A cryptocurrency (or crypto currency) is a medium of exchange using cryptography to secure the transactions and to control the creation of new units.[1] Cryptocurrencies are a subset of alternative currencies or specifically of digital currencies. The first cryptocurrency to be created was Bitcoin in 2009.[dubious – discuss] Since then, numerous cryptocurrencies have been created. A feature that is typical in cryptocurrency is decentralized control, distinct from a centralized electronic money system such as PayPal. Another common feature is that transactions are publicly recorded in a ledger. An example is Bitcoin, where all transactions are recorded in the block chain.
Overview
Cryptocurrency is produced by the entire cryptocurrency system
collectively, at a rate which is prior defined and publicly known. In
centralized banking and economic systems such as the Federal Reserve System,
governments control the supply of currency by 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 group or individual
known as Satoshi Nakamoto.[2][3][4]
Hundreds of cryptocurrency specifications now exist; most are similar to and derived from the first fully implemented cryptocurrency, Bitcoin.[dubious ][5][6] Within cryptocurrency systems the safety, integrity and balance of ledgers
is maintained by a community of mutually distrustful parties referred
to as miners: members of the general public using their computers to
help validate and timestamp transactions adding them to the ledger in
accordance with a particular timestamping scheme.[7]
The security of cryptocurrency ledgers is based on the assumption
that the majority of miners are honestly trying to maintain the ledger.
Most cryptocurrencies are designed to gradually decrease production
of currency, placing an ultimate cap on the total amount of currency
that will ever be in circulation. This can mimic the scarcity (and
value) of precious metals and avoid hyperinflation.[1][8] Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.[1][9][not in citation given] Existing cryptocurrencies are all pseudo-anonymous, though additions such as Zerocoin and its distributed laundry[10] feature have been suggested, which would allow for anonymity.[11][12][13]
History
The first 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.[14][15][16] In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use scrypt 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.[17]
Many other cryptocurrencies have been created though few have been
successful, as they have brought little in the way of technical
innovation. 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.[18]
Publicity
Central bank representatives have stated that the adoption of
cryptocurrencies such as Bitcoin pose a significant challenge to central
banks' ability to influence the price of credit for the whole economy,
they've also stated that as trade using cryptocurrencies become more
popular, there is bound to be a loss of consumer confidence in fiat
currencies. Gareth Murphy, a senior central banking officer has stated
"widespread use [of cryptocurrency] would also make it more difficult
for statistical agencies to gather data on economic activity, which are
used by governments to steer the economy". He cautioned that virtual
currencies pose a new challenge to central banks' control over the
important functions of monetary and exchange rate policy.[19]
Jordan Kelley, founder of Robocoin
launched the first Bitcoin ATM in the United States on February 20,
2014. The kiosk installed in Austin, Texas is similar to bank ATMs but
has scanners to read government-issued identification such as a driver's
license or a passport to confirm users' identities.[20]
The Dogecoin
Foundation, a charitable organization centered around Dogecoin and
co-founded by Dogecoin co-creator Jackson Palmer, donated more than
$30,000 worth of Dogecoin to help fund the Jamaican bobsled team's trip to the 2014 Olympic games in Sochi, Russia.[21]
The growing community around Dogecoin is looking to cement its
charitable credentials by raising funds to sponsor service dogs for
children with special needs.[22]
Legality
Cryptocurrencies are legal in all countries except Iceland, due primarily to Iceland's freeze on foreign exchange.[23] Controversy over the misuse of cryptocurrency has also led to restrictions in certain countries – regulators in China banned the handling of Bitcoins by financial institutions during an extremely fast adoption period in early 2014.[24]
In Russia, though cryptocurrencies are perfectly legal, it is illegal
to actually purchase goods with any currency other than the Russian
ruble.[25]
On March 25, 2014 the IRS ruled that Bitcoin will be treated as property for tax purposes as opposed to currency. This means Bitcoin will be subject to capital gains tax.
One benefit of this ruling is that it clarifies the legality of
Bitcoin. No longer do investors need to worry that investments in or
profit made from Bitcoins are illegal or how to report them to the IRS.[26]
Some cryptocurrency have legal issues such as Coinye, an altcoin that used, without permission, rapper Kanye West
as its logo. This altcoin has been compared to the popular Dogecoin.
Upon hearing of the release of Coinye, originally called Coinye West,
attorneys for Kanye West sent a cease and desist letter to the email
operator of Coinye, whose name remains unknown. The letter stated that
Coinye was willful trademark infringement, unfair competition,
cyberpiracy, and dilution and instructed Coinye to stop using the
likeness and name of Kanye West.[27]
-hire and narcotics trafficking violations
and accused of being the founder and chief operator "Dread Pirate Roberts".s due to the world's largest Bitcoin exchange, Mt. Gox, declaring bankruptcy.
The company stated that it had lost nearly $473 million of their
customer's Bitcoins likely due to theft. This was equivalent to
approximately 750,000 Bitcoin, or about 7% of all the Bitcoins in
existence. Due to this crisis, among other news, the price of a Bitcoin
fell from a high of about $1,160 in December to under $400 in February.[32]source : wikipedia
