Minutiae of Crypto-Currency – A Study!

A word that is buzzing in the finance in the finance industry “Crypto-Currency”. Most of us, actually do not know what it is and what it is used for? Here, lets us know a bit about this currency.

Crypto-currency can be defined as a digital currency that uses cryptography for security and anti-counterfeiting measures. Words like private keys and public keys are used for transfer of these currencies between individuals. Crypto currency is said to be a flat currency which means users need to agree up on the value and the medium of exchange, before initial use. As this currency is not tied to a particular country, the value cannot be controlled by any country’s central bank.

For Example: The most common crypto-currency is Bit-Coin. Value of the currency fluctuated with demand and supply. Just like price of precious metals such as gold, silver, and platinum.

Crypto-currency transactions are anonymous, untraceable and thus have became highly popular for illegal transactions like drug trafficking, payment mode for kidnapping etc, as this currency has no central repository, it is not easy to keep track of where the money came from and where it got transferred. Transactions with these currencies do not come under any law enforcement guidelines and payment procedures have no jurisdiction. Primary strength of crypto currency is anonymity, because of which the power shifts to individuals from institutions even though it is used for illegal reasons.

A currency like ‘Bit-Coin’ has a network of peers. Each peer (known as miners) has a record of complete history of all transactions to balance all accounts. Here a transaction is a file. For example: A gives n bit-coins to B”. The entry is made with A’s private key. After the sign-in, the transaction is broadcasted in the network. This transaction needs time for confirmation. As long as the transaction is not confirmed, the transaction can be forged. Once the transaction is confirmed, no change can be made to the transaction and it becomes a part of block-chain.

Only miners can confirm these transactions on the crypto-currency. The miners are rewarded with crypto-currency for doing this confirmation. Bitcoins can only be created if mines solve a cryptographic puzzle, and the difficulty level of the puzzles keeps on increasing. These currencies are secured by math and there is a very less probability of being compromised.

The primary reason for this currency to gain popularity is because of their transactional properties like the following:-

  • Irreversible: Once confirmation of the transaction is done, it cannot be reversed. Not even the miners can reverse a transaction.
  • Pseudonymous: Neither transactions nor accounts are connected to real world entities. It is possible to analyze transaction flow but cannot connect to real identity of users with the 30 letter character address.
  • Fast and global: Transactions are propagated instantly and takes just two minutes for confirmation.
  • Secure: This type of currency is kept in a public key cryptography system. Only the owner of the private key can send crypto-currency.
  • Permission less: No special permissions are needed for use of crypto-currency. It is just software that needs to be downloaded for free. Once it is installed you can send and receive crypto-currencies.

These few factors make crypto-currency popular among common citizens and many use them for illegal activities.