Wondering about the history of Cryptocurrency? The concept of digital currency has been around for some time. Numerous unsuccessful attempts at a decentralized digital currency existed before the advent of cryptocurrencies. For the most part, they were having trouble due to the age-old dilemma of spending more money than they had to come in. To stop it from being copied and used as counterfeit, digital assets need a mechanism that makes them unusable after use.
Before cryptocurrency, computer scientist Wei Dai proposed it. He wrote a paper about “B-money” in 1998 and had it published. There was talk of an anonymous online currency.
Another proposal, Bit Gold, was created by blockchain pioneer Nick Szabo in the same year. Bit Gold explored the idea of a decentralized digital currency similarly. Szabo developed the concept to address inefficiencies in the current monetary system, such as the demand for metal in coin production and the high level of trust required to initiate transactions.
While neither was ever honestly released to the public, they served as Bitcoin’s precursors. Bitcoin, the first cryptocurrency, was introduced to the world ten years ago. A lot has changed since then, so it’s helpful to look back at the development of cryptocurrencies to see how they ushered in these new eras.
Related: The Future of Crypto In 2023
History of Cryptocurrency: Birth Of The First Crypto
To explain how the Bitcoin blockchain system works, Satoshi Nakamoto wrote the white paper Bitcoin: A Peer-to-Peer Electronic Cash System—this day marked a turning point in Bitcoin’s history.
Almost four months later, an anonymous person named “Satoshi Nakamoto” mined the first block of the Bitcoin network, serving as the technology’s test pilot. The initial block mined is often called the Genesis Block.
In the first-ever Bitcoin transaction, Laszlo Hanyecz spent 10,000 BTC on two pizzas. Celebrations of Bitcoin Pizza Day continue to this day. In honor of this milestone, we at Ledger are releasing a special edition Ledger Nano S.
Initiating Cryptocurrency Market
After Bitcoin’s introduction as the first cryptocurrency, it was necessary to devise methods for their exchange. The first digital currency trading platform, bitcoinmarket.com, launched in March 2010. (now defunct). Likewise, Mt.Gox got released in July of that year.
Despite its volatile price history, Bitcoin reached parity with the U.S. dollar in February 2013. This year also saw the launch of several competing digital currencies launches: In May of 2013, 10 different cryptocurrencies were available for purchase. In August, XRP, a significant cryptocurrency, joined the fray (Ripple).
The Predecessors to Cryptocurrency
Before Bitcoin’s debut in 2009, there were other cryptocurrencies, but the public didn’t pay much attention to them until a few years later. DigiCash, a firm based in 1990, created the first cryptocurrency known as eCash. David Chaum, a cryptographer, first proposed the idea and founded the corporation in 1983 in a paper titled “Blind Signatures for Untraceable Payments.”
Bitcoin is the most well-known cryptocurrency today, yet it took over 20 years and several failed attempts to get here.
eCash
In 1983, American cryptanalyst David Chaum devised a system for digital currency. There are obvious parallels between his token currency proposal and today’s cryptocurrencies.
Chaum’s idea was to employ a “blinding formula” to encrypt messages between people. Thus, “Blinded Cash” might be safely exchanged between individuals, with an authenticating signature and the flexibility to undergo alterations without leaving a digital footprint.
Several years after initially conceptualizing the idea, Chaum established DigiCash and developed the first encrypted electronic currency, eCash. DigiCash filed for bankruptcy in 1998, but the company’s principles and some of its algorithms and encryption tools were crucial in developing subsequent digital currencies.
Other Early Cryptocurrencies
E-Gold
Digital currency based on physical gold was developed in 1996 by Dr. Douglas Jackson and Barry Downey. Despite its good intentions, this virtual currency soon became a tool for money launderers and other criminals seeking anonymity by facilitating the transfer of ownership of gold between website users.
Bit Gold
Nick Szabo, an early cryptocurrency pioneer, is widely recognized for conceptualizing the ideas that would become Bitcoin. Bit Gold was the plan’s name, and it employed many of the same blockchain features—a decentralized network, mining, a registry or Ledger, and cryptography, to name a few.
The decentralization of the Bit Gold concept was the most ground-breaking part of the idea. Bit Gold got created to liberate users from relying on central money providers and authorities. Szabo intended for Bit Gold to mimic the characteristics of physical gold, cutting out the intermediary in financial transactions. Like previous attempts, Bit Gold ultimately failed. However, it inspired digital currencies that would reach the market a decade or more later.
B-Money
As early as 1998, programmer Wei Dai proposed an “anonymous, distributed electronic monetary system” named B-money. Dai proposed two protocols, one of which necessitated a synchronous and unjammable broadcast channel. B-money ultimately failed because it was fundamentally different from Bitcoin. But it also attempted to create a decentralized, private, and secure digital currency.
The B-money system’s decentralized Ledger would allow for the transfer of funds using digital pseudonyms. The system also enforced network contracts without outside help. Even though Wei Dai suggested writing a whitepaper for B-money, it never got enough traction to be released.
Hashcash
Hashcash, created in the mid-1990s, is often regarded as the most successful digital currency before the advent of Bitcoin. Hashcash had numerous purposes, such as reducing email spam and shielding networks from DoS attacks.
Hashcash opened many doors that took nearly two decades to exploit fully. Like many modern cryptocurrencies, Hashcash relied on a proof-of-work mechanism to facilitate the creation and distribution of new coins. Indeed, Hashcash also encountered many of the same challenges as modern cryptocurrencies; in 1997, Hashcash gradually became less effective due to an increased requirement for processing power.
Hashcash witnessed a lot of activity during its prime but eventually died out. Bitcoin’s development thus incorporated several features from the Hashcash technology.
Bitcoin: The First Cryptocurrency
After the financial crisis of 2008, a mysterious person or group using the alias “Satoshi Nakamoto” published a white paper outlining the principles for the creation of Bitcoin. The crisis greatly fueled Bitcoin’s creation. How long has Bitcoin been around, who created it, and what its uses are just a few questions this primer sets out to answer.
The subprime mortgage crisis of 2007–2008, a global event that caused a sharp reduction in liquidity across international financial markets, had its genesis in the United States and spread worldwide.
The white paper laid the groundwork for the first fully functional digital currency based on the distributed ledger technology (DLT) called the blockchain as over-speculation in the financial markets led to a worldwide recession and banks risking millions of dollars in depositor funds. Explain briefly what Bitcoin is and how it operates.
Bitcoin’s white paper was the first to outline the protocol for a decentralized, peer-to-peer (P2P) electronic payment system that used cryptography to ensure its integrity. It was supposed to be censorship-resistant and transparent.
Bitcoin is a decentralized digital currency that operates without a central bank or government needing to issue or regulate its transactions. Cryptocurrencies are digital currencies that use encryption to protect user data and verify trades. Put, encryption changes readable text (called plaintext) into an unintelligible string of characters (called ciphertext). Cryptography studies methods for securely sending and receiving information so that only the sender and recipient can decipher the message.
As an alternative to traditional fiat currencies, Bitcoin was a method of exchange that could work in any country. People worldwide utilize fiat currencies like the U.S. dollar and the British pound today. Fiat currencies are those whose supply and creation are managed by a central government and supported by the public’s faith in that authority.
But Bitcoin uses peer-to-peer technology to enable transactions between those who value Bitcoin for what it is and others who do not. The term “P2P” is shorthand for “peer-to-peer,” which describes the process by which Bitcoin and other assets are traded directly between users without the intervention of a third party.
How Does Bitcoin Work?
Bitcoins are digital assets that can be kept in a digital wallet or on a cryptocurrency market. Even though a single coin represents the value of one Bitcoin, it is possible to own a fraction of a Bitcoin. The smallest unit of Bitcoin shares its namesake with Bitcoin’s inventor: Satoshi. Because each Satoshi is equal to one hundred millionth of a Bitcoin, it is typical for someone to have a portion of a Bitcoin.
Blockchain
Blockchain is the open-source technology that Bitcoin uses to produce a public ledger of all past transactions. These transactions are recorded chronologically in “blocks” that are “chained” together. The system keeps a permanent record of all transactions to ensure all Bitcoin users understand who owns what.
Private and Public Keys
It takes public and private keys, both stored in a Bitcoin wallet, for the owner to create and sign transactions digitally. It allows Bitcoin’s primary feature, the transfer of ownership between users, to be activated.
Bitcoin Mining
Miners are users on the Bitcoin network whose job is to ensure that newly submitted transactions align with all previously submitted transactions. Doing so prevents the possibility of spending a Bitcoin that you do not now possess or have already spent.
How Does Bitcoin Make Money?
As part of the Bitcoin mining process, new Bitcoins are created and given as a good incentive to the operators of computer systems that aid in validating Bitcoin transactions. Bitcoin “miners,” also called “nodes,” possess powerful computers that verify each transaction and add them to a new block on the continuously growing “chain” of previous blocks. The blockchain so created is an unalterable public ledger of all Bitcoin transactions.
By rewarding miners with Bitcoin, the decentralized network is incentivized to check each transaction’s legitimacy. Proof-of-work requires the majority of miners to verify the legitimacy of each block of data before it is added to the blockchain, reducing the opportunity for fraud or incorrect information.
What are Altcoins?
Altcoin is an initialism for “alternative coin.” It’s a catchall phrase for any digital currency or token that isn’t Bitcoin. Keep alternative coins on their original blockchains. Many are “forks,” or splits apart from Bitcoin and Ethereum, incompatible with the original chain. In most cases, there are several possible explanations for such splits. Whenever a team of programmers disagrees with another, they usually fork off to create their cryptocurrency.
Like how ether is to pay transaction fees on the Ethereum blockchain, several alternative coins serve a purpose on their blockchains. Several developers have spawned Bitcoin forks and reemerged to compete with Bitcoin as a payment method, the most notable being Bitcoin Cash.
Altcoins are any digital currency, not Bitcoin (BTC). Since most cryptocurrencies are forks from Bitcoin or Ethereum (ETH), some individuals consider all cryptocurrencies other than Bitcoin and ETH to be altcoins. To set themselves apart from Bitcoin and Ethereum, some altcoins employ alternative consensus processes to verify transactions and create new blocks.
Some split out and promote themselves to gain financial support for specific initiatives. For instance, in 2017, a new currency called Bananacoin appeared after a fork from Ethereum; its purpose was to fund an allegedly organic banana farm in Laos. Take a look at the most prominent Altcoins by market cap below.
1. Ethereum (ETH)
Market cap: $199 billion
Ethereum, the largest altcoin, has a market valuation of about $200 billion, out of a total of $1 trillion represented by more than 22,000 crypto assets.
In contrast to Bitcoin, which is only a “decentralized currency,” Ethereum is more like a distributed computing network where users may host smart contracts and run dApps on the blockchain.
Walker Holmes, v.p. of the metaverse platform MetaTope, explains that although Bitcoin serves as a store of value, Ethereum provides a decentralized platform where developers may experiment with the latest developments in blockchain technology.
One criticism about Ethereum is that its transactions are too expensive. However, because of the multitude of apps and cryptocurrencies supported by its blockchain, Ethereum is here to stay.
2. Dogecoin (DOGE)
Market cap: $10.6 billion
Dogecoin, the first “meme coin,” was created in 2013 as an internet joke. Nonetheless, it has fast developed into a leading cryptocurrency thanks to its committed community and clever memes.
Richard Gardner, the CEO of a financial software company, recently made the point that despite having some high-profile backers, DOGE is still riskier than Bitcoin.
Since they have not yet proven real-world use cases, altcoins like DOGE can experience wild price swings, according to Garry Krugljakow, creator of the decentralized app 0VIX Protocol, which facilitates crypto lending and borrowing.
3. Litecoin (LTC)
Market cap: $6.9 billion
One of the first alternative cryptocurrencies, Litecoin sought to address issues with Bitcoin’s transaction times and mining monopolies. Unlike Bitcoin, which has become more of a “store of wealth,” LTC is designed to be used in regular transactions.
There are critical distinctions between Bitcoin and Litecoin. In addition to slower processing, there is also a shortage of resources. The total number of Bitcoins will never be more than 21 million, whereas the number of Litecoins will never exceed 84 million.
4. Polkadot (DOT)
Market cap: $7.3 billion
According to Max Thake, co-founder of peaq, a blockchain network built on Polkadot, this alternative Coin drives the Polkadot ecosystem, where developers can create purpose-made blockchains as spokes connected to the central Polkadot blockchain hub. Polkadot’s in-house token is the dot.
There is “a persistent demand for DOT from initiatives intending to build on Polkadot,” he explains.
According to James Wo, CEO of blockchain and cryptocurrency investment business Digital Finance Group, this altcoin has greater shared security and is a leader in developer activity and various projects. However, he notes that progress on the project has been slow and lacks star applications that could otherwise help expand its ecosystem.
Related: Beginner’s Guide to What is Dogecoin
The Cryptocurrency Market
The crypto market is rising due to the Federal Reserve’s injection of $300 billion into the economy to combat the current financial crisis in the United States.
As crypto markets surge, Bitcoin is again testing its weekly highs, representing its most robust performance since June 2022.
The newest economic data demonstrates the lengths the Fed has gone to handle a banking crisis that some claim is unprecedented, and the world is understandably on edge.
The cryptocurrency looks to be one of the only havens from the kind of upheaval reminiscent of the Global Financial Crisis (GFC) of 2008, amid concerns that more banks could fail in the coming weeks and contagion spreading to Europe.
Market Capitalization
Market capitalization, or “market cap,” is calculated by multiplying the total value of all outstanding shares by their current price. For illustration purposes, let’s say Company A had 10,000,000 outstanding shares, and the price per share was $20. It would give the company a market valuation of $200,000,000.
Market capitalization (or “cap”) is widely used in the cryptocurrency sector to keep tabs on the value of different assets, given their constant trading activity. For example, as of this writing, Bitcoin (BTC) has a market cap of over $444 billion. They are multiplying the current bitcoin price of $23,003 by the estimated total number of bitcoins in the circulation of 19.1 million yields this result.
This procedure is easily duplicable across all holdings. Ether, for instance, has a market cap of 196 billion dollars (ETHETH -0.4%). Messari estimates the overall market capitalization of all cryptocurrencies to be $1.06 trillion.
Trading Cryptocurrency
Cryptocurrency trading refers to speculating on the price of cryptocurrencies via a contract for difference (CFD) trading account or directly trading cryptocurrencies on an exchange. Contracts for Difference (CFD) trading enables investors to speculate on the future value of one bitcoin (BTC), a kind of derivative trading that does not require physical Bitcoin (BTC) ownership.
For instance, if you think the price of a cryptocurrency will go up, you can “go long” (purchase), whereas if you think it will go down, you can “go short” (sell). Both are ‘leveraged instruments,’ allowing maximum exposure to the underlying market with a relatively small initial investment through practices like margin trading in cryptocurrency. On the other hand, leveraged cryptocurrency trading increases both profits and losses because their basis is on the overall value of the investment.
Additionally, traders utilize bitcoin options to hedge their bets or broaden their exposure to the market. The term “derivative” describes a financial instrument that gains or loses value based on the value of another asset, in this case, cryptocurrency.
A thorough familiarity with the underlying assets and technologies of cryptocurrency trading should precede any severe consideration of entering the market. Thousands of other digital currencies have sprouted from Bitcoin’s original roots.
Trading cryptocurrencies can be as complicated as trading stocks or other financial instruments because of the many moving parts and specialized knowledge required. Since its inception in 2009 as the world’s first crypto asset, Bitcoin has become the most popular and valuable digital money globally.
But as time has progressed, an entire market for digital commodities that may be traded for cash has emerged. Ether, the second largest cryptocurrency after Bitcoin, is one of many “altcoins” (ETH).
Cryptocurrency Wallets
Cryptocurrency is just a line of code on a much longer blockchain. Bitcoin and Ethereum, like other cryptocurrencies, need a buyer to create a pair of keys—a public one and a private one—to prove ownership.
Consider the public key an account number for your digital finances. What it doesn’t do is give you access to your crypto, only the location. When you use the private key, you prove that you are the “rightful owner.”
If you lose the private key to your encryption, others may be able to access your data. Similarly, if someone manages to get their hands on your private keys, they will have complete access to your encrypted data. The crypto community has a saying: “Not your keys, not your coins.” Full access to your crypto assets is impossible if you don’t keep your keys safe. Two types of cryptocurrency wallets are:
Hot Wallets
All “hot” wallets, whether desktop, mobile, or web-based, need access to the internet to function. Their web connectivity increases the convenience of these wallets. But there is a cost to consider: safety. Security breaches are more likely to affect online wallets.
Cold Wallets
“Cold” wallets are generally considered to be the safest option. These hardware wallets can be anything from a USB stick with an internet connection to a gadget that scans a Q.R. code and opens up a software program.
Private keys are stored securely in hardware wallets, making them inaccessible to hackers unless they also obtain the wallet, usually protected by a personal identification number (PIN).
In general, hardware wallets cost between $50 and $150, while more expensive models are also available.
Cryptocurrency Exchanges
Cryptocurrency exchanges are the go-to marketplaces for novice investors to start buying and selling digital assets. The term “cryptocurrency exchange” refers to a private sector business that acts as a marketplace for the buying and selling of cryptocurrencies and other crypto assets, such as digital and fiat currencies and non-fungible tokens.
Centralized Cryptocurrency Exchanges (“CEX”)
A centralized cryptocurrency exchange is a third party that facilitates transactions between buyers and sellers for a fee. Cryptocurrency exchanges (CEXs) are digital currency stock markets.
The order book method CEXs allows buyers and sellers to list their orders and sort them according to the price they are willing to purchase or sell. The exchange’s matching engine then pairs off buyers and sellers based on the best possible execution price for the requested lot size. Therefore, the supply and demand for one digital asset relative to another, be it fiat currency or cryptocurrency, will determine the price of that asset. The top centralized exchanges are:
- Binance
- Kraken
- Coinbase Exchange
- US
- KuCoin
- Bitfinex
- Coincheck
- Bitstamp
- Gemini
- By bit
Decentralized Cryptocurrency Exchanges (“DEX”)
You can use a decentralized exchange instead if you do not use an intermediary while buying or selling cryptocurrency.
Smart contracts, which are blockchain-based codes that can execute themselves, are the backbone of these decentralized marketplaces. When compared to a centralized cryptocurrency exchange, intelligent contracts improve privacy and reduce slippage (another word for transaction costs). The top decentralized cryptocurrency exchanges are:
- Uniswap (v3)
- Curve Finance
- dYdX
- Kine Protocol
- DODO (Ethereum)
- PancakeSwap (v2)
- io
- Uniswap (V2)
- ApolloX DEX
- Perpetual Protocol
The Future of Cryptocurrency
We have seen tremendous shifts in the cryptocurrency business over the past decade. FTX collapses in 2022, fulfilling cryptocurrency speculators’ worst fears, and the cryptocurrency market falls. There are many other cryptocurrency options out there that may be superior to Bitcoin. As early as 2023, some are exhibiting exceptional performance and indicating the potential for an incredibly high increase in their worth.
Cryptocurrency market forecasts for 2023 suggest a rebound is on the horizon, making this year an excellent opportunity to buy. The question is, ‘What will happen to cryptocurrencies in 2023?’
Regulatory Conflicts on An Epic Scale
No one knows what will happen in 2023, but it could be the year when conflicts over-regulation to a head. “There’s going to be harsh crypto regulation proposed and an epic battle by the community to combat the aspects of it that endanger decentralization,” predicts Laura Shin of the “Unchained” podcast.
Bitcoin Will Gain Huge Popularity Among Investors
A Crypto Prediction The founder of the Digital Assets Council of Financial Professionals, Ric Edelman, claims that more than 500 million people worldwide will possess Bitcoin by the end of 2023, as reported by The Ascent. Flori Marquez, the co-founder of BlockFi, told CoinTelegraph that increased usage directly results from increased legislative clarity and better industry understanding—one of the top 10 cryptocurrency forecasts for 2023.
Abundant Acceptance
However, the industry’s long-term future is bright because widespread uptake is anticipated to persist through at least 2023. Despite setbacks like the FTX crash, 2019 will see many individuals feel at ease using cryptocurrency, which bodes well for the industry’s long-term prospects.
ReGrouping Happens
You can expect a significant rebound in 2023 and an even bigger push in the cryptocurrency industry in 2024. It follows a disastrous 2022. 2019 will be a year of survival in anticipation of a return to massive profits in 2020 and beyond.
The Majority of Meme Coins Will Disappear
Shiba Inu, a fork of the cryptocurrency Dogecoin, had its value increase by 44,540,000 percent in 2017. Squid, a cryptocurrency named after the T.V. show “Squid Game,” saw a price increase of over 75,000 percent in less than a week before suddenly disappearing—one of the top 10 cryptocurrency forecasts for 2023.
Web3 Will Be the Next Big Thing
Most forecasts rely on looking at the past, but new developments like Web3 and the decentralization of the crypto market could foresee an even larger bull run than many analysts expect. It will affect the crypto market since transactions may happen faster and without the need for centralized authorities like banks to facilitate them. Don’t lose track of this possibility for fame and fortune; you must do it. Among the 2023 cryptocurrency forecasts, this is one of the most likely outcomes.
Cryptocurrency and the Global Economy
Cryptocurrency is an advancement in society, culture, and technology, not just the financial sector. Cryptocurrencies’ decentralized and public nature makes them a powerful economic stimulant.
Digital currencies that are secured and traded using cryptographic techniques are called cryptocurrencies. Numerous cryptographic currency variants exist. Despite Bitcoin’s (BTC) popularity, thousands of alternative digital currencies are already available. This category also includes stablecoins, digital currencies backed by government bonds, or gold.
It’s crucial to take a deep breath and remember that the influence of cryptocurrencies goes far beyond daily price changes, even as the market corrects and the fear and greed index rebounds. The cryptocurrency industry and its blockchain technologies are expanding at a dizzying rate. Cryptocurrencies’ enormous impact on the global economy transcends industries, national boundaries, and previous limits on economic possibility.
Like any other technology or tool, cryptocurrencies offer benefits and drawbacks. The crypto sphere’s benefits are far-reaching. In terms of benefits, ease of access is among the top ones. Payments made or received using cryptocurrency bypass the need for centralized institutions like banks. The current financial status quo may have let down many people worldwide. True, over 1.7 billion people worldwide do not have access to formal banking services.
Due to their low entry barrier, cryptocurrencies have the potential to expand access to formal financial services worldwide. The usage of cryptocurrencies presents an opportunity for financial inclusion for underserved and unbanked people, of which one billion have mobile phones. One could therefore claim that cryptocurrency is economically beneficial in and of itself.
Central Banks and Cryptocurrency
Financial hub Central banks can issue their digital currencies, a subset of digital currency. They function similarly to cryptocurrencies, but their value is pegged to that of the national fiat currency by the central bank.
Several nations are working on CBDCs, and some have even started using them. Understanding what digital currencies are and what they signify for society is crucial since many nations are currently investigating how to make the switch.
In contrast to currencies backed by precious metals like gold and silver, fiat money is issued only by the government. It’s legal tender, so you can buy things and pay for services. Banknotes and coins were the traditional forms of fiat currency. Modern technology allows governments and financial institutions to add a credit-based model with digital balances and transactions to fiat currency.
While physical cash is still widely recognized and exchanged, its use has declined significantly in several affluent countries, a tendency that intensified during the recent COVID-19 pandemic.
The advent and development of bitcoin and blockchain technology have stoked interest in cashless societies and digital currencies. To this end, governments and central banks worldwide are investigating the use of government-backed digital currencies. If and when adopted, these currencies will be backed by the authority that issued them, much like fiat currency.
Cryptocurrency and Governments
Bitcoin (BTCUSD) has been the topic of debate and headlines ever since its inception in a whitepaper in 2008. Cryptocurrency proponents celebrate the launch as the arrival of a fairer monetary system. Critics say Bitcoin is “rat poison squared” because it is for illegal operations and unrecognized by the law. We can safely assume that the truth is somewhere in the middle.
And yet, governments everywhere are watching Bitcoin’s rise with suspicion. Countries like El Salvador have officially switched to using it. The United States and other major economies do not accept it as payment. There is logic behind their actions.
For example, Bitcoin users in a country can avoid the country’s government’s capital controls. Because it aids criminals in staying under the radar, it contributes to the spread of evil deeds. By cutting out intermediaries, Bitcoin could disrupt the established order of the financial system.
Cryptocurrency and Traditional Financial Institutions
Despite cryptocurrency’s growing prominence and acceptance, conventional financial institutions are slow to embrace the concept of digital currencies as a means of payment, fearing for their safety more than anticipating any benefits they might provide. The Office of the Comptroller of Currency (OCC) and other regulatory bodies are trying to modify banks’ opposing views on digital currencies because they believe they can help financial institutions enter a new era of innovation and efficiency.
The OCC has recently published a series of interpretive letters outlining the processes by which conventional financial institutions can engage in transactions utilizing digital currency (or create related services). The OCC hopes that further regulatory guidelines will make banks more comfortable with these digital assets, so this initiative dovetails nicely with that goal.
The OCC announced in early January that national banks and federal savings associations could employ public blockchains and stablecoins for financial transactions. It paves the way for financial institutions to expedite payment processing in-house, eliminating the requirement for a third party. This clarifying letter classifies blockchain networks alongside SWIFT, ACH, and FedWire, allowing them to join the larger banking ecosystem.
Banks may be hesitant to deal with cryptocurrencies because they perceive transactions involving these assets to be riskier and call for more extensive and costly due diligence. However, banks and their clients stand to gain by adopting digital currencies.
Controversies Surrounding Cryptocurrency
There has been a recent uptick in the general public’s fascination with virtual currencies like Bitcoin and Ethereum as numerous companies investigate ways to profit from emerging technology. More and more people are becoming interested in cryptocurrencies. Potential legal ramifications of cryptocurrency use are expanding as new applications appear. This piece will discuss some of the most frequently encountered cryptocurrency law concerns.
Illegal Trading Platforms
New trading platforms are sprouting up to win the confidence of people considering making bitcoin investments while the market is still young. Unfortunately, not all of these resources can be relied upon.
Take One Coin, the alleged cryptocurrency that turned out to be a multi-level marketing hoax. The risks associated with bitcoin are not limited to the possibility of a breach or data loss. Fraudulent activity can occur in plain sight.
Malware
Simply put, crypto-malware is a form of malware that allows hackers to mine cryptocurrency using infected computers or servers. Hackers typically use one of two techniques to infect a target system:
Criminals use phishing techniques to deceive users into downloading and installing malware.
Cybercriminals insert malicious code into websites or advertising. Codes are only effective if victims use them, which activates them and gives hackers access.
Security of Cryptocurrency Accounts
A “private key” is a user’s unique password to access their digital assets. It’s risky for many people to store their private keys on their PCs. Anyone accessing your computer can use that private key to access your digital account.
Due to the unregulated nature of the bitcoin market, there is no method to recover a lost private key. Keeping one’s private keys secure and out of the hands of hackers makes crypto investments riskier than other types of investments.
Money Laundering
Some experts have warned that criminals can utilize bitcoin transactions for money laundering, fraud, and other forms of financial shadiness. The concern is that bitcoin sellers can remain anonymous. Criminals can buy and sell illegal things using cryptocurrencies on dark web markets. Some government organizations have even dubbed the drug dealers dealing in cryptocurrencies the “new generation of criminals.”
As of January 2019, Chainalysis, a blockchain analytics startup, projected that criminal groups had traded Bitcoins for $2.8 billion, up from an estimated $1 billion in 2018. Converting bitcoin into fiat currency is the first step before thieves may use the funds they stole to finance other criminal activity.
Anti-money laundering regulations require common marketplaces where this conversion takes place to collect and verify consumer identification information. Researchers at Chainalysis, however, have hypothesized that criminals are using OTC trading to sidestep these regulations (OTC).
Tax Implications
Digital currencies are considered property, not cash, for U.S. federal income tax reasons. Because of this discrepancy, taxpayers in the United States cannot treat cryptocurrencies as legal tender to pay taxes under the Internal Revenue Code.
However, U.S. citizens and residents must include cryptocurrency transactions in U.S. dollars on their tax returns. To comply with this rule, U.S. taxpayers must calculate the fair market value of their cryptocurrency holdings on the date of each transaction (by translating their cryptocurrency holdings into U.S. dollars). Individual taxpayers have a significant administrative burden associated with reporting cryptocurrency transactions to the Internal Revenue Service (IRS) due to the necessity of keeping detailed records of their cryptocurrency holdings’ purchase and sale prices.
Furthermore, cryptocurrency is considered a kind of capital in the United States. Thus, private investors must account for and pay taxes on any gains made from cryptocurrency trading. Investors are subject to this duty regardless of where they acquired their cryptocurrency. However, it is not yet apparent if U.S. citizens who bought cryptocurrency on a foreign exchange are subject to additional reporting obligations when submitting their taxes.
Environmental Impacts of Cryptocurrency Mining
Cryptocurrency’s carbon footprint is more difficult to calculate. Miners must find the lowest energy sources to stay profitable, even in countries where fossil fuels are the primary energy source.
Digiconomist has calculated that the Bitcoin network produces as much CO2 annually as Turkmenistan or over 73 million metric tonnes.
Before switching to proof of work, Ethereum was responsible for an estimated 35.4 million tonnes of CO2 emissions, according to data through September 2022. After the switch, that number dropped to 0.01 million tonnes.
Countries with the Largest Impact
According to studies conducted by academics at Cambridge University, the United States, China, and Kazakhstan account for most Bitcoin mining operations worldwide. An estimated 76% of China’s total energy consumption comes from coal and crude oil, per the Center for Strategic and International Studies.
Approximately 21% of the total hash rate comes from China. U.S. mining accounts for around 38% of global production. According to EIA numbers from 2019, most of the United States’ electricity comes from the combustion of fossil fuels.
In Kazakhstan, which accounts for 13% of global production, Bitcoin mining is almost entirely powered by fossil fuels. Almost 72% of all Bitcoin mining occurs in three countries that rely significantly on fossil fuels.
