Appearing during the 2010s, cryptocurrencies, starting with bitcoin BTC, have been described as a digital revolution, but also often criticized. So what exactly is a cryptocurrency? How does it work? What are their advantages and disadvantages? This is what we will see in detail in this article and file dedicated to the world of crypto-currencies, also called digital currencies.
Summary :
What is currency?
Before even studying the concept of “cryptocurrency”, it is important to clearly define the concept of “currency”.
Money has 3 roles in our societies
Money belongs to the category of fungible goods, and a “global” concept because it includes both coins, notes, and the balance of a bank account, for example. However, whatever its form, money fulfills 3 major functions in our societies:
- means of payment,
- account unit,
- store of value.
Money is a means of exchange for making payments (purchases) and transactions (sales) essential for practicing commerce. Money also fulfills the role of unit of account by allowing the price of goods and services to be fixed. Finally, money is also a store of value by enabling savings.
The history of money and its evolution
Originally, money was a manufactured object, a physical object, which was composed of a material with its own financial value. We are thinking here in particular of gold coins, for example, which we call “commodity money”.
In order to facilitate and streamline the economy, human societies then invented the “representative currency” which are banknotes. That is to say that the notes could be exchanged for a certain quantity of gold or silver.
Finally, in our modern economies, money is now qualified as "fiat" because its legal tender is issued by a central bank, and unlike "representative money", "fiat money" cannot be converted into gold or money.
In summary, the nature of money has changed significantly over time. From now on, currency no longer has any intrinsic value since the paper used to make banknotes has little value, and cannot be exchanged for gold or silver.
The economic system is based solely on the confidence placed by the population in this currency, and in the central bank whose role is to maintain the stability of the currency over time.
What is a cryptocurrency?
The idea and philosophy of cryptocurrencies
Cryptocurrencies are above all an idea that appeared in the 1980s, the objective of which was to create a decentralized digital currency, that is to say one which functions without any central entity such as a bank or intermediary between people.
The history and evolution of alternative digital currency
The first alternative digital currency was created in 1995 by David Chaum, an American cryptographer, with DigiCash.
Then, in 1998, Nick Szabo created Bit Gold, which is considered by many to be the direct precursor to Bitcoin BTC.
However, all attempts ran into the same problem: that of double spending.
The invention of the first alternative digital currency
It was on October 31, 2008 that the history of cryptocurrencies, but also of Web 3.0 in general, began, with the publication of a white paper on the Internet entitled: “ Bitcoin – A Peer to Peer Electronic Cash System ” and written by a mysterious Satoshi Nakamoto.
History would have it that Satoshi Nakamoto began working on this project on August 18, 2008, when he purchased the domain name www.Bitcoin.org
Regardless, the 1st block of the Bitcoin network will be mined on January 3, 2009, and this first block of 50 BTC bitcoins is now called the “Genesis Block”. The price of bitcoin BTC was then extremely low, just 14 cents in April 2010 for example. However, even though it was not worth much, bitcoin BTC still proved that it had value in the real world.
What is a cryptocurrency used for?
Also called digital or digital currency, a cryptocurrency allows you to purchase goods or services as with traditional FIAT and fiat currency.
Why are they called cryptocurrencies?
These digital currencies are called “ cryptocurrencies ” because they are based on complex cryptography technology.
A secure and decentralized currency
Cryptocurrencies have many specificities inherent to this ecosystem, however the greatest particularity of digital currencies is that they are completely decentralized thanks to the blockchain protocol.
What is blockchain ?
Blockchainblockchain is the technological innovation underlying the emergence of Web 3.0 which can be defined as a public and decentralized digital register which records information in a way which makes it tamper-proof.
What is decentralization?
In the world of blockchain and cryptocurrencies, we speak of a decentralized application because the system works “ Peer to Peer ”, that is to say from individual to individual, from person to person. , without the presence of intermediaries such as banks.
How do cryptocurrencies work?
As we have just seen, cryptocurrencies use the blockchain network to operate, which is therefore completely decentralized, and it is this blockchain network that constantly and instantly verifies transactions.
