Everyone these days has heard of Bitcoins. However, most do not understand the technology used. Bitcoin is a digital currency that uses cryptography. A decentralized pseudo anonymous peer to peer network devised by Satoshi Nakamoto in 2008 after the Global Financial Crisis (G.F.C.).
“a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”
Proof of Work
With Bitcoin Proof of Work (PoW) used to confirm transactions and avoid the Byzantine Generals Problem (Double spend problems). There are many other crypto coins that use the same PoW and others that use different proofs such as Proof of Transactions and Proof of Stake, of which there are few variations of the concept.
Other problems that have come to light has been the high volatility of Bitcoin value to Fiat currencies, the length of time it takes to validate a transaction, and the concentration of hashing power which has the effect of centralizing the network.
The blockchain protocol that cryptocurrency builds on, has the ability for many more things other than currency.
Decentralised v Centralised
Although a decentralized network centralization can occur through centralization of expensive specialized mining equipment for PoW. Ripple coin is an altcoin that uses Ripple Coin Protocol, basically a secondary set of nodes controlled by a centralized authority from what I can gather. There are similar ideas to this but decentralised such as NXT and Flutter coin (FLT) protocols. These protocols use a decentralised set of trusted nodes to confirm transactions and avoid double spends by regular nodes.
Side Chains and Off Chain
Side Chains are Scrypts (Smart Contracts) used to create new coins off the existing blockchain. (such as Bitcoin’s blockchain). Often referred to as Altcoins. (Beware of scamcoins, and shitcoins) There a many altcoins in existence. Some have a very strong following while others are quick to disappear, however they all seem to suffer the same fate as Bitcoin with their volatility and lengthy verification times.
There has been much work completed recently on offchain, which seems to be a continuation of the colored coin concept. I think this will lead to limitless possibility in what the blockchain has the ability to do, not just a basic ledger and transactions but a delivery system for any digital product or service. This will surely stamp out piracy of digital goods completely even if pseudo anonymous.
Proof of Concept
PoW – Proof of Work
PoS – Proof of Stake
PoT – Proof of Transaction
PoTi – Proof of Trust
PoR Proof of Relevence
PoHDD – Proof of HDD availability