A brief introduction to
Cryptocurrency
By Edward Cramer, Helen Nazarenko, Michelle Youn, & Linda Chen



















Over the past several decades, visionaries have dreamed of ways to send money across the world efficiently and securely.


The financial sector is evolving to address the increasing demand for online transactions. Banks are spending billions to improve their electronic payment systems and companies like Paypal, Venmo, and Stripe have emerged to facilitate these transactions.


But what if there was a way to eliminate all financial intermediaries, while allowing for faster, more secure, and cheaper transactions? This was the motivation behind the creation of cryptocurrencies, which revolutionize how we think about money, specifically the way it is exchanged and stored.







A cryptocurrency is a digital currency in which users can send or receive payments through a network of participants around the world. These transactions are secured by cryptographic protocols and are often supported by a blockchain protocol (the ledger used to record all transactions for a particular coin). Many cryptocurrencies support open-source development, in an effort to be more transparent and foster innovation from programmers and creators around the world. In general, they aspire to have the following key characteristics:

- decentralization
- security
- immutability
- irreversability
- anonymity



In 2009,
Bitcoin, the first decentralized cryptocurrency was conceived.


Since then,

cryptocurrencies have been created, and counting.





What's the hype?


Interest in the cryptocurrency market has exploded, from programmers looking to partake in open-source development, to both amateur and institutional investors looking for new investments.


This graph shows the total market cap of all cryptocurrencies since inception to today. In the world of crypto, market cap is a metric used to determine the value of a coin.


The market reached its all-time high in December 2017. And then, it crashed.

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So what happened?

In part, irrationality and unrealistic expectations led to the formation of a speculative bubble. Many prominent economists and investors warned against this unprecedented increase in prices.


Over the course of 2018, ~80% of market value was erased from its peak, giving rise to the period that is known today as the Crypto Winter.


Today, people are analyzing the factors that define a cryptocurrency, in an attempt to better understand how they influence pricing movements.









1. Network Inception


The first factor we will be examining is the creation year for the top 25 cryptocurrencies ranked by market cap.


As mentioned earlier, Bitcoin is the first, followed by the implementation of many other digital currencies (which we refer to as altcoins ).


We see that more cryptocurrencies have emerged in recent years than ever before.









2. Technology: Consensus Algorithm


Cryptocurrencies lie in the unique intersection between finance and technology. One aspect that sets cryptocurrencies apart from traditional methods of payment is the way in which transactions are verified.

Cryptocurrencies use consensus algorithms to incentivize participation in the network. These participants are called miners. They are tasked with solving complex, cryptographic puzzles required to validate transactions, and are rewarded with coins.




Among the top 25, the proof-of-work consensus algorithm makes up the overwhelming majority.

















3. Finance: Market Capitalization


Market cap is used in the stock market to evaluate the value of a security. It is defined as the number of outstanding shares x current price. As mentioned earlier, this notion can be applied to cryptocurrencies. The market cap of a cryptocurrency is defined as the circulating supply of coins x current price.


Among the top 25, Bitcoin dominates as the largest cryptocurrency by market cap.










Relationship between Consensus Algorithm (2) and Market cap (3)





This area map illustrates the top 25 coins by consensus algorithm.


It’s clear that coins that used the proof-of-work consensus algorithm encompassed the largest market share, by far. We also looked at the market cap of each coin as a percentage of Bitcoin's market cap.


Bitcoin has a commanding position as the largest and arguably most successful digital currency that exists as of today.