Bitcoin & Crytocurrency – a hasslefree future crypted or

Sentiment hype created

Aging from barter to Crypto- an age well spent or an airy

Future

Crptocurrency- everything and anything from C to Y of

finance, Money , Trading, Payments to Yeild

Decrypting Cryptocurrency – A Blockchain from Blinded

Cash, Web Based Money, Bit gold , Hashcash to Bitcoin

A narrative literature review using different academic databases

such as Google scholars, Scopus, Web of science and Springer
link of narrative literature review is a methodological approach
that aims to establish a detailed understanding and critical
evaluation of knowledge relevant to a particular topic and
exponentially relevant to a particular topic. Narrative literature
review is not meant to be exhaustive it is selective in the content
it was as aiming at advancing and contributing to theory
development. Unlike systematic review compiling a sample of
data does not necessarily really require it to be representative
that need sound elaboration and clear conceptualisation and
given the multiple perspectives from which crypto currencies
have been approached, undertaking a narrative literature on the
paper of Nakamoto 2008 it as it represents the first preference
on crypto currency and has been recognised as a seminal work.

Crytocurrency “ It Seems like the dotcome bubble all over again

or the housing bubble all over again” said by Noble prize
winning Economist robert Shiller while asked about
cryptocurrency. (Shiller, 2017). The meteroic rise in the price of
bitcoin in 2017 to its massive success and popularity including
the smallest and the least expierenced of investors and traders, it
gives a glimpse of how crptocurrency have evolved the realm of
savy investors and experts to everyday traders.

Back in the 1990s cryptographer David Chaum created a first of

its kind online money in Netherlands called as Digi cash as an
extension of encrytion algorithm popular during those times
known as RSA. This encryption technology along with its e-
cash product generated a hype in the media, but the indiffernce
of the invertor let to its early demise in 1998.

But his innovation helped in figuring a digital equivalent to

keep the whole system anonymous and prevent double spending
by inventing a Serial no. called as “blind signature” in
crytography. In 1998 Chaum along with other cryptographer
Naor and Fiat propose off-line electronic cash. In a paper
Okamoto and Ohta use “ Merkle Trees” to create a system that
allows you to divide your subdivide your coins.

The Second generation of Internet money was PayPal on the

based on the learnings from DigiCash which provided its users
the ability to transfer money from merchants and buyers
respectively using a seamless peer-to-peer money transfer
system. The significant event in the history of crypto currency
in 2018 was a sub-prime mortgage crisis which nearly crippled
the financial system of some world’s major financial
institutions proving a kind of wake up call to many of the world
financial economies which led to the emergence of now
popularly known as ‘Blockchain’ which is the foundation of
cryptocurrencies as we know them.(Martin Quest,
Crytocurrency master Guide,pg10.)
As per Merkle, Hashcash is one of the successful pre- bitcoin
digital currencies developed in 1990s to serve purposes like
reducing mail spam, prevent Distributed Denial of Services
(DdoS) attacks and many other modern digital currencies also
uses PoW algorithm in generating and distributing new coins.

Bitcoin was first proposed in 2008 by Satoshi Nakamoto a

pseudonymous scientist. It does not require a central server but
it relies on a peer to peer network which is the irrepressible in
every way as we look at green addresses and micro payments
which allow us to do off-line payments under certain
assumptions (Bitcoin and Crytocurrency Technologies, Arvind
Narayan, Joseph Bonneau,pg 8) and since then bitcoin has
gained a growing attention among investors, researchers,
financial institution and policymakers. The evolution of the
crytocurrency advocated is as under

a. 1st advocates being liberarians and true believers in crypto

currencies critical of the global financial crisis 2008-09,
saw blockchain as a mechanism to bypass the traditional
financial system which led to the aforementioned prices on
account of its laxity in regulations. (Karlstrom, 2014;
Dallyn, 2017)
b. 2nd advocates being the Speculators who saw Bitcoin as an
investment opportunity yielding high returns. ( Bouoiyour
et al., 2015)
c. 3rd advocates or belivers of maket participants being the
financial institutions aimed at the introduction of the
blockchian technology in their respective industry and
thereby offering varied service to the investors like more
secure platforms for investment. (Guo and Liang, 2016;
Patki and Sople, 2020).
 4th wave of crytocurrency currently taking place comprises of
Central Banks an dtheir so called Central bank digital
Currencies (CBDC). (Fernandez- Villaverde et al., 2020).
The world of crypto is revolving super fast and so the
viewpoints of the govenments, regulatory bodies and the
market participants. RBI will issue India’s digital rupee need
‘CBDC’ in the financial year 2022-23, a fiat currency
transacted using wallets and also regulated by the RBI. The
Federal Reserve (FED) is expected to come up with the
policies sprints focused on crptocurrency which would also
provide a roadmap for the future work on crpyptocurrency.
(rbidocs.rbi.org.in).

Amongst the various crpytocurrencies available in the market

a few worth mentioning are bitcoin, ethereum, ripple (XRP),
litecoin, tether, bitcoin cash, libra, monero, EOS, binance
bitcoin etc while others lined up to offer their intitial coin
offerrings. (Grobys and Vahamaa, 2018)

Main concept of Blockchain is to record transactions Blockchain

transactions can be categorised as a process which involves
parties acquire or lose a certain status in order to record new
transactions the hash of the first block of the record should be
forwarded to the minor who employs it and generates a hash of
the second block in introducing a new block into the blocking
and solving the hash is what we have already mention mining or
proof of work (Nakamoto 2008)

The dynamics underlying the price formation of crytocurrency

and the connection of the digital world with their real economic
and financial quanterparts are yet to be distnagled. They can be
distangled by considering the literature by three different
methods :
 a. Econometric
b. Computational
c. Physical
which will act a magnifier and prove that the crypto and real
world are two distinct but interconnected spheres.(Rocco
Caferra, Sentiment Spillover & Price Dynamics)

The studies and the literature available on the crypto currency

market shows that the market behaves differently from other
traditional financial markets such as equity, commodity and
exchange rate. Ethereum has become 2nd to bitcoin in market
capitalisation since 2018 and given its relevance as a smart
contract platform, it will be included in many future research
studies.

Under the guise of rational investment researchers have

identified some factors like size, liquidity risk and idiosyncratic
volatility that will contribute in explaining the cross-section of
expected crypto- currency returns.(liu et al,2022; Zhang and Li,
2020)

Crptocurrency is considered less liquid as compare to their

traditional counterparts due to their:
a. relatively lower market capitalisation
b. concentrated ownership structure and
c. a highly fragmented multiplatform market structure.
(Makarov and Schoar,20121)

Contrary to this the buying and selling of cryptocurrencies

contrary to their recent performance resembles the behaviour of
a market maker, entailing selling cryptocurrencies when the
public is buying (when price increases) and buying when the
public is selling (when price decrease) providing immediate
relief to the less patient investors in the form of returns.

The emerging crypto currency market is inherently different

fromthe conventional asset markets by a number of reasons as
follows:
a. Crypto currencies can be traded on multiple exchanges
simultaneously and 24 x 7 whereas traditional assets are
traded on a single exchange during working days.
b. Tradional markets exchanges match orders based on
centralise book of orders whereas in cryptocurrency
markets there is no “provision to ensure that investors
receive the best price when executing trades” as a
prominent role is played by cross- exchange arbitrage.
(Makarov and Schoa, 2020)
c. The degree of regulation and oversight from authorities
very widely across crypto currencies exchange in contrast
to conventional exchanges.(Hansen, 2018)
d. The conventional markets are dominated by institutional
investors investors as compare to the crypto currency
market which are mainly populated by retail investors.
(Franklin2020, Graffeo,2021)

And hence then it can be argued by the way of literature

studied that crypto currency owners have limited experience
of investment(Xi.et al., 2020) and possess (higher) levels of
financial that is (digital ) literacy than non-owners. (Panos
et,al., 2020).

Bitcoin and Ethereum being the largest largest

cryptocurrencies in terms of market capitalization contribute
to the systemic risk of the market along with other
cryptocurrencies which unike their declining prices also
contribute to the systemic risk in the market.(Ming Yuan,
Zhen Wu,Xin Wu, Risk Diffusuon)

Cryptocurrencies experienced a market capitalisation of USD

1.9 9 trillion in 2022 compared to USD 302 billion in 2019.
(coinmarketcap.com/charts). The isolated features of crypto
currencies from the traditional financial assets differ in the
following way:
a. ten times higher volatility then conventional
assets(Bariviera & Merediz Sola-2021)
b. Continuous trading and trading with anonymity (Yue et
al., 2019)
c. Substantial potential of vulnerability to manipulation
(Gandal et al,2018)
d. Speculative Investments (Urquhart, 2018)
e. Dilemma in the forms of trillema problems like disorinted
regulations and policies, increasing cyber crimes, potential
for inherent price bubbles ( Corbet et.al., 2019).

On aacount of all of these unconventional characteristics

cryptocurrencies are regard as ‘Commodity Money’ instead
of a simple speculative instrument. (Rehman & Apergis,
2019) and hence along with this the simplistic nature ,
transparency and growing popularity several developed
economies have formed legislations to establish
cryptocurrencies as a legal form of payment. (Dahir et al.,
2019).

Crypto currencies- one of the most popular investment assets

in the financial market and as Bitcoin offers hedging benefits
against uncertainty shocks in the real economy (Baur and
Demir et al. 2018), but ar also subject to some undesirable
characteristics:
a. Crash Risk (Kalyvas at al. 2020)
b. Sentiment Disagreemnet (Ahn and Kim, 2020)
c. Emotional Trading (Ahn and Kim, 2021)

Irrespective of the insignificant relationship between bitcoin

and the general macroeconomy and all of these undesirable
traits, the institutionalisation of crypto currencies would edge
their way into the traditional financial ecosystem.

The crypto currency market cannot be considered efficient

based on the information available on all cryptocurrencies.
The quality of information in the sphere of crypto currency,
its regulatory implications regarding the working of its
market and its level of relative efficiency will help in shaping
the public confidence and thus verifying the prospects and
challenges in adopting cryptocurrencies by the central banks
and governments.

As an upcoming speculative asset class, are cryptocurrency

returns predictable according to its relative market risk
premia?

Are crypto assets risky investments for which the investors

must be rewarded, if hold ?

A solution to distributed computing problem

Satoshi Nakamoto’s invention is a practical solution to a

previously unsolved problem in distributed computing known
as ‘Byzantine General’s Problem’, consisting of trial on
agreement on a course of action by exchanging information
over an unreliable and potentially compromised network. His
solution uses the concept of Proof-of-work to achieve
consensus without a central trusted authority representing a
break a major milestone in distributed computing science and
has wide applicability beyond Currency. iIt can also be used
to achieve consensus on decentralized networks for - fair
elections, lotteries, asset registries, digital notarization and
more. (Andreas M. Antonopoulou, Mastering Bitcoin, pg4)

Future of crypto currency and currencies as a whole

The future of cryptographic currencies is even brighter then

the future of bitcoin. Bitcoin introduced a completely new
form of decentralised organisation and consensus spanning
hundreds of incredible innovations, which would likely effect
brought sectors of economy from distributed system science,
to finance, economies, currencies, central banking, and
corporate governance. Blockchain and the consensus system
will significantly reduce the cost of organisation and
coordination on large-scale systems while removing
opportunities for concentration of power, corruption and
regulatory capture. (A.M. Antopoulou, Mastering Bitcoin,
pg.233).