CRYPTO-CURRENCY
A crypto-currency (or crypto currency) is a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Crypto-currencies are a subset of alternative currencies, or specifically of digital currencies.
Bit coin became the first decentralized cryptocurrency in 2009. Since then, numerous crypto-currencies have been created.These are frequently called altcoins, as a blend of bitcoin alternative.
Crypto-currencies use decentralized control as opposed to centralized electronic money/centralized banking systems. The decentralized control is related to the use of bitcoin's blockchain transaction database in the role of a distributed ledger.
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 Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. However, companies or governments cannot produce units of cryptocurrency and as such, have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in a decentralized cryptocurrency. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto.
Over View
As of March 2015, hundreds of cryptocurrency specifications exist; most are similar to and derived from the first fully implemented decentralized cryptocurrency, bitcoin. 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.
The security of cryptocurrency ledgers is based on the assumption that the majority of miners are honestly trying to maintain the ledger, having financial incentive to do so.
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, mimicking precious metals. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.not in citation given] Existing cryptocurrencies are all pseudo-anonymous, though additions such as Zero-coin and its distributed laundry feature have been suggested, which would allow for true anonymity.
Legality
The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade, others have banned or restricted it. Likewise, various government agencies, departments, and courts have classified bitcoins differently. China Central Bank banned the handling of bitcoins by financial institutions in China during an extremely fast adoption period in early 2014. In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.
On March 25, 2014, the United States Internal Revenue Service (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. In a paper published by researchers from Oxford and Warwick it was shown that bitcoin has some characteristics similar to the precious metals market more than to traditional currencies, hence in agreement to the IRS decision even if based on different reasons.
Legal issues not dealing with governments have also arisen for cryptocurrencies. Coinye, for example, is an altcoin that used rapper Kanye West as its logo without permission. 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, David P. McEnery Jr. 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.
Economics
Cryptocurrencies are used primarily outside existing banking and governmental institutions, and exchanged over the Internet. While these alternative, decentralized modes of exchange are in the early stages of development, they have the unique potential to challenge existing systems of currency and payments.
Competition in cryptocurrency markets
Today, there are over 700 digital currencies in existence. Entry into the marketplace is undertaken by so many due to the low cost of entry and opportunity for profit making through the creation of coins.
Network effects play an important role in analyzing the development of cryptocurrency markets. Since any given currency gains use value as the number of its users increase, popularity of a certain currency is integral in that currency's success. Economists postulate that large competitors (such as the most popular cryptocurrency: bitcoin) will attract more new users due to the size of their growing exchange pools and as a result will effectively dominate the market.
A study entitled "Competition in the Cryptocurrency Market" conducted by members of the NET Institute over three periods between 2013 and 2014 charts the analysis of changes in price data over time in regards to budding cryptocurrency markets. It analyzes bitcoin and other similar cryptocurrencies referred to as "altcoins". These include Litecoin, Peercoin, and Namecoin; cryptocurrencies listed in order by which account for the largest percentages of digital market capitalization behind bitcoin (which accounts for 90%).
The NET study found that of these four, all were early entrants into the digital currency marketplace, designed to correct perceived bitcoin's flaws and amass popularity in an infant market whose popularity was rapidly growing. This study introduced the question of the role of demand in cryptocurrency markets, and what impetus demand has in relation to emerging coins. The study dealt namely with two common forces of demand that shaped the market: reinforcement and substitution effects. The reinforcement effect expects demand to increase based on usership, and that the cryptocurrency that could gain the most buyers and sellers would win out above all others, thus dominating the marketplace. The substitution effect implies that as the price of bitcoins rose with increased usership, people would begin to look for other options in the cryptocurrency market, thus discouraging any one coin from gaining complete dominance.
Crypto-Currency Types:
Bitcoin is a digital asset and a payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Bitcoin was introduced on 31 October 2008 to a cryptography mailing list, and released as open-source software in 2009. There have been various claims and speculation concerning the identity of Nakamoto, none of which are confirmed. The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain,[19] which uses bitcoin as its unit of account. Since the system works without a central repository or single administrator, the U.S. Treasury categorizes bitcoin as a decentralized virtual currency.[10] Bitcoin is often called the first cryptocurrency, although prior systems existed and it is more correctly described as the first decentralized digital currency. Bitcoin is the largest of its kind in terms of total market value.
Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger. This activity is referred to as mining and miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services. When sending bitcoins, users can pay an optional transaction fee to the miners.
In February 2015, the number of merchants accepting bitcoin for products and services passed 100,000. Instead of 2–3% typically imposed by credit card processors, merchants accepting bitcoins often pay fees in the range from 0% to less than 2%. Despite the fourfold increase in the number of merchants accepting bitcoin in 2014, the cryptocurrency did not have much momentum in retail transactions. The European Banking Authority and other sources have warned that bitcoin users are not protected by refund rights or chargebacks. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and media. Criminal activities are primarily focused on darknet markets and theft, though officials in countries such as the United States also recognize that bitcoin can provide legitimate financial services.
Bitcoin has been compared to a form of digital money that uses various processes securing transactions "between untrusted third parties, without the need for a central authority or bank." Bitcoin is both anonymous, and completely transparent.
Crypto-currencies use decentralized control as opposed to centralized electronic money/centralized banking systems. The decentralized control is related to the use of bitcoin's blockchain transaction database in the role of a distributed ledger.
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 Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. However, companies or governments cannot produce units of cryptocurrency and as such, have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in a decentralized cryptocurrency. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto.
Over View
As of March 2015, hundreds of cryptocurrency specifications exist; most are similar to and derived from the first fully implemented decentralized cryptocurrency, bitcoin. 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.
The security of cryptocurrency ledgers is based on the assumption that the majority of miners are honestly trying to maintain the ledger, having financial incentive to do so.
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, mimicking precious metals. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.not in citation given] Existing cryptocurrencies are all pseudo-anonymous, though additions such as Zero-coin and its distributed laundry feature have been suggested, which would allow for true anonymity.
Legality
The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade, others have banned or restricted it. Likewise, various government agencies, departments, and courts have classified bitcoins differently. China Central Bank banned the handling of bitcoins by financial institutions in China during an extremely fast adoption period in early 2014. In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.
On March 25, 2014, the United States Internal Revenue Service (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. In a paper published by researchers from Oxford and Warwick it was shown that bitcoin has some characteristics similar to the precious metals market more than to traditional currencies, hence in agreement to the IRS decision even if based on different reasons.
Legal issues not dealing with governments have also arisen for cryptocurrencies. Coinye, for example, is an altcoin that used rapper Kanye West as its logo without permission. 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, David P. McEnery Jr. 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.
Economics
Cryptocurrencies are used primarily outside existing banking and governmental institutions, and exchanged over the Internet. While these alternative, decentralized modes of exchange are in the early stages of development, they have the unique potential to challenge existing systems of currency and payments.
Competition in cryptocurrency markets
Today, there are over 700 digital currencies in existence. Entry into the marketplace is undertaken by so many due to the low cost of entry and opportunity for profit making through the creation of coins.
Network effects play an important role in analyzing the development of cryptocurrency markets. Since any given currency gains use value as the number of its users increase, popularity of a certain currency is integral in that currency's success. Economists postulate that large competitors (such as the most popular cryptocurrency: bitcoin) will attract more new users due to the size of their growing exchange pools and as a result will effectively dominate the market.
A study entitled "Competition in the Cryptocurrency Market" conducted by members of the NET Institute over three periods between 2013 and 2014 charts the analysis of changes in price data over time in regards to budding cryptocurrency markets. It analyzes bitcoin and other similar cryptocurrencies referred to as "altcoins". These include Litecoin, Peercoin, and Namecoin; cryptocurrencies listed in order by which account for the largest percentages of digital market capitalization behind bitcoin (which accounts for 90%).
The NET study found that of these four, all were early entrants into the digital currency marketplace, designed to correct perceived bitcoin's flaws and amass popularity in an infant market whose popularity was rapidly growing. This study introduced the question of the role of demand in cryptocurrency markets, and what impetus demand has in relation to emerging coins. The study dealt namely with two common forces of demand that shaped the market: reinforcement and substitution effects. The reinforcement effect expects demand to increase based on usership, and that the cryptocurrency that could gain the most buyers and sellers would win out above all others, thus dominating the marketplace. The substitution effect implies that as the price of bitcoins rose with increased usership, people would begin to look for other options in the cryptocurrency market, thus discouraging any one coin from gaining complete dominance.
Crypto-Currency Types:
Bitcoin is a digital asset and a payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Bitcoin was introduced on 31 October 2008 to a cryptography mailing list, and released as open-source software in 2009. There have been various claims and speculation concerning the identity of Nakamoto, none of which are confirmed. The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain,[19] which uses bitcoin as its unit of account. Since the system works without a central repository or single administrator, the U.S. Treasury categorizes bitcoin as a decentralized virtual currency.[10] Bitcoin is often called the first cryptocurrency, although prior systems existed and it is more correctly described as the first decentralized digital currency. Bitcoin is the largest of its kind in terms of total market value.
Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger. This activity is referred to as mining and miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services. When sending bitcoins, users can pay an optional transaction fee to the miners.
In February 2015, the number of merchants accepting bitcoin for products and services passed 100,000. Instead of 2–3% typically imposed by credit card processors, merchants accepting bitcoins often pay fees in the range from 0% to less than 2%. Despite the fourfold increase in the number of merchants accepting bitcoin in 2014, the cryptocurrency did not have much momentum in retail transactions. The European Banking Authority and other sources have warned that bitcoin users are not protected by refund rights or chargebacks. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and media. Criminal activities are primarily focused on darknet markets and theft, though officials in countries such as the United States also recognize that bitcoin can provide legitimate financial services.
Bitcoin has been compared to a form of digital money that uses various processes securing transactions "between untrusted third parties, without the need for a central authority or bank." Bitcoin is both anonymous, and completely transparent.
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