The essence and functions of cryptocurrencies
With the development of electronic systems, ideas have repeatedly arisen to create an electronic analogue of cash for remote payment. Cryptocurrency technology was originally aimed at the absence of a trusted node - one whose actions are guaranteed to be true and who can confirm the correctness of o...
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| Zitieren: | The essence and functions of cryptocurrencies / F. Panahov // Економічний вісник Донбасу. — 2022. — № 4 (70). — С. 119-120. — Бібліогр.: 4 назв. — англ. |
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| citation_txt | The essence and functions of cryptocurrencies / F. Panahov // Економічний вісник Донбасу. — 2022. — № 4 (70). — С. 119-120. — Бібліогр.: 4 назв. — англ. |
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| description | With the development of electronic systems, ideas have repeatedly arisen to create an electronic analogue of cash for remote payment. Cryptocurrency technology was originally aimed at the absence of a trusted node - one whose actions are guaranteed to be true and who can confirm the correctness of other people's operations. For the first time, this problem was solved in the Bitcoin system due to the artificial complication of making changes to the transaction history register.
З розвитком електронних систем неодноразово виникали ідеї щодо створення електронного аналога готівки для дистанційної оплати. Технологія криптовалюти спочатку була націлена на відсутність довіреного вузла – того, чиї дії гарантовано відповідають дійсності і який може підтвердити правильність операцій інших людей. Вперше ця проблема була вирішена в системі Bitcoin за рахунок штучного ускладнення внесення змін до реєстру історії транзакцій.
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F. Panahov
119
Економічний вісник Донбасу № 4(70), 2022
DOI: https://doi.org/10.12958/1817-3772-2022-4(70)-119-120
UDC 336.7:336.743:004.04
F. Panahov,
e-mail: Ahm.maliyye@gmail.com,
Baku Business University,
Baku, Azerbaijan
THE ESSENCE AND FUNCTIONS OF CRYPTOCURRENCIES
Cryptocurrency is a digital payment system that
does not involve banks in verifying transactions. It is a
peer-to-peer system that allows anyone, anywhere, to
send and receive payments. Cryptocurrency payments
exist exclusively digitally in an online database
describing specific transactions. They do not imply
transactions with physical money that have circulation
and the possibility of exchange in the real world. When
transferring funds in cryptocurrency, transactions are
recorded in a public ledger. The first cryptocurrency was
Bitcoin, created in 2009 and the most famous nowadays.
How is cryptocurrency applied?
Cryptocurrencies are processed in a distributed
public registry – a blockchain, where records of all
transactions are stored, updated by currency holders.
Cryptocurrency units (coins) are created during the
mining process. This is a process in which the
computing power of a computer is used to solve
complex mathematical problems, as a result of which
coins are generated. Users can also buy currency from
brokers and then store and spend it using cryptographic
wallets. Cryptocurrency is not a material object, it is a
key that allows you to move a record or unit of measure
from one person to another without a trusted third party.
Bitcoin has been around since 2009, but financially,
cryptocurrencies and the application of blockchain
technology are still in their infancy. Their rapid
development is expected in the future. In the future,
cryptocurrencies can be used in trading transactions
with stocks, bonds and other financial assets [1].
Examples of cryptocurrencies
There are thousands of cryptocurrencies. The most
famous of them are listed below.
Bitcoin
Created in 2009, became the first cryptocurrency
and still retains the highest popularity. The currency was
designed by Satoshi Nakamoto and is believed to be a
pseudonym for a person or group of people, while the
exact identity of the developer remains unknown.
Ethereum
The Ethereum blockchain platform was developed
in 2015. It has its own cryptocurrency Ether (ETH) or
Ethereum. It is the most popular cryptocurrency after
bitcoin.
Litecoin
This currency is most similar to bitcoin, but inno-
vations such as faster payments and processes that allow
more transactions are more quickly developed in it.
Ripple
Ripple is a distributed ledger system founded in
2012. Ripple can be used to track many different types
of transactions, not just cryptocurrencies. The Ripple
platform developer has worked with various banks and
financial institutions.
Centralized and decentralized approaches to
the organization of electronic money systems
The study of electronic money cannot be limited
only to knowledge in finance and economics, it requires
specific knowledge in the field of information techno-
logy, primarily in the field of storage and transmission
of financial information. That is why the study of the
organization of electronic money systems is an integral
part of the study of this topic. A feature of electronic
money is the possibility of their existence both in
centralized EPS and in decentralized cryptographic
systems. The implementation of a centralized electronic
money system involves the storage and processing of
information on a dedicated server having a single
interface for interacting with users. Each operation is
performed on a dedicated server and stored in a single
database. The client device is not involved in the process
of processing and storing information [2].
With the development of the Internet and
communication technologies, systems have appeared
that provide remote access to a bank account. The rise
of e-commerce and the need to speed up settlements and
payments have contributed to the emergence of non-
bank EPS. In order to control and audit organizations
offering a new method of payment, and to regulate their
activities, the main condition for the work was to obtain
a license for operations with electronic money.
Options Centralized approach Decentralized approach
Information processing device Dedicated server or group of servers Distributed network of servers
Data storage Database Distributed databases
Format of reporting unit of account
records
Numeric entries on user accounts Block transaction records signed with
the user's private key
Public key analog Account number Wallet number
Private key analog Password Unique user id
F. Panahov
120
Економічний вісник Донбасу № 4(70), 2022
Safety and Risks of decentralized crypto-
currencies
Cryptocurrencies are usually based on the use of
blockchain technology, which describes the way
transactions are recorded in blocks with time stamps.
This is a rather complex technical process, which results
in a digital ledger of cryptocurrency transactions that is
sufficiently resistant to hacking. In addition, two-factor
authentication is required to complete transactions.
However, all these security measures do not exclude the
possibility of cryptocurrencies being hacked. Unlike
government-backed money, the value of virtual
currencies is entirely determined by supply and demand.
This can cause sharp fluctuations that can bring
investors both significant profits and significant losses.
In addition, investments in cryptocurrencies are subject
to much less regulatory protection than traditional
financial products such as stocks, bonds, and mutual
funds [3].
Legal regulation of cryptocurrencies
The legal regime for cryptocurrencies varies
greatly from country to country and is still uncertain or
changing in many of them. While some countries have
allowed cryptocurrencies, others have banned or
restricted them. For example, the People's Bank of
China banned Chinese financial institutions from
bitcoin transactions in early 2014, but did not prohibit
citizens from transactions with cryptocurrencies. In
Russia, cryptocurrencies as such are not subject to
prohibitions or restrictions on ownership, but cannot be
used as a means of payment, since it is illegal to buy
goods in any currency other than rubles, however, the
circulation of cryptocurrencies is subject to law 159, 172
of the Criminal Code of the Russian Federation.
Government agencies, departments and courts in
different countries classify cryptocurrencies in different
ways. In March 2014, the U.S. Internal Revenue Service
(IRS) ruled that bitcoin would be treated as property for
tax purposes and not as a currency. This means that
bitcoin will be subject to capital gains tax. One
advantage of this solution is that it clarifies the status of
bitcoin. Investors no longer need to worry about bitcoin
investments or profits being illegal or how to report
them to the Internal Revenue Service. An article
published by researchers at Oxford and Warwick
showed that bitcoin has characteristics closer to the
precious metals market than to the traditional currency
market, in line with the IRS decision. On October 22,
2015, the European Court of Justice ruled that bitcoin-
to-fiat transactions are exempt from Value Added
Tax(VAT). Transactions in bitcoins were classified as
payment transactions with currencies, coins and
banknotes, and therefore are not subject to VAT [4]. The
court recommended that all EU member states exclude
cryptocurrencies from the list of assets subject to
taxation. In March 2016, the Cabinet of Ministers of
Japan approved a package of bills that, in particular,
recognized Bitcoin as legal tender.
Storage of cryptocurrencies
After the acquisition, it is necessary to ensure
reliable storage of the cryptocurrency, which guarantees
protection against hacking and theft. Cryptocurrency is
usually stored in crypto wallets. These are physical
devices or online programs used to securely store private
keys to cryptocurrencies. Some exchanges provide
wallet services, which the storage of cryptocurrency
funds is carried out directly by the platform itself,
however, not all exchanges and brokers automatically
provide such services. There are also different wallet
providers. There are two types of funds storage: "hot
wallet" and "cold wallet".
– A hot wallet is a cryptographic storage that uses
online programs to protect private keys to assets.
– A cold wallet (also called a hardware wallet),
unlike a hot wallet, uses offline electronic devices to
securely store private keys.
References
1. Friedrich August von Hayek. (1976). Denationalisation of Money: An Analysis of the Theory and Practice of Concurrent
Currencies. London, Institute of Economic Affairs.
2. Satoshi Nakamoto. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from https://www.ussc.gov/
sites/default/files/pdf/training/annual-national-training-seminar/2018/Emerging_Tech_Bitcoin_Crypto.pdf.
3. Stevenson, Jn. (2013). Bitcoins, litecoins, what coins?: A global phenomenon. John Stevenson Publishing. 74 р.
4. Miers, I., Garman, Ch., Green, M. (2013). Zerocoin: Anonymous Distributed E-Cash from Bitcoin. Conference: Security and
Privacy (SP). The Johns Hopkins University. DOI: https://doi.org/10.1109/SP.2013.34.
Панахов Ф. Сутність і функції криптовалют
З розвитком електронних систем неодноразово виникали ідеї щодо створення електронного аналога готівки для
дистанційної оплати. Технологія криптовалюти спочатку була націлена на відсутність довіреного вузла – того, чиї дії
гарантовано відповідають дійсності і який може підтвердити правильність операцій інших людей. Вперше ця проблема була
вирішена в системі Bitcoin за рахунок штучного ускладнення внесення змін до реєстру історії транзакцій.
Ключові слова: криптовалюта, платіжна система, інформаційно-комунікаційні технології, валютний курс, монетарна
політика.
Panahov F. The essence and functions of cryptocurrencies
With the development of electronic systems, ideas have repeatedly arisen to create an electronic analogue of cash for remote
payment. Cryptocurrency technology was originally aimed at the absence of a trusted node - one whose actions are guaranteed to be
true and who can confirm the correctness of other people's operations. For the first time, this problem was solved in the Bitcoin system
due to the artificial complication of making changes to the transaction history register.
Keywords: cryptocurrency, payment system, information and communication technologies, exchange rate, monetary policy.
Received by the editors 21.10.2022
|
| id | nasplib_isofts_kiev_ua-123456789-190191 |
| institution | Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| issn | 1817-3772 |
| language | English |
| last_indexed | 2025-12-07T18:47:52Z |
| publishDate | 2022 |
| publisher | Інститут економіки промисловості НАН України |
| record_format | dspace |
| spelling | Panahov, F. 2023-05-24T08:05:43Z 2023-05-24T08:05:43Z 2022 The essence and functions of cryptocurrencies / F. Panahov // Економічний вісник Донбасу. — 2022. — № 4 (70). — С. 119-120. — Бібліогр.: 4 назв. — англ. 1817-3772 DOI: 10.12958/1817-3772-2022-4(70)-119-120 https://nasplib.isofts.kiev.ua/handle/123456789/190191 336.7:336.743:004.04 With the development of electronic systems, ideas have repeatedly arisen to create an electronic analogue of cash for remote payment. Cryptocurrency technology was originally aimed at the absence of a trusted node - one whose actions are guaranteed to be true and who can confirm the correctness of other people's operations. For the first time, this problem was solved in the Bitcoin system due to the artificial complication of making changes to the transaction history register. З розвитком електронних систем неодноразово виникали ідеї щодо створення електронного аналога готівки для дистанційної оплати. Технологія криптовалюти спочатку була націлена на відсутність довіреного вузла – того, чиї дії гарантовано відповідають дійсності і який може підтвердити правильність операцій інших людей. Вперше ця проблема була вирішена в системі Bitcoin за рахунок штучного ускладнення внесення змін до реєстру історії транзакцій. en Інститут економіки промисловості НАН України Економічний вісник Донбасу Tribune of the young scientist The essence and functions of cryptocurrencies Сутність і функції криптовалют Article published earlier |
| spellingShingle | The essence and functions of cryptocurrencies Panahov, F. Tribune of the young scientist |
| title | The essence and functions of cryptocurrencies |
| title_alt | Сутність і функції криптовалют |
| title_full | The essence and functions of cryptocurrencies |
| title_fullStr | The essence and functions of cryptocurrencies |
| title_full_unstemmed | The essence and functions of cryptocurrencies |
| title_short | The essence and functions of cryptocurrencies |
| title_sort | essence and functions of cryptocurrencies |
| topic | Tribune of the young scientist |
| topic_facet | Tribune of the young scientist |
| url | https://nasplib.isofts.kiev.ua/handle/123456789/190191 |
| work_keys_str_mv | AT panahovf theessenceandfunctionsofcryptocurrencies AT panahovf sutnístʹífunkcííkriptovalût AT panahovf essenceandfunctionsofcryptocurrencies |