CRYPTOCURRENCY

 Digital asset designed to work as a medium of exchange using cryptography to secure the
transactions and to control the creation of additional units of the currency.
 Cryptocurrency is a digital currency, which is an alternative form of payment created using
encryption algorithms. The use of encryption technologies means that cryptocurrencies function
both as a currency and as a virtual accounting system.
 Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by
math. It is more probable that an asteroid falls on your house than that a bitcoin address is
compromised.

History

In 1998, Wei Dai published a description of “b-money”, an anonymous, distributed electronic cash
system.10 Shortly thereafter, Nick Szabo created “bit gold”.ll Like bitcoin and other cryptocurrencies
that would follow it, Bit Gold was an electronic currency system which required users to complete a
proof of work function with solutions being cryptographically put together and published. A
currency system based on a reusable proof of work was later created by Hal Finney who followed
the work of Dai and Szabo. The first decentralized cryptocurrency, bitcoin, was created in 2009 by
pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, as its
proof-of-work scheme.12 In April 2011, Namecoin was created as an attempt at forming a
decentralized Domain Name Servers (DNS), which would make internet censorship very difficult.
Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use
script as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin was the
first to use a proof- of-work/proof-of-stake hybrid.13 IOTA (Distributed Ledger Technology) was the
first cryptocurrency not based on a blockchain, and instead uses the Tangle.14 Many other
cryptocurrencies have been created though few have been successful, as they have brought little in
the way of technical innovation.15 On 6 August 2014, the UK announced its Treasury had been
commissioned to do a study of cryptocurrencies, and what role, if any, they can play in the UK
economy. The study was also to report on whether regulation should be considered.

Transactional Properties

 Irreversible: After confirmation, a transaction can’t be reversed. By nobody. And nobody

means nobody. Not you, not your bank, not the president of the United States, not Satoshi,
not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you
sent your funds to a scammer or if a hacker stole them from your computer. There is no
safety net.
 Pseudonymous: Neither transactions nor accounts are connected to real-world identities.
You receive Bitcoins on so-called addresses, which are randomly seeming chains of around
30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily
possible to connect the real world identity of users with those addresses.
 Secure: Cryptocurrency funds are locked in a public key Cryptography system. Only the
owner of the private key can send cryptocurrency. Strong cryptography and the magic of big
numbers makes it impossible to break this scheme. A Bitcoin address is more secure than
Fort Knox.
  Permissionless: You don’t have to ask anybody to use cryptocurrency. It’s just a software
that everybody can download for free. After you installed it, you can receive and send
Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
Cryptocurrency opens the door for revolutionary technological possibilities Fast and global

Monetary Properties

 Controlled supply: Most cryptocurrencies limit the supply of the tokens. In Bitcoin, the supply
decreases in time and will reach its final number somewhere in around 2140. All
cryptocurrencies control the supply of the token by a schedule written in the code. This means
the monetary supply of a cryptocurrency in every given moment in the future can roughly be
calculated today. There is no surprise.
 No debt but bearer: The Fiat-money on your bank account is created by debt, and the numbers,
you see on your ledger represent nothing but debts. It’s a system of IOU. Cryptocurrencies don’t
represent debts. They just represent themselves. They are money as hard as coins of gold. To
understand the revolutionary impact of cryptocurrencies you need to consider both properties.
Bitcoin as a permissionless, irreversible and pseudonymous means of payment is an attack on
the control of banks and governments over the monetary transactions of their citizens. You can’t
hinder someone to use Bitcoin, you can’t prohibit someone to accept a payment, you can’t undo
a transaction.

CRYPTOCURRENCY BASICS

Cryptocurrencies like Bitcoin are in essence a series of virtual ‘tokens’ that can be exchanged just like
normal money except all the transactions take place over the internet. Unlike normal money, Bitcoin
isn’t regulated by any one country, or stored in banks. Instead it follows a shared set of rules that every
owner must agree to.

Public Ledgers: 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. Also, new transactions can be checked to ensure
that each transaction uses only coins currently owned by the spender. Bitcoin calls this public ledger a
“transaction block chain.’

Transactions: A transfer of funds between two digital wallets is called a Transaction. That transaction
gets submitted to a public ledger and awaits confirmation. When a transaction is made, wallets use an
encrypted electronic signature (an encrypted piece of data called a cryptographic signature) to provide a
mathematical proof that the transaction is coming from the owner of the wallet.

Mining: In simple terms, mining is the process of confirming transactions and adding them to a public
ledger. In order to add a transaction to the ledger, the “miner” must solve an increasingly-complex
computational problem (sort of like a mathematical puzzle). Mining is open source, so 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 ensures that no
one individual can easily add or change a block.
Blockchain: The validity of each cryptocurrency’s coins 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.

Benefits of Cryptocurrency

Fraud: Cryptocurrencies are digital and cannot be counterfeited or reversed arbitrarily by the sender, as
with credit card charge-back.

Identity Theft: Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the
designated amount from your account. Cryptocurrency use a “push” mechanism that allows the
cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further
information.

Immediate Settlement: Purchasing real property typically involves a number of third parties (Lawyers,
Notary), delays, and payment of fees. In many ways, the bitcoin/cryptocurency blockchain is like a “large
property rights database,” says Gallippi. Bitcoin contracts can be designed and enforced to eliminate or
add third party approvals, reference external facts, or be completed at a future date or time for a
fraction of the expense and time required to complete traditional asset transfers.

Access to Everyone: There are approximately 2.2 billion individuals with access to the Internet or mobile
phones who don’t currently have access to traditional exchange systems. These individuals are primed
for the Cryptocurrency market. Kenya’s M-PESA system, a mobile phone- based money transfers and
micros financing service recently announced a bitcoin device, with one in three Kenyans now owning a
bitcoin wallet.

Lower Fees: There aren’t usually transaction fees for cryptocurrency exchanges because the miners are
compensated by the network. Even though there’s no bitcoin/cryptocurrency transaction fee, many
expect that most users will engage a third-party service, such as Coinbase creating and maintaining their
own bitcoin wallets. These services act like Pay pal does for cash or credit card users, providing the
online exchange system for bitcoin, and as such, they’re likely to charge fees. It’s Interesting to note that
Paypal does not accept or transfer bitcoins.

MOST IMPORTANT. YOU OWN IT: there is no other electronic cash system in which your account isn’t
owned by someone else.

Disadvantages Of Cryptocurrency

Lack of Security. There is no safety net or perfect way to protect your bitcoins from human error
(passwords), technical glitches (hard drive Failures, malware), or fiduciary fraud.

Hackers. Cryptocurrencies are targets for highly sophisticated hackers, who have been able to breach
advanced security systems.

Fewer protections. If you trust someone else to hold your cryptocurrencies and something goes wrong,
that company may not offer you the kind of help you expect from a bank or debit or credit card provider
Cost. Cryptocurrencies can cost consumers much more to use than credit cards or even regular cash,
often due to price volatility.

Scams. Fraudsters are taking advantage of the hype surrounding virtual currencies to cheat people with
fake opportunities.

Lack of Transparency. The anonymous nature of cryptocurrencies makes transparency and

accountability difficult for consumers seeking to ensure the safety of their investments.

https://thefutureofpavments.blog/ (April 20, 2017)

https://www.voutube.com/watch?v:Gc2en3nHxA4 (April 19, 2017)

https://en.wikipedia.org/wiki/Crvptocurrencv (April 17, 2017)

Milne, Alistair, Cryptocurrencies from an Austrian Perspective (April 17, 2017). Available at SSRN:
https://ssrn.com/abstract:2946160 or http://dx.doi.org/10.2139/ssrn.2946160

Reid, F. & Harrigan, M. (2013) An Analysis of Anonymity in the Bitcoin System. Security and

Privacy in Social Networks. Available at: http://link.springer.com/chapter/10.1007/978-1-4614- 41397

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•Nakamoto, S. 2008. Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin.org.

https://bitcoin.org/bitcoin.pdf.