FMI FINAL PROJECT

Q. Select a financial market or institution and compile a 2000 word report on it.

Table of Contents

Introduction................................................................................................................................... 3

Terms to understand when studying cryptocurrency.....................................................................4

Block chains:............................................................................................................................. 4

Person to Person transaction (P2P)................................................................................................4

Proof to Stake (PoS)....................................................................................................................4

Proof to Work Algorithm (PoW)..................................................................................................5

Nodes:....................................................................................................................................... 5

The Cryptocurrency Market.........................................................................................................5

Types of crypto currency..............................................................................................................5

Decentralized Market System:......................................................................................................6

The Transaction Process............................................................................................................... 6

Buying cryptocurrency:................................................................................................................6

The Investment Process for cryptocurrency:.................................................................................8

Places where cryptocurrency is accepted:......................................................................................8

Pros and Cons of Cryptocurrency:................................................................................................8

1
Spot and Future Trading........................................................................................................... 9

The Crypto Market in Pakistan:..............................................................................................10

Conclusion:................................................................................................................................ 10

Cryptocurrency

2
Introduction
Cryptocurrency is defined as:

“A digital assets that currency that can act as a medium of exchange for buying goods and
services. The name itself is derived from cryptography and currency.”

Cryptography refers to the advance math that is used for securing the funds and also making
sure that only you are the rightful owner getting to spend them. In cryptocurrency markets, an
individual coin ownership records are stored in a ledger that exist in a form of a computerized
database. These databases use mainly strong cryptography to:

 secure transaction records,

 to control the creation of additional coins, and
 To verify the transfer of coin ownership.

There is an overall decentralized structure of the crypto market which means that the market is
not run by the government or any single person. Currently, Bitcoin is the largest cryptocurrency
of the world. However there are many other important alternatives to these which we shall
discuss later.

Cryptocurrency differs from the traditional fiat money. In fiat money the money backed by the
government and has reserves backing it up. While cryptocurrency works just by representing
itself without backing.

Terms to understand when studying cryptocurrency:

Block chains:
Block chain is a database that contains all the transactions being made in cryptocurrency. Every
individual can download blocks from other people on the same network to build identical copies
of the blockchain on their computers. This is built with the help of hashing that uses
sophisticated algorithms to link everyone on a chain. This is how the chain keeps upon adding up
more and more blocks.

3
Person to Person transaction (P2P)
A peer-to-peer (P2P) service is a decentralized platform whereby two individuals interact
directly with each other, without intermediation by a third party. Instead, the buyer and the seller
transact directly with each other via the P2P service. The P2P platform may provide services
such as search, screening, rating, payment processing, or escrow.

Proof to Stake (PoS)

The Proof of Stake (PoS) concept states that a person can mine or validate block transactions
according to how many coins they hold. This means that the more coins owned by a miner, the
more mining power they have.

Proof to Work Algorithm (PoW)

Proof of work (PoW) describes a system that requires a not-insignificant but feasible amount of
effort in order to deter frivolous or malicious uses of computing power, such as sending spam
emails or launching denial of service attacks. The concept was afterward adapted to securing
digital money by Hal Finney in 2004 through the idea of "reusable proof of work" using the
SHA-256 hashing algorithm. Proof of work forms the basis of many other cryptocurrencies as
well, allowing for secure, decentralized consensus.

Nodes:
A node is a computer that functions to connect a cryptocurrency network. The node supports the
relevant cryptocurrency's network through either; relaying transactions, validation or hosting a
copy of the blockchain.

The Cryptocurrency Market

Types of crypto currency:

4
Just like there are many kinds of fiat money types, crypto currency also has various types.
Usually bitcoin is assumed as the standard currency kind here. All those coins that serve as an
alternative for bitcoin are known as altcoins in the market.

Altcoins:

Altcoins are of various kinds and types. Some of these include:

 LiteCoin- known for transactions faster than a bitcoin

 Ethereum- allows decentralized applications to be run on its blockchain
 Caradano- can facilitate peer-to-peer transactions

Decentralized Market System:

Cryptocurrency belongs to a decentralized market system where digital technology allows
individuals to deal directly with each other instead of meeting in a traditional exchange. When a
cryptocurrency is minted or created prior to issuance or when it is issued by a single issuer, it is
generally considered to be centralized. However, when implemented with decentralized control,
each cryptocurrency works through distributed ledger technology, typically a blockchain, that
serves as a public financial transaction database.

The Transaction Process:

It is important to understand how transactions are made in the crypto currency market. For
anyone who wants to invest and trade in cryptocurrency, they must have a clear idea about the
transaction methods.

To relay a transaction, the “nodes” having a copy of the blockchain of the cryptocurrency it
supports, broadcasts details of the transaction using encryption to other nodes throughout the
node network so that the transaction (and every other transaction) is known. The transactions
made are all supported by the nodes and node network.

To prove the validity of these transactions, “time stamping “is done. Timestamping helps to
"prove" the validity of transactions added to the blockchain ledger without the need for a trusted
third party, hence supporting the decentralized system. The first timestamping scheme ever

5
invented was the proof-of-work scheme. For its invention, hashing algorithms are used some of
which include: CryptoNight, Blake, SHA-3, and X11. All these are supposed to trace secure
transactions and ensure that there are no illegal emissions made.

Buying cryptocurrency:
There are several things that are required for buying bitcoin which include:

 A cryptocurrency exchange account,

 Personal identification documents if you are using a Know Your Customer (KYC)
platform,
 A secure connection to the Internet,
 and a method of payment

Choosing an Exchange

Signing up for a cryptocurrency exchange will allow the users to buy, sell, and hold
cryptocurrency. It is generally considered as best practice to use an exchange that allows its users
to also withdraw their crypto to their own personal online wallet for safer keeping. For those
individuals who are looking to trade Bitcoin or other cryptocurrencies, this feature may not
essentially matter however.

The most popular exchanges for cryptocurrency require KYC. In the US Coinbase, Kraken,
Gemini, and Binance are some to be named. They offer a variety of cryptocurrency to the users.

Connect Exchange to a Payment Option

Once an exchange is chosen, it’s time to gather personal documents. These can vary per
requirement and type of exchange opted for. This process is almost the same as setting up a
brokerage account.

Once the exchange has ensured the individual’s identity and legitimacy it is possible to connect
a payment option. At most exchanges, one can connect their bank account directly or can
connect a debit or credit card. While it is possible to use a credit card to purchase
cryptocurrency, it is usually something that should be avoided due to the volatility that
cryptocurrencies can experience. These exchanges also charge fees per transaction which can
either be a flat fee or a percentage of trading amount.

6
Place an Order

After the above two steps have been taken care of the individual can move on to buying the
currency.

Safe Storage

Safe storage of the bought crypto currency is essential as well. It is important to make sur that
the cryptocurrency bought is stored in a safe place. Since they do not have any physical value
therefore cryptocurrencies are stored in special cryptocurrency wallets. By storing the currency
in this one can preserve it and store it away from exchange.

The Investment Process for cryptocurrency:

Every person interested in crypto currency must understand what the basics to its investment and
trading are. Without that knowledge they’re at loss. Experts suggest to start off small when
investing in the crypto market as it is as volatile as the stock market itself. It is only considered
wise to invest in cryptocurrency after one makes sure they have enough liquid funds for at least 6
months without any debts.

The next big step is to consider which cryptocurrency to invest in. currently, the bitcoin is the
largest cryptocurrency to exist. However there are many other types each suiting to someone’s
need. It is advised to observe trends and see patiently which suits the person.

Places where cryptocurrency is accepted:

The market for cryptocurrency is not that vast yet as perhaps other financial markets may be.
However there were the states where bitcoin and cryptocurrency has or had been considered
legal:

 USA
 Canada
 Germany
 France
 Nigeria
 India- however it has been currently banned now

7
  China- the currency is now banned
 Japan
 Australia

Pros and Cons of Cryptocurrency:

Using aid and advice from the Wall Street website we found some information regarding the
pros and cons of crypto which are listed below:

PROS CONS
Cryptocurrency is completely anonymous, It can be difficult to comprehend. especially
which is great for those that value their online with all the technological terms and tricks
privacy and are wary of handing over too
much of their digital data.
It is possible to spend or buy wherever you The market for it is highly volatile. Many use
are, and you don’t even need a computer to crypto for investments while some may even
use it. Everything can be managed on your use it for purchase, but the market is highly
mobile device volatile and you never know when a loss or
profit is coming up.
The transactions themselves are all stored There is no security in case of loss. Since the
on an open ledger (the blockchain). This crypto market is decentralized it can lead to
means that the data is available to view by scams and loss of cash with fraud crypto.
anyone at any time, and that’s a major
boon for those wishing for a more
transparent banking system.

Spot and Future Trading

To ease out, a Dollar(USD) can be traded for USDT or BUSD which are the set as standardized
coins at the same market rate for the dollar itself. One can buy USDT coins over P2P and trade
for other coins himself by using Technical and Fundamental analysis

Spot trading is the immediate order that is executed at a current price for buying and selling of a
coin.

8
For example you have $1000 in your equity and you have a good analysis of a demand zone
insight of ADA (Cardano). You buy on spot setting a limit at the demand zone or at market
price. When the price action touches your demand zone limit your order would be executed. On
the other side, you can also set limit on the high where you want to offload your coins.

When the price action reaches to your desired level you may sell them on a set limit or at market
price.

In a futures market, prices on the exchange are not settled immediately, like in a spot market.
Instead, two counterparties will make a trade on the contract, with settlement on a future date. In
this market the coin is not directly bought or sold instead a contract is made for a relative date.
The price of the coin on that specific date would result in your Profit or Loss. Also in a futures
contract leverages can be used.

The Crypto Market in Pakistan:

In a statement in 2018, the State Bank of Pakistan stated that virtual currencies like Bitcoin,
Litecoin, Pakcoin, OneCoin, DasCoin, Pay Diamond or Initial Coin Offerings (ICO) tokens are
not legal tender, issued or guaranteed by the government of Pakistan.

However there are many individuals who still are investing in this market despite the laws going
against it from the State bank.

Conclusion:

In conclusion for the cryptocurrency market, it can be stated that there is yet a lot of pros and
cons that need to be adjusted and looked after. Whether crypto is the future economy or not is

9
not certain-but one thing is for sure; the digital currency has made its way into the economy and
shall continue to try so until and unless there is complete elimination.

10