CRYPTO-CURRENCY2018-02-06T16:01:41+00:00

CRYPTO-CURRENCY

About 10 years ago, someone has had the great idea of ​​creating a virtual currency with a reduced supply that does not require banks intervention in order to make transactions. It is believed that the developer (s), known as Satoshi Nakamoto, started writing the code in 2007, to launch the network and the first bitcoins in January 2009. In order to create new bitcoins, it is necessary to constantly use more powerful computers and more energy, and the transaction costs to buy them are therefore constantly higher.

Llyod Blankein, the CEO of Goldman Sachs, explains that « the population was also very skeptical when fiduciary money replaced gold » and plans to open a trading room dedicated to Bitcoin and other « crypto-currencies » in response to the many customers’ requests of its.

Bitcoin already has a capitalization of almost 200 billion dollars. It is growing strongly and is becoming increasingly accepted as payment method and as a safe haven. However, this is only this new phenomenonemerging face. There are many other currencies that start competing with Bitcoin such as ether, dash, monero or ripple. Today Strato Markets has more than 1,800 crypto-currencies and Bitcoin now accounts for only 40% of this new market that is exploding.

Crypto-currencies form a strange and fascinating world in which the uninitiated finds it difficult to navigate. The Internet, in the early 90’s, revolutionized communication with HTML pages that can be exchanged via URLs via the HTTP protocol. Crypto-currencies are one of this new universeextensions : new computer technologies, independence from political power, new utilities brought to consumers.

The first characteristic of a crypto-currency is to be completely electronic. It exists only on computer network. In other words, if you do not have a computer, tablet or mobile phone, you do not have access to this type of currency. Traditional currencies such as the euro exist as notes or coins, which is not the case for crypto-currencies. But you should know that traditional currencies are increasingly dematerialized. Thus, when you make a transfer, you electronically transfer a sum of money from one account to another. It is the same for the samples. Coins and currencies represent only 15% of the currency in circulation.

A second difference lies in the very nature of money. Traditional currencies are mainly bank account entries kept by bankers. A transfer is therefore to write on a debit account and to spend the same writing, in the opposite direction, in credit on the account of the bank that receives the money. Crypto-currencies are computer codes, programs, which are sent from one computer to another. That’s why they are 100% electronic and secure.

Traditional currencies, especially banknotes, can be imitated by counterfeiters. Every year, between 500,000 and 1 million counterfeit euro banknotes are removed from the environment. These are mostly 50 € notes and all represent significant sums.

Crypto-currencies, as their name suggests, are encrypted currencies and encryption is mainly in the form of a « blockchain », that is to say in the form of a database that contains the history of all the users exchanges since its creation. This database is secure. It is shared by its different users, which allows them to check the chain validity.

If the blockchain is public (some may be private), it is a great accounting book that everyone can read freely, on which everyone can write with the agreement of others but which is impossible to erase and indestructible.

In order to be protected against counterfeiting, the newly created currency, the new block, must demonstrate a « work proof » to be validated by other users. A work proof is a coding, an algorithmic problem solving, which requires a lot of time and energy for the creator but which is easily verifiable by a third party. So, on the blockchain, if you want to modify a transaction, you have to change it at the same time on all computers in the network, which is impossible.

Our current monetary system is centralized: all the system actors trust anidentified and known to alldirector bank, the central bank. It’s this entity that validates operating changes and transactions. Thus, all commercial banks such as ‘Crédit Agricole’ or the ‘Société Générale’ can create as much currency as desired (scriptural money, in the account entries form) under the central bank control which regulates by various means this creation, in particular by setting the short-term basis interest rate. The central bank has kept a monopoly on the creation of bank notes.

In a decentralized monetary system, there is no arbitrator. Currency is based on a computer network where each user plays the role of both server and client. This is called a pair-pair system (or P2P). The system is managed in a shared way by all system users who validate (or not) all decisions: this is the consensus rule. For there to be a change of operation or a transaction, the agreement (often tacit) of all must be agreed.

In this system, anyone can create money. With a high-performance computer and a lot of electricity, some system participants, the « miners », creating the new currency, « blocks », which are integrated with the Chain and verified by all the system users. The creation is long and difficult but in contrast the verification is simple. All participants acceptthis new block creation as soon as the « minor » has proven the work. The more money is known, the more expensive it is to manufacture, and for the more powerful computers grow the need of ever higher electricity consumption in order to add blocks to existing ones. There’s the system self-regulation: money creation is limited by its very nature.In this decentralized and self-regulating system, where everyone can make money, banks no longer have a place. We understand that they are very repensed to the crypto-currencies: they have both their money creation power and the sources of profit.

By nature, each block includes several transactions with the issuer and receiver account e-mail address mention as well as the transaction amount. All transactions are recorded in a permanent public registry, allowing anyone to see the entire history of each crypto-currency and all account activity.

This transparency, which guarantees the transactions validity, also makes it possible to know if the crypto-currency has passed through dirty hands. The currency itself is not anonymous. However, this information is encrypted and hidden from the eyes of public authorities.

Traditional currencies are inflationary currencies. When the central bank runs its « billboard », it increases the currency in circulation. Agents with more money are encouraged to consume more and thus increase their goods demand. If the goods production doesn’t increase or increases with delay, the goods price increases according to the supply and demand law. With the same quantity of money, the agent can no longer buy the same quantity of goods: the currency has lost its purchasing power, its value. To summarize, when the quantity of money increases, its value decreases.

It is different for crypto-currency: the more it grows, the longer the blockchain becomes, the more expensive it is to create new money. For example, the amount of Bitcoin issued is divided by 2 every 4 years, until the year 2140 when it will no longer be possible to issue new Bitcoins. The value of crypto-currencies is therefore bound to rise over long term because they will be more and more expensive to manufacture and therefore increasingly rare. When it was created around 2009, a Bitcoin was worth a dollar.

Like any traditional currency such as the euro or the dollar, crypto-currencies allow goods and services purchase. Being decentralized currencies and thus escaping any regulation, they have long been the prerogative of doubtful transactions.

Crypto-currencies make it possible to buy many consumer goods on the internet, however, paying for everyday goods from physical traders is less common, but its demand is rising sharply. However, they tend to get rid of their bad reputation by democratizing and attracting a wider audience. To purchase crypto-currency, most brokers and trading platforms use the KYC (Know Your Customer) procedure and request credentials. This is also one of the steps we impose for any client in order to be in good standing with the financial authorities (REGAFI, FSMA…).

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