Cryptocurrency
Introduction
Cash has been used in the past as the medium of exchange but recently the trend is changing, and other media of exchange have emerged. Technological advancement has impacted all the avenues of business transactions affecting how the overall business activities are carried out. Securing the online transaction has been a major challenge for both the buyer and the seller using the online platform, this is because of the threat posed by the third party. Due to this, better approaches have been adopted to aid the business transactions online, through this, cryptocurrency has been introduced.
Cryptocurrency is an alternative medium of exchange for a business transaction, this exchange currencies, however, employ the use of decentralization in control as opposed to the cash which is controlled by the banks. Cryptocurrency has a value attached to them which allow them to be accepted in the world of business (Hayes,2017). They are considered to be digital assets which use cryptography encryption which ensures secure transactions are undertaken. Over the recent past, many digital currencies have emerged and have been adopted at the marketplace as a medium of exchange. These currencies include; Bitcoin, Bitcoin cash, Dogecoins, basic attention tokens (BAT), Litecoin, Ethereum among others. The study will focus on elaborating more about Bitcoins since they form the major part of the cryptocurrency sector.
Bitcoins cryptocurrency- the first concept of digital currency was introduced through bitcoin making it the oldest and making it dominate all other digital currencies on its utility. The coin was designed and released by Satoshi Nakamoto in 2009. Bitcoin transactions are recorded in a blockchain which is an example of a digital ledger. The blockchain is a compilation list of all the transactions which took place over the platform (Hayes,2017). All the transactions which have involved the use of bitcoins are recorded from the very first one to the most recent. Bitcoin has a market cap of around $57.56 bn and a market price of $3304.04. The market cap and the price have gradually risen in 2018 as compared to the past.
Bitcoin operates under certain principles to acquire operational goals of the users. The four principles include the availability of a digital wallet- the wallet creates a platform from where payment can be made as well as being received. The wallet creates initial address which is necessary during transactions. A second principle is the transaction principle which is facilitated by the existence of the wallet. Bitcoins then operates through the use of blockchains to help keep the track record of all the transactions (Hayes,2017). Another important principle is the mining principle- this principle is concerned with chronologically arranging transactions in the blockchain. Through this principle, neutrality is achieved in the network making it difficult for a third party to identify the transacting parties or even access their information
Bitcoins, however, is considered expensive as compared to other digital currencies due to high transaction cost incurred by the users. The platform also uses more energy in its operations. The flexibility in the prices makes the pricing to be confirmed unstable thus affecting its adaptability. The miner’s influence also affects the credibility of bitcoins platform. The system also has a security challenge. These challenges are considered to be the major hinderances to the platform’s growth and future adoption.
Hash functions
Under the bitcoins platform, the hash functions are involved in mining to ensure that blockchain information matches the wallet information which facilitates the transactions. The hash function of any protocol is concerned with mathematically transforming an input into the desired output. For a hash function to operate effectively in the bitcoin’s platform, it’s based on three main parameters. These parameters are; the string, counter and a nonce. The string contains instructions about the transaction process; the string, therefore, has to be encoded with the blockchain data to ensure effectiveness in the operations. Bitcoins protocol uses the Secure Hash Function 256 in its operations; these functions are as many as the number of transactions (Hayes,2017). A root Hash, therefore, hosts all the other function hash for the many transactions involved in the process. The complex hash function through the use of the root hash ensures that the data is well protected and in case of an attack. The attacker cannot succeed unless they know all the attacker knows all the Hash functions used. The approach is aimed at securing the data in the blockchain.
Securing the transaction
Hash functioning ensures that the entire process is carried out securely by ensuring the anonymity of the users. Addresses provided via the digital wallets guide transactions. The transactions have to be hashed to the blockchain through the use of the hash function. The hash function, therefore, is a vital component in ensuring the whole process is a success. The hash function forms a complex network of different functions based on the number of transactions in the blockchain. The system becomes more complex which makes it difficult for any hacking activities; this is because the hacker needs to have all the information about the hash function. Any alternates as a result of attack can be easily identified.
Reference
Hayes, A. S. (2017). Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin. Telematics and Informatics, 34(7), 1308-1321.