A Cryptocurrency, as defined by Wikipedia, “aims to replace conventional monetary units such as money and banknotes by digital units that can be quickly and easily altered via an Internet-based network, with the help of cryptosystem and client software.” This definition does not seem to encompass what the term covers. In order for something to be considered a currency, it usually must be issued and accepted as a legal tender in payment for goods and services normally performed in local and national markets. It is usually created as a derivative or as a legal entity separate from the country or government issuing it. As defined by Wikipedia, “Crypto currencies are ones that have been derived as a result of a math or computer science”. A cryptocoin, or cryptographic currency, is binary data encoded in a non-public or private server to act as a virtual medium of exchange where only specific private coin ownership records are kept in a distributed ledger.
While all currencies are decentralized, not all decentralized systems are considered to be better than others. In some cases, a system of currencies may be more efficient and effective for a particular community or industry than another. There are two main types of decentralized systems; centralized and decentralized networks. While the underlying principle of each system is the same, the way the system functions may differ dramatically.
Centralized Mining is conducted by centralization which occurs when one or more nodes hold the resource on the network that serves as the starting point from which all subsequent transactions and calculations are performed. Unlike in a decentralized network, there is no need for miner selection since it is done at the protocol layer and all subsequent transactions are then agreed upon using the same algorithm. The major advantage of this approach is that the protocol is trustworthy since it is based on proof of work and not proof of stake. Proof of work is defined as the use of software which shows that a miner has an economic interest in the outcome of a cryptographic transaction.
On the other hand, a decentralized approach may use different protocols to achieve the same task. For instance, there are different protocols that could be used to verify transactions such as proof of burn, proof of the transfer, and proof of balance. The protocol that uses proof of burn is considered to be more efficient than the Proof of Transfer since it requires less computing power. This comes at a price though as the proof of burn transaction is very susceptible to Symmetric Attacks which are a major problem for this kind of system. If attackers can manipulate the transaction, the results can be devastating for the network and the value of the coin.
Scaling Minerals One of the ways to secure cryptosystems is through the use of what are known as “scaling” schemes. In a scaling scheme, miners start with lower costs and work their way up the chain as the costs decrease. However, in order to be successful, a new altcoin must be created which is at least as good as the old one but performs better. This is one way to prevent spam because new coins will be useless if nobody wants them.
As you can see, there are a lot of pros and cons associated with the use of cryptosystems for the purpose of storing value and transferring money. While some of these advantages make it appealing, others are more likely to deter people from using them. Be sure to research your chosen currency or cryptocoin thoroughly before deciding whether it is the right technology for you!