Cryptocurrency

Cryptocurrencies are a form of digital currencies or virtual assets that anyone can acquire all over the world without any geological restrictions. It was created with the principles of blockchain with the aim to bring in a financial system that completely eliminates intermediaries and promotes a decentralized system in which no central authority can have control over the pricing of the currency. The invention of cryptocurrencies has completely revolutionized financial concepts and systems with their absolute anonymity and next-level transparency.

Relationship between cryptocurrency & blockchain

Blockchain and cryptocurrency, we've most probably heard these two words being chew at us always together, and many peoples even thought of it as being the same. It is necessary to understand that even though they are entirely separate inventions, these concepts are entwined and interlaced with each other. Satoshi Natamoko, the creator of Bitcoin, invented it based on ideas and notions of blockchain. Blockchain was developed way before the name, let alone the idea of Bitcoin was ever concocted, almost 20 years before the release of the Bitcoin whitepaper.

The trailblazing journey of cryptocurrency has only been made possible due to the involvement of blockchain. The relation between blockchain and cryptocurrency goes a long way. In simple words, blockchain is a burgeoning list composed of blocks interconnected with each other in a single chain. When the block is connected to the chain, it can not be altered, edited, or deleted. Cryptocurrency blockchain uses this technique and works as a peer-to-peer decentralized public ledger that records all the operations and transactions ever made with the particular cryptocurrency.

One can understand the relation between blockchain and cryptocurrency by the fact that if you are learning blockchain, you are not learning about cryptocurrency. Instead, you are learning about the basic principles and how cryptocurrencies work.

How transactions are performed?

Now, it's time to understand how records are stored in a block whenever any transactions are performed within the crypto market.

• Whenever an asset holder requests to perform any operation, a new block is developed that represents the request. The operation can be anything that can include transaction requests, contracts, and even loans.
• Once the request has been made, and the block has been created. The block or you can say the request for the transaction will be transmitted and sent to the p2p networks that are solely responsible for the verification of blocks.
• Once a transaction is verified, a new block will be created that will be added to the blockchain confirming that the operation is legit, secured, and immutable. Congratulations! The operation has been completed.

Benefits of Blockchain in cryptocurrency

Blockchain is not just an arbitrary trait for cryptocurrency but is an originating principle on which they are developed. There are great importance and benefits it provides in the blockchain. Some of them are following:

• The first thing that attracts the traders is the level of security it offers to its user. In this digital, modern, and advanced world where everyone is sensitive about their personal information, cryptocurrency, with the help of blockchain, has provided a great tool to perform anonymous transactions. There are no intermediaries that you need to give information about yourself.
• The essential part of the cryptocurrency using blockchain method is because that is unhackable. Once, the block is created and connected with the network blockchain, nothing can undo or edit this process.
• Because of the fact that blockchain is based on the internet. It can be viewed and accessed globally, bringing the level of transparency to the next level. There are very few transaction fees as there are no intermediaries between the process. You can send your assets to other parts of the world with just a few clicks.
• Whenever we try to send fiat currency even to a different city within the same country. There are many procedures, extra fees, and verification we have to follow and pay in order to transact our assets. The distance is also the deciding factor of the fees and time that the money will arrive. These all problems have been solved due to the legacy of cryptocurrency. You just get your money in less than a minute.

Question2

What is blockchain mining and what is Mining Difficulty?

Blockchain Mining

As we all know, cryptocurrency blockchain works as a decentralized public ledger, and the blocks are added to the chain when verified. The main question arises that, if there is no central authority, then who is verifying our transaction records? Who is making sure that there is no fraud or cyber attack?

That's where blockchain mining comes into action. Mining is the process of verifying every operation that ranges from transactions to loans that takes place in the digital currency ecosystem. Many people confuse blockchain mining with the process of creating new coins. Yes, new coins are producing but that is not the only reason mining is happening. Essentially, it is a method of verifying transactions and connecting them to the chain, forming a blockchain.

Whenever a new transaction request takes place, the request is sent to all nodes or miners in the blockchain system to verify it. The miners are required to solve complex mathematical problems. The first node or miner to solve this problem will get rewarded in terms of cryptocurrency. The reward is purely dependent on the mining capacity a node can perform.

Difficulties in Mining

Many people want to go into the complex responsibility of cryptocurrency mining, but it's no easy job. It has now become a competition to mine as only the winner gets rewarded in that particular crypto. Many companies and individuals are contesting to solve complex solutions first. The more the computational power in mining hardware, the more chances there are to get rewarded.

There are certain levels of difficulties miners had to face to mine crypto.

• Initially, there is a huge learning curve for newcomers as there are big sharks who have dedicated next-level machinery to help them extract a large number of coins.
• Secondly, the "difficulty" to solve complex problems is dependent on the hash rate of the network. In simple words, if there are more miner's trying to mine crypto, the difficulty level will increase and vice versa. The difficulty levels, in the world of digital currency, are measured in hashes.
• Every coin has a different difficulty level based on the block time. The difficulty is maintained and adjusted in a way to keep a consistent block time, in the case of bitcoin, it's 10 minutes per block. No bitcoin can be mined before the 10 minutes limit, the block time varies with different cryptocurrencies, for example, ethereum has a block time of 10 to 20 seconds. Considering this block time, if, at any given moment, the number of miners who are currently mining is higher, the difficulty level increases so that the coin does not inject into the ecosystem before the time limit.

Hashrates is a professional way of saying how effective miners are in a particular crypto network. The higher the hash rate, the higher the amount of security, speed, and circulation is provided to the blockchain network. We have seen many times in Bitcoin that due to the increased amount of hash rates, the difficulty of mining increases.

Question3

Discuss Challenges for crypto miners.

Challenges for crypto miners

As we've discussed in the previous question that, blockchain mining is no easy task and requires a lot of attention and computational power to solve complex numerical problems. Miner's have to face various difficulties to mine. Some of the difficulties are listed here as:

• As time is passing, the difficulty of mining a crypto coin is exponentially increasing. To solve these complicated problems, one needs to have devices that work with high computational power. To power up these high computational devices, a high amount of electricity usage takes place. It happens that sometimes the electric fees you are receiving each month are greater than your profit from mining, leaving the miners in a rather uncomfortable position.
• There is also a high probability of cyberattacks. Hackers tend to remotely control the miner's device such as ASIC's to mine for them. There is no potential method to save oneself from these kinds of attacks however, there are some methods such as proof of stakes that can give some level of security.
• The difficulty to solve these complex numerical problems is increasing at a higher rate. Miners with low or moderate resources are constantly having hard times competing in the race of mining.
• The high volatility of prices of currencies is also a challenging factor for miners. Miners have to invest a tremendous amount of their financial resources to make the mining operations successful. It has been a long-term concern that the revenue miners generate from mining is way less than the startup expenses that miners have to face. This demotivates miners and leaves them in the position to quit mining.

Question4

What is DeFi (Decentralized Finance) and discuss any DeFi project in detail?

DeFi (Decentralized Finance)

De-Fi is an ecosystem of financial tools built upon the blockchain network. The concept first emerged in 2018 when ethereum introduced its first De-Fi technology in the form of MarkerDAO. It tends to help the user in the lending and borrowing process with the help of various smart contracts based on the Ethereum blockchain. It was established with the aim to do more than just transact our money, with the help of De-Fi's application, we can do a lot of things that were not possible in digital currencies before and were common in fiat currencies.

What makes it more effective and secure than the fiat currencies tool is that it's a decentralized system based on smart contracts which eliminate all types of intermediaries. The contracts themselves are software-based programs that define all the rules, protocols, and agreements between buyer and seller. Although, the system is not overall decentralized as it is still in the early and development stage and requires proper maintenance to keep these tools running. Several community developers are helping these Dapps to run seamlessly.

MakerDAO

The first decentralized system that was introduced to the world of cryptocurrency is Maker and is one of the first projects in the Ethereum blockchain. This project has completely revolutionized the financial system in cryptocurrency and is a founding concept for De-Fi technology.

Maker is a decentralized organization that enables its users to acquire the decentralized technology of borrowing and savings of their assets on the Ethereum ecosystem. It is also famous for its stable coin DAI that is valued at a steady price of 1 DAI = 1 USD. One can easily borrow and lend currency without any involvement of any type of intermediaries. Smart contracts are one of the essential features of these lending tools. It works with two currencies, one that is a stable coin known as DAI, and the other known as MKR, a currency with a volatile price. DAI is used and suitable for payments, lending, and saving purposes while MKR is used to keep the maker platform running.

The process of lending and borrowing crypto for another crypto was very complicated and difficult before the establishment of De-Fi applications. The main reason was the high volatility of prices. The constant ups and downs of prices made it very difficult to keep track of how many assets a borrower has to return. Maker revamped the entire process with its special lending features and stable coin.

Question5

Advantages of Decentralized Finance.

De-Fi has entirely revolutionized the digital financial systems. It has given new opportunities to all the assets holders to earn rewards by stacking crypto and get an interest rate on the amount of stacking. Let's check some of the benefits the De-Fi system has provided in the blockchain environment.

• It's not possible to talk about the De-Fi systems and not about their lending and borrowing system. It has brought out some of the very needed features that were available in fiat systems but are arduous to achieve in digital currencies. This decentralized lending system has helped many assets holders. The exceptional use of smart contracts has sped up the process of verifications and made it very easy for users.
• You can not only lend your assets but can also use the De-Fi system as a saving vault. It is possible to get the interest amount of the assets that you have stored in De-Fi systems. It has leveraged the use of crypto savings and get interest amounts instead of fiat currency as we can easily choose which platform gives off high-interest returns.
• The "De" in De-Fi stands for decentralized finance and has all the properties that a decentralized should have in the first place. Some of the famous properties are the level of immutability and the level of transparency. No one can manipulate any track records after they are connected to the blockchain and is visible to everyone.
• Tokenization is one of the outstanding advantages of De-Fi systems. It's a process of converting physical and non-physical assets into digital tokens. Tokens can be used to represent many things. Real estate tokenization has been one of the prominent benefits for asset holders. By holding onto a certain amount of tokens defined by the administration of real estate means that you have bought some percentage of ownership.

These advantages just keep on going and these are the features that are available in the early stages of De-Fi. You can just guess how much promising and benefiting these systems will be once it achieves a developed frame.

Question6

Conclusion.

Conclusion

I sincerely learned a lot of things about mining and the applications of decentralized finance. The lecture has solved many questions regarding the topic. The thing I learned from reading the discourse and completing the homework is that we have just only scratched the surface of the application one can achieve with the help of digital currencies.

The mining of crypto has been more challenging than ever before. Many companies, industries, and even individuals are working hard for the production of crypto in the ecosystem. It is no easy job to mine crypto and needs tremendous attention regarding it.

De-Fi, even though the recent player in the league of digital currency but has undividedly taken the attention of all crypto enthusiasts and asset holders. The immense growth in the success of De-Fi applications has proved the stance and importance of this technology in the blockchain environment.