Question:
Discuss about the Promise and Perils of Digital Currencies.
Crypto Currency refers to the digital asset configured to be set as a medium for the exchange, utilizing the cryptography to provide a secured transaction and hence, offering a control and limiting the introduction of any additional units relative to currency. The relevant keys, which are private enough are secured and stored in a wallet, technically known as the crypto currency wallets. These crypto currencies are provided with a classification of being a subset to the digital currencies as well as for the alternative currency methodology and the virtual means of value transaction. Among the many, Bitcoin is the first decentralized crypto currency to be launched in 2009. This report presents an insight on the various aspects of crypto currency surrounding different crypto currencies. The report discusses the case study put forward, dealing with the paper on the Bitcoin and its relevance in the crypto currency revolution and in the later sections of the report the required analysis on crypto currencies is presented in a descriptive manner.
E-commerce these days have become a potential market player concerned with the electronic transactions regarding the financial transfers. In relevance to the case study provided, an analysis is led out on the Bitcoin as the crypto currencies used for the electronic transmissions, the related procedures and conquests (Nakamoto 2008). However, the system is well capable of most of the transactions while, it fails to gain its importance regarding a value-based model. The major feature of this type of transaction is the fact that it is completely irreversible as the financial institutions neglect the mediating any discrepancies or disputes. To an extent, a considerable amount of fraud is present as that cannot be avoided. This provoked the need for the cryptographic mode of transfer no basing the transmission process only on trust but proof instead, allowing the two main people in business to carry forward the transmission without the presence of a third-party. This system provides a better computational and irreversible proof for the customers. However, the analysis prove that the paper is focused on the providing the solution for the double-spending problem and henceforth, offering proof for the chronological statement for the transactions.
Next is the concept of transaction involved in the digital process of financial transfer. This section of the model introduced the digital coins, associated with digital signature. Signing a hash relative to a previous transaction allows an owner to the transfer the coin to the other and the same is applicable for the consecutive owners (Nakamoto 2008). A payee in charge can proceed with the verification of the signatures for the authentication of the owners. To implement the verification for the double spending by any of the owner, the direct solution for the same is to introduce a central unit, which can be a replicate to the commercial banks that would be responsible for the maintenance of records. To avoid any double-spending from the owners, only the first transaction was approved to be considered so that this provides a relevant record to the payee to understand and trust.
The solution to this particular criterion was the introduction of timestamp, which collects the hash relative to a block of commodities that needs to be included. This provides the proof to the existence of a particular data corresponding to a particular phase in order to be in the hash collection. This mechanism helps in the formation of a chain containing the present and the preceding timestamp in the hash ensuring that every additional timestamp reinforces the previous one.
The proof-of-work is the standard method to implement distributed network for the timestamp based on the peer-to-peer system. This methodology helps in ensuring that each hash initiates with a number of zero-digits. This mechanism increments each nonce present in the block until it locates the presence of zero bits. If at any instance the CPU expended to satisfy the method, the corresponding block cannot be configures unless a redo is available. Proof-of-work satisfies the majority decision-making procedure as it is based on one-CPU-one-vote. The only technical limitation orienting this methodology was the increasing speed of the hardware was resolved with the evaluation of transfer of average number of blocks each hour.
Following few relevant steps as is presented in the study, helped in the easy networking of the blocks. Adding to this, the nodes are the longest chain that can be considered as the correct one. At the instances of mismatching information from the nodes, the first received broadcast by the nodes is considered while the other is stored and the following proof reading method provides the longest branch. On missing any node, the blocks potentially report about the same with the receiving of the next one.
Regarding the initial transaction a new coin is achieved by the creator of the blocks. This way the addition of incentives leads to the circulation of the coins in the system. In this systematic proceeding, the CPU time and the electricity is on the expenditure. Transaction fee is possibly funded for the incentive. Any predetermined entry of coins leads to the transition entirely surrounding the transaction fee and the same is without any inflation. This incentive helps in effective fraud management as the greedy owner, if any will discover to steal his own transferred payments or will end up crating new coins.
The role of the disk space proves to be beneficial as prior to discarding of the transaction in coin the disk space is saved accordingly. Merkel tree is beneficial equipment for restricting the breaking of the block’s hash without the need of storage for the earlier interior hashes. Following the corresponding block header with the absence of any transaction estimates to be 80 bytes.
This Bitcoin methodology was introduced with an advantage of payment verification mode, following which, it became easy to run a full check on the network node to find the longest proof-of-work in the present copy of the block header and utilizing the Merkel tree this can be added on to the time-stamped block chain. However, there is a percentage of vulnerability in concern to an attacker. Business receiving payments on a frequent basis will be more reliable on a personalized network.
Developing a system to handle each coin on an individual approach is not a feasible option, following this a set up with multiple units as input and outputs were used to split and combine each transaction to provide an efficient transfer system. The fan-out option based on inter-linked transaction is not a limitation in this case as the extraction transaction record is not important.
Regarding the security concept especially surrounding the banking model, keeping the private keys anonymous potential will break the flow of information especially surrounding the identity of the individuals concerned with the transaction, similar to the stock exchange mechanism. An introduction to another feasible firewall is the utilization of a new pair of keys to avoid the linking with any common owner (Nakamoto 2008).
This is a digital mechanism of electronic transaction based on the utilization of Bitcoin with various ways to provide security without solely depending on trusting third parties or involving them but just on the expenditure of CPU time and electricity (Kogias et al. 2016).
Crypto currency mining states to the procedure through which verifications of transactions management are done and likewise added to the segment of public ledger, technically termed as the block chain (Vigna and Casey 2016). Through this procedure new coins are released. There are various kinds of crypto currencies, few which can be stated are Bitcoin, Ethereum and Zcash. Comparison on the resources for the mining of crypto currencies is provided.
For regular users using the computer daily, the technique of CPU mining is designed that can be used for the purpose (Lewenberg et al. 2015). In this case, the CPU mining method utilizes the general processor of the residential computers. GPU mining refers to Graphics Processing Unit, which is especially used in a gaming computer as this is available in a high end machine. The GPU is potential for the mining of different kinds of crypto currencies and the most profitable of them varies with time. Coins providing minor advantages are easily CPU mined.
While, another method for mining crypto currency is the ASICs, these are specially configured machines that are built especially for the mining tasks. This method is a microchip configured system launched in 2013 (Narayanan et al. 2016). These systems consume a great level of power. Pools were arranged to vary the gain of blocks more evenly between the companies set to compete for the limited amount of blocks available.
The profitability of mining the Bitcoin in the present situation is dependable on certain various variables; these variable parameters that influence the calculation are the electricity costs, the hardware cost and other rates of variables. The fact relative to the mining of the Bitcoin is that it ranges from the initial phase of involving few enthusiastic to specialized or customized high industry venture (Raymaekers 2015). The easily accessible money oriented with the procedure has expended long time ago and the now only remains low probabilities of cryptographic equivalents. The most realistic fact is the organizations that develop and adapt specialized and skilled mechanisms through launching machines are capable of extracting Bitcoin at present (Courtois and Bahack 2014). In other words, even if mining is possible for regular users, this would not prove to be beneficial or profitable for them as it consumes maximum of the investment.
Electricity used per seconds of consumption relative to hash-rates is the major investment linked with the mining method. The future profitability associated with the mining of the Bitcoin is an unpredictable stance, especially owing to the constantly changing graph highlighting the difficulty modifier and the relative price (Eyal and Sirer 2014). To initiate the mining, there is a requirement of ASICs rig, which is as previously mentioned, designed specifically for mining. There are present various anti-miners such as Anti-miner S9, which is available at an estimated value of $1800 to $2400 and there is another associated cost of electricity. Henceforth, it is understandable that Bitcoin mining cannot provide huge profitability until the investment regarding the power consumption and equipments is high enough as in cases of big industries.
The introduction of crypto currency has caused a major shift on the ways people handle business and the transaction methods. This has launched a model based on which the value exchange is done even beyond traditional banking technologies with the simple utilization of mobile phones (Moore 2013). This is making the people independent of the traditional banking methodologies, as peer-to-peer networks based on the cryptographic transfer are gaining the market attention and has reveled another way of financing.
Conceptually the direct response orienting the query of whether this is posing a threat to the traditional concepts is a yes. The major industrialist with keen attention has already been capable of identifying the industry for the crypto currency as a threat for on the banks stating that this invention has the potential to transform the arena of finance. Analyzing the trending reports and the studies it can be stated that crypto currency is a major threat to the banks especially surrounding the customer care and their customized preferences associated with the financial transfer (King 2013). This is especially due to the fact that the Bitcoin users are potential enough to manage their own financial dealing without being dependent on banks. Crypto currency rely on their own, which is supposedly uninterrupted technology to provide the full guaranteed value.
Higher regulation should be provided with the usage of Bitcoin to prevent the criminals or the web-attackers from utilizing the benefits of crypto currency (Hayes 2017). This has introduced a great level of opportunities for the criminals as recorded in the mid-May the hackers were able to receive thousand dollars through Bitcoin by attacking the global networking system by a malware named WannaCry (Hurlbur and Bojanova 2014). Bitcoin is as introduced earlier in the report is anonymous and thus is easy for the criminals to use. The malware pot5enmtially locked the computers and demanded money in form of Bitcoin to unlock the systems. This provided the criminals with huge amount of money (Kaplanov 2012). The release of the Bitcoin usage critically questions the security oriented with the utilization of Bitcoin especially the misuse of the same by the attackers. Likewise, the Bitcoin do not deserve to be illegal but a pointer to note is the feature of anonymity of the Bitcoin has risen the bars of criminal attacks in the recent past by helping the ransomware attacks (Apostolaki, Zohar and Vanbever 2016).
China is involved in the procedure of mining, which is estimated to be the most of Bitcoin and henceforth, potentially can export most of the Bitcoins. The power consumption relative to the technique of mining requires electricity, which is available in China at cheaper rates as compared to the world around (Bonneau et al. 2015). This particular fact has allowed the Bitcoin miners to gain a high level of hash power. Based on research it is discovered that most of the electricity companies in there utilize or channelize their power towards the mining of Bitcoins. The concept of Bitcoin started as a sovereign authority that as a liberal property even free from the government. The largest mining pools controlled by Bitman, situated in Beijing consume or controls almost 30% of the entire processing of power focused on the mining of Bitcoins.
China is the place of origin for many Bitcoin mining units suchas F2Pool, AnPool and BTCC. They mine about 60% of the entirely new Bitcoins.
Conclusion:
Crypto Currency as such the Bitcoin and Zcash still can experience significant hindrance that needs to be overcome prior to the replacement of the present banking systems entirely. The major obstacle can be noted to be from the financial institutions as they oppose the same is enough to stop the proliferation of the crypto currency technology. Organization has witnessed this to be an accessible system but still not certain about the stability they withstand. Additionally, this system still possesses some major internal limitations that should be solved to become a more efficient and fraud proof system and hence would be able to manage the discrepancies in form of the attacks that it is contributing towards. Otherwise, this is a smart invention in this digital world.
References:
Antonopoulos, A.M., 2014. Mastering Bitcoin: unlocking digital cryptocurrencies. ” O’Reilly Media, Inc.”.
Apostolaki, M., Zohar, A. and Vanbever, L., 2016. Hijacking Bitcoin: Routing Attacks on Cryptocurrencies. arXiv preprint arXiv:1605.07524.
Bonneau, J., Miller, A., Clark, J., Narayanan, A., Kroll, J.A. and Felten, E.W., 2015, May. Sok: Research perspectives and challenges for bitcoin and cryptocurrencies. In Security and Privacy (SP), 2015 IEEE Symposium on (pp. 104-121). IEEE.
Courtois, N.T. and Bahack, L., 2014. On subversive miner strategies and block withholding attack in bitcoin digital currency. arXiv preprint arXiv:1402.1718.
Eyal, I. and Sirer, E.G., 2014, March. Majority is not enough: Bitcoin mining is vulnerable. In International conference on financial cryptography and data security (pp. 436-454). Springer, Berlin, Heidelberg.
Garcia, D., Tessone, C.J., Mavrodiev, P. and Perony, N., 2014. The digital traces of bubbles: feedback cycles between socio-economic signals in the Bitcoin economy. Journal of the Royal Society Interface, 11(99), p.20140623.
Hayes, A.S., 2017. Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin. Telematics and Informatics, 34(7), pp.1308-1321.
Hurlburt, G.F. and Bojanova, I., 2014. Bitcoin: Benefit or Curse?. IT Professional, 16(3), pp.10-15.
Kaplanov, N., 2012. Nerdy money: Bitcoin, the private digital currency, and the case against its regulation. Loy. Consumer L. Rev., 25, p.111.
King, S. and Nadal, S., 2012. Ppcoin: Peer-to-peer crypto-currency with proof-of-stake. self-published paper, August, 19.
King, S., 2013. Primecoin: Cryptocurrency with prime number proof-of-work. July 7th.
Kogias, E.K., Jovanovic, P., Gailly, N., Khoffi, I., Gasser, L. and Ford, B., 2016. Enhancing bitcoin security and performance with strong consistency via collective signing. In 25th USENIX Security Symposium (USENIX Security 16) (pp. 279-296). USENIX Association.
Laszka, A., Johnson, B. and Grossklags, J., 2015, January. When bitcoin mining pools run dry. In International Conference on Financial Cryptography and Data Security (pp. 63-77). Springer, Berlin, Heidelberg.
Lewenberg, Y., Bachrach, Y., Sompolinsky, Y., Zohar, A. and Rosenschein, J.S., 2015, May. Bitcoin mining pools: A cooperative game theoretic analysis. In Proceedings of the 2015 International Conference on Autonomous Agents and Multiagent Systems (pp. 919-927). International Foundation for Autonomous Agents and Multiagent Systems.
Moore, T., 2013. The promise and perils of digital currencies. International Journal of Critical Infrastructure Protection, 6(3), pp.147-149.
Nakamoto, S., 2008. Bitcoin: A peer-to-peer electronic cash system.
Narayanan, A., Bonneau, J., Felten, E., Miller, A. and Goldfeder, S., 2016. Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton University Press.
Raymaekers, W., 2015. Cryptocurrency Bitcoin: Disruption, challenges and opportunities. Journal of Payments Strategy & Systems, 9(1), pp.30-46.
Vigna, P. and Casey, M.J., 2016. The age of cryptocurrency: how bitcoin and the blockchain are challenging the global economic order. Macmillan.
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