Cryptocurrency Report: Basics, Functioning, Issues, and Future

This report provides a comprehensive overview of cryptocurrency, delving into its fundamental aspects and practical applications. It begins by defining cryptocurrency and explaining its existence, then proceeds to detail its working mechanisms, including the role of blockchain and cryptography. The report examines Bitcoin as a prominent example, highlighting its properties and significance. Furthermore, it addresses various issues associated with cryptocurrency, such as security concerns and volatility, while also proposing potential solutions. The report concludes with a discussion on the future of cryptocurrency, emphasizing its potential to transform financial transactions and its broader impact across various sectors. The structure encompasses an executive summary, table of contents, introduction, detailed explanations of key concepts, properties, issues, solutions, and a concluding section with suggestions and references.

Running head: CRYPTOCURRENCY
Cryptocurrency
Name of the Student
Name of the University
Author Note

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Executive summary
The purpose of this report is to bring a thorough research on the cryptocurrencies and the basic
functioning of the cryptocurrencies. This report focuses on the basics related to the
cryptocurrencies that are being practiced for the proper functioning of the technology. This
report focuses on the existence and current use of the cryptocurrency in the real world. The
working, functioning and principles of the cryptocurrency have also been proposed in this report.
Block-chain and cryptography are the basic principles of cryptocurrencies that has also been
explained in this report. Bit-coin is the very first and most popular cryptocurrency and this report
throws light on the Bitcoin describing its working. There are many advantages of using
cryptocurrencies however, there are certain issues that involved in the application of
cryptocurrency and this report presents some of the issues and related solutions to those issues.
this technology will no-doubt eliminate the traditional way money or fund transfer between two
users and in future it is going to be spread within each sector of the world.

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Table of Contents
Introduction......................................................................................................................................3
Cryptocurrency................................................................................................................................3
Cryptocurrency Existence............................................................................................................4
Working of Cryptocurrency.............................................................................................................4
Crypto Technology......................................................................................................................5
Block Chain.................................................................................................................................5
Bit-Coin...........................................................................................................................................6
Properties of Cryptocurrency...........................................................................................................6
Issues related to the Cryptocurrency................................................................................................8
Solution to the Issues.......................................................................................................................9
Cryptocurrency Security................................................................................................................10
Future of Crypto Currency.............................................................................................................10
Conclusion.....................................................................................................................................11
Suggestion......................................................................................................................................12
References......................................................................................................................................13
Appendix:......................................................................................................................................14

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Introduction
In this new world of technology where every operation is being digitalized,
cryptocurrency can be state as the boon for the fund transfer system. The aim of this report is to
bring light in the topic cryptocurrency and thoroughly explain the objectives related to the
cryptocurrency. This report also introduces the Bitcoin that is the most popular cryptocurrency
and in manner to prove the words, it has been chosen as the example. There are uncountable
advantages of using this technology and some of them described in the below report. Besides of
these advantages, there are certain disadvantages or issues with the use of cryptocurrency and the
basic principles such as pseudo anonymous and decentralized system has made this technology
that much popular and even these are the most critical issues that is stopping it from being spread
and used as the primary source.
Cryptocurrency
Cryptocurrency can be defined in a simple way as, “just limited entries in a data base no
one can change without fulfilling the particular conditions”. This seems to be an ordinary
technology but in real it is very much complex and this is just a simple definition. It can also be
regarded as the form of digital money that has been designed in a manner to be secured while
transaction in many ways (Gamble, 2017). A currency is being associated with the internet using
the cryptography technology, which is a process of converting legible information to a unique
code that cannot be decoded easily, for tracking the purchases and exchange. For better
understanding the Cryptocurrency, it is important to gain knowledge about the cryptography
technology (Tekobbe & McKnight, 2016). During the World War II, cryptography was born for
securing the communication network. It has been being evolved continuously since then with the

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elements of computer science and mathematical theory for making the network, communication,
information, and money transfer much secured.
Cryptocurrency Existence
Cryptocurrencies are being popular because of its security level, level of anonymity as
transactions made through cryptocurrencies cannot be reversed or faked, and charges are very
low to use them that makes it more reliable than traditional currencies. The decentralized
property that means availability for everyone is another reason for its popularity (Tekobbe &
McKnight, 2016). There are certain links to the dark web that can be stated as an illegal activity
and a consumer should overlook such topics before buying the currency. Bitcoin was the very
first crypto currency that came into account in 2009 and right now, it is the best cryptocurrency
that is being spreading into the market (Hughes & Middlebrook, 2014). As the technology is
getting evolved necessity and availability of such technologies are also increasing that lead to the
birth of more than 900 such cryptocurrencies on the internet that are being practiced right now.
Working of Cryptocurrency
Decentralized technology is being used in the cryptocurrencies for securing the mode of payment
that is being made online and keeping them stored in a virtual bank without having an official
account. This technology runs on the blockchain process, which is a distributed public ledger
called that can be described as a record of the updates on the transactions and the left amount that
is being held by currency holders (White, 2015). A process called mining, are being used for
creating units of cryptocurrencies that involves usage of computer technology in manner to solve
complicated math problems for generating the coins (Tudor, 2014). There are several brokers
also present in the market, who can sell the currencies and help in storing and spending those

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using cryptographic wallets. Bitcoin, Ethereum, Ripple, Litecoin are some of the common
cryptocurrencies that are being used in the present time (Scott, 2016).
Crypto Technology
It is a technology, which is based on cryptography that has been evolved in the World
War II, and came in trend from last few decades. It can be stated as a technology that can be used
to make encryption over the files that are about to saved on the internet and a proper decryption
code is used to decode them in manner to stop being accessed by an unauthorized user (Hofer,
2014). There are two basic components of the crypto-technology that can be stated as: Public
Key Cryptography and the Blockchain.
Block Chain
Blockchain can be described as the special form of ledger that can be helpful in keeping
track of the evidences about who is holding what assets and that is the most hard to modify
deceitfully. Pseudo-anonymity is the other important property of the blockchain that is an
important aspect for cryptocurrency (English, Auer & Domingue, 2016). Blockchain technology
cannot be described as the technology that is being used in all the cryptocurrencies rather it is
being used only in decentralized cryptocurrencies that uses proof-of-stake and proof-of-work
protocols. It can also be described as the “publicly reviewable ledger containing a verified record
of every transaction”. Synchronization of blockchain technology is then very important aspect
for using it efficiently that means blockchain, ledgers must be kept synchronized among each
other, or it can also be expressed as “distributed consensus” that emphasis on the need of
mechanism that prevents a client form accepting conflicting messages about the fake transactions
and many more (Zheng et al., 2016). Another important topic in the cryptocurrencies is the

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“mining” and it is a little bit complicate what miners do in real. Three basic steps are being
followed in a process that can be listed as:
1. The hash (#): It can be described as the product of algorithm that is being used to turn
data of a variable in a variable length into data of particular length.
2. New proposed transactions broadcast block in the Bitcoin network (Gordon, 2017).
3. Guessing of a random number by the miners that is being stated as “nonce.”
Bit-Coin
As discussed earlier this is the very first cryptocurrency that came into existence and
currently most vital in the market that is capable of addressing the Byzantine General Problem.
Bitcoin software helps in enabling a network for the computers in manner to maintain a
collective bookkeeping using the internet that neither is in control of one party, nor closed that
result in absence of central record-keeper (Shi et al., 2014). It is not only digital money; rather it
is more important than that, which can be described as the sum of technologies that is creating an
ecosystem. Bitcoin includes of the four main technologies (Davidson, Flippi & Potts, 2016):
 Public transaction ledger
 Decentralized peer-to-peer network
 Decentralized transaction evaluation system and
 A completely decentralized Mathematical Currency Issuance Mechanism
Properties of Cryptocurrency
Following are the list of properties of the cryptocurrency:

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Irreversible: The transaction made at the first place cannot be reversed or an user cannot
get back the coins (money) after making confirmation for the transaction and it cannot reversed
by any means or any authority (Osterrieder, Lorenz & Strika, 2016). There is also not much
safety in this network and no one could even help if any hacker steals the funds or by mistake, an
individual transfer to other account. This leads to the less reliability on this technology.
Pseudonymous: It emphasis on using the service without having a real world identity and
an individual does not need any government proof to open an account and share money. It can be
a random individual, who transfers the money or the identity that is being used can be fake.
Fast and global: The transactions that have been propagated do arrive for an instances
and a user have to confirm it within a couple of minutes (ElBahraw et al., 2017). This is being
happened in the global network of the whole world network of the computers they are
completely indifferent of the physical location of the users irrespective of the distance between
the two consumers.
Secure: In general, Cryptocurrency funds have been locked in the system of a public key
cryptography that results in the access of the transfer of the currency by the user only who is the
right owner of that currency. Proper encryption and cryptography technology makes the currency
to be inaccessible by an unauthorized user. Bitcoin is much more secured cryptography than
Front Knox cryptocurrencies.
Permissionless: No permission is needed to access, as it is available for every user that is
connected to the internet (Ahn et al., 2016). It is software easily available on the Web and
anyone can download it and access it. You don‘t have to ask anybody to use cryptocurrencies.

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Figure 1: Features of Cryptocurrency
(Source: Created by Author)
Issues related to the Cryptocurrency
Besides of all of the features and advantages there are certain issues related to the
practice of cryptocurrencies that can be listed as:
Insecurity: As stated earlier transactions are reversible that also eliminates the most
important factor of making business that is “reliability, and “loyalty”. There not any such service
whom you can call and discuss about the transaction and get your refund if any fraud happens
(Hsieh, Vergne & Wang, 2017). It aims at pseudo anonymous and decentralized that makes it
vulnerable to be hacked by the hackers and stolen in unauthorized way.
Volatility: Since the market of bitcoins are very much volatile in nature (as in between
January 2015 and November 2013 50% value collapsed) it is not preferable for long-term use.
Price fluctuations will affect the business and money cannot be recovered during low markets.

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Money is created at a depreciating rate: most of the cryptocurrencies do not follow the
economic principle of money stated by the government and money is being created at a rapid
depreciating rate.
Proof of work: The energy consumption that needs to be maintained while the process is
going on has been criticized by for the hardware arms race that has been created by it (Cocco et
al., 2017).
No inflation/ limited supply: it is an issue related to the economic effects of the
cybercurrencies reaching its final detrimental effect of the absence of inflation in the whole
system.
Confirmation time: This is another issue related to the use of cybercurrencies as most of
the servers provides at least ten minutes for the confirmation of transaction.
Blockchain “Bloating”: blockchain is nothing but a file as more transactions are being
done more the size of the file will increase.
Solution to the Issues
It should be operated by the organization irrespective of the independent organization and
should be based on the government policies of finance and economy. The account should be
opened with proper identity defining the permanent address of the user. The transaction should
be made reversible and there should be customer assistance service for the contact if a user feels
the act of fraud. Another solution related to such issues can be proposed as the network should be
made secured and any user entering the network should be recorded with their virtual address of
the computers (Bonneau et al., 2015). From the perceptive of the user it can be recommended

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that he or she should cross check all the objectives before making any investment and check
whether he or she is being framed for any fraud or not.
Cryptocurrency Security
There are two very crucial components for the security in cryptocurrencies and the first part
focuses on the difficulty that is being faced in finding hash set intersections that is being done by
the miners. The second crucial component can be described as of the two cases is a “51%” attack
(Schaffner, 2015). For an instance, the miner capable of controlling the mining in more than 51%
of the network has the capability to alter the blockchain and he could generate an alternative
block-chain for the same network. Through achieving the objective a user will be able to revise
the transactions made by him and will be capable of blocking other transactions (Yang, Kou &
Liu, 2017).
Future of Crypto Currency
It can be stated that the market of cryptocurrencies is wild and fast. Every day thousands
of transactions are being made and lots of investor losing or gaining money from the
cryptocurrencies. Some of the users survive for the first month “and most are pumped and
dumped by speculators and live on as zombie coins until the last bagholder loses hope ever to see
a return on his investment” (Gipp, Meuschke & Gernandt, 2015). Besides of all the facts related
to the disadvantage of cryptocurrency it has the capability to change the future and it can be
experienced that it is changing the face of fund transfer. Most of the retailers and customers are
using Bitcoin as the media to exchange currencies and trying to be protected against the
devaluation of their national currency. Most of the Asian companies are using Bitcoin and are
using darknets of flourishing and cybercrime.

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The technology is being evolved and in future, it is being estimated that it will eliminate the
banking and physical money transaction. Institutional investors have also started to buy the
cryptocurrencies.
Conclusion
Based on the above report it can be concluded that, as it had been appeared very early,
even that it is a very new technology for most of the sectors and cryptocurrencies are being
technically much advanced. Most the systems, which are responsible for the proper functioning
of the society had been centralized and are not accessed on pseudo anonymity rather it is based
on these principles. People always fear the change and want to be stick with the traditional
methods irrespective of the advantages and facilities or ease to access. This report shows how
cryptocurrencies can change the face of the fund transfer in the world. With respect to the
disadvantages, there are certain measures that could be taken but they seem to be impractical in
the real world. There is the extreme need of a responsible authority that could help in making this
system a systematic transactional method and much secured. In other words, it can be said that it
is the necessity of the time for such technology but certain authority that can give guarantee on
the processes should centralize it. Cryptography technology is being used to make the transaction
secured but there should be a refund system for the users. This technology is highly vulnerable to
cyberattacks as most of the users are connected to the dark web, which can be described as the
dark side of the internet. There are certain examples like the cases of ransomware attack have
been increasing continuously day by day and intruders are using cryptocurrencies as a medium to
achieve success in looting others.

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Suggestion
Making cryptocurrency a centralized system can be recommended to make this as the
basic system that can be used by everyone and make the system more secured. It should be made
as the basic medium for exchanging the currency. Retailers are using it but it should be
implemented within the systems of each retailer.

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Research perspectives and challenges for bitcoin and cryptocurrencies. In Security and
Privacy (SP), 2015 IEEE Symposium on (pp. 104-121). IEEE.
Cocco, L., Concas, G., & Marchesi, M. (2017). Using an artificial financial market for studying a
cryptocurrency market. Journal of Economic Interaction and Coordination, 1-21.
Davidson, S., De Filippi, P., & Potts, J. (2016). Disrupting governance: The new institutional
economics of distributed ledger technology.
ElBahrawy, A., Alessandretti, L., Kandler, A., Pastor-Satorras, R., & Baronchelli, A. (2017).
Bitcoin ecology: Quantifying and modelling the long-term dynamics of the
cryptocurrency market. .
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A Western Perspective. Int'l Trade & Bus. L. Rev., 20, 346.
Gipp, B., Meuschke, N., & Gernandt, A. (2015). Decentralized trusted timestamping using the
crypto currency bitcoin. arXiv preprint arXiv:1502.04015.
Gordon, G. (2017). Provenance and authentication of oracle sensor data with block chain
lightweight wireless network authentication scheme for constrained oracle sensors.

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Hofer, N. (2014). A Software Engineering Perspective on Cryptocurrencies (Doctoral
dissertation).
Hsieh, Y. Y., Vergne, J. P., & Wang, S. (2017). The Internal and External Governance of
Blockchain-Based Organizations: Evidence from Cryptocurrencies.
Hughes, S. J., & Middlebrook, S. T. (2014). Regulating cryptocurrencies in the United States:
Current issues and future directions.
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Extreme Tail Behaviour.
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Yang, D., Kou, L., & Liu, A. (2017). U.S. Patent No. 9,672,499. Washington, DC: U.S. Patent
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Zheng, Z., Xie, S., Dai, H. N., & Wang, H. (2016). Blockchain Challenges and Opportunities: A
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Appendix:
Figure 2: Describing the functioning of cryptocurrency
(Source: Sarkar, 2017)