From Wikipedia, the free encyclopedia
Jump to: navigation, search

A cryptocurrency is a medium of exchange designed around securely exchanging information which is a process made possible by certain principles of cryptography. The first cryptocurrency to begin trading was Bitcoin in 2009. Since then, numerous cryptocurrencies have been created. Fundamentally, cryptocurrencies are specifications regarding the use of currency which seek to incorporate principles of cryptography to implement a distributed, decentralized and secure information economy.


When comparing cryptocurrencies to fiat money, the most notable difference is in how no group or individual may accelerate, stunt or in any other way significantly abuse the production of money. Instead, only a certain amount of cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is bounded by a value both prior defined and publicly known. In centralized economic systems such as the Federal Reserve System governments regulate the value of currency by simply 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 anonymous group or individual known as Satoshi Nakamoto for the purpose of creating an economy within which the practice of fractional reserve banking would be fundamentally impossible.[1][2][3]

Hundreds of cryptocurrency specifications now exist; most are similar to and derived from the first fully implemented cryptocurrency protocol, Bitcoin.[4][5][6][7][8] Within cryptocurrency systems, the safety, integrity, and balance of all ledgers is ensured by a swarm of mutually distrustful parties, referred to as miners, who are, for the most part, general members of the public, actively protecting the network by maintaining a high hash-rate difficulty for their chance at receiving a randomly distributed small fee. Subverting the underlying security of a cryptocurrency is mathematically possible, but the cost may be unfeasibly high. For example, against Bitcoin's proof-of-work based system, an attacker would need computational power greater than that controlled by the entire swarm of miners in order to even have 1 / (2^(# authentication rounds for this cryptocurrency) - 1) of a chance, which means directly circumventing Bitcoin's security is now a task well beyond even a technology company the size of Google.[9]

Most cryptocurrencies are designed to gradually introduce new units of currency, placing an ultimate cap on the total amount of currency that will ever be in circulation. This is done both to mimic the scarcity (and value) of precious metals and to avoid hyperinflation.[10][11] As a result, such cryptocurrencies tend to experience hyperdeflation as they grow in popularity and the amount of the currency in circulation approaches this finite cap. [12] Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies are less susceptible to seizure by law enforcement.[10][13] Existing cryptocurrencies are all pseudonymous, though additions such as Zerocoin and its distributed laundry feature have been suggested, which would allow for anonymity.[14][15][16]


The first cryptocurrency was Bitcoin, which was created in 2009 by pseudonymous developer Satoshi Nakamoto, and used SHA-256 as its proof-of-work scheme.[17][18][19] Later, other cryptocurrencies, such as Namecoin (an attempt at a decentralized DNS, which would make internet censorship very difficult), Litecoin (which uses scrypt as a proof-of-work, as well as having faster transaction confirmations), Peercoin (which uses a proof-of-work/proof-of-stake hybrid, and has inflation of about 1%) and Freicoin (which implements Silvio Gesell's concept of Freigeld by adding demurrage) were also created.[20] Many other cryptocurrencies have been created, though not all have been successful, especially those that brought few innovations.

David Chaum designed a number of electronic money systems such as DigiCash and ecash, which incorporated certain concepts of cryptography to anonymise electronic money transactions, however these were not cryptocurrencys because they did not have a transaction approval system based upon miners providing proof of stake/work, instead the systems used a centralized issuing and clearing system similar to paypal.[21]

For the first two years of existence, cryptocurrencies gradually gained attention from the media and public.[22] Since 2011, interest has rapidly increased, especially during the rapid price rise of Bitcoin in April 2013.

Proof-of-work schemes[edit]

The most widely used proof-of-work schemes are SHA-256, which was introduced by Bitcoin, and scrypt, which is used by currencies such as Litecoin.[20] Some cryptocurrencies, such as Peercoin, use a combined proof-of-work/proof-of-stake scheme[20][23] and one Nxt[24] , exclusively use proof-of-stake.

Notable cryptocurrencies[edit]

This is a list of notable cryptocurrencies. By December 2013 there were more than 60 cryptocurrencies available for trade in online markets.[25]

Currency Code Symbol Year
Founder(s) Active Website Market

(US$ mn)[nt 1][26]
(%)[nt 1][26]
(mn)[nt 1][26]
Bitcoin[nt 2] BTC[27][28] or XBT[29] Nothing official 2009 Satoshi Nakamoto (pseudonym)[30] Yes[31] ~4,676 60.14% ~12.63 of 21[32] SHA-256d[33][34] Yes[35][34] No
Ripple[nt 3][36][37][38] XRP[38] N/A 2013 Chris Larsen & Jed McCaleb[39][38] Yes ~637 100% 100,000 of 100,000[40] ECDSA[40] No No
Litecoin[nt 4] LTC Ł 2011[34] Charles Lee[30] Yes[41][34] ~253 32.58% ~27.37 of 84[34] scrypt[34] Yes No
Peercoin PPC 2012[34] Sunny King (pseudonym)[42] Yes[43][34] ~29 N/A ~21.3 of ∞[34] SHA-256[44] Yes[34] Yes[34]
Dogecoin[nt 5] DOGE Ɖ 2013 Jackson Palmer
& Billy Markus[45]
Yes[46] ~25 69.13% ~69,131 of 100,000[47] scrypt[47] Yes No
Mastercoin MSC N/A 2013 J. R. Willett [48] Yes ~15 100% ~0.619478 of 0.6194786[49] SHA-256d[50] No No
Namecoin[nt 6] NMC 2011 N/A Yes ~12 40.38% ~8.48 of 21[25] SHA-256[citation needed] Yes No
Auroracoin AUR 2014 Baldur Friggjar Odinsson
Yes ~11 50.86% ~10.68 of 21[52] scrypt[citation needed] Yes No
Primecoin XPM Ψ 2013 Sunny King (pseudonym)[42] Yes ~3 N/A ~5.18 of ∞[53] 1CC/2CC/TWN[53] Yes[53] No[53]
Vertcoin VTC[54] N/A 2014 David Muller[54] Yes ~3 4% ~3.36 of 84[54] Scrypt-Adaptive-Nfactor[54] Yes N/A
MazaCoin MZC[55] N/A 2014 Dataman[55] Yes ~0.2 9.38% ~226.98 of 2419.2[55] SHA-256[55] Yes[55] No[55]
Coinye COYE[56] N/A 2014 N/A Yes N/A N/A N/A scrypt[56] N/A N/A
Ethereum ETH N/A TBA Vitalik Buterin Yes N/A N/A N/A N/A N/A N/A
Zerocoin N/A N/A TBA N/A Yes N/A N/A N/A N/A N/A N/A


  1. ^ a b c 11 April 2014 data.
  2. ^ The first widely known decentralized ledger currency.
  3. ^ A unique cryptocurrency based on peer to peer debt transfer. The term Ripple can also refer to both the digital currency (also known as XRP), or to the payment network on which it and other digital currencies can be traded.
  4. ^ The first scrypt cryptocurrency.
  5. ^ A cryptocurrency to be based on an internet meme.
  6. ^ A cryptocurrency that also acts as an alternative, decentralized DNS.


  • Some have expressed concern that cryptocurrencies are extremely risky due to their very high volatility[57] and potential for pump and dump schemes[58]
  • Some cryptocurrency systems are pre-mined, have hidden launches, or have extreme rewards for the first miners.[59][better source needed] Pre-mining means currency is generated by the currency's founders prior to mining code being released to the public.[60] It often refers to a deceptive practice, but can also be used as an inherent part of a digital cryptocurrency's design, as in the case of Ripple or Nxt.[61]
  • Most cryptocurrencies are duplicates of existing cryptocurrencies with minor changes and no novel technical developments. One such, "Coinye West", a comedy cryptocurrency alluding to the rapper Kanye West, was served a cease-and-desist letter on January 7, 2014.[62]
  • Very few cryptocurrencies can be exchanged for fiat currencies and instead can only be traded for other cryptocurrencies. Banks generally do not offer services for them and sometimes refuse to offer services to virtual-currency companies.[63]
  • Regulators in several countries have warned against their use and some have taken concrete regulatory measures to dissuade users.[64]

See also[edit]


  1. ^ Bitcoin-block-signing History,, 2-3-2014
  2. ^ Deflation and Banking,, 19-12-2006
  3. ^ Bitcoin Creation Mechanism,, 12-1-2014
  4. ^ Listing of active coins,, 27-2-2014
  5. ^ Bitcoins authentication protocol,, 5-2-2014
  6. ^ another common authentication protocol forked from P.O.W.,, 15-2-2014
  7. ^ another authentication protocol forked from P.O.S.,, 7-6-2013
  8. ^ Bitcoins introductory date,, 26-2-2014
  9. ^ Googles technological resources,, 09-02-2014
  10. ^ a b Crypto currency, Forbes, 26-05-2013
  11. ^ How Cryptocurrencies Could Upend Banks' Monetary Role, American Banker, 26-05-2013
  12. ^ We need decentralized cryptocurrencies, we just don’t need Bitcoin,, 04-12-2013
  13. ^ The FBI's Plan For The Millions Worth Of Bitcoins Seized From Silk Road, Forbes, 04-10-2013
  14. ^ 'Zerocoin' Add-on For Bitcoin Could Make It Truly Anonymous And Untraceable, Forbes, 26-05-2013
  15. ^ Zerocoin: Anonymous Distributed E-Cash from Bitcoin, The Johns Hopkins University Department of Computer Science, 26-05-2013
  16. ^ This is Huge: Gold 2.0 - Can code and competition build a better Bitcoin?, New Bitcoin World, 26-05-2013
  17. ^ BITCOIN A Primer for Policymakers, JERRY BRITO AND ANDREA CASTILLO, Mercatus Center, George Mason University, 31-08-2013
  18. ^ What is Bitcoin Mining?, The Genesis Block, 26-05-2013
  19. ^ Bitcoin developer chats about regulation, open source, and the elusive Satoshi Nakamoto, PCWorld, 26-05-2013
  20. ^ a b c Wary of Bitcoin? A guide to some other cryptocurrencies, ars technica, 26-05-2013
  21. ^ Chaum, David (1983). "Blind signatures for untraceable payments". Advances in Cryptology Proceedings of Crypto 82 (3): 199–203. 
  22. ^ Cryptocurrency, MIT Technology Review, 26-05-2013
  23. ^ "PPCoin: Peer-to-Peer Crypto-Currency with Proof-of-Stake"., 19-08-2012. Sunny King, Scott Nadal. Retrieved 12-05-2013.  {{| date=January 2014}}
  24. ^ "NXTcrypto". NXTcrypto. Retrieved 5 March 2014. 
  25. ^ a b Samuel Gibbs (28 November 2013). "Nine Bitcoin alternatives for future currency investments: Bitcoin's rapid rise in value and profile has spawned over 60 different 'altcoin' digital peer-to-peer currencies". Retrieved 2013-12-12. 
  26. ^ a b c "Crypto-Currency Market Capitalizations". Retrieved 18 April 2014. 
  27. ^ Dixon, Lance (24 December 2013). "Building Bitcoin use in South Florida and beyond". Miami Herald. Retrieved 24 January 2014. 
  28. ^ Spaven, Emily (3 December 2013). "Bitcoin price could reach $98,500, say Wall Street analysts". CoinDesk. Retrieved 24 January 2014. 
  29. ^ Matonis, Jon (17 September 2013). "Bitcoin gaining market-based legitimacy as XBT". CoinDesk. Retrieved 24 January 2014. 
  30. ^ a b McMillan, Robert (30 August 2013). "Ex-Googler gives the world a better Bitcoin". Wired (Condé Nast). Retrieved 14 January 2014. 
  31. ^ "Bitcoin Exchange Rate in USD". 
  32. ^ "FAQ - Bitcoin". Retrieved 20 January 2014. 
  33. ^ Taylor, Michael Bedford (2013). "Bitcoin and the age of bespoke silicon" (PDF). Proceedings of the 2013 International Conference on Compilers, Architectures and Synthesis for Embedded Systems (Piscataway, NJ: IEEE Press). ISBN 978-1-4799-1400-5. Retrieved 14 January 2014. 
  34. ^ a b c d e f g h i j k Steadman, Ian (7 May 2013). "Wary of Bitcoin? A guide to some other cryptocurrencies". Wired UK (Condé Nast UK). 
  35. ^ Hobson, Dominic (2013). "What is Bitcoin?". XRDS: Crossroads, The ACM Magazine for Students 20 (1) (Association for Computing Machinery). pp. 40–44. doi:10.1145/2510124. ISSN 1528-4972. 
  36. ^ Chayka, Kyle (2 July 2013). "What Comes After Bitcoin?". Pacific Standard. Retrieved 18 Jan 2014. 
  37. ^ Vega, Danny (4 December 2013). "Ripple’s Big Move: Mining Cryptocurrency with a Purpose". (Hearst Seattle Media, LLC, a division of The Hearst Corporation). 
  38. ^ a b c Brown, Ariella (17 May 2013). "10 things you need to know about Ripple". CoinDesk. Retrieved 15 January 2014. 
  39. ^ Simonite, Tom (11 April 2013). "Big-name investors back effort to build a better Bitcoin". MIT Technology Review. Retrieved 14 January 2014. 
  40. ^ a b "How it works - Ripple Wiki". Retrieved 20 January 2014. 
  41. ^ "Betacoin Exchange Rate in USD". BTC-E. Retrieved 1 March 2013. 
  42. ^ a b Boase, Richard (20 November 2013). "Litecoin spikes to $200m market capitalization in five hours". CoinDesk. Retrieved 14 January 2014. 
  43. ^ "PPCoin Exchange Rate in BTC". BTC-E. 
  44. ^ Bradbury, Danny (7 November 2013). "Third largest cryptocurrency peercoin moves into spotlight with Vault of Satoshi deal". CoinDesk. Retrieved 14 January 2014. 
  45. ^ Chang, Jon M (27 December 2013). "Bitcoin alternative 'Dogecoin' hacked, 21 million coins stolen". ABC News (website) (ABC News Internet Ventures, Yahoo! – ABC News Network). Retrieved 14 January 2014. 
  46. ^ "Dogecoin". Retrieved 13 Dec 2013. 
  47. ^ a b "Intro - Dogecoin # Technical specifications". Retrieved 14 December 2013. 
  48. ^ Buterin, Vitalik (4 November 2013). "Mastercoin: A Second-Generation Protocol on the Bitcoin Blockchain". Bitcoin Magazine. Retrieved 9 January 2014. 
  49. ^ "FAQ - MasterCoin Dev Wiki # What are Mastercoins and how many are there?". Retrieved 20 March 2014. 
  50. ^ "Mastercoin Spec". Retrieved 2 April 2014. 
  51. ^ Casey, Michael J. (2014-03-05). "Auroracoin already third-biggest cryptocoin–and it’s not even out yet". The Wall Street Journal. 
  52. ^ "FAQ · primecoin/primecoin Wiki · GitHub". Retrieved 15 March 2014. 
  53. ^ a b c d "FAQ · primecoin/primecoin Wiki · GitHub". Retrieved 20 January 2014. 
  54. ^ a b c d "Vertcoin". Retrieved 18 April 2014. 
  55. ^ a b c d e f "MazaCoin - Features". Retrieved 18 April 2014. 
  56. ^ a b "The New Official Coinye Site". Retrieved 18 April 2014. 
  57. ^ "Bitcoin's Volatility Problem: Why Today's Selloff Won't Be the Last". Businessweek. 2013-12-05. Retrieved 2013-12-29. 
  58. ^ "A crypto-currency primer: Bitcoin vs. Litecoin". ZDNet. 2013-12-14. Retrieved 2013-12-29. 
  59. ^ "Scamcoins". August 2013. 
  60. ^ Morris, David Z (24 December 2013). "Beyond bitcoin: Inside the cryptocurrency ecosystem". CNNMoney, a service of CNN, Fortune & Money (Cable News Network). Retrieved 11 January 2014. 
  61. ^ Bradbury, Danny (25 June 2013). "Bitcoin's successors: from Litecoin to Freicoin and onwards". The Guardian (Guardian News and Media Limited). Retrieved 11 January 2014. 
  62. ^
  63. ^ Sidel, Robin (2013-12-22). "Banks Mostly Avoid Providing Bitcoin Services. Lenders Don't Share Investors' Enthusiasm for the Virtual-Currency Craze". Retrieved 2013-12-29. 
  64. ^ Schwartzkopff, Frances (2013-12-17). "Bitcoins Spark Regulatory Crackdown as Denmark Drafts Rules". Bloomberg. Retrieved 2013-12-29.