It has now been a few years that cryptocurrencies have been part of the financial news. Adored by some, hated by others, they nevertheless represent an asset class that should no longer be neglected.
If you’re just starting to get interested in it, this little introductory article on cryptocurrencies is going to give you the basics to know before you start investing in them.
First of all, we will define the main concepts and recall the history of cryptocurrencies. Next, we will discuss the main sources to inform you. We will finish by listing some reference platforms to buy your first cryptocurrencies. Key concepts and definitions
When introducing cryptocurrencies, you need to understand the basic definitions, without the need to get into the technique. Here is a small list.
- A blockchain is like a ledger that lists all the transactions in a network. The latter is decentralized and does not need intermediaries such as a bank to ensure its security and authenticity.
- A cryptocurrency is a digital and decentralized currency, which can be used for the purchase and sale of goods or as a store of value. It differs a bit from the token, which has other features in a blockchain, in addition to that of currency. As for altcoins, they are tokens or cryptocurrencies other than Bitcoin (BTC) and, increasingly, Ethereum (ETH).
Representation of a blockchain, literally a blockchain
- Proof-of-Work (PoW) is a consensus for validating transactions and putting into circulation new cryptocurrencies, notably used by the Bitcoin blockchain. Its common representation is mining, where a network of computers validates transactions through the resolution of mathematical operations. Those who participate are paid every time they validate a transaction.
- Proof-of-Stake (PoS) is another validation consensus, which Ethereum version 2.0 (ETH) will use. Unlike mining, it is those who own and immobilize the most tokens of the blockchain in question who validate transactions and maintain the network. They are paid accordingly.
- The wallet is where your cryptocurrencies are stored. You can have full control of it by owning the private key (for example with Metamask) or delegate this control to an exchange platform. The latter is the place where you can buy, sell and exchange your cryptocurrencies.
- A stablecoin is a cryptocurrency whose objective is to replicate a currency that is legal tender in a country. The best-known stablecoins replicate the rate of the US dollar. To learn more, see our dedicated article.
- Decentralized Finance (DeFi) represents the conduct of all traditional banking activities, such as lending, without any banking or institutional intermediary, but peer-to-peer between users.
- An NFT (Non Fungible Token) is a token built based on the Ethereum blockchain, whose particularity is that it is unique. That’s why we talk a lot about art NFTs, because like paintings or photos with limited edition, each token is unique.
Brief history of cryptocurrenciesThe birth of the Bitcoin (BTC) protocol
Bitcoin is the first cryptocurrency to be put into circulation in January 2009. A famous whitepaper (white paper) formalized the creation of the Bitcoin protocol by presenting in detail the project a few months before. A person under the mysterious pseudonym satoshi Nakamoto ( 🐱 👤 ) wrote it. Until today, the creator of Bitcoin remains anonymous.
Bitcoin was created at the time of the 2008 financial crisis and increased mistrust of banks. Satoshi Nakamoto’s goal is then to create a fully decentralized currency, without trusted third parties to manage exchanges and validate transactions, open to all and unfalsifiable. It is therefore a question of creating an alternative system to the traditional financial system.
To achieve this, Satoshi Nakamoto had to create a system to exchange value on the internet without copying it, and therefore to solve the problem of double spending. In summary, when you transmit 1 BTC to your friend, you no longer own this BTC, unlike the attachment of an email that is transmitted but still remains in your possession.
Bitcoin has not only created a decentralized currency, it has also given credence to the underlying technology: the blockchain. This is how some like Vitalik Buterin perceived the immense potential of the blockchain, while noting the virtual impossibility of evolving the Bitcoin protocol.Vitalik Buterin, co-founder of Ethereum
Along with other entrepreneurs, Buterin created Ethereum (ETH) in 2013, with the goal of doing much more with blockchain technology thanks to the arrival of smart contracts. The latter are computer programs, not necessarily smart by the way, which run automatically if a condition is met. For coders, this is the IF function… THEN. Here, the smart contract is executed without the intervention of a third party and therefore in a fully automated way. The dazzling trajectory of the price of Bitcoin (BTC) and Ethereum (ETH)
Initially, BTC is not even worth a penny. Fans all know the Bitcoin Pizza Day (May 22, 2010), where a person had 2 pizzas delivered for 10,000 BTC! 🍕🍕
Very quickly, the price of BTC rose to reach 1 dollar in February 2011, then 100$ in October 2013 📈. Since 2013, price fluctuations have been subject to many upheavals, which persist until today. But, despite this roller coaster, the upward trend in the price is rather linear when looking at a chart since January 2009.
For Ethereum, put on the market in 2015, apart from the bubble at the end of 2017, the price also rose crescendo (from $ 1 to $ 150), until the explosion from the end of 2020.
Of course, the market changes every second and we are not going to update this article with each evolution of the price! You can, however, take a quick look at it by consulting Google in two clicks.
For a more complete introduction of cryptocurrencies, there are many sources to inform you.
There are several websites, French or English that deal with cryptocurrency news. They present in a precise way the concepts mentioned. You can also find very good quality YouTube channels, including Hasheur’s, which popularize cryptocurrencies.
Blockchain projects are by nature very community-based, so there are also many forums dedicated to cryptocurrencies, whether in French or English. The founder of Bitcoin very early on created a forum that still exists! In addition to the articles of Finance Héros, it can help you to dig into very specific points or to question other Internet users.
Finally, if they were rare before 2018, there are more and more books that present Bitcoin, cryptocurrencies and blockchain. Here are two references that we recommend:
- J. Helbig, From blockchain to crypto-investor…, KLHE Finance, 2019;
- P. Herlin, Bitcoin: Understanding and Investing: A Practical Guide to Cryptocurrencies…, Eyrolles, 2021
The main exchange platforms to buy cryptocurrencies
There are several dozen platforms to buy your first cryptocurrencies. We recommend using Binance, Coinbase, Kraken, Crypto.com or Coinhouse.
Do you want to invest in cryptocurrencies? Then check out our article on the subject that compares these 5 platforms!