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What is Blockchain?

Short and sweet, a blockchain or, Distributed Ledger Technology (DLT), is a type of database. It is a database that chains together and stores encrypted blocks of data then to form a chronological ledger which cannot be altered. The ledger or, also referred to as an asset, is decentralized and uses cryptographic hashing, providing instant access to the public’s eye. The ledger tracks and stores changes made to it which aids in establishing it as a credible and reliable technology. Furthering this notion, it is also near impossible to alter the history of the ledger.

A blockchain collects information together in groups, or as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain.” All new information that follows that block is compiled into a newly formed block that will then also be added to the chain once filled[1].

How does Blockchain work?

A blockchain is comprised of three main concepts:
Composition of a Block


Every chain consists of multiple blocks that contain information about transactions:

  1. The data about the transaction within the block.
  2. When a block is created, a randomly generated nonce is created which is a random whole number that can only be used once. This 32-bit nonce is used as an authentication protocol.
  3. Attached to a nonce is a 256-bit number wedded hash which helps to determine valid transactions[1].


Through the mining process new blocks on the chain are created from miners.

In each blockchain, every block is authenticated with its own unique nonce and hash. Every block also references the hash of the previous block in the chain which it is attached to. This goes to show that the mining process is extraneous and takes measures to ensure each transaction is valid and authenticated. Miners must use special software to validate transactions by solving complex math problems that initiate a nonce that prompts an accepted hash. This process is complicated as the nonce is only 32-bits and the hash is 256-bits. This means there are nearly four billion potential combinations that must be mined before the correct match is mined. Once the correct match is mined, the miner is said to have found the “golden nonce”, and the block is then added to the chain.

It can be seen that blockchain has been created to achieve utmost security and validity. Once a block has been created, it cannot be taken back. Changing a block that has already been mined requires re-mining of that block, and every other block that comes after it. This makes it almost impossible to manipulate blockchain technology. A miner is rewarded financially when a block is successfully mined. This occurs when the block is accepted by all of the nodes on the network[1].


Decentralization is one of the most important concepts in blockchain technology. The blocks are not owned or controlled by any one computer or organization. Instead, the blocks are a part of a distributed ledger through the nodes connected to the chain. The nodes can be any electronic device that maintains an updated copy of the blockchain and ensures the network is fully functional.

In order to achieve trust and verification, every node has a unique copy of the blockchain. Any newly mined block has to be algorithmically approved for the chain to be updated. Blockchains are completely transparent, which means that every action in the ledger can be checked and viewed. Every participant who is involved in a transaction is given a unique alphanumeric identification number that shows their transactions. The key point here is that the identity is private.

Blockchain uses extensive checks and balances in order to maintain trust and integrity among users. There is no need for a financial intermediary or government regulation who must ensure the transactions are valid or trustworthy, the whole system in of itself is built on trust[1].

Types of Blockchain

Public Blockchain

One of the main problems with centralization is security and transparency. Public blockchain solves this issue by using a distributed ledger that cannot be altered or manipulated. Using a peer-to-peer network, the information is stored across different locations. Proof of work and proof of stake are two agreement methods used to authenticate and verify the data.

Anyone with internet access can access the public blockchain to become an authorized node. This is allowed due to the non-restrictive and permission-less nature of the public blockchain. Once authorization is complete, the user can access past and current blockchain records and conduct mining activities. Once a transaction is validated, it cannot be changed or manipulated. Due to the open source nature of the code, users can also search for any bugs and propose changes to make improvements to the network.

The advantages of this are increased trust, independence, and transparency. The disadvantages are potential performance issues, security threats, and scalability. The blockchain technology has features that are applicable to industries far reaching cryptocurrency alone[2].

Private Blockchain

A private blockchain operates just like a public blockchain with the use of peer-to-peer connections, decentralization, and validation. However, private blockchains are controlled by a single entity. These private blockchains are typically controlled by a company or organization within a smaller network where access to the blockchain is limited and private. These private blockchains are also known as permissioned blockchains or enterprise blockchains since invitations must be granted in order to join the network.

Increased access control, enhanced performance, and privacy are some of the main advantages. Some of the disadvantages are authenticity and trust since the blockchain is private. Users of such private blockchains are typically supply chain companies and asset ownership organizations[2].

Hybrid Blockchain

A hybrid blockchain combines elements of both private and public blockchains. It lets organizations set up a private, permission-based system alongside a public permissionless system, allowing them to control who can access specific data stored in the blockchain, and what data will be opened up publicly.

Typically, transactions and records in a hybrid blockchain are not made public but can be verified when needed. Confidential information is kept inside the network but is still verifiable. Even though a private entity may own the hybrid blockchain, it cannot alter transactions.

When a user joins a hybrid blockchain, they have full access to the network. The user's identity is protected from other users unless they engage in a transaction. Then, their identity is revealed to the other party.

Some advantages to this are increased access control, performance, and scalability. Disadvantages are transparency and upgrading. Some uses of hybrid blockchains include but not limited to medical records and real estate[2].

Consortium Blockchain

The fourth type of blockchain, a consortium blockchain, is similar to a hybrid blockchain in that it has private and public blockchain features. However, it is different in that multiple organizational members collaborate on a decentralized network. Essentially, a consortium blockchain is a private blockchain with limited access to a particular group, eliminating the risks that come with just one entity controlling the network on a private blockchain.

In a consortium blockchain, the consensus procedures are controlled by preset nodes. It has a validator node that initiates, receives and validates transactions. Member nodes can receive or initiate transactions.

Some advantages to this are increased access control, scalability, and security. One disadvantage is transparency. Some uses of consortium blockchains include but not limited to banking, research and supply chain[2].

Where is Blockchain used?

Blockchains are not only effective at storing data on monetary transactions, but they also have the capability of storing data on other types of transactions. Some of the main areas upon which blockchain is being implemented and used currently are in banking and finance, currency, healthcare, property, smart contracts, supply chains and voting.

Some major companies that have already incorporated blockchain into their businesses include Burger King, KIK, IBM, Walmart, Microsoft, and many others. For example, FedEx, who is one of the world’s biggest logistics management companies and handles billions of dollars worth of cargo every year. FedEx has now become the first big shipping giant to incorporate Blockchain Technology into their supply chain management. So far, they are using Blockchains to track high-value cargo and are soon planning to extend the functionality to almost all their shipments. In addition to that, they are also helping to develop the Blockchain based industry standards for supply chain logistics establishing themselves as pioneers in this field[3].

Advantages of Using Blockchain

One advantage of blockchain is the accuracy of the chain. Due to the fact that transactions on a blockchain network are approved by thousands of computers, this significantly reduces the amount of error in the information. The next advantage is cost reductions. There are cost reductions inherent in the technology for both the consumer and vendor. For example, to send an e-transfer through a bank, you may incur a transaction fee. Or if you are a vendor and someone bought a product you were selling and paid for it on their credit card, you, the vendor, would incur a fee from visa for processing the transaction. Blockchain reduces the overall costs associated with transactions. Next we have decentralization. Through decentralization, the risk of information being tampered with reduces dramatically. In fact it's virtually impossible to tamper with. Next is efficient transactions. Transactions placed through third parties often incur significant time delays, often days long, whereas through a blockchain can be verified in a matter of minutes. Another advantage to blockchain is transactions are private as blockchains do not reveal any personal identifying data. The next advantage is secure transactions. Transactions are secured and due to inherent characteristics of the chain it makes it extremely difficult to change information about transactions. Finally, we have the advantage of transparency, where most blockchains are open-sourced software and information is available for everyone to see. Also, anyone can use the technology granted they have the means to do so[4].

Disadvantages of Using Blockchain

Although blockchain technology has many benefits, there are still some pitfalls which appear to constrain its adoption. One disadvantage is the technological cost. It costs thousands of dollars to purchase the equipment in order to mine cryptocurrency where through the process transactions are validated. Moreover, these computers draw a ton of power driving up electricity costs for those who mine. Next is the speed inefficiency. Bitcoin for example can only handle around 7 transactions per second whereas visa can process about 24,000 transactions per second. Illegal Activity is another disadvantage for blockchain because of the confidentiality aspects it boasts. Through cryptocurrencies like Bitcoin, illegal activities may be conducted such as the purchase of drugs on the dark web while being for the most part untraceable. Lastly, we have regulation. There are concerns of government regulation in the crypto space however, due to the wide adoption of the tech it would become near impossible[4].

What is Cryptocurrency?

Cryptocurrency or for short “crypto” can be used as a fiat currency for the purchase of goods or services. But crypto differs from fiat currency in many ways. To start with, it is a decentralized digital currency which makes it trustworthy and it is considered to be more secure than fiat as it uses cryptography as a means of security. The operation of most cryptocurrencies does not require a central institution (such as a bank or government), but runs through a distributed ledger technology called blockchain. Cryptocurrency has a clear monetary policy, whether it is a fixed token limit or allowing the creation of new tokens according to predetermined rules[5]. Some businesses have issued their own cryptocurrencies, often called tokens, and their purpose is to be specifically traded for the goods or services that the business offers. A good comparison would be casino chips that are used within the location of the casino[6].

History of Cryptocurrency

David Chaum
Wei Dai

Before Bitcoin

The history of digital money began with the cryptographer David Chaum. In 1983, he used encryption to develop a system called eCash that was used mainly for micropayment from the US banks in the late 90s. 12 years later, Chaum developed another system called Digicash, that used encryption to hide the information of economic transactions, thus making them confidential. However, in 1998, the term "cryptocurrency" appeared for the first time. That year, Wei Dai used a cryptographic system in an attempt to develop a new payment method that is decentralized[7].

After Bitcoin

In 2009, Bitcoin was launched, which is the first cryptocurrency that is based on blockchain. The developer/s of Bitcoin are still unknown and could be an individual or a group of people that go under the pseudonym “Satoshi Nakamoto”. Until today, Bitcoin is the most successful and popular cryptocurrency. But many more competitive coins were developed, and are still being developed, following the protocol and design of Bitcoin. These other cryptocurrencies are called “Altcoins” and some examples include[7]: -Ethereum (ETH); -Litecoin (LTC); -Cardano (ADA); -Polkadot (DOT); -Bitcoin Cash (BCH); -Stellar (XLM) and many more. As a result, nowadays there are numerous cryptocurrencies and the interesting part is that they are all based on the principles of the first coin, namely Bitcoin. Although the total value of all cryptocurrencies is constantly chaining due to its high volatility, it is currently exceeding one trillion dollars, from which Bitcoin represents more than half. This illustrates the significance of Bitcoin.

Cryptocurrency categorization

In general, cryptocurrencies could be categorized as coins and tokens.


Coins vs. Tokens
Coin is a currency that is native to its own blockchain. It is a virtual currency that can be used as a payment method, and it is exclusively traded in encrypted currency through its own blockchain. Some cryptocurrencies, such as Bitcoin, have a limited supply. Therefore, its value is affected by the basic principles of supply and demand. The Bitcoin protocol also builds and supports several newer cryptocurrencies. A good example is Litecoin, which is one of the most popular altcoins[8].

The term "Altcoin is a combination of the two words alt” and coin” where alt stands for alternative and coin for cryptocurrency. In general, Altcoins are cryptocurrencies that are not Bitcoin. They share characteristics with Bitcoin, but are also different from Bitcoin in many ways[9]. For example, some altcoins use different consensus mechanisms to generate blocks on the blockchain or verify transactions. Or, they differ from Bitcoin by providing new or additional features (such as smart contracts or low price fluctuations).


The main purpose of cryptocurrency tokens, although they can be used as a payment method, is used in the broader ecosystem of the blockchain platform. In many cases, cryptocurrency tokens are created to promote user interaction and innovation within the online community. Blockchain tokens can be issued as a form of reward for participating in activities within the blockchain platform. The most common cryptocurrency token platform is Ethereum[8]. (Typically, cryptocurrency tokens created with the Ethereum platform are called ERC20 tokens, which can be stored and distributed between Ethereum addresses).


In terms of regulation, the supply of cryptocurrency tokens is not set by a central agency or a government. The verification process of a transaction as well as performing and recording it using blockchain technology is done on a public ledger without the intervention of a third party. The problem with regulating Bitcoin and other cryptocurrencies is that they operate through P2P networks. Despite the usual government's success in regulating websites and networks there are numerous cryptocurrencies which makes it more difficult. The main difference with cryptocurrency is that the transaction can be done through an exchange, or you can use your cryptocurrency wallet for direct trading. China decided to take a different approach by closing its own exchanges and escorting cryptocurrency miners abroad through land use regulations. But as expected, this did not have a huge impact on the price of cryptocurrencies. The first policy that the government could implement to regulate cryptocurrency is to tax any legal currency used to withdraw cryptocurrency. The main limitation is that this must apply to a specific coin and fiat currency, and the owner of a cryptocurrency can simply switch to another fiat currency to transfer the cryptocurrency and withdraw them. In addition, compared with traditional fiat currencies, many early adopters and hardliners prefer to use cryptocurrency as a medium of exchange for basic goods and services.

Currently, the Securities and Exchange Commission (SEC) which investigates investments include cryptocurrencies under their jurisdiction. Additionally, cryptocurrency also falls under the jurisdictions of the Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service (IRS). As a result, cryptocurrency is subject to either income or capital gains tax[10].

How Cryptocurrency Works?

Cryptocurrency Transaction Process
Many cryptocurrencies are based on the blockchain technology of a decentralized network that records cryptocurrency transactions. This information is time-stamped and published to the ledger so that other blockchain stakeholders can verify every transaction and as a result it can never be changed. In order to conduct transactions on the blockchain, users agree to pay a small fee, which helps to ensure the security of the blockchain. Here is an example of a transaction: Suppose you want to send a small amount of Bitcoin to your friend. You use your Bitcoin wallet to create a transaction and request that Bitcoin be sent to your friend's wallet. After that you agree to pay a nominal transaction fee for the process. After submitting a transaction request, your transaction will be combined with other transactions in one block on the Bitcoin blockchain. The miner verifies the block and once the miner verifies the block, it is posted to the blockchain to complete the transaction. Through this process, cryptocurrencies can be sent to anyone around the world with relatively low transaction fees. Not only is the transaction typically completed in a few seconds or minutes, it also costs only a fraction of the fees that would be paid with traditional remittance services[11].

Cryptocurrency Mining

Cryptocurrency Mining Network
The building foundation of the high security of cryptocurrency lies in the verification process. When a blockchain transaction is created, it needs to be encrypted and verified for accuracy before it can be added to a block. Without this process being completed, the blockchain can’t continue adding transactions to the following blocks. This verification process is completed by miners. They use high computing power to solve complex mathematical equations needed for a transaction to be verified and added to a block. Usually, the first miner that comes to the right solution of the problem is rewarded with a small amount of cryptocurrency as a compensation for the service. This implies that miners gain cryptocurrency without actually buying it with real money, besides the costs they have for electricity and equipment[12].

The Reward Process for Miners

Conditions for Winning a Block
A miner is eligible to be rewarded with a quantity of cryptocurrency when 1MB worth of cryptocurrency transaction/s is verified. Theoretically, 1MB of transactions can be just one transaction or many. It depends on the amount of data that the transaction requires and takes to be verified. But verifying 1MB of transactions is not enough for a miner to receive a reward as there is another condition - the miner has to be the first to solve, or get the closest answer, to the mathematical problem. This requires a lot of computing power which is usually quite expensive. The whole process is also called proof of work[12].

Another Purpose of Mining

But Mining serves another purpose as well. It is the only way to release new cryptocurrency into circulation due to the reward that miners receive. Aside from the coins minted via the genesis block (the very first block, which was created by the founder), every single one of those cryptocurrencies came into being because of miners. In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional cryptocurrencies[3]

Cryptocurrency Wallets

A crypto wallet is similar to a traditional wallet in the way that you hold money or other assets in them and are able to use those assets to transact. The way crypto wallets differ is that they are accessed online using a private key and transactions are sent to cryptographic addresses, both of which are unique to each wallet. There are three main types of crypto wallets: exchanges, hot wallets and cold storage[13] .


Exchanges operate similarly to banks because they hold a reserve of cryptocurrencies that users then pull from when they transact their crypto. There are many crypto exchanges available today with the most popular examples being Coinbase and Binance. Exchanges offer easy to use solutions for buying, exchanging and holding cryptocurrencies. For crypto beginners, exchanges are the easiest way to get started so they are the most popular method for people to store their crypto. However, there are downsides to exchanges. Every crypto exchange is targeted by hackers looking to steal cryptocurrency with many exchanges being the victims of theft. For example Binance had $40 Million of Bitcoin stolen in 2019, Coincheck lost $530 Million worth of crypto in 2018, and Mt. Gox, the leading crypto exchange at the time, was infamously shut down in 2014 after $450 Million worth of Bitcoin was stolen. Centralized Crypto exchanges also lose the essence of cryptocurrency’s original purpose because intermediaries have control over each account’s assets. Accounts could be subject to restrictions on trading and withdrawals at a company's discretion, which is the antithesis of decentralization[14].

Software Wallets

Software wallets comprise web wallets, desktop wallets and mobile wallets. All of these wallets are considered ‘hot wallets’ because they are connected to the internet. For example these wallets can be downloaded directly to your desktop, such as Daedalus for Cardano, or accessed through a Chrome extension, such as MetaMask for Ethereum. These wallets provide users with their own private key that gives them complete control over their funds and provides more security than exchanges. A private key should not be shared with anyone because it provides access to a wallet’s funds for transacting. Software wallets give better security than exchanges but still pose their own risks if your computer is infected with viruses or malware that could access your funds.

Cold Storage

Cold storage wallets are hard drives that generate a private key that are used to access the funds in the wallet. The most popular hardware wallets are Ledger Nano S and Trezor wallets that are made specifically to hold particular cryptocurrencies. Cold storage wallets are not connected to the internet and therefore have the highest degree of security. However, this makes them the most difficult to manage and transact with. It is more complicated to add and transact funds in cold storage so this method is best used for long term storage of assets.

Transaction Fees

Transaction fees of Proof of Work (PoW) cryptocurrencies like Ethereum and Bitcoin are based on the demand for block space at the time of transaction. When there is high transaction volume, users must pay more to ensure that miners will use their computing power to verify the transaction. In times of high volume this leads to fees that are too high for everyday transactions. In addition PoW networks rely on miners to outcompete each other to verify transactions on chain the fastest to receive a reward. This causes inefficiencies and limits transactions per second. Some networks, such as Cardano and Polkadot, adopted the Proof of Stake (PoS) protocol, which relies on a lottery system to determine who verifies transactions. PoS is more efficient and is easier to scale to more transactions per second, reducing costs of computing power.

The Ethereum network is adopting the PoS protocol with its ETH 2.0 upgrade to make the network more efficient and decrease transaction fees. ETH 2.0 is also implementing sharding and roll-ups, which allow many small transactions to occur off of the main chain on sharded chains. These smaller transactions are then all recorded on the main chain at once which is more efficient. These protocols on ETH 2.0 can potentially bring Ethereum from about 10 transactions per second up to over 100,000 transactions per second, massively reducing computing power requirements and transaction fees[15].

Network Governance

On-Chain governance is a system for managing changes and updates to a cryptocurrency network and its protocols. There are three stakeholders on a crypto network: developers, miners/validators and users. In an informal governance system, such as Ethereum or Bitcoin, changes are proposed through a combination of an offline core group of developers and through online code modifications. Critics argue that this is a form of centralized governance that goes against the ethos of cryptocurrencies. Informal methods can lead to issues such as hard forks. Hard forks are radical changes to the network protocol that can change the validity of certain blocks on a chain, and require all nodes to update to the latest version of the chain. This often leads to disagreements about changes, causing some developers to spin off to new cryptocurrencies. For example Bitcoin Cash spun off of bitcoin because of a disagreement about block size. Ethereum Classic split from Ethereum due to disagreements on how to handle a hack.

In a formal system, all changes are proposed online through code updates by developers. A core group of developers is then responsible for coordinating consensus between stakeholders. A successfully implemented formal system is Tezos’ self-amending ledger. Developers propose changes to the protocol which is then voted on by nodes on-chain. Nodes holding more coins have more voting power. Protocols that gain enough voting support are rolled onto the test network. If successful the changes are then implemented onto the main net[16].

Smart Contracts

Stable Coins
A smart contract is a digital contract held inside a blockchain. The contract is self-executing and written into lines of code. Each contract is immutable, distributed and trustless, resulting in reliable contracts without intermediaries. This is possible because smart contract settlements are decentralized verified on-chain the same way crypto transactions are verified. Decentralized validation provides quicker, cheaper and more accurate contract settlements. Smart contracts can be used in all sorts of industries. A few examples are executing insurance settlements, increasing supply chain transparency, digital records management and decentralized finance[17].

Decentralized Finance (DeFi)

Decentralized finance (DeFi) is a term used for financial products and services that are available through the internet and that are executed and recorded on the blockchain through smart contracts. DeFi does not rely on central authorities such as banks, centralized exchanges or brokerages to transact money or financial products. DeFi aims to give people full control over their finances with no restrictions on account minimums, no specific trading hours and no discretionary access to loans. Products and services that are slow and prone to human error can be quicker, cheaper and more transparent using DeFi[18].

Currently, the best example of DeFi is Uniswap, a decentralized exchange. Uniswap is an automated market maker built on smart contracts that allows users to transact coins and tokens via liquidity pools. Liquidity providers add liquidity by placing their coins or tokens in a smart contract that can be used to transact by others. In return liquidity providers earn a percentage of transaction fees. This automated protocol allows Uiswap to offer over 8,000 trading pairs and generate $2-3 Million in fees daily without any centralized intermediary[19].

Stable Coins

Stable coins are collateralized digital tokens that are meant to take the volatility out of cryptocurrencies. Cryptocurrencies are subject to large swings in value which make them unpredictable to use for daily transactions. Stable coins are tokens pegged to an asset, usually US dollars, that are less volatile. The entity behind a stable coin will set up a reserve where the asset backing the stable coin is securely held as collateral. Assets used as stable coin reserves can be fiat money, other cryptocurrencies, commodities or other assets. Whenever a stable coin holder cashes out their coins an equal amount of the collateral asset is removed from the reserve. One of the most popular stable coin issuers is Maker which issues the stable coin Dai that is pegged to the US Dollar. Dai is backed by Ethereum and is viewable publicly on the Ethereum blockchain. Dai’s properties and transparency make it a key component in many decentralized applications in DeFi. Using Dai, people are able to borrow, lend and invest digitally while eliminating the volatility of cryptocurrencies.

Other popular stable coins include Tether (USDT) and USD Coin (USDC), both of which are pegged to to US Dollar value. Tether is the most popular stable coin because it is a trading pair with most cryptocurrencies. Its main use case is quickly moving money between exchanges to take advantage of arbitrage opportunities. However, tether does not have the same transparency as Dai and is centrally backed by commercial paper. Tether also faced a lawsuit over allegations that Bitfinex, a crypto exchange and sister company of Tether, used Tether funds to cover an $850 Million shortfall.

USDC is a stable coin issued by the partnership of CIrcle and Coinbase. USDC is an Ethereum based token backed 1:1 by US Dollars. The funds are managed by a centralized authority that is audited monthly to ensure proper reserves. USDC’s purpose is to represent US Dollars on the blockchain. This makes USDC easy to move across various crypto exchanges which is useful for investors in developing markets looking for stable digital assets.

There are also some drawbacks to stable coins. If the reserves are stored in a bank off-chain, like with Tether and USDC, there is counterparty risk. Investors are trusting that the centralized issuer actually possesses the amount of reserves to match the tokens 1:1. Cryptocurrency was created to make finance decentralized and trustless. However, in some stable coins an institution has control over investors' funds and are able to stop transactions from occurring[20].

Uses of Cryptocurrency

The two most popular uses of cryptocurrencies are money transfer and storage of wealth.

  1. Money transfer: Sending and accepting payments at low cost and high speed is one of the most well-known applications of cryptocurrency. The increased interest is shown by retail banking clients, fintech, venture capital funds, institutional investors and distributed ledger technology.
  2. Storage of wealth: Unlike cash, digital payments behave like a secured alternative store of wealth, which is censorship-resistant. This means only the authorized people with the private keys can access wallets, unlike traditional banks that are vulnerable to hacks, thefts, and malpractices. As a result no personal digital wallet can ever be frozen by authorities.

Volatility in Cryptocurrency

Volatility of Daily Log Returns
Volatility is a natural part of market activity. In financial markets, volatility is the rate of change in the price of an asset. There is indeed a level of healthy volatility, where the price changes within a certain range of prices within a certain time period. Then there is extreme volatility, where the price changes are sudden and drastic which is unhealthy for the market. Unhealthy volatility is created due to market chaos, uncertainty, and trade positions that are highly leveraged.

Cryptocurrencies are definitely one of the most volatile assets. The price of bitcoin rose 125% in 2016, then rose again by over 2000% in 2017. More recently in 2021, the crypto market crashed by more than 50% within a few weeks.

Bitcoin and cryptocurrencies have grown to become one of the largest asset classes in the world. As they continue to become mainstream, and big institutions and governments continue its adoption, the extreme volatility of the market should decrease, or atleast stabilize to normal levels[15].

Crypto Market crash of 2021

The crypto market has fallen sharply in price from the all time highs that were reached in mid April. Bitcoin reached an all time high of $65,000 in April, before tumbling to $35,000 just a few weeks later. The overall cryptocurrency market has lost around $1 trillion in value due to the crash.

This crash may seem abnormal and scare new investors away. However, after considering the market's history, crashes like these are a common occurrence. Bitcoin has crashed by 80% on more than three different occasions since 2012. Comparing that to the current crash of 50%, this is a rather mild crash. The crypto market is affected solely by supply and demand, which makes the prices extremely sensitive to news. Stocks for example are much more stable as the price is affected by various factors such as balance sheet performance, cash flow analysis, future business prospects, interest rates, mergers and acquisitions, and economics.

The recent market crash of cryptocurrencies were fumed by China banning coin mining, Tesla suspending bitcoin as payment for its vehicles, and overall environmental concerns regarding the mining process. Amid the recent crash, and more extreme crashes in the past, bitcoin and the overall market has always recovered[21].

Evolution of Payments Towards Cryptocurrency

To understand why cryptocurrencies are emerging in the global economy, an understanding of the evolution of payments, which is the foundation of how money flows within the economy, helps to display the disruptive power of cryptocurrencies and its inevitable adoption.

The very first form of trading was barter trading, where people were exchanging their goods for the goods of others without the use of money, but with tangible goods. A typical trade would be an apple for a loaf of bread. From this type of trading, a reference commodity system was created, where the “price” of all goods was expressed in the unit of a single good. This made it easier to see the relative price of commodities. For example, many years ago horses were used as the standard commodity, whereby 10 bushels of grain was equal to one horse, or 200 eggs were equal to one horse, or 150 apples were equal to one horse. But since not all exchanges wanted to include horses, or whatever the reference commodity was at the time, society then shifted to setting gold as the reference commodity, which was an asset that everyone accepted as being the most valuable.

This shift happened because the issue with barter trade was that most of the reference commodities were perishable. For more than two millennia gold had been the reference commodity. Then in the 13th century, the concept of banknotes was introduced as human needs changed. Banknotes are in principle a certificate that gives the bearer of the note the right to exchange it for the equal value of the note. These were much easier to use and the bank would value the price of the note, without having a tangible good backing it necessarily. Meaning now it was possible for people to take this piece of paper and purchase goods or services with it, and this paper could easily be converted into gold from going to the back. This is what we now refer to as fiat currencies.

The last step in the development of currency and evolution of payments is the transition from banknotes to digital currencies. The key idea of digital currencies is to create only the unique serial number which is found on banknotes, but in such a way that it cannot be copied or counterfeited. It is also digital, in that there is no physical aspect of the currency. As the world continues to digitize at exponential rates, cryptocurrencies are forecasted to become the future currency of the world.

Cryptocurrency Adoption

Why adopt Cryptocurrency?

Due to the disadvantages found in fiat currency, digital currency in the form of cryptocurrencies is a natural succession. We can define Cryptocurrencies as a modern digital medium of exchange that relies on a decentralized network, that facilitates a peer‐to‐peer exchange of transactions secured by public‐key cryptography[5]. The key words here are peer to peer. Essentially, it can be used via the internet infrastructure with no need for a trusted third party, such as a bank or government. The value of cryptocurrencies is not backed by any single government or organization who can affect the supply and demand or price of the currency. This fact doesn’t necessarily please the government, as they want the ability to control and regulate aspects of the economy. This serves as a barrier for universal adoption of cryptocurrencies. One of the main reasons bitcoin was created was in response to the great financial crisis in 2008 and the world's reliance on banks as financial intermediaries. The creator of bitcoin was tired of these banks, along with the government controlling the flow of money, and wanted a world in which every transaction didn’t need the inclusion of them as sometimes they aren’t really needed[22]. Thus, the main idea behind cryptocurrencies is to provide a faster way to transfer funds globally, with minimal transaction costs and with a certain amount of privacy while being independent from a third party to handle the transactions. Any transaction made with Bitcoin is irreversible, this way the recipient of the funds is sure that he or she owns the funds for good and therefore less trust is needed to make sure the other party is reliable. If the recipient receives the funds, the funds cannot be charged back. Now to put this all into perspective, the biggest bitcoin transaction ever was 88,857 Bitcoins back in 2020, which was worth roughly $1.1billion. The transaction fees for this transfer were only 0.00027 BTC, which was roughly $3.58 at the time[23]. This is astonishing as regular bank wire transfer fees range from $25 to $50 dollars, whereas a billion dollar transfer of bitcoin only cost $3 at the time.

Institutional Adoption

Institutional Adoption
Some of the highlights are Visa partnering with Circle for USDC transaction cards, which allows transactions to be settled with USDC which is a stablecoin powered by the Ethereum blockchain. Essentially, USDC is a cryptocurrency that follows the value of USD. One USDC is always worth one USD — hence the name stablecoin. So why do stablecoins exist even though money is mostly digital these days? Stablecoins were created to present some flexibility when it comes to sending, receiving, and storing value. To attain stablecoins, or any cryptocurrency, individuals don’t need a bank account. They simply need a computer or mobile phone which connects to the internet. This is beneficial as transaction fees that would be charged by financial institutions are completely eliminated[24].

This a huge breakthrough for cryptocurrencies as this payment method is already supported in 160 currencies across the globe. That’s why you can seamlessly use your Visa card when you travel abroad. You’ll see a card transaction in your home currency on your card statement, but the merchant gets paid in their own local currency[25].

Fidelity also started accepting bitcoin as collateral for cash loans to its institutional clients. They reported that 36% of their clients held cryptos in their portfolios, showing that there has been a huge increase in institutional investors getting into bitcoin and crypto space. Crypto is being accepted for more mainstream financial uses, such as Visa credit cards that offer Bitcoin rewards and PayPal which allows customers to use the digital asset at the 26 million merchants on its network[26].

Other big news which caused the price of bitcoin to rally to the upside is that JP Morgan Chase are also bullish on bitcoin, as they predict the price could reach $146,000 in the long run. JP Morgan Chase is also preparing to offer an actively managed bitcoin fund to clients, which makes it one of the latest and largest US mega banks embracing the Crypto market as an asset class[27].

Most recently, Tesla announced that it will accept Bitcoin as payment for its vehicles, which caused the price of Bitcoin to shoot up and reach its all times high. Tesla also bought $1.5 billion worth of bitcoin at around $45,000 per bitcoin[28].

China also sees the potential of cryptocurrency, so they are working towards creating their own digital currency, a first for any major economy. This digital currency would be however controlled by the central bank, which defeats the purpose of crypto as a peer-to-peer exchange[29].

Overall, we can see that bitcoin and cryptocurrency are being adopted by banks, institutions, celebrities, wall street, and retail traders.

First Official Adopters as Legal Tender

And perhaps the biggest breakthrough for Crypto currencies so far must be the adoption of Bitcoin as legal tender in the country of El Salvador. The country does not have its own official currency, and makes use of the US Dollar as legal tender, but now bitcoin can also be used to purchase goods and services. This decision came as a response to 70% of Salvadorans not having access to traditional financial services, and so they needed to authorize the circulation of a digital currency whose value exclusively follows free market criteria to stimulate growth[30]. This move to make bitcoin legal tender will also increase financial inclusion, investment, tourism, innovation and economic development[31].

The government is also offering $30 worth of bitcoin to any citizen who signs up for a digital wallet that the government has created. This may be a great time to make BTC legal tender. Imagine if someone paid $500 to purchase goods and services at the current price of $34k. Then a few weeks later, that $500 turns into $750 if BTC goes back to $60,000 which it was just a few months ago and could happen again in the next few weeks. This move is great as it promotes spending, investing, and increases the overall liquidity of the economy.

Adoption of Cryptocurrencies by Companies

Early Adopters

Some of the first companies to accept Bitcoin as payment were Twitch, Microsoft, PayPal and Shopify. Since then, many companies having adopted to accepting not only Bitcoin as payment but many other forms of cryptocurrency[32].

Large Corporations

Starbucks Bitcoin
Notable large corporations that accept cryptocurrency as a form of payment include Home Depot, Starbucks, Rakuten, Whole Foods and the Dallas Mavericks[32].

Third Party Softwares

Since tax reports are written in dollars and not crypto, accepting cryptocurrency as a form of payment creates a ton of hassle for accounting departments, especially when value fluctuates greatly. The solution for companies wishing to add crypto to their payment methods is implementing third party softwares. These third party softwares will either sell the crypto or send to the company’s wallet. Furthermore, the conversion rate and fiat money equivalent at the time of sale is sent to the company’s accounting department so they can complete fiscal reports.


NOWpayments is an example of a third-party software that organizations can integrate in their website that allows customers to pay by crypto. NOWpayments goal is to simplify the process for accepting crypto for anyone who wishes to do so, from businesses to free-lance workers. Currently, the platform accepts over 50 different crypto coins including BTC, ETH, ADA, etc. It is important to note that NOWpayments is a non-custodial platform meaning that you store the keys to your coins and use crypto as originally intended in a decentralized manner[33]. NOWpayments does not currently have PoS support, so a retail store could not use the software for in-store sales only sales made online. In order to profit, NOWpayments has to charge middleman fees for transactions that occur between crypto users.


Flexa is a payment network that physical stores can implement to accept cryptocurrency as payment. Retailers that currently use Flexa include Gamestop, Nordstrom and Whole Foods. Flexa has a goal to allow any merchant to accept cryptocurrency as they wish[34]. In order for a consumer to pay by crypto at any Flexa using store, they must download an app on their mobile phone ‘Spedn by Flexa’ and scan a QR code at checkout. Once the QR is scanned, the funds are immediately transferred from the customer’s wallet to the store.

Organizational Challenges for Adopting Blockchain

Knowledge of Technology

Lack of awareness and understanding is the principal challenge associated with Blockchain technology. If people do not know what the technology does, they cannot use it for their benefit.

Cooperation on an Industry-Wide Level

In order for blockchain to be the most beneficial for operations, companies on an industry-wide level must communicate with each other in finding opportunities or pain-points. Developing a blockchain network is not cheap. Currently we are seeing organizations develop their own networks and run app through those. Keep in mind these networks are not cheap to develop, working across the industry will not only present new opportunities but also lower costs for companies wishing to incorporate blockchain technology. The purpose of a distributed ledger is defeated and oftentimes less efficient when companies build their own blockchains instead of working with their industry. The goal of any given industry should be to find a way to incorporate the technology where applicable in order to solve existing problems in the industry yet maintain a competitive market.


Humans are used to doing things in a centralized fashion, our governments, our banks and our education are all centralized at the root of things. Blockchain is a complete shift away from all traditional human systems. Trust and authority are no longer placed on individuals/institutions, instead it is embedded in code and placed in a decentralized network that will execute tasks and store information.


As mentioned before, blockchain network development comes at a high aggregate cost. There is also an inefficiency caused by the proof-of-work method that cryptocurrencies use. For blockchains to reach a point of desired productivity, there must exist a certain number of nodes varying by network. This number of nodes is defined as the network's critical mass.


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Alex Rasovic Alexander Stoianov Bryson Orth Muhammad Hassan Sandro Miletic
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
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