Cryptocurrency – Wikipedia, the free encyclopedia

A cryptocurrency is a medium of exchange designed around securely exchanging information which is a process made possible by certain principles of cryptography. The first cryptocurrency to begin trading was Bitcoin in 2009. Since then, numerous cryptocurrencies have been created. Fundamentally, cryptocurrencies are 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. In centralized economic systems such as the Federal Reserve System governments regulate the value of currency by simply printing units of fiat money or demanding additions to digital banking ledgers. However, governments cannot produce units of cryptocurrency and as such, governments cannot provide backing for firms, banks or corporate entities which hold asset value measured in a decentralized cryptocurrency. The underlying technical system upon which all cryptocurrencies are now based was created by the anonymous group or individual known as Satoshi Nakamoto for the purpose of creating an economy within which the practice of fractional reserve banking would be fundamentally impossible.[1][2][3]

Hundreds of cryptocurrency specifications now exist; most are similar to and derived from the first fully implemented cryptocurrency protocol, Bitcoin.[4][5][6][7][8] Within cryptocurrency systems the safety, integrity and balance of all ledgers is maintained by a swarm of mutually distrustful parties referred to as miners who are usually members of the public handling cryptocurrency transactions for a small fee. Miners use resource intensive computer software to help secure a particular cryptocurrencys network by increasing that networks ability to solve mathematic equations which the network directly uses to impede fraudulence. Subverting 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 is now a task well beyond even a technology company the size of Google.[9]

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.[10][11] 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. [12] Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.[10][13] Existing cryptocurrencies are all pseudonymous, though additions such as Zerocoin and its distributed laundry feature have been suggested, which would allow for anonymity.[14][15][16]

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.[17][18][19] Later, other 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), Peercoin (which uses a proof-of-work/proof-of-stake hybrid, and has inflation of about 1%) and Freicoin (which implements Silvio Gesell's concept of Freigeld by adding demurrage) were also created.[20] Many other cryptocurrencies have been created, though not all have been successful, especially those that brought few innovations.

David Chaum designed a number of electronic money systems such as DigiCash and ecash, which incorporated certain concepts of cryptography to anonymise electronic money transactions, however these were not cryptocurrencys because they did not have a transaction approval system based upon miners providing proof of stake/work, instead the systems used a centralized issuing and clearing system similar to paypal.[21]

For the first two years of existence, cryptocurrencies gradually gained attention from the media and public.[22] Since 2011, interest has rapidly increased, especially during the rapid price rise of Bitcoin in April 2013.

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.[20] Some cryptocurrencies, such as Peercoin, use a combined proof-of-work/proof-of-stake scheme[20][23] and one Nxt[24] , exclusively use proof-of-stake.

This is a list of cryptocurrencies. By December 2013 there were more than 60 cryptocurrencies available for trade in online markets.[25]

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Cryptocurrency - Wikipedia, the free encyclopedia