactions, blockchain has a public ledger where all transactions are stored and saved by different people on different computers all over the world. They are known as miners.
Cryptocurrency & Fiat Currency
A fiat currency is one that a government declares to be legal tender. In contrast to cryptocurrency, fiat money is highly centralized and controlled by government entities. The US dollar is the most widely used fiat currency today. The British pound, euro, and Japanese yen are also popular currencies. Fiat currencies lack intrinsic value but are acceptable due to the government’s backing.
Cryptocurrency, on the other hand, is a digital or virtual currency that secures its transactions with cryptography. Cryptocurrency is decentralized, which means it is not controlled by the government or financial institutions.
The first and most well-known cryptocurrency, Bitcoin, was created in 2009. Thousands of other cryptocurrencies have been created since then. Ethereum, Solana, and Avax are among the most popular.
How does cryptocurrency affect the traditional banking system
Cryptography and codes prevent counterfeiting and double spending, making cryptocurrencies more secure and safe. Because cryptocurrencies are decentralized, you have complete control over your actions without any outside interference. the conventional banking system relies on a centralized ledger system and is therefore susceptible to manipulation, thus, its security is not as solid as that of cryptocurrencies.
Compared to bank transactions, cryptocurrency transactions are more transparent. This is due to the fact that every transaction is visible and traceable on the blockchain. Transactions cannot be publicly tracked, in the case of traditional banks, because the ledger is not shared and is only accessible to a small set of people.
Speed of transactions
Transactions using cryptocurrencies are nearly immediate because there is no need for paperwork or bureaucracy, the system is peer-to-peer. Due to the third-party inclusion in the conventional banking system, sending cross-border transfers or large amounts of money occasionally takes days to process.
Utilizing a cryptocurrency is substantially less expensive than using regular banks for transaction processing. When processing a cross-border transfer, banks can impose fees of up to 2%, while bitcoin costs just pennies on the dollar.
The data of every successful transaction stored on the Blockchain cannot be changed or altered by anyone, which means it cannot be hacked. In order to hack through the database, every other block previously created must also be hacked, which is impossible because the more transactions created using a cryptocurrency, the stronger the security.
In the case of traditional banks, the opposite is true; databases and information can be easily changed by anyone with access as it operates on a centralized ledger technology, this can also be hacked more easily compared to a blockchain.
How to buy your first cryptocurrency
The most convenient way to buy cryptocurrencies is through exchanges; we recommend Severus due to its user-friendly interface and robust security system.
Create an account
To purchase your preferred cryptocurrency on Severus, first, create an account by clicking on the “sign up” tab on the home page. Follow the prompts, enter your details, and then, proceed to create an account.
Fund your account
After you’ve created your account, you’ll need to fund it. Severus allows you to purchase cryptocurrency with fiat from your bank account using a debit card. Navigate to the “deposit” tab and select the currency to deposit. Proceed to enter your credit card information and click on deposit; your deposit will be processed and the funds will appear on your Severus account within a short period of time.
Place an order
Following the successful funding of your account, navigate to the market page by clicking “market” from the home interface. Choose the cryptocurrency you want to buy and click “place order.” After the transaction is completed, the cryptocurrency will appear in your wallet. The cryptocurrency will be kept safe in your Severus account, and you can withdraw it to an external wallet whenever you want.
exciting times ahead