Cryptocurrency is becoming a trend as transactions on the Internet of the information technology age develop. These Coins have many types and are being exchanged, bought and sold, or converted to real money.

In each country, the law is also increasingly updated and gradually legalized to better suit the development trend of virtual currency in general. The article gives a clear look at cryptocurrencies, cryptocurrencies, virtual currencies, cryptocurrencies, tokens, and some popular cryptographic algorithms. From there, readers have more information to better understand the purpose and scope of using these coins and avoid breaking the law.

1. Description

1.1. Digital currency

Digital Currency is a form of currency that is available only in digital or electronic form, and not in physical form. It includes (also referred to as) coin, cryptocurrency, electronic money, cryptocurrency (digital money, electronic money, electronic currency, cybercash). Currency is stored and circulated electronically. Any coin encoded in 1 and 0 meets this definition.

Digital money is not in physical forms like coins or banknotes. With the usability of physical money, but with the characteristics of digital, instant transactions, and cross-border money transfers.

Cryptocurrency accounts can be stored electronically on a card or other device. Digital currency is centrally manageable, with a central unit controlling all distribution activities. Decentralized management is also possible; the money supply can come from a variety of sources.

Digital currencies are intangible and can only be owned and traded using a computer or electronic wallet connected to the Internet or designated networks. In contrast, physical currencies, such as fiat banknotes and coinage, are tangible and tradable only by their holders who have physical ownership of them.

Like any standard currency, digital currencies can be used to purchase goods as well as pay for services, although they may also have limited use in some of the most online communities. specified, like a game site, or a social network.

Digital currencies have all the intrinsic properties of physical currencies, and they allow instant transactions that can be seamlessly executed to make payments when connected to supported devices and networks. aid.

Digital currency offers many advantages. Since digital currency payments are made directly between transacting parties without any intermediaries, transactions are usually instantaneous. This fee is better than traditional payment methods involving banking or clearing. Electronic transactions based on digital currencies also provide necessary record keeping and transaction transparency.

Digital currencies can be divided into 2 categories:

– Centralized digital currency: Systems like Paypal, Webmoney, Payoneer are centralized digital currency management units. Apple Pay, Google Wallet accounts are also centralized digital currency.

– Decentralized digital currency: Bitcoin, Ethereum, Bitcoin Cash, Ripple, and other virtual currencies are also digital currencies.

1.2. Electronic currency

Electronic money (Electronic currency, Electronic money, E-cash) is a unit of currency that operates based on electronic algorithms and is stored on the Internet, computer systems, smartphones, and electronic payment cards.

Cryptocurrencies allow instant transactions that can be made seamlessly to make payments across countries. Usually, if cryptocurrencies are not authorized by the Government, they are not legal tender and they allow cross-border transfers of ownership.

Cryptocurrencies are designed for security and are highly anonymous for transactions. They are generated from a computer system and run on a blockchain technology platform that records all cryptocurrency transactions in the system. Users do not need to use their name and do not need to go through any banks, to still buy cryptocurrencies from brokers, then store and spend them through e-wallets. Although electronic money has been accepted for payment in many countries around the world, in Vietnam currently, electronic money has not been recognized as a legal means of payment.

Cryptocurrencies are backed by math rather than government or financial institutions. While, like all currencies, they are still subject to value, their scarcity is mathematically based and cannot be regulated by any one organization or individual. They are not tied to the availability of physical goods, such as gold, nor can they be created artificially by governments or financial institutions like the Dollar.

Cryptocurrencies use a distributed network to enable a p2p (peer-to-peer) transaction system, peer-to-peer transactions without the need for a third party. To ensure safety, cryptography uses algorithms. To ensure every transaction is legit, a complex mathematical equation is used to link each account to the actual amount the account holder wants to spend. Users, often referred to as miners, spend their computing resources solving equations and are often rewarded with small amounts of cryptocurrency.

Cryptocurrencies have been identified and distinguished from other currencies through the following key characteristics:

– Electronic money must be legal tender. Accordingly, electronic money has all three functions of money: store value, exchange (medium of exchange), and accounting (unit of account). At the same time, cryptocurrencies are always expressed in terms of the value of a country’s fiat currency. Besides, cryptocurrencies are also guaranteed by the Central Bank.

– Electronic money can be issued by a bank or it can also be issued by a non-bank organization. Therefore, to ensure the safety of users, countries always have very strict regulations for crypto-currency issuers. For banks that have a system of strict regulations on operational safety, risk management, required reserve ratio, deposit insurance… For non-banking organizations, banks have regulations on licensing, supervision… and normally, deposits must be made at the banking system (corresponding to the amount issued with a certain rate).

– Cryptocurrencies have a central bank’s monetary regime. Accordingly, electronic money issued by banks will be secured by the required reserve ratio, while electronic money issued by non-banks will be secured by an escrow mechanism in the banking system. goods (with a certain margin). Typically, this margin ratio will be much higher than the required reserve ratio because the safety regulations that apply to these institutions are much lower than for banks. Margin rates in some countries following a conservative approach are at 100%. This is also the key difference between banknotes and electronic money (e-money).

– Cryptocurrencies are only stored in electronic products of two types: hardware (hard-ware-based products) such as chip cards, chip smartphones, and software-based data (soft-ware based). like Paypal e-wallet.

Advantages of Electronic currency

• Convenience in transactions, freedom of payment: when using electronic money, people can send and receive money instantly and can send unlimited amounts, regardless of space and time.

• Cannot be counterfeited: Because it does not exist in physical form and each cryptocurrency exists under a unique encrypted bit sequence on the Internet.

• High level of security.

• Extremely low transaction costs.

• Safer for users and environmental protection: Cryptocurrency transactions are verified as safe, irreversible, and do not contain sensitive customer information. Businesses don’t need to worry about fraud, don’t need to know too much information about customers, and especially don’t need to rely on 3rd parties to make purchases like credit cards.

• High transparency: using blockchain technology, so the information related to the cryptocurrency supply is available on the blockchain for anyone who wants to verify and use it.

• There is potential for e-commerce development: in electronic transactions, people tend to pay online and the use of electronic money will be considered as a potential for us to develop e-commerce. death in the future.

Disadvantages of Electronic currency

• Not too easy to use: For those who are used to using technology, this problem is not too difficult. But for those who have little exposure to technology, creating a wallet and managing it is quite difficult, possibly even being scammed.

• Cryptocurrency prices often fluctuate up and down and are difficult to predict. This is akin to the ups and downs of the stock market, leading to many risks for people when holding.

• Safety of the system: Can become a tool for hackers, criminals to launder money by unregulated trading systems. This is probably the biggest downside. And for this reason, some countries do not yet accept the coin as a legal currency.

• The level of acceptance is still low, many people are still used to using their country’s currency.

• Businesses are afraid and afraid of the change in the value of electronic money after a long time of its appearance.

• Transaction errors: Since the operating system of cryptocurrencies is digitized equations, there is no guarantee that it will always be 100% correct, some transactions will fail during operation when the system is unstable, or due to human error will lead to unexpected transaction errors when using cryptocurrencies.

• Can be affected by the network security system: because cryptocurrencies mainly operate on electronic devices, so cryptocurrency holders can lose money if the hard drive fails, the data gets infected with a virus, the files get lost, etc. there is no way to recover it.

• There are two main forms of electronic money: Virtual currency and Not too easy to use: For those who are used to using technology, this problem is not too difficult. But for those who have little exposure to technology, creating a wallet and managing it is quite difficult, possibly even being scammed.

• Cryptocurrency prices often fluctuate up and down and are difficult to predict. This is akin to the ups and downs of the stock market, leading to many risks for people when holding.

• Safety of the system: Can become a tool for hackers, criminals to launder money by unregulated trading systems. This is probably the biggest downside. And for this reason, some countries do not yet accept the coin as a legal currency.

• The level of acceptance is still low, many people are still used to using their country’s currency.

• Businesses are afraid and afraid of the change in the value of electronic money after a long time of its appearance.

• Transaction errors: Since the operating system of cryptocurrencies is digitized equations, there is no guarantee that it will always be 100% correct, some transactions will fail during operation when the system is unstable, or due to human error will lead to unexpected transaction errors when using cryptocurrencies.

• Can be affected by the network security system: because cryptocurrencies mainly operate on electronic devices, so cryptocurrency holders can lose money if the hard drive fails, the data gets infected with a virus, the files get lost, etc. there is no way to recover it.

• There are two main forms of electronic money: Virtual Currency and Cryptocurrency.

1.2.1 Virtual Currency

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A Virtual Currency is an unregulated electronic currency that is not issued by the Government and can generally be issued, managed, and controlled by private issuers, developers or institutions. founding position. This currency is used and accepted among members of a particular virtual community.

In 2014, the European Central Bank defined virtual currency as a digital representation of value that is neither issued by a Central Bank or public authority, nor necessarily tied to fiat money ( fiat currency), but is accepted by natural or legal entities as a means of payment and can be transferred, stored, or transacted electronically.

Virtual currency is only available in electronic form. It is only stored and transacted through specified software, mobile or computer applications, or through dedicated electronic wallets, and transactions occur over the internet through secure, dedicated networks.

Virtual currencies are an electronic representation of monetary value that can be issued, managed, and controlled by private issuers, developers, or founding organizations typically expressed as tokens and can remain unregulated without legal tender. Unlike regular money, it relies on a fiduciary system and may not be issued by a Central Bank or other banking regulator. Due to the lack of a centralized regulatory body, such virtual currencies are susceptible to fluctuations in their valuation. They derive their value based on the underlying mechanism, like mining in crypto cases or the backing of the underlying asset.

Along with use by the general public, a virtual currency can be restricted in use and it can only be circulated among members of a particular online community or a group of virtual users who transact online. on dedicated networks. Virtual currencies are mostly used for peer-to-peer payments and are finding increasing uses to purchase goods and services.

1.2.2 Cryptocurrency

Cryptocurrency is a digital asset designed to work as an intermediary, using cryptography to secure transactions, control the creation of additional units, and verify the transfer of assets.

The distinctive feature and arguably the main attraction of cryptocurrencies is their systemic nature. Cryptocurrencies are not issued by any Central Bank, which makes them theoretically immune to government intervention or manipulation.

Today, there are thousands of alternative cryptocurrencies with different functions or specifications.

Bitcoin, created in 2009, was one of the first cryptocurrencies. Since then, many other cryptocurrencies have been created. They are often referred to as altcoins, which are short for altcoins. Bitcoin and its derivatives use decentralized control as opposed to centralized cryptocurrencies and Central Bank systems. This decentralized control involves the use of Bitcoin’s blockchain transaction database as a distributed ledger.

2. Tokens

The token is a cryptocurrency issued from ICO – Initial Coin Offering, considered a digital asset issued by projects, which can be used as a method of payment inside the project’s ecosystem. that project, performs the same functions as Coin, but the main difference is that it allows the holders of these tokens to participate in the network of the system.

Tokens represent the capital of the company, giving access to project functionality and much more. For example, a movie ticket of a cinema chain can only watch movies in places bearing that theater name, not at other cinema chains. The same tokens are used in a certain project.

Token represents an asset or a Utility (application), so Security and Utility are two distinct forms of the token. Security Token is designed to share company assets (DAO is an analogy, hacked immediately after release, it is a form of Security), while Utility Token has several use cases for inside projects. that judgment.

Utility Token is a utility token. Utility Token was created to serve a project with specific goals and features. Example token for the Dock.io project with payment and voting features; Binance’s BNB Token Has a Discount on Transaction Fees…

Security Token, also known as a security token, is a form of electronic stock issued in the form of a token. You will be entitled to dividends based on the number of shares you own in that project. Security Token also allows you to have the right to vote or participate in deciding some of the project’s work.

Token generation is easier than Coin because there is no need to generate new codes or modify existing code, just use a standard template from platforms like ETH, which is Blockchain-based and allows anyone to create new tokens in just a few steps. Using the same platform to create tokens provides smooth interoperability, whereby users can store all different types of tokens in the same e-wallet. ETH is the first platform that simplifies the process of creating tokens.

When you refer to the price and information of virtual currency on the global website CoinMarketCap, you can also see that CMC has a clear identification of whether the currency is a token or a coin. So what is the difference between tokens and coins?

– Coin is a virtual currency that can be operated individually.

– Token is a virtual currency that must be based on another virtual currency to work. For example, Ethereum, NEO, and NXT platforms can be used to build tokens.

– Coins are created to be used as a currency, a store of value, and for transactions.

– Tokens are used for a broader purpose (of course, they can also be used for payments). Tokens can be fuel for an active network (GAS) or a unit of exchange within an application (CMT).

– A coin that needs to be developed into its storage wallet. The transaction fee will be deducted directly from that coin.

– Tokens can be stored in the same wallet developed specifically for the native platform. Transaction fees are payable according to the rules of the native platform (Ether or GAS).

– Tokens are coins issued from ICOs, so you can buy them directly from the crowd-sale or public-sale of those ICO projects. If the token has passed the public issuance, then you have to wait for the token to be listed on exchanges like Binance, Kucoin, Bittrex, COSS to buy.

– In addition, some tokens will be distributed by decentralized exchanges such as Kyber Network, Bancor, EtherDelta. You can buy tokens directly at these exchanges and store them in your wallet.

– To determine which token is stored in which wallet, it is necessary to determine which blockchain the token works on. Example of Ethereum tokens: stored in Ethereum wallets such as MyEtherWallet, MetaMask, Eidoo, ImToken… NEO token: stored at NeoTracker wallet; Token of Stellar: stored at Stratis Wallet. Same for other platforms like Waves, QTUM, NEM…

– Coins are just a payment method while a token can represent a company’s share of capital, providing access to a product or service with various functions. It is possible to buy tokens with coins, but not vice versa. Coins operate independently, the token has a specific use in the project’s ecosystem.

3. Blockchain

Blockchain is a decentralized database that stores information in blocks of information that are linked by encryption and expand over time. Each block of information contains information about the creation time and is linked to the previous block, along with a timecode and transaction data. Blockchain is designed to resist the change of data. Once the data has been accepted by the network, there is no way to change it.

Blockchain is secured by a design that uses a decentralized computing system with high byzantine fault tolerance. So, decentralized consensus can be achieved thanks to blockchain. Blockchain is suitable for event recording, medical records, transaction processing, notarization, identity, and proof of origin. This has the potential to help undo the massive consequences of data being altered in the context of global trade.

The first blockchain was invented and designed by Satoshi Nakamoto in 2008 and realized the following year as a core part of Bitcoin when blockchain technology acts as a ledger for all transactions. Translate. Through the use of a peer-to-peer network and a decentralized data system, the Bitcoin blockchain is managed automatically. The invention of the blockchain for Bitcoin made it the first digital currency to solve the problem of double-spending. This technology has become the inspiration for a host of other applications.

Blockchain technology is similar to a database, only in terms of interacting with the database. To understand blockchain, it is necessary to understand the following five definitions: blockchain, distributed consensus mechanism (distributed), trusted computing (trusted computing), smart contracts (smart contracts), and proof. proof of work. This computational model is the foundation of creating distributed applications.

4. Some cryptographic algorithms

4.1. SHA-256. Algorithm

SHA – Secure Hash Algorithm or Secure Hash Algorithm is five algorithms adopted by FIPS – Federal Information Processing Standard used to convert a given chunk of data into a constant length chunk of data with a high probability of difference. These algorithms are called “secure” because, verbatim from the FIPS standard 180-2 issued on August 1, 2002: “For a given value generated by one of the algorithms SHA, it is computationally infeasible to: Find a message that corresponds to the encrypted message; Find two different chunks of data with the same hash; Any change to the original piece of data, no matter how small, will produce a completely different hash value with very high probability.”

SHA-256 is one of the successor hash functions after SHA-1 and is one of the strongest hash functions available today.

SHA-256 is a fork of the SHA-2 cryptographic hash function used in various ways: Mining uses SHA-256 which is a “proof of work” algorithm. SHA-256 is used in the generation of coin addresses to improve security and privacy. The SHA-256 algorithm generates an almost unique 256-bit (32-byte) fixed-size hash. Hash is a function that cannot be decoded back. This makes it suitable for password validation, hash, tamper-proof, and digital signatures.

Bitcoin is the current strongest, highest-priced coin representing the SHA-256 algorithm and the first digital currency. Typical altcoins: BCH – Bitcoin Cash, NMC – Namecoin, PPC – Peercoin, TRC – Terracoin,….

4.2. Ethash Algorithm

Ethash is the hashing algorithm used for proof of work in Ethereum-based cryptocurrencies. It uses alternate versions of SHA3-256 and SHA3-512 commonly known as “Keccak-256” and “Keccak-512”. Since version 1.0 Ethash has been designed to be ASIC resistant and easy to test. It also uses a slightly modified version of Hashimoto to reduce computation overhead. Ethash fulfills the following goals:

– IO Saturation: The algorithm should consume almost the entire block of available memory access bandwidth (this is a strategy towards achieving ASIC resistance, towards RAM, especially in GPU, close to theoretically optimal is the ability to compute goods).

– GPU-friendly: Make mining as easy as possible with GPU. Targeting the CPU is virtually impossible because of the overwhelming expertise and criticism of CPU-friendly algorithms because they are vulnerable to computer networks created by hackers. remote control (botnet).

– Verification of low profile client: config client low can verify a mining round in under 0.01s on the desktop in C and under 0.1s in Python or Javascript, up to 1MB of memory (but growing exponentially).

– Low profile client slowness: running the algorithm with a low profile client will be much slower than with a high profile client, the low profile client algorithm is not an economically viable process to perform mining, including the adoption of specialized hardware.

– Low-profile clients start-up fast: low profile clients can become responsive and can verify blocks within 40 seconds in Javascript.

Typical coins of the Ethash algorithm are Ethereum – ETH, Ethereum Classic – ETC,…

4.3. Scrypt algorithm

Scrypt is a key derivation function (hash function) in hard memory. Hard memory functions require a large amount of RAM to be processed.

This means that a standard ASIC chip used to solve Bitcoin SHA-256 proof of work would need to reserve some space for random access memory instead of using pure hashing power. Scrypt just adjusts the number of random variables to store against SHA-256.

Scrypt generates a bunch of pseudo-random numbers that need to be stored in a location in RAM. After the algorithm hits these numbers a few times, it returns a result. Generating numbers requires a lot of computation, and since they are accessed several times, using RAM in combination with hashing power rather than generating them by shortcut (combining 2 steps into 1) leads to reduction time and wasted memory on speed optimization.

The main benefit of the Scrypt algorithm is that it reduces the advantage of ASIC miners in the network. This means that more miners need to join the network and contribute enough to match the effort. Another advantage is that it takes up less power because the total network capacity is less. The Scrypt algorithm favors more RAM and parallelism, which is why GPUs can still work as the coin’s difficulty increases.

Typical altcoins using Scrypt: LTC-Litecoin, XDG-Dogecoin, AUG-Auroracoin, etc.

Conclusion

To sum up, the article provides necessary information of all types of currencies on cyberspace. There are 2 categories including Digital Currency, Electronic currency (Virtual Currency and Cryptocurrency). The article is expected to help those have just entered the cryptocurrency market.