Cryptocurrency - Wikipedia
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.[1][2][3] Despite their name, cryptocurrencies are not necessarily considered to be currencies in the traditional sense and while varying categorical treatments have been applied to them, including classification as commodities, securities, as well as currencies, cryptocurrencies are generally viewed as a distinct asset class in practice.[4][5][6] Some crypto schemes use validators to maintain the cryptocurrency. In a proof-of-stake model, owners put up their tokens as collateral. In return, they get authority over the token in proportion to the amount they stake. Generally, these token stakers get additional ownership in the token over time via network fees, newly minted tokens or other such reward mechanisms.[7]
Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency (CBDC).[8] When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is generally considered centralized. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.[9]
A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology that only exists online. Cryptocurrencies use encryption to authenticate and protect transactions, hence their name. There are currently over a thousand different cryptocurrencies in the world.[10]
Bitcoin, first released as open-source software in 2009, is the first decentralized cryptocurrency. Since the release of bitcoin, many other cryptocurrencies have been created.History
In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash.[11][12] Later, in 1995, he implemented it through Digicash,[13] an early form of cryptographic electronic payments which required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient. This allowed the digital currency to be untraceable by the issuing bank, the government, or any third party.
In 1996, the National Security Agency published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system, first publishing it in an MIT mailing list[14] and later in 1997, in The American Law Review (Vol. 46, Issue 4).[15]
In 1998, Wei Dai published a description of "b-money", characterized as an anonymous, distributed electronic cash system.[16] Shortly thereafter, Nick Szabo described bit gold.[17] Like bitcoin and other cryptocurrencies that would follow it, bit gold (not to be confused with the later gold-based exchange, BitGold) was described as an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published.
In 2009, the first decentralized cryptocurrency, bitcoin, was created by presumably pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, in its proof-of-work scheme.[18][19] 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 used scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin, used a proof-of-work/proof-of-stake hybrid.[20]
On 6 August 2014, the UK announced its Treasury had commissioned a study of cryptocurrencies, and what role, if any, they could play in the UK economy. The study was also to report on whether regulation should be considered.[21] Its final report was published in 2018,[22] and it issued a consultation on cryptoassets and stablecoins in January 2021.[23]
In June 2021, El Salvador became the first country to accept Bitcoin as legal tender, after the Legislative Assembly had voted 62–22 to pass a bill submitted by President Nayib Bukele classifying the cryptocurrency as such.[24]
In August 2021, Cuba followed with Resolution 215 to recognize and regulate cryptocurrencies such as bitcoin.[25]
In September 2021, the government of China, the single largest market for cryptocurrency, declared all cryptocurrency transactions illegal, completing a crackdown on cryptocurrency that had previously banned the operation of intermediaries and miners within China.[26]Formal definition
According to Jan Lansky, a cryptocurrency is a system that meets six conditions:[27]
In March 2018, the word cryptocurrency was added to the Merriam-Webster Dictionary.[28]Altcoins
Tokens, cryptocurrencies, and other types of digital assets that are not bitcoin are collectively known as alternative cryptocurrencies,[29][30][31] typically shortened to "altcoins" or "alt coins",[32][33] or disparagingly known as "shitcoins".[34] Paul Vigna of The Wall Street Journal also described altcoins as "alternative versions of bitcoin"[35] given its role as the model protocol for altcoin designers. The term is commonly used to describe coins and tokens created after bitcoin.
Altcoins often have underlying differences with bitcoin. For example, Litecoin aims to process a block every 2.5 minutes, rather than bitcoin's 10 minutes, which allows Litecoin to confirm transactions faster than bitcoin.[36] Another example is Ethereum, which has smart contract functionality that allows decentralized applications to be run on its blockchain.[37] Ethereum was the most used blockchain in 2020, according to Bloomberg News.[38] In 2016, it had the largest "following" of any altcoin, according to the New York Times.[39]
Significant rallies across altcoin markets are often referred to as an "altseason".[40][41]Stablecoins
Stablecoins are altcoins that are designed to maintain a stable level of purchasing power.[42]Architecture
Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly known. In centralized banking and economic systems such as the US Federal Reserve System, corporate boards or governments control the supply of currency.[citation needed] In the case of decentralized cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in it. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto.[43]
As of May 2018, over 1,800 cryptocurrency specifications existed.[44] Within a proof-of-work cryptocurrency system such as Bitcoin, the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as miners: who use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular timestamping scheme.[18] In a proof-of-stake (PoS) blockchain, transactions are validated by holders of the associated cryptocurrency, sometimes grouped together in stake pools.
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