Cryptocurrency is a digital medium of exchange in which peer-to -peer or P2P technology is used to create and manage monetary transaction. It is the digital money on the internet and has the potential to replace our dollar. In many countries, crypto trading is gaining popularity day by day.
In today’s world Bitcoin is a digital payment currency that utilizes cryptocurrency. As opposed to a central authority it is a decentralised system. The open source Bitcoin P2P network creates the bitcoins and manages all the bitcoin transactions.
Often referred to as “cash for the Internet,” Bitcoin is one of several popular digital payment currencies along with Litecoin, Peercoin and Namecoin. When the word Bitcoin is capitalized, it usually refers to the software and systems used for bitcoin. Normally a cryptocurrency is used to secure financial transactions, control the creation of additional units, and verify the transfer of assets. The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database. Bitcoin, first released as open-source software in 2009, and is generally considered the first decentralized cryptocurrency.
Development of crypto core and designing
In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called e-cash. Later, in 1995, he implemented it through Digicash, an early form of cryptographic electronic payments which requires user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient. This allowed the digital currency to be untraceable by the issuing bank, the government, or any third party.
In 1996, the NSA published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system first publishing it in a MIT mailing list, and later in 1997, in The American Law Review.
Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly known. In centralized banking and economic systems such as the Federal Reserve System corporate boards or governments control the supply of currency by printing units of Fiat money or demanding additions to digital banking ledgers. In case of decentralized cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in it.
As of May 2018, over 1,800 cryptocurrency specifications existed. Within a cryptocurrency system, the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as mineral: who use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular time stamping scheme.
Importance of blockchain and miner
The validity of each cryptocurrency’s coin is provided by a blockchain. A blockchain is a continuously growing list of records,, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block,.a timestamp and transaction data.
By design, blockchains are inherently resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority. Decentralized consensus has therefore been achieved with a blockchain. Blockchains solve the double spending problem without the need of a trusted authority or central server.
In cryptocurrency networks, mining is a validation of transactions. It is the process of confirming transactions and adding them to a public ledger. In this system all confirmed transactions from the start of a cryptocurrency’s creation are stored in a public ledger. The identities of the coin owners are encrypted, and the system uses other cryptographic techniques to ensure the legitimacy of record keeping. The ledger ensures that corresponding “digital wallets” can calculate an accurate spendable balance. In the context, mining is an open source so that anyone can confirm the transaction. The first “miner” to solve the puzzle adds a “block” of transactions to the ledger. The way in which transactions, blocks, and the public blockchain ledger work together ensure that no one individual can easily add or change a block at will. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network.
Working updates of cryptocurrency
As of February 2018, the Chinese Government halted trading of virtual currency, banned initial coin offerings and shut down mining. Some Chinese miners have since relocated to Canada. One company is operating data centers for mining operations at Canadian oil and gas field sites, due to low gas prices.
In June 2018, Hydro Quebec proposed to the provincial government to allocate 500 MW to crypto companies for mining. According to a February 2018 report from Fortune, Iceland has become a haven for cryptocurrency miners in part because of its cheap electricity. Prices are contained because nearly all of the country’s energy comes from renewable sources, prompting more mining companies to consider opening operations in Iceland.
In March 2018, a town in Upstate New York put an 18-month moratorium on all cryptocurrency mining in an effort to preserve natural resources and the “character and direction” of the city
While Bitcoin is welcomed in many parts of the world, a few countries are wary because of its volatility, decentralized nature, perceived threat to current monetary systems and links to illicit activities like drug trafficking and money laundering. Some nations have outright banned the digital currency while others have tried to cut off any support from the banking and financial system essential for its trading and use.
Although Bitcoin is now almost 10 years old, many countries still do not have explicit systems that restrict, regulate or ban the cryptocurrency. The decentralized and anonymous nature of Bitcoin has challenged many governments on how to allow legal use while preventing criminal transactions. Many countries are still analyzing ways to regulate the cryptocurrency. Overall, Bitcoin remains in a legal gray area for much of the world.
In the meantime while the number of merchants who accept cryptocurrencies has steadily increased, they are still very much in the minority. For cryptocurrencies to become more widely used, they have to first gain widespread acceptance among consumers. A cryptocurrency that aspires to become part of the mainstream financial system may have to satisfy widely divergent criteria. It would need to be mathematically complex, but easy for consumers to understand; decentralized but with adequate consumer safeguards and protection; and preserve user anonymity without being a conduit for tax evasion, money laundering and other nefarious activities. While that possibility looks remote, there is little doubt that as the leading cryptocurrency at present, Bitcoin’s success in dealing with the challenges it faces may determine the fortunes of other cryptocurrencies in the years ahead.
*Apurv Adarsh (B.Tec.,Manipal), Studying MBA at Foundation for Organisational Research and Education, New Delhi, India.