Digital Currency Overview
Author： Ken Poon
Cryptocurrency could be the best starting point of digital currency. Bitcoin, is generally considered the first cryptocurrency of this kind created by blockchain. Proof of Work (PoW) and Proof of Stake (PoS) are two kinds of computer algorithms that are responsible for today’s success of digital currencies like Bitcoin and Ethereum. PoW is based on an advanced form of mathematics called ‘cryptography’. Every computer in the blockchain network uses their computational power to solve a cryptographic algorithm or PoW problem — a very difficult mathematical problem that takes an extraordinary amount of computing power to solve. The first miner to solve the problem gets a reward, essentially a coin, and then the verified transaction is stored on the blockchain. That’s why digital coins are called ‘cryptocurrencies’.
PoW concept takes up enormous computer calculation or “mining” to create a block, some Ethereum developers therefore have been developing another consensus system PoS to simplify the problem solving process. PoS happens when a miner locks up an amount of coins, to verify a block of transactions. PoS offers a linear scale regarding the percentage of blocks a miner can confirm based on that person’s stake in the cryptocurrency (“crypto” here after).
While Bitcoin is the first crypto, a lot more has emerged riding on the hit and value speculation. Ethereum has a crypto called Ether. Namecoin was created in 2011 as an attempt at forming a decentralized Domain Name System (DNS) intending to reduce internet censorship. Litecoin was also released in 2011 to use scrypt as its hash function instead of SHA-256[i] used by Bitcoin. Peercoin was later released too as the first to use a PoW/PoS hybrid. Most cryptocurrencies are designed for a cap on the total circulation so the value can be appreciated significantly. For instance, when Bitcoin was first introduced and traded in 2009, its value was almost nothing. Since 2010, more crypto exchanges were established so as the rise of the crypto valuation. Bitcoin’s price went up from only US$0.003 per coin in March 2010 to as high as $18,000 in December 2017 (Appendix 1). Prices became quite volatile over the years, it was traded at around $10,000 at the end of July 2019...