CryptoCurrency


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What is CryptoCurrency (from wikipedia)

Cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is prior defined and publicly known. In centralized banking and economic systems such as the Federal Reserve System, governments control the value of currency by printing units of fiat money or demanding additions to digital banking ledgers. However, governments cannot produce units of cryptocurrency and as such, governments cannot provide backing for firms, banks or corporate entities which hold asset value measured in a decentralized cryptocurrency. The underlying technical system upon which all cryptocurrencies are now based was created by the group or individual known as Satoshi Nakamoto.

Hundreds of cryptocurrency specifications now exist; most are similar to and derived from the first fully implemented cryptocurrency, Bitcoin. Similar protocols include Proof-of-stake, a common authentication protocol forked from the Proof-of-work authentication protocol used by Bitcoin. Within cryptocurrency systems the safety, integrity and balance of all ledgers is maintained by a community of mutually distrustful parties referred to as miners: members of the general public who allow their idle computers to help validate and process transactions.

The underlying security of cryptocurrency systems comes from the difficulty of finding hash set intersections a task which generally takes a computer O(2^n/2) number of iterations to complete where n is the hash functions output size in bits. Bitcoins hashing function, 'SHA-2' has an output size of 512 bits, therefore a collision would take O(2^256) iterations to find; for comparison there are believed to be approximately 2^266 atoms in the entire universe. A type of cryptocurrency security subversion far more likely to succeed is the so-called "51%" attack; in this scenario an extremely powerful attacker attempts to take control of the global block-chain ledger by generating an alternate block-chain faster than the honest-one being produced by all other miners, this attack is very expensive and ineffective as payee wallet-nodes are not going to accept references to invalid transactions as payment, and honest Mining-nodes will never accept a block containing them, An attacker using the "51%" technique can only hope to undo one of his own transactions.

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. This can mimic the scarcity (and value) of precious metals and avoid hyperinflation. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.  Existing cryptocurrencies are all pseudo-anonymous, though additions such as Zerocoin and its distributed laundry feature have been suggested, which would allow for anonymity

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History

The first cryptocurrency, Bitcoin, was created in 2009 by pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, as its proof-of-work scheme. In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin was the first to use a proof-of-work/proof-of-stake hybrid. Many other cryptocurrencies have been created though few have been successful, as they have brought little in the way of technical innovation. On 6 August 2014, the UK announced its Treasury had been commissioned to do a study of cryptocurrencies, and what role, if any, they can play in the UK economy. The study was also to report on whether regulation should be considered.

Publicity

Central bank representatives have stated that the adoption of Cryptocurrencies such as bitcoin pose a significant challenge to central banks' ability to influence the price of credit for the whole economy, they've also stated that as trade using Cryptocurrencies become more popular, there is bound to be a loss of consumer confidence in fiat currencies. Gareth Murphy, a senior central banking officer has stated "widespread use [of cryptocurrency] would also make it more difficult for statistical agencies to gather data on economic activity, which are used by governments to steer the economy, He cautioned that virtual currencies pose a new challenge to central banks' control over the important functions of monetary and exchange rate policy.

Jordan Kelley, founder of Robocoin launched the first Bitcoin ATM in the United States on February 20, 2014. The kiosk installed in Austin, Texas is similar to bank ATMs but has scanners to read government-issued identification such as a driver's license or a passport to confirm users' identities.

The Dogecoin Foundation, a charitable organization centered around Dogecoin and co-founded by Dogecoin co-creator Jackson Palmer, donated more than $30,000 worth of Dogecoin to help fund the Jamaican bobsled team's trip to the 2014 Olympic games in Sochi, Russia. The growing community around Dogecoin is looking to cement its charitable credentials by raising funds to sponsor service dogs for children with special needs

Legality

Cryptocurrencies are legal in all countries except Iceland, due primarily to Iceland's freeze on foreign exchange. Controversy over the misuse of cryptocurrency has also led to restrictions in certain countries – regulators in China banned the handling of Bitcoins by financial institutions during an extremely fast adoption period in early 2014. In Russia, though cryptocurrencies are perfectly legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.

On March 25, 2014 the 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.
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