CRYPTO AND CRYPTOCURRENCIES 0/6
Learn about cryptographic building blocks ("primitives") and reason about their security. Work through how these primitives can be used to construct simple cryptocurrencies.
Learn about Crypto parts, a currency protocol layer, and a “backbone” protocol layer, referred to as the Blockchain.
CRYPTOCURRENCY MINING 0/4
The term ‘mining’ is slang for the use of computational power to process transactions for a cryptocurrency blockchain in order to receive a reward of cryptocurrency for the effort.
CRYPTOCURRENCY TRADING 0/8
Get involved with cryptocurrency trading on a practical level, with step-by-step instructions from a trading perspective guiding you through the entire process.
CURRECY EXCHANGES 0/8
Finding a cryptocurrency exchange is a task of its self. Then, the next question – which is the best cryptocurrency exchange? This question has become paramount in the minds of the cryptocurrency users and investors.
CRYPTOCURRENCY MERCHANDISING 0/2
Cryptocurrencies bring to their users freedom of payments. Users of cryptocurrencies are not limited spatially or in time when realizing their payments, so their users are in full control .
Form of Cryptocurrencies
Theoretical foundations of cryptocurrencies were outlined by Chaum for the first time in 1983 already. The cryptocurrencies integrate electronic virtual money with principles of cryptography. The basic principle of cryptocurrency is that no individual (or organization) may accelerate or significantly abuse the production of a given currency. Typically only a certain predefined amount of cryptocurrency is collectively produced by the entire cryptocurrency system. The rate of production is set by a value defined in prior and is publicly known. The cryptocurrencies allows virtually costless transfers of cryptocurrency units (referred as coins) between client applications via computer peer-to-peer network.
Since the introduction of Bitcoin tens of other cryptocurrencies emerged. The most are based on the similar specifications as the Bitcoin, which represents first fully implemented cryptocurrency protocol. The second most popular cryptocurrency Litecoin uses scrypt algorithm as a proof-of-work and has faster transaction confirmations (2.5 minutes). Most cryptocurrencies gradually introduce new units of currency until reaching a preset maximum cap of the total amount of currency that will ever be created. The maximum cap of cryptocurrency aims to assure the scarcity, similar to the case of precious metals. It also should prevent a hyperinflation . On the contrary, some cryptocurrencies might experience hyperdeflation as the amount of the currency in circulation will approach its preset finite cap.
Prices in official currencies are directly set by demand and supply on e-markets only for two the most popular cryptocurrencies: Bitcoin and Litecoin. Other cryptocurrencies are directly interchangeable on e-markets only for Bitcoin or Litecoin respectively. Therefore their exchange rate is strongly influenced also by changes of Bitcoin or Litecoin exchange rates. Other major aspects that have influence on exchange rate of cryptocurrency are its acceptance and usability in various applications. Once again Bitcoin is the most widely accepted cryptocurrency in many cases on the web and also brick-andmortar businesses and merchants.
From the total of 1278 cryptocurrencies, 688 are extinct, which is more than half of the total number of cryptocurrencies. More than half of the extinct cryptocurrencies became extinct within 24 weeks of their existence. On the contrary, only 3 cryptocurrencies became extinct after they survived 124 weeks of their existence and 21 cryptocurrencies became extinct from 100 to 124 weeks of their existence. There are 64 active cryptocurrencies that exist more than 124 weeks and other 107 active cryptocurrencies that exist 100 – 124 weeks. With an increasing time of the cryptocurrency existence, the risk of its extinction is reduced, and the cryptocurrencies existing longer than 124 weeks almost never become extinct.
Bitcoin The first cryptocurrency to emerge was Bitcoin (BTC), based on the SHA-256 algorithm. This virtual commodity was conceptualized in a whitepaper written in 2009 by a pseudonymous author who went by the name Satoshi Nakamoto. Over the course Bitcoin’s first four years, the market price of a single Bitcoin has fluctuated from below $0.01USD to over $250USD. The highly volatile price has made Bitcoin an attractive investment alternative for traders seeking to profit from market speculation, while at the same time the 44 market volatility has made long term investors and daily users hesitant to participate for long periods of time. A single Bitcoin can be spent in fractional increments that can be as small as 0.00000001 BTC per transaction. The smallest increment of a Bitcoin is known as a Satoshi, named after the original whitepaper author. The protocol allows for incremental transactions in the event the value of BTC to rises to the point where micro transactions will become commonplace. The rise in the value of BTC is anticipated because there is a limit to the total amount of Bitcoin will ever be created. Once the Bitcoin blockchain is completed, users can only circulate the coin that still exists on the network. As time goes on, Bitcoin will be lost and destroyed through daily use. The principles of supply and demand economics will come into play, increasing value of remaining Bitcoin. Bitcoin is currently the most reputable of all cryptocurrency, as it is the oldest, and has been the subject of mainstream media coverage due to rapid market fluctuations and an innovative technical concept. At the time of writing, Bitcoin can be interpreted as being the ‘gold standard’ of cryptocurrency because all alternative cryptocurrency market prices are matched to the price of BTC.
Litecoin (LTC) can be considered the ‘silver standard’ of cryptocurrency, as it has been the second most adopted cryptocurrency by both miners and exchanges. Litecoin makes use of the Scrypt encryption algorithm, as opposed to SHA-256. One of the goals of Litecoin was to have transactions confirm at a faster speed than on the Bitcoin network, as well as make use of an algorithm that was resistant to accelerated hardware mining technologies such as ASIC. At the time of writing, the Scrypt algorithm is resistant to ASIC mining due to intense RAM requirements. The total amount of Litecoin that is available for mining and circulation is four times the amount of Bitcoin, meaning there will be quadruple the amount of Litecoin available to Bitcoin.
Altcoins ‘Altcoin’ a is slang term for the dozens of project forks that have emerged within the cryptocurrency software development community. Altcoins are ‘forks’ of either Bitcoin or Litecoin, meaning they make use of SHA256 or Scrypt encryption algorithms and feature their own unique properties. Names of various altcoins range from memorable to comical (Feathercoin, Terracoin, P2PCoin, BitBar, ChinaCoin, BBQCoin). The profitability of mining and trading altcoin varies on a daily basis. Some altcoins exceed the profitability of Bitcoin at times, while others are less profitable. It is believed by some cryptoeconomists that altcoins contribute to a diverse cryptocommodities marketplace, which is a good thing as there is more opportunity for speculative arbitrage and mining difficulty levels are spread over many different networks. Other cryptoeconomists disagree about the beneficial aspects of altcoins, citing overuse of the cryptocoin concept will dilute widespread adoption and restrict the use of the technology to speculative trade markets instead of daily commerce.
Other Coins These coins are „forks‟ of either Bitcoin or Litecoin, meaning they make use of SHA-256 or Scrypt encryption algorithms and feature their own unique properties. Names of various altcoins range from memorable to comical (Feathercoin, Terracoin, P2PCoin, BitBar, ChinaCoin, BBQCoin). The profitability of mining and trading altcoin varies on a daily basis. Some altcoins exceed the profitability of Bitcoin at times, while others are less profitable. It is believed by some cryptoeconomists that altcoins contribute to a diverse cryptocommodities marketplace, which is a good thing as there is more opportunity for speculative arbitrage and mining difficulty levels are spread over many different networks. Other cryptoeconomists disagree about the beneficial aspects of altcoins, citing overuse of the cryptocoin concept will dilute widespread adoption and restrict the use of the technology to speculative trade markets instead of daily commerce.
What were the causes of the most important increases in prices of cryptocurrencies?
Bitcoin (BTC): Bitcoin is the oldest cryptocurrency. On the basis of white paper drafted by Nakamoto (2008) Bitcoin was launched in January 2009. At present, Bitcoin has approx. 80% of the market capitalization of all cryptocurrencies. Therefore, other cryptocurrencies are very often traded for Bitcoin.
Ethereum (ETH): Ethereum was introduced towards the end of 2013 in the white paper drafted by Buterin (2013b). Etherem is the first cryptocurrency which is Turing complete. This innovation allows to create smart contracts, autonomous applications stored in blockchain. In practice, Decentralized Autonomous Organization (The DAO) is the most extensive smart contracts application; however due to implementation error it was attacked by hackers shortly after its creation. Ethereum brought many other innovations. The inclusion of uncle blocks in the blockchain allows generating blocks every 15 seconds. The dynamic fee setting for transactions limits denials of service attacks. The mining is performed through proof-of-work using an algorithm entirely eliminating the benefits of specialized ASIC against CPU and GPU.
Dash (DASH): Dash was introduced at the beginning of 2014 in the white paper drafted by Duffield, E. & Diaz, D. (2014). The main innovation of Darkcoin is an option to anonymize transactions using the Darksend method. In classic transactions, the addresses of a sender and recipient are given. When the Darksend method are used, the addresses of senders are mixed with addresses of recipients from more different transactions, and thus the tracing of the recipient if the sender is known is made impossible. With other cryptocurrencies, the functionality provided using Darksend must be provided through an external service, called mixer. Dash was originally Darkcoin (DRK), but in 2015 it was renamed, as it was confused with illegal activities due to its original name.
NEM (XEM): NEM was introduced at the beginning of 2014 in Bitcointalk forum by Utopianfuture (2014), however not to be launched earlier than in May 2015. Cryptocurrency NEM was supposed to be by simply derivative NEXT, but finally has its own protocol written from scratch. At that time, Nxt was the most innovative cryptocurrency allowing e.g. smart contracts. Both Nxt and NEM are premined using proof-of-stake to mine blocks. While the original distribution of the currency of Nxt cryptocurrency was divided among 73 original investors, the founders of NEM did try to perform original currency distribution among more investors and the individual users had equal shares at the same time.
Synereo (AMP): Synereo was introduced towards the end of 2014 in Bitcointalk by Elokane (2014). The cryptocurrency is used as means of payment in the decentralized social network bearing the same name where all user data are encrypted and the users alone decide which data will be made accessible to whom and for what price. It is a contrast with classic Facebook social network where the advertising is forced upon the users and the entire profit from advertising is gained by the social network operator.
Factom (FCT): Factom was introduced towards the end of 2014 in the white paper drafted by Snow et al. (2014). The cryptocurrency serves to make queries regarding or disprove the existence of the document in the given time. The hash is calculated from the document and then it is stored in blockchain. Subsequently, at any time the document is presented for inspection, the hash is calculated from the document and if the hash is in the blockchain, then the document existed at the time when the block where the document has is located, was created. Using Factom, different services that are currently provided by government institutions, may be provided (such as document verification by notaries, register of real estates and cars).
Storjcoin X (SJCX): Storjcoin X was introduced in the middle of 2014 in Bitcointalk forum by Storj (2014), a similar specification can be found in the white paper by Wilkinson (2014). The cryptocurrency serves for a distributed document storage. The document is divided in smaller parts, these are encrypted and are redundantly stored in network nodes. The network modes are rewarded for storage of the document parts, which is paid for by the owner. Siacoin (SC): Storjcoin X was introduced in the middle of 2015 in Bitcointalk forum by Taek (2015). Similarly as Storjcoin X, the cryptocurrency serves for a decentralized cloud document storage.
VeriCoin (VRC): VeriCoin (VRC) was introduced in the middle of 2014 in Bitcointalk forum by EffectsToCause (2014). The main motivation was to credit interest to individual amounts held by users. The cryptocurrency has a very strong marketing and is accepted as means of payment by many merchants who accept Bitcoin.