In the midst of all this discussion on the subject, the concept that best defines what cryptocurrency is, experts point out, is that it is a private digital currency, not being issued, therefore, by any government, having been created in a network. decentralized and protected by encryption.
In fact, as the aforementioned study highlights, this is the simplest definition and is capable of covering the different views that circulate about this type of asset.“They are what we call in terminology a virtual currency: a type of digital currency that is not denominated in any official currency,” the document explains.
At the same time, cryptocurrencies are digital currencies because, unlike our real, the dollar, the euro and so many other official and legal tender currencies in different countries, which can be handled, they only exist on the internet.That is, a cryptocurrency cannot be stored on the stock exchange or in a conventional wallet, and can be stored solely and exclusively in a virtual environment. In addition, cryptocurrencies have the attribute of being decentralized because there is no body or government responsible for the control, intermediation and authorization of their issuance, transfer, among other financial operations.In practice, those who do this are the registered users on the network.
The technologies behind cryptocurrency
According to experts, in order to better understand what cryptocurrency is and how it works within the world of finance, it is not enough to stick to its concept.It is also necessary to explain the existing technologies behind digital currencies. In this sense, we have to consider three technologies: encryption;the “Distributed Ledger Technology” (DLT), freely translated into Portuguese as Distributed Records Technology;and the blockchain. According to the document on digital currencies released by Propague, encryption is the technology used to prevent the reading of stored data and allow information to be transmitted securely regardless of whether the transmission channel is secure or not.In other words, it is a technology focused on maintaining the confidentiality, identity and integrity of the data being dealt with, which is essential for the other two highlighted technologies to operate.
DLT, in turn, is a digital database.In it, information is encrypted and distributed geographically by what can be called “nodes”, which form a network without a central administrator.Unlike what happens with other types of databases that are registered on a centralized server.It is, therefore, a decentralized network. Making an analogy to better understand, in practice, the DLT is equivalent to a book of accounting records.It stores encrypted information about asset ownership and transactions, and this data can be accessed by anyone who has access to the network. As a differential, this technology firstly allows transactions to be carried out in a secure manner, even without intermediaries, and without the need for information to be concentrated in a single institution.A second point is the security guaranteed by the encryption used to include the information in the network and by the processes that each member needs to follow and complete properly until it is possible to confirm the validity of a transaction.
And, among the DLTs, a specific type stands out in the midst of digital currencies: the blockchain, which emerged along with Bitcoin.In this other technology, as its English name suggests, the database is organized in the form of sequentially linked blocks, being used in the main cryptocurrencies. The fact that it is organized in this way, where a new block added to the sequence makes the previous one immutable, means that no user can spend the same digital currency twice.By the way, it is only possible to transfer ownership of cryptocurrency units if they have been verified, which is guaranteed through this technology.
Top cryptocurrencies
Among the 9,470 existing cryptocurrencies today, as it was the first, Bitcoin is naturally the most popular, capturing just over 40% of the market.But some others also stand out for their market value.Among them, we have Ethereum, Tether, Ripple, Litecoin, Bitcoin Cash, EOS, Binance Coin, USDT, Cardano, Dogecoin and Stellar, to name a few. Bitcoin’s notoriety, constant presence in the media and trending on social networks, is mainly due to the interest of big names in the business and entertainment world for this cryptocurrency, associated with price volatility, which surpassed it in mid-April 2021. , the historic mark of US$ 63 thousand.More recently, it has returned to being priced below $50,000.However, some market analysts have already projected its price above US$ 100,000 by the end of this year, as pointed out, for example, by JPMorgan Chase & Co, a holding company that provides financial and investment banking services.
The general answer to the question “why this price?”comes from the old law of supply and demand.Namely, when cryptocurrencies are in evidence, it is common for them to be more sought after, which increases the volume traded and, consequently, makes their price tend to grow. However, the cryptocurrency market goes far beyond Bitcoin and the aforementioned coins.Here in Brazil, for example, there are several cryptocurrencies of national origin, among them B2U Coin, Niobiocash, WibX, Bitblocks, Hathor, CriptoBRL, among others.
What are worth for
In fact, a cryptocurrency can be used for the same functions as cash. That is, a means of exchange, a store of value and even a unit of account, which is when products are priced in terms of a currency. In fact, as researchers from Instituto Propague found in their study on digital currencies, “when Bitcoin was launched, inaugurating the cryptocurrency market, the stated objective was to allow anonymous digital payments that did not go through financial or governmental institutions”.Thus, the primary use should be to carry out transactions with the benefit of privacy and use of a global network. However, they point out, “Bitcoin and other cryptocurrencies have gained space until now more as a speculative asset than as a means of payment”.In other words, they attract more attention from those who want to diversify investments and obtain financial gains.
In the opinion of these scholars, although the medium of exchange function is growing, cryptocurrencies are still not widely accepted and do not have scalability.One of the reasons, they justify, is precisely the high volatility of prices, which makes it difficult to use them as a price comparison mechanism between products and services.“In practice, merchants who accept cryptocurrencies as a means of payment tend to set prices in fiat currency units and charge the cryptocurrency equivalent from the rate at the time of conversion, with the cryptocurrency itself not being the unit of account,” they state. The same reasoning applies to the store of value function.“Volatility makes it not guaranteed that storing them for a long period will retain purchasing power without carrying cost.Volatility makes it difficult to expand as a medium of exchange”, they explain.
However, they do not rule out advancing the use of cryptocurrencies beyond mere speculative holding, due to lower transaction costs, privacy, and the potential to build a customer base.“In general, people who use them to make payments claim to reduce transaction costs (they considered the fees charged by traditional banks to be high, for example) and want to guarantee greater privacy than is available in the case of electronic transactions brokered by banks, which are required to follow security protocols.Merchants who use cryptocurrencies tend to do this, in addition to lower costs, due to their characteristic of not having return mechanisms”, he explains.