The Concept of Coin
A coin is a type of cryptocurrency that operates independently on its own blockchain and provides the basis for decentralized financial transactions. Understanding the concept of coin is an essential first step for anyone interested in the broader cryptocurrency ecosystem. Coins are often distinguished from tokens, which operate on top of existing blockchain platforms and have limited functionalities.
Historically, coins were usually made from precious metals such as gold, silver, and copper. This meant that the coin had a substantial intrinsic value. However, the use of precious metals imposed limitations on the number of coins that could be produced. As a result, the metal content of coins was often reduced (a practice known as debasement). This enabled the coining authority to produce more coins and profit from the difference between face value and metal value.
The process of creating a coin involves designing the coin, minting the coin, and distributing the coin to the public. The design of a coin can include images of people, places, or symbols, as well as text called inscriptions. A coin can also have one or more edges that may be rimmed or smoothed. The shape of a coin can also vary, from flat to round to octagonal.
In addition to its value, a coin can serve as an art object. Throughout history, coins have been collected and cherished, often hoarded and even buried for safekeeping. Many ancient coins have been found in sarcophagi and other burial sites. In recent times, however, digital versions of coins have become popular. These are often designed to resemble traditional coins, and can be used to make payments online.
To create a coin, the Mint designer draws a sketch of what the coin will look like (1). The artist then uses the sketch to sculpt a 3-D clay or digital model (2), which is transferred to a die (3). The die stamps the coin with the desired design (4). Most circulating coins are made from large sheets of metal rolled into coils, similar to a roll of wrapping paper. The types of metal in each coil match the type of metal in the coin.
When a coin is spent, it must be accompanied by a piece of identifying information. This can be achieved using a challenge-response scheme, where Bob sends Alice a random challenge quantity and she responds with a challenge of her own that agrees with the original challenge in at least one bit. If the two challenges are combined, they reveal the identity of the multiple spender (5).
A blind Schnorr signature is a more sophisticated way to protect against over-spending. Instead of a simple challenge, this method uses 2K large numbers to generate a series of random bits. At the payment step, Alice reveals a portion of this string to Bob. If the revealed string matches the identifier that was originally hidden, the Bank can confirm that the coin has not been double-spent (6).