Digital Currencies – Bitcoin And Cryptocurrencies

Due to improper organization of money in banks at times, it was felt that there was a need for a more secure and transparent way of dealing with it which led to the invention of Bitcoin. Bitcoin is a cryptocurrency which exchanges digital currency between the sender and receiver without any in-betweeners or central bank authority or administration system on a peer-to-peer network in a decentralized way along with many other cryptocurrencies like Litecoin, Ethereum, Ripple, Bitcoin Cash Houben and Snyers (2018) that have come into the picture. The transaction information is kept track of in a public ledger called a blockchain which is updated frequently.

It is ensured that the transactions are updated correctly in every computer responsible for processing bitcoin and each one is encrypted with public-key cryptography. Bitcoin mining is essential to keep the system away from attacks and is executed on tailored computers designed for the purpose of mining. It involves solving complex numeric problems which allow to chain together a block of random transactions. Bitcoin was initiated in the year May 2007 by an anonymous person named Satoshi Nakamoto.

He publicized it by emailing the idea out to his peers who he thought would be interested and released a white paper on Bitcoin Protocol in October 2008. He was found actively tackling issues and dealing with bitcoin developments till the end of 2010 after which it was led by other developers. It is intended for buying goods online. It is widely accepted across different stores, and international payments can be done as there are no government or country regulations or any authority permission required, can be transferred at any time even during public holidays without any margin restriction. Bitcoin exchange is irredeemable.

The setup process is simple when compared to usual bank procedures. It does not require us to reveal any personal information for the transactions to be carried out and hence reduce possible hoax. There is no inflation concept in bitcoin as in the case of fiat currencies. Only 21 million bitcoins will ever be created and at present there are 17.3 million bitcoins are currently involved in transactions. Bitcoins are added through the process of bitcoin mining.

The bitcoin process is transparent, i.e. the transactions can be viewed by anyone, although can be kept hidden if one desired it to be. It is a very speedy process as it completes the transfer within a few minutes while the normal transfer time in banks might take a few days. Once the transfer is made, it cannot be refunded until and unless the receiver transfers it back. In Bitcoin, the receiver is referred to our digital signature which is a security code encrypted with 16 different symbols. The receiver decrypts the code with his device to recover the currency.

It is secure and reliable encrypted with cryptographic algorithms. Bitcoin prices are volatile and hence it is called a speculative bubble. As a result, some investors do not take risks of investing in bitcoin, unlike other people who seek short term investments for profits. Bitcoin is undergoing development with the intention of making it more protected and favourable to public. In extreme cases, government may involve banning the use of bitcoins when it may become difficult to have access to them. When major percent of bitcoin is held by investors for a long time, and when the market need increases the price of bitcoins will increase causing deflation which could be beneficial only to short term financiers. These are some downsides.

Bitcoin is prone to different types of attacks. Some of them include denial-of-service, double spending, Sybil attack, eclipse attack, selfish mining, fork after withholding attack, etc (Bag, Ruj, & Sakurai, 2017). Denial-of-service attacks deny service to authorized clients unexpectedly by causing unwanted network disturbances. Double spending attack involves spending the same currency more than once due to dependability issues in the bitcoin framework. It implies spending similar bitcoins consequently on different transactions. This can be avoided by adding the transactions to a block along with digital signing and time-stamping. Sybil attack implies duplication of identities in the network that relates to fake user accounts and external viewers that identify themselves as real authenticate ones.

Eclipse attack occurs when most of the peers have been affected and this conceals the desirable transactions, it helps in double spending attacks. Selfish mining is a technique where miners together increase the revenue by centralizing the bitcoin process which is not a very good thing and has serious consequences which need attention. It is crucial to address these attacks.