Cryptocurrency and NFTs

Any kind of trade goods and services requires the intermediate presence of some sort of token. Traditional markets thrive upon currencies of varying denominations. These are usually managed by the government of the parent country. Representative currencies like cheques, gold or fiat currencies like the USD are traded at some common rate through foreign exchanges. With advancement in computing capabilities, a new global asset has been created in the form of cryptocurrency.

Cryptocurrencies are digital assets maintained through computer networks which are totally independent of any centralised authority like governments, corporations etc. It doesn’t exist in physical form and is transparent in its flow. Records of ownership and asset transfer are maintained on a digital ledger (typically a blockchain) and use cryptographic encryption techniques to prevent token duplicacy and to authorise endpoints of any transaction. The name “cryptocurrency” is due to the encryption technique employed for their working.

A blockchain is a network of ever growing blocks linked using cryptography, with each block containing a hash pointer to the previous block, a timestamp and transaction information. In easier words, the detail of any transaction is recorded on these blocks and can be verified around the globe. To commit any kind of information fraud, the data would have to be altered after passing through the layer of high security encryption on the whole network of blocks, which will further cause discrepancies throughout the subsequent blocks on the blockchain. Such blockchains are maintained through peer-to-peer networks with people verifying the blocks in either proof of work system (Bitcoin) or proof of stake system (Ethereum having hybrid PoW/PoS).

After the establishment of the first cryptocurrency “Bitcoin” by an anonymous developer with the pseudonym “Satoshi Nakamoto”, thousands of cryptocurrencies have emerged. These are broadly classified in two main categories - “Bitcoin” dominating the market share with majority of market share in cryptocurrencies and all other coins under the name “Altcoins”. Cryptocurrencies are anonymous in the sense that any transaction can be traced to a specific address belonging to a wallet, which is accessible through a private key, hence keeping the identity of the owner private. However, governments across the world ask the exchanges to collect the user’s information.

Cryptocurrency exchanges provide wallets to the users and allow them to trade their assets with other digital currencies or traditional currency like USDs. The market cap of cryptocurrencies is determined by the number of coins in circulation. Bitcoin value is mostly affected by speculations in trading, along with a technological limiting factor known as “halving” which effectively puts an upper cap on the number of bitcoins that will exist at any given time.

Due to several factors like demand-supply, high speculations etc, cryptocurrencies are very volatile compared to traditional exchanges.

With further advancements in blockchain technology, another way of storing digital assets was created in the form of NFTs (Non Fungible Tokens). With the development of smart contracts on Ethereum’s blockchain, ERC-721 standard was adopted. It provided solidity smart contracts with a unique id representing an asset. Each NFT token is unique, hence they differ from most cryptocurrencies, which are fungible.

NFT’s as an investment fall into a grey area. Despite the high prices being paid for jpegs of some bored apes, NFT’s do not guarantee solid actions against plagiarism. An NFT token is a proof of ownership for the buyer, and does not provide any sort of copyright, unless explicitly transferred. Such issues make NFT frauds a possible threat. Many experts quoted NFT buying surge to be an economic bubble. After a year of high sales on the NFT markets, demands started subsiding, causing price falls. The NFTs however, provide a plethora of opportunities in various sectors. Blockchain technology and smart contracts are being used to store physical assets as digital tokens for efficiency increases in sectors like agriculture, logistics etc. Cryptocurrencies and NFTs continue to be a hot topic throughout the world and also provide a safe and fast method for transaction. The amount of information that should be shared with the governments is controversial owing to the use of cryptocurrencies in illegitimate activities, but they nevertheless point to an exciting future for the global economy.

We’ll be back soon with another article. Till then, stay safe!

Views expressed are personal. All errors are our own.