To understand what cryptocurrency is, you first have to understand what it is not. While the two terms are similar, they are very different beasts. In a general sense, a currency is any item that can be exchanged with another currency. The two currencies that can be traded are called monies and there are generally two kinds: currency and commodity. Commodities include food, fuel, and other common items.
Proof of work, also known as PoW, is a kind of electronic proof where one party shows to other parties that a certain level of computational effort was spent for a specific purpose. The proof can then be verified by other parties with little or no effort on the part of the people involved. One example would be a person who creates a video using a webcam and then posts it online to YouTube. The person claiming to have created the video is not only saying that it exists, but also that it exists in the Metadata of YouTube. Their proof of work is that the computer code for the video exists.
With proof of work, someone can say that they spent time and effort creating something. This kind of proof is more than sufficient to show that the entity that gives the evidence actually exists. Proof of service, on the other hand, shows that a service provider responds to queries or requests from customers. This can help prove that the service provider actually exists, or that someone owns the service provider, and proof of service is often used by spammers to prove their ability to send large files over a server.
There are a few ways to combine these two forms of cryptology to create something completely new. Perhaps the most popular way is through what’s called proof of lease. Rather than providing proof of work, someone provides proof of ownership, proving that they actually own the server which the document is stored on. The proof of ownership can come in many forms. For instance, someone could post their real world physical address on the server, or upload photos of themselves and their house using a digital camera. Other methods might be providing downloadable source codes that can be plugged into the server if the server is installed using a particular programming language, or providing a log or other kind of documentation that can be converted into a useful form.
However, even this form of cryptology can be narrowed down. Perhaps the easiest way to make something like this is to use a combination of two or three different cryptosystems. For instance, an individual could post their email address along with an anonymous proxy service. Then, whenever someone sends an email to that email address, it would return the IP address of the person that sent the email, proving that the person sending the email actually owns that email address.
These methods work very well when done properly. In order to apply them to cryptocurrency, a person would have to learn about each type of cryptocurrency and how they work. This is very possible and very simple to do. Simply put, the future of trading online is in proof of works and not proof of invention. Therefore, anyone who wants to get involved in the online forex market should invest in a couple of different secure systems, depending on which method they are interested in using.