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Digital Currency

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Digital Currency

 Digital currency is a payment method which exists only in electronic form and is not
tangible. Digital currency can be transferred between entities or users with the help of
technology like computers, smartphones and the internet.
 Although it is similar to physical currencies, digital money allows borderless transfer of
ownership as well as instantaneous transactions.
 Digital currencies can be used to purchase goods and services but can also be restricted to
certain online communities such as a gaming or social networks.
 Digital currency is also known as digital money and cybercash.

Digital currencies advantages:

 As payments in digital currencies are made directly between the transacting parties without
the need of any intermediaries, the transactions are usually instantaneous and zero- to low-
cost.
 This fares better compared to traditional payment methods that involve banks or clearing
houses.
 Digital currency based electronic transactions also bring in the necessary record keeping
and transparency in dealings.
The following are 10 types of digital currencies and how they work:

1) Ethereum

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 Ethereum is a decentralized computing platform that features smart contract functionality.
It offers the Ethereum Virtual Machine (EVM), a decentralized virtual machine that executes
peer-to-peer contracts using a cryptocurrency known as ether.
 The Ethereum platform allows multiple uses concerning smart contracts.
 With Ethereum, you can safely do business with a person you don’t know; because all terms
are spelled out in a “smart contract” entrenched in the blockchain.

2) Ripple

 Ripple is a real-time currency exchange, remittance network, and settlement system. It

offers instant, certain, low-cost international payments.
 Also known as Ripple protocol or the Ripple Transaction Protocol (RTXP), it is built upon a
decentralized open source Internet protocol and native currency referred to as XRP (ripples).
 Bases around public ledger, Ripple uses a consensus process to all exchange, remittance
and payments in distributed process.

3) Litecoin

 Litecoin is a peer-to-peer cryptocurrency released under the MIT/X11 license. The currency
is Inspired by and technically almost identical to bitcoin.
 Litecoin formation and transfer is based on an open source protocol.

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4) Dash

 Dash, formally called Darkcoin is a more secretive form of Bitcoin.

 It provides more privacy as it operates on a distributed mastercode network that makes
dealings nearly untraceable.
 Launched in 2014, the currency has an increasing fan. Created and developed by Evan
Duffield, this cryptocurrency according to Fernando Gutierrez from Dash.org, has X11
ASICs that presently mine Dash and CPU mining is not profitable anymore since a while
ago.

5) Peercoin

 Also known as PPCoin, Peercoin was created by software developers Scott Nadal and Sunny
King. Lunched in 2012, it was the first digital currency to use a combination of proof-of-
work and proof-of-stake.
 At first, the coins are mined using the proof-of-work hashing process. Over time, as the
hashing difficulty increases, the users are rewarded coins using the proof-of-stake
algorithm that requires minimal energy to generate blocks.

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6) Dogecoin

 Launched in 2013, Dogecoin is largely based on the Bitcoin protocol, but with some
modifications. The currency uses the technology of scrypt as a proof-of-work scheme. Its
block time is 60 seconds.
 There is no limit to the number of Dogecoin that can be produced.
 The digital currency deals with many coins that are lesser in value individually. Therefore,
it has low entry barrier and good for carrying out smaller transactions.
7) Primecoin

 Primecoin was developed by Sunny King. Its proof-of-work is built on prime numbers, and
therefore, different from the common system of hashcash utilized by many cryptocurrencies
built on the Bitcoin framework.
 The currency involves finding distinctive long chains of prime numbers and provides greater
mining ease and security to the network.
8) Chinacoin

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 Chinacoin is a litecoin-based digital currency that uses the scrypt password-based key
derivation function.
 At the moment, It’s generated in 60-second blocks with an about 88 coins per block.
9) Ven

 Ven is a global digital currency that is designed to allow trade among members of Hub
Culture. Launched in 2007, Ven is aimed at reducing the risk of inflation.
 The Ven value is determined on the financial markets from a basket of commodities,
currencies and carbon futures.

10) Bitcoin

 Bitcoin is a type of digital currency that enables instant payments to anyone.

 Bitcoin was introduced in 2009.
 Bitcoin is based on an open source protocol and is not issued by any central authority.
 Bitcoin is a peer-to-peer currency.
 Peer-to-peer means that no central authority issues new money or tracks transactions.
 These tasks are managed collectively by the network.
 “Bitcoin”, capitalised, refers to the protocol and transaction network whereas “bitcoin”,
lowercase, refers to the currency itself.
 Bitcoin is the first decentralized digital currency.
 Bitcoins are digital coins you can send through the Internet.
 Compared to other alternatives, Bitcoins have a number of advantages.
 Bitcoins are transferred directly from person to person via the net without going through a
bank or clearinghouse.

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How does Bitcoin work?

 Bitcoins are generated all over the Internet by anybody running a free application called
a Bitcoin miner.
 Mining requires a certain amount of work for each block of coins.
 This amount is automatically adjusted by the network such that Bitcoins are always
created at a predictable and limited rate.
 Your Bitcoins are stored in your digital wallet which might look familiar if you use online
banking.
 When you transfer Bitcoins, an electronic signature is added.
 After a few minutes, the transaction is verified by a miner and permanently and
anonymously stored in the network.
Origin of Bitcoin

 Bitcoin is the maiden implementation of a concept known as “cryptocurrency”. This

concept was first described by Wei Dai in the year 1998 on the cypherpunks mailing list
wherein he proposed the idea of a new form of money that uses cryptography to control its
creation and transactions, rather than with a central authority.
 Satoshi Nakamoto, about whom nothing much is known, was the first person to give Bitcoin
specification and also provide a proof of the concept, which he did in 2009. He provided
these in a cryptography mailing list. In 2010, Satoshi quit the project. Since then, the
community has multiplied with currently many developers working on Bitcoin.
Cryptocurrency

 A cryptocurrency is a digital or virtual currency that uses cryptography for security.

 Cryptocurrencies use decentralized technology to let users make secure payments and store
money without the need to use their name or go through a bank.
 They run on a distributed public ledger called blockchain, which is a record of all
transactions updated and held by currency holders.
 The most common cryptocurrencies are Bitcoin, Ethereum, Ripple, and Litecoin.
Important terms related to cryptocurrency:
Blockchain technology

 The blockchain is an incorruptible digital ledger of economic transactions that can be

programmed to record not just financial transactions but virtually everything of value.

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Public Ledgers

 All confirmed transactions from the start of a cryptocurrency’s creation are stored in a
public ledger.
 The identities of the coin owners are encrypted, and the system uses other cryptographic
techniques to ensure the legitimacy of record keeping.
 The ledger ensures that corresponding digital wallets can calculate an accurate spendable
balance.
Transactions

 A transfer of funds between two digital wallets is called a transaction. That transaction gets
submitted to a public ledger and awaits confirmation.
Mining

 In simple terms, mining is the process of confirming transactions and adding them to a
public ledger.
 In order to add a transaction to the ledger, the “miner” must solve an increasingly-complex
computational problem (like a mathematical puzzle).

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