Question

How do crypto-currencies work and why are governments so desperate to get control of them? (Choose just one or two crypto-currencies to study. Don’t try to deal with them all. there are too many!) write 1200 words based on academically acceptable reference sources.

Answer 1

Crypto-currency is an electronic exchange mechanism that uses cryptographic functions to perform financial transactions. Cryptocurrencies take advantage of blockchain technology to achieve decentralization, transparency and immutability.

A cryptocurrency's most significant aspect is that it isn't regulated by any central authority: the blockchain's decentralized existence allows cryptocurrencies potentially resistant to the old forms of government control and intervention.

You need a payment network with accounts, balance sheets and transactions to realize digital cash. That is quick to understand. One major problem every payment network has to solve is to avoid the so-called double expenditure: to prevent one entity spending twice the same amount. This is typically done by a central server which keeps records of the balances.You don't have this server in a decentralized network. And you need to do the job with any single person in the network. Through peer in the network must have a list of all transactions to verify if future transactions are legitimate or an attempt to double spending.

Bitcoins can be generated only if a cryptographic puzzle is solved by minors. Since this puzzle's complexity increases the amount of computing power the entire miner's investment, there's only one unique amount of cryptocurrency token that can be generated in a specified period of time. That is part of the agreement that no peer will break in the network.

Cryptocurrencies are gold digitals. Sound money out of political power is safe. Money continues to have its worth maintained and increased over time. Cryptocurrencies are also a simple and convenient means of payment with a worldwide reach, and they are private and anonymous enough to serve as payment mechanisms for black markets and any other illegal economic activity.

Bitcoin- The one and only crypto-currency, the first and most popular. Bitcoin acts as a digital gold standard in the entire cryptocurrency industry, is used as a global payment system and is the de-facto currency of cybercrime such as darknet markets or ransomware. Bitcoin's price has risen from zero to more than 650 dollars after seven years of existence, and its transaction rate has exceeded more than 200,000 daily transactions.

Ethereum- Young crypto-genius brainchild Vitalik Buterin has risen to second in the cryptocurrencies hierarchy. Other than Bitcoin the blockchain validates not only a series of accounts and balances but so-called states. That means Ethereum can process not only transactions but also complex contracts and programs. This versatility makes Ethereum the ideal blockchain -application device. However it does come at a cost. After the DAO hack – a smart contract built on the Ethereum – the developers agreed to do a hard fork without agreement, resulting in the creation of Ethereum Classic. In addition to this, there are numerous Ethereum clones and Ethereum itself is a host of multiple tokens such as DigixDAO and Augur. This makes Ethereum more a Cryptocurrencies family than a single currency.

Markets are sullen. Yet this does not change the fact that there are cryptocurrencies to live – and here to change the planet. That is already taking place. People around the world are buying Bitcoin to shield themselves from their national currency being devalued. A vibrant Bitcoin remittance market has emerged mainly in Asia and the Bitcoin that uses cybercrime darknets are flourishing. More and more businesses are exploring on Ethereum the potential of Smart Contracts or token, the first real-world application of blockchain technology is emerging.

Today, what Bitcoin and Blockchain do is do away with the banks – cut them out of the loop entirely, rendering them outdated, obsolete, dinosaur. This resulting lack of everything where the banks used to be creates an air gap between the functioning part of the economy – individuals and businesses – and governments that want funding. The way governments want to access all flows of money to finance themselves is not entirely unlike how the supervisory agencies try to access all flows of information to get an intelligence advantage. In this way cryptocurrency deployment is to raise tax what end-to-end encryption deployment is to mass surveillance. The government can't reach into money flows anymore and snatch what it needs, but will rely on people actively sending it money.

The government can not aim a gun at a computer and demand it give up its money; you can only make a computer user feel very guilty not to provide the keys to that money on a voluntary basis. And the government can no longer raise taxes without the approval – even if it is manipulated and compelled – of the citizens thus being collected. Like everything else that relates to finance, cryptocurrencies are also susceptible to taxation. For example, if you're self-employed and are inclined to trade on various financial markets, your earnings are your main source of revenue. The government then has to tax you anyway and they regulate your income. The same goes for cryptocurrencies. There is, however, one major issue facing the legislators at the moment.

Cryptocurrencies can not be tracked, unless the service provider is actively doing so. Not only should the service providers pass on consumer data, the government's arguments need to be valid. If the government claims cryptocurrencies are prohibited or restricted to protect the investor, it's not actually lying. Sure the tax and control may be a bigger part of the motion, but it also involves the defense of ignorant investors. It is devastating for any economy to have their population waste their money on virtual currencies which may not even continue circulation in the world. Rather, the government has these people invest their money locally, with local vendors and companies, enriching the economy even further.

For every government it is really important to have it "under control." This avoids numerous issues for the rule of law, such as disorder, civil conflict and various risks. In a developed world, practically every single individual employs the banking services. In these bank accounts the deposits made, the money withdrawn, the transfers and everything else are reported promptly. So, when a large sum of money has a "questionable" transaction, the bank can intervene and find out the facts. It helps to stop money laundering, and to fund crime and terrorism in the most serious situations.

Although the potential for crime catches the attention of the public, the role that currency plays in monetary policy for a nation has the potential to have a much greater impact. Given that governments intentionally raise or limit the amount of money circulating in an economy in an attempt to stimulate investment and consumption, create employment, or prevent out - of-control inflation and recession, currency regulation is a major concern. It's an incredibly complicated topic too.

Although the financial crisis gave bankers an even worse image than they already had, there is something to be said for institutions that manage timely, efficient and trustworthy transfers of assets and their related record keeping. Also, there is the question of the fees that banks charge for the services they provide. These fees produce a great deal of revenue and many jobs in the global banking industry. Without banks, those jobs will vanish, as will the tax revenue created by those banks and paychecks from their workers. In a virtual world, money exchanging industry will also vanish. If everybody uses bitcoin, no-one wants a Western Union or its rivals.