Hello and welcome to my homework post for Respected Professor @levycore. I have been learning continuously from crypto academy and I hope it will continue in the same way.
Difference between Cryptocurrency and Conventional financial system.
We are living in a world where conventional financial system is more popular as compared to cryptocurrency. Cryptocurrency is gaining its ground as its growth is tremendous after its introduction and it is gaining popularity day by day. Cryptocurrency is a digital currency and it does not exit physically. It is generated, distributed, exchanged and traded digitally through internet. While conventional financial system consists of Banks and other institutions that are connected with finance. These institutes can be private or Government institutions.
Below are some of the differences between cryptocurrency and conventional financial system.
Centralized vs Decentralized.
Cryptocurrencies use decentralized networks without any central controlling authority and the users are the owners of their assets. There are no intermediaries involved in cryptocurrencies and transactions are carried out on the network without involvement of third party.
While in conventional financial system, there is always a central controlling authority and it controls the working of an institution. These institutions are under control of an authority and third party is involved in any transaction made by users. For example, a user has to transfer amount through bank. So, bank is a third party involved in this transaction.
Transaction Speed.
Transaction speed is an element of difference between cryptocurrency and conventional financial system. Cryptocurrency transaction is completed in matter of seconds and there is no geographical limit. One peer can make transaction to other peer while he is in any part of the world and it is completed by just clicking of a button.
On the other hand, transaction speed is slow in conventional financial system and in cross-border transactions; it can take more time thus making it a slow medium of transaction.
Transaction Fees.
Transaction fees are low in cryptocurrencies as compared to conventional financial system. Transactions fees are high while making transaction through banks or other such institutions. Crypto exchanges charge very less transaction fees to its users as there is always a competition between these service providers.
Safety.
Safety is another vital difference between these two systems. As there is no third party involved in cryptocurrency and the user has absolute control over his assets, there is very little chance of any hacking and such other activities. Blockchain network is deemed to be more safe than any other system right now.
In conventional financial system, third party has control over the assets of user and there is always a chance of any safety issue.
Anonymity and Access.
When a transaction is completed and added to a block in blockchain network, it cannot be altered and the parties involved in the transaction cannot be traced. A unique address is used to make transactions in blockchain network and there is no information of user is attached to it. Although the transaction can be viewed by anyone but it does not reveal personal information of the users.
In conventional financial system, a user has to provide his personal information before making any transaction and this information is attached with the transaction. So the user’s personal information can be traced in this system easily.
Why is a decentralized system needed?
We have discussed some of the key differences between cryptocurrency and conventional financial system and on the basis of these differences; I would like to explain why a decentralized system is needed.
24/7 Operations.
Decentralized system operates 24/7 and it does not stop working. A user can use make transaction at any time he wants. There is no time restriction that is a usual case in conventional financial system, and this feature of decentralized system is attracting masses to it and more people are adopting this system.
No geographical barrier.
There is no geographical barrier in decentralized system. A peer can transfer any asset to other peer in any part of the world and this is completed in matter of seconds. It is just a click of a button and the transaction is done instantly in real time. So, this is yet another feature of attraction for masses and they are being attracted to decentralized system.
Enhanced Security.
Decentralized network is considered one of the best networks due to enhanced security. A user is always attracted by security feature. When a user feels that his assets are secure, he will surely be satisfied. At present, blockchain networks are the best option due to their better security system and masses are being attracted by this feature.
Absolute Control.
User has the absolute control over his assets in decentralized networks and there is no need of any intermediary to make any transaction. A user can make transaction at any time anywhere in the world. He can trade, exchange, deposit or withdraw his assets without any problem. So this feature is also very attractive and that’s why decentralized network is needed.
What affects the value of cryptocurrencies?
Followings are some of the factors that can affect the value of cryptocurrency.
1. Demand and Supply.
Demand and supply is the basic rule of economics and it is followed everywhere. Whenever the supply is less than demand, the price of go upwards and when supply is more than demand, the price will go down. Same applies in cryptocurrency and it affects the value of cryptocurrencies.
2. News.
News is also very important factor in determining the value of cryptocurrency. A bad news can be the cause of any crash in the value of a cryptocurrency while good news can be the cause of an increase in the value of cryptocurrency. Social media and TV channels are the forums that can used for this kind of information and news plays a vital rule in affecting the value of cryptocurrency.
3. Big Stakeholder (Whales).
Of course, big stakeholders can influence the value of the cryptocurrency and they can easily move the market to their desired direction. Whales is a term used in crypto world for these big stakeholders and whenever they make a move, the market is affected by their move.
Why can’t be everyone a miner?
New cryptocurrency is created through mining and mining process is carried by specially programmed devices. Whenever a transaction is made on the network, the nodes on the network verify the validity of the transaction and when they come to an agreement about the validity of the transaction, then a block is added on the blockchain where the transaction is stored. This process is of recording transaction on the blockchain ledge is called mining.
To carry out mining process, specially programmed devices are required like Computer, GPUs and ASIC and these are very costly devices. These devices use too high energy while operating and it can also be very costly.
These devices generate heat in this process and in order to maintain the temperature at a certain level, fans and air-conditioners are also required and it can also cost too much money to any user.
Keeping in view all these requirements, everyone cannot afford to be a miner and one has to invest lot of money before he is able to earn some money from mining.
Why can cryptocurrency transactions be called more transparent?
Blockchain is a public ledger and it is also open source. So anyone can view the transaction completed on blockchain network. But on the other hand, once a transaction is completed, it cannot be altered and thus making it more transparent. A user can only view the completed transaction and nothing can be altered. Moreover, personal information of the users is also respected and it cannot be revealed unless it is added by the user himself. There is also no third party involved in transaction, in this way, cryptocurrency transaction is deemed to be more transparent.
Development of Cryptocurrency in Pakistan.
Digital currencies are not considered legal in Pakistan right now by State Bank of Pakistan. There is no authorized or licensed institution for the issuance, sale, purchase, exchange or investment of any virtual currencies or coins. Cryptocurrencies are gaining popularity day by day and in order to meet these new emerging requirements, It might be matter of time when it will also be allowed in Pakistan as cryptocurrencies.
Conclusion.
Blockchain network is considered more secure and it is also very fast network. Keeping in view all above discussed points, it can be concluded that blockchain technology is needed to be adopted and it is requirement of the time as it is a digital era.
Regards,
@babawattoo
Hi @babawattoo, Thanks for submitting your homework
Feedback: You have completed every point and you have understood the basics of cryptocurrency
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