History of Digital Currencies.There are several generations of digital currencies that have emerged and developed over the time, see Fig.1.1 for more clarification. In the 1980, the idea of the digital money emerged and has adopted by many researchers. After a quarter of a century, the idea has become a reality and early digital currencies were introduced. These currencies, that are proposed in, are quite similar to the traditional banking systems where the third party is used to settle all transactions at regular intervals. In addition, these currencies were almost controlled and targeted by governments who are concerned about the regulation of these currencies. Later on, the first emergence sign of virtual currencies was when early digital currencies have replaced by approaches like B-money, Karma and Bit Gold, which are based on a cryptographic puzzle (proof of work) as a replacement for central authorities where those currencies can be created by any private developers in any corporate independently from a bank. These approaches still require a central authority to maintain the money ownership records. However, these virtual currencies are not denominated in fiat currency and have their own unit of account.
After that, another generation of virtual currency has appeared. This generation comprises two key elements. First, the digital representation of “currency” that can be transferred between parties. Second, maintaining distributed ownership records in order to get rid of banks.
Specifically, quorum systems which introduced the concept of voting, have been developed. In this system, a correct value can be obtained by elections if the majority of peers (quorum) are honest. On the other hand, convertible virtual currencies have been developed to fill the gap of
the previous virtual currencies being non-convertible currencies operated only within a selfcontained virtual environment. Whereas convertible virtual currencies allow for the virtual currencies to be exchanged with fiat currencies (or other virtual currency) and used to pay for goods and services in the real world economy. The development of virtual currencies has continued and contributed in the emergence of
innovative distributed and decentralized virtual currencies. Cryptocurrencies is one of these currencies in which the governance is decentralized and they can be transacted with any outside agent. This kind of virtual currency does not fall under governments regulation as there is no legal entity responsible for the activities. In the following section, cryptocurrencies will be
discussed in details.