Chapter 18: Cryptocurrency: Basics

In this chapter, we will consider cryptocurrencies. The cryptocurrency Bitcoin was proposed in 2009 and till date remains the most successful of all cryptocurrencies. Subsequent to Bitcoin, over 1,500 cryptocurrencies have been proposed. All of these are based on the blockchain technology, and most of them are conceptually very similar to Bitcoin differing mostly in the choice of tools to implement the various components. Our discussion of how a cryptocurrency can be realised using the Blockchain technology will be based on Bitcoin. Later we will discuss some conceptual variations that arise.

While considering a cryptocurrency, the first issue that comes to the mind is how the currency is created. We will, however, defer this point. Let us assume that there is a unit of cryptocurrency and it exists. Existence of a cryptocurrency means that various amounts of it are held by different owners. At any point of time, the total amount of a cryptocurrency is the sum of the various amounts of the cryptocurrency held by the different owners. So, there is no existence of the cryptocurrency outside ownership.