Around the world, many financial market regulators and central banks regularly warn consumers about the risks of cryptocurrencies such as Bitcoin.
What are cryptocurrencies?
If certain cryptocurrencies can be used as a form of payment or as a means of exchange on the decentralized network, they are not legal tender. Bitcoin is the most important and best known of the cryptocurrencies. Based on the principle of particular to particular (peer to peer), it is “decentralized”.
Unlike a legal tender currency, Bitcoin is not issued by a government or a central bank;
Generally, the Bitcoin is exchanged when a party registered a transaction at currency.com, called node (node in English) in a distributed software called registry or chain blocks.
No financial institution is involved in the transactions.
There are many other cryptocurrencies, such as Ethereum, Ripple and Litecoin. None is legal tender.
Why were encrypted currencies created?
Any new creation obviously comes from a need. As the golden age of the ’70s is no more, the global financial system is becoming increasingly restrictive, and this causes more problems for individuals, but also for society in general. The arrival of cryptos heralds the end of the era of the domination of classic currencies. Indeed, they come with all the advantages of standard currency but without its disadvantages. Cryptos are impartial and are not directly affected by politics and their corruption. They are also extremely practical, and secure capital and all forms of transactions much more effectively, while preserving the anonymity of its third parties.
Basically, encrypted currencies were developed with the aim of carrying out financial transactions in a safer and faster way. But they have become, perhaps even in spite of themselves, carrying a symbol of resistance to the global financial hegemony of banks and lobbies.
How do cryptocurrencies work?
Cryptocurrencies can be won or bought.
The issuance and management of cryptocurrencies is done using predefined rules or through complex open source algorithms that are unique to each cryptocurrency. For example, the issuance of new Bitcoins is based on “mining” algorithms executed by people, called “miners”, using powerful and sophisticated computers. In exchange for their services, minors receive free virtual monetary units which can be exchanged. Any other individual not participating in these “mining” activities and wishing to obtain virtual money must buy it.
A cryptocurrency is characterized by two keys:
- The first key is “public”; it certifies the existence and uniqueness of the unit of virtual money;
- The second key is “private”; it is equivalent to a secret code that the owner stores in his electronic wallet.
Once the electronic wallet has been created using software or platforms intended for this type of exchange, users can purchase goods or services, as well as exchange or transfer cryptocurrency. These types of transactions are made in a pseudo-anonymous way thanks to the keys used.
When making a payment, the owner of a cryptocurrency unit validates it with his private key. This transaction is then submitted to a network of miners who certify the ownership of the cryptocurrency units, thereby validating the transaction and the transfer to the new owner.