Demystifying Bitcoin: Understanding the Fundamentals of the World's Leading Cryptocurrency

First, let's define a few terms. Blockchain is the underlying technology that makes cryptocurrencies possible. The most popular cryptocurrency goes by the name of Bitcoin, and it is this coin that inspired the development of blockchain technology as we know it today. A cryptocurrency, like the U.S. dollar, is a medium of exchange that operates on a digital ledger and employs cryptography to secure financial transactions and regulate the issuance of new units of money.

Blockchain technology: what exactly is it?

A distributed ledger called a blockchain records transactions on a peer-to-peer network. Participants can confirm transactions using this technology without relying on a third-party clearinghouse. Transferring money, settling trades, casting a vote, and other similar activities are all possible uses.

When, who, and why did the first cryptocurrency appear online?

Bitcoin, the first and most well-known cryptocurrency, is also the most well-known overall. The risk of relying on banks for all financial transactions became apparent after the 2008 global financial crisis, prompting an anonymous individual or group's introduction of Bitcoin in late 2008 using the alias Satoshi Nakamoto. Bitcoin's underlying concept eliminates the need for a central authority such as a bank or PayPal to facilitate online and peer-to-peer payments.

Which crypto "brands" are currently the most well-known?

Since Bitcoin's introduction in 2008, the entire market value of all cryptocurrencies has exploded to about $2.5 trillion, and their number has undoubtedly surpassed 10,000. Ethereum, Dogecoin, and Tether are other famous names in the cryptocurrency market alongside Bitcoin.

"Smart contracting," a system for establishing and enforcing the terms of financial transactions between parties without human intervention, is one of Ethereum's most appealing features. Ironically, Dogecoin, created initially as a joke to make fun of cryptocurrency speculation, has now been adopted by a vast online community, including celebrities like Elon Musk, the wealthiest man in the world. Tether belongs to a subset of cryptocurrencies known as stablecoins because its value is fixed to the U.S. dollar.

Is Bitcoin, as an example, generally recognized as a means of payment?

How broadly one defines "widely" is crucial. About a third of small and medium-sized enterprises (SMBs), according to a poll by Zogby Analytics in 2020. Major corporations, including AT&T, Microsoft, and PayPal, now accept or at least permit cryptocurrency transactions. After saying it would begin receiving Bitcoin in February, Tesla changed its mind in May, citing concerns that the electricity required to validate Bitcoin transactions was hazardous to the environment. However, the percentage of establishments that will accept cryptocurrency has been growing, and this trend is expected to continue.

What central authority backs cryptocurrency, and who governs it when it is decentralized like the U.S. dollar?

It has no official support or oversight. Blockchains are distributed digital ledgers that keep track of ownership and transactions without centralized servers or intermediaries like banks being necessary for verification. New transactions are verified through the computers' constant communication over the Internet.

Do authorities oversee crypto?

A little bit. Coinbase and other centralized cryptocurrency exchanges in the United States must collect some user data through the Bank Secrecy Act and other applicable laws. Countries like China have outright outlawed cryptocurrency trade, while others have enacted stricter rules.

Cryptocurrencies, however, have minimal oversight compared to more conventional forms of currency. Crypto assets like "stablecoins," whose value is tethered to government-backed currencies, are not governed by many standards, and the Internal Revenue Service has not provided clear guidelines on how to tax certain crypto investments. Decentralized finance (DeFi) is one sector of virtually unregulated cryptocurrency.

That's in part because we're just getting started, and it takes time to establish new norms. However, this is also a characteristic of blockchain technology, built mainly to evade governmental oversight.

If not for gambling purposes, what are some practical applications of cryptocurrency?

Many of the most beneficial cryptography uses may be found in the financial sector or in closely related disciplines. Financial institutions on Wall Street utilize blockchains to settle international transactions, while individuals send remittances to loved ones living overseas using cryptocurrency.

There has been a flurry of activity in areas apart from banking due to the crypto boom. Crypto-based social organizations, video games, eateries, and WiFi networks exist.

These applications outside of finance are still in their infancy. However, crypto proponents argue that the technology is in its infancy, pointing out that the Internet has evolved over decades. The widespread belief that blockchains will one day be used for anything from keeping medical information to tracking streaming music rights to hosting new social media platforms has attracted billions of dollars in investment into cryptocurrency startups. This bodes well for the future of cryptocurrency and blockchain as a whole.

Conclusion

There is a lot of room for expansion in the bitcoin sector. This research aims to examine the impact of recent events (shocks) on the price fluctuations of cryptocurrencies. Even if cryptocurrency investments are growing in popularity, the market's severe volatility scares some potential purchasers and leaves unskilled investors with heavy losses. Bitcoin, Binance Coin, Ethereum, Dogecoin, and XRP data were collected from March 8, 2019, until November 30, 2022. We fitted the framed dataset with the E-GARCH model to reach our final destination.

We found that the news (shocks) significantly affects volatility, as measured by the magnitude factor, which holds across all currencies. Furthermore, all cryptocurrencies are observed to have extremely high and statistically significant volatility persistence. The results of this research can inform investors about how news (shocks) affect the volatility of bitcoin returns.

Author Bio

Prashant Pujara is the CEO of MultiQoS Technologies, a well-known mobile app development solutions company in India & USA. He boasts 10+ years of experience in software development, intending to develop mobile applications for all platforms, including iOS and Android.