CRYPTOCURRENC

Y
THE TECHNOLOGY BEHIND CRYPTOCURRENCY
AND HOW IT IS USED NOW AND IN THE NEAR
FUTURE
What Is a Cryptocurrencies?
A cryptocurrencies is a digital or virtual currency that is secured by cryptography,
which makes it nearly impossible to counterfeit or double-spend. Many
cryptocurrencies are decentralized networks based on block chain technology—a
distributed ledger enforced by a disparate network of computers. 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.

Technology behind Cryptocurrencies

Main Technology behind Cryptocurrencies is Bit coin.
But there are 3 alternative technologies can used behind Cryptocurrencies
1) Litecoin
2) Ripple
3) MintChip
Bit coin:
Bitcoin is a decentralized currency that uses peer-to-peer technology, which enables
all functions such as currency issuance, transaction processing and verification to be
carried out collectively by the network. While this decentralization renders Bitcoin
free from government manipulation or interference, the flipside is that there is no
central authority to ensure that things run smoothly or to back the value of a Bitcoin.
Bitcoins are created digitally through a “mining” process that requires powerful
computers to solve complex algorithms and crunch numbers. They are currently
created at the rate of 25 Bitcoins every 10 minutes and will be capped at 21 million, a
level that is expected to be reached in 2140.

These characteristics make Bitcoin fundamentally different from a fiat currency,

which is backed by the full faith and credit of its government. Fiat currency issuance
is a highly centralized activity supervised by a nation’s central bank. While the bank
regulates the amount of currency issued in accordance with its monetary policy
objectives, there is theoretically no upper limit to the amount of such currency
issuance. In addition, local currency deposits are generally insured against bank
failures by a government body. Bitcoin, on the other hand, has no such support
mechanisms. The value of a Bitcoin is wholly dependent on what investors are willing
to pay for it at a point in time. As well, if a Bitcoin exchange folds up, clients with
Bitcoin balances have no recourse to get them back.

Alternatives to Bitcoin
Despite its recent issues, Bitcoin’s success and growing visibility since its launch has
resulted in a number of companies unveiling alternative cryptocurrencies, such as:

 Litecoin – Litecoin is regarded as Bitcoin's leading rival at present, and it is

designed for processing smaller transactions faster. It was founded in October
2011 as "a coin that is silver to Bitcoin’s gold,” according to founder Charles
Lee.1 3 Unlike the heavy computer horsepower required for Bitcoin mining,
Litecoins can be mined by a normal desktop computer. Litecoin’s maximum
limit is 84 million – four times Bitcoin’s 21-million limit – and it has a
transaction processing time of about 2.5 minutes, about one-fourth that of
Bitcoin.1 4  1 5
 Ripple – Ripple was launched by Open Coin, a company founded by
technology entrepreneur Chris Larsen in 2012. Like Bitcoin, Ripple is both a
currency and a payment system. The currency component is XRP, which has a
mathematical foundation like Bitcoin. The payment mechanism enables the
transfer of funds in any currency to another user on the Ripple network within
seconds, in contrast to Bitcoin transactions, which can take as long as 10
minutes to confirm.1 6
 MintChip – Unlike most cryptocurrencies, Mint Chip is actually the creation of
a government institution, specifically the Royal Canadian Mint. Mint Chip is a
smartcard that holds electronic value and can transfer it securely from one chip
to another. Like Bitcoin, Mint Chip does not need personal identification;
unlike Bitcoin, it is backed by a physical currency, the Canadian dollar.
Bitcoin is a decentralized currency that uses peer-to-peer technology, which enables
all functions such as currency issuance, transaction processing and verification to be
carried out collectively by the network. While this decentralization renders Bitcoin
free from government manipulation or interference, the flipside is that there is no
central authority to ensure that things run smoothly or to back the value of a Bitcoin.
Bitcoins are created digitally through a “mining” process that requires powerful
computers to solve complex algorithms and crunch numbers. They are currently
created at the rate of 25 Bitcoins every 10 minutes and will be capped at 21 million, a
level that is expected to be reached in 2140.

These characteristics make Bitcoin fundamentally different from a fiat currency,

which is backed by the full faith and credit of its government. Fiat currency issuance
is a highly centralized activity supervised by a nation’s central bank. While the bank
regulates the amount of currency issued in accordance with its monetary policy
objectives, there is theoretically no upper limit to the amount of such currency
issuance. In addition, local currency deposits are generally insured against bank
failures by a government body. Bitcoin, on the other hand, has no such support
mechanisms. The value of a Bitcoin is wholly dependent on what investors are willing
to pay for it at a point in time. As well, if a Bitcoin exchange folds up, clients with
Bitcoin balances have no recourse to get them back.

The Future of cryptocurrencies:

Some of the limitations that cryptocurrencies presently face – such as the fact that
one’s digital fortune can be erased by a computer crash, or that a virtual vault may be
ransacked by a hacker – may be overcome in time through technological advances.
What will be harder to surmount is the basic paradox that bedevils cryptocurrencies –
the more popular they become, the more regulation and government scrutiny they are
likely to attract, which erodes the fundamental premise for their existence.

While the number of merchants who accept cryptocurrencies has steadily increased,
they are still very much in the minority. For cryptocurrencies to become more widely
used, they have to first gain widespread acceptance among consumers. However, their
relative complexity compared to conventional currencies will likely deter most people,
except for the technologically adept.

A cryptocurrencies that aspires to become part of the mainstream financial system

may have to satisfy widely divergent criteria. It would need to be mathematically
complex (to avoid fraud and hacker attacks) but easy for consumers to understand;
decentralized but with adequate consumer safeguards and protection; and preserve
user anonymity without being a conduit for tax evasion, money laundering and other
nefarious activities. Since these are formidable criteria to satisfy, is it possible that the
most popular cryptocurrencies in a few years’ time could have attributes that fall in
between heavily-regulated fiat currencies and today’s cryptocurrencies? While that
possibility looks remote, there is little doubt that as the leading cryptocurrencies at
present, Bitcoin’s success (or lack thereof) in dealing with the challenges it faces may
determine the fortunes of other cryptocurrencies in the years ahead.

Conclusion
The emergence of Bitcoin has sparked a debate about its future and that of other
cryptocurrencies. Despite Bitcoin’s recent issues, its success since its 2009 launch has
inspired the creation of alternative cryptocurrencies such as Etherium, Litecoin,
and Ripple. A cryptocurrencies that aspires to become part of the mainstream financial
system would have to satisfy very divergent criteria. While that possibility looks
remote, there is little doubt that Bitcoin’s success or failure in dealing with the
challenges it faces may determine the fortunes of other cryptocurrencies in the years
ahead.