Bitcoin, Ethereum, Ripple: cryptocurrency for dummies

Bitcoin, Ethereum, Ripple: cryptocurrency for dummies

Bitcoin is undoubtedly the most famous of cryptocurrencies. Everyone has heard of it. However, it is clear that few people know what cryptocurrency really is, also called digital currency, virtual currency or electronic money.

What makes them different from traditional currencies? What are they for ? What is their value based on? Find out all there is to know about cryptocurrencies.
What is virtual currency?

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Cryptocurrencies are private money, that is, they are not issued by a government or a traditional monetary body like central banks or any other financial institutions. They are in fact issued in a decentralized manner. As a result, virtual currencies make it possible not to go through the current banking system. That’s why we can think of them as alternative currencies.

They are issued via blockchain technology and are governed by a code, secured by cryptography, which makes them inviolable. You cannot break the code and all the information is checked and recorded in a gigantic accounting book open to all. The scams and frauds of all kinds (numerous) which are related to cryptocurrencies do not concern the crypto currencies in themselves, but the wallets through which they are held.

Since the creation of Bitcoin in 2009, more than 2,000 cryptocurrencies have been created, although there has been a marked slowdown since the 2017-18 bubble.
What is cryptocurrency used for?

Cryptocurrencies have a very wide variety of purposes. Some wish to become:

An alternative to real currencies, allowing the purchase of classic consumer goods, such as Bitcoin. Several platforms like Overstock or Shopify allow you to buy food, cosmetics, computer equipment, etc. using the tokens held in its virtual wallet.

An alternative to venture capital. This is the case with cryptocurrencies launched during ICOs, these alternative fundraisers that finance a project by issuing cryptocurrency. The tokens or tokens are then used as a means of financing to develop an innovative project. Most often, these tokens are intended to pre-order a product or service. They will be used to acquire the product or service once it has been developed.

What is the value of a cryptocurrency?

What makes a cryptocurrency valuable is above all its popularity and what people use it for. The more people who hold a cryptocurrency and the more they use their tokens to buy products and services, the more that cryptocurrency grows in value.

Cryptocurrencies represent very lucrative payment services driven by the considerable growth of e-commerce (10% per year) and the growing importance of digital natives which should gradually impose these virtual currencies as a means of payment.

As the value of cryptocurrencies is intimately correlated with the number of tokens in circulation and the users who use them, they are directly affected by the network effect, a characteristic that benefits GAFAM. These companies, which have a very large number of users, have every interest in betting on virtual currencies to sell their services. Thus, Facebook, which has 2 billion users worldwide (no bank has two billion customers) can potentially create a currency used by more than a quarter of the world's population!

We can better understand why virtual currencies, initially launched by startups, have become a new workhorse for GAFAM, notably through startup buyouts and collaborations.