HAILEY COLLEGE OF BANKING & FINANCE, UNIVERSITY OF THE PUNJAB

Name: Wajeeha Zahid

Roll No.: M18BBA028

Semester: 8th (2018-2022)

Course Title: Foreign Exchange Management

Submitted To: Prof. Faran Ali

CRYPTOCURRENCY
“A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as
a medium of exchange through a computer network that is not reliant on any central
authority, such as a government or bank, to uphold or maintain it.”

According to Jan Lansky, a cryptocurrency is a system that meets six conditions:

1. The system does not require a central authority; its state is maintained through distributed
consensus.
2. The system keeps an overview of cryptocurrency units and their ownership.
3. The system defines whether new cryptocurrency units can be created. If new cryptocurrency
units can be created, the system defines the circumstances of their origin and how to determine
the ownership of these new units.
4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
5. The system allows transactions to be performed in which ownership of the cryptographic units is
changed. A transaction statement can only be issued by an entity proving the current ownership
of these units.
6. If two different instructions for changing the ownership of the same cryptographic units are
simultaneously entered, the system performs at most one of them.

HISTORY:
In 1983, the American cryptographer David Chaum conceived an anonymous
cryptographic electronic money called ecash. Later, in 1995, he implemented it
through Digicash, an early form of cryptographic electronic payments which required user
software in order to withdraw notes from a bank and designate specific encrypted keys before it
can be sent to a recipient. This allowed the digital currency to be untraceable by the issuing bank,
the government, or any third party.
In 1996, the National Security Agency published a paper entitled How to Make a Mint: the
Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system, first publishing
it in an MIT mailing list and later in 1997, in The American Law Review (Vol. 46, Issue 4).
In 1998, Wei Dai published a description of "b-money", characterized as an anonymous,
distributed electronic cash system. Shortly thereafter, Nick Szabo described bit
gold. Like bitcoin and other cryptocurrencies that would follow it, bit gold (not to be confused
with the later gold-based exchange, BitGold) was described as an electronic currency system
which required users to complete a proof of work function with solutions being cryptographically
put together and published.
In 2009, the first decentralized cryptocurrency, bitcoin, was created by presumably
pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, in
its proof-of-work scheme. In April 2011, Namecoin was created as an attempt at forming a
decentralized DNS, which would make internet censorship very difficult. Soon after, in October
2011, Litecoin was released. It used scrypt as its hash function instead of SHA-256. Another
notable cryptocurrency, Peercoin, used a proof-of-work/proof-of-stake hybrid.
On 6 August 2014, the UK announced its Treasury had commissioned a study of cryptocurrencies,
and what role, if any, they could play in the UK economy. The study was also to report on whether
regulation should be considered. Its final report was published in 2018, and it issued a
consultation on cryptoassets and stablecoins in January 2021.
In June 2021, El Salvador became the first country to accept Bitcoin as legal tender, after
the Legislative Assembly had voted 62–22 to pass a bill submitted by President Nayib
Bukele classifying the cryptocurrency as such.
In August 2021, Cuba followed with Resolution 215 to recognize and regulate cryptocurrencies
such as bitcoin.
In September 2021, the government of China, the single largest market for cryptocurrency,
declared all cryptocurrency transactions illegal, completing a crackdown on cryptocurrency that
had previously banned the operation of intermediaries and miners within China.

HOW CRYPTOCURRENCY WORKS?

Individual coin ownership records are stored in a digital ledger, which is a
computerized database using strong cryptography to secure transaction records, to control the
creation of additional coins, and to verify the transfer of coin ownership. Despite their name,
cryptocurrencies are not necessarily considered to be currencies in the traditional sense and
while varying categorical treatments have been applied to them, including classification as
commodities, securities, as well as currencies, cryptocurrencies are generally viewed as a distinct
asset class in practice. Some crypto schemes use validators to maintain the cryptocurrency. In a
proof-of-stake model, owners put up their tokens as collateral. In return, they get authority over
the token in proportion to the amount they stake. Generally, these token stakers get additional
ownership in the token over time via network fees, newly minted tokens or other such reward
mechanisms.

Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a
central authority. Cryptocurrencies typically use decentralized control as opposed to a central
bank digital currency (CBDC). When a cryptocurrency is minted or created prior to issuance or
issued by a single issuer, it is generally considered centralized. When implemented with
decentralized control, each cryptocurrency works through distributed ledger technology,
typically a blockchain that serves as a public financial transaction database.
A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain
technology that only exists online. Cryptocurrencies use encryption to authenticate and protect
transactions, hence their name. There are currently over a thousand different cryptocurrencies
in the world, and their supporters see them as the key to a fairer future economy.
Bitcoin, first released as open-source software in 2009, is the first decentralized
cryptocurrency. Since the release of bitcoin, many other cryptocurrencies have been created.

EVOLUTION OF BITCOIN (BTC)

Bitcoin is one of the most interesting digital currencies that is available on the market, and with
a current increase in popularity of this thrilling cryptocurrency, there are a number of people who
are interested in determining where the Bitcoin actually came from. The journey and evolution
of the Bitcoin is as interesting as the currency itself, and with it still being in its infancy having
only first been thought of back in 2007, we are certain to see a huge number of developments
due to be implemented in recent times. From Bitcoin being introduced in stores, to the
revolutionary Bitcoin casinos that we are so fond of here at Bitcoin Casino Pro, we’re taking a
deeper look into the evolution of the Bitcoin.

The concept of the Bitcoin begun back in 2007, with the pseudonymous Satoshi Nakamoto began
working on the idea in Tokyo, Japan. Not only did Satoshi design the Bitcoin and its
implementation, he also helped to devise the first blockchain database, which has led to a huge
number of security advantages being implemented across the world as we speak. There is a lot
of mystery surrounding Satoshi Nakamoto, but there is no denying that his creation is somewhat
genius. After the initial design of the Bitcoin concept, one of the first sites Bitcoin.org was
registered, a whole year later! But that wasn’t all. In 2008, singer Lily Allen reportedly turned
down an online concert after being offered payment in Bitcoin, because of the small value that
was attached to it at the time. Now, the value of the fee would’ve been around £118m worth of
Bitcoin which is over 20 times her current fortune of £6 million! Safe to say it’s a sore subject
with the pop star.

2009 was a very interesting year for the Bitcoin, with more technological developments being
implemented and integrated with the digital currency. The first ever block, known as the Genesis
Block or Block 0, was mined on January 3rd, which was a huge achievement for the infant
blockchain technology. Now, reports are suggesting that 80% of all Bitcoins will be mined by
next year – less than 10 years since the first ever Bitcoin was mined! In addition to this, on
January 12th, the first ever Bitcoin transaction took place, setting the precedent for the Bitcoin
digital currency that we know today. 2009 was also the year of the first ever exchange rate being
introduced for the digital currency, and at the time $1 USD = 1,309.03 BTC. Times have now
changed with a total reverse of the value of the currency, with $1 USD being equivalent to just
0.00044 BTC as of 30th May 2017.

But all was not well for a particular Bitcoin owner in 2009. A British man named James Howells
jumped straight onto the Bitcoin tidal wave, and mined a total of 7,500 Bitcoins, preceding to
store them in a hard drive due to the fact they weren’t worth very much at the time. The hard
drive was then ultimately forgotten about, and this led to Howells ending up throwing the hard
drive away, completely forgetting about the Bitcoins stored on it! At the time of being thrown
away, the Bitcoins were worth over $600,000, which would hurt enough thinking about throwing
that much money away. Now however, the quantity of Bitcoins would equate to a whopping $8
million+, which has been lost to a land fill facility.

2010 saw the Bitcoin begin to evolve even further, with its value increasing ten times over
throughout the year. In addition to this, the first real world transaction using the digital currency
was made, with 10,000 Bitcoins buying 2 pizzas. This can now be deemed as the world’s most
expensive pizzas, as 10,000 Bitcoins would now be worth more than $20 million! The infamous
Mt. Gox was also established in 2010 as a Bitcoin currency exchange market, and the market cap
even exceeded $1 million USD! With other technological advances like the first mobile Bitcoin
transaction being made, it was easy to see the growth in popularity of the Bitcoin. However,
the Financial Action Task Force ended up issuing a warning about the use of the digital currency
being used to finance terrorist groups and activities, showing how there were a number of
concerns about this particular digital currency.

This year was a huge one for the Bitcoin world, but not everything was positive about 2011.
Firstly, Silk Road opened for businesses, which ended up becoming an online black market which
capitalised on the anonymity of the Bitcoin. In addition to this, the Bitcoin Market became
concerned about fraudulency, and ultimately the entire market dropped the use of PayPal.
Nevertheless, the Bitcoin saw a huge amount of growth, with 25% of the total number of Bitcoins
being generated, and the Bitcoin even reaching parity with the US dollar, and also with the Euro
later in the year. However towards the middle of the year, the Bitcoin market experienced what
is known as The Great Bubble of 2011 – which is the largest percentage price decrease to date.
The day after this happened, the largest ever Bitcoin theft was reported, and Mt. Gox also
suffered a serious security breach leading to the Bitcoin’s nominal price dropping to just one
cent! It was a very volatile year for the Bitcoin, but the digital currency ended up coming out on
top.

Some of the biggest and best events in the Bitcoin calendar happened in 2012, with Coinbase
being founded and the Bitcoin Foundation being formed, who oversee the digital currency and
have a core development team that help to streamline the Bitcoin process. 2012 was the first
time the Bitcoin market saw Halving Day occur, with Block 210,000 being the first ever block to
provide a block reward. The Youngest Bitcoin Profiteer also made his name in 2012. Eric Finnman
received $1000 as a gift for his 14th birthday and ultimately invested in Bitcoin after hearing about
it on the internet. A year and a half later, Finnman sold the Bitcoins for a huge $100,000, and
used the cash to begin Botangle.com!
Despite experiencing a significant halt in transactions due to a major glitch in the Bitcoin system,
Bitcoin grew from strength to strength throughout 2013. The Mt. Gox exchange rate hit an all-
time high of 1 BTC to $266, the first ever Bitcoin ATM was unveiled in California, and the market
cap even reached $1 billion! 2013 was a hugely important year for Bitcoin, because a Texan judge
ruled Bitcoin as being a currency, which was the first time the digital currency was accepted as
a method of transaction. In addition to this, some of the negative sides to Bitcoin such as Silk
Road were actually shut down by the FBI, and while restrictions in China became apparent, this
could have had an impact on the currency reaching a new all-time high that year with $269 USD
per Bitcoin.

A number of events happened throughout 2014 and 2015, and one of the biggest and most
interesting things from our point of view was the launch of Bitcasino.io, which was the first ever
licensed and biggest Bitcasino found online. In addition to this, some global companies like
Microsoft began to accept the Bitcoin as a form of currency. In addition to this, in 2015, Barclays
also announced that they would begin accepting Bitcoin having partnered with a mobile payment
start-up known as Circle Internet Financial. A spokesman for the bank even said that the
company supports the “exploration of positive uses of blockchain that can benefit consumers
and society.” This was a huge step for the Bitcoin being accepted across the world as a form of
currency, and was a positive mood in general for the Bitcoin world.

2016 saw the legalisation and official recognition of the Bitcoin in Japan and this is said to have
been one of the major factors that saw the Bitcoin rise over $1 billion in 2017. With the network
exceeding 1exahash/second, which is more powerful than the world’s fastest supercomputer, it
is easy to see how this exciting digital currency is growing and growing as the years pass. 2017
has seen the Bitcoin boom bigger than it has ever boomed before, and this extensive increase
really is the perfect opportunity that the digital currency needs to be fully accepted around the
world. In May 2017, Bitcoin traded at its highest value in history, averaging at around $2,446
USD! This is a huge increase for the Bitcoin, and while there have been occasional drop offs here
and there throughout the month, the currency’s value has continued to rise.

EVOLUTION OF ETHEREUM (ETH)

As an asset class, cryptocurrency is still the new kid on the block. Bitcoin, the largest digital asset,
has been around since just 2009.

Ethereum is even younger, having made its debut in 2013. Today, it is a credible alternative or
even a complement to Bitcoin. It’s the second-largest cryptocurrency and accounts for 18% of all
transactions in this space. That’s an impressive run for the asset developed by then 19-year-old
Vitalik Buterin less than a decade ago.

A primary advantage of Buterin’s foresight is that he saw some of the blockchain shortcomings
created by Bitcoin and sought to fill in those gaps with Ethereum.
“At first, he wanted to achieve this by adding a more advanced scripting language on top of
Bitcoin to allow smart contracts processing, but this idea was rejected by the Bitcoin community.
Then, Buterin decided to create a completely new blockchain to enable this ‘world
computer,’” writes WisdomTree analyst Jianing Wu.

By the end of 2014, Ethereum concluded its first round of funding, raising $18 million in a sale of
ether tokens. Today, it has a market capitalization of nearly $213 billion.

Ether Arrives on the Crypto Scene

As Wu notes, the cryptocurrency’s ascent occurred in stages, involving hard forks and planned
and unplanned upgrades, with one of the most significant starting in mid-2015 and lasting until
March 2016.

“On July 30, 2015, the first version of Ethereum (Ethereum 1.0) was released, called Frontier. It
had the two most basic functions: to enable users to mine ether and run smart contracts. The
purpose of the initial stage was to get the network started, so miners could set up their mining
processes and developers could test their decentralized applications (DApps),” said the
WisdomTree analyst.

Today, the cryptocurrency is in the Serenity stage of its development, also referred to Ethereum
2.0. The aim is to to enhance the asset’s transaction capabilities. Currently, the Ethereum
network has traffic jams that can limit transaction volume and consume substantial amounts of
energy, something crypto mining is being broadly criticized for. Ethereum 2.0 could work past
those issues.

“Two of the major upgrades are the shift from proof-of-work to proof-of-stake and the
implementation of shard chains which will spread the workload of the network,” adds Wu.
“Ethereum 2.0 is envisioned to be more scalable, secure and sustainable, although when (or if) it
will ultimately be implemented, and other fallout issues, remain unclear.”

RATES OF CRYPTOCURRENCIES

Rates of cryptocurrencies in USD ($)

As of Feb 9,2022
BTC $ 44,300
ETH $ 3196.15
ADA $ 1.21
LINK $ 18.6
FTT $ 47.31