5 False information about cryptocurrencies ... Know them
Bitcoin, the original cryptocurrency, was launched in 2009, but today there are thousands of cryptocurrencies with a total value of around $ 2 trillion.
The great rise in their prices earlier this year prompted tens of thousands of millionaires to buy them, which foretells that cryptocurrencies or digital currencies may turn into a huge speculative bubble that ends up hurting many gullible investors.
Professor Eswar Prasad, Cornell University professor and fellow at the Brookings Institution in the United States, said that many of the fortunes of people who owned cryptocurrencies had already evaporated with the recent drop in prices.
Whatever the ultimate fate of these investors, he added, the innovative technological innovations that support them will change the nature of money and finance.
Reviewing 5 key points that are considered myths or common but wrong information about cryptocurrencies.
1: Cryptocurrency is real money that can be used for payments.
Cryptocurrencies such as Bitcoin and Ethereum are designed as a way to make payments without relying on traditional methods such as bank notes, debit cards, credit cards, or checks.
The Bitcoin White Paper, which launched the cryptocurrency revolution, envisages an electronic payment system that allows “any two parties willing to deal directly with each other without the need for a trusted third party,” thus distancing governments and banks from the financial loop.
Pymnts also claims that "blockchain" is the future of the payments industry, "referring to the computational technology that supports cryptocurrencies.
In fact, conducting transactions with cryptocurrencies has become very expensive and slow.
It takes about 10 minutes to validate a Bitcoin transaction, and the average fee for just one recent transaction was around $ 20.
Ethereum, the second largest cryptocurrency, also processes transactions a little faster but also has high fees.
Moreover, the high fluctuations in the values of most cryptocurrencies make them unreliable as a method of payment.
In late April, the price of Dogecoin was 20 cents, then tripled in the next two weeks, falling to half its peak value ten days later.
It's as if a $ 10 bill could buy you a cup of coffee one day and a lavish meal at a fancy restaurant after only a few weeks.
Even on a quieter, more typical day, the value of a major cryptocurrency like Ethereum could fluctuate by 10% or more, making it unstable enough to be practical.
Recently, Elon Musk announced that Tesla would not accept Bitcoin as a form of payment, reflecting the policy it implemented earlier in the year.
Almost immediately one coin depreciated.
The Chinese crackdown on cryptocurrencies briefly reduced their price by a third in just one day.
2- Cryptocurrencies are a good investment
Mutual funds have proliferated in Bitcoin and other cryptocurrencies. Even major banks like Goldman Sachs and Morgan Stanley are in the game. And you sure would have made a great return if you had bought any of the major cryptocurrencies last year. But beware, because part of the appeal is that perhaps those currencies - like gold - are tightly controlled in the supply of most cryptocurrencies (by the computer programs that run them). For example, about 18.5 million bitcoins have been mined so far, and the maximum will eventually reach 21 million bitcoins. This is the maximum set by the computer program that manages the supply of the coin.
However, scarcity by itself is not sufficient to create value, as there must be demand.
And since cryptocurrencies cannot be used easily to make most payments and have no other intrinsic uses, the only reason for their value is that many people think they are good investments, and if that changes, their value may quickly depreciate to nothing.
3 - Bitcoin vanishing, other currencies are the future
Bitcoin is now seen as the descendant of cryptocurrencies, but investors (or speculators, to be more precise) are also active in other cryptocurrencies such as Dogecoin and other cryptocurrencies, which it does not claim to be usable in financial transactions. There are no clear restrictions on the supply of these coins, so their prices rise or collapse in random events like tweets from Elon Musk. But it appears that the valuations of these currencies are based entirely on the theory of the "big naive" - all you have to do to take advantage of your investment is to find a bigger naive who is willing to pay a higher price than what you paid for the cryptocurrency.
Bitcoin technology does not look outdated compared to some of the newer cryptocurrencies that allow more user anonymity, faster transaction processing and more advanced technology features that facilitate automatic processing of complex financial transactions.
However, despite all of its shortcomings, Bitcoin remains dominant: it accounts for nearly half of the total value of all cryptocurrencies.
4 - Cryptocurrencies will replace the dollar.
Morgan Stanley’s chief global strategist, Rocher Sharma, argued that Bitcoin could end the dollar’s era - or at least that “the digital currency poses a major threat to the dollar’s supremacy.”
As the title of an article in the Financial Times suggests, "Bitcoin's rise reflects America's decline."
The truth is that cryptocurrencies are not backed by anything other than the faith of the people who own them.
By contrast, the dollar is backed by the United States government.
And investors still trust the dollar, even in difficult times.
As one illustration, domestic and foreign investors continue to eagerly buy trillions of dollars of US Treasury bonds even at low interest rates.
New cryptocurrencies called stablecoins aim to have stable values and thus make digital payments easier.
"Facebook" is planning to issue its own cryptocurrency, called "Dim", that will be backed up against one US dollar currency, giving it a fixed value.
But the value of stable currencies comes precisely from its support in currencies issued by the government.
So, while dollars may become less important in making payments, the primacy of the US dollar as a store of value will not be challenged.
5 - Cryptocurrencies are nothing but a fad and will vanish.
Businessman and economist Warren Buffett compared cryptocurrencies to the 17th-century Dutch Tulip Craze, while Andrew Bailey, Governor of the Bank of England, cautioned against buying them "unless you are prepared to lose all your money."
Economist Nouriel Roubini also described Bitcoin as "the mother or father of all scams" and even criticized the technology behind it.
Cryptocurrencies may or may not persist as speculative tools, but they do lead to transformational changes in finance.
As technology matures, stable currencies will accelerate the rise of digital payments, leading to the emergence of fiat currency.
The prospect of competition from these currencies has prompted central banks around the world to design digital versions of their currencies.
The Bahamas has already introduced a central bank digital currency, while countries like China, Japan and Sweden are experimenting with their official digital money.
Even transactions such as the purchase of a car or a house can soon be managed through computer programs that run on cryptocurrency platforms.
Digital tokens that represent money and other assets can facilitate electronic transactions involving asset transfers and payments, often without trusted third parties such as real estate settlement attorneys.
Governments will still be needed to enforce contractual obligations and property rights, but programs could one day replace other intermediaries, including bankers, accountants and lawyers.
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