Cryptocurrencies in ten key questions

There are some 15,000 cryptocurrencies today that represent a record global value of over $3 trillion in 2021. © Sean Gladwell / GettyImages

Text by: Ariane Gaffuri Follow

13 mins

Unknown to the general public a decade ago, cryptocurrencies are gaining ground in the world.

There are now some 15,000 with a record aggregate value of more than $3 trillion in 2021, up from $500 billion in 2020. The pioneer, bitcoin, is the largest, with a market capitalization of almost 800 billion dollars as of January 1, 2022. But these digital assets carry many risks and their operation remains confusing for the uninitiated.

Here are some answers to the questions that many are asking.  

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What are cryptocurrencies? 

Unlike traditional currency, such as the dollar, euro or CFA franc, which exists in real form, with banknotes, coins, credit cards, a cryptocurrency is digital money, a simple line of computer code, accessible on computer or smartphone.

Cryptocurrencies are called "decentralized" because they are exchanged directly between each holder, peer-to-peer, without going through the control of a bank.

The transactions are anonymous, but are all listed in a secure public database: the blockchain.

We'll talk about that a bit later.  

Who is Satoshi Nakamoto, the mysterious creator of bitcoin? 

No one knows the father of bitcoin.

It is not known if it is a person or a group of people, or even if it really exists.

In 2008, “he” announced the birth of bitcoin, and in 2009 the first bitcoin transaction took place between Satoshi Nakamoto and the late Hal Finney, a video game console developer.

Some observers believe he may be the inventor of bitcoin.  

On the Bitcointalk.org forum he launched, Satoshi Nakamoto says he was born in Japan on April 5, 1975 and began developing his software in 2007 to offer an alternative to the abuses of the financial world, in the midst of the financial crisis. 

He would be at the head of a colossal fortune, thirteen years after the creation of the first token.

Back then, bitcoin was worth nothing, today it hovers around $40,000 per unit, after peaking last year at almost $70,000.

Satoshi owns almost a billion bitcoins.

That is a fortune of around 4,000 billion dollars in bitcoins, if he were to sell his supposed reserves! 

In 2010, the mysterious Satoshi announced his retirement from the project and named Gavin Andresen, an American developer, a graduate of the prestigious Princeton University, located in the state of New Jersey in the United States, as his successor.

The latter was in contact with Satoshi Nakamoto from the start and is also considered the potential inventor of bitcoin.

Over the years, other people have been suspected of being the infamous Satoshi or have presented themselves as such, but the mystery remains.  

What are the different cryptocurrencies? 

The

(BTC) is therefore the best known with this particularity: it exists in limited numbers.

21 million bitcoins, no more, can be put into circulation.

This limit should be reached by 2140. Currently, 19 million BTC are in circulation.  

The second virtual currency is Ethereum which is growing very strongly, then Litecoin.

These three assets, Bitcoin Ethereum and Litecoin dominate the market and are very popular with investors and brokers (traders).

Then come the Binance coin, the Ripple, the Cardano, the Bitcoin cash… The list is long since there are some 15,000 of them. Some appear, others disappear.

Cryptos are extremely volatile.

This means that their value sometimes changes from day to day.

You must therefore be very careful when investing, because you can lose your bet. 

What are digital currencies used for? 

They can be used as a means of payment by individuals or companies to pay for purchases in online or physical businesses that accept them.

These brands accept payments in certain cryptopos, mainly bitcoin: this is the case with Tesla (which once says yes, once says no!), Lamborghini, Microsoft, Starbuck, Overstock, Domino's pizza, Kentuky Fried Chiken, UberEat, PayPal.

The world of video games, travel sites, associations accept them.

Cryptocurrencies can also be traded as long as each party holds a portfolio in a given asset.  

In Western countries, these tokens are more of an investment.

With the Covid and the drop in activity, people spent less and saved more.

They took the opportunity to invest in these assets.

This is particularly the case in the United States, which has a certain appetite for risk.

The role of “influencers” also has something to do with this craze for digital currencies, which are always in the crosshairs of central banks and financial authorities for the risks of fraud they entail.

All it takes is a tweet, in favor of bitcoin, from Elon Musk, the whimsical boss of Tesla, for example, to encourage people to buy it, and to drive up its value, just as all it takes is a negative tweet for deter.  

In a number of emerging countries these crypto-currencies are more of a means of payment.

In Nigeria, Argentina or Vietnam for example, where the currency is not stable, bitcoin is used to buy and sell goods or to transfer or receive funds internationally.

In these countries, many people do not have bank accounts.

On the other hand, almost all of them have a smartphone and can create a virtual wallet, to carry out transactions in cryptocurrencies, to bank in a way.  

You can also speculate with cryptos, as you can with traditional currencies.

Buy when the price is low and sell when the price is high, and pocket the difference.

This requires being a wise investor, otherwise you can lose all your money. 

There are also stable cryptocurrencies that are gaining momentum: stablecoins.

Their prices do not vary because they are indexed to that of an official currency, the dollar, most of the time.

One stablecoin unit = one dollar.

The most used are Tether, USD Coin, True USD, Paxos Standard… These stablecoins are of interest to banks, despite their hostility towards cryptocurrencies. 

Where are cryptocurrencies bought and sold

? 

They are bought or sold via trading platforms, most of them online.

There are plenty of them on the net, more or less reliable… Some, on the other hand, are secure and regulated in order to better protect investors and limit fraud: laundering of dirty money, financing of drugs, terrorism.

The best known are: Binance (Hong-Kong) which offers to buy or exchange more than 600 cryptocurrencies, Etoro (Israel), Coinhouse (France), Bitpanda (Austria), Kraken or Coinbase (United States), Cex .io (United Kingdom), HitBTC (Chile)… These platforms are accessible from a computer or a smartphone.

In France, the AMF, the Financial Markets Authority in France, which tracks fraud, has made available a comparison of the platforms it considers safe, which has not prevented some from being hacked,  

Cryptocurrencies can also be purchased at auction.

This was the case in March last year for the first time in France.

An online judicial sale of more than 600 bitcoins brought the state 24 million euros.

The authorities had seized them as part of a cybercrime case.  

When buying cryptocurrencies for the first time, you are given two “keys”.

A public key which functions like an email address and which can be communicated to other people to send or receive funds, and a private key, made up of about fifty characters which must not be shared.

It's like the code of a virtual safe that contains your money.

Since cryptocurrencies do not rely on any bank, you must not lose this password, otherwise you will no longer be able to access your money. 

The storage of the electronic currencies that one acquires is also essential to secure them, because in the event of hacking, there is no recourse.  

There are two main ways: online stokers in a so-called “hot” crypto wallet, like the one offered on some platforms.

It is possible through this to buy, sell or use your digital money with the same ease as with a traditional credit card. 

Some investors prefer to write down their private key, if there are several, on a computer not connected to the Internet, on a piece of paper or to memorize them.

This is called “ 

”. 

From a certain amount, it is recommended to obtain a physical offline electronic wallet, a " 

", such as Ledger Nano X, Zengo, Trezor T. It looks like a USB key, and should not be mislead. 

Which countries have adopted cryptocurrencies

? 

According to the Global Cryptocurrency Adoption Index, Vietnam easily tops the list of countries that have adopted cryptocurrencies, followed by India, Brazil, Pakistan, Kenya, from Nigeria, Venezuela, USA, Togo, Ukraine and many more.

The government of El Salvador has outright legalized bitcoin. 

Long skeptical, central banks around the world are now taking a very close interest in cryptos, especially since China launched its e.yuan during the Beijing Olympics in February 2022. Its use is still limited territorially but some 140 million Chinese already have an e.yuan (e-CNY) account.  

India will test its digital rupee in April.

The Indian government also wants to tax cryptocurrencies circulating in its country, although their use is still not legal.

The United States has also launched the official construction of the digital dollar.  

According to the Bank for International Settlements, 86% of central banks plan to create a digital currency in 2021, compared to 64% in 2017. But only 14% have launched pilot projects.

And the most advanced countries in this field, such as Sweden or Estonia, are continuing to extend their test phases.

The Bank of England, meanwhile, is not considering anything before 2025. 

Nigeria is the first African power to launch its digital currency: the eNaira.

It is a digital version of the state currency.

The 200 million inhabitants of this country use this means of payment to make transactions. 

Since the Russian invasion of Ukraine in February, the use of cryptocurrencies has multiplied in this country.

Exchange platforms are even collaborating with the government of kyiv to raise funds to finance humanitarian aid to refugees and to buy weapons.

Ukraine raised more than US$60 million in digital currency as a result.

The Russians have also turned to cryptocurrencies. 

Do cryptocurrencies make it possible to circumvent international financial sanctions

?  

Since their offensive in Ukraine, the Russians have been under very severe international sanctions which isolate them from the international systems of monetary and banking transactions.

Russian banks have thus been disconnected from Swift, a network that connects more than 11,000 banks in more than 200 countries and facilitates transactions.

Although Moscow has yet to pass legislation on virtual currencies, Russians collectively hold more than 10 trillion rubles ($130 billion).

Cryptocurrencies, not being controlled by states, banks or political institutions such as NATO or the OECD, they can allow Russians to circumvent part of the sanctions.

But faced with the scale of international trade in foreign currencies, they do not weigh heavily. 

North Korea had also tried to use cryptos to circumvent the embargo decreed in 2019 by Donald Trump on Iran.

Without success.  

Manufacturing of cryptocurrencies

: what is the blockchain

 ?

The blockchain is a digital register of so-called decentralized data, used as an account book for cryptocurrencies, shared between thousands of machines around the world.

It records all transactions.

Once registered in the blockchain, this data is inviolable at this stage of technology.

This computing prowess is of interest beyond just crypto-assets. 

Blockchain technologies are based on a common principle called “mining”.  

What is mining? 

Mining is a process of solving complex mathematical problems.

It is a computer challenge imposed by the blockchain which makes it possible to secure the network.

Each mined transaction gives the right to a reward in the form of a distribution of new cryptocurrencies.

A miner can be a person who has invested in one or more computers and who validates blocks on the network, depending on the level of difficulty imposed.  

China was the El Dorado of mining.

It alone performed 75% of global mining.

But in May 2021, Beijing banned this practice considered dangerous for its economy and its carbon footprint.

It was also the way to leave the field open to the creation of its own digital currency: the e.yuan.

Since then, the United States has taken up the torch.

They went from 4% mining to 35% in 2021.  

Mining is emerging in many other countries: in Canada, Kazakhstan, Iran, Russia, for example, in many cases causing severe power cuts.

Struck by an energy shortage, Kosovo ended up banning mining in January 2022.  

How energy-intensive is mining? 

The production of cryptocurrencies represents a third of the electricity consumption of all digital infrastructures in the world.

For example, the Bitcoin network has reached 50 TWh per year, or 50 billion kilowatt-hours, which is the equivalent of what six medium-power nuclear reactors produce. 

Overall therefore, this practice uses, in one year, more electricity than Argentina, according to the University of Cambridge.

This obviously poses a major obstacle in the fight against climate change, at a time when energy prices are exploding.  

For example, in the United States, the Whinston mining site in Texas, founded by Chad Harris, is one of the largest in the world.

As of March 2022, it has mined almost 5,800 tokens, which amounts to $230 million.

Whinston has seven hangars 300 meters long, more than 38,000 computers running at full speed.

Its electrical capacity is 300 megawatts and will soon reach 700 megawatts, which alone is the energy consumption of a nuclear reactor. 

Another big sticking point for cryptocurrencies is the waste of material resources.

The blockchain which is replicated thousands of times and the mining which requires a large amount of calculations require a large number of electronic components: computers, hard drives, processors, graphics cards, which generates an increasing amount of electronic waste in a context of severe shortage of electronic chips essential for their manufacture. 

Our selection on the subject:

• To listen : 

→ Bitcoin: a currency of the future?

→ Africa goes bitcoin

→ Bitcoin: a decade of success and turbulence

→ Bitcoin: is a monetary revolution underway?

→ In El Salvador, the bitcoin utopia

• To read : 

→ Virtual currencies: bitcoin "miners" in search of new veins

→ Cryptocurrency to reduce the cost of money transfers

→ Cryptocurrencies: a threat or a stimulus for the Eco?

→ Sarafu, a social cryptocurrency to boost the local economy in Kenya

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