Cryptocurrencies

Title: “FUTURE OF CRYPTOCURRENCIES”

AUTHOR(S) DETAILS:

Author : Tilak Rajan Sahoo Address: Flat 106, Block-3 VBHC Viabhaba, Chandapura- Anekal Road Bangalore, karnatake- 562106 Alliance School of Law, Alliance University Bangalore Contact: [email protected] Phone Number: 7008411369 9668822922

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WHAT ARE CRYPTOCURRENCIES ?

Cryptocurrencies are physical pre-computed files utilizing a public key / private key 1  pairs generated around a specific encryption algorithm. The key assigns ownership of each key pair, or ‘coin,’ to the person who is in possession of the private key. These key pairs are stored in a file named ‘wallet.dat,’ which resides in a default hidden directory on the owner’s  hard drive. The

 private keys are sent to users using dynamic wallet addresses generated by the users engaged in transactions.2 The destination payment address is the public key3 of the Cryptocurrency key pair. There is a finite amount of each crypto coin available on the network, and value of each unit is assigned based on supply and demand, as well as the fluctuating difficulty levels required for mining each coin. The wallet.dat file is the most important file of the cryptocurrency software architecture, as that is where the physical cryptographic private key file is stored. Much like cash, if a user loses their wallet.dat file, or has it stolen, the cryptocurrency is lost.

The decentralized nature of open source protocol ensures that the control of the network remains in the hands of the users. Transactions are dependent on participants in the network, and the user responsible for the security of their own finances and data, without the need for reliance on third  parties such as banking institutions.

Put another way, Cryptocurrency is electricity converted into lines of code with monetary value. In the simplest of forms, Cryptocurrency is digital currency .

Unlike centralized banking, like the Federal Reserve System, where governments control the value of a currency like USD through the process of printing fiat money, government has no control over crypto currencies as they are fully decentralized.4 11

 In cryptography, a private or secret key is an encryption/decryption key known only to the party or parties that exchange secret messages. In traditional secret key cryptography, a key would be shared by the communicators so that each could encrypt and decrypt messages. ( As defined at http://searchsecurity.techtarget.com/definition/private-key) 2 ShaikShakeel Ahamad, Madhusoodhnan Nair2and Biju Varghese, A Survey on Crypto Currencies,  Proc. of Int. Conf. on Advances in Computer Science, AETACS; page no: 43 3  A public key known to everyone and a private or secret key known only to the recipient of the message. 4 https://www.cryptocoinsnews.com/cryptocurrency/; Last Visited on: 6th September,2016

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RELATED TERMS: MINING: Mining is that the method of paying computing power to process transactions, secure

the network, and keep everybody within the system synchronal along. It is perceived just like the Bitcoin information center except that it's been designed to be absolutely decentralized with miners in operation altogether countries and no individual having control over the network. This method is noted as "mining" as an analogy to gold mining as a result of it's conjointly a brief mechanism used to issue new bitcoins.Anybody will become a Bitcoin manual laborer by running software system with specialised hardware. Mining software system listens for transactions broadcast through the peer-to-peer network and performs acceptable tasks to method and ensures these transactions. Bitcoin miners perform this work because they can earn transaction fees paid by users for faster transaction processing, and newly created bitcoins issued into existence according to a fixed formula.5

BLOCK CHAIN: This general ledger may be a long list of blocks, referred to as the

'blockchain'. It is accustomed explore any group action created between any bitcoin addresses, at any purpose on the network. Whenever a replacement block of transactions is formed, it's side to the block chain, making an increasingly long list of all the transactions that ever transpire on the  bitcoin network. A constantly updated copy of the block is given to everyone who participates, so that they know what is going on.6

HASH: When a block of transactions is formed, miners place it through a method. They take the

knowledge within the block, and apply a mathematical formula to that, turning it into one thing else. That one thing else may be a so much shorter, apparently random sequence of letters and numbers referred to as a hash. This hash is hold on along with the block, at the top of the block chain at that time in time. It’s simple to provide a hash from a group of data sort of a bitcoin  block, however it’s much not possible to figure out what the information was simply by

o bserving the hash. Miners don’t simply use the transactions in an exceedingly block to come up

5

https://bitcoin.org/en/faq, Last Visited on: 4th September,2016 6 https://bitcoin.org/en/faq, Last Visited on: 4th September,2016

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with a hash. some other items of data are used too. One of these pieces of data is the hash of the last block stored in the block chain.7

History of Cryptocurrency

The Age of the Internet has finally brought upon us a new phenomenon known as digital currency Cryptography. No intermediaries. No service charges. No legal fees. No delays.8 With ease, people of any country can be able to send, receive and store value on their digital wallets.9 The first cryptocurrency was Bitcoin. Bitcoin was created in 2009 by a pseudonymous developer named Satoshi Nakamoto. In April 2011,  Namecoin, the first altcoin, was created to form a decentralized DNS to make internet censorship more difficult. In October 2011,  Litecoin  was released and became the first successful cryptocurrency to use script as its hash function rather than SHA-256. This gave the general public the ability to mine for litecoins without the purchase of specific hardware such as the ASIC machines used to mine Bitcoin. Litecoin began receiving media attention in late 2013 –  reaching a market cap of $1 billion.  Ripplecoin, created in 2011, was built on the same protocol as Bitcoin but services as a payment

system  –   think of it like a Paypal for cryptocurrencies that supports any fiat currency, cryptocurrency, commodity or even frequent flier miles.10 Unlike traditional currency, determining the value of cryptocurrency and electronic cash is a bit tricky. As the CTO of a company that’s working to make online payments easier, I can

understand why so many within the global business, legal and political environments are struggling with the concept. There is also significant design value in using them as currency, secure storage and a decentralized public ledger, and the cryptocurrency model encourages community contribution 7

http://www.coindesk.com/information/how-bitcoin-mining-works/; Last Visited on: 4th September,2016 8  Tai-hoon Kim; A study of digital currency cryptography for business marketing and finance security; Asia -pacific Journal of Multimedia Services Convergent with Art, Humanities, and Sociology Vol.6, No.1, January (2016), pp. 365-376; http://dx.doi.org/10.14257/AJMAHS.2016.01.42 9 Hogan, M., & Shepherd, T. (2015). Information Ownership and Materiality in an Age of Big Data Surveillance. Journal 6-31. doi:1. Retrieved from of Information Policy, 5, http://www.jstor.org/stable/10.5325/jinfopoli.5.2015.0006 doi:1 10  https://www.cryptocoinsnews.com/cryptocurrency/ ; Last Visited on: 4th September,2016

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and collaboration. Other areas of value with coins relate to their network value, contract and application value, and their transmission and storage value, as they work for all of these things.11

BITCOIN:

Cryptocurrency is an attempt to replace money transactions with a digital medium of exchange using peer-to-peer networking. The first one, and still the most successful, was bitcoin, which was created in 2009 by the mysterious developer Satoshi Nakamoto. 12 While hundreds of different cryptocurrency specifications exist, most are derived from one of two protocols; Proof-of-work or Proof-of-stake. All crypto currencies are maintained by a community of cryptocurrency miners who are members of the general public that have set up their computers or ASIC machines to participate in the validation and processing of transactions. Bitcoin and other crypto currencies have been touted by their followers as the money of the future. Bitcoin operates as a p2p file sharing protocol, and therefore the concept is similar to .torrent technology. The p2p network relies on user participation for successful trusted data exchange. Each transaction is confirmed through key verification on multiple nodes in the network before reaching its destination. This crowd sourced key verification process guarantees the integrity of the data transfer. bitcoin is open-source, anyone can develop their own cryptocurrency using the same technology. The first cryptocurrency to be created was Bitcoin back in 2009. Today there are hundreds of other crypto currencies, often referred to as Altcoins.13 Bitcoins derive their value partly through their scarcity, which is defined by a cryptographic lottery. You can buy bitcoins on online cryptocurrency exchanges or you can earn them through 'mining'14.Bitcoin mining programmers

11

 Chalmers Brown, Co-Founder & CTO at Due.com, The Value of Cryptocurrency Today And What The Future Might Hold; http://www.forbes.com/sites/forbestechcouncil/2016/04/13/the-value-of-cryptocurrency-today-andwhat-the-future-might-hold/#3625c4704bd1; Last Visited on: 3rd  September,2016 12  Nick Farrell; Understanding Bitcoin and crypto-currency; http://www.in.techradar.com/news/software/businesssoftware/Understanding-Bitcoin-and-crypto-currency/articleshow/38558239.cms;  Last Visited on: 5th September,2016 1313  ShaikShakeel Ahamad, Madhusoodhnan Nair2and Biju Varghese, A Survey on Crypto Currencies,  Proc. of Int. Conf. on Advances in Computer Science, AETACS; page no: 43 14  People are sending bitcoin to each other over the bitcoin network all the time, but unless someone keeps a record of all these transactions, no-one would be able to keep track of who had paid what. The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a block. It’s the miners’ jo b to confirm those transactions, and write them into a general ledger. Anyone can process transactions using the

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compute an encryption function called a 'hash'15 on a set of random numbers. Coins are awarded every 10 minutes to whichever miner happens to compute a number below a certain threshold. A few years ago, Bitcoin mining was handled by standard PCs with powerful graphics cards, but as the hash difficulty has gone up, the only way to mine bitcoins is to employ a Bitcoin ASIC, a chip that has been designed specifically for this task.

LITECOIN:

The most popular cryptocurrency at the time of writing is Bitcoin, with alternatives such as Litecoin16  rapidly gaining market traction. The source code for these programs, as well as the code for other crypto currencies, is available on all major open source code repositories. A cryptocurrency is a medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain  principles of cryptography. Cryptography is used to secure the transactions and to control the creation of new coins. The idea is that you use cryptography to control the creation and transfer of money, rather than relying on central authorities. Since the success of bit coin, there have been others which are starting to make names for themselves such as ripple, litecoin, peercoin, mastercoin, namecoin and quarkcoin. Many other cryptocurrencies have just died because no one used them. Non-bitcoin crypto currencies are collectively known as altcoins and they are more or less based on the same idea. Their success depends on how much "cash" (the total value of transactions) they have running around the peerto-peer network (ie the virtual economy). Since bitcoin is open-source, anyone can develop their own cryptocurrency using the same technology.17

As a currency, it is not doing so well. For a currency to work, it needs to derive its value from efficiency and mainstream use. This is beginning to happen now with various online stores accepting bit coins and other crypto currencies but is still widely regarded as a niche market. computing power of specialized hardware and earn a reward in bitcoins for this service. (http://www.coindesk.com/information/how-bitcoin-mining-works/) 15  Hash is unique. If you change just one character in a bitcoin block, its hash will change completely. 16  Litecoin into the future –  Litecoin crypto currency. http://litecointrader.com/Litecoin-Future.html; Last Visited on: rd 3   September,2016 17 http://www.in.techradar.com/news/software/business-software/Understanding-Bitcoin-and-cryptocurrency/articleshow/38558239.cms; Last Visited on: 3rd September,2016

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Unfortunately, it also makes it possible to launder money and buy illegal products. Since bitcoins can be spent on the internet without the use of a bank account, they offer a convenient system for anonymous purchases. Since there is no money stored anywhere, accounts can't be frozen by  police or PayPal administrators. Bitcoin payment processors offer a way of getting around this  problem, as they convert the transaction to hard currency almost instantaneously. Many companies want regulation to provide them with some security that they are not going to lose a fortune on it.

WORKING 

Bitcoin payments are easier to make than debit or credit card purchases, and can be received without a merchant account. Payments are made from a wallet application, either on your computer or Smartphone, by entering the recipient's address, the payment amount, and pressing send. To make it easier to enter a recipient's address, many wallets can obtain the address by scanning a QR code or touching two phones together with NFC technology.18

18

https://bitcoin.org/en/faq; Last Visited on: 4th  September,2016

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MARKET USE: ADVANTAGES:

1. Freedom of payment

 – 

The non involvement of banks, government holidays, and

absence of any reasonably bureaucracy permits individuals to send and receive bitcoins anyplace round the world anytime. The users have full control over their cash. 2. Choose your own fees  –   Receiving bitcoins is for free of charge and you'll control your own wallets once the user is disbursal lots just in case you wish quicker. The fee is unrelated to the number transferred that the causation of one bitcoins to a hundred thousands bit coin with a similar fee. For quicker confirmation of transactions you've got to pay a bit larger quantity. As these services are supported Bitcoin, they will be offered for a lot of lower fees than with PayPal or MasterCard networks. 3. Fewer risks for merchants   - Bitcoin transactions are secure, irreversible, and don't contain customers’ sensitive or personal info. Merchants will simply expand to new

markets wherever either credit cards don't seem to be offered or fraud rates are intolerably high internet results are lower fees, larger markets, and fewer body prices. 4. Security and control  - Bitcoin users ar fully management of their transactions; it's not  possible for merchants to force unwanted or disregarded charges as will happen with alternative payment strategies. Bitcoin payments is created while not personal info tied to the group action. This offers robust protection against fraud. Bitcoin users can even defend their cash with backup and encryption. Bitcoin payments can be made without  personal information tied to the transaction. 19 This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption. 5. Transparent and neutral  - No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to  be trusted for being completely neutral, transparent and predictable.20 6. Unlike cash, it is highly resistant to theft and counterfeiting. 21

19

 Fergal Reid, Martin Harrigan; An Analysis of Anonymity in the Bitcoin System; arXiv:1107.4524 [physics.soc ph]; http://arxiv.org/abs/1107.4524; Last Visited on: 3rd  September,2016 20 Luther, William J. and Josiah Olson. 2013. “Bitcoin is Memory.” Working Paper. Available online: .; Last Visited on: 4th September,201 21  ShaikShakeel Ahamad, Madhusoodhnan Nair2and Biju Varghese, A Survey on Crypto Currencies,  Proc. of Int. Conf. on Advances in Computer Science, AETACS; page no: 46 

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MARKET USE: DISADVANTAGES:

1. Degree of acceptance -   Many people are still unaware of Bitcoin. Every day, a lot of  businesses settle for bitcoins as a result of they require the benefits of doing therefore, however the list remains small and still must grow so as to profit from network effects. 2. Volatility  - The whole price of bitcoins in circulation and also the variety of companies exploitation Bitcoin are still terribly tiny compared to what they might be. Therefore, comparatively tiny events, trades, or business activities will considerably affect the value. In theory, this volatility can decrease as Bitcoin markets and also the technology matures. Bitcoin could be a set out currency giving the planet a new section of group action therefore its longevity and use could be a concern similarly as exciting to ascertain the expansion. 3. Ongoing development  -  Bitcoin software system remains in beta with several incomplete options in active development. New tools, features, and services are being developed to create Bitcoin safer and accessible to the lots. a number of these are still not  prepared for everyone. Most Bitcoin businesses are new and still offer no insurance. In general, Bitcoin remains within the method of maturing. 4. Awareness:  For a currency to figure, it must derive its price from efficiency and thought use. this is often commencing to happen currently with varied online stores acceptive Bitcoin and alternative crypto-currencies however remains wide thought to be a distinct segment market. 5. Illegal Use:  Unfortunately, it also makes it possible to launder money and buy illegal  products. Since crypto currencies can be spent on the Internet without the use of a bank account, they offer a convenient system for anonymous purchases. Since there is no money stored anywhere, accounts can't be frozen by police or PayPal administrators.22 6. Regulation:  Bitcoin has a fair share of shortcomings, especially on the regulatory front.

22

http://www.in.techradar.com/news/software/business-software/Understanding-Bitcoin-and-crypto currency/articleshow/38558239.cms?page=2; Last Visited on: 4th September,2016

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SOME FUTURE PREDICTIONS 23: 

Bitcoin will enable Facebook to provide remittance, banking and person-to-person money transfer services to its users.

24

Bitcoin and other cyber currencies, Facebook will become a go-to platform for moving money from person-to-person, domestically and across borders. He also thinks it will also provide a host of basic banking services utilizing the Bitcoin currency and protocol. The information that you would put into a new bank account application, Facebook will already have all of that. By creating a social graph, they’ve already created a network of trusted relationships, which  provides the rails on which payments can move or remittance can move. 

Every e-commerce website will accept Bitcoin.

25

Being able to pay for goods and services online in the digital currency will be a given “ever y time you buy anything online and you do a online checkout Bitcoin will be a payment option. You’ll see it alongside Visa, MasterCard, PayPal, etc. Some 60,000 online retailers already

accept Bitcoin today. 

Transferring Money cheaply beyond territories. 26

Transferring money to people outside of the country using different money transfer methods isn’t cheap. Steep fees are often heaped onto the amount transferred. Bitcoin, on the other hand, allows people to send money cross- border at a far lower cost, or “basically for no fee,” 

Bitcoin will fuel new, innovative micropayment-based online business models.

27

Micropayments are exactly what they sound like: small payments, often as small as a few  pennies each. Bitcoin will make them and the businesses that process them in exchange for goods and services more possible than ever before. We already make micropayments for one-off items and services that you can buy online  piecemeal, like apps, music downloads, published content and cloud storage, as opposed to subscription-based online services paid for monthly and annually. These are the types of online merchants.

23

https://www.entrepreneur.com/article/235290; Last Visited on 4th September, 2016 https://www.entrepreneur.com/article/235290; Last Visited on 4th September, 2016 25 https://www.entrepreneur.com/article/235290; Last Visited on 4th September, 2016 26 https://www.entrepreneur.com/article/235290; Last Visited on 4th September, 2016 27 https://www.entrepreneur.com/article/235290; Last Visited on 4th September, 2016 24

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CONCLUSION:

Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. 28 The total number of bitcoin in circulation, currently around 13 million, will never exceed 21 million. 29   While a drawback, this need not preclude bitcoin from spreading as a medium of exchange.30As the blocks get bigger, they also get harder to mine.31 Experts say the increased data size means larger blocks favour users and miners with more powerful computing networks. Although it is still too early to know how greatly these innovations will widen bitcoin use, they give it a better chance of becoming a commonly accepted medium of exchange. If nothing else, the evolution of bitcoin and rival crypto-currencies will continue to provide us with the opportunity to ponder alternative payment systems and the possibilities for non-state money.32

28

 Satoshi Nakamoto; Bitcoin: A Peer-to-Peer Electronic Cash System; page no 1  William J. Luther and Lawrence H. White; Can Bitcoin Become a Major Currency? DEPARTMENT OF ECONOMICS Working Paper; page no: 2 30  Ibid 6 31  Available at http://www.thehindubusinessline.com/opinion/columns/the-cheat-sheet/forking-and-the-futureof-cryptocurrencies/article9799147.ece Last visited on 10th September, 2017 32  Ibid 6 29