Sample Finance Paper on Types of Cryptocurrencies

Cryptocurrencies

A cryptocurrency is a decentralized form of money. A decentralized system is a system in which no one can control it, and everyone has an equal say in the transactions carried out. There is no central authority that manages the cryptocurrency, and thus there are no service charges and transactions fees. Cryptocurrency is the latest trend in digital payment methods. The user base of cryptocurrencies such as Bitcoin and Ethereum is increasing exponentially worldwide.

Bitcoin

Bitcoin is the first-ever cryptocurrency created in 2009! It was created by someone under the pseudonym of Satoshi Nakamoto (Churchill, 2015). It is a form of digital currency that works on cryptography, and hence it is more secure than most other forms of transactions. Bitcoin was developed as an alternative to traditional currencies to reduce corruption and the black market; its unregulated nature allows for this purpose.  Banks are no longer needed because Bitcoin acts as an online bank itself, with its users operating their money supply directly from their digital wallets. Bitcoin can also be used as an investment since it is available for trade on several online exchanges.  As a store of value, users can hold their Bitcoin until the prices go up and then sells them off. Bitcoin users are not tied to any particular country: they can send and receive bitcoins anonymously.

Ethereum

Ethereum is a blockchain-based open software platform, enabling developers to build and deploy decentralized applications. Ether is the cryptocurrency used for trading and investing on the Ethereum platform, and it also pays for transaction fees and computational services on the network (Dannen, 2017). Ethereum’s creators’ key aim was to develop a platform that allows users to write smart contracts on the blockchain easily.  These are then followed through without any third parties (middlemen). The Ethereum platform has since graduated from its ‘beta’ status to become a dominant player in the cryptocurrency ecosystem.

Similarities

Both Bitcoin and Ethereum have a transparent record of transactions between parties. They also have a peer-to-peer payment system without a central authority. Furthermore, they both have security and immutability through a network of miners. Both digital currencies have suffered from the same problematic transaction malaise – slow payments processing times coupled with sky-high fees. They have dealt with the convoluted process of sending money between users, questioning their long-term viability.

Differences

The main difference between Ethereum and Bitcoin comes down to purpose. Bitcoin was created purely as an alternative to regular money, whereas Ethereum has tokens called “ether” that can be traded or used to send messages through its blockchain. Bitcoin is a payment system, whereas Ethereum is the system for creating new cryptocurrencies. Furthermore, Miners use BTC to mine Bitcoin, whereas they use an algorithm called “Gas” to mine Ethereum.

Conclusion

To summarize, both Bitcoin and Ethereum are decentralized forms of money that no one can control. Bitcoin was the first cryptocurrency created. Furthermore, both currencies have suffered from the same problematic transaction malaise. Bitcoin was purely designed to replace regular money, whereas Ethereum was created to trade and send messages. As a result of the many benefits that cryptocurrencies have, its’ user base is increasing exponentially worldwide.

 

 

References

Churchill, E. F. (2015). Why should we care about bitcoin?. interactions, 22(5), 20-21. https://doi.org/10.1145/2810199

Dannen, C. (2017). Introducing Ethereum and solidity (Vol. 318). Berkeley: Apress. https://link.springer.com/content/pdf/bfm%253A978-1-4842-2535-6%252F1.pdf