- 1 Description
- 2 Characteristics
- 3 More Information
1. Adam Ludwin:
Without a working definition we are lost. Most people arguing about cryptocurrencies are talking past each other because they don’t stop to ask the other side what they think cryptocurrencies are for.
Here’s my definition: cryptocurrencies are a new asset class that enable decentralized applications.
And since this isn’t about cryptocurrencies vs. fiat currencies let’s stop using the word currency. It’s a head fake. It has way too much baggage and I notice that when you talk about Bitcoin in public you keep comparing it to the Dollar, Euro, and Yen. That comparison won’t help you understand what’s going on. In fact, it’s getting in the way. So for the rest of this note, I will refer to cryptocurrencies as crypto assets.
So, to repeat: crypto assets are a new asset class that enable decentralized applications.
And like every other asset class, they exist as a mechanism to allocate resources to a specific form of organization. Despite the myopic focus on trading crypto assets recently, they don’t exist solely to be traded. That is, in principle at least, they don’t exist for their own sake.
To understand what I mean, think about other asset classes and what form of organization they serve:
- Corporate equities serve companies
- Government bonds serve nations, states, municipalities
- Mortgages serve property owners
- Crypto assets serve decentralized applications
Decentralized applications are a new form of organization and a new form of software. They’re a new model for creating, financing, and operating software services in a way that is decentralized top-to-bottom. That doesn’t make them better or worse than existing software models or the corporate entities that create them. As we’ll see later, there are major trade-offs. What we can say is simply that they are radically different from software as we know it today and radically different from the forms of organization we are used to." (https://blog.chain.com/a-letter-to-jamie-dimon-de89d417cb80)
"Humans have attempted to create secret codes since the invention of writing but modern mathematical cryptography has developed over the past 50 years. Public key cryptography was introduced in 1976 (http://www-ee.stanford.edu/~hellman/publications/24.pdf) and the first cryptocurrencies were attempted in the early 1980’s (http://bitcoinmagazine.com/12241/quick-history-cryptocurrencies-bbtc-bitcoin/). Digital signatures are able to guarantee that a digital cash transfer was authorized by its owner but cannot prevent the owner from spending the cash twice.
Several solutions for the double-spending problem have been proposed but the 2008 posting of the “Bitcoin” paper (https://bitcoin.org/bitcoin.pdf) by pseudonomous author(s) Satoshi Nakamoto described the first system which has become widely used. The current value of all bitcoins now exceeds 5 billion dollars and 507 related cryptographic “altcoins” have been created using the same principles (http://coinmarketcap.com/). A flurry of bitcoin and altcoin based businesses now exist ranging from coin miners and exchanges to coffee houses and flower stores (http://www.coindesk.com/information/what-can-you-buy-with-bitcoins/).
The primary bitcoin innovation is the use of “bitcoin miners” to add transactions to the decentrallized “bitcoin blockchain”. They perform computationally expensive “proof of work” and are rewarded in bitcoins for their efforts. This enables a decentralized consensus about transactions that cannot be disrupted by attackers who expend fewer computational resources than the total of the other miners in the network. Bitcoin supports some forms of transaction that go beyond transferring money from one party to another. For example, it is possible to implement “multi-signature” transactions in which two out of three participants must validate a transfer (https://en.bitcoin.it/wiki/Contracts). But bitcoin’s facility for defining contracts is limited." (http://steveomohundro.com/2014/10/22/cryptocurrencies-smart-contracts-and-artificial-intelligence/)
The One of the Many ?
"Currently, most people think of cryptocurrencies as things that run on blockchains like bitcoin, ethereum, dogecoin, and all the alt-coins and ledger systems. This post outlines a completely different strategy for implementing cryptocurrencies with completely distributed chains. Before presenting the approach, I want step back and validate some basic assumptions, because this very notion seems impossible to many, especially those steeped in blockchain.
In the MetaCurrency project we started with a different goal. Rather than trying to make one global, anonymous, digital cash (“One ring to rule them all…”), we are interested in the resilience that comes from building a rich ecosystem of interoperable currencies. We seek to empower communities of all shapes, flavors, and sizes to organize themselves and their flows of resources more effectively. Our different assumptions and design requirements has led us down a different path toward implementation." (https://medium.com/metacurrency-project/beyond-blockchain-simple-scalable-cryptocurrencies-1eb7aebac6ae#.eb8wu62p5)
The MetaCurrency view
"What are the core elements of a modern cryptocurrency?
- Digital: This one may be obvious, but it’s worth saying. It’s electronic, not paper or coins. Holdings are electronic and only exist and operate by virtue of a community’s agreement about how to interpret digital bits according to rules about operation and accounting of the currency.
- “Trustless:” You don’t have to trust a 3rd party central authority (a bank, government, business, or club) for the currency to work. The currency operates independent of the goodwill, integrity, practices, or decisions of any particular (non-representative / unaccountable) group.
- Decentralized: The primary to ensure the currency is not controlled by a small group for their own benefit is to make the currency itself function in a decentralized manner so that it is literally held and managed by many, most, or all of its participants. Specifically, access, issuance, transaction accounting, rules & policies, should be collectively visible, known, and held.
- Cryptographic: Since a decentralized information architecture also means many “fingers in the pie,” the currency should leverage cryptographic data structures (hash-chains, Merkle trees, etc) to ensure Intrinsic Data Integrity. This cryptographic structure is used to enable a variety of people to host the data without being able to alter it.
- Identity: Since the currency only exists as bits, there must be a way to associate these bits with some kind of account, wallet, owner, or agent who can use them. Some kind of identity and authorization infrastructure is required (even if it permits anonymous use). This is typically implemented using cryptographic public/private key pairs. This is a second distinct use of cryptography from the cryptographic structures to ensure data integrity in #4.
I acknowledge our assumptions stray from the norm in these ways:
- It does not have to be stored in a synchronized global ledger, if you can meet the above criteria another way.
- A currency does not have to be money. It may be a reputation currency, or data used for identity, or naming, etc.
- Its units do not have to be cryptographic tokens or coins.
- It does not have to protect the anonymity of users, although it may." (https://medium.com/metacurrency-project/beyond-blockchain-simple-scalable-cryptocurrencies-1eb7aebac6ae#.eb8wu62p5)
The Faircoin view
Text from same author as our Faircoin article.
The world of cryptocurrencies started with the enigmatic person or collective Satoshi Nakamoto. His origin or place of residence remains unknown. Everyone talks about him, but nobody really knows him.
In 2008 he published his white paper, introducing a disruptive technology.
Satoshi not only launched the theory, but also designed it and put it into our hands. The following year he launched a free software application to create the first cryptocurrency, Bitcoin. Then the race began. Hundreds of coins have been developed from this initial one, each with its own peculiarities, but generally respecting basic features such as blockchains, encryption, pre-coined money supply, etc.
We are at a historic moment. Peer society alternatives have been growing fast, and cryptocurrencies provide us with just the tool that was missing to enable us to change the rules of the game. A revolution of economic, technological and social systems is taking off.
What is a cryptocurrency?
It is a digital currency, or virtual money based on a peer-to-peer, decentralized exchange network protected by cryptography.
This means that, in the first place, it isn’t a material currency, but rather that everything works virtually from our computers and the Internet. Second, it is protected by encryption, hence the name “cryptocurrency”. This is a way to secure the system and the transactions through mathematical algorithms which convert the information in an encrypted block, only readable with the correct key, with a level of encryption that’s impossible to decipher with today’s known technology.
Coins are not actually units as we may think, but pieces of information, specifically they’re exchanges of keys which are recorded on a public accounts book which everyone can see and check, and which is is almost impossible to fake. To put it simply, what actually happens when you give someone else a coin is that you sign a transaction with your private key, transferring a value (“coins”) to another person’s direction. These signatures make up chains that are verified and confirmed by an entire community of people who use their own computers to verify that the transactions are correct.
As complex as the system may seem, it is actually very simple, and enough technology has been developed to make a cryptocurrency payment as easy as paying with your code-protected credit card.
The innovation and main difference of cryptocurrencies as compared to central money is, in the first place, cryptocurrencies are neither saved nor controlled by any central bank or State. In this system, you own all your money, and the system is secure thanks to peer2peer technology. Secondly, counterfeiting is currently unfeasible.
Thus, cryptocurrencies give us immunity to interference and manipulation by central banks and return us our freedom of economic management
How are notes and balances secured?
Satoshi’s great contribution to humankind is the blockchain. It consists of a p2p program which collects all the transactions done in a period of time in a block and joins them together in “chains”, resulting in something resembling a ledger containing all transactions, which are then distributed and verified to avoid fraud.
In order for a block to be added in the chain, it must be submitted to automatized voting among all the computers connected to the net, so they can determine whether the block contains valid information or not. Once the node accepts a block as valid (which means that all transactions contained are true), other nodes confirm its validity by building the next blocks on the same chain. Therefore, each block maintains a mathematical relationship with the previous block and the future one. This whole process has its foundations laid in the mathematical algorithms specially designed for this purpose.
The blockchain provides the world’s first decentralized, incorruptible system for registering any financial or legal contract, so it’s already being used for multiple purposes, and new ones will gradually appear. Each computer which downloads the program acts as a notary, and all computers working simultaneously decide according to mathematical laws.
How are coins created?
The software released for Bitcoin was designed in such a way that only 21 million coins could be created. For Faircoin, there are 50 million coins plus those which are generated through the minting system explained below.
There are different ways to create these coins. The most common and widespread methods are POW and POS. Both are designed with a feedback system, ie, in order to get coins from the system, you must contribute to making the system work properly. Let’s take a closer look into the way this functions.
POW (Proof Of Work)
This is a validation system based on work, also called mining. It is dependent on computing power. Miners are those who participate in the network, contributing with their computer and the energy expenditure derived from mining.
Mining itself is performed on different nodes working in unison through the POW infrastructure. The more computing power supplied to the system, the more likely it is for a block to be completed.
For each block completed and added to the blockchain, the creator node is awarded a certain amount of coins, in the case of bitcoins, 25BTC.
This system values the work of the mining community in completing the blocks, and compensates it with coins. This is the system used for bitcoins and is known as MINING.
POS (Proof Of Stake)
In this case, the system validation is based on demonstrating that you own the coins by using “money age”. New coins are created once you prove that you have been saving a certain amount for a certain time, and through this savings, you also contribute to the network’s security. This method began with Peercoin and is also currently used in Faircoin. The process is known as MINTING.
Both methods are widely used by different cryptocurrencies, separately or as a hybrid. However, POS arose to overcome some disadvantages of POW: on the one hand, there is the problem of energy consumption. As the system has grown, along with the number of transactions, it is increasingly difficult to mine a block and it requires more and more computing power, therefore becoming an ecological and economic issue.
On the other hand, since transactions are validated by miners, if 51% of the computing power of mining nodes were to unite, they could seize control of transactions and therefore of the registered coins.This is known as a 51% attack.
In opposition to this, POS does not require large energy resources for minting. Anyone, with just a computer and an open purse, can mint (see specifications below), so it’s a much greener way to maintain the system. Also, the only way a monopoly could arise, as in the case of POW, would be if someone were to own more than 50% of minted coins — which would be meaningless in terms of economics, for the owner to prejudice their own capital.
In conclusion, POS encourages savings and thus helps generate sustained growth in currency value which will be gradually fed by all cooperative members.
How are cryptocurrencies used?
To use cryptocurrencies, you first need a virtual wallet. There are many models, each with its own peculiarities, and can be local, as in mobile or computer apps, or online through a server. Each has different features. You can download one for FairCoin here.
Wallets are good for keeping your coins safe and making transactions, both to receive and send money, by just entering a receiver address.
It is important to note that any transaction made is impossible to reverse, as it is recorded in the blockchain; therefore, users need to be careful!" Here are some safety tips.
- Information on hundred of cryptocurrencies coinwarz.com/cryptocurrency/coins
- Coinmarketcap coinmarketcap.com
- Augur : Prediction market augur.net
- OpenBazaar : Trade online directly to other users, using Bitcoin openbazaar.org
- Cryptocurrency partners cryptocurrencypartners.com
- Horizon platform : Crypto-currency & plateform horizonplatform.io
- Mercuryex : The decentralized cryptocurrency exchange mercuryex.com
- A modern bitcoin wallet hand forged to keep your transactions private, your identity masked, and your funds secure samouraiwallet.com
- Buy and spend bitcoin brawker.com
- Bitcoin wallets blockchain.com
- BitcoinCity.info - The Road to the Blockchain bitcoincity.info
- Bitcoin wallet copay.io
- Streaming & Bitcoin streamium.io
- Zeronet - P2P websites using Bitcoin zeronet.io
- Chip for embedded bitcoin mining 21.co
- Blockchain-Info : Explorateur de blocs Bitcoin blockchain.info
- Film on Bitcoin iamsatoshi.com
- Currency for Crowdfunding startcoin.org