What is Cryptocurrency?
This extensive article provides a systematic assessment of the empirical literature keyed to the major topics linked with the market for cryptocurrencies since their introduction as a financial asset in 2009.
According to multiple sources, a cryptocurrency is defined as a digital or virtual currency designed to work as a medium of exchange. It applies cryptography to secure and verify transactions, as well as to control the creation of new units of a particular cryptocurrency.
Despite overwhelming price appreciation in recent years, cryptocurrencies have been subjected to allegations of pricing bubbles. Central to this notion is the trilemma that exists among regulatory oversight, the potential for illicit use through its anonymity within an underdeveloped exchange system, and infrastructural breaches influenced by the growth of cybercrime. Each impacts the role of cryptocurrencies as a credible investment asset class.
The present analysis has relied heavily on secondary sources found online. These include official data, reports, articles, studies and academic research papers. Because the subject matter is so broad in scope, however, no single topic is treated in any great depth, and there is no direct referencing in the text to support particular statements. However, the online sources on which we base this article are in no way guilty of any errors or omissions, for which Arincen is entirely responsible.
Introduction
As with any other currency, cryptocurrencies can be used to buy and sell goods and services. Unlike traditional currencies, however, cryptocurrencies are digital and use cryptography to provide security during online transactions. Although cryptocurrencies can be used for the purchase of goods and services, much of the interest in these yet-to-be regulated currencies is to trade them for profit, with market speculators at times driving their prices through the roof, as will be discussed later.
What Is a Cryptocurrency?
A cryptocurrency is secured by cryptography, which makes it virtually impossible to counterfeit or double-spend. This latter problem, which does not exist with traditional currencies, includes the risk that a digital currency can be spent twice. Indeed, it is a potential drawback unique to digital currencies, as numerical information can be reproduced relatively easily by capable (admittedly shady) individuals, who in turn understand the blockchain network (see section below) and the computing programs necessary to engineer it.
Many cryptocurrencies are decentralized networks based on “blockchain” technology, a distributed ledger enforced by a disparate network of computers. A principal attribute of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically resistant to government intervention or manipulation attempts.
What Is Blockchain Technology and How It Relates to Cryptocurrencies?
In order to fully understand cryptocurrencies, we must first explore the heart of any FinTech transaction: Blockchain. This is a type of distributed ledger technology (DLT), which is a blanket term encompassing all types of technology used to ease exchanges of value between users on a given platform. It is essentially a decentralized database system that amasses digital information stored in the form of a “block.” In blockchain, users create blocks of data containing information, which is then recorded across a peer-to-peer (P2P) network using a cryptographic trust-and-declaration apparatus. This data block is subsequently connected to other users’ data blocks, thus creating a “chain.” Each block in the chain is given a unique identifier, called a “hash,” which functions like a fingerprint because it is used to differentiate the data stored in that particular block from other blocks in the chain.
Blockchain technology is recognized for its heightened security features, cost-efficient nature, short transaction time, and decentralized networks. Why is Blockchain even necessary,when old systems seemingly work just as well? The reason is that Blockchains democratize information, data and power. Blockchain technology removes the traditional protectors of currency, resources and authority. These gatekeepers are normally institutions like banks, central banks and governments, where vast societal power and influence rests in the hands of a few interconnected individuals. Blockchains seek to distribute this power among ordinary people without losing any of the authority or trust. To reiterate, in this article, we will focus on one of the most discussed forms of blockchain: Cryptocurrencies.
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History of Cryptocurrencies
During the mid-to-late-1990s’ tech boom, there were several attempts to create a digital currency, and systems like Flooz, Beenz and DigiCash quickly emerged on the market, but eventually failed miserably. There were many different reasons for their failures, including fraud and financial problems, to name a few. Notably, all of those systems utilized a Trusted Third-Party approach, signifying that the companies behind them verified and facilitated the transactions. Due to the failures of these companies, the creation of a digital cash system was seen as a “lost cause” for quite a long time.
Come 2009, when an anonymous group of programmers under the alias “Satoshi Nakamoto” introduced Bitcoin. Described by its launchers as a “peer-to-peer electronic cash system,” it is completely decentralized, meaning there are no servers involved, and no central controlling authority. The concept closely resembles P2P networks for file sharing of music, or otherwise.
Of course, and as noted earlier, one of the most important problems that any electronic payment network has to address is that of double-spending. More simply, this is a fraudulent technique of spending the same amount twice. The conventional solution to counter this phenomenon was a trusted third party – a central server – that kept records of the balances and transactions. However, this method always entailed an authority in control of your funds and with all your sensitive personal details on hand.
In a decentralized network like Bitcoin, every participant needs to do this chore. This is done by way of the Blockchain – a public ledger of all transactions that ever happened within the network, available to everyone. Therefore, everyone in the network can see every account’s balance.
Every transaction is a file that consists of the sender’s and recipient’s public keys (wallet addresses) and the number of coins transferred. The transaction also needs to be signed off by the sender with their private key. All of this is just basic cryptography. Eventually, the transaction is broadcasted in the network, but it needs to be validated first.
Within a cryptocurrency network, only “miners'' can confirm transactions by solving a cryptographic puzzle: first by taking transactions, second by marking them as legitimate and third by spreading them across the network. Afterward, every node of the network adds it to its database. Once the transaction is confirmed, it becomes unforgeable and irreversible, and a miner receives a reward, plus the transaction fee.
Fundamentally, any cryptocurrency network is based on the absolute consensus of all the participants regarding the legitimacy of balances and transactions. If nodes of the network oppose a single balance, the system would basically collapse. However, there are many rules pre-programmed into the network that prevent this from happening.
Understanding Cryptocurrencies
According to the considerable literature on the subject, cryptocurrencies are systems that allow for secure payments online that are denominated in terms of virtual “tokens” that are represented by ledger entries internal to the system. Meanwhile, the term “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.
Types of Cryptocurrency
As aforementioned, the first blockchain-based cryptocurrency was Bitcoin, which continues as the world’s most popular and most valuable. However, today there are thousands of other cryptocurrencies, with various functions and specifications. Some of these are simply clones of Bitcoin, while others are new currencies that were built from zero. Today there are over 18.6 million Bitcoins in circulation, with a total market value of around $724 billion (using current market prices).
Some of the competing cryptocurrencies established because of Bitcoin’s success, known as “altcoins,” include Litecoin, Peercoin and Namecoin, as well as Ethereum, Cardano and EOS. Today, the aggregate value of all the cryptocurrencies in existence is north of $2.48 trillion, with Bitcoin representing more than 30% of that value.
Selected cryptography used in cryptocurrency today was originally developed for military applications. However, at one point, the US government decided to place tight controls on cryptography, similar to the legal restrictions on weapons, but the right for civilians to use cryptography was held on the grounds of freedom of speech.
Most Common Cryptocurrencies
Cryptocurrencies not only have changed the world’s expectations surrounding money and financial assets, they have also continued to evolve in their own space since the first Bitcoin block was mined in 2009. Since then, thousands of unique cryptocurrencies have burst forth. Of these, Bitcoin remains the most popular. In fact, a recent survey found that 8% of Americans have invested in a cryptocurrency, and 5.2% of that 8% chose Bitcoin.
1. Bitcoin (BTC)
It has been just over a decade since Bitcoin launched its currency into the digital space. Since that time, it has remained the most popular cryptocurrency in the world. With Bitcoin, users can transfer money from one digital wallet to another with relative ease. Each transaction is then verified by other users and recorded on the public ledger, known as the blockchain. Some key factors that have contributed to Bitcoin’s eye-popping popularity include:
- High Value. Although it fluctuates widely, its price has always remained lofty. A single Bitcoin is worth $38,629 as of this writing. This is significantly higher than other cryptocurrencies that exist.
- Major companies are starting to accept Bitcoins. These include Microsoft and Overstock.com, among others.
- Bitcoin is easy to set up and is supported by the most preeminent exchanges and digital wallet platforms around the globe, such as Coinbase. This makes the process of getting into the “game” easier.
- Investors have been supporting Bitcoin’s growth for years. Bitcoin has been around longer than all other cryptocurrencies, which has allowed it to gain a strong following of investors and enthusiasts.
- Bitcoin has the highest market capitalization among cryptocurrencies, which is often considered carefully by investors before they make a decision. Market caps are calculated by multiplying the current supply of the currency by the current market price. This is known as the “circulating supply of currency,” and can indicate whether or not a currency is a risky investment. High market caps usually indicate less risk because there are more users. Therefore, Bitcoin is believed to be a better choice than other cryptocurrencies out there.
2. Ethereum (ETH)
Bitcoin flurry aside, another widely admired cryptocurrency is Ethereum. This cryptocurrency uses a blockchain that is similar to Bitcoin’s, but has a totally different currency. Ethereum’s currency is called Ether. Like Bitcoin, it is managed by an open network of users.
The predominant area from where Ethereum branches off from Bitcoin is with its “smart contracts.” These are digital contracts that pay users only after certain conditions are met. Benefits of smart contracts generally include:
- Eliminating third parties in transactions. For example, if you have a smart contract for your house. In a traditional transaction, you would need a realtor to help you with paperwork and mediate the transaction with the buyer. With smart contracts, however, you can transfer ownership of the home to the buyer without anyone else’s involvement. You also do not have to pay third parties, as you would with a realtor.
- Quick transactions. You do not have to wait for paperwork to process. Smart contracts are faster and easier, as everything is done over the Internet. Indeed, you avoid great amounts of paperwork altogether.
- Transactions are verified by hundreds of other users. In addition to your transactions being verified, they are also encrypted and stored on a public ledger. This helps keep a documented record of your transaction, ultimately helping secure it.
3. Ripple (XRP)
Though most cryptocurrencies boast about providing rapid transactions, for Ripple – and its digital tokens known as XRP – lightning-fast transactions are a particular piece of its uniqueness. In fact, Ripple processes transactions in as few as four seconds. You can compare this to Ethereum, which takes two minutes, and Bitcoin, which is a bit longer. By sharp contrast, traditional currencies can take a few days.
Ripple works by creating a platform for banks and other payment providers to send money around the planet. XRP can be exchanged in any currency. For instance, it can be used for exchanges in dollars, euros or the Japanese Yen. Being able to send money around the globe in seconds allows banks and financial institutions to reach new frontiers more quickly. The farther their reach goes, the more customers they can serve. Other notable features of Ripple’s XRP tokens that contribute to their popularity include:
- Being a cost-effective option for sending money. You can send money across borders in seconds, relatively cheaply, without having to pay high foreign exchange fees and other costs.
- Having notable institutional investors backing it. For example, both Accenture and Google Ventures have invested an equity stake in Ripple.
- Enjoying high scalability. This refers to faster transaction speeds, which are required for cryptocurrencies to compete globally. According to industry sources, Ripple can handle 1,500 transactions per second – more than other existing cryptocurrencies.
4. Litecoin (LTC)
Litecoin and Bitcoin have more in common than just the “coin” in their names: Litecoin has a blockchain, public ledger and miners, all at once, for the verification of transactions. However, there are three key features that make Litecoin stand out even more:
- Processing speed. Litecoin processes transactions more quickly than does Bitcoin. In fact, Litecoin processes transactions in about 2.5 minutes while Bitcoin processing can take up to 10 minutes.
- Larger supply of currency. Litecoin has 84 million Litecoins in total, compared to Bitcoin’s 21 million.
- Less complex algorithms. Compared to Bitcoin, Litecoin has algorithms that are easier to undo. This can make mining transactions simpler to solve, and miners also will not need as much high-tech equipment to solve them as they would with Bitcoin.
5. Bitcoin Cash (BCH)
Although Bitcoin is the most popular cryptocurrency at present, that does not mean it is without flaws. In fact, its youngest family member, Bitcoin Cash, was created to help improve Bitcoin's scalability, which, among other things, affects transaction speed and has led to a gain in popularity for Bitcoin Cash.
To help improve transaction speed, Bitcoin Cash increased each block size from one megabyte (MB) to eight MBs. Each block represents a list of transactions that need to be verified. Increasing the block size allows more transactions to be verified each time. In turn, increasing the number of transactions that can be processed should also help Bitcoin Cash compete with bigger, more established companies, such as PayPal, Visa and Mastercard. Further, Bitcoin Cash also aims to cut transaction fees.
With all the available cryptocurrencies, how do you know which, if any, to choose? In a nutshell, the most useful way to determine if a cryptocurrency is popular is to look at its market capitalization, which shows you the circulating supply of the currency worldwide. From there, you can investigate what features make sense for your future transactions. For instance, would smart contracts be useful to you? If so, you may want to use Ethereum. For super-fast processing, you might choose Ripple. Regardless of what you are seeking, cryptocurrencies are not likely to disappear anytime soon. Rather, they may just be the currency of the future.
How to Trade Cryptocurrencies? CFDs vs. Cryptocurrencies Trading Exchange
In more ways than one, cryptocurrency trading can be compared to foreign exchange trading: the markets in various fiat currencies from all over the world are traded against each other. In FOREX trading, US dollars can be used to purchase a position or an option in euros, Swiss Francs or any other currency, and then sold again at the time of the investor’s choosing, booking either a profit or a loss on the trade.
Cryptocurrency trading is very similar to FOREX, allowing traders to purchase cryptocurrency with US dollars. As with FOREX, cryptocurrency traders can trade with a buy-and-hold strategy or trade the daily or weekly up-and-down volatility. There are several tools available by which you can potentially make a profit from a cryptocurrency, even when it is going down in value. These include futures contracts and binary options.
Due to considerable volatility in Bitcoin and altcoin trading, as well as the frequent use of leverage in these types of trades, betting on a downward move in price, called “shorting,” is not generally recommended for less-experienced traders.
With Bitcoin itself trading for thousands of dollars, it might seem like the cost is price-prohibitive for most traders to take a position, but Bitcoin and other cryptocurrencies may be purchased as a decimal-based fraction of a coin. While Bitcoin is limited to 21 million coins, about 18 million of which are already in circulation, the ability to trade partial Bitcoin allows for each of those 21 million coins to be split 100 million times – in theory at least. In practice, however, current exchanges do not support such small units in trades. Most exchanges have you to specify an amount you want to purchase in US dollars. The exchange then calculates how much Bitcoin or other altcoins you can buy with that amount of money.
Other Ways to Gain Exposure to Cryptocurrency
Traders drawn to invest in cryptocurrencies may also do so by channeling money into specialized funds that purchase Bitcoin or altcoins. Though these funds can often carry a significant premium when compared to direct trading, they simplify the process of cryptocurrency ownership, as well as provide a way to gain exposure to cryptocurrencies in more conventional investment accounts, like individual retirement accounts (IRA) and personal accounts.
The most well-known cryptocurrency fund is Grayscale Bitcoin Investment Trust, trading as GBTC on the OTCQX market. The success of this fund led Grayscale to launch four more cryptocurrency funds: Bitcoin Cash Investment Trust, Ethereum Investment Trust, Litecoin Investment Trust and XRP Investment Trust, all to great realization.
Cryptocurrency Exchanges and Brokers
To trade in cryptocurrency directly, as opposed to investing in a fund, you have two choices: use an exchange or a FOREX broker. With an exchange, you are buying and selling bitcoins or altcoins directly. In contrast, with a FOREX broker, you are buying a CFD. As the name implies, a CFD does not give you ownership of the digital asset, the cryptocurrency. For this reason, and for portability as well, many cryptocurrency traders prefer exchanges – and sometimes utilize more than one exchange at once.
The workings of a cryptocurrency trade depend on the marketplace or exchange, but usually are either similar to stock-market broker trades, with buyers and sellers each posting their respective orders at set prices and quantities, or are like buying from a market maker who buys and sells to traders at a fixed price that is usually close to the market price.
A full-featured exchange, like GDAX, provides traders with an experience nearer to what they might encounter with an online broker, including posted bid-and-ask prices that indicate the price at which traders are willing to trade, as well as the quantity.
How Do You Make a Profit on a Trade
Much like stock market trading, gains or losses on cryptocurrency are on paper – or its digital equivalent – and are only realized when an exchange event or sale actually takes place.
It may seem oxymoronic to discuss long-term trends with cryptocurrency when the second most popular currency is less than a few years old. However, when viewing the charts of the leading cryptocurrencies since their inception, the overall trend has generally been upward. Many cryptocurrency traders do not trade much at all. Instead, they bet large parts of their position on long-term gains.
Special Considerations
The key to the functionality and allure of Bitcoin and other cryptocurrencies is the blockchain technology that is used to keep an online ledger of all the transactions that have ever been conducted. This provides a data structure for this ledger that is quite secure and is shared and agreed upon by the entire network of individual nodes or computers maintaining a copy of the ledger. Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories.
Meanwhile, many industry insiders see blockchain technology as having momentous potential for other uses, such as crowdfunding and online voting, and major financial institutions like JPMorgan Chase see the potential to lower transaction costs by streamlining payment processing. However, because cryptocurrencies are virtual and are not stored on a central database, a digital cryptocurrency balance can be wiped out simply by the loss or destruction of a hard drive if a backup copy of the private key does not exist.
Advantages and Disadvantages of Cryptocurrencies
Advantages
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties without the need for a trusted third party, like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys, as well as different forms of incentive systems, like proof of work or proof of stake.
In modern cryptocurrency systems, a user's “wallet,” or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund movements are completed with minimal processing fees, allowing users to avoid the high fees charged by banks and financial institutions for wire transfers.
Disadvantages
The quasi-anonymous nature of cryptocurrency transactions makes them ideal for a host of illicit activities, such as money laundering and tax evasion, to name a few. However, cryptocurrency proponents often value their anonymity, citing the benefits of privacy protection for whistleblowers or activists living under repressive regimes. Note that some cryptocurrencies are more private than others. Bitcoin, for instance, is a relatively poor choice for conducting illegal business online. More privacy-oriented coins do exist, however, such as Dash, Monero or ZCash, which are far more difficult to trace.
Regulation of Cryptocurrencies Around the World
With technology continuing its brash integration into every aspect of our lives, regulators around the globe are struggling to keep up with the exasperating pace of balancing top-notch technology with the use of traditional regulatory schemes.
As the technology sector exists in a constant state of growth and advancement, it is essential for regulators to steadily monitor and apprehend market dynamics in order to tailor traditional infrastructure to best suit the needs of the industry. While the financial sector is no stranger to technological development, the growing popularity of such technology as blockchain and cryptocurrencies has forced financial institutions to quickly face the transformative era of financial technology.
One of the most unique characteristics of cryptocurrencies is that they operate without a central regulatory authority. Traditional banking runs the risk of slow approval processes and high fees for transactions that may take days to complete. Decentralization in the case of crypto allows for financial transactions to take place nearly instantly with little-to-no fees mitigates bank failures, and offers the benefit of utilizing wallets that store cryptocurrencies offline (cold storage). This further safeguards consumers from data violations.
However, this does not mean cryptocurrencies should go unregulated. In spite of, or perhaps because of these unique attributes, regulators around the world are trying hard to determine how to best apply regulations to cryptocurrencies. In some countries, like Switzerland and Malta, for example, advanced legislation has already been enacted, setting the legislative framework for other nations building their own cryptocurrency regulations; while for many others countries, regulations do not even yet exist.
As you would expect, regulation is important for several reasons. Regulators rightfully have an interest in overseeing the use of cryptocurrencies to minimize such risks as market manipulation, breaches in customer security and the use of cryptocurrencies in illegal activities, among others. Regulators are working to determine the best method that balances between reducing the risks associated with utilizing cryptocurrencies and minimizing the benefits of the mechanism.
Maltese and Swiss Regulations
Malta was the first EU-member state to enact a comprehensive legal framework regulating DLTs, Virtual Financial Assets (VFA) and entities providing certain services related to VFAs. In 2018, the Maltese parliament issued three acts, the first of their kind: the Malta Digital Innovation Authority Act, the Innovative Technology Arrangements and Services Act and the Virtual Financial Assets Act (VFA Act). Collectively, this triumvirate of legislation provides a model framework for the industry regarding DLT software, the offering and issuing of VFAs and the provision of certain services connected to VFAs. The VFA Act qualifies all forms of cryptocurrencies as DLT assets and defines assets that are “intrinsically dependent on, or utilizes, Distributed Ledger Technology.” DLT assets can either be:
- Virtual Tokens, also known as utility tokens.
- Virtual Financial Assets.
- Electronic Money.
- Financial Instruments.
The VFA Act also outlines the Maltese Financial Instruments Test, used to determine under which category a DLT asset falls and must be performed by all companies issuing DLT assets in or from Malta, as well as persons conducting activities that fall within the scope of the VFA Act or other DLT-related legislation.
Meanwhile, in Switzerland, the Swiss Federal Council stated that the current best approach is to depend on categories of tokens, which were introduced by the Swiss Financial Market Supervisory Authority (FINMA) in its guidelines issued on 16 February 2018. The categories of tokens include:
- Payment tokens.
- Utility tokens.
- Asset tokens.
Payment tokens, which FINMA considers synonymous with “pure cryptocurrencies,” involve cryptocurrencies that are intended to be used as a means of payment to acquire goods or services. When compared to traditional financial instruments, these most closely correspond with currencies. Utility tokens include tokens intended to provide digital access to an application or service by means of a blockchain-based infrastructure. Asset tokens, also referred to as stable coins, represent assets such as debt or equity claims against the issuer and are analogous to equities, bonds or derivatives. In this vein, FINMA stated that tokens enabling physical assets to be traded on a blockchain-infrastructure also fall within this category.
The UK and Germany are among the other countries that have also implemented legislation categorizing cryptocurrencies under different groups of tokens. Arincen will continue to monitor whether this modern view of banking techniques will catch hold in other Western countries and the world at large.
Cryptocurrency Scams
Cryptocurrency scams have become a popular way for scammers to trick people into sending money. While they pop up in many styles, most crypto scams appear as emails trying to blackmail someone, online chain referral schemes or bogus investment and business opportunities. According to an article in the Wall Street Journal, cryptocurrency scams took in more than $4 billion in 2019.
Cryptojacking
Cryptojacking is the unauthorized use of someone else’s computer to mine cryptocurrency. Hackers do this either by getting the victim to click on a malicious link in an email that loads cryptomining code on the computer, or by infecting a Website or online ad with JavaScript code that auto-executes once loaded in the victim’s browser. In either case, the cryptomining code then works in the background as unsuspecting victims use their computers normally. The only sign they might notice is slower performance or lags in execution.
How Cryptojacking Works
Hackers have two principal methods to get a victim’s computer to secretly mine cryptocurrencies. One is to trick victims into loading crypto mining code onto their computers. This is done through phishing-like tactics: Victims receive a legitimate-looking email that encourages them to click on a link. The link then runs a code that places the crypto mining script on the computer and it then runs in the background as the victim works.
The other practice is to inject a script on a Website or an ad that is delivered to multiple Websites. Once victims visit the Website or the infected ad pops up in their browsers, the script automatically executes. No code is stored on the victims’ computers. Whichever method is used, the code runs complex mathematical problems on the victims’ computers and sends the results to a server that the hacker controls.
Why is Cryptojacking Popular?
No one knows for certain how much cryptocurrency is mined through cryptojacking, but there is no question that the practice is widespread. Browser-based cryptojacking grew fast at first, but seems to be tapering off, most likely because of both cryptocurrency volatility and the closing in March 2019 of Coinhive, the most popular JavaScript miner that was also used for legitimate crypto mining activity. The 2020 SonicWall Cyber Threat Report divulged that the volume of crypto hacking attacks fell 78% in the second half of 2019 as a result of the Coinhive closure.
The decline began earlier, however. Positive Technology's Cybersecurity Threatscape Q1 2019 report shows that cryptomining now accounts for only 7% of all attacks, down from 23% in early 2018. The report suggests that cybercriminals have shifted more to ransomware, which is believed to be more profitable.
In January 2018, researchers discovered the Smominru crypto mining botnet, which infected more than a half a million machines, primarily in Russia, India and Taiwan. The botnet targeted Windows servers to mine Monero, and cybersecurity firm Proofpoint estimated the botnet had generated as much as $3.6 million in value as of the end of January 2018.
Cryptojacking does not even require significant technical skills. According to the report, The New Gold Rush Cryptocurrencies Are the New Frontier of Fraud, from Digital Shadows, cryptojacking kits are available on the dark Web for as little as $30.
The straightforward reason why cryptojacking is becoming more popular with hackers is more money for less risk. The risk of being caught and identified is also much less than with ransomware. The cryptomining code runs covertly and can go undetected for a long time. Once discovered, it is very hard to trace back to the source, and the victims have little incentive to do so since nothing was stolen or encrypted. Hackers tend to prefer anonymous cryptocurrencies, like Monero and Zcash, over the more popular Bitcoin because it is harder to track the illegal activity back to them.
How to Prevent Cryptojacking
Follow these two elementary steps to minimize the risk of your organization falling victim to cryptojacking:
- Incorporate the cryptojacking threat into your security awareness training, focusing on phishing-type attempts to load scripts onto users’ computers; and
- Install an ad-blocking or anti-crypto mining extension on Web browsers. Since cryptojacking scripts are often delivered through Web ads, installing an ad blocker can be an effective means of stopping them. Some ad blockers, like Ad Blocker Plus, have some capability to detect crypto mining scripts. Laliberte recommends extensions like No Coin and MinerBlock, which are designed to detect and block crypto mining scripts.
Criticism of Cryptocurrencies
prices for cryptocurrencies based on the forces of supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can vary widely. This is especially true because the design of many cryptocurrencies ensures a high degree of scarcity.
Bitcoin has experienced some rapid surges and collapses in value, climbing as high as $19,000 per Bitcoin in December 2017 before dropping to around $7,000 in the following months. Cryptocurrencies are therefore considered by some economists to be a short-lived fad or speculative bubble. Further, there is growing concern that cryptocurrencies like Bitcoin are not rooted in any material goods.
Cryptocurrency blockchains are highly secure, but other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not protected from the threat of hacking. In fact, in Bitcoin's 11-year history, several online exchanges have been the subject of hacking and theft, sometimes with millions of dollars’ worth of “coins” stolen.
In spite of that, many observers see potential advantages in cryptocurrencies, like the possibility of hedging against high inflation and facilitating exchange while being easier to transport and divide than precious metal, and, further, existing outside the influence of central banks and governments.
The Future of Cryptocurrencies
The future of cryptocurrencies could be a move into the mainstream while Wall Street and the City of London are likely to continue backing traditional currencies, in which they have a vested interest. The process will be slow at first, but imminent. In what follows are a few quotes from influential people about what the future holds for cryptocurrencies.
Bill Gates, co-founder of Microsoft, investor and philanthropist:
“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient.”
Richard Branson, founder of Virgin Galactic and more than 400 other businesses:
“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin; some have lost money. It is volatile, but people make money off of volatility, too.”
Al Gore, former Vice President of the US:
“When Bitcoin currency is converted from currency into cash, that interface has to remain under some regulatory safeguards. I think the fact that within the Bitcoin universe an algorithm replaces the function of the government …[that] is actually pretty cool.”
Eric Schmidt, executive chairman of Google:
“[Bitcoin] is a remarkable cryptographic achievement… The ability to create something which is not duplicable in the digital world has enormous value…Lots of people will build businesses on top of that.”
Peter Thiel, co-founder of PayPal:
“PayPal had these goals of creating a new currency. We failed at that, and we just created a new payment system. I think Bitcoin has succeeded on the level of a new currency, but the payment system is somewhat lacking. It’s very hard to use, and that’s the big challenge on the Bitcoin side.”
Who is Arincen and What Are Our Services?
Put simply, Arincen is a social networking platform that brings together traders and experts to exchange ideas and expertise ideas. Collectively, we evaluate the best FOREX companies in the world while offering a compressive suite of services and tools, all in one place, either via a computer or a mobile app. Services provided by Arincen are wide-ranging, from FOREX charts, live rates and the latest in FOREX signals, as well as technical analysis, to an online trading academy, how to learn about FOREX and an up-to-date economic calendar, among many other tools. The platform is so rich, one can create their own private portfolio of traders and experts they like and, at the same time, follow their recommendations and investment sentiments.
Further, thanks to Arincen, users can keep an eye on market-price developments, as well as the latest news. Users can also benefit from the network’s educational courses offered, let alone exciting Webinars – all done in a modern and fast-paced work environment. Get all what you need in one place, not less, not more. In short. Arincen: We Meet to Simplify the Trading World.
Conclusion
Cryptocurrencies are an impressive technical achievement, but they remain a monetary experiment only a few years old. While the survival of cryptocurrencies is not in question, they may not fully displace fiat currencies. Nevertheless, and as we have tried to argue in this article, they provide an interesting new perspective from which to view questions surrounding currency governance and regulation, the characteristics of money, the political economy of financial intermediaries, and the nature of currency competition.
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FAQ
How Do You Define a Cryptocurrency?
A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It applies cryptography to secure and verify transactions, as well as to control the creation of new units of a particular cryptocurrency.
What is Blockchain Technology?
Blockchain is a type of distributed ledger technology (DLT) that itself is a blanket term encompassing all types of technology used to ease the exchanges of value between users on a given platform.
What are the Most Popular Types of Cryptocurrency?
Bitcoin.
Bitcoin Cash.
Litecoin.
Ethereum.
Ripple.
What are the Pros and Cons of Cryptocurrencies?
On the positive side of the equation, Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party, like a bank or credit card company.
On the negative side, the quasi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion, to name a few.
What are Cryptocurrency Scams?
Cryptocurrency scams are now a popular way for scammers to trick people into sending money. While these scams pop up in many ways, most crypto scams appear as emails trying to blackmail someone, online chain referral schemes, or bogus investment and business opportunities. According to a recent article in the Wall Street Journal, cryptocurrency scams took in more than $4 billion in 2019.
Written by
Marwan Kardoosh
The Editorial Department at Arincen makes an important contribution to the world-class content that can be found on the site. Arincen’s Head of Content and Chief Economist Marwan A. Kardoosh brings with him over 24 years of experience working in the...
Edited by
Adrian Ashley
Adrian Ashley is a seasoned business and finance writer. With a corporate career spanning over 20yea...
Fact Checked by
Bahaa Khateeb
Bahaa Khateeb is currently the CEO of Arincen, a start-up Fintech company based in Haifa. Baha...
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