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A Seminar Report
On
Introduction To Cryptocurrency
in partial fulfillment for the award of the degree
B. Tech
IN
COMPUTER SCIENCE AND ENGINEERING
Submitted by:
SANJAY KUMAR
1551110051
G.L. BAJAJ GROUP OF INSTITUION
MATHURA, U. P. (INDIA)
April, 2018
ii
G.L. BAJAJ GROUP OF INSTITUION
MATHURA, U. P. (INDIA)
Certificate
This is certified that the Seminar Report on “Introduction To Cryptocurrency“
by SANJAY KUMAR of VI Semester branch Computer Science and Engineering
in the partial fulfillment of the requirements for the award of the degree
B.Tech. in the stream of Computer Science and Engineering by Dr. A.P.J.
ABDUL KALAM TECHNICAL UNIVERSITY, Lucknow is an authentic work.
Date: APRIL 26, 2018 Ankur Saxena
Assoc. Prof. & Head- CSE Department
iii
TABLE OF CONTENTS
CHAPTER
NO.
TITLE PAGE No.
I Cover Page i
II. Certificate ii
III. Abstract iv
1. Introduction To Cryptocurrency…………..1
1.1 Introduction………………………………………...1
1.2 Definition…………………………………………….1
1.3 Overview……………………………………….…….2
1.4 History………………………………………………...3
2 Properties Cryptocurrency…………………...5
2.1 Transactional Properties……………………….5
2.2 Monetary Properties……………………………..7
3 Cryptocurrency Basics…………………………..8
3.1 Public Leadgers……………………………………..8
3.2 Mining………………..………………………………….9
3.3 Block Chain………………….………………………..9
4 Cryptocurrency Mining………………….………10
4.1 How Miners create Coins?...............................10
5 Dawn Of new Economy……………………………12
5.1 List Of Cryptocurrency…………………………….12
5.2 Top 10 Cryptocurrency……………………………15
6 Advantages Of Cryptocurrency…………………16
7 Disadvantages Of Cryptocurrency………….…18
8 Future of Cryptocurrency…………………………18
9 Conclusions………………………………………………19
10 Referencs…………………………………………………20
iv
Abstract
In this article, we give a short introduction to
cryptocurrencies and blockchain technology. The focus of
the introduction is on Bitcoin, but many elements are
shared by other blockchain implementations and
alternative cryptoassets. The article covers the original
idea and motivation, the mode of operation and possible
applications of cryptocurrencies, and blockchain
technology. We conclude that Bitcoin has a wide range of
interesting applications and that cryptoassets are well
suited to become an important asset class.
This article explains the most important thing about
cryptocurrencies. After you‘ve read it, you‘ll know more
about it than most other humans.
1 | P a g e
Chapter- 1
Introduction to Cryptocurrency
1.1 Introduction:
A cryptocurrency (or crypto currency) is a digital asset designed to work
as a medium of exchange that uses cryptography to secure its
transactions, to control the creation of additional units, and to verify
the transfer of assets. Cryptocurrencies are a type of digital currencies,
alternative currencies and virtual currencies. Cryptocurrencies use
decentralized control as opposed to centralized electronic money and
central banking systems.
The decentralized control of each cryptocurrency works through a
blockchain, which is a public transaction database, functioning as a
distributed ledger.
1.2 Definition:
A cryptocurrency is a system that meets six conditions:
1. The system does not require a central authority, distributed
achieve consensus on its state.
2. The system keeps an overview of cryptocurrency units and their
ownership.
3. The system defines whether new cryptocurrency units can be
created. If new cryptocurrency units can be created, the system
defines the circumstances of their origin and how to determine
the ownership of these new units.
4. Ownership of cryptocurrency units can be proved exclusively
cryptographically.
2 | P a g e
5. The system allows transactions to be performed in which
ownership of the cryptographic units is changed. A transaction
statement can only be issued by an entity proving the current
ownership of these units.
6. If two different instructions for changing the ownership of the
same cryptographic units are simultaneously entered, the system
performs at most one of them.
.
1.3 Overview:
Decentralized cryptocurrency is produced by the entire cryptocurrency
system collectively, at a rate which is defined when the system is
created and which is publicly known. In centralized banking and
economic systems such as the Federal Reserve System, corporate
boards or governments control the supply of currency by printing units
of fiat money or demanding additions to digital banking ledgers. In the
case of decentralized cryptocurrency, companies or governments
cannot produce new units, and have not so far provided backing of
other firms, banks or corporate entities which hold asset value
measured in it. The underlying technical system upon which
decentralized cryptocurrencies are based was created by the group or
individual known as Satoshi Nakamoto.
As of October 2017, over a thousand cryptocurrency specifications
exist; most are similar to and derived from the first fully implemented
centralized cryptocurrency, bitcoin. Within cryptocurrency systems the
safety, integrity and balance of ledger are maintained by a community
of mutually distrustful parties referred to as miners: members of the
general public using their computers to help validate and timestamp
transactions adding them to the ledge in accordance with a particular
3 | P a g e
timestamping scheme. Miners have a financial incentive to maintain
the security of a cryptocurrency ledger.
Most cryptocurrencies are designed to gradually decrease production
of currency, placing an ultimate cap on the total amount of currency
that will be in circulation mimicking previous metals (Andy, 2011).
Compared with ordinary currencies held by financial institutions or kept
as cash on hand, cryptocurrencies can be more difficult for seizure by
law enforcement (Andy, 2011). This difficulty is derived from leveraging
cryptographic technologies. A primary example of this new challenge of
law enforcement comes from the Silk Road case, where Ulbricht’s
bitcoin stash “was held separately and encrypted”8. Cryptocurrencies
such as bitcoin are pseudonymous, though additions such as Zerocoin
have been suggested, which would allow for true anonymity.
1.4 History:
In 1998, Wei Dai published a description of "b-money", an anonymous,
distributed electronic cash system.10 Shortly thereafter, Nick Szabo
created "bit gold".11 Like bitcoin and other cryptocurrencies that would
follow it, Bit Gold was an electronic currency system which required
users to complete a proof of work function with solutions being
cryptographically put together and published. A currency system based
on a reusable proof of work was later created by Hal Finney who
followed the work of Dai and Szabo. The first decentralized
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.12 In April 2011, Namecoin was
created as an attempt at forming a decentralized Domain Name Servers
4 | P a g e
(DNS), which would make internet censorship very difficult. Soon after,
in October 2011, Litecoin was released. It was the first successful
cryptocurrency to use script 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.13 IOTA (Distributed Ledger Technology)
was the first cryptocurrency not based on a blockchain, and instead
uses the Tangle.14 Many other cryptocurrencies have been created
though few have been successful, as they have brought little in the way
of technical innovation.15 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.
5 | P a g e
Chapter- 2
Revolutionary Properties of Cryptocurrency
If you really think about it, Bitcoin, as a decentralized network of peers
which keep a consensus about accounts and balances, is more a
currency than the numbers you see in your bank account. What are
these numbers more than entries in a database – a database which can
be changed by people you don‘t see and by rules you don‘t know?
Basically, cryptocurrencies are entries about token in decentralized
consensus-databases. They are called CRYPTOcurrencies because the
consensus-keeping process is secured by strong cryptography.
Cryptocurrencies are built on cryptography. They are not secured by
people or by trust, but by math. It is more probable that an asteroid
falls on your house than that a bitcoin address is compromised.
2.1 Transactional properties:
1.) Irreversible: After confirmation, a transaction can‘t be reversed. By
nobody. And nobody means nobody. Not you, not your bank, not the
president of the United States, not Satoshi, not your miner. Nobody. If
you send money, you send it. Period. No one can help you, if you sent
your funds to a scammer or if a hacker stole them from your computer.
There is no safety net.
2.) Pseudonymous: Neither transactions nor accounts are connected to
real-world identities. You receive Bitcoins on so-called addresses, which
are randomly seeming chains of around 30 characters. While it is
usually possible to analyze the transaction flow, it is not necessarily
possible to connect the real world identity of users with those
addresses.
6 | P a g e
3.) Fast and global: Transaction are propagated nearly instantly in the
network and are confirmed in a couple of minutes. Since they happen
in a global network of computers they are completely indifferent of
your physical location. It doesn‘t matter if I send Bitcoin to my
neighbour or to someone on the other side of the world.
4.) Secure: Cryptocurrency funds are locked in a public key
cryptography system. Only the owner of the private key can send
cryptocurrency. Strong cryptography and the magic of big numbers
makes it impossible to break this scheme. A Bitcoin address is more
secure than Fort Knox.
5.) Permissionless: You don‘t have to ask anybody to use
cryptocurrency. It‘s just a software that everybody can download for
free. After you installed it, you can receive and send Bitcoins or other
cryptocurrencies. No one can prevent you. There is no gatekeeper.
7 | P a g e
2.2 Monetary properties:
1.) Controlled supply: Most cryptocurrencies limit the supply of the
tokens. In Bitcoin, the supply decreases in time and will reach its final
number somewhere in around 2140. All cryptocurrencies control the
supply of the token by a schedule written in the code. This means the
monetary supply of a cryptocurrency in every given moment in the
future can roughly be calculated today. There is no surprise.
2.) No debt but bearer: The Fiat-money on your bank account is
created by debt, and the numbers, you see on your ledger represent
nothing but debts. It‘s a system of IOU. Cryptocurrencies don‘t
represent debts. They just represent themselves. They are money as
hard as coins of gold.
To understand the revolutionary impact of cryptocurrencies you need
to consider both properties. Bitcoin as a permissionless, irreversible
and pseudonymous means of payment is an attack on the control of
banks and governments over the monetary transactions of their
citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit
someone to accept a payment, you can‘t undo a transaction.
8 | P a g e
Chapter- 3
Cryptocurrency Basics
Cryptocurrencies like Bitcoin are in essence a series of virtual ‘tokens’
that can be exchanged just like normal money except all the
transactions take place over the internet.
Unlike normal money, Bitcoin isn’t regulated by any one country, or
stored in banks. Instead it follows a shared set of rules that every
owner must agree to.
In order to understand how cryptocurrency works, you’ll need to
understand a few basic concepts. Specifically:
3.1 Public Ledgers:
All confirmed transactions from the start of a cryptocurrency’s
creation are stored in a public ledger. The identities of the coin owners
are encrypted, and the system uses other cryptographic techniques to
ensure the legitimacy of record keeping. The ledger ensures that
corresponding “digital wallets” can calculate an accurate spendable
balance. Also, new transactions can be checked to ensure that each
transaction uses only coins currently owned by the spender. Bitcoin
calls this public ledger a “transaction block chain.”
3.2 Transactions:
A transfer of funds between two digital wallets is called a
transaction. That transaction gets submitted to a public ledger and
awaits confirmation. When a transaction is made, wallets use an
encrypted electronic signature (an encrypted piece of data called a
cryptographic signature) to provide a mathematical proof that the
transaction is coming from the owner of the wallet. The confirmation
process takes a bit of time (ten minutes for bitcoin) while “miners”
mine (ie. confirm transactions and add them to the public ledger).
9 | P a g e
3.3 Mining:
In simple terms, mining is the process of confirming
transactions and adding them to a public ledger. In order to add a
transaction to the ledger, the “miner” must solve an increasingly-
complex computational problem (sort of like a mathematical puzzle).
Mining is open source, so anyone can confirm the transaction. The first
“miner” to solve the puzzle adds a “block” of transactions to the ledger.
The way in which transactions, blocks, and the public blockchain ledger
work together ensures that no one individual can easily add or change a
block at will. Once a block is added to the ledger, all correlating
transactions are permanent and a small transaction fee is added to the
miner’s wallet (along with newly created coins). The mining process is
what gives value to the coins and is known as a proof-of-work system
3.4 Blockchain:
The validity of each cryptocurrency's coins is provided by
a blockchain. A blockchain is a continuously growing list of records,
called blocks, which are linked and secured using cryptography. Each
block typically contains a hash pointer as a link to a previous block,
a timestamp and transaction data. By design, blockchains are inherently
resistant to modification of the data. It is "an open, distributed ledger
that can record transactions between two parties efficiently and in a
verifiable and permanent way". For use as a distributed ledger, a
blockchain is typically managed by a peer-to-peer network collectively
adhering to a protocol for validating new blocks. Once recorded, the
data in any given block cannot be altered retroactively without the
alteration of all subsequent blocks, which requires collusion of the
network majority.Blockchains are secure by design and are an example
of a distributed computing system with high Byzantine faut
tolerance. Decentralized consensus has therefore been achieved with a
blockchain.It solves the double spending problem without the need of
a trusted authority or central server.
10 | P a g e
Chapter – 4
Cryptocurrency Mining
Production of cryptocurrencies isn't anything like that of regular
money. There's no central authority that issues new notes; instead,
bitcoins (or litecoins, or any of the other so-called 'alt-coins') are
generated through a process known as 'mining'. So what is
cryptocurrency mining, and how does it work?
4.1 How miners create coins:
A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and
is signed by Bob‘s private key. It‘s basic public key cryptography,
nothing special at all. After signed, a transaction is broadcasted in the
network, sent from one peer to every other peer. This is basic p2p-
technology. Nothing special at all, again.
The transaction is known almost immediately by the whole network.
But only after a specific amount of time it gets confirmed. Confirmation
is a critical concept in cryptocurrencies. You could say that
cryptocurrencies are all about confirmation.
11 | P a g e
As long as a transaction is unconfirmed, it is pending and can be forged.
When a transaction is confirmed, it is set in stone. It is no longer
forgeable, it can‘t be reversed, it is part of an immutable record of
historical transactions: of the so-called blockchain.
Only miners can confirm transactions. This is their job in a
cryptocurrency-network. They take transactions, stamp them as legit
and spread them in the network. After a transaction is confirmed by a
miner, every node has to add it to its database. It has become part of
the blockchain.
12 | P a g e
Chapter- 5
Cryptocurrencies: Dawn of a new economy
Mostly due to its revolutionary properties cryptocurrencies have
become a success their inventor, Satoshi Nakamoto, didn‘t dare to
dream of it. While every other attempt to create a digital cash system
didn‘t attract a critical mass of users, Bitcoin had something that
provoked enthusiasm and fascination. Sometimes it feels more like
religion than technology.
Cryptocurrencies are digital gold. Sound money that is secure from
political influence. Money that promises to preserve and increase its
value over time. Cryptocurrencies are also a fast and comfortable
means of payment with a worldwide scope, and they are private and
anonymous enough to serve as a means of payment for black markets
and any other outlawed economic activity.
5.1 List of Cryptocurrencies:
The number of cryptocurrencies available over the internet as of
10 April 2018 is over 1565 and growing. A new cryptocurrency can be
created at any time. By market capitalization, Bitcoin is currently (April
10, 2018) the largest blockchain network, followed
by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS.
-) Bitcoin
The one and only, the first and most famous cryptocurrency. Bitcoin
serves as a digital gold standard in the whole cryptocurrency-industry,
is used as a global means of payment and is the de-facto currency of
cyber-crime like darknet markets or ransomware. After seven years in
existence, Bitcoin‘s price has increased from zero to more than 650
13 | P a g e
Dollar, and its transaction volume reached more than 200.000 daily
transactions.
There is not much more to say: Bitcoin is here to stay.
-) Ethereum
The brainchild of young crypto-genius Vitalik Buterin has ascended to
the second place in the hierarchy of cryptocurrencies. Other than
Bitcoin its blockchain does not only validate a set of accounts and
balances but of so-called states. This means that Ethereum can not only
process transactions but complex contracts and programs.
This flexibility makes Ethereum the perfect instrument for blockchain -
application. But it comes at a cost. After the Hack of the DAO – an
Ethereum based smart contract – the developers decided to do a hard
fork without consensus, which resulted in the emerge of Ethereum
Classic. Besides this, there are several clones of Ethereum,
and Ethereum itself is a host of several Tokens like DigixDAO and Augur.
This makes Ethereum more a family of cryptocurrencies than a single
currency.
-) Ripple
Maybe the less popular – or most hated – project in the cryptocurrency
community is Ripple. While Ripple has a native cryptocurrency – XRP –
it is more about a network to process IOUs than the cryptocurrency
itself. XRP, the currency, doesn‘t serve as a medium to store and
exchange value, but more as a token to protect the network against
spam.
Ripple Labs created every XRP-token, the company running the Ripple
network, and is distributed by them on will. For this reason, Ripple is
often called pre-mined in the community and dissed as no real
cryptocurrency, and XRP is not considered as a good store of value.
14 | P a g e
Banks, however, seem to like Ripple. At least they adopt the system
with an increasing pace.
-) Litecoin
Litecoin was one of the first cryptocurrencies after Bitcoin and tagged
as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger
amount of token and a new mining algorithm, Litecoin was a real
innovation, perfectly tailored to be the smaller brother of bitcoin. “It
facilitated the emerge of several other cryptocurrencies which used its
codebase but made it, even more, lighter“. Examples are Dogecoin or
Feathercoin.
While Litecoin failed to find a real use case and lost its second place
after bitcoin, it is still actively developed and traded and is hoarded as a
backup if Bitcoin fails.
-) Monero
Monero is the most prominent example of the cryptonite algorithm.
This algorithm was invented to add the privacy features Bitcoin is
missing. If you use Bitcoin, every transaction is documented in the
blockchain and the trail of transactions can be followed. With the
introduction of a concept called ring-signatures, the cryptonite
algorithm was able to cut through that trail.
The first implementation of cryptonite, Bytecoin, was heavily premined
and thus rejected by the community. Monero was the first non-
premined clone of bytecoin and raised a lot of awareness. There are
several other incarnations of cryptonote with their own little
improvements, but none of it did ever achieve the same popularity as
Monero.
15 | P a g e
5.2 Top 10 Crypto currency:
In this rich ecosystem of coins and token, you experience extreme
volatility. It‘s common that a coin gains 10 percent a day – sometimes
100 percent – just to lose the same at the next day. If you are lucky,
your coin‘s value grows up to 1000 percent in one or two weeks.
While Bitcoin remains by far the most famous cryptocurrency and most
other cryptocurrencies have zero non-speculative impact, investors and
users should keep an eye on several cryptocurrencies. Here we present
the most popular cryptocurrencies of today.
16 | P a g e
Chapter- 6
Benefits of Cryptocurrency
Here are several of the benefits of using cryptocurrency, and how doing
so can change your outlook on money altogether:
Fraud: Cryptocurrencies are digital and cannot be counterfeited or
reversed arbitrarily by the sender, as with credit card charge-back.
Identity Theft: Credit cards operate on a “pull” basis, where the store
initiates the payment and pulls the designated amount from your
account. Cryptocurrency use a “push” mechanism that allows the
cryptocurrency holder to send exactly what he or she wants to the
merchant or recipient with no further information
Immediate Settlement: Purchasing real property typically involves a
number of third parties (Lawyers, Notary), delays, and payment of fees.
In many ways, the bitcoin/cryptocurency blockchain is like a “large
property rights database,” says Gallippi. Bitcoin contracts can be
designed and enforced to eliminate or add third party approvals,
reference external facts, or be completed at a future date or time for a
fraction of the expense and time required to complete traditional asset
transfers.
Access to Everyone: There are approximately 2.2 billion individuals
with access to the Internet or mobile phones who don’t currently have
access to traditional exchange systems. These individuals are primed
for the Crytocurrency market. Kenya’s M-PESA system, a mobile phone-
based money transfer and micros financing service recently announced
a bitcoin device, with one in three Kenyans now owning a bitcoin
wallet.
17 | P a g e
Lower Fees: There aren’t usually transaction fees for cryptocurrency
exchanges because the miners are compensated by the network (Side
note: This is the case for now). Even though there’s no
bitcoin/cryptocurrency transaction fee, many expect that most users
will engage a third-party service, such as Coinbase, creating and
maintaining their own bitcoin wallets. These services act like Paypal
does for cash or credit card users, providing the online exchange
system for bitcoin, and as such, they’re likely to charge fees. It’s
interesting to note that Paypal does not accept or transfer bitcoins.
MOST IMPORTANT. YOU OWN IT:
There is no other electronic cash system in which your account isn’t
owned by someone else. Take PayPal, for example: if the company
decides for some reason that your account has been misused, it has the
power to freeze all of the assets held in the account, without consulting
you (Trust me, this has happen to me many times) It is then up to you
to jump through whatever hoops are necessary to get it cleared, so that
you can access your funds. With cryptocurrency, you own the private
key and the corresponding public key that makes up your
cryptpcurrency address. No one can take that away from you (unless
you lose it yourself, or host it with a web-based wallet service that loses
it for you).
18 | P a g e
Chapter- 7
Disadvantages Of Cryptocurrency
Lack of Security. There is no safety net or perfect way to protect your
bitcoins from human error (passwords), technical glitches (hard drive
failures, malware), or fiduciary fraud. According to an article in the UK
edition of Wired, 18 of 40 web-based businesses offering to exchange
bitcoins into other fiat currencies have gone out of business, with only
six exchanges reimbursing their customers. The authors of the study
estimate that the median lifespan of any bitcoin exchange is 381 days,
with a 29.9% chance that a new exchange will close within a year of
opening.
Increased Regulation. While relatively benign guidelines are currently
in place, law enforcement agencies could decide that bitcoins are a
“giant money laundering scheme,” and enact more stringent
regulations that would diminish the currency’s value.
Limited Scaling. The design of the system limits the speed and number
of transactions processed, making it unlikely that bitcoins will replace
conventional credit card transactions.
Lack of Applications. While acknowledging bitcoins’ popular use for
illegal transactions, Lee questions how useful bitcoins really are. To be
truly disruptive to existing fiat currencies or electronic payment
systems, Bitcoin would need applications for low-cost international
money transfers, the creation of complex electronic contracts, or use in
Kickstarter-style fundraising campaigns or micropayment transfers.
19 | P a g e
Chapter – 8
Future Of Cryptocurrency
The market of cryptocurrencies is fast and wild. Nearly every day new
cryptocurrencies emerge, old die, early adopters get wealthy and
investors lose money. Every cryptocurrency comes with a promise,
mostly a big story to turn the world around. Few survive the first
months, and most are pumped and dumped by speculators and live on
as zombie coins until the last bagholder loses hope ever to see a return
on his investment.
Markets are dirty.But this doesn‘t change the fact that cryptocurrencies
are here to stay – and here to change the world. This is already
happening. People all over the world buy Bitcoin to protect themselves
against the devaluation of their national currency. Mostly in Asia, a
vivid market for Bitcoin remittance has emerged, and the Bitcoin using
darknets of cybercrime are flourishing.
More and more companies discover the power of Smart Contracts or
token on Ethereum, the first real-world application of blockchain
technologies emerge.
The revolution is already happening. Institutional investors start to buy
cryptocurrencies. Banks and governments realize that this invention has
the potential to draw their control away. Cryptocurrencies change the
world. Step by step. You can either stand beside and observe – or you
can become part of history in the making.
20 | P a g e
Conclusion:
Cryptocurrency is fast becoming a true rival to traditional currency
across the world. The digital currency is available to purchase in many
different places, making it accessible to everyone, and with retailers
accepting Bitcoin it could be a sign that money as we know it is about to
go through a major change.
The total market capitalization of cryptocurrencies, as of September
2017, is worth more than 100 billion USD, and currently has a record
high daily volume of larger than 6 billion USD.
Making currency decentralized is very appealing within the world of
hacking and tampering of which we live. If protecting our money means
taking it away from the centralized banks, it’s highly likely that the
market capitalization of cryptocurrencies will continue to grow.
As more retailers start accepting cryptocurrency, and more
cryptocurrencies come into circulation, people have more choice than
ever when it comes to managing their own money which is something
which is pulling more people into the cryptocurrency world than ever
before.
21 | P a g e
References:
o https://blockgeeks.com
o https://blockonomi.com/
o https://en.wikipedia.org/wiki/Cryptocurrency
o https://www.investopedia.com/articles/investing/043014/what-
bitcoin-mining.asp
o https://en.wikipedia.org/wiki/List_of_cryptocurrencies
o https://coinmarketcap.com/

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Introduction To CryptoCurrency

  • 1. i A Seminar Report On Introduction To Cryptocurrency in partial fulfillment for the award of the degree B. Tech IN COMPUTER SCIENCE AND ENGINEERING Submitted by: SANJAY KUMAR 1551110051 G.L. BAJAJ GROUP OF INSTITUION MATHURA, U. P. (INDIA) April, 2018
  • 2. ii G.L. BAJAJ GROUP OF INSTITUION MATHURA, U. P. (INDIA) Certificate This is certified that the Seminar Report on “Introduction To Cryptocurrency“ by SANJAY KUMAR of VI Semester branch Computer Science and Engineering in the partial fulfillment of the requirements for the award of the degree B.Tech. in the stream of Computer Science and Engineering by Dr. A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY, Lucknow is an authentic work. Date: APRIL 26, 2018 Ankur Saxena Assoc. Prof. & Head- CSE Department
  • 3. iii TABLE OF CONTENTS CHAPTER NO. TITLE PAGE No. I Cover Page i II. Certificate ii III. Abstract iv 1. Introduction To Cryptocurrency…………..1 1.1 Introduction………………………………………...1 1.2 Definition…………………………………………….1 1.3 Overview……………………………………….…….2 1.4 History………………………………………………...3 2 Properties Cryptocurrency…………………...5 2.1 Transactional Properties……………………….5 2.2 Monetary Properties……………………………..7 3 Cryptocurrency Basics…………………………..8 3.1 Public Leadgers……………………………………..8 3.2 Mining………………..………………………………….9 3.3 Block Chain………………….………………………..9 4 Cryptocurrency Mining………………….………10 4.1 How Miners create Coins?...............................10 5 Dawn Of new Economy……………………………12 5.1 List Of Cryptocurrency…………………………….12 5.2 Top 10 Cryptocurrency……………………………15 6 Advantages Of Cryptocurrency…………………16 7 Disadvantages Of Cryptocurrency………….…18 8 Future of Cryptocurrency…………………………18 9 Conclusions………………………………………………19 10 Referencs…………………………………………………20
  • 4. iv Abstract In this article, we give a short introduction to cryptocurrencies and blockchain technology. The focus of the introduction is on Bitcoin, but many elements are shared by other blockchain implementations and alternative cryptoassets. The article covers the original idea and motivation, the mode of operation and possible applications of cryptocurrencies, and blockchain technology. We conclude that Bitcoin has a wide range of interesting applications and that cryptoassets are well suited to become an important asset class. This article explains the most important thing about cryptocurrencies. After you‘ve read it, you‘ll know more about it than most other humans.
  • 5. 1 | P a g e Chapter- 1 Introduction to Cryptocurrency 1.1 Introduction: A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are a type of digital currencies, alternative currencies and virtual currencies. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems. The decentralized control of each cryptocurrency works through a blockchain, which is a public transaction database, functioning as a distributed ledger. 1.2 Definition: A cryptocurrency is a system that meets six conditions: 1. The system does not require a central authority, distributed achieve consensus on its state. 2. The system keeps an overview of cryptocurrency units and their ownership. 3. The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units. 4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
  • 6. 2 | P a g e 5. The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units. 6. If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them. . 1.3 Overview: Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly known. In centralized banking and economic systems such as the Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. In the case of decentralized cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing of other firms, banks or corporate entities which hold asset value measured in it. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto. As of October 2017, over a thousand cryptocurrency specifications exist; most are similar to and derived from the first fully implemented centralized cryptocurrency, bitcoin. Within cryptocurrency systems the safety, integrity and balance of ledger are maintained by a community of mutually distrustful parties referred to as miners: members of the general public using their computers to help validate and timestamp transactions adding them to the ledge in accordance with a particular
  • 7. 3 | P a g e timestamping scheme. Miners have a financial incentive to maintain the security of a cryptocurrency ledger. Most cryptocurrencies are designed to gradually decrease production of currency, placing an ultimate cap on the total amount of currency that will be in circulation mimicking previous metals (Andy, 2011). Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be more difficult for seizure by law enforcement (Andy, 2011). This difficulty is derived from leveraging cryptographic technologies. A primary example of this new challenge of law enforcement comes from the Silk Road case, where Ulbricht’s bitcoin stash “was held separately and encrypted”8. Cryptocurrencies such as bitcoin are pseudonymous, though additions such as Zerocoin have been suggested, which would allow for true anonymity. 1.4 History: In 1998, Wei Dai published a description of "b-money", an anonymous, distributed electronic cash system.10 Shortly thereafter, Nick Szabo created "bit gold".11 Like bitcoin and other cryptocurrencies that would follow it, Bit Gold was an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published. A currency system based on a reusable proof of work was later created by Hal Finney who followed the work of Dai and Szabo. The first decentralized 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.12 In April 2011, Namecoin was created as an attempt at forming a decentralized Domain Name Servers
  • 8. 4 | P a g e (DNS), which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It was the first successful cryptocurrency to use script 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.13 IOTA (Distributed Ledger Technology) was the first cryptocurrency not based on a blockchain, and instead uses the Tangle.14 Many other cryptocurrencies have been created though few have been successful, as they have brought little in the way of technical innovation.15 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.
  • 9. 5 | P a g e Chapter- 2 Revolutionary Properties of Cryptocurrency If you really think about it, Bitcoin, as a decentralized network of peers which keep a consensus about accounts and balances, is more a currency than the numbers you see in your bank account. What are these numbers more than entries in a database – a database which can be changed by people you don‘t see and by rules you don‘t know? Basically, cryptocurrencies are entries about token in decentralized consensus-databases. They are called CRYPTOcurrencies because the consensus-keeping process is secured by strong cryptography. Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by math. It is more probable that an asteroid falls on your house than that a bitcoin address is compromised. 2.1 Transactional properties: 1.) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net. 2.) Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real world identity of users with those addresses.
  • 10. 6 | P a g e 3.) Fast and global: Transaction are propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they happen in a global network of computers they are completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to my neighbour or to someone on the other side of the world. 4.) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox. 5.) Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
  • 11. 7 | P a g e 2.2 Monetary properties: 1.) Controlled supply: Most cryptocurrencies limit the supply of the tokens. In Bitcoin, the supply decreases in time and will reach its final number somewhere in around 2140. All cryptocurrencies control the supply of the token by a schedule written in the code. This means the monetary supply of a cryptocurrency in every given moment in the future can roughly be calculated today. There is no surprise. 2.) No debt but bearer: The Fiat-money on your bank account is created by debt, and the numbers, you see on your ledger represent nothing but debts. It‘s a system of IOU. Cryptocurrencies don‘t represent debts. They just represent themselves. They are money as hard as coins of gold. To understand the revolutionary impact of cryptocurrencies you need to consider both properties. Bitcoin as a permissionless, irreversible and pseudonymous means of payment is an attack on the control of banks and governments over the monetary transactions of their citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit someone to accept a payment, you can‘t undo a transaction.
  • 12. 8 | P a g e Chapter- 3 Cryptocurrency Basics Cryptocurrencies like Bitcoin are in essence a series of virtual ‘tokens’ that can be exchanged just like normal money except all the transactions take place over the internet. Unlike normal money, Bitcoin isn’t regulated by any one country, or stored in banks. Instead it follows a shared set of rules that every owner must agree to. In order to understand how cryptocurrency works, you’ll need to understand a few basic concepts. Specifically: 3.1 Public Ledgers: All confirmed transactions from the start of a cryptocurrency’s creation are stored in a public ledger. The identities of the coin owners are encrypted, and the system uses other cryptographic techniques to ensure the legitimacy of record keeping. The ledger ensures that corresponding “digital wallets” can calculate an accurate spendable balance. Also, new transactions can be checked to ensure that each transaction uses only coins currently owned by the spender. Bitcoin calls this public ledger a “transaction block chain.” 3.2 Transactions: A transfer of funds between two digital wallets is called a transaction. That transaction gets submitted to a public ledger and awaits confirmation. When a transaction is made, wallets use an encrypted electronic signature (an encrypted piece of data called a cryptographic signature) to provide a mathematical proof that the transaction is coming from the owner of the wallet. The confirmation process takes a bit of time (ten minutes for bitcoin) while “miners” mine (ie. confirm transactions and add them to the public ledger).
  • 13. 9 | P a g e 3.3 Mining: In simple terms, mining is the process of confirming transactions and adding them to a public ledger. In order to add a transaction to the ledger, the “miner” must solve an increasingly- complex computational problem (sort of like a mathematical puzzle). Mining is open source, so anyone can confirm the transaction. The first “miner” to solve the puzzle adds a “block” of transactions to the ledger. The way in which transactions, blocks, and the public blockchain ledger work together ensures that no one individual can easily add or change a block at will. Once a block is added to the ledger, all correlating transactions are permanent and a small transaction fee is added to the miner’s wallet (along with newly created coins). The mining process is what gives value to the coins and is known as a proof-of-work system 3.4 Blockchain: The validity of each cryptocurrency's coins is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data. It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way". For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.Blockchains are secure by design and are an example of a distributed computing system with high Byzantine faut tolerance. Decentralized consensus has therefore been achieved with a blockchain.It solves the double spending problem without the need of a trusted authority or central server.
  • 14. 10 | P a g e Chapter – 4 Cryptocurrency Mining Production of cryptocurrencies isn't anything like that of regular money. There's no central authority that issues new notes; instead, bitcoins (or litecoins, or any of the other so-called 'alt-coins') are generated through a process known as 'mining'. So what is cryptocurrency mining, and how does it work? 4.1 How miners create coins: A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and is signed by Bob‘s private key. It‘s basic public key cryptography, nothing special at all. After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is basic p2p- technology. Nothing special at all, again. The transaction is known almost immediately by the whole network. But only after a specific amount of time it gets confirmed. Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all about confirmation.
  • 15. 11 | P a g e As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain. Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain.
  • 16. 12 | P a g e Chapter- 5 Cryptocurrencies: Dawn of a new economy Mostly due to its revolutionary properties cryptocurrencies have become a success their inventor, Satoshi Nakamoto, didn‘t dare to dream of it. While every other attempt to create a digital cash system didn‘t attract a critical mass of users, Bitcoin had something that provoked enthusiasm and fascination. Sometimes it feels more like religion than technology. Cryptocurrencies are digital gold. Sound money that is secure from political influence. Money that promises to preserve and increase its value over time. Cryptocurrencies are also a fast and comfortable means of payment with a worldwide scope, and they are private and anonymous enough to serve as a means of payment for black markets and any other outlawed economic activity. 5.1 List of Cryptocurrencies: The number of cryptocurrencies available over the internet as of 10 April 2018 is over 1565 and growing. A new cryptocurrency can be created at any time. By market capitalization, Bitcoin is currently (April 10, 2018) the largest blockchain network, followed by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS. -) Bitcoin The one and only, the first and most famous cryptocurrency. Bitcoin serves as a digital gold standard in the whole cryptocurrency-industry, is used as a global means of payment and is the de-facto currency of cyber-crime like darknet markets or ransomware. After seven years in existence, Bitcoin‘s price has increased from zero to more than 650
  • 17. 13 | P a g e Dollar, and its transaction volume reached more than 200.000 daily transactions. There is not much more to say: Bitcoin is here to stay. -) Ethereum The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of accounts and balances but of so-called states. This means that Ethereum can not only process transactions but complex contracts and programs. This flexibility makes Ethereum the perfect instrument for blockchain - application. But it comes at a cost. After the Hack of the DAO – an Ethereum based smart contract – the developers decided to do a hard fork without consensus, which resulted in the emerge of Ethereum Classic. Besides this, there are several clones of Ethereum, and Ethereum itself is a host of several Tokens like DigixDAO and Augur. This makes Ethereum more a family of cryptocurrencies than a single currency. -) Ripple Maybe the less popular – or most hated – project in the cryptocurrency community is Ripple. While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and exchange value, but more as a token to protect the network against spam. Ripple Labs created every XRP-token, the company running the Ripple network, and is distributed by them on will. For this reason, Ripple is often called pre-mined in the community and dissed as no real cryptocurrency, and XRP is not considered as a good store of value.
  • 18. 14 | P a g e Banks, however, seem to like Ripple. At least they adopt the system with an increasing pace. -) Litecoin Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm, Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It facilitated the emerge of several other cryptocurrencies which used its codebase but made it, even more, lighter“. Examples are Dogecoin or Feathercoin. While Litecoin failed to find a real use case and lost its second place after bitcoin, it is still actively developed and traded and is hoarded as a backup if Bitcoin fails. -) Monero Monero is the most prominent example of the cryptonite algorithm. This algorithm was invented to add the privacy features Bitcoin is missing. If you use Bitcoin, every transaction is documented in the blockchain and the trail of transactions can be followed. With the introduction of a concept called ring-signatures, the cryptonite algorithm was able to cut through that trail. The first implementation of cryptonite, Bytecoin, was heavily premined and thus rejected by the community. Monero was the first non- premined clone of bytecoin and raised a lot of awareness. There are several other incarnations of cryptonote with their own little improvements, but none of it did ever achieve the same popularity as Monero.
  • 19. 15 | P a g e 5.2 Top 10 Crypto currency: In this rich ecosystem of coins and token, you experience extreme volatility. It‘s common that a coin gains 10 percent a day – sometimes 100 percent – just to lose the same at the next day. If you are lucky, your coin‘s value grows up to 1000 percent in one or two weeks. While Bitcoin remains by far the most famous cryptocurrency and most other cryptocurrencies have zero non-speculative impact, investors and users should keep an eye on several cryptocurrencies. Here we present the most popular cryptocurrencies of today.
  • 20. 16 | P a g e Chapter- 6 Benefits of Cryptocurrency Here are several of the benefits of using cryptocurrency, and how doing so can change your outlook on money altogether: Fraud: Cryptocurrencies are digital and cannot be counterfeited or reversed arbitrarily by the sender, as with credit card charge-back. Identity Theft: Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency use a “push” mechanism that allows the cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further information Immediate Settlement: Purchasing real property typically involves a number of third parties (Lawyers, Notary), delays, and payment of fees. In many ways, the bitcoin/cryptocurency blockchain is like a “large property rights database,” says Gallippi. Bitcoin contracts can be designed and enforced to eliminate or add third party approvals, reference external facts, or be completed at a future date or time for a fraction of the expense and time required to complete traditional asset transfers. Access to Everyone: There are approximately 2.2 billion individuals with access to the Internet or mobile phones who don’t currently have access to traditional exchange systems. These individuals are primed for the Crytocurrency market. Kenya’s M-PESA system, a mobile phone- based money transfer and micros financing service recently announced a bitcoin device, with one in three Kenyans now owning a bitcoin wallet.
  • 21. 17 | P a g e Lower Fees: There aren’t usually transaction fees for cryptocurrency exchanges because the miners are compensated by the network (Side note: This is the case for now). Even though there’s no bitcoin/cryptocurrency transaction fee, many expect that most users will engage a third-party service, such as Coinbase, creating and maintaining their own bitcoin wallets. These services act like Paypal does for cash or credit card users, providing the online exchange system for bitcoin, and as such, they’re likely to charge fees. It’s interesting to note that Paypal does not accept or transfer bitcoins. MOST IMPORTANT. YOU OWN IT: There is no other electronic cash system in which your account isn’t owned by someone else. Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you (Trust me, this has happen to me many times) It is then up to you to jump through whatever hoops are necessary to get it cleared, so that you can access your funds. With cryptocurrency, you own the private key and the corresponding public key that makes up your cryptpcurrency address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).
  • 22. 18 | P a g e Chapter- 7 Disadvantages Of Cryptocurrency Lack of Security. There is no safety net or perfect way to protect your bitcoins from human error (passwords), technical glitches (hard drive failures, malware), or fiduciary fraud. According to an article in the UK edition of Wired, 18 of 40 web-based businesses offering to exchange bitcoins into other fiat currencies have gone out of business, with only six exchanges reimbursing their customers. The authors of the study estimate that the median lifespan of any bitcoin exchange is 381 days, with a 29.9% chance that a new exchange will close within a year of opening. Increased Regulation. While relatively benign guidelines are currently in place, law enforcement agencies could decide that bitcoins are a “giant money laundering scheme,” and enact more stringent regulations that would diminish the currency’s value. Limited Scaling. The design of the system limits the speed and number of transactions processed, making it unlikely that bitcoins will replace conventional credit card transactions. Lack of Applications. While acknowledging bitcoins’ popular use for illegal transactions, Lee questions how useful bitcoins really are. To be truly disruptive to existing fiat currencies or electronic payment systems, Bitcoin would need applications for low-cost international money transfers, the creation of complex electronic contracts, or use in Kickstarter-style fundraising campaigns or micropayment transfers.
  • 23. 19 | P a g e Chapter – 8 Future Of Cryptocurrency The market of cryptocurrencies is fast and wild. Nearly every day new cryptocurrencies emerge, old die, early adopters get wealthy and investors lose money. Every cryptocurrency comes with a promise, mostly a big story to turn the world around. Few survive the first months, and most are pumped and dumped by speculators and live on as zombie coins until the last bagholder loses hope ever to see a return on his investment. Markets are dirty.But this doesn‘t change the fact that cryptocurrencies are here to stay – and here to change the world. This is already happening. People all over the world buy Bitcoin to protect themselves against the devaluation of their national currency. Mostly in Asia, a vivid market for Bitcoin remittance has emerged, and the Bitcoin using darknets of cybercrime are flourishing. More and more companies discover the power of Smart Contracts or token on Ethereum, the first real-world application of blockchain technologies emerge. The revolution is already happening. Institutional investors start to buy cryptocurrencies. Banks and governments realize that this invention has the potential to draw their control away. Cryptocurrencies change the world. Step by step. You can either stand beside and observe – or you can become part of history in the making.
  • 24. 20 | P a g e Conclusion: Cryptocurrency is fast becoming a true rival to traditional currency across the world. The digital currency is available to purchase in many different places, making it accessible to everyone, and with retailers accepting Bitcoin it could be a sign that money as we know it is about to go through a major change. The total market capitalization of cryptocurrencies, as of September 2017, is worth more than 100 billion USD, and currently has a record high daily volume of larger than 6 billion USD. Making currency decentralized is very appealing within the world of hacking and tampering of which we live. If protecting our money means taking it away from the centralized banks, it’s highly likely that the market capitalization of cryptocurrencies will continue to grow. As more retailers start accepting cryptocurrency, and more cryptocurrencies come into circulation, people have more choice than ever when it comes to managing their own money which is something which is pulling more people into the cryptocurrency world than ever before.
  • 25. 21 | P a g e References: o https://blockgeeks.com o https://blockonomi.com/ o https://en.wikipedia.org/wiki/Cryptocurrency o https://www.investopedia.com/articles/investing/043014/what- bitcoin-mining.asp o https://en.wikipedia.org/wiki/List_of_cryptocurrencies o https://coinmarketcap.com/