Cryptocurrency has long been a volatile market, with rises and falls of 40% or more in a matter of days not uncommon. But, with volatility comes opportunity and some savvy investors have capitalised on massive gains over the years.
The six cryptocurrency requirements were developed by the cryptocurrency researcher Jan Lansky.
Here we are going to look at all of them.
1. The system does not require a central authority, distributed achieve consensus on its state.
While digital currencies are the instantiations of fiat currencies, which are used for online transactions and international transfers, there are three key characteristics that set cryptocurrencies apart from fiat currencies and their digital instantiations. First, they have no central authority, and, hence, they are claimed to be immune to government interference and manipulation. This makes them a viable alternative, especially in countries with volatile currencies and unstable economies
2. The system keeps an overview of cryptocurrency units and their ownership.
The state of ownership is related to individual system nodes (portfolios) in such a way that only the holder of the corresponding private key would have control over the given portfolio, and it was impossible to issue the same unit twice. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership
3. The system decides if new units can be made
Most cryptocurrency has limits on issuance. The supply of Litecoin for example, will be capped at 84 million units. The purpose of the limit is to provide increased transparency in the money supply, in contrast to government-backed currencies. With the major currencies being created on open source codes, any given individual can determine the supply of the currency and make a judgment about its value accordingly.
4. Ownership can be proved cryptographically
Every time someone attempts to spend Bitcoin he needs to provide a signed transaction, proving to the network that he is in fact in possession of the private key and thus the owner of the funds spendable by the address (derived from the public key). Using common wallet software the exact process will be mostly hidden from the user.
Besides signing spending transactions with our private key we are also able to sign arbitrary messages with our private key. In fact thats what Public-
key cryptography was used for long before Bitcoin to prove authenticity of a message. Signing an arbitrary message with a private key is not limited to
Bitcoin. It’s applicable to other cryptocurrencies as well.
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.
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