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What is cryptocurrency?

by | Oct 31, 2018

What is a cryptocurrency?

A cryptocurrency is a peer to peer decentralized electronic medium of exchange based on principles of cryptography to validate transactions and emission of money itself.

Today, all cryptocurrencies (Bitcoin, Ether, Litecoin, Dogecoin, etc.) are alternatives currencies in the sens that no country has adopted a cryptocurrency as fiduciary money.

Cryptocurrencies are develop in the margin of fiduciary currencies in vigor in countries and the value depends of the law of offer and demand as gold, petrol,cocoa, etc.

It is thus necessary to understand that cryptography is an essential part in these currencies which permit to guarantee the non renunciation of operations (tracability + integrity + disponibility) as the security of transactions (confidentiality + intergrity).

Creation and emission of cryptocurrency :

In the traditional system of fiduciary money, central banks print bank notes for the economy. With cryptocurrency it is different. In effect, cryptocurrencies are not printed at all. They are created from the « Blockchain » technology.

The Blockchain is a computer algorithmic made to create each cryptocurrency individually. It is assist in this task by enterprises call miner which put at their disposal the power of their computers to made calculations necessary to its functioning. This power of calculation in permit to verify, then secure the validation of all transactions registered in the blockchain.

The blockchain is also the system which stores the historicity of all transactions made by users since its creation. When a transaction is emitted, it is transmitted and validated by computers forming the network. This validation is a calculus at the completion of which anyone can propose his computer to participate in the resolution of these operations. When the transaction is validated, each computer having participated at the validation, receive a certain amount of e-currency, proportionally to its participation in calculus.

Unless exception, the majority of cryptocurrencies is conceive in such a way that the creation of new currency units are gradual, with a limitation of the mass monetary put in circulation. This is made with the gold to avoid hyperinflation.

Compare to ordinary currencies supported by financial institutions or kept in cash, cryptocurrencies are managed by an account book open and accessible to everyone (the blockchain) which registered all the transactions since its creation. A cryptocurrency is not anonymous view the fact that any transaction can be seen by anyone trough internet with the mention of the electronic address of the emitting and receiving account as the amount of the transaction. As much, these transactions are unfalsifiableand inviolable due to cryptography. There exist some exception to this rules like Darkcoin and Zerocoin as Bytecoin, Blackcoin which totally anonymous currencies.

Advantages and disadvantages of cryptocurrency :

Advantages :

> They don’t depend of central banks.

> They are conceived for internet. They are real alternatives to traditional system of payment. They permit to increase accessibility to online payment in third world countries.

> Transparency : All transactions are public but emitters and receivers of these transactions are addresses.

> Cryptocurrency cannot be counterfeited or usurped. The encryption protocol is conceive to be resistant against an impressive list of computer attacks.

> Transfer fees are null or lower than those of banks or fund transfer companies (type Paypal, Western Union).
Transfers are faster from some seconds to few minutes compare to bank transfer (few hours to days).

> World wide transfer without countries boundary.

> There is no limit (minimal or maximal) for transfer.

> No third party (Banks, Deposits) the receiving address is directly credited.

> Irreversibilty of transactions : the transaction cannot be cancel.

> Anyone (person or company) can make a transaction.

> Storage of cryptocurrency at distance on a server or on a downloadable key.

> For some cryptocurrencies, the total quantity that can be created is defined making it deflationist in essence (The quantity of currency can only decrease with time).

Inconvenient :

> Low recourse to cryptocurrency by the public (~150 millions USD/day in march 2016 for the bitcoin).

> Little-developed payment network growing.

> Development of many different cryptocurrencies in parallel making it difficult to choose and focus on a cryptocurrency.

> Volatility of cryptocurrency.

> Irreversibility of transactions : it is impossible to cancel. Only the receiver can decide to send back what he has receive.

> Security necessary (As for any other traditional bank account) against hackers: password, double authentification.

> Interdiction of the use of cryptocurrencies in some country (Russia).

> Lost cryptocurrency is definetly gone (due to a wrong manipulation on USB key or hard drive).

> The unequal repartition of bitcoin between first users and actual users. (index of Gini degraded).

> Bank lobby opposed to the used of this type of currency and they defend their traditional system.

How to have cryptocurrency?

> A big number of exchange platforms propose to you to convert your currency (dollars, euro, etc.) in coins (reciprocally), against some fees.

> Some website proposing publicity give you the opportunity to acquire free fractions of coins, as Bitcoin faucets.

> Mining : miners put their computers in contribution for mathematical calculus in the mining networks to confirm transactions and increase security. As reward for their services, they collect newly created coins and confirm transactions fees.

> Solution reserve to enterprises : the sales of goods and services.

Control by authorities auction, cryptocurrency legality :

Due their conception philosophy, cryptocurrency escape to all regulation. However their control is discussed by monetary authorities on two axis :

> Contol the legality of goods and services acquire through cryptocurrency and by that buying of illegal stuff (drugs…)

> Monitor conversion in legal currencies to avoid money laundering by criminals.

In general ,juridical status of cryptocurrencies varies greatly between one country to another. For some countries, currencies or some of them are legal and are used freely, in others the status is undefined. legalization of cryptocurrency is evolving in some countries or totally forbidden in others.

American Fiscal Services have decided that bitcoin will be treated as an immaterial asset, in opposition to dollar, subjecting it to tax on gains on capital. A group of researcher from oxford and warwick, have demonstrate that bitcoin have characteristics similar to precious metal.

Classification of cryptocurrencies in the world :

Coinmarketcap.com regularly realize a classification of cryptocurrencies in function of their value in stock exchanges and other criterias. Without any surprise, Bitcoin is always leading.

Reference :
wikipedia.org

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