CHAPTER 1: THE FUTURE OF FINANCE

Cryptocurrency, non-fungible token, blockchain, augmented reality. There are so many confusing terms out there that it is hard to know where to begin. Here, we will discuss everything you need to know about cryptocurrency, including how it came to be, and where it is headed in the future. You will learn in-depth about what it truly is, along with all its pros and cons.

Cryptocurrency

Cryptocurrency, in its simplest terms, is a digital manifestation of money. This concept can be difficult to grasp at first, especially considering we are so used to seeing physical copies of a bill or coin. In this case, there is no tangible leaflet or piece of metal.

So, doesn't this all seem a little bit fake? If you can't see it and you can't touch it, then how do you know it's even there? To answer this question, we must go back in time to consider what "money" even is.

A Brief History of Money

Before money was printed or coins were minted, humans used a bartering system to abandon and acquire goods. This, most historians agree, would be the most likely system in place around 3,000 years ago, although there is no definite proof of the system, making it effectively untraceable. The issue with this system was that trades were made difficult by the personal desires of the people involved: person #1 may want what person #2 has, however person #2 may not be willing to make the trade for the particular item that person #1 offers. This likely first brought humanity towards the idea of using some goods that seemed to have universal value for trades. The earliest examples of these currencies would be animal skins, weapons, and salts (Beattie, 2021).

Throughout the centuries, there was a shift towards the use of silver or gold as currency, since these items also had a rarity to them, and thus that same universal value as animal pelts once held. This idea of perceived value continues to be seen in history, as there was even a time during the 4th century B.C. when black pepper, dubbed the King of Spices was as valuable as gold and used as currencies, as it had just recently been discovered to Western Europe in the conquests of Alexander the Great. All this, just to say that money, in and of itself, has no true value other than what society places on it.

Taking this further, eventually humanity saw the shift between what has a universal value to what the government deemed to have value. Currencies became centralized to banks in this way and the physical copies of coins or, eventually, paper bills, were more receipts than anything, testifying that they were worth something. The true value was more of an idea than anything else.

However, there are still some problems, even with this monetary system. For one, it is fairly easy for criminals to trace and hack into a modern-day person's bank account and then send themselves as much money as they want. Physical copies of money also, when just passed around without the use of debit or credit, are, by nature, untraceable, and therefore shady deals profit much more from this.

Cryptocurrencies were first suggested in the 1980s, but the first digital coin appeared in 1995: Digicash, by David Chaum. It didn't flourish, similarly to subsequent attempts, such as Bitgold. These two first cryptocurrencies had one thing in common: they both were heavily encrypted for maximum protection between a money donor and recipient to make sure no illegal transactions were occurring. This was the early concept of cryptography, which is defined as the practice and study of encrypting information so that only those for whom it is intended can access it.

Bitcoin (BTC) was the first truly widespread cryptocurrency, developed in 2009 by an anonymous person or group with the pseudonym of Satoshi Nakamoto. With Nakamoto, the issue of the centralized system, which could be easily hacked and changed, was solved. The solution was thus created from the suggestion of a decentralized, peer-to-peer (P2P) network, using blockchain technology.

Starting out at a value of only 0.09 USD = 1 BTC, it reached an all-time high of 67 549.14 USD = 1 BTC in November 2021 (Edwards, 2021), although the market is still and will always be heavily uncertain with constant fluctuation.

The Inner-Workings of the Blockchain

Every single transaction on a cryptocurrency platform is stored as information on something called a ledger, which is a digital record. Each transaction on the ledger has a donor, a recipient, and the amount of money exchanged. The donor and recipient here are represented as highly encrypted codes.

Now, since the ledger is recording every single cryptocurrency transaction, this file quickly grows large in size. This is where the concept of blockchain comes into play. Blockchain is a way of storing the ledger into blocks, making the information quicker and easier for the computer to handle.

The cryptocurrency system's biggest advantage is its decentralization, accomplished by the P2P network. There is only one blockchain as there is only one record of all transactions by the specific currency, however there are hundreds of thousands of copies of this blockchain. The way the P2P network works is that people can "mine Bitcoin" or mine a different cryptocurrency by reserving a computer particularly to hold and update a copy of the blockchain. In exchange, they receive some cryptocurrency for it. This results in hundreds of thousands of computers, all individually updating the ledgers, and therefore there is not one central source of all transactions, rather making them transparent-although encrypted-to everyone. This system works so that if one copy of the ledger is different from the 99% of everyone else, then automatically foul play has been caught in the act and can be fixed, increasing the system's security.

Different Currencies

To get a better idea of how cryptocurrencies work, let's consider Canada and the Canadian dollar, or CAD. In contrast, across the world, Japan uses the Japanese yen, or JPY. They are both currencies by definition, but have different monetary values to these different countries. Similarly, cryptocurrencies are money, just as CAD or JPY, but represent different values, and in fact cryptocurrency is, more than anything, an umbrella term for thousands of different currencies.

Of these, the most well known, as well as the first successful one, is Bitcoin (BTC). It continues to be most widespread in its use, however it does compete for the top value. Altcoins are termed as cryptocurrencies that are modeled after Bitcoin, advertising slight changes to the system, such as a more specialized use, faster processing time, or better cryptography.

Ethereum (ETH), the most popular altcoin currency as of 2021, is on the rise and is the preferred platform for many NFTs and blockchain games. It boasts a more specialized use than Bitcoin, in that it is an entire platform (Ethereum) as well as a currency (Ether). This means that games can be built and used off the blockchain. These games or programs are called decentralized applications (dapps) and are the main draw of this type of currency. Ether is used to then maintain the dapps on the Ethereum platform, and can be traded like other cryptocurrencies.

Another altcoin commonly used is Litecoin (LTC). Litecoin uses "scrypt" proof of work to maintain their P2P decentralized network, which makes it easier to maintain on less powerful computers.

Finally, another couple of popular cryptocurrencies include, but are not limited to: Polkadot (DOT), Cardano (ADA), Bitcoin Cash (BCH), Binance Coin (BNB), Solana (SOL) and Ripple's XRP (XRP).

Pros and Cons of the Shift to Crypto

The biggest "pro" towards cryptocurrency is its decentralization coming from the P2P network. That the blockchain is regulated for and by the people allows not only a high level of security and difficulty for hacking and illegal transactions, but the transparency further allows the system to keep track of activity. In this way, crypto boasts being open and traceable through encrypted data, without losing its confidentiality. Moreover, unlike with physical money, transactions are able to be made anywhere in the world with virtually no limit on the amount, and these transactions can take less than half a day, therefore making it a convenient alternative to banks. Furthermore, transaction fees, interest rates, and exchange rates for cryptocurrency are all incredibly low, which is another advantage to the crypto shift above physical cash.

There are, however, some "cons" to the shift to cryptocurrency, which vary in severity from the sheer novelty of the system to serious issues that must be addressed. The first disadvantage of cryptocurrency is that it is incredibly energy-consuming. Because the P2P network is so large and involves so many computers running at high power all the time, vast amounts of electricity are being used to maintain it all, which is a highly concerning consequence to the environment.

Socially, cryptocurrencies are highly volatile and their prices can change drastically in the span of a single day. There have been cases of people investing their entire life savings into Bitcoin, just to lose it all. This is why an investor cannot depend on crypto-investments as a main income and should always be safe and responsible with their money as one cannot predict the future.

Cryptocurrency technology is constantly being improved and reworked. Faster technology, better algorithms, and different proofs of stake are being developed. These...