Cryptocurrency

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A cryptocurrency is a digital medium of exchange. The first cryptocurrency to begin trading was Bitcoin in 2009, since then numerous cryptocurrencies have become available. Cryptocurrencies are at bottom specifications regarding the use of currency which seek to incorporate principles of cryptography to implement a distributed, decentralized and secure information economy. When comparing cryptocurrencies to fiat money, the most notable difference is in how no group or individual may accelerate, stunt or in any other way significantly abuse the production of money, instead only a certain amount of cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is bounded by a value both prior defined and publicly known.

Dozens of cryptocurrency specifications have been defined, most are similar to and derived from the first fully implemented cryptocurrency protocol, Bitcoin.[1][2][3][4][5] Within cryptocurrency systems, the safety, integrity, and balance of all ledgers is ensured by a swarm of mutually distrustful parties, referred to as miners, who are, for the most part, general members of the public, actively protecting the network by maintaining a high hash-rate difficulty for their chance at receiving a randomly distributed small fee. Averting the underlying security of a cryptocurrency is mathematically possible, but the cost may be unfeasibly high. For example, against Bitcoin's proof-of-work based system, an attacker would need computational power greater than that controlled by the entire swarm of miners in order to even have 1 / 2^(# authentication rounds for this cryptocurrency - 1) of a chance, which means directly circumventing Bitcoin's security may be a task well beyond even a technology company the size of Google.[citation needed] To date, no nation has replaced fiat money with cryptocurrency.

Most cryptocurrencies are designed to gradually introduce new units of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation. This is done both to mimic the scarcity (and value) of precious metals and to avoid hyperinflation.[6][7] As a result, such cryptocurrencies tend to experience hyperdeflation as they grow in popularity and the amount of the currency in circulation approaches this finite cap. [8] Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.[6][9] Existing cryptocurrencies are all pseudonymous, though additions such as Zerocoin and its distributed laundry feature have been suggested, which would allow for anonymity.[10][11][12][13]

History of cryptocurrencies[edit]

Early attempts to integrate cryptography with electronic money were made by David Chaum, via DigiCash and ecash, which used cryptography to anonymise electronic money transactions, albeit with centralized issuing and clearing.[14]

The first cryptocurrency was Bitcoin, which was created in 2009 by pseudonymous developer Satoshi Nakamoto, and used SHA-256 as its proof-of-work scheme.[3][15][16] Later on, other major cryptocurrencies, such as Namecoin (an attempt at a decentralized DNS, which would make internet censorship very difficult), Litecoin (which uses scrypt as a proof-of-work, as well as having faster transaction confirmations) and Peercoin (which uses a proof-of-work/proof-of-stake hybrid, and has inflation of about 1%) were also created.[1] Many other cryptocurrencies have been created, though not all have been successful, especially those that brought few innovations.

For the first couple years of existence, cryptocurrencies gradually gained attention from the media and public.[17] Since 2011, interest has rapidly increased, especially during the rapid price rise of Bitcoin in April 2013.

Proof-of-work schemes[edit]

The most widely used proof-of-work schemes are SHA-256, which was introduced by Bitcoin, and scrypt, which is used by currencies such as Litecoin.[1] Some cryptocurrencies, such as Peercoin, use a combined proof-of-work/proof-of-stake scheme.[1][18]

Notable cryptocurrencies[edit]

CurrencyCodeYear Est.FounderActiveWebsiteValue of money supplyAlgorithmNote
BitcoinBTC2009Satoshi Nakamoto (pseudonym)Yesbitcoin.org~7,400 million USD[19][20][21]SHA-256
(proof-of-work)
The first widely known decentralized ledger currency.
RippleXRP2013Ripple LabsYesripple.com~2,200 million USD[citation needed], though this cap cannot be compared with other cryptocurrencies as almost all XRP are held by the developers.Consensus, ECDSAThe only widely recognized cryptocurrency that is not a fork of the bitcoin protocol.
LitecoinLTC2011CobleeYeslitecoin.org~411 million USD[20][21]Scrypt
(proof-of-work)
The first Scrypt cryptocurrency.
PeercoinPPC2012Sunny KingYespeercoin.net~65 million USD[20][21]SHA-256
(proof-of-work/proof-of-stake)
The proof-of-stake is designed to give Peercoin increased energy efficiency and a small amount of decentralized inflation; however, this is mitigated by its deflationary aspect caused from destroyed transaction fees.
NamecoinNMC2011VincedYesdot-bit.org~30 million USD[21][22]SHA-256
(proof-of-work)
Namecoin is meant to act as a decentralized DNS, which would make internet censorship very difficult. Namecoin serves the .bit domain.
DogecoinDOGE2013Billy MarkusYeshttp://dogecoin.com/~9 million USDScrypt
(proof-of-work)
As of December 23, 2013, 12.5% of the 100 billion total dogecoins have been mined..

Criticism[edit]

Major markets[edit]

Cryptocurrencies can be traded for other currencies through various online exchanges.

Other than two or three primary cryptocurrencies, most cannot, as yet, be used to purchase goods or services.

See also[edit]

References[edit]

  1. ^ a b c d Wary of Bitcoin? A guide to some other cryptocurrencies, ars technica, 26-05-2013
  2. ^ What does Cryptocurrency mean?, technopedia, 01-07-2013
  3. ^ a b BITCOIN A Primer for Policymakers, JERRY BRITO AND ANDREA CASTILLO, Mercatus Center, George Mason University, 31-08-2013
  4. ^ California dreaming: The CoinDesk Weekly Review, Coindesk, 26-05-2013
  5. ^ From your wallet to Google Wallet: your digital payment options, The Conversation, 26-05-2013
  6. ^ a b Crypto currency, Forbes, 26-05-2013
  7. ^ How Cryptocurrencies Could Upend Banks' Monetary Role, American Banker, 26-05-2013
  8. ^ We need decentralized cryptocurrencies, we just don’t need Bitcoin, technollama.co.uk, 04-12-2013
  9. ^ The FBI's Plan For The Millions Worth Of Bitcoins Seized From Silk Road, Forbes, 04-10-2013
  10. ^ 'Zerocoin' Add-on For Bitcoin Could Make It Truly Anonymous And Untraceable, Forbes, 26-05-2013
  11. ^ Zerocoin: Anonymous Distributed E-Cash from Bitcoin, The Johns Hopkins University Department of Computer Science, 26-05-2013
  12. ^ zerocoin.org, 26-05-2013
  13. ^ This is Huge: Gold 2.0 - Can code and competition build a better Bitcoin?, New Bitcoin World, 26-05-2013
  14. ^ Chaum, David (1983). "Blind signatures for untraceable payments". Advances in Cryptology Proceedings of Crypto 82 (3): 199–203. 
  15. ^ What is Bitcoin Mining?, The Genesis Block, 26-05-2013
  16. ^ Bitcoin developer chats about regulation, open source, and the elusive Satoshi Nakamoto, PCWorld, 26-05-2013
  17. ^ Cryptocurrency, MIT Technology Review, 26-05-2013
  18. ^ "PPCoin: Peer-to-Peer Crypto-Currency with Proof-of-Stake". http://www.ppcoin.org/static/ppcoin-paper.pdf, 19-08-2012. Sunny King, Scott Nadal. Retrieved 12-05-2013. 
  19. ^ "Market Capitalization". Blockchain.info. Retrieved 21 March 2013. 
  20. ^ a b c Simonite, Tom. "Bitcoin Isn’t the Only Cryptocurrency in Town". MIT Technology Review. Retrieved 5 May 2013. 
  21. ^ a b c d "Crypto-Currency Market Capitalizations". Retrieved 18 November 2013. 
  22. ^ Cryptocoin Mining Information, 18-05-2013
  23. ^ "Bitcoin's Volatility Problem: Why Today's Selloff Won't Be the Last". Businessweek. 2013-12-05. Retrieved 2013-12-29. 
  24. ^ "A crypto-currency primer: Bitcoin vs. Litecoin". ZDNet. 2013-12-14. Retrieved 2013-12-29. 
  25. ^ "Scamcoins". August 2013. 
  26. ^ Sidel, Robin (2013-12-22). "Banks Mostly Avoid Providing Bitcoin Services. Lenders Don't Share Investors' Enthusiasm for the Virtual-Currency Craze". Online.wsj.com. Retrieved 2013-12-29. 
  27. ^ Schwartzkopff, Frances (2013-12-17). "Bitcoins Spark Regulatory Crackdown as Denmark Drafts Rules". Bloomberg. Retrieved 2013-12-29.