The Rise and Fall (and Rise? and Fall?) of Cryptocurrency

A Note Before You Begin

As you explore you'll notice that the content of this site is grouped together as a chronological chain of blocks. This is a simulation of the underlying technology of cryptocurrencies: the blockchain. When you arrive at a new block, you'll see a bunch of values being generated. If they don't make sense to you now, don't worry. You'll understand soon enough!

A Guide to Navigating Crypto

Below you'll watch unravel the heritage of Bitcoin, the most recognizable cryptocurrency. Don't worry if it's a lot to handle at once. Crypto can seem cryptic and out of reach for the average person, but it doesn't need to be. What are cryptocurrencies like Bitcoin? How do they work? Most importantly, how might they affect us in the future?

Continue below to investigate these questions.

Watch the growth of crypto as new currencies are created from the technology of their ancestors.

What is a cryptocurrency?

Cryptocurrency (or crypto) is a digital asset designed to work as a medium of exchange that uses cryptography to secure financial transactions, control the creation of additional units, and verify the transaction of assets. Cryptocurrencies are an alternative to fiat currency, with decentralized control to handle all transactions instead of the modern day central banking systems like Visa and MasterCard.

The "Magic" of Blockchain

Although cryptocurrency has been thrown around as a buzzword in the last couple of years, many people still little knowledge on how the currency works behind the scenes. Why do people trust it as a source of currency?

The Blockchain

All cryptocurrencies function through a distributed ledger, or “blockchain,” that serves as an entirely public transaction database. In layman’s terms, a blockchain is a chain of transactions, many of which form a group of transactions known as blocks.

And Its Power

What makes blockchain technology powerful is that it can function securely without a central authority to maintain and verify transactions. The security of a transaction is based upon the premise that they can be verified by anyone simply by checking the public ledger. Actors on the blockchain keep one another accountable, in a decentralized and anonymous fashion.

Who is Playing the Game?

While the technology behind cryptocurrency may be complex, 3 main groups are involved in the market: miners, traders, and exchanges. Since the inception of Bitcoin in 2009, the amount of exchanges, mining pools, and average investors catering to cryptocurrencies have grown immensely, each looking to take a slice of the pie.

Take a look at the major players below.

Miners and Mining Pools

One of the most common questions asked regarding cryptocurrency is why is it so valuable? There is no inherent value in a cryptocurrency, although the same argument could be made of fiat currency. While fiat currency is backed by national governments, cryptocurrency is only truly as valuable as the general community believes it to be.

One may then ask how is value made out of nothing? Governments print their currency. For crypto, individuals "mine" for coins, which they receive through advancing a currency's ledger. Mining is essential to crypto - it is how the circulation of a currency increases. The process of mining is technical, but at its core it is a computational problem that can only be solved by computers. Once an individual successfully finds a block (a group of transactions that fulfills certain requirements) for the ledger, the miner is rewarded with a certain number of coins.

Today it is no longer possible for any single individual to feasibly solve this computational problem. This gave rise to mining pools: communities of miners which combine computing power, distributing rewards amongst its members.

The Casual Investor

With an increase in circulation, miners desired a way to be make a profit - selling coins. This gave rise to the cryptocurrency market we have today and the average investor. These investors purchase currencies, thereby also validating their worth. In the past, getting started with crypto was difficult. Investors needed to have a secure wallet on their computer such as an encrypted USB, or one of the early insecure exchanges. It was a niche market and that showed in the valuation of each coin, with Bitcoin being worth about $12 USD in 2012.

The advent of exchanges such as Coinbase in late 2012 grew the online crypto market and increased the activity of the casual investor. Since 2012, Coinbase has grown to harbor over 15 million active users, and the value of currencies themselves have grown exponentially along with the increase of users.

Exchanges

Like the NYSE, there are well-reputed (and some less-so) exchanges through which one can purchase and sell currencies. Some of the largest exchanges such as Coinbase, Binance, Bittrex, and GDax have upwards of billions of US dollars in trade volume each day. Although pivotal in the growth of cryptocurrency in the public's eye, they do have drawbacks. Today, these exchanges might be ironic given the inherent decentralization of crypto - they control and manage cryptocurrency assets for millions of individuals.

The Market

Cryptocurrency was for the latter half of 2017 considered a goldmine and a bubble. The hype around cryptocurrency rose enormously, and it became the dominant spectacle and clickbait headliner. The path to this growth was long and arduous, and its path since is on shaky ground.

The Hobby Era

2009 to 2013

Cryptocurrency began its journey at the launch of Bitcoin in 2009 as a niche market for cryptography enthusiasts. The rise and fall of two dominant trading platforms, Mt. Gox and the Silk Road, ended this period with crypto in poor shape.

The Era of Expansion

2014 to 2016

A massive diversification of currencies from Bitcoin led other coins such as Ethereum and Ripple to make headlines, including hundreds of smaller coins. This time period lead to the growth of blockchain technology and interest in its technological implications.

The Gold-Rush Era

2017

In 2017, crypto shot to the moon with public interest and coin valuations reaching their peak. Bitcoin topped just short of $20000, and crypto became a $750 billion dollar market.

The Era of Decline and Cynicism

2018 to Present Day

As quickly as it rose the market corrected itself, Bitcoin reaching lows of $4000. Crypto began being viewed and regulated in a traditional manner as would warrant any large financial market.

Continue below to investigate the market history of major cryptocurrencies.

Notable Events:

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Central Governments in a Decentralized World

The world's nations are divided on how to regulate cryptocurrency as these digital currencies are not government-backed. Most countries lean one way or the other regarding the legality of crypto. Globally, each country decides whether coins like Bitcoin are legal tender, but have little control over cryptocurrency exchanges.

Here's how the world is divided up.

Explore the globe to see where bitcoin is legal, get a sense of the government's position on cryptocurrency, and its impact in the global market.

Note: Volume percentages are calculated based on data from fiat-crypto exchanges. Government regulations are continually changing.

Drag the globe with your mouse or click on a country for detailed information.

There's a lot of difference in opinion regarding crypto. China has outright banned crypto usage and trading. Many countries like India, Korea, the US and the EU have also stated that crypto is not legal tender, yet have legal policies regarding crypto exchanges. On the other hand, countries like Switzerland and Japan accept the use of and exchange of cryptocurrencies entirely.

Regulation against crypto often cite legal implications of its anonymity - difficulty in tracking its usage in regards to criminal activity or taxing citizens' crypto assets.

Unregulated, Unrestrained, and Underperforming

Many advocates argue that too much attention has been given to the hype of incredible returns, when the power of cryptocurrency is in fact its promising technology. They are steadfast in their belief of a future where blockchain technology is ubiquitous; however, there are many flaws with the current structure of the crypto market that must be resolved before it is more than a gimmick.

Explore the underlying issues with cryptocurrency.

Energy

The crypto industry consumes a lot of energy. Bitcoin’s environmental impact alone is about the same amount of energy that Ireland consumes.

Commercial miners utilize large data centers - oversized refrigerators - filled with GPUs running computations to mine currencies, drawing enormous amounts of energy. This scale of power consumption is wasteful and unsustainable.

Market Manipulation

Cryptocurrency is highly unregulated. As a result high it is vulnerable to market manipulation by so called crypto whales: individuals with deep crypto pockets in a relatively low trader populated market.


Price Suppression

Large orders are placed at incredibly low prices to force the price of a coin down before a beneficial announcement to a coin in effort to capitalize on potential gains. Whales purchase many coins at these low prices and then sell high in a quick turnaround.


Price Pumping

Price pumping is the opposite. Large orders at high prices artificially inflates a coin's valuation, at which point whales sell the majority of their holdings.

Criminal Activity

Cryptocurrency has long been associated with crime, perhaps due to Bitcoin's association with The Silk Road, an online site catering to individuals seeking drugs, weapons and other illicit goods. The site was shutdown in 2011 but the reputation lives on.

Today, some criminal activities associated with ransom have defaulted to Bitcoin as their method of payment due to its anonymity. Viruses have been developed to remotely control computers to mine for coins undetected. Above all, the cryptocurrency industry is ripe with scams. From fraudulent ICO's (initial coin offerings) to hacks on exchanges, those unfamiliar with the inner-workings of crypto have fallen victim to market manipulation and fraud.

Transaction Delay

For partical purposes, the underlying technology isn't up to par. Transactions just aren't as fast as Visa or Mastercard, largely due to the verification process required of the blockchain. It's difficult to support these currencies in our fast paced economy.

Think twice before using Bitcoin to pay for your next meal.

Transactions per Second

The Future of Cryptocurrency

This isn't the end all be all of crypto.

There are efforts in all of the above issues trying to make cryptocurrency a viable option for global trade. Bitcoin may never have been more than a proof of concept created by an unknown individual back in 2009. Today, new blockchain technologies are coming forth in an attempt to integrate crypto into modern society.

  • The energy problem is being tackled by companies such as 3M and Soluna Technologies, using innovative cooling and renewable energies.
  • Proof-of-stake currencies are attempting to resolve the inefficiencies associated with the intensive computations of coins like Bitcoin.
  • Currencies such as Ripple are being developed with speed in mind, optimized for commercial use.

Our Team

Eric Timmerman

Computer Science

Senior ('19), Currier

Mauricio Ruiz

Computer Science

Senior ('19), Currier

Neil Philip

Computer Science

Senior ('19), Currier

Kenneth Kim

Electrical Engineering

Sophomore ('21), Quincy