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Texila International Journal of Academic Research
Volume 4, Issue 2, Dec 2017
A Crictal Review of Cryptocurrency Systems
Article by Mahendra Kumar Shrivas
1
, Thomas Yeboah
2
1
Information Technology, Texila American University, Guyana, South America
2
Department of ICT, Christen Service University College, Kumasi, Ghana
E-mail: mshrivas@texilaconnect.com
1
thomyebs24@gmail.com
2
Abstract
Adoption of Cryptocurrency has grown significantly over the time and becoming more popular
among young generation. People are calling it currency of new digital era. In this research work we
are reviewing the dominant Cryptocurrency systems and its underlying disruptive Innovations and
Technologies.
Keywords:
Cryptocurrency, Blockchain, Digital Currency, Hashing, Proof of Work, Proof of Stake,
Tangle, RippleNet, Bitcoin, Altcoins.
Introduction
We are in the middle of next revolution where Innovations and Technologies are challenging our
existing systems and disrupting the way we do several operations. From industrial revolution to the
invent of Internet we have already seen lots of changes which have significantly affected our daily life.
In today's era we cannot imagine our life without Internet. Our various industries are getting benefits
from Smart Phones, Cloud Computing, Artificial Intelligence, Machine Learning, Big Data, Internet of
Things (IoT), etc. These technologies are just not replacing the old technologies but also transforming
our economy to more digitized and innovation driven economy. New set of services have been build
on these technologies like eBanking, eLearning, eCommerce, eGovernance, etc.
Cryptocurrency is an example of such disruptive Innovation and Technology which is transforming
the way we do banking in this globalized world which is powered by Internet.
A Cryptocurrency is cryptographically signed digital currency which is virtual in nature and hard to
counterfeit due to strong encryption. Cryptocurrency is different from fiat currency. Fait currencies are
printed by various governments and they control the value of it while governments are not having any
control over Cryptocurrency and mostly decentralized. Crypto-currencies are controlled by
Cryptocurrency community members, miners, general public participating in the transaction.
Transactions are processed, validated, verified by Cryptocurrency miners and successful transaction
get recorded in public and distributed ledger called Blockchain. Cryptocurrency transactions are
anonymous, irreversible and secure in nature.
A. Objectives of the study
The main objectives of this Study is to:
Critically review the underline technologies being used in dominant Cryptocurrency
Systems.
Analyze strengths and weaknesses of underline technologies of dominant
Cryptocurrency Systems.
B. Significance of the study
Cryptocurrency has been adopted significantly by various financial insinuations. Various merchants
have started accepting Crypto-currencies along with fiat currencies. Cryptocurrency has given new
opportunity to governments, businesses, individuals, start-ups to build future ready, open, reliable and
secure services which could be helpful to rebuild dying global economy. This study could be a
significant contribution in literature on Technologies of Cryptocurrency Systems as authors are going
to review technologies being used in dominant Cryptocurrency Systems and also going to discuss
advantages and disadvantages of Cryptocurrency.
1
DOI:
10.21522/TIJAR.2014.04.02.Art012
ISSN:
2520-3088
C. Scope of the study
In this research work authors are going to review underline technologies of dominant
Cryptocurrency Systems as per as Innovation and Technology is concern which is not linked with
market capitalization, valuation or legal status of Cryptocurrency.
D. Research methodology
In this study authors have used Qualitative research methodology. Mainly Exploratory and
Descriptive approach adopted in this critical review and based on observation.
Literature review
Wei Dai published a description of "b-money", a distributed and an anonymous electronic cash
system in 1998 (Dai, 2017). As per Wei Dai “b-money, a scheme for a group of untraceable digital
pseudonyms to pay each other with money and to enforce contracts amongst themselves without
outside help”. Later on Nick Szabo created "bit gold" (Peck, 2012). Bit Gold was a Cryptocurrency
and was based on Proof of Work (POW) function (Szabo, 2008). Reusable Proof of Work ("RPOW")
was proposed by Hal Finney in which was an extension to Dai’s and Nick’s work. The RPOW system
reuses POW tokens and uses Hash-Cash (Finney, 2005). Hash Cash was based on SHA-1 hashes
(Eastlake 3rd & Jones, 2001). At this time none of the Cryptocurrency become famous.
And then the global financial crisis begins in 2007 when subprime lending market in US breakdown
due high debt risk Lehman Brothers collapsed on 15th September 2008 (Williams, 2010). 2007 and
2008 was the year of global recession, economy slowdown and debt crisis. Double spending was the
fundamental issue which leads to this financial crisis along with mismanagement of funds by various
financial institution and governments.
In 2009 a purely peer-to-peer, decentralized, electronic cash called Bitcoin was introduced by
pseudonym Satoshi Nakamoto which could be an individual or group (Nakamoto, 2008). Bitcoin was
the first Cryptocurrency which become famous among general public. Since then lots of similar
Cryptocurrency was introduced with similar or new technology and known as Altcoins.
Later in 2011 the Financial Crisis Inquiry Commission (FCIC) (FCIC, 2017) given reason behind
this financial tragedy. As per the FCIC the financial disaster was preventable and was mainly caused
by "widespread failures in financial regulation and supervision", "dramatic failures of corporate
governance and risk management at many systemically important financial institutions", "a
combination of excessive borrowing, risky investments, and lack of transparency" by financial
institutions and what "added to the uncertainty and panic" was , hostile groundwork and fickle act by
government (FCIC, 2011).
This fueled the adoption and technical enhancement of Cryptocurrency. Followings are the
underline technologies being used in dominant Cryptocurrency Systems: -
A. Blockchain
Blockchain is one of widely used non-controversial technology in Cryptocurrency space which
works flawlessly, securely and is a most valued technology after Internet. Blockchain maintains a
public ledger which is a central but distributed record of all successful event/transaction in Blockchain
networks. Once transaction is recorded in Blockchain it is impossible to remove or reverse.
Verification of each transaction in this public ledger is done by agreements of a mainstream of the
contributors in the Blockchain (Michael, Pattanayak, Verma, & Kalyanaraman, 2016). Block
ownership in Blockchain can be verified thus forged entry can be avoided.
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Texila International Journal of Academic Research
Volume 4, Issue 2, Dec 2017
1. Transaction in blockchain
Figure 1.
Transaction in blockchain
As depicted in Figure 1 (Nakamoto, 2008) in Blockchain each transaction has chain of
cryptographically signed digital signatures which is irreversible. Each party transmit the digital
information to the next party by digitally signing a hash of the prior transaction and the public key of
the subsequent owner and adding these to the end of the digital information. Any changes in the block
leads to different hash thus the changed block is dropped to avoid forging. Timestamps are hashed to
track that data was existing already before it is processed by next node in the Blockchain network.
High level and simplified version of Blockchain transaction is given in Figure 2 (Michael, Pattanayak,
Verma, & Kalyanaraman, 2016)
Figure 2.
High level bitcoin transaction in blockchain
2. Proof of work
Proof of work (POW) concepts was introduced in “Bit Gold” later on it has been used in Hashcash
as Reusable Proof of Work (RPOW) was introduced in 1998. In 2002 Adam Back introduced the
concepts of CPU cost function which can be used as proof-of-work. Costs functions can be interactive
3
DOI:
10.21522/TIJAR.2014.04.02.Art012
ISSN:
2520-3088
and non-interactive which can be used in connection oriented and connectionless environment
respectively (Back, 2002).
As per Satoshi Nakamoto “The proof-of-work involves scanning for a value that when hashed, such
as with SHA-256, the hash begins with a number of zero bits. The average work required is
exponential in the number of zero bits required and can be verified by executing a single hash.”
(Nakamoto, 2008).
Cryptocurrency protocol uses Proof of Work to prevent double spending and to establish scarcity
(Becker, et al., 2013).
3. Incentive or mining rewards
To keep Blockchain network running someone has to verify the transaction which involve
execution of hashing algorithms and require significant CPU time and electricity resources. To reward
supporting node in Blockchain network new coin is generated and given as a rewards to the supporting
note which is also called miner. The incentive or mining rewards can also be given as transaction fees.
Some of the Cryptocurrency which uses Blockchain as their fundamental underlying technology is
listed in Table 1. However, they are having few difference in term of validation times, way of
processing and services provided. Like Bitcoin and Bitcoin Cash is identical but uses difference block
size. Bitcoin Cash uses higher block size and faster than Bitcoin. Ethereum and Dash is based on
Virtual Machine but Dash uses two category of nodes one is master node and another one is validation
node. While Ethereum is a decentralized Blockchain Application platform that runs smart contracts.
Ethereum allows developers to design and issue their own Cryptocurrency. Ether is the fuel in
Ethereum platform. Litecoin is similar to Bitcoin but is faster than Bitcoin as it takes 2.5-minute lesser
block generation time. It uses scrypt hashing algorithm (Percival & Josefsson, 2016) while Bitcoin
uses SHA-256 hashing algorithm (Dadda, Macchetti, & Owen, 2004). Litecoin uses Segregated
Witness, and the Lightning Network technology to boost transaction in the Litecoin Blockchain
network.
Some of the Strength of Blockchain is listed below:-
1. Blockchain is based on Peer-To-Peer concepts thus there isn't any third party or central bank
sitting between sender and receiver.
2. Same currency cannot be spend at the same time.
3. Transactions are recorded in single public ledger and cannot be manipulated one recorded.
4. In traditional banking International transaction takes days to settle while in Blockchain it is a
matter of few minutes.
5. Blockchain eliminates need of third-parties thus transaction fees are very low.
6. Users are empowered and having control of all their information and transactions.
7. Government cannot control or regulate Blockchain because users are allowed to do transaction
anonymously.
8. Blockchain work on the concepts of decentralization thus Blockchain network cannot be closed
down and users can do secure transaction 24/7.
9. Blockchain completely elements associated risks of frauds and identity thefts which is biggest
issue in traditional banking system.
10. Blockchain tolerate unauthorized transaction and prevent malicious attacks. Some of the
weaknesses of Blockchain is listed below:-
Blockchain is power hungry. To keep Blockchain network running huge amount of power is
needed. As per John McAfee, to generate 1 Bitcoin around 1000$ get burnt.
Various government regulation status is not clear on Blockchain. Legal adoption is an issue as
per as Blockchain for Cryptocurrency is concern.
Blockchain related technologies are still in its evaluation phase thus cyber security is an major
issue.
Due to anonymously nature of transaction this can be used by various criminals.
To Integrate Blockchain to existing financial and banking system lots of extra capital and cost is
required.
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Texila International Journal of Academic Research
Volume 4, Issue 2, Dec 2017
Customer protection is another issue in Blockchain, once transaction is committed, it cannot be
reversed, unless the will of the new owner of the token.
Increasing block size is the biggest challenge in Blockchain.
Online Initial Coin Offering (ICO) frauds are common in Blockchain space so one should be very
careful. Due to unclear regularity framework future of Blockchain related projects are in high
risk.
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