The following statements do not constitute investment advice or any other advice on financial services, financial instruments, financial products or digital assets. They are intended to provide general information. The following statements do not constitute an offer to enter into a contract to buy or sell financial instruments and financial products or an invitation to submit such an offer and to buy or sell any digital asset. Cryptocurrencies are subject to strong fluctuations in value. A decrease in value or a total loss is possible at any time. Loss of access to data and passwords can also lead to complete loss.
Right now, cryptocurrencies are making headlines. If you’re just discovering what cryptocurrency is, don’t panic, follow the guide! Cryptocurrency is a type of digital currency with which you can buy goods or services. They can be traded or invested, but are extremely volatile, so you’ll need a little courage.
The difference with more traditional currencies such as the euro or the dollar? Trust. “Crypto” comes from cryptographic techniques that guarantee the security of cryptocurrency transactions. These techniques replace the work of banks and third parties in transaction management.
This is one of the main attractions of cryptocurrency: it is a decentralized financial system that does not depend on any major bank or institution to function, much cheaper and faster, fair and transparent. But this system has some shortcomings, making users doubt the veracity of this promise. Let’s take a closer look.
Many rely on blockchain, a technology that allows a decentralized network to review and approve transactions. The blockchain is similar to a digital ledger: all actors in a network receive a copy of this ledger and can reject any attempt to modify it.
The blockchain actually acts as a database, allowing large volumes of information to be stored that cannot be changed. However, by relying on a peer-to-peer network to verify any new transactions added to the blockchain, the trust approach of cryptocurrencies differs from that of traditional currencies.
The latter are regulated by a bank or a central authority. On the other hand, cryptocurrencies such as Bitcoin or Ethereum are not managed by any central institution. Similarly, no licensed third parties (banks, for example) oversee cryptocurrency transfers. It is this aspect of cryptocurrency that attracts users, but can also complicate payments.
Pay with cryptocurrency
Yes, you are not dreaming: you can pay with cryptocurrencies, which are still a form of currencies. Many websites and online shops accept Bitcoins as a payment method. With cryptocurrencies, you can buy everything from NFTs to plots of land in a video game.
To make a virtual purchase with a cryptocurrency, you need a cryptocurrency wallet, in order to keep your cryptocurrencies safe. Each wallet contains public and private keys that you can use to spend and receive change. The public key is a code known to everyone within a system. The private key is only known to the user and allows him to validate his transactions.
How many cryptocurrencies are there?
According to statista.com, there are nearly 6,000 different cryptocurrencies in active circulation. However, only 20 of these cryptocurrencies are used by 90% of the market.
Setting up a cryptocurrency is relatively easy, which is why a sharp increase in their use has been seen in recent years (for example, there were less than 70 cryptocurrencies in 2013). The most popular cryptocurrencies are Bitcoin, Ethereum and Litecoin.
Compared to other financial markets, that of cryptocurrencies is relatively unstable, not to say very unstable. The value of a cryptocurrency can skyrocket in just a few days or hours, and collapse just as easily.
Many of these cryptocurrencies, such as Bitcoin, have no intrinsic value, since their value actually depends on supply and demand. Thus, if many want to buy a cryptocurrency but the availability is limited, then its value will increase. To prevent supply from exceeding demand, many cryptocurrencies, such as Bitcoin, have a limited number of tokens. At least, for now.
What is cryptocurrency mining?
Cryptocurrency mining is the process by which new units of currencies are put on the market, in exchange for which users must confirm transactions and add them to a blockchain.
This system encourages users to continually update the network and secure it, in exchange for cryptocurrencies like Bitcoin. Anyone with a computer and an Internet connection can mine, but this operation is not always profitable. Depending on the currency mined, the capabilities of your computer and the electricity used, you may or may not mine for profit.
In the case of Bitcoin, mining is a real lottery. Any company or person wishing to mine a cryptocurrency will have to take part in a race in order to solve a special code as quickly as possible, which will confirm the transaction and update the blockchain with many details. The winner will then get Bitcoins.
Today, you can buy and sell cryptocurrency on exchange sites like Binance, Coinbase Exchange or Huobi Global. Many of these platforms charge fees (which can reduce your profits!) for transactions.
You can buy some cryptocurrencies with euros and others, only with cryptocurrency. Bitcoin offers you for example these two options. To start trading cryptocurrency, create an account on an exchange platform. You will then be able to buy cryptocurrencies with real money.
Some platforms provide a “custodial” wallet, which does not allow you to obtain private keys, to store your purchases and currency exchanges. Warning: in most cases, the platform holds the private keys of the wallet. So be sure to proceed with a secure exchange if you plan to store your cryptocurrency in such a wallet.
Is investing in cryptocurrencies risky?
If you invest in a single cryptocurrency, the risk is concentrated there. To reduce it, you can buy a portfolio of different cryptocurrencies through an exchange-traded fund (ETF). You will then be able to invest in different currencies, although the process is not always “safe”. The entire cryptocurrency ecosystem is volatile and is not a safe bet in the long run. So think carefully before investing all your savings in it.
Why such a success for cryptocurrencies?
Everyone is attracted to cryptocurrencies for different reasons, but the latter also have their share of skeptics. Here are some reasons to better understand the rise in popularity of these currencies:
The relative absence of fees is partly the key to the success of cryptocurrencies. Compared to traditional bank fees, cryptocurrency fees are less important since there is no central authority to handle transactions.
The availability and speed of transactions contribute to this attraction. Transactions can be completed in just a few minutes, 24 hours a day, 7 days a week, 365 days a year. There are no restrictions on opening or processing by a third party. They are therefore easy to use and very accessible.