Cryptocurrency is a type of digital currency, the accounting of internal accounting units of which is provided by a decentralized payment system (there is no internal or external administrator or any of its analogs), which operates in a fully automatic mode. By itself, the cryptocurrency does not have any special material or electronic form – it is just a number indicating the amount of data of payment units, which is recorded in the corresponding position of the information packet of the data transfer protocol and is often not even encrypted, like all other information about transactions between system addresses. At the same time, mechanisms for generating an address and checking authorization for operations with it are based on cryptographic methods (digital signature based on a public key system, the order is available only to the owner of the secret key corresponding to this address), as well as the formation of a transaction package and its relationship with other packages (sequential hashing, which makes it impossible to change information about the amount of cryptocurrency). At the same time, the system does not have any information about the owners of addresses or the fact of creating an address (the address can be generated completely autonomously, even without connecting to the network and not reporting anything to the network in the future) – that is, there is no mechanism to make sure that the recipient’s address really exists or that the access key to it is not lost. The lack of information about the owner is the basis (but not limited to) the anonymity of the participants in the transactions. In terms of their economic conditions and consequences, cryptocurrency payments are more similar to cash payments,⇨], although cryptocurrencies are being developed primarily for distance purchases (for example, via the Internet).
Payment (transfer of cryptocurrency between addresses) occurs without intermediaries and is irreversible – there is no mechanism for canceling a confirmed operation, including cases when the payment was sent to an erroneous or non-existent address, or when the transaction was made by third parties who became aware of the private key. Cryptocurrency, neither at a specific address nor in general, can be blocked (arrested) by anyone, even temporarily, it is always at the disposal of the owner of the private key to this address. True, the multi-signature technology allows you to voluntarily engage a third party (the arbitrator) and implement “reversible transactions” that can occur against the will of one of the parties. More complex conditions (smart contracts) are implemented using special scripting languages.
The problem of double-spending inherent in electronic payments is solved by using such technologies as blockchain, directed acyclic graph, consensus ledger, etc. Information about transactions is usually not encrypted and is available in clear form without registration in the system.
The term Cryptocurrency has taken hold after the publication of an article about the Bitcoin system “Cryptocurrency” published in 2011 in Forbes magazine. At the same time, the creator of bitcoin, and many other authors, used the term “electronic cash”.
The rules for the formation of a new amount of cryptocurrency (emission) are initially established by the protocol. Usually, they are of a lottery nature, with various factors affecting the probability of winning – the speed of solving the set problem (mining) or the amount of ownership of the set resource (forging). In some cases, part or all of the declared volume of the cryptocurrency is initially formed and distributed by the organizers by subscription (ICO). Usually, only one technology is used, but some cryptocurrencies use combinations of them.
Discussions are underway about the economic essence and legal status of cryptocurrencies. In different countries, cryptocurrencies are considered as a means of payment, a specific product, an electronic asset, may have restrictions in circulation (for example, a ban on transactions with them for banking institutions).
Overview
With the development of electronic systems, ideas have repeatedly come up to create an electronic analog of cash for remote payment. But the stumbling block was the potential for double-spending of the same funds. When paying in cash, double spending never occurs due to the fact that the payment is accompanied by the transfer of money, and the buyer cannot pay it again to another seller – after all, he no longer has this money. But electronic systems are organically inherent in the ability to copy a state, which allows you to make full copies of the system and then make several payments from the same starting state, that is, spend the same funds in different directions. The problem was solved only with the help of trusted intermediaries who keep track of payments and guarantee payments only within the framework of the availability of funds.
The technology of cryptocurrencies was originally aimed at the absence of a trusted node – one whose actions are guaranteed to be true, and who can confirm the correctness of other people’s operations (see the task of the Byzantine generals). For the first time, this problem was solved in the Bitcoin system due to the artificial complication of making changes to the transaction history register. To store information, transactions are combined into blocks, from which a continuous chain (blockchain) is formed. Continuity is ensured not so much by numbering as by including the hash sum of the previous block in the current block, which does not allow changing the information in the block without changing the hashes in all subsequent blocks. All hashes meet certain requirements, generating hashes that meet these requirements is time-consuming or very expensive. Only the longest chain is considered true. In different cryptocurrencies, the right to form the next block is received by the person who has completed a certain work (Proof-of-work), has a certain amount on the account (Proof-of-stake), provided some resources (Proof-of-space), or a different procedure is taken as a basis, which is easy to verify, but difficult to execute or tamper with.
The absence of any internal or external administrator for cryptocurrencies leads to the fact that banks, tax, judicial and other public or private authorities cannot influence the transactions of any participants in the payment system. The transfer of cryptocurrencies is irreversible – no one can cancel, block, challenge, or forcibly (without a private key) complete a transaction. However, the parties to the transaction can voluntarily temporarily block their cryptocurrencies as collateral or invite an additional arbitrator and establish that the consent of all (or at least a specified number) of the parties is required to complete the transaction.
As a rule, in cryptocurrencies, developers initially stipulate an upper limit for the total emission volume. However, some cryptocurrencies, such as PPCoin, Novacoin, Sifcoin, and others, do not have a fixed upper limit on the total emission volume and both emission and demission are possible (by obligatory destruction of a fixed amount in each transaction).
Most cryptocurrencies provide pseudonymity – all transactions between all addresses are publicly available, but there is no information about the owners of the addresses. However, the identity of the owner can be established if additional information associated with this address becomes known (for example, during transactions through exchange services). For additional anonymization, it is recommended to use different addresses to work with different clients. There are also separate services (“mixers”), which, passing through themselves the payments of many customers, mask the real payers. ZeroCash offered the ability to replace pseudonymity with anonymity.
