When you return from a tropical holiday, do you also regret finding yourself with extra tickets that you cannot exchange? Because of the expensive costs associated with the exchange rate and the commissions charged during the exchange? Do you also regret having to wait several days to make bank transfers after multiple communications with your financial advisor? Have you ever wished for an universal currency to overcome all these problems faced by millions of people? This has been the case for about ten years now with cryptocurrencies, very recently advertised to the whole world, I mean Bitcoin. Still a fuzzy concept due to its lack of maturity, the decentralized electronic currency is increasingly talked about, thus improving the development of an ecosphere.
What the F*** is a cryptocurrency ?
Although traditional money is also an electronic currency representing 90% of the world’s money supply, a cryptocurrency is a digital currency that uses encryption techniques to secure its transactions, known as cryptography. Unlike currencies whose flows are controlled by governments, cryptocurrencies are generated by softwares open to everyone and minors. These are Internet users who offer the computing power to form a network and contribute to its proper functioning by verifying and recording transactions and their history between the parties in an accounting register. Unlike banks and other centralized systems, the accounting book is distributed to all peers in the network so that a single person or organization can’t interfere with it. We are talking here about the Blockchain, a technology whose existence is only ensured by crypto-currencies. Decentralised digital money complies with the same rules as cash money, since it makes it possible to purchase products, goods and services, make transfers, store value or even exchange it for traditional currencies. The difference here between traditional currencies and crypto-currencies is the absence of a trusted third party or intermediary in the execution of a transaction. We are talking about a Peer to Peer or “P2P” transaction. What difference does it make, you say?
Here are the theoretical advantages we can expect:
- Transactions are much faster: There is no waiting time to complete transactions and no one asks you the reasons of your transfer
- Cryptocurrencies flows are determined as soon as they are created, making inflation impossible.
- Banks do not own your money, you’re the only one with full power over it
- Trust between the parties is strengthened without going through intermediaries who charge fees in addition to slowing down your transfer. Fees are reduced
- Confidentiality is respected despite the transparency of the information
- A means of tax optimization
How is this possible? How can we respect Internet users’ data with transparency in these public transactions?
To give a simple explanation, the blockchain encrypts exchanges, which means that you can see all exchanges in real time but you can’t know the identity of the parties, except for a series of numbers and letters called public addresses. The content of the information is only transmitted to individuals with decryption clearance. In concrete terms, this means that it is possible to know how much money the addresses have while respecting the anonymity of individuals, although it is easy for specialists to know our identity if they really want to. Of course, among the two thousand crypto-currencies available, some of them allow you to be completely anonymous. Thus thanks to cryptocurrencies and blockchain, users have access to a simple and secure system to spend their money.
Crypto-currencies reflect the evolution of digital exchanges and the public’s desire to regain the full power of their purchasing behavior as was the case with gold. In addition, gold and cryptocurrencies have many points in common, such as
- Reserves are limited: gold is a rare commodity and cryptocurrencies are also limited since the number of units created is determined at the time of creation and their circulation is regulated according to the transactions check carried out by miners.
- Both cannot be created industrially in unlimited number.
- They require some effort to be acquired.
- They are durable over time.
- They can be used anonymously.
What is the purpose of cryptocurrencies?
Crypto-currencies have a specific use for each of them. Indeed, they allow you to benefit from the services offered by the company.
Here are some examples of how we can use the crypto-currencies:
- Rental services (rent, equipment, computing power of your computer, vehicles…)
- Transport services (holidays, plane tickets…)
- Tuition fees for education
- Purchasing services (home, cars, books, shopping)
- Professional services (lawyer, accountant, notary, supplier, subcontractor)
- Monitoring services related to the traceability of products and services
- Insurance services (compensation for delayed travel)
- Salaries and commissions
In short, it is possible to do many things with crypto-currencies, although many of them are not universal. You will not be able to buy the same thing with Ethereums or Vertcoins or other crypto-currencies than with Bitcoin.
Here are the disadvantages observed in the use of crypto-currencies:
- The high volatility of stock market prices, makes it impossible to store them securely or to use them in everyday life.
- This volatility is due to the speculation enjoyed by crypto-currencies owners, particularly during price manipulations by whales or during pump and dump movements.
- The low transaction processing speed: compared to VISA whose transaction processing capacity is close to 50,000 transactions/second, the Bitcoin blockchain cannot handle more than 7 transactions per second (soon the arrival of the Lightning Network technology currently in the BETA phase, whose theoretical capacity is close to 1,000,000/second) is not scalable, which does not allow mass adoption. Indeed, to be successful worldwide, bitcoin should be able to support the load of several tens of thousands of transactions per second.
- Since the transaction verification process is sequential and therefore inefficient in the context of mass adoption, the network quickly becomes saturated, thereby significantly increasing transaction costs. (In December 2017, to $10, you had to pay $55 in fees and wait several days to complete a transaction)
- The increase in transaction costs creates an auction and a competition to verify them. In other words, the people who have paid the highest transaction fees have priority in the queue. This does not respect the promise of cost savings and the advantages of cryptocurrencies compared to traditional currencies are non-existent.
- Lack of security: As it is the case in all sectors where it is possible to generate great wealth, the crypto-market is confronted with an increase in the number of scams. Indeed, hacking of exchanges or individuals, particularly with Ledger physical portfolios, but also fake ICOs and other types of fundraising that are rampant, may jeopardize the security of your money.
- Very energy-intensive network: The network requires considerable computing power, to such an extent that its energy requirement is equivalent to nearly 7% of France’s electricity consumption, one of the world’s largest consumers, which is enough to make you dizzy when you understand that it would supply millions of people with electricity for a whole year.
- The regulations that governments put in place to counter the development of cryptos (bans, penalties) are highly dissuasive.
In short, you have to be patient before blockchain becomes a norm in our society. But it should be mentionned that companies are adopting this technology more and more and are starting to explore potential synergies. Indeed, while public opinion played against crypto-currencies by assimilating them to the “currency of criminals”, large groups are beginning to integrate the blockchain into their services further democratizing it.
Will cryptos ever replace traditional currencies?
This is very unlikely or even impossible for the reasons mentioned above. However, with a loss of confidence in banks and rumors that the future financial crisis is imminent, many hope that crypto-currencies will explode at that time and that their use will evolve to the benefit of society. In the meantime, scientists agree that blockchain is a technology that will disrupt our economy.
Several types of cryptocurrencies
You’ve probably heard about corners and tokens. But what is it concretely if they are cryptocurrencies? A side note: the term cryptocurrencies does not suit many corners and tokens because they do not function as a mean of exchange. But let’s assume that they are cryptomonal.
Tokens or tokens: this is a non-little crypto-currency using the blockchain of a corner and often working with the ERC20 protocol of the Ethereum.
Tokens have the advantageous feature of being able to be used as:
- Stock market shares: Tokens come from an ICO, i.e. a fundraising that allows you to quickly obtain financing without control from an organization, as is the case with IPOs. By doing this, companies do not need to sell shares, which has the advantage of preserving full power to the company.
- The creation of decentralized projects and applications is facilitated since it is not necessary to create a Blockchain from scratch
- Serves as legal contracts by replacing intermediaries (notary, physical insurer, broker, lawyer)
- Each token has its own utility in terms of functionality
Altcoins or coins: A corner is a cheap virtual currency alternative to Bitcoin and completely independent since it has its own Blockchain technology. This is particularly the case for Ethereum, Bitecoin, Ripple. In addition, each corner has its own criteria, codes, algorithms and performance. For example, a transaction with Bitcoin takes about 10 minutes to complete, while the Ripple allows it in a few seconds.
How to acquire it?
Did you know that it was possible to spend your cryptos at the local merchant who does not accept crypto-currencies? Thanks to some online banks that exchange your cryptos for “fiat” currencies (euros, dollars), here there is indeed an intermediary, but things are likely to evolve toward decentralization. The good news is that a growing number of companies are recognizing that crypto-money are an alternative mean of payment to traditional currencies.
At first glance, it may seem difficult to make your first purchase of cryptocurrencies, but after reading our tutorial, you will see that it is easy. Although there are many purchase platforms to buy and sell crypto-currencies and transfer cryptos to trading platforms, the CIA has its own preferences and offers several analytical articles to help you make the best decision.
The word from the CIA
In other words, even if the adoption of crypto-currencies evolves in its favor, they are confronted with many limitations that greatly reduce their opportunity for democratization. Thanks to this article, you’ve probably understood that in view of the lack of regulation, you might as well say that it is a bit like the far west in the world of crypto. When a new crypto-money appears, many disappear, taking with them the fruit of several years of savings for many of us. This is why I strongly recommend not investing money that you can’t afford to lose.
In the midst of economic uncertainty, crypto-currencies are subject to many controversies. Will they soon collapse as many specialists predict, or will they shake up traditional currencies? No one knows the answer, not even Warren Buffet. In the meantime, capitalization has finally increased again after a difficult year and a half.
The revolution has begun. If multinationals, banks and governments are starting to buy crypto-currencies, it is because something is happening in our society. Crypto-currencies are starting to challenge the financial system.