Bitcoin is arguably the most well-known of cryptocurrencies. Everyone has heard of it. However, few people know what a cryptocurrency is, also called digital money, virtual money or electronic money.
What makes them different from traditional currencies? What are they for? What is their value based on?
WHAT IS VIRTUAL CURRENCY?
Cryptocurrencies are private money, that is, they are not issued by a government or a conventional monetary authority like central banks or any other financial institution. They are indeed published in a decentralized manner. As a result, virtual currencies allow not going through the current banking system. This is why we can consider 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 law, and all information is checked and recorded in a gigantic accounting book open to everyone. The scams and frauds of all kinds (numerous) which are related to cryptocurrencies do not concern the cryptocurrencies 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 2017-2018 bubble.
WHAT IS A CRYPTOCURRENCY USED FOR?
Cryptocurrencies include a wide variety of objectives. Some wish to become:
An alternative to real currencies, allowing the purchase of vintage consumer goods, such as Bitcoin. Several platforms like Overstock or Shopify will enable you to buy food, cosmetics, computer equipment, etc. using the tokens held in your virtual wallet.
An alternative to venture capital. This is the case of 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 plan. 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. Bitcoin lifestyle is one of best site which is used for bitcoin trading.
WHAT IS THE VALUE OF A CRYPTOCURRENCY?
What make the value of a cryptocurrency is above all its popularity and the use that people make of it. The more the holders of a cryptocurrency and the more they use their tokens to buy products and services, the more this cryptocurrency increases 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 who should gradually impose these virtual currencies as a means of payment.
As the value of cryptocurrencies is closely 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 vast number of users have every interest in betting on virtual currencies to sell their services. 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!
It is easier to understand why virtual currencies, initially launched by startups, have become a new workhorse for Gafams, notably through takeovers of startups and collaborations.
But you can’t talk about the value of cryptocurrencies without tackling the subject of speculation, a practice that led to the 2017-2018 bubble during which Bitcoin soared to over 18,000 dollars.
The market valuation of the various cryptocurrencies that you can follow live on CoinMarketCap, for example, fluctuates considerably. The market capitalization and the prices of virtual currencies evolve very actively and sometimes very quickly. Cryptocurrencies are indeed extremely volatile assets because they are still not very mature, and above all, driven by the rapid search for profits on the part of people who invest. Indeed, the majority of buyers of virtual currencies spend in the hope of reselling their more expensive cryptocurrencies to another person, regardless of the real value of this asset.
The situation should stabilize as the penetration rate of virtual currencies in the real economy increases. Bitcoin and with it all crypto-currencies will become less volatile when their demand in the productive economy is more robust.