Cryptocurrency

Introduction 

Cryptocurrency is a form of Digital or Virtual Currency that relies on cryptography for security.

It is decentralized meaning it is not issued or controlled by a central authority by a government or bank. Transactions are recorded on a secure and transparent blockchain system,
ensuring trust and preventing tempering.

The concept of cryptocurrency has its roots in the evolution of digital currencies and cryptographic techniques. The idea matured over decades, but it became globally recognized with the introduction of Bitcoin in 2009. Ideas and technologies developed during this period laid the foundation for cryptocurrency. 

History of Crypto:

DAVID CHAUM

In 1983, proposed the idea of Digital Cash using cryptography with his invention of ECASH, which aimed to provide secure and anonymous digital transactions.

WEI DEI 

Also in 1998, proposed B-MONEY, an early concept for an anonymous, decentralized digital currency system that introduced ideas later implemented in Bitcoin.

NICK SZABO 

In 1998, created a concept called BIT GOLD, a precursor to Bitcoin. It involved solving Cryptographic puzzles and using a decentralized network, but it was never fully implemented.

The concept of digital currencies dates back to the 1980s, with pioneers like David Chaum introducing secure electronic cash systems like E-Cash. However, the modern Era of cryptocurrencies started with the launch of Bitcoin in 2009.
Bitcoin's inception can be traced to a whitepaper published in 2008 by an individual or group known as Satoshi Nakamoto. The whitepaper, titled "Bitcoin: A PEER-TO-PEER Electronic Cash System," detailed the concept of a decentralized digital currency that could be sent directly from one party to another without needing a financial intermediary.

The Evolution of Cryptocurrency

Altcoins

Following Bitcoin's success, several alternative Cryptocurrencies, or "Altcoins," emerged. Litecoin, launched in 2011, was one of the first altcoins, followed by others like Ripple (now XRP) and Ethereum. These altcoins aimed to improve Bitcoin's technology, offering faster transaction speeds, enhanced security features, and different consensus mechanisms.

ICOs and Tokenization

Initial Coin Offerings (ICOs) became popular between 2016 and 2018, allowing startups to raise funds by issuing tokens. Although many ICOs were legitimate, the lack of regulation led to numerous scams and frauds, tarnishing the industry's reputation.

The integration of cryptocurrencies into the 
Traditional Financial System.

The integration of cryptocurrencies into the traditional financial system marks a pivotal shift in global finance, blending innovative blockchain-based assets with conventional structures. This evolution is reshaping how individuals, businesses, and governments interact with money and financial services. With the emergence of cryptocurrencies in the financial market the understanding and recognition of the potential of these technologies from traditional financial institutions and the regulating bodies have emerged, yielding new opportunities, new challenges, and changes in the landscape of money management and assets. Here we provide readers with an exploration of this integration as it exists now, as well as what could be in store in the not-too-distant future.

The Traditional Financial system

The conventional source comprises authorized institutional units comprising the financial banking institutions which include but are not limited to the; Banks, Insurance companies and Investment firms, and the authorized overseeing bodies. Key features include:

Centralized Control:

The production and supply of money is in the hands of professional financial bodies [GURT] and the central bank.

Regulatory framework:

The intense regulation of funds, finance, investment, and credit institutions does not bring about a new kind of regulatory uncertainty and risk.

Negotiation arrangements:

Most of the negotiation structures will involve the third party, an example being, the marketing director, or negotiators such as commercial banks, banks, and other financial advisors.

Cryptocurrency Market Capitalization

Cryptocurrency Market Capitalization (defined as ‘market cap’) is a valuable indicator that can estimate the overall value of one particular cryptocurrency or the whole cryptocurrency industry. It is applied to compare the size, significance, and efficiency of various cryptocurrencies and coin-related products. Market capitalization is utilized by investors to understand which forms of cryptos are prevalent within the marketplace, in addition to the risks and returns linked to investment within a given digital token.

What is Market Capitalization?

Market capitalization is also known as the total market value of cryptocurrency. It is obtained by multiplying the value of a coin/ token at a given time with the number of coins/tokens that are currently in the market. Price of Cryptocurrency TodayMarket Cap=Current Price of Cryptocurrency x Total coins in circulationcryptocurrency. It is calculated by multiplying the current price of a cryptocurrency by its circulating supply (the number of coins or tokens currently in circulation).

Formula:

Market Cap=Current Price of Cryptocurrency×Circulating Supply

Current Price: The current rate at which the cryptocurrency is exchanged in the current fiscal year in USD, EUR, or any other currency.

Circulating Supply: The total amount of coins or tokens that are circulating in the market at any one time (this does not include locked, reserved, or burnt coins).

Why Market Cap is Important?

Market capitalization is one of the most essential figures within the crypto sphere because it offers information about the scale, worth, and state of a cryptocurrency. Here's why it matters:

A. Relative Size and Dominance

From data, a and b, a firm’s relative size and dominance as a borrower in the lending market seems to be the most plausible explanation of the relationship between a firm’s debt level and its external financing.

Using this standard, people can sort cryptocurrencies by how large they are, based on market cap. The market capitalization of the cryptocurrency generally determines the stability of the cryptocurrencies within the market.

Bitcoin and its competitors (cryptocurrencies with a market capitalization greater than $10 billion) are market leaders and are considered less risky than market entrants.

These are cryptos with a market capitalization of less than $1 billion, and as expected, these cryptos are even more risky than bigger ones but at the same time have even more potential for bigger gains.

B. Crypto Currency Analysis

With the help of the market caps that are compared by investors, it is possible to have an understanding of which cryptocurrencies dominate the market and which ones are new.

Example: When Bitcoin’s market cap is $900 billion and an altcoin is only at $1 billion, it becomes very clear that Bitcoin occupies a much larger percentage of the market.

C. Sign of Growthfulness

Cryptocurrency with a low market capitalization may offer more room for growth because the cryptocurrency is not as developed compared to competitors perhaps indicating it is still in its growth stage and therefore is not as likely to experience significant growth compared to a cryptocurrency with a high market capitalization.

D. Risk Assessment

Market cap can offer some understanding of the Fluctuation and the Risks involving Cryptocurrency. Large market-cap cryptocurrencies appear to have less violent price swings while the low market-cap cryptocurrencies can experience larger price swings.

Total Cryptocurrency Market Cap.

This Wikipedia page defines the term total cryptocurrency market cap as the overall sum of the market capitalization of all cryptocurrencies that are currently in circulation. It is obtained by adding the market capitalization of all single cryptocurrencies existing in the market. Total Crypto Market Cap=900000000000+100000000000+50000000000= 1,050000000000encies in circulation. It is calculated by summing the market caps of all individual cryptocurrencies in the market. For example, if Bitcoin, Ethereum, and other altcoins have market caps of $900 billion, $100 billion, and $50 billion, respectively, the total market cap of the cryptocurrency market would be:

Total Crypto Market = 900,000,000,000 +100,000,000,000 + 50,000,000,000 = 1,050,000,000,000

Consequently, if all the cryptocurrencies in the world were summed up, the market capitalization amount would sum up to 1.05 T.

It is one of the tools to help understand the state and the volume of the cryptocurrency market. New highs in the average total market cap level usually come coupled with rising adoption while a declining market cap may show a bear market or lost interest.

Cryptocurrency in Pakistan

Cryptocurrency in Pakistan has observed a growing potential due to the young population of Pakistan,
rising interest in cryptocurrency, demand for better investment avenues, and cheaper remittance methods. Nevertheless, Pakistan, as much of the global population, has warmed to cryptocurrencies, although the official position of the country’s central bank, the State Bank of Pakistan (SBP), remains to employ banks to facilitate cryptocurrencies in 2018. Nonetheless, many users continue to express their interest in digital currencies such as BTC, ETH, and USDT, among others, particularly in standout P2P trading platforms such as Localbitcoin or Paxful, since they still offer a way to trade directly. Some of how people are looking at cryptocurrencies include being used to hedge against inflation and avoid conventional financial institutions. A significant number of people in Pakistan including those with families abroad are now using cryptocurrencies to send money for cheaper and quicker methods other than conventional systems. Further, it has the advantage of bringing financial to the world through the use of cryptocurrencies and the blockchain system that comes with new financial services. Nevertheless, there is legal limbo which has made many people unsure, although debate concerning the laws governing cryptocurrencies has been ongoing, the nation still suffers challenges in terms of security vulnerabilities, fraud, and lack of awareness on these instruments. Nonetheless, Pakistan has great potential to claim a share in the international crypto markets, facilitating the economic evolution through blockchain and enhancing innovation in the financial system if the legal framework comes up with more certain policies.

Cryptocurrency Wallets

A cryptocurrency wallet is a software application or physical device where the ownership of cryptocurrencies is proven through blockchain and keys. They are necessary for communicating with blockchain networks, also come in various types, and are as follows:

 Software Wallets, hardware wallets, and paper wallets. Mobile city is a type of software wallet in which an application is created and can be easily installed on a computer and mobile device and is best suited for everyday use. These wallets can be further segmented into Hot wallets which are accessible over the internet and **cold wallets**, which are stored offline to add more security.

Hardware wallets are physical storage devices that securely store the users’ cryptocurrency private keys and the devices are not haphazardly accessible online hence appropriating long-term storage. Paper wallets are the keys printed or written on pieces of paper and paper wallets are also an offline wallet but not very mobile-friendly. The primary purpose of a cryptocurrency wallet is to safeguard the private key that prompts the transaction on blockchains. A hot wallet is convenient to use and designed for multiple trades; on the other hand, a cold wallet gives more security, which is suitable for long-term storage. The type of wallet to choose depends on the requirements of the user necessarily for security, ease of use, and the size of cryptocurrencies to be stored.

Cryptocurrency Exchange

A crypto exchange is simply an online marketplace where people can buy and sell digital currencies such as Bitcoin, Ethereal, and the rest. Such intermediaries help to exchange cryptos for other types of assets, including fiat currencies (USD, EUR, or PKR), or other cryptos. There are two main types of cryptocurrency exchanges: Binance, OKEx, Huobi, Poloniex, and others: these are examples of current CEX While decentralized exchanges (DEX), including PancakeSwap, Uniswap, SushiSwap, and others are examples of current DEX.

Centralized Exchanges (CEX)

CEX stands for Centralized Exchange, and these are the most prevalent and popular types of cryptocurrency exchange. Are controlled by a central entity that serves as the middleman and offers the marketplace through which purchases and sales take place. The exchange keeps users’ funds in custodial wallets on its own and operates the order book. Examples of centralized exchanges are Binance, Coinbase, as well as Kraken. These platforms have included features such as; enhanced trading interfaces, high levels of trade turnover, and acceptance of fiat money to buy the cryptos.

However, there are some peculiarities related to CEX platforms, moreover, they possess certain risks mainly connected with security and private data protection. It means that because the exchange has immediate ownership of the user’s funds, in case of a breach or system failure, the users may never be able to regain their funds. Moreover, CEX platforms are authorized by the governments which can put restrictions on trading operations and user profiles.

Decentralized Exchanges (DEX)

Decentralized on the other hand are exchanges without central authority or intermediary such as Airtm. These platforms deal with user-to-user trading through the use of blockchain technology. AGAIN! DEX platforms like Uniswap and SushiSwap enable crypto trading where the participants never need to trust anyone to hold their money. Due to its execution in smart contracts on a blockchain, what happens in such platforms generally has more privacy, and the risk of hacking is relatively small compared to CEX platforms.

Nonetheless, the DEX platforms are in most cases less liquid and not as easily accessible as those in CEX exchanges. Moreover, users need to manage their money using private wallets solely belonging to them.

Key Features of Cryptocurrency Exchanges:

Trading Pairs: 

Exchanges have numerous trading pairs: where one cryptocurrency can be exchanged for another or for a fiat currency. For instance, a user can swap Bitcoin(BTC) for Ethereum (ETH) or Tether (USDT).

Order Types: 

Thus, exchanges provide; Market orders, Limit orders, and stop orders to allow trading at different price levels and techniques.

Liquidity: 

High liquidity makes it easier for traders to complete trades at a reasonable spread, thereby minimizing price slips.

Fees: 

Cross and order trading fees depend on the type of order placed, its size, and whether the user pays the fee with the platform’s token.

This paper aims to identify the risks associated with cryptocurrency exchanges.

Security Risks: 

It lacks decentralization and is prone to hacking incidents users who invested in centralized exchanges are bound to lose their funds.

Regulatory Risks: 

That is, governments can place measures that may in one way put pressure on the exchange’s functionality or in another result in limitations of the particular cryptocurrencies.

User Risks: 

In centralized and decentralized exchanges, users are at a high risk of phishing attacks, fraudsters, and scams.

Changes are considered to be one of the most significant parts of the current digital currency environment and a way to access buying, selling, as well as trading in ownership rights. Centralized exchanges provide convenience and depth of market, while decentralized exchanges provide anonymity and more control of the funds. This simply implies that selecting the right exchange depends on a user’s preferences, and aspects of that exchange that he or she values most such as security, simplicity, deep liquidity, and most importantly, conformity to the law.

Cryptocurrency Market

The cryptocurrency market is an international over-the-counter market dealing with newly emerged digital currencies such as Bitcoin, Ethereum, and numerous other altcoins. Unlike financial markets, it operates around the clock and is supply and demand-based. It is a virtual marketplace that connects buyers and sellers of cryptocurrencies and, therefore, the primary players in the market, including Binance and Coinbase. Market capitalization is another important aspect and it can said that the value of the cryptocurrencies is also based on this criterion of total value in circulation. The market is also unpredictable as internal factors like trader sentiment, external factors like changes or new technologies or laws, and global market conditions affect the market. Despite the rise in institutional adaptation, still cryptocurrency is volatile due to its uncontrolled and insecure market environment and highly volatile market prices. However, it presses on and gets bigger, attracting both, small investors and large institutional investors.