What is a Cryptocurrency?
- A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
- “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these digital assets.
- Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.
- The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable.
- Some of the competing cryptocurrencies are Litecoin, Peercoin, Namecoin, Ethereum, Dash, Monero, ZCash, Cardano and EOS.
- A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
- Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company.
- These transfers are instead secured by the use of public keys and private keys.
- In modern cryptocurrency systems, a user’s “wallet,” or account address, has a public key, while the private key is known only to the owner and is used to sign transactions.
- Fund transfers are completed with minimal processing fees, compared to that of banks.
- The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion.
- Market prices for cryptocurrencies are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely, since the design of many cryptocurrencies ensures a high degree of scarcity.
- There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods.
What is cryptocurrency mining?
- Cryptocurrency mining, or cryptomining, is a process in which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger.
- Each time a cryptocurrency transaction is made, a cryptocurrency miner is responsible for ensuring the authenticity of information and updating the blockchain with the transaction.
- The mining process itself involves competing with other cryptominers to solve complicated mathematical problems with cryptographic hash functions that are associated with a block containing the transaction data.
- The first cryptocurrency miner to crack the code is rewarded by being able to authorize the transaction, and in return for the service provided, cryptominers earn small amounts of cryptocurrency of their own.
- In order to be competitive with other cryptominers, though, a cryptocurrency miner needs a computer with specialized hardware.
India’s stance on Cryptocurrency
- The Reserve Bank of India had virtually banned cryptocurrency trading in India as in a circular issued on April 6, 2018.
- The RBI directed that all entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling those.
- However, the Supreme Court later struck down the curb on cryptocurrency trade in India terming it illegal.
- The Internet and Mobile Association of India, representing various cryptocurrency exchanges, had argued that trading in cryptocurrencies in the absence of a law banning those was a “legitimate” business activity under the Constitution.
- There is currently ongoing debate on how cryptocurrencies are to be treated, whether as a currency or as a trading asset.
What is Blockchain?
- A blockchain is a distributed database, meaning that the storage devices for the database are not all connected to a common processor.
- It maintains a growing list of ordered records, called blocks.
- Each block has a timestamp and a link to a previous block.
- Users can only edit the parts of the blockchain that they “own” by possessing the private keys necessary to write to the file.
- Cryptography ensures that everyone’s copy of the distributed blockchain is kept in sync.
- The concept was introduced in 2008 by Satoshi Nakamoto, and then implemented for the first time in 2009 as part of the digital bitcoin currency; the blockchain serves as the public ledger for all bitcoin transactions.
Why in News?
A series of high-profile Twitter accounts were hacked recently and were used to dupe other users to transfer digital currency, bitcoins to the hackers’ account.