Cryptocurrency is a type of digital currency, the issuing and accounting of which are based on cryptographic methods such as Proof-of-work – which assures that coins are mined only by users putting computing power to work in solving complicated mathematical problems – and asymmetric or public key encryption – which assures that the network that the currency runs on remains safe, by making transaction requests secret, verifying and protecting identities, and making double-spending virtually impossible. The system functions in a decentralized fashion on a distributed computer network.
In case of cryptocurrency blockchain it is impossible to cancel or return the funds sent to the recipient. Nevertheless, there are opportunities for transactions involving the intermediary, when the consent of all three or any two parties is required to complete or cancel the transaction. The funds cannot be forcibly frozen or recovered without access to the owner’s private key, although the parties of the transaction may volunteer to temporarily block their funds as collateral.
Explaining the definition of cryptocurrency, as a rule, there is an upper limit to the total volume of coins to be issued. However, some cryptocurrencies do not have such fixed upper limit for the total volume of coins to be issued. They are emitted in function of the available savings and demissioned by mandatory destruction of a small fixed amount in each transaction.
All currently existing cryptocurrencies are used pseudonymously – all transactions are public, but there is no default binding to a particular person, although the user’s identity can be established if the necessary additional information is known. All big cryptocurrency exchange houses ask for some sort of identification. Documents that such exchange houses usually ask are: ID, a banking statement, proof of residency, and/or a picture showing the user’s face.