Cryptocurrency

An Overview of Digital Currency Beginnings

The electronic currency history dates back to 1998, when Wei Dai, a recognized computer engineer, published about an anonymous electronic distributed cash system called 'B-money.' Following this trend, Nick Szabo developed an electronic currency called 'bit gold.' The system users had to complete work function proof and traded solutions that the system put together and published. Sometime later, Hal Finney, following Wei Dai and Sczabo’s footprints, developed a digital currency system based on a reusable work proof.

In 2009, Satoshi Nakamoto developed the very first decentralized digital trade called bitcoin. This system utilizes the SHA-256 as a scheme for proof-of-work, also known as the trade hash function. After Satoshi's invention, Namecoin came into existence in April 2011. It was another attempt to develop a decentralized system DNS that intended to make internet censorship challenging.

Soon after its development, Litecoin came to the forefront in October 2011. This was the first trade that successfully used the hash function instead of using SHA-256 as scrypt. Another notable invention of trade was the Peercoin that used a hybrid proof-of-stake/proof-of-work successfully. The first trade which used blockchain instead of using Tangle was IOTA.
Digital currency inventors created many trades, but only a few proved successful as they didn't contribute much to the digital technology innovation.

The UK’s central bank announced on 6th August 2014 that its Treasury was commissioned to conduct a trade study and the role (if any) it can play in the UK's economy. Also, the study was to provide a report on whether the authorities should consider the imposition of regulations on this type of trade or not.
The Central Bank of UK representatives stated the results of this study. It found that trade adoption like bitcoin could pose a serious threat to the central bank’s ability to influence the credit price of the entire UK economy. Additionally, it was stated in the report that when the use of trade becomes popular, the consumers are bound to lose their confidence in fiat currencies.


Expansion and Growth of Digital Currency

Robocoin founder Jordan Kelley, on 20th February 2014, launched the very first ATM for bitcoin in the USA. He installed its kiosk in Austin, Texas, which was very much similar to the regular ATM but used scanners for reading the identifications issued by the government like passport or driver's license. The purpose was to confirm the identities of users. Following this trend, 1547 ATMs for bitcoin, installed by September of 2017 across the world, had an average 9.05% fee.

A non-profit organization, Dogecoin Foundation, focused on Dogecoin, funded the trip of the Jamaican team to the 2014 Olympics Game held in Sochi, Russia, with more than $30,000 value of Dogecoin. The expanding Dogecoin community cemented its credentials for charity through fundraising that sponsored service dogs for children having special needs.


The Digital Currency’s Legal Status and Issues

The digital currency's legal status is not identical across the countries, and in most cases, it is still not defined or evolving. Some countries have banned or limited its use while others have allowed its trade and use it explicitly. Similarly, different government departments, agencies, courts and other governing authorities classify bitcoins differently. The Central Bank of China restricted financial institutions to handle bitcoins in China in early 2014 when people were adopting this digital currency at a rapid pace. Although it is legal to trade in Russia, purchasing goods with some other currency other than their own currency (Russain Ruble) is illegal.

The United States Internal Revenue Service (IRS) decreed on 25th March 2014 that the public would treat bitcoin as an asset against the currency. This made bitcoin subject to a tax of capital gains. The primary benefit of this order was that it clarified the bitcoin’s legal status. The investors no longer need to worry about their profits or investments that they made through bitcoin are illegal or how to do reporting about it to the IRS. The Oxford and Warwick universities published a paper that showed that bitcoin characteristics are somewhat similar to the market of precious metals compared to conventional currencies. This makes the bitcoin in agreement with the decision of the IRS, even if it has differing reasons. Other legal issues besides government also surfaced regarding trade. For instance, Coinye, an altcoin, used Kanye West’s logo without taking permission. When the operator, David P. McEnery Jr., released Coinye, Kanye West’s attorneys sent him a desist and cease letter. According to the letter, the currency logo was an infringement of willful trademark rights and intrusion upon cyberprivacy. Plus, it was unfair competition and dilution. So it asked to stop using Kanye West’s name and likeness for that digital currency.

Since bitcoin’s inception in 2009, the demand and popularity of digital currencies have continued to grow. The concerns that this unregulated trade may become a threat to the global economy and trade society also continue to grow side by side. The primary concern is that it can become instruments in the hands of cybercriminals to perform anonymous cyber crimes. There is a lack of market regulation in the trade networks that is a big attraction for those users who seek digital currency use and decentralized exchange. This lack of rules gives an opportunity to potential criminals to do money laundering and evade taxes. The transactions that users do through these altcoins systems do not come under the governance of formal banking systems, making it easier for individuals to evade tax. Since authorities determine the individual's taxable income on the basis of the reports of the recipient to the revenue services, it's incredibly challenging to account for those transactions which an individual makes using existing altcoin trade. This complex trade mode is challenging and, in some situations, impossible to follow.
Also, the anonymity systems in most digital trades can serve as a means of money laundering. Instead of using complex financial actors' networks and accounts in offshore banks, the money launderers can do money laundering through altcoins while staying anonymous.

The Magistrate of Texas Federal Court in Eastern District, Judge Amos Mazzant, on 6th August 2013 gave a ruling that as people can use trade (bitcoin) as currency (for purchasing goods and services, paying for expenses of individual needs and in exchange for other currencies), as it is a form of money or currency. Due to this ruling, SEC was able to exercise its jurisdiction over various securities fraud cases that involved trade.
On 26 October 2013, a Chinese platform for bitcoin trading, GBL, was shut down suddenly. As the subscribers could not log into their accounts, they lost bitcoins of value nearly $5 million.
In February 2014, Mt. Gox, the world’s largest exchange of bitcoin, declared bankruptcy. This made trade the national headlines. According to the statement of the company, it lost almost $473 million worth of its user's bitcoins, probably because of theft. This amount was equivalent to nearly 7% of all the bitcoins present globally, or 750,000 bitcoins approximately. Due to this news of crisis, the prices of bitcoins fell down from $1,160 in December to below $400 in Feb.
In March 2015, the authorities charged the GAW-Miners site owner (now defunct) with securities fraud after his trade development called Paycoin. The authorities accused him of masterminding a smart and elaborate Ponzi plan disguising it as 'cloud mining.' He hosted all the mining equipment in the data centre. He claimed that miners referred to as 'hashlets’ are mining trade within the cloud Zenportal when in reality there were no active miners engaged in mining trade. The portal has more than 10,000 users who had purchased more than $19 million worth of hashlets in total.
A Florida federal judge on August 2016 certified a lawsuit of class action opposed to the owner and platform of defunct exchange trade, Cryptsy. The judge accused the owner of misusing millions of dollars deposits with the company and destroying its evidence. And afterwards, he was believed to escape to China.


Darknet Digital Currency Market

The misuse of trade is not only in the currencies and other markets; it’s also extensively used in the controversial online dark markets like Silk Road.
The authorities shut down the actual Silk Road in October 2013. Following this, two fake versions came into existence, and since then, they are in use. The latest version is Silk Road 3.0. The online dark markets are widely and successfully using the Silk Road format, which has subsequently led to the online dark market decentralization. When the initially original Silk Road version was shut down, many prominent black markets emerged and increased from 4 to 12. At the same time, the drug listing amount boosted from 18,000 to nearly 32,000.
With respect to the legality of altcoins, darknet markets present a significant and growing challenge. The different forms of altcoins and bitcoins that darknet markets use are not defined or classified globally. In the USA, authorities label bitcoins as 'digital assets.' Due to this unclear classification, there is increasing pressure on the regulatory agencies worldwide to adjust to the dark market's evolving drug trade.

Since the majority of darknet markets use 'Tor' for operation, users can find them conveniently on various public domains. It means users can find their addresses, customer reviews and open multiple forums about the drugs sold in these markets. All this can be done without accusing or charging any type of user. Due to this anonymity, users operating on both ends of darknet markets can escape the hands of law enforcement agencies. This results in the adherence of law enforcement to a singling out campaign of individual drug dealers and darknet markets to stop the supply of illegal drugs. Despite that, the drug suppliers and dealers in the darknet markets precede law enforcement agencies that are unable to keep pace with the swiftly expanding anonymous darknet market places.
The unregulated means to raise funds for a new venture of trade is referred to as Initial Coin Offering (ICO). Startups mainly use this ICO to escape the stringent and well-regulated procedures traditional banking systems or venture capitalists require. In the ICO campaign, the early project backers sell some trade percentage in legal tender or some other exchange which is often Ethereum or Bitcoin. This type of trade uses different schemes to timestamp and avoids the requirement of a trusted third party for transaction timestamping to add the transactions to the ledger of the blockchain.


Proof-of-Work/Proof-of-Stake Schemes

The proof-of-work scheme was the first timestamping invention. The bitcoin's and scrypt’s SHA-256 is among the widely popular proof-of-work scheme which many digital currencies use, like Litecoin. This now dominates the trading world, having at least 480 established implementations. Few other algorithms that used proof-of-work include X11, SHA-3 and Blake.
The authorities did changes in the proof-of-work scheme's algorithm to address scaling problems like the IOTA ledger's working. It uses a simplified algorithm for proof-of-work schemes, which utilizes an acyclic graph directly. After the new transaction sender does a little proof-of-work, this transaction becomes a ledger component. Therefore, it makes each participant of the network a miner. The more users use this system, the more it scales automatically.
In some trades, there is a use of proof-of-stake/proof-of-work scheme combination. The proof-of-stake method secures a trade network and accomplishes a distributed consensus by requesting platform users to display their ownership of a specific currency amount within the ledger. This scheme differs from the proof-of-work scheme that uses complex algorithms for hashing for electronic transaction validation. The scheme depends largely on the use of coins, and presently, there is no standard form.
Users use trade primarily outside conventional banking and existing government institutions. Plus, they do exchange across the internet. While these decentralized alternative transaction modes are still in their early development stages, they are uniquely positioned to challenge and threaten the existing payments and currency systems.
In June 2017, trade's total capitalization market was substantially greater than $US 100 billion and recorded a $ US 6 billion high volume daily.