Crypto Investing
19 Nov 2021

Cryptocurrency Ecosystem Explained

Deepan Datta

Have you ever noticed, compared to 2017, the crypto ecosystem has become more resilient and adaptive to the changes? Also, people are now more realistic about their investment in cryptocurrencies. 

Indeed, it’s a very positive development for the long term growth of the cryptosphere. Over this period, each component of the crypto ecosystem has evolved a lot and is helping to shape the industry for future growth. 

Let’s take a quick look at the different components of the crypto ecosystem and how they contribute to the growth of the cryptosphere. 

crypto ecosystem

Components in Crypto Ecosystem

  • Blockchain Protocols
  • Miners and Stakers
  • Blockchain Developers
  • Crypto Exchanges
  • Institutional and Retail Investors
  • Crypto Media

Blockchain Protocols

Blockchain technology is the bare bone of all cryptocurrencies and has enabled the creation of a truly decentralised economy. 

It was first used in the development of Bitcoin, a digital cash system that enabled instant peer-to-peer payment transfers.

While Bitcoin is a first-generation blockchain protocol, which only allows single use-case, Ethereum expanded the scope and use by introducing open-source blockchain with smart contracts functionality. It enabled the creation of decentralised applications (DApps) on its blockchain, thus helping to create an ecosystem for DeFi and NFTs.

Now, the advent of third-generation blockchain protocols has enabled multichain and interoperable functionality in blockchains. It is helping blockchains to become versatile and scalable, leading to opening up new growth verticals in the cryptosphere. 

Miners and Stakers

The miners and stakers form the backbone of the entire cryptosphere. They are responsible for keeping the blockchain secure and adding transactions to the blocks. 

Miners are the persons who put their own computing resources to mine and discover new coins by solving complex mathematical puzzles. The miner who solves the block puzzle first get the right to add the block to the chain. And, in return, the miner receives block rewards in the form of freshly minted crypto coins, which gets added to the coin’s total circulation. 

On the other hand, stakers are the persons involved in validating transactions for proof-of-stake cryptocurrencies. Here, stakers stake or lock-in cryptocurrencies in a specific wallet to participate in the process of validating transactions and earn staking rewards. 

Blockchain Developers

Blockchain developers are the front-end persons responsible for the development and enabling the changes in blockchain protocols.

For example, the technical upgradation that happens through hard forks, introducing interoperability and multichain functionality in blockchains, etc. Blockchain developers are the heart of the crypto ecosystem and successfully lead the technological development of the cryptosphere. 

Crypto Exchanges

Crypto exchanges are a gateway to the ever-growing cryptocurrency market for investors and traders, enabling trading and investing in cryptocurrencies. It forms an essential part of the crypto ecosystem.

In other words, crypto exchanges are responsible for driving the mainstream adoption of cryptocurrencies, bringing liquidity to the market and offering a secured market structure to invest in cryptocurrencies. 

Institutional and Retail Investors

In any form of market, investors play a vital role in the growth and success of a company, product or service. And, the cryptosphere is not unknown to the role played by investors in its growth and development. 

Investors bring in the much-needed capital to fuel and support the development activity of cryptocurrencies. Also, they provide confidence to other small investors to invest in the cryptocurrency market. In other words, they make the market more vibrant and dynamic. 

For example, investments made by large institutional investors in the crypto market in 2020 have helped the market come out of a multi-year bearish trend. And, also it has given confidence to retail investors to start investing in the growing crypto market. 

Crypto Media

From timely dissemination of news to spreading awareness about cryptocurrencies, the crypto media plays a crucial role in reaching people and making information accessible. 

For example, coinmarketcap.com, a crypto directory website, provides the latest price information of all cryptocurrencies in a simplified and organised format. 

In other words, the crypto media is helping to democratise the crypto market so that every sect of society benefits from it and is not restricted to the privileged class. 

Crypto Regulations

Although no clear regulations can be found for cryptocurrency trading and investing in India or other developed countries, the industry has developed its guidelines and code of conduct to operate within this ecosystem.

The approach has helped the market to stabilise and follow the best practices in the industry. For example, using a cold wallet system to store cryptocurrencies by exchanges is one such practice to safeguard investor interest. 

Taxing of crypto gains is a contentious subject in India, but overall it is a positive development. Bringing it under the tax net indicates the government’s willingness to regulate it as an asset class in the future. Also, the government around the world has been cautious in its wordings related to cryptocurrencies. 

Summing Up…

From 2009, a single coin and an idea to become an alternative to the heavily centralised fiat currencies, the cryptocurrency market has come a long way. Evolving rapidly and becoming more sophisticated every passing day, cryptocurrencies are now considered a full-fledged asset class. 

The contributions made by each component of the crypto ecosystem has helped the market to evolve rapidly. As the crypto market grows further and the blockchain ecosystem gets more robust, it only improves investment outcomes. 

Common FAQs

What is the crypto ecosystem?

A crypto ecosystem is a network of participants that works towards developing and growing the cryptocurrency market. Each participant in the network has a different business model, but their ultimate goal is the development of the cryptosphere. 

List of crypto ecosystems?

A crypto ecosystem consists of blockchain protocols, developers, miners, stakers, crypto exchanges, investors, traders, crypto media houses, etc. 

How does cryptocurrency work?

Cryptocurrencies are based on blockchain technology, which is decentralised to its core, and no single person can tamper with its protocol, economics or take it down. 

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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

writer

Deepan Datta

Content Writer

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