Abstract
Since ancient times, currency has been an integral part of our lives. In the early times, we saw the barter system. No one really knows how currency came into the play. China created the world's first paper money in the early 7th century. Thousands of years later, we are living in the era of internet where after virtual games and friends, we have started using virtual currency. Cryptocurrency is an encrypted, peer-to-peer network for online payments directly between two parties without going through a financial institution. Bitcoin was the first and most popular cryptocurrency that was introduced in the year 2009 which created a huge surge in the market and got a lot of attention from the world. This new type of money is not likely to replace traditional flat currency, but it has the potential to change the way global markets interact with each other. Since the introduction of cryptocurrency, it has gathered a lot of appreciation and criticism. This chapter will provide in-depth discussion on cryptocurrency, its architecture, and also its pros and cons.
TopIntroduction
Cryptocurrency is an electronic form of money made with technology that controls its development and preserves transactions while masking its users' identities. Crypto- is short for “cryptography” and cryptographing consists of privacy, data hiding, identity and several others. Currency literally means “money is currently being used.” (Härdle et al., 2010)
Cryptocurrencies are a part of electronic money which is intended to be faster, cost - effective, and more credible than traditional government-issued currencies. Rather than relying on the government to produce the money and banks to deposit, transfer, and collect it, users trade directly with one another and store their own funds. Transactions are normally very cheap and fast since people can transfer money directly without going through an intermediary.
To avoid fraud and corruption, each cryptocurrency user can record and check their own transactions as well as the transactions of other users at the same time. The digital transaction records are referred to as a “ledger,” and this ledger is open to the public. Transactions become more effective, irreversible, stable, and clear with this public ledger.
Cryptocurrencies do not require anyone to trust a bank to keep the money because of public records. They don't expect anyone to have faith in the person with whom they doing business to pay them. Instead, thousands of users will see the money being sent, collected, checked, and registered. There is no need for confidence in this framework. This one-of-a-kind optimistic trait is referred to as “trustless”.
The story of cryptocurrency begins in the year 1983. David Chum, an American cryptographer, was the first person who developed a cryptographic electronic cash system called eCash. In 1995, he developed a similar system named DigiCash. However, the term “cryptocurrency” was coined in the year 1998. That same year Wei Dai started thinking about developing a new anonymous electronic cash system named “b-money”. PayPal and rivals arose, taking a structured approach to digital transactions in existing currencies. These companies continue to play a significant role in online and international trade (Vajjhala, 2021).
A paper titled Bitcoin – A Peer to Peer Electronic Cash System was posted to a cryptography mailing list discussion in the year 2008. It was posted by someone going by the name Satoshi Nakamoto, whose identity is still unknown to this day. Next year, Bitcoin came to life and the software was made available to the public. Nakamoto was not the only one who thought of creating a new way of payment that could be decentralized and be used internationally without having any financial institution behind it. Later in 2011, Namecoin was released. Soon after, Litecoin was developed which used script as its hash function instead of SHA-256 that was originally used for Bitcoin. Peercoin, another notable cryptocurrency used a proof-of-stake hybrid (Berentsen et al., 2018).
Nakamoto wanted to create a fair, borderless and secure currency where anonymous transaction could be done in a secure way. Development of the IT industry in the field of database, cryptography and network transmission helped in the advancement of blockchain technology for what it is today. The future of cryptocurrency depends on the adoption of blockchain by the governments and by the masses around the globe with respect to the economic conditions.
Key Terms in this Chapter
Decentralization: The transition from the centralized administration to a sub-national body is described as decentralisation.
Ledger: The directory provides a constant overview of all the amounts recorded in journals listing transactional data by date.
Phishing: An attacker sends a fake mail aiming to trick the victim into exposing confidential information for the attacker.
Cryptocurrency: Cryptocurrency is a kind of virtual money in simple sense. It is indeed ordinary money like dollars, pounds, euros, yen and so on but it is only available electronically.
Encryption: Encryption is the process of changing data to a form that cannot be recognised or “encrypted.”
Currency: It is money, in the form of paper or coins, authorised by a government and acknowledged as a payment option in general at its current valuations.
Hacking: An effort to breach a private computer system or network is called hacking.
Peer-to-Peer: The distributed application architecture that distributes activities or tasks amongst peers is peer-to-peer (P2P) networking.
Tokens: Crypto tokens are a sort of cryptocurrency which denotes an asset or a particular use and remains on its blockchain.
Blockchain: Blockchain is a shared, unchangeable database for documenting and monitoring transactions in a corporate network.