BAHIR DAR UNIVERSITY

BAHIR DAR INSTITUTE OF TECHNOLOGY

FACULITY OF COMPUTING

Graduate Seminar

Cryptocurrency

By:

Name Id_No

Betimihirt Getnet BDU1401409PR

Biruh Andualem BDU1402013PR

Bamlaku Amare BDU130027PR

Submitted to: Dr. Mekonen W.

Submission Date: August 14, 2022 G.C

 Table of Contents
Abstract...............................................................................................................................................1
INTRODUCTION....................................................................................................................................1
What is cryptocurrency?...................................................................................................................1
Basic Terminology in Crypto Currency...............................................................................................2
Related works......................................................................................................................................3
Types of crypto currency..................................................................................................................4
Bitcoin..........................................................................................................................................4
Ethereum (ETH)............................................................................................................................5
Tether (USDT)...............................................................................................................................5
USD Coin (USDC)...........................................................................................................................6
Binance Coin (BNB).......................................................................................................................6
Working Principles of Cryptocurrencies (How It Works)........................................................................7
ADVANTAGE.................................................................................................................................7
DISADVANTAGE............................................................................................................................8
CONCLUSION.......................................................................................................................................9
REFERENCES.......................................................................................................................................10

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 Abstract

What is a 'Cryptocurrency' A cryptocurrency is a digital or virtual currency that uses

cryptography for security. A cryptocurrency is difficult to counterfeit because of this security
feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its
organic nature; it is not issued by any central authority, rendering it theoretically immune to
government interference or manipulation.

INTRODUCTION

What is cryptocurrency?

Nakamoto launched the first fully functional decentralized cryptocurrency, Bitcoin, around 2008
or 2009.The e-Cash anonymous electronic payment method was created by Chaum in 1983 E-
Cash was centralized, which is a key difference between cryptocurrencies and e-Cash (via
banks).Software on the user's PC that was cryptographically signed by a bank was used to store
money digitally (Do & Big, 1997)

A cryptocurrency is a string of encrypted data used to represent a unit of money. A peer-to-peer

network called a block chain, which also acts as a secure ledger of transactions, such as buying,
selling, and transferring, keeps track of everything and organizes it. Cryptocurrencies, in contrast
to physical money, are decentralized, which implies that neither governments nor other financial
organizations issue them. By a process known as mining, where a network of computers or
specialized hardware, such as application-specific integrated circuits (ASICs), verify and validate
the transactions, cryptocurrencies are created (and safeguarded) through cryptographic
algorithms. The procedure rewards the cryptocurrency miners who power the network.

Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that exists
digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don't have a
central issuing or regulating authority, instead using a decentralized system to record transactions

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and issue new units. Cryptocurrency is a digital payment system that doesn't rely on banks to
verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and
receive payments. Instead of being physical money carried around and exchanged in the real
world, cryptocurrency payments exist purely as digital entries to an online database describing
specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a
public ledger. Cryptocurrency is stored in digital wallets.

Cryptocurrency received its name because it uses encryption to verify transactions. This means
advanced coding is involved in storing and transmitting cryptocurrency data between wallets and
to public ledgers. The aim of encryption is to provide security and safety. The first
cryptocurrency was Bitcoin, which was founded in 2009 and remains the best known today.
Much of the interest in cryptocurrencies is to trade for profit, with speculators at times driving
prices skyward.

Basic Terminology in Crypto Currency

Key terms used in this paper include the following:

• Block: a data structure containing transaction data.

• Block chain: a public record of all transactions that have ever occurred (Cole Parmer, 2020)It
is made up of a distributed, chronological chain of blocks that is constantly developing as
finished blocks with a fresh set of records are added to it. Blocks are made up of preceding
blocks' transactions and information. Because every block includes the hash of the preceding
block, there is a unique linear path from the first block ever uploaded to the current block.

• Mining: a needed step in the verification of a cryptocurrency transaction and the addition of
transaction records to the public ledger (the Block chain).Mining adds additional Cryptocurrency
units to the system (bitcoin.it, 2018).

• Hash: a one-way function that accepts data of any size as input and outputs data of a fixed
length Hash computation should be quick and simple, but reversing the process should be costly
and complicated. A brute force algorithm should be required for reversal. Any change in the

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input should be propagated through the full output, so that similar outputs have no foreseeable
similarity. (Rogaway & Shrimpton, 2004)

• Nonce: a number that is usually picked at random and used once for a specific reason before
being discarded Nonce collisions are ignored when two randomly generated nonce turn out to be
the same.

• Fork: a number produced when two blocks are constructed at different time .Forks are
resolved by adding the initial block to the Block chain. Following Blocks are appended to the
included Block.(Cole Parmer, 2020).

Related works
Fang et al (2022) explains that Cryptocurrencies have experienced broad market acceptance and
fast development despite their recent conception. Many hedge funds and asset managers have
begun to include cryptocurrency-related assets into their portfolios and trading strategies. The
academic community has similarly spent considerable efforts in researching cryptocurrency
trading. This paper seeks to provide a comprehensive survey of the research on cryptocurrency
trading, by which we mean any study aimed at facilitating and building strategies to trade
cryptocurrencies.

Bouri et al (2019) said that the explosiveness phenomenon might be amplified as a result of the
bitcoin market's immaturity and high speculative traffic. The majority of cryptocurrencies have a
lot in common, including their underlying technology, anti-government characteristics,
decentralization (with the exception of Ripple, which displays some centralization
characteristics), mining process, popularity among average investors from emerging countries as
a way to avoid capital controls, role of media in price formation, trading 24/7, synchronous
trading, use in gambling and illegal activities, user anonymity, and disconnection from the global
economy.

The bitcoin market is developing quickly. In the face of significant thefts, such as Mt. Gox, and
government shutdowns, it has proven to be tenacious. Additionally, the amount of coins that are
now in use has greatly increased. And while Bitcoin may not eventually take over the market, the
innovative anarchic coin is responsible for the industry's existence. (Farell, 2015)

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The topic of cryptocurrencies is currently popular in academia and business. The earliest and
most popular cryptocurrency, Bitcoin, has achieved great success. The fundamental technology
used to build Bitcoin is block chain, which was first proposed in 2008 and implemented in 2009.
Transactions in the Bitcoin network may take place without the involvement of a third party due
to a well-built data storage structure. (Manhar, 2022)

The word "block chain" and the contexts in which it first appeared are described (McBee &
Wilcox, 2020), and the general principles and system components of block chain technology are
then presented. With the block chain system, transfers and transfer approvals are mentioned and
the definition of block chain is made (McBee & Wilcox, 2020). The total quantity of bitcoin
(BTC), the initial cryptocurrency and the ancestor of all other cryptocurrencies, is mentioned
(Vranken, 2017). The technical aspects of bitcoin transfers were then discussed (Loeb &
Holding, 1975), and they were contrasted with those of the Visa payment mechanism (Ryu et al.,
2020). How bitcoin is obtained through exchanges and what it means to carry out a bitcoin
transfer to a bitcoin address in the global ledger are both discussed (Motsi-Omoijiade, 2022). It is
discussed where and how Bitcoin exchanges fit into international legislation, how the trading
system functions there, and where the exchanges are located inside this system (Frankenfield,
2020).

Types of crypto currency

Bitcoin
Bitcoin is a decentralized digital money that may be purchased, sold, and exchanged without the
use of a middleman like a bank. An electronic payment system based on cryptographic proof
rather than faith was required, according to Satoshi Nakamoto, who invented Bitcoin. It is
impossible to reverse or forge a Bitcoin transaction since every single one of them is recorded on
a public ledger that is available to everyone. That’s intentional: Bitcoins are fundamentally
decentralized because neither the government nor any issuing body is responsible for backing
them, and the system's inherent proof of work is the only thing that can ensure their worth. Basic
terminologies in crypto currency According to Anton Mozgovoy, co-founder and CEO of digital
financial services firm Holyheld, "The reason why it's worth money is simply that we, as

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individuals, decided it had value—same as gold. “Bitcoin’s value has significantly increased
since its initial public release in 2009.In spite of once selling for less than $150 per coin, as of
June 8, 1 BTC is equivalent to roughly $30,200.Many anticipate that because there are only 21
million coins available, its price will only increase over time. This is especially true as more
significant institutional investors start to use it as a form of digital gold to protect against
inflation and market volatility. There are currently more than 19 million coins in use.

Ethereum (ETH)
The first Bitcoin substitute on our list is Ethereum (ETH), a decentralized platform for building
and executing smart contracts and decentralized applications (dApps) free from third-party
interference, fraud, or control. Ethereum aims to build a decentralized ecosystem of financial
services that anybody in the world can use freely, regardless of their country of origin, race, or
religion. Because people in some nations who lack governmental infrastructure and official
identification can access bank accounts, loans, insurance, and a wide range of other financial
products, this factor makes the implications for such people more compelling. Ethereum uses
ether, a platform-specific cryptographic token, to power its apps. Developers that want to build
and run applications on the Ethereum platform, as well as investors wishing to buy other digital
currencies using ether, seek out ether (ETH), which functions as a mode of transportation on the
Ethereum network. Although it trails Bitcoin by a wide margin, Ether, which was introduced in
2015, is currently the second-largest digital currency by market capitalization. Ether's market
valuation of $147.5 billion as of July 8, 2022, or about $1,200 per ETH, is less than half that of
Bitcoin.

Tether (USDT)
One of the first and most well-known stable coins—cryptocurrencies that attempt to tether their
market value to a currency or other external reference point in order to lessen volatility—was
Tether (USDT).The majority of digital currencies, including popular ones like Bitcoin, have
frequently experienced periods of extremely high volatility. Tether and other stable coins aim to

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reduce this volatility in order to draw in consumers who may otherwise be wary. The cost of
Tether is directly correlated with the value of the US dollar. Instead of truly converting to fiat
money, the system enables users to transfer funds more quickly and easily from other
cryptocurrencies back to dollars. Tether, which was introduced in 2014, identifies as "a block
chain-enabled platform...to facilitate the use of fiat currency digitally. “Effectively, this coin
reduces the volatility and complexity frequently associated with digital currencies by enabling
people to use a block chain network and related technology to transact in traditional currencies.
Tether is the third-largest cryptocurrency by market capitalization as of July 8, 2022, with a
market cap of $70 billion and a token price of $0.9994.6 per token.

USD Coin (USDC)

USD Coin is a stable coin that uses fiat-collateralized reserves to peg its price to the U.S. dollar.
As such, it holds an equivalent amount of fiat money to the total supply of USD Coin in
circulation. The Centre Consortium, which consists of Circle and Coin base, introduced USD
Coin in 2018.Circle is a regulated stable coin because it is based in the United States and is
subject to regulation as a result Market capitalization for USD Coin as of July 8, 2022, is $55.5
billion, with a $1 coin price. Both market cap and trade volume place it at number four.

Binance Coin (BNB)

Binance Coin (BNB) is a utility cryptocurrency that serves as a payment option for trading fees
on the Binance Exchange. By market capitalization, it is the third-largest cryptocurrency. Those
that utilize the token as payment for the exchange can trade at a reduced rate.Binance Coin's
block chain also serves as the foundation for Binance's decentralized exchange. Changpeng Zhao
launched the Binance Exchange, which is now one of the world's most popular exchanges in
terms of trading volume. Binance Coin began as an ERC-20 token that ran on the Ethereum
blockchain.It finally had its own mainnet. The network employs the PoS consensus model.
Binance Coin has a $39 billion market capitalization as of July 8, 2022, with one BNB worth
roughly $241.83.10 USD.

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 Working Principles of Cryptocurrencies (How It Works)
Cryptocurrencies work functionally as follows.

 The user has a wallet with a generated address. This address acts as a public key.
 The wallet also contains a generated private key, which is used to sign transactions,
proving ownership.
 The payer sends money to the payee’s address, and signs it using the payer’s private key.
 The transaction is verified by mining.

ADVANTAGE
 Cryptocurrencies are a fresh, decentralized way to think about money. In this system,
transactions between two parties are governed by trust rather than by centralized
intermediaries like banks and financial institutions. In light of this, a system based on
cryptocurrency eliminates the chance of a single point of failure, such as a major bank,
causing a chain reaction of crises to occur all over the world, similar to the one that was
brought on in 2008 when American institutions failed.

 With the help of cryptocurrencies, it should be simpler to transfer money between two
people directly, without the aid of a bank or credit card firm or any dependable third
party. Public keys, private keys, and other incentive schemes, such as proof of work or
proof of stake, are used to secure these decentralized transfers (Adam & Dzang Alhassan,
2020).

 Compared to traditional money transfers, bitcoin transfers between two transacting

parties are quicker since they do not employ third-party intermediaries. An excellent
illustration of such decentralized transfers is flash loans in decentralized finance. These

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 loans can be executed instantly and are used in trading because they are done without
supporting collateral (Hamacher, 2021).

 Investing in cryptocurrencies can result in gains. Over the past ten years, the value of
cryptocurrency markets has surged, reaching approximately $2 trillion at one time.
Bitcoin had a market value of more than $550 billion as of May 2022 (CoinMarketCap,
2022).

DISADVANTAGE
Despite their claims to the contrary, cryptocurrencies are actually pseudonymous forms of
payment. They leave a digital footprint that can be analyzed by organizations like the Federal
Bureau of Investigation (FBI). This makes it possible for governments or federal agencies to
monitor the financial activities of regular people (Bitcoin Is Actually Traceable, Pipeline
Investigation Shows - The New York Times, n.d.)

 Criminals are increasingly using cryptocurrencies for dubious tasks including money
laundering and illegal transactions .It is already widely known about Dread Pirate
Roberts, who operated a narcotics trade on the dark web. Additionally, cryptocurrency
has grown to be a favorite among hackers who utilize it for ransomware operations
(Myre, 2021).

 According to theory, cryptocurrencies should be decentralized, with the wealth being

shared among numerous parties on a block chain. Ownership is actually very
concentrated. For instance, an MIT research discovered that only 11,000 investors held
nearly 45% of the rapidly increasing value of Bitcoin (Tim May, Malcolm Williams,
Richard Wiggins, 2021).
 One of the fallacies of cryptocurrencies is that anyone with a computer and an Internet
connection can mine them. However, mining well-known cryptocurrencies uses a lot of
energy, perhaps as much as entire nations do. Due to the high energy costs and
unpredictable nature of mining, the industry is now dominated by huge corporations with
billion-dollar annual revenues.10% of miners account for 90% of its mining capacity,
according to an MIT research (Tim May, Malcolm Williams, Richard Wiggins, 2021).

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  While cryptocurrency block chains are very secure, other crypto storage spaces,
including exchanges and wallets, are more vulnerable to hacking. Over the years,
numerous cryptocurrency exchanges and wallets have been hacked, sometimes leading
to the theft of "coins" valued at millions of dollars (Hackers Have Looted More Bitcoin
Than Satoshi’s Entire Stash – Bitcoin News, n.d.).

CONCLUSION
As we compared, contrasted, and reviewed the mining strategies used by the most popular
cryptocurrencies, as well as other aspects and functions of the systems, for mining, the most
popular cryptocurrencies now use Proof of Work, Proof of Stake, or a combination of the two.
While Proof of Work requires a lot of resources, Proof of Stake is unable to function
independently. Both are shown to work best when together. Different hash algorithms are used
by cryptocurrencies for Proof of Work. While some of these are memory-intensive, the majority
of them are CPU-intensive. It has been discovered that mining techniques that use memory-
intensive hash functions are quicker. In an effort to improve speed, cryptocurrencies are
experimenting with their mining algorithms and protocols, while some are looking into possible
mining replacements.

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