There is plenty of excitement surrounding Bitcoin and other cryptocurrencies, which is why there are numerous cryptocurrency exchanges in place.
You may have heard all sorts of accounts on how the path to Bitcoin is strewn with corpses of failed attempts.
While Bitcoin does not provide the same benefits offered by cash or credit, it comes close enough to be considered useful. You see, you do not require your identity to make any purchases using Bitcoin. However, your transactions can be linked to making use of smart algorithms, which are connected to your identity if you are not careful.
What is more, Bitcoin does not work offline either. The good news is that there is no need for a central server in any way as it merely relies on a peer-to-peer network. Through micropayments and green addresses, offline payments are made possible in certain situations.
It was during 1983 when the idea to apply cryptography to cash originated with David Chaum. You may want to think of it as a physical analogy where one would hand out pieces of paper, stating that the note bearer may exchange their note for one dollar once he presents it to another person whose signature is on it. If others trust the fact that the signature on numerous pieces of paper cannot be forged, they would happily pass these around as if they were bank notes. This is how banknotes got its start by being passed around as promissory notes.
The same can be done by using electronic signatures, which may result in an annoying double-spend problem should you receive a piece of data that represents a unit of virtual cash. One could make two or more copies and pass it to different individuals.
A possible solution to avoid this from happening is to make use of unique serial numbers on each note handed out. The recipient of the bill would have to verify the signature as authentic and get on the phone to check if the serial number has not been used already.
This process works just fine digitally, provided a server was set up to initiate the signing and recordkeeping of all serial numbers.
Chaum had a good thing going. He figured how to keep the system he used anonymously while preventing double-spending through inventing a digital equivalent to cash spending. Essentially, it is as if the person receiving the new note would pick the serial number and let the other person sign it without them seeing the serial number assigned to it. They call this a “blind signature” in cryptography.
It is best to choose a long, random serial number so it can be unique.
During 1988, Chaum and two other cryptographers, Moni Naor and Amos Fiat suggested offline electronic cash.
At first, it might seem impossible should you try and spend the same digital coin in two different places. How could they prevent double spend unless they were connected to the same central entity or payment network?
The idea is to not worry about avoiding double spending but rather pay attention to detecting it later on when the merchant gets to connect to the bank server. This is how people can use their credit card on a plane where there isn’t a network connection. The actual transaction will happen later one the airline can connect and process the transaction. Should the card be denied, then the person would owe the bank money.
As you can see, Chaum, Naor, and Fiat’s idea for picking up double spending happened to be an intricate cryptographic dance.
What it managed to achieve is that every digital coin issued would decode your identity in such a way that no one except you can decode it. Every time a coin is spent, the recipient would have to decipher a random subset and maintain record of it. The decoding in itself will not be enough to allow them to establish your identity. However, if you double spend, it will reach a point where they would have to visit the bank to cash in their notes. That would be when the bank can determine what actually happened and decode the identities fully.
Over the years, many cryptographers looked at its construction and found ways to improve it in various ways.
Regarding any cryptocurrencies used these days, you should pay attention to what prominent cryptocurrency trading platforms say.