Hello, everybody. Assalam-O-Alaikum and welcome to my this post. After the success of week 1 of the Steemit Pakistan Crypto Courses. This is the second week of this amazing circumstance. I am very much glad to participate in the Homeworks for this week as well. So, I am going to make the homework for dear professor @mohammadfaisal.
I have read the whole of the lecture post and I really say thanks to the professor as he has explained all the basics of the blockchain and the working of blockchain in an amazing manner. There are some questions that are asked by the professor as the assignment so I will discuss the possible answers to these questions.
The answers to all the questions are given below in order.
(01)
What is a cryptocurrency and how it plays role in the blockchain?
As we all know that the currencies that we used in our daily life for purchasing different items and goods are in the form of paper money or coins. But in the digital world, the currency is also in the form of digital assets known as Cryptocurrency. Cryptocurrency means the currency that can not be touched and felt but can be utilized for purchasing purposes in the digital world.
The system of cryptocurrencies is a decentralized system and developed to overcome some problems that are seen in the traditional finance system which was centralized. The main problem was the involvement of the third party and the inefficiency of the system as the transactions took much time to complete. So, these issues are covered with the creation of the first-ever cryptocurrency called Bitcoin which was created by Satoshi Nakamoto. He is the person behind the creation of the King of Cryptocurrencies, the Bitcoin.
As the Fiat currency (paper money, coins, etc) is utilized in real-life markets, the cryptocurrency is used to perform activities in the blockchain. The Blockchain, as referred to by the name is the chain of blocks in which different blocks are interconnected with each other and form chains.
In a blockchain, different blocks are interconnected with each other with the involvement of cryptographic techniques, and the data is stored in these blocks which can be utilized in the hour of need and this data is accessible for all the members of the blockchain.
The data that is stored in the blockchain is in the form of cryptocurrencies. So, cryptocurrencies play a very significant role in the proper working and functioning of a particular blockchain. Blockchain technology is a very good invention by a Japanese team or person named Satoshi Nakamoto, who developed Bitcoin. It is a very surprising thing that even after such a great success of Bitcoin, the real face of Nakamoto is still hidden. However, there are several theories based on different concepts about the identity of Nakamoto but no one knows his real identity.
The blockchain works on a decentralized system. This means to say that there is no involvement of any central authority while making transactions in this system. The funds and transactions are in the hand of the individual in a blockchain.
As we have discussed the brief explanation about Blockchain in the above segment. So, now I am going to discuss the working of a blockchain. The working of a blockchain can be easily expressed in six steps that are mentioned and explained below.
First of all, a transaction is requested by the sender. This transaction may be in the form of money(cryptocurrency) or some stored data.
After the requesting of the transaction, the data or information that are stored in the transactions tend for the creation of a block for further processing.
Then, the block is broadcasted to all the nodes of the blockchain for verification purposes.
The miners that are present in different nodes solve the alphanumeric problems related to that block. If the problems are calculated then the transaction is verified by the miner.
After the confirmation of the transaction by the miner, the block is added to the chain of blocks (Blockchain).
Finally, the transactions are validated and transacted to the receiver address.
(02)
What is blockchain mining and what is Mining Difficulty?
Blockchain Mining, as referred to by the name is the mining of different this within the blockchain. Cryptocurrency Mining is a technique in which cryptocurrencies are produced by solving alphanumerical complex problems or equations with the help of computer systems. These complex equations are so complicated that they cannot be calculated technically without the involvement of any high-performance machinery.
So, Crypto Mining is the process in which cryptos are produced by solving these problems with high-performance computers. The data that is gathered after solving the problems are then added to the blockchain in the form of blocks. This data is visible to all of the users due to the decentralization of the blockchain.
Cryptocurrency mining can be done in several ways. Some of them are mentioned below.
Cloud Mining (By borrowing mining rigs)
CPU Mining (By using computer's processors)
GPU Mining (By using graphic cards)
ASIC Mining (By using Mining devices)
As we have discussed blockchain mining briefly in the above segment so there is a term known as Mining Difficulty which is used in cryptocurrency mining. The mining difficulty as referred to by the name is the calculation of the difficulty of the mining of a particular cryptocurrency. This difficulty may be in the form of time-consuming or correct calculations.
I will describe this term by relating the mining difficulty in Bitcoin. As we all know that the value of Bitcoin is rising day by day and the market volume is also increasing proportionally. Thus, the number of transactions that are made on the Bitcoin network is also increasing. As we know that there is a number of nodes linked with each other in a blockchain so the same is the case with the Bitcoin blockchain. Different miners of Bitcoin are present in the blockchain to validate the transaction, if made on the blockchain.
So, whenever a transaction is made on the Bitcoin blockchain, the information is of the transaction reaches different miners. There is competition among the miners of Bitcoin to solve the complex alphanumerical hash functions that are stored in the transaction. So, different miners use different methods to solve these hash in the seek of the transaction fee which is given to that miner as the reward of validating the transaction.
It is very difficult for the miners to overcome the problems like shortage of time as the Bitcoin network adds the blocks to the blockchain after every 10 minutes which is considerably much time. So, the miner who validated the transaction first is rewarded with the transaction fee in the form of Bitcoin. Then a block is created which contains all the information of the transaction made and the right hash is selected among all the created hash. This whole process is adopted to find out this right hash and the difficulties involved in this process are called Mining Difficulties.
(03)
Discuss Challenges for Crypto Miners
As we have discussed the whole explanation about cryptocurrency mining briefly. So, from the whole of the above discussion, it seems that crypto mining is a very beneficial and profitable technique but is not much easy as it seems. However, the miners of the cryptocurrency also face many difficulties while mining a particular cryptocurrency. Some of them are discussed below.
The main and the most seemed problem for the crypto miners is the unaffordability of the miners. As I have discussed before that the machinery that is used in ASIC mining is so expensive that most of the miners do not afford it individually. However, group work could be helpful in this regard. Moreover, the graphic cards that are used in GPU mining are also much costly.
Another factor that really affects the cryptocurrency miners negatively is the eligibility problem. In several regions of the globe, cryptocurrency is not legal. Hence, the mining of cryptocurrencies is also considered to be immoral. In our own homeland, Pakistan, cryptocurrency mining is banned and this rule is strictly followed by the people due to the involvement of FBR.
The third thing that creates difficulty for the cryptocurrency miners is that the machinery or the computers that work to generate cryptocurrency are much energy consumers that normal people cannot afford such great consumption of energy.
The mining of the cryptocurrency took some time for the production of the cryptos and reward the miners with a profit but many of the miners left the mining circumstance due to the fact that it is a very much time-consuming process.
Due to unawareness about the working of the devices of the crypto mining, some crypto miners face problems in this regard.
Another major problem for crypto miners is the security system. As we all know that the hackers are wandering here and there on the internet and the crypto mining machinery also works on the internet so there are many chances of the attacks of hackers and stealing of the cryptocurrency they have mined.
The production of the ASIC devices is a centralized process because there are very limited manufacturers of these devices so this thing is also a challenge for the ASIC miners.
So, these are some challenges that a crypto-miner face while the mining process.
(04)
What is DeFi (Decentralized Finance) and discuss any DeFi project in detail?
The word Decentralized Finance is abbreviated as DeFi. The decentralized financial system is a modern finance system that is adopted in blockchain technology and is really a great evolution in the blockchain world. As we all know that the traditional finance system, also known as the conventional finance system is a financial system in which the funds and the transactions or the money are under the influence of the central authority or the central controlling unit such as the baking system, governance system, semi-governance system. But the decentralized finance system is besides all these things. There is no involvement of the central authority in the decentralized finance system.
DeFi is a system in which the assets and the funds of the users are in the control of the users on their own. They can make transactions anywhere, at any time throughout the globe without any involvement of any 3rd party. These transactions are verified without seeking permission from any third party.
There is a number of projects that are using the DeFi system. Some blockchains that are based on the decentralized financial system are as follow:
- Uniswap
- MarkerDAO
- Steem
- REN
- Compound
- Synthetix
Now, I am going to discuss the Uniswap platform, a DeFi project.
Uniswap is a decentralized cryptocurrency exchange that is based on the Ethereum Blockchain. Uniswap, as referred to by the name is a swapping technique where one token is swapped with the other tokens that are available in the ETH blockchain. Uniswap was developed as a decentralized and trustless crypto exchange where we can swap different tokens with each other and take part in the Ethereum-based finance system, without the involvement of any central authority or central person.
Uniswap exchange allows the users to exchange their tokens without any fear of discrimination risk. Since Uniswap is based on the Ethereum blockchain and replaces the conventional finance system which was based on the market tools like the exchange listing and limit-order book to the decentralized system with automated and permissionless tools like the liquidity pools. On the Uniswap exchange, the ERC-20 tokens are exchanges and swapped with the ETH tokens.
The traders or the investors that provide the liquidity to the pool are called LPs or Liquidity Providers. Whenever a transaction is made on the blockchain, the transaction fee is distributed among these LPs as a reward for their contribution. There is no limit to join the pool. You can join the pool with a minimum deposit and start earning the transaction fees. One can link the Uniswap exchange with the Ethereum wallet such as Metamask, to swap their tokens.
UNI Token:
Thus, Uniswap is the largest decentralized swap exchange of the time. The UNI token is the native token of the Uniswap exchange. It was launched in September 2020 as a native token at a price of about 4$. The very next day of its launching, it hits $8.39. One Billion UNI tokens were minted by the next 4 years. The current market value of the UNI token is listed below.
| Price | $29.93 |
|---|---|
| Rank | 11 |
| Market Cap | $18,246,732,158 |
| Volume (24h) | $897,781,963 |
| Circulating Supply | 611,643,723.83 UNI |
So, that's all about the Uniswap crypto exchange which is a decentralized exchange.
(05)
Advantages of Decentralized Finance
As we have discussed the brief introduction of decentralized finance in the above segment. So, in this segment, I am going to discuss the advantages of the decentralized finance system.
The main and the most important advantage of the decentralized system is the security. As the users themselves have complete control over their assets so they felt secure in this system.
In the DeFi system, there is no need of seeking permission from the central authority while making transactions. Users are free hand to make transactions anywhere at any time.
The data stored in the decentralized system is non-exchangeable. Once the data is stored, it cannot be edited again.
It is really a secure and safe system as there is no chance for hackers to attack the system. This is due to the fact that the data is stored in different nodes belonging to the decentralization chain.
The security system of the decentralized finance system is a very complex and strong one that no one can easily cross this privacy.
A DeFi system creates a link and coordination between the higher authorities and the new users and in this way they can contact each other and the new users can seek guidance from the old experienced users.
The transactions that are made on the decentralized system are very efficient as compared to the centralized system. The reason is that there is no system of KYC verification before making transactions in the decentralized system. The absence of this complex process is also a time-conserving aspect.
So, mentioned above are some benefits of the decentralized financial system in blockchain technology.
Conclusions
Cryptocurrency is the future of the world's finance system due to its decentralization and its advantages. Cryptocurrencies play a vital role in the blockchain which is a chain of interconnected blocks with consensus algorithms. These blocks are validated by the miners that belong to different nodes. The miners solve the alphanumerical complex cryptographic calculations and are paid by the transaction fee in the reward. Crypto mining is the technique to get cryptocurrencies by using the complex and technical machinery of computers and other devices. A decentralized system is a finance system in which there is no concept of the central authority. A decentralized system can be adopted in many races of life to improve security, honesty, and efficiency in several fields.
Hopefully, all of you will like this post.
Thanks to all of you.
Mention: @mohammadfaisal (Steemit Pakistan Crypto Professor)
Writer: @steemdoctor1 (Crypto Student)
