Difference between revisions of "Cryptocurrency"

Revision as of 23:19, 28 March 2018 (view source) Eger (Talk | contribs) (add proof-of-work vs proof-of-stake) ← Older edit		Revision as of 23:30, 28 March 2018 (view source) Eger (Talk | contribs) (update the non-bitcoin cryptos) Newer edit →
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	Bitcoin is unregulated by the government, and has grown since it first opened to the public in 2009: there are 12,000 transactions per/hour, 18.5 million blockchain.info wallets, and 715,000 active addresses in the last 24 hours.<ref name="Bitcoin Statistics"> “Bitcoin by Numbers: 21 Statistics That Reveal Growing Demand for the Cryptocurrency.” Bitcoin News, 13 Nov. 2017, news.bitcoin.com/bitcoin-numbers-21-statistics-reveal-growing-demand-cryptocurrency/.</ref>.		Bitcoin is unregulated by the government, and has grown since it first opened to the public in 2009: there are 12,000 transactions per/hour, 18.5 million blockchain.info wallets, and 715,000 active addresses in the last 24 hours.<ref name="Bitcoin Statistics"> “Bitcoin by Numbers: 21 Statistics That Reveal Growing Demand for the Cryptocurrency.” Bitcoin News, 13 Nov. 2017, news.bitcoin.com/bitcoin-numbers-21-statistics-reveal-growing-demand-cryptocurrency/.</ref>.
−		+	===Altcoins===
−	Other important cryptocurrencies are:<ref>Bajpai, Prableen. “The 6 Most Important Cryptocurrencies Other Than Bitcoin.”  ''Investopedia'', 7 Dec. 2017, https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/. Accessed 26 March 2018.</ref>	+	Other prolific cryptocurrencies are:<ref>Bajpai, Prableen. “The 6 Most Important Cryptocurrencies Other Than Bitcoin.”  ''Investopedia'', 7 Dec. 2017, https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/. Accessed 26 March 2018.</ref>
−	*<u>Litecoin (LTC)</u>	+	====Litecoin (LTC)====
−	**This is often known as the second most important cryptocurrency to bitcoin.	+	Another proof-of-work cryptocurrency, similar to Bitcoin. <ref>Litecoin https://litecoin.org/</ref>
−	*<u>Ethereum (ETH)</u>	+	====Ethereum (ETH)====
−	**Ethereum is a platform that supports Smart Contracts.	+	An extensible crypto platform that allows for smart contracting <ref> Ethereum https://www.ethereum.org/ </ref>
−	*<u>Zcash (ZEC)</u>	+	====Zcash (ZEC)====
−	**This is a more private version of bitcoin. It has less transparency of its transaction.s	+	An pseudonymous cryptocurrency which is more private and has less transparency in transactions. <ref> Zcash https://z.cash/ </ref>
−	*<u>Dash</u>	+	====Dash====
−	**Dash was originally known as Darkcoin. It provides a great deal of anonymity to users.	+	Originally known as Darkcoin. Dash allows improved anonymity to users. <ref> Dash https://www.dash.org/ </ref>
−	*<u>Ripple (XRP)</u>	+	====Ripple (XRP)====
−	**Ripple is used because it allows cheap international exchanges of currency.	+	A cryptocurrency with a goal for easy international payments. <ref>Ripple https://ripple.com/</ref>
−	*<u>Monero (XMR)</u>	+	====Monero (XMR)====
−	**Monero emphasizes anonymity and is untraceable. Leading currency in privacy.	+	Cryptocurrency deemphasizing traceability and emphasizing privacy. <ref>Monero  https://getmonero.org/</ref>
	==Technology==		==Technology==

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Revision as of 23:30, 28 March 2018

C

ryptocurrency is a class of digital assets in which encryption techniques regulate the generation of units of currency and verify transactions. A defining feature of these assets is that they operate independently of a central authority. Cryptocurrencies were designed to address problems with the the banking industry, and they seek to attain certain characteristics: security, immutability, speed, low cost, fungibility, and global accessibility. They are able to achieve these characteristics by utilizing blockchain technology, which is a public distributed ledger that stores transaction data.

Origins

In 2008, anonymous person under the pseudonym, Satoshi Nakomoto, published a paper titled "Bitcoin: A Peer to Peer Electronic Cash System"^[1]. On January 3rd, 2009, Satoshi mined the genesis block of the Bitcoin blockchain. The Bitcoin protocol is open source code and has received contributions from numerous developers including, most notably, Hal Finney, Nick Szabo, and Gavin Andresen. In the years since, many other projects have been released that utilize Bitcoin's source code, as well as many other cryptocurrencies that have developed their own blockchain. These are known as altcoins.

Examples of Cryptocurrencies

Bitcoin

In 2008 Satoshi Nakamoto released a paper through metzdowd.com called Bitcoin: A Peer to Peer Electronic Cash System.^[2] In the paper Satoshi discusses a solution to the double-spending problem. The double spending problem refers the ability for individuals to copy tokens re-use them if security measures are not present.^[3] In the paper Satoshi also describes a decentralized system for transactions, eliminating the need for third party involvement. Bitcoin allows for psuedo-anonymous transactions to take place and relies on a computer network of miners who perform algorithms to approve transactions.

Bitcoin is unregulated by the government, and has grown since it first opened to the public in 2009: there are 12,000 transactions per/hour, 18.5 million blockchain.info wallets, and 715,000 active addresses in the last 24 hours.^[4].

Altcoins

Other prolific cryptocurrencies are:^[5]

Litecoin (LTC)

Another proof-of-work cryptocurrency, similar to Bitcoin. ^[6]

Ethereum (ETH)

An extensible crypto platform that allows for smart contracting ^[7]

Zcash (ZEC)

An pseudonymous cryptocurrency which is more private and has less transparency in transactions. ^[8]

Dash

Originally known as Darkcoin. Dash allows improved anonymity to users. ^[9]

Ripple (XRP)

A cryptocurrency with a goal for easy international payments. ^[10]

Monero (XMR)

Cryptocurrency deemphasizing traceability and emphasizing privacy. ^[11]

Technology

Blockchain

Most cryptocurrencies use a blockchain to secure their network. A blockchain is a public distributed ledger that uses cryptography to achieve security without the need for a trusted third party. All transactions are stored in blocks that are linked to each other through cryptographic hashes. Each new block contains the hash of the previous block, data of the transactions it contains, and a timestamp. The design of the system makes it impossible to change the data in any given block without changing the data of all the blocks that precede it. Blockchain allows two unverified users to make secure transactions without the need for a third party verification system. Applications range from payment platforms to data exchanges.

Proof-of-work vs. Proof-of-stake

A common differentiator between cryptocurrencies is the difference in paradigm they use to validate the public network and ensure that transactions are immutable and verified without the use of a third party. Bitcoin, the first prolific cryptocurrency used a proof-of-work validation technology which required large amounts of computational power in order to create new blocks and alter the public ledger ^[12]. Proof-of-stake is a paradigm which uses the amount of currency the validator has, and how long that currency has been in their possession as the main factor which determines who will validate a block ^[13]. There are many debates on which paradigm is better, but at the current cost of mining hardware, it is likely more expensive to alter a mature proof-of-work network than a mature proof-of-stake network.

Use Cases

A majority of cryptocurrencies have been developed to solve problems in the financial industry. There are many other industries that blockchain technology is hoping to disrupt. These include, identity protection, social networking, privacy, supply chain, IoT, etc... There are hopes that the blockchain will be able to serve these purposes without the need for a trusted third party. This would lead to greater security and significantly less fraud. Consider an autonomous vehicle. There is a massive amount of data being sent between sensors of the vehicle. This data must be securely transferred between all parts of the car. Someone could potentially hack into the car and make it drive into a wall by compromising the data being exchanged between the car. Blockchain technology is considerably harder to hack from outside parties and would prove valuable in a situation like this.

Cryptocurrency Markets

Exchanges

Coinbase is the largest and most widely know cryptocurrency exchange. It is used primarily to exchange fiat money for cryptocurrency and vice versa. Other popular exchanges include Bitfinex, Binance, Bittrex, Kucoin, etc... These exchanges allow users to exchange different cryptocurrencies for one another. For the most part, these exchanges use Bitcoin as a medium of exchanges rather than fiat money. A user can deposit Bitcoin onto the exchange and then trade that Bitcoin for the altcoins of their choice.

Ethical Issues

Cryptocurrency Trading

Cryptocurrency markets are small compared to traditional securities and forex markets. Many of the assets have small market capitalizations and are therefore susceptible to having their prices manipulated. Pump-and-dump is a strategy used by people who have a large widespread influence. They can use certain techniques such as making false claims on social media and misleading their followers into buying a worthless asset, thereby increasing its price. They can then sell at the inflated price for a profit and the people that bought during the price increase are left with an overpriced asset that they will most likely lose money on. Additionally, Initial Coin Offerings (ICO's) are when a coin launches itself to the public for sale. However, there has been fraudulent activity regarding some ICO's, and some experts label contributing money to ICO's as donations, rather than investments.

Used in Money Laundering

The Silk road exploited Bitcoin to engage in money laundering. The Silk Road first opened in 2011, and was an anonymous online drug market.^[14] Transactions were carried out using Bitcoin because the electronic currency affords anonymity. However, Bitcoin is no longer the currency of choice for anonymity. Monero has become the primary coin used for transactions that desire to emphasize privacy.

Scholars compare the exploitation of Bitcoin to the computer ethicist, James Moor, theory that the social impact and ethical problems will increase as technological revolutions popularize ^[15]. Critics argue that Bitcoin will continue to be exploited for illegal activity, and more people will be affected as a result of the widespread use of the electronic currency.

References

1. ↑ https://bitcoin.org/bitcoin.pdf
2. ↑ Madey, Robert Stanley. “A Study of the History of Cryptocurrency and Associated Risks and Threats.” ProQuest Dissertations & Theses Global, Utica College, 2017, proxy.lib.umich.edu/login?url=https://search.proquest.com/docview/2008188467?accountid=14667.
3. ↑ Pérez-Solà, Cristina, et al. “Double-Spending Prevention for Bitcoin Zero-Confirmation Transactions.” Semantic Scholar, IACR Cryptology EPrint Archive, 2017, www.semanticscholar.org/paper/Double-spending-Prevention-for-Bitcoin-transactions-Pérez-Solà-Delgado-Segura/7837b2e4b8e883e6874b99a6a7aaa2006e0f7938.
4. ↑ “Bitcoin by Numbers: 21 Statistics That Reveal Growing Demand for the Cryptocurrency.” Bitcoin News, 13 Nov. 2017, news.bitcoin.com/bitcoin-numbers-21-statistics-reveal-growing-demand-cryptocurrency/.
5. ↑ Bajpai, Prableen. “The 6 Most Important Cryptocurrencies Other Than Bitcoin.” Investopedia, 7 Dec. 2017, https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/. Accessed 26 March 2018.
6. ↑ Litecoin https://litecoin.org/
7. ↑ Ethereum https://www.ethereum.org/
8. ↑ Zcash https://z.cash/
9. ↑ Dash https://www.dash.org/
10. ↑ Ripple https://ripple.com/
11. ↑ Monero https://getmonero.org/
12. ↑ Proof-of-work, explained https://cointelegraph.com/explained/proof-of-work-explained
13. ↑ Proof-of-work vs. Proof-of-stake https://coincentral.com/making-sense-of-proof-of-work-vs-proof-of-stake/
14. ↑ Barratt, Monica J. “Silk Road: Ebay for Drugs.” Addiction, Wiley/Blackwell (10.1111), 8 Feb. 2012, onlinelibrary.wiley.com/doi/full/10.1111/j.1360-0443.2011.03709.x.
15. ↑ Moor, James H. “Why We Need Better Ethics for Emerging Technologies.” Information Technology and Moral Philosophy, edited by Jeroen Van den Hoven and John Weckert, Cambridge University Press, Cambridge, 2008, pp. 26–39. Cambridge Studies in Philosophy and Public Policy.