Overview and analysis of the concept and applications of virtual currencies

This Report is dealing with virtual currencies - their concept and applications. The Report starts with the description of different types of virtual currencies, first Bitcoin, then some other types of crypto currencies, followed by description of virtual currencies that are created by conversion of real-world currencies, and finally, virtual currencies based on different types of non-financial assets. The common characteristics of all types of virtual currencies and applications based on them is support for various types of financial transactions. The analysis of the Bitcoin system includes its functional aspects, but also its weaknesses and problems. In addition to the Bitcoin and other popular systems using alternative virtual currencies for payment transactions, the Report also outlines some trends and current initiatives to use the concept of the public ledger - blockchain as support for validation and authorization of distributed, peer-to-peer financial transactions. Most of such current trends rely on use of the currently operational Bitcoin network and in that way they are directly vulnerable to the weaknesses and threats originating from that network.