The Real Reasons Behind the Crashing of Crypto Market

In this article we are going to discuss the real reasons behind the crashing of crypto market. We are going to examine the concept of crypto currency, the history, architecture, mining and come up with a conclusion.

The history

One may think that it all started with Bitcoin, but the truth is rather different. In fact, an American cryptographer called David Chaum came up with an anonymous cryptographic electronic money called ecash. And that was in 1983. Later, in 2009, the first decentralized crypto currency was conceived by a developer named Satoshi Nakamoto, and it was Bitcoin.

The working schemes of crypto currencies may differ from one type to another. Major work schemes are: proof-of-work which is used in Bitcoin, and proof-of-stake which is used in Peercoin.

The concept of decentralization made the internet censorship very difficult, so many countries ordered studies of crypto currencies.

In June 2021, El Salvador was the first country to recognize and regulate crypto currencies such as Bitcoin. After two months, in August, Cuba followed in accepting crypto currencies as legal tender.

The Alternative Crypto Currencies

Many types of digital assets like Tokens and different alternative versions of Bitcoin emerged. All these were known as alternative crypto currencies, and the named was shortened to “altcoins” or “alt coins”.

These altcoins were designed based on Bitcoin as a model protocol. There are over 9,000 different crypto currencies worldwide, Ethereum and Litecoin are two major examples to name a few.

These altcoins and their markets often have rallies which are referred to as “altseason”.

Some developers noticed that upon usage, some crypto currencies tend to lose its purchasing power so they invented the Stablecoins. The aim here, as the name suggests, is to preserve the purchasing power, but ironically, most designs were not foolproof. Numerous Stablecoins crashed or lost their values like what happened with Terra in May 11, 2022.

The Architecture

First, the rate of unit production is stated publicly when the system responsible for creating a crypto currency is launched. And that is because the currencies at question here are decentralized. Speaking of decentralization, governments and companies cannot produce new units and cannot back entities hold asset value measured in them.

Second, to understand the architecture fully, we must first familiarize ourselves with some concepts like miners, blockchains, etc..

Miners:

A community of untrustworthy parties that maintain the integrity and balance of ledgers within a proof-of-work system. These parties add transactions to the ledger after a validation process and a timestamping scheme.

Blockchain:

A blockchain provides validation for each coin in any given crypto currency. It is a list of records, sometimes referred to as blocks, which is ever growing, these blocks are secured by cryptography. The block contains a hash pointer that links to a previous block, a timestamp and transaction data. The blocks are designed to resist any modification of data contained within.

Nodes:

This word in crypto currency refers to the computer connected to the crypto currency network. Every node has a copy of the blockchain of the crypto currency it is linked to. When a transaction is made, the node’s role is to send details of the transaction to other nodes.