Right now, cryptocurrencies are all over the news. If you are just discovering what cryptocurrency is, don’t panic, follow the guide! Cryptocurrency is a type of digital currency with which you can buy goods or services. They can be traded or invested in, but are extremely volatile, so you’ll need a bit of courage.
The difference with more traditional currencies like the euro or the dollar? Trust. “Crypto” comes from cryptographic techniques that guarantee the security of cryptocurrency transactions. These techniques replace the work of banks and third parties in transaction management.
This is one of the main attractions of cryptocurrency: it is a decentralized financial system that does not depend on any large bank or institution to operate, much cheaper and faster, fair and transparent. But this system has some shortcomings, making users doubt the veracity of this promise. Let’s take a closer look.
Many are based on blockchain, a technology that allows a decentralized network to review and approve transactions. The blockchain is similar to a digital register: all the actors in a network receive a copy of this register and can reject any attempt to modify it.
The blockchain actually acts as a database, allowing large volumes of information to be stored that cannot be modified. However, by relying on a peer-to-peer network to verify any new transactions added to the blockchain, cryptocurrencies’ approach to trust differs from that of traditional currencies.
The latter are in fact regulated by a bank or a central authority. Conversely, crypto currencies such as Bitcoin or Ethereum are not managed by any central institution. Similarly, no approved third parties (e.g. banks) oversee cryptocurrency transfers. It is this aspect of cryptocurrency that attracts users, but can also complicate payments.
Pay with cryptocurrency
Yes, you are not dreaming: you can pay with crypto currencies, which nevertheless remain a form of currency. Many websites and online stores accept Bitcoins as a form of payment. With cryptocurrencies, you can buy everything from NFTs to plots of land in a video game.
To make a virtual purchase with cryptocurrency, you need a cryptocurrency wallet to keep your cryptocurrency safe. Each wallet contains public and private keys that you can use to spend and receive currency. The public key is a code known to everyone within a system. The private key is only known to the user and allows him to validate his transactions.
How many crypto currencies are there?
According to statista.com, there are nearly 6,000 different cryptocurrencies in active circulation. However, only 20 of these cryptocurrencies are used by 90% of the market.
Setting up a crypto currency is relatively easy, which is why a strong increase in their use has been observed in recent years (for example, there were less than 70 crypto currencies in 2013). The most popular cryptocurrencies are Bitcoin, Ethereum and Litecoin.
How is the value of each cryptocurrency determined?
Compared to other financial markets, the cryptocurrency market is relatively unstable, if not very unstable. The value of a cryptocurrency can skyrocket in just a few days or hours, and crash just as easily.
Many of these cryptocurrencies, such as Bitcoin, have no intrinsic value, since their value actually depends on supply and demand. So, if many want to buy a cryptocurrency but the availability is limited, then its value will increase. To prevent supply from exceeding demand, many cryptocurrencies, like Bitcoin, have a limited number of tokens. At least for the moment.
What is cryptocurrency mining?
Cryptocurrency mining is the process by which new currency units are put on the market, in exchange for which users must confirm transactions and add them to a blockchain.
This system incentivizes users to continually update and secure the network, in exchange for cryptocurrencies like Bitcoin. Anyone with a computer and an Internet connection can mine, but this operation is not always profitable. Depending on the currency mined, the capabilities of your computer and the electricity used, you may or may not be able to mine profitably.
In the case of Bitcoin, mining is a real lottery. Any company or person wishing to mine a cryptocurrency will have to take part in a race in order to solve a special code as quickly as possible, which will confirm the transaction and update the blockchain with many details. The winner will then get Bitcoins.
How to invest in cryptocurrency?
Today, you can buy and sell cryptocurrency on exchanges like Binance, Coinbase Exchange, or Huobi Global. Many of these platforms charge fees (which can reduce your profits!) for transactions.
You can buy some cryptocurrencies with euros and others only with cryptocurrency. Bitcoin, for example, gives you both of these options. To start trading cryptocurrency, create an account on an exchange. You can then buy crypto currencies with real money.
Some platforms provide a “custody” wallet, which does not allow you to obtain private keys, to store your purchases and currency exchanges. Please note: in most cases, the platform holds the private keys of the wallet. So be sure to trade securely if you plan to store your cryptocurrency in such a wallet.
Is investing in crypto currencies risky?
If you invest in a single cryptocurrency, the risk is concentrated there. To reduce it, you can buy a portfolio of different cryptocurrencies through an exchange-traded fund (ETF). You can then invest in different currencies, although the process is not always “safe”. The entire cryptocurrency ecosystem is volatile and not a safe long-term bet. So think carefully before investing all your savings in it.
Why such a success for crypto currencies?
Everyone is attracted to cryptocurrencies for different reasons, but they also have their share of skeptics. Here are some reasons to better understand the rise in popularity of these currencies:
No fees
The relative absence of fees is partly the key to the success of cryptocurrencies. Compared to traditional bank fees, cryptocurrency fees are lower since there is no central authority to manage transactions.
Efficiency
The availability and speed of transactions contribute to this attraction. Transactions can be completed in just minutes, 24 hours a day, 7 days a week, 365 days a year. There are no openness or third-party processing restrictions. They are therefore easy to use and very accessible.
Security
Blockchain technology is the system that issues many cryptocurrencies and complicates the modification of transactional data entered into the system. It is this security feature that has led to an increase in demand.
Without human intervention, the risk of error is reduced, because the network of computers approves the information transmitted in the database.
Lack of government involvement
The lack of regulation by governments is also a positive point in the eyes of some users. Different cryptocurrencies can then be considered to be more stable and less risky if a particular region of the world experiences upheaval.
Speculative profitability
Last but not least, cryptocurrency can generate profits. The cryptocurrency market is very active and, since banks are investing in blockchain technology adoption projects, it is easy to say that the presence of cryptocurrencies in the financial landscape will continue to grow. .
How to trade cryptocurrency?
Cryptocurrencies are exchanged via digital exchange offices, or exchange platforms. Many online companies offer these services: you can buy cryptocurrency there by bank transfer or credit card, but also sell or buy it back.
Can you make money with cryptocurrency?
Yes, the same way you can make money on the stock market: by buying cryptocurrency at a certain price, holding that currency, and then selling it when the price rises. For this, you need to study the markets and track the performance of currencies to determine the perfect time to buy or sell. It is not without risk, but you can invest the amount you want.
Are crypto currencies taxed?
Yes, crypto currencies are subject to capital gains tax. Rules regarding exchange rates and taxation vary by country, which can represent a taxation of gains between 0% and 50%. In France, winnings are taxed at an overall rate of 30%.
Are crypto currencies legal and secure?
In Europe, they are legal but not regulated. Markets can therefore be unstable, with investors at risk of losing money. In contrast, cryptocurrency is based on blockchain technology, which has many security features. Transactions are stored using a special time-stamped code, making it difficult to hack them. This is a system that many banks are now considering adopting.
What is cryptocurrency staking?
This is a way to earn interest by holding onto some of your cryptocurrency. Not all cryptocurrencies offer this option, but in some cases you can “stake” what you have and earn interest over time. The blockchain will use these staked currencies to verify and secure these transactions. This process, part of the approval process, is known as “proof of stake”. Generally speaking, it is a means by which to gain profit from your coin, while contributing to the security of the system and the efficiency of the blockchain.
