Exploring the Evolution and Modern Trends of Cryptocurrency: A Review
Bitcoin, the most famous and well-known cryptocurrency in the world, has been gaining in popularity. It has the same basic structure as when it was first launched in 2008, but repeated instances of the global market shifts have resulted in a fresh demand for cryptocurrencies that is far higher than its first appearance. In contrast to other virtual payment systems that have appeared so far, the foundational paper defining the Bitcoin system was released as a forum post on the Internet rather than in a scientific journal. The paper’s ideas were put into practice in January 2009, when the same author developed the first block of the Blockchain and implemented a fully functional bitcoin wallet that allows users to transact with the new cryptocurrency. As a result, the adoption of bitcoin happened without much excitement from the academic community, and the first research papers on the subject did not surface until late 2011 in the arXiv repository, with future conferences and journals publishing them.
ORIGIN AND EVOLUTION
Although the notion of electronic currency dates back to the late 1980s, Bitcoin was the first successful decentralized cryptocurrency, established in 2009 by Satoshi Nakamoto, a pseudonymous (and still unidentified) creator. In simple terms, a cryptocurrency is a virtual coinage system that works similarly to a traditional currency, allowing users to make virtual payments for products and services without the need for a central trusted authority. Cryptocurrencies rely on the transmission of digital data and use cryptographic methods to verify that transactions are genuine and unique. Bitcoin advanced the digital coin market by decentralizing it and liberating it from hierarchical power structures. Individuals and businesses instead use a peer-to-peer network to transact using the coin. Beginning in 2011, it drew a lot of attention, and plenty of other altcoins (a term for all cryptocurrencies created after Bitcoin) popped up. The cryptocurrency sector had over 4,000 coins with di-verse user bases and trade volumes at the time this review was produced in July 2021.
Analysis of Bitcoin
Bitcoin is an open source, peer-to-peer digital currency that was first proposed by Satoshi Nakamoto in a paper published in 2008. In the first paragraph of his article, Nakamoto states that “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weakness of the trust based model”. As a result, Nakamoto set out to create a cryptocurrency that would do deal with the necessity for a trusted central authority in favor of cryptographic verification. This system would have minimal transaction fees, low latency (time between transactions), and pseudo-anonymity. A bitcoin, like any other cryptocurrency, is simply “a chain of digital signatures” in which “each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin,” allowing ownership to be dynamically programmed into the coin. These lines of computer code are also kept in a program known as a “wallet "on personal hard drives and/or online wallets like Coinbase. Bitcoins, like currency or commodities, can be misplaced, stolen, or destroyed. Only by documenting the transaction on the public ledger, often known as the “blockchain,” can bitcoins be sent or received. Bitcoins have no intrinsic worth; rather, their value is determined solely by supply and demand.
Blockchain technology, bitcoin, and other cryptocurrencies are all part of a broader trend of decentralization that has been going on since the early days of the Internet, but at a breakneck speed in the last two decades. Replacing a central authority, on the other hand, presents a distinct problem with a vague answer. To begin, the coin must be able to change possession. Transactions are documented by combining each party's digital signatures with a timestamp to determine the transaction date. The currency and its transit through the network are represented by this new code. This code is then broadcast to all nodes on the network (computers that are linked to and running the cryptocurrency network software).
Even though bitcoin transactions are sent over a peer-to-peer network, information obtained from that network can be used to reduce the anonymity of the system, as was first pointed out in the TCP/IP information obtained from that network can be used to reduce the anonymity of the system, as was first pointed out in the TCP/IP information obtained from that network can be used to reduce the anonymity of the system, as was first pointed out in the TCP/IP information Despite the fact that most wallets can work over anonymous networks, a large percentage of bitcoin users do not use such services, leaving potential for network analysis. In comparison to blockchain analysis, traffic analysis has gotten less attention from researchers, most likely because the blockchain is avail-able for analysis and network data must be gathered. In fact, due to the dynamism and size of such a P2P network, bitcoin network analysis is a difficult topic.
THE CONCEPT OF BLOCKCHAIN
Blockchain, also known as Distributed Ledger Technology(DLT), makes the history of any digital asset unalterable and transparent by combining decentralization and cryptographic hashing. The three key concepts of blockchain are blocks, nodes, and miners.
Every chain is made up of several blocks, each of which comprises three basic elements:
- The block’s data
- A nonce is a 32-bit whole number. When a block is constructed, a nonce is generated at random, which then generates a block header hash.
- The hash is a 256-bit number that is associated with then once. It has to begin with a large number of zeros (i.e., be extremely small).
Mining is the process by which miners add new blocks to the chain. Every block in a blockchain has its own unique nonce and hash, but it also refers to the hash of the previous lock in the chain, making mining a block difficult, particularly on big chains. Miners use specialized software to solve the extremely tough arithmetic problem of generating a valid hash using nonce. Because the nonce is only 32 bits long and the hash is 256 bits long, there are around four billion nonce-hash combinations to mine before finding the proper one. Miners are considered to have discovered the ”golden nonce” this results in their block being added to the chain. Any change to a block earlier in the chain demands re-mining not only the affected block, but also all following blocks. This is why manipulating blockchain technology is so tough. Consider it “safety in maths”, because identifying golden nonces takes a long time and a lot of computational resources. When a block is successfully mined, all nodes in the net-work acknowledge the change, and the miner is compensated financially.
Decentralization is one of the most essential concepts in blockchain technology. A single machine or entity cannot own the chain. Instead, the nodes connecting to the chain forma distributed ledger. Any type of electronic equipment that saves copies of the blockchain and keeps the network running is referred to as a node. Every node has its own copy of the blockchain, and in order for the chain to be updated, trusted, and confirmed, the network must algorithmically approve any newly mined block. Because blockchains are transparent, every action on the ledger can be easily inspected and investigated. A unique alphanumeric identification number is assigned to each participant, which is used to track their transactions. By integrating public data with a system of checks and balances, the blockchain’s integrity is preserved and users’ trust is developed. In a nutshell, blockchains are a technology that allows for the scaling of trust.
FUTURE OF CRYPTOCURRENCY
What is expected to happen is that block-chain technology will further empower and streamline the sharing economy. It will lower resource costs and eliminate the requirement for private ownership. This will have an impact on consumer discretionary spending and time, allowing for more cash and time for new technologies, leisure, and other requirements.
Opportunities of Cryptocurrency
The usage of blockchain technology in conjunction with cryptocurrencies can reduce the cost of trust, which is a critical component that presents itself in a variety of ways in the financial system. These expenses include commissions paid to the middleman, fees for entering and maintaining contracts, settlement procedures, cybersecurity, and user authentication. The financial sector faces numerous hurdles and has recently undergone crises. The global financial crisis of 2008, for example, resulted in millions of people losing their jobs and houses all around the world. Although cryptocurrencies are not a solution for all financial issues, it is nonetheless necessary to investigate how these economic and financial tools can affect financial stability and help to build a more robust financial sector. Inefficiency, excessive costs, and liquidity blockage characterize the traditional approach to cross-border payment. Payment systems are not transparent, and there are various unknowns about pricing and fraud concerns. As a result, cryptocurrency payments may be able to reduce a number of these concerns. Online payment alternatives are where bitcoins are most often used. The rise of cryptocurrencies as the most popular form of payment on the Internet has been aided by the growth of cashless payments and the widespread use of credit cards. Because exchange partners might potentially trade, ex-change value, and settle their payments using cryptocurrencies, digital currencies have the potential to influence cash flows and supply chain architecture. Pournader et al. (2020) argue that by using cryptocurrencies to simplify payments, businesses will be able to execute rapid money transfers, removing the need for commissions to pay for products and services. Cryptocurrencies have a substantially shorter settlement time than other payment options. In the case of bitcoin, the average settlement time of 10 minutes is far faster than any non-cash financial transaction, which can take days or weeks.
Challenges of Cryptocurrency
The growing popularity of cryptocurrencies brings with it a number of problems, raising questions and worries about the viability of future virtual currency inclusion into the monetary and financial systems. In the lack of legislation and regulatory standards, this is especially true. The development of internet black marketplaces is now growing at an exponential rate. Due to their quasi-anonymity, which makes it difficult to track the identity of the opera-tors and users, the introduction of bitcoin has already resurrected underground markets and created several opportunities. According to Kerr (2018), bitcoins an ideal instrument for conducting business on the digital black market because it weakens authorities’ policing efforts. Cryptocurrencies have the ability to cause structural changes in the black market’s operations .As cryptocurrencies develop in popularity, they are likely to spread to new domains and have an impact on other industries. To mine cryptocurrency, the underlying technology of cryptocurrencies, blockchain, is largely reliant on the consumption of electricity, graphics processing units, and power-intensive computing abilities. According to Vaz and Brown (2020), a payment transaction on the Bitcoin platform consumes roughly58 times the energy that a Visa credit transaction consumes. Furthermore, cryptocurrencies require a large amount of energy and have a negative influence on the environment, the mining procedures for cryptocurrencies have attracted similar negative attention. Several governments, including Germany, China, and the United States, have expressed opposition to the usage of cryptocurrencies on a larger scale. Some bankers are also opposed to the idea of investing in cryptocurrencies, particularly bitcoin. A few nations have taken an explicit stance on the usage of cryptocurrencies and have placed restrictions on its use in a variety of activities. The German central bank, for example, has advised investors against investing in cryptocurrencies.
Cryptocurrency appears to have passed the early acceptance stage that many new technologies go through. Cryptocurrency has begun to carve out a niche industry, which could either help cryptocurrencies develop further into general use or be the primary reason for their failure. Cryptocurrencies are still in their infancy, and it’s hard to say whether they’ll ever become truly widespread in global markets. To incorporate these developments into their economies, governments will need to develop new approaches. However, integrating Blockchain Technology at businesses across a variety of industries could be extremely expensive. Organizations must invest a large amount of money to migrate or move from legacy systems. Despite all of these benefits, there are still a few obstacles to overcome. The lack of governance in peer-to-peer networking transactions is one of the most significant barriers to cryptocurrency adoption. The review paper also examined the phenomenon of blockchain technology, as well as bitcoin as its most well-known product, and highlighted the fundamental qualities of both notions. To gain a full grasp of cryptocurrency, this review goes into great detail on all of the material surrounding this rapidly-emerging area of the evolving cryptocurrency ecosystems. Therefore, future studies may provide new insights by taking a holistic approach to different study directions.