Yet Another(Booming) Asset Class!!!

 Hey There,

So in my last blog I tried to cover the habit of investing, which we all should inculcate. 

If you haven't read it already, go check that out and come back once done! :)

Link to previous blog: https://paradiseofanintrovert.blogspot.com/2021/09/personal-finance-saving-vs-investing.html

There was one asset class which was not added in that list, though!

Which one is it, you ask??

Well, it is the booming one!!! About which there's a lot of buzzzzzword these days!!

Hack yeah, it is Cryptocurrency!!

So, let's get straight into it!

According to Investopedia, it is:

"A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers."

 You can read more on here: https://www.investopedia.com/terms/c/cryptocurrency.asp

Now, let's try to understand it by breaking into fragments!

a. Cryptography - let's just say that it uses Math to give your information another form, by which it is secured.

b. Decentralized Network - it is the mechanism by which there is no one authority which controls the flow of the money(or similar entity) and the control is centralized. e.g. RBI can print whatever amount of INR notes it wants as it is the central authority to do the same. As opposed to this, there can be totally 21 million bitcoins in the economy given it's nature.

c. Blockchain - As the name depicts, it is the chain of blocks which carry some information about the transaction for which it was created. It can contain data about anything...literally anything!

There is something called as Hashes, which help secure the data which are carried by the blocks!

The way it is decentralized is, anyone can join the network and verify/mine(in case of bitcoin) the ledger and in return they are get paid. Once someone is able to complete the puzzle of doing this, the block is said to be completed and is added to the network, which will in turn, have a hash to the new block. This way it is making a chain of blocks!

Now, there are certain currencies which use blockchain at the heart, but are more popular than that! 

Bitcoin, Ethereum, Cardano, Dogecoin(yeah the one Elon Musk pomoted! :P) are the ones to name a few!!

Bitcoin:

This is the most famous of them which brought the blockchain technology into limelight per say. Basically it contains the transactions in the block with certain attributes around them as information on the blocks, which is also called as Ledger. The average number of transactions in a block for bitcoin is around 1500 which also changes! Since it follows PoW(Proof of Work) mechanism, the mining process of bitcoins is resource intensive. 

Proof of Work(PoW) is the original consensus algorithm in a blockchain network. The algorithm is used to confirm the transaction and creates a new block to the chain. In this algorithm, minors (a group of people) compete against each other to complete the transaction on the network.

Fun Fact: Proof of work was initially created as a proposed solution to the growing problem of spam email.

Refer for more details: https://www.investopedia.com/terms/p/proof-work.asp

Ethereum: 

Now, what is Ethereum, you might ask!

Well, according to Wikepedia:

Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.

It uses what is called as "smart contracts"! As per their official website,

A "smart contract" is simply a program that runs on the Ethereum blockchain. ... Smart contracts are a type of Ethereum account. This means they have a balance and they can send transactions over the network. However they're not controlled by a user, instead they are deployed to the network and run as programmed.

OR

A smart contract is a digital analogy of a traditional legal contract. In simple terms, it is a computer program that automatically enforces the terms of a multiparty agreement. If the conditions are not met, the contract gets revoked and the asset exchange is thwarted.

Refer: https://ethereum.org/en/developers/docs/smart-contracts/, 

           https://www.n-ix.com/nuts-and-bolts-ethereum-smart-contract-development-businesses/

Essentially, it is a program which runs on the Ether network which means no human intervention whatsoever in the process!

Cardano:

Cardano is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency, Ada.

Now, Proof of Stake(PoS) is another mechanism/consensus used to verify the contracts of the ledger.

Essentially here the chance to validate the transaction is given randomly to the node/user which puts high stake in the network as compared to the one with huge resources to do so in case of Bitcoin!

Refer: https://www.n-ix.com/nuts-and-bolts-ethereum-smart-contract-development-businesses/

If interested, you can check out these books on Amazon around this same topic:

1. Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World (https://amzn.to/3ERgrXg)

2. The Basics of Bitcoins and Blockchains (https://amzn.to/31yjN2V)

3. Blockchain Basics: A Non-Technical Introduction in 25 Steps (https://amzn.to/3GY4e4U)

Now, this is just the fraction of information around the crypto world! Will try to keep this blog updated with information around more such coins/currencies! (:

Thanks for the read!!