Broadly speaking, the answer is simple: a cryptocurrency is a virtual currency whose reliability is ensured by a decentralized cryptogram called a blockchain. All transactions carried out in a given cryptocurrency (Bitcoin or Ether for example) are recorded in a blockchain associated with this currency: the encryption of the blockchain being deemed to be tamper-proof, it is theoretically impossible to cheat using, for example, fake Bitcoins.
Unlike a classic currency such as the euro or the dollar, crypto-currencies are also issued in a decentralized manner: each individual, if he or she knows it, can make the power of their computer available to participate in the calculation of the blocks. of the blockchain on which a cryptocurrency is based and thus issue new units of account in this currency: this monetary creation activity is called “mining”.
Another subtlety: the maximum amount of units of account in each cryptocurrency is always limited: for example, the technology behind Bitcoin limits the maximum number of units of account to 21 million Bitcoins in a perfectly arbitrary manner. This cap is supposed to give a certain scarcity and therefore a certain value to these currencies.
The link between cryptocurrencies and criminal activity is outdated
Another characteristic of crypto-currencies is that they are not controlled by any institution: in short, they are currencies without central banks and even without banks at all: monetary flows in crypto-currencies are totally beyond the control. banking universe.
It is this characteristic which was at the origin of the craze around crypto-currencies, perceived by some as “anti-system” currencies, allowing to escape the traditional financial circuits. It is also not insignificant that the first cryptocurrency, Bitcoin, emerged in January 2009 in the midst of the financial crisis, in a context of general mistrust vis-à-vis the traditional financial system.
Unsurprisingly, crypto-currencies therefore began their existence in the shadows, in particular by being associated with criminal activities linked to the Darknet or the sale of illicit substances, for which transactions outside the banking system were privileged. This reputation is still anchored in people’s minds when it no longer really needs to be: the use of crypto-currencies has democratized in recent years and it is now possible, in some countries and in some brands, for example carrying out Bitcoin transactions to buy everyday consumer goods.
What are the main cryptocurrencies?
Although we generally think of Bitcoin when we talk about cryptocurrencies, it should be noted that there are now more than a dozen notable cryptocurrencies in circulation, not to mention dozens of alternative cryptocurrencies in use. confidentially. The cumulative value of the outstanding amounts of these cryptocurrencies, in dollar equivalents, has become particularly significant.
Bitcoin remains the main cryptocurrency in circulation, with cumulative assets worth almost $ 50 billion as of August 2017. Ether, which appeared in 2015, has become the second most used currency with outstanding amount corresponding to 20 billion dollars at the same date. Next come the cryptocurrencies Ripple ($ 6 billion), Litecoin ($ 2 billion), Dash ($ 1 billion), Monero ($ 600 million) or even Peercoin and SolarCoin, all of which have appeared in recent years. .
What to think about investing in cryptocurrencies
Each of the previously mentioned crypto-currencies sees its parity fluctuate against the dollar depending on supply and demand. Bitcoin has in particular been talked about since its creation for its booms and crashes against the dollar, arousing the interest of many investors, often young people and lovers of risky bets.
It is also because crypto-currencies are speculative that they attract investors, who generally appreciate the risky aspect of these markets where no one really understands the ins and outs. Speculation is omnipresent in the world of crypto-currencies, not only with regard to the variation in their price against the dollar, but also with regard to the financial operations that they allow to finance, such as ICOs. .
In recent years, however, we have seen the development of a new type of investor in crypto-currencies: these are investors looking for a diversification asset in their asset allocation, who invest in crypto. -currencies a small part of their holdings with a long-term perspective. Cryptocurrencies can indeed meet the needs of certain investors wishing to diversify their risks by turning to alternative investments.
A British startup, DLT Financial, created in 2016 the first index fund inspired by the world of ETFs and indexed on a basket of 10 crypto-currencies. This fund thus allows individual and institutional investors to dilute their risk by being invested in several currencies at the same time: an ideal solution from a “buy and hold” perspective.
But make no mistake: the evolution of the value of crypto-currencies against the dollar remains unpredictable and investment in these currencies, regardless of its duration, remains a game of chance. While investments have so far been overall winners, especially in Bitcoin, there is no guarantee that this trend will continue in the future. One thing is certain: as with any speculative investment, investors should only invest in this market what they are prepared to lose.
investing in cryptocurrency = Very high risk but significant return potential
Some debates on cryptocurrencies
Finally, it is impossible to discuss crypto-currencies without addressing the many debates to which they are the subject, and to which no one seems to have a definitive answer at the moment.
Crypto-currencies remain a complex subject, including for the most initiated. Experts themselves agree that the future of cryptocurrencies is unpredictable: will they eventually become staple international foreign exchange reserves? Or on the contrary, will blockchains one day be made obsolete to the point of losing all of their value to these virtual currencies? Impossible to know.
No one can say for sure what Bitcoin or Ether will be like in just 10 years, which highlights the risk of long-term investment in cryptocurrencies.
The most famous crypto-currencies have already been the subject of serious alerts about the “splitting” of their blockchain, understand: the appearance of a second chain of encryption derived from the original chain supposed to ensure the reliability of the cryptocurrency.
The subject, very technical, seems to be a threat to cryptocurrencies as they operate today: if the technology on which they are based can be hijacked or falsified, then trust in these assets could disappear and their value. become zero.
It should be noted that both Ether and Bitcoin have both already undergone a “splitting” of their blockchain, in 2016 for the first and in 2017 for the second. Two versions of Ether coexist for example nowadays, responding to different interests and needs from their respective users.
However, this “splitting” did not cause the abandonment or the radical depreciation of these currencies. For Eric Larchevêque, founder of the Maison du Bitcoin, this is proof that crypto-currencies and in particular Bitcoin have become resilient in the face of shocks.