If there is one subject that has enjoyed great popularity in recent years, especially during the COVID-19 period, it is the cryptocurrency sector, which is an integral part of Web3. We have all heard at least once about the explosion of value of Bitcoin, which reached €56,643 on October 21, 2021. And we have all, ourselves or heard from loved ones, shown an interest in these virtual currencies, going so far as to invest money on exchange platforms (Binance, Coinbase, Kraken, Bitfinex, etc.).
But do you know exactly what a cryptocurrency is, from a technological perspective, and why it has experienced this rapid rise? We will define in a simple way what a cryptocurrency is, what system it is based on, and what real use it allows today.
Cryptocurrency simple definition: what is it?
There cryptocurrency denotes a decentralized digital currency, using cryptography to secure transactions and control the creation of new units. Unlike traditional currencies issued by central banks, cryptocurrencies rely on distributed ledger technology, known as blockchain.
There blockchain, or blockchain, is a secure and transparent data structure that records all transactions made with cryptocurrency. Each block contains a set of verified transactions and is connected to previous blocks, forming a tamper-proof chronological chain. This technology ensures the security and authenticity of exchanges, eliminating the need for a central authority to validate transactions. Cryptocurrency “purists”, who believe in the alternative model, often oppose decentralization to financial world players like the ECB (for “ European Central Bank » managing the issuance of the currency of the European Union, the euro), or the FED (for “ Federal Reserve System » managing the issuance of the United States currency, the dollar).
How does cryptocurrency work? What’s the point ?
The operation of cryptocurrencies relies on a network of peers (or “nodes”) who validate and record transactions on the blockchain. These transactions are secured using cryptographic keys, with a private key used to sign the transactions and a public key to verify them.
Cryptocurrencies have multiple uses: they can be used as a means of exchange, a store of value or even as an investment method. Some merchants accept cryptocurrencies as a form of payment, and more and more companies are integrating these digital currencies into their services or products.
Why have cryptocurrencies become so popular?
The success and adoption of cryptocurrencies has been gradual. First, Bitcoin, created in February 2009, initially had no value, and was exchanged between a few users. Then, it initially became known by a community of technophiles, and the first transaction between 2 users was 5,050 bitcoins for a value of 5.02 USD (via PayPal). It was in 2010 that the first BTC (the name of Bitcoin) exchange platform was created. Then, gradually, this cryptocurrency experienced a gradual increase in value, then attracted the attention of many curious people, seduced by the promise of an alternative to the traditional financial world, until reaching €56,643 on October 21, 2021.
If they have been able to seduce the general public, it is because the cryptocurrencies in principle offer the advantage of anonymity in transactions, while allowing fast and inexpensive transfers on a global scale, regardless of borders and government regulations. This anonymity still remains relative, because the majority of players offering the purchase/sale/exchange of cryptocurrency require, as a financial organization, a mandatory account identification procedure, called KYC (for “ Know Your Customer“), which allows him to know who exactly is behind each account. It is a procedure similar to that imposed when opening a traditional bank account.
What are the most popular cryptocurrencies and why?
Several cryptocurrencies stand out for their popularity and widespread adoption. THE Bitcoin, considered the first cryptocurrency, remains the best known and most widely accepted. Its early adoption, rarity and technology contributed to its fame.
L’Ethereumfor its part, stands out for its programmable blockchain, allowing the creation of smart contracts and numerous decentralized applications (dApps).
There are also so-called stablecoins, such as Tether USDt (USDT) or even theUSDC which are popular because they are backed by the rate of a real-world currency: the American dollar.
Others cryptocurrencies as BNB (from the Binance platform), Solana (SOL) or Cardano (ADA) have also gained popularity due to their specific features, increasing adoption or innovative technology.
Concrete examples of the use of cryptocurrencies in the real world
Many people wrongly believe that cryptocurrencies are purely a speculative element with no use in the real world, or even a virtual currency for purchasing NFTs and other virtual objects. Thus, it would be virtual currency which is only useful for making a capital gain within the framework of a speculative bubble bordering on a scam.
However, cryptocurrencies find practical applications in various sectors, and are used daily by thousands of people. For example, in the travel sector, platforms allow you to book flights, hotels or car rentals using cryptocurrencies.
In the financial sector, cryptocurrencies are used for fast and inexpensive cross-border transfers, bypassing the delays and fees often associated with traditional systems. Furthermore, some online businesses accept cryptocurrencies as a means of payment, thus offering an alternative to traditional payment methods.
Using a cryptocurrency-backed bank card in-store
Some cryptocurrency exchange platforms (Crypto.com, Binance etc.) offer to open a bank account and provide a payment card, which uses the value of the cryptocurrencies in your online wallet, in order to convert your virtual currency into real time in monetary value according to the daily rate (euro, dollar, etc.). So you can do your shopping in store and pay with your cryptocurrencies.
Spend your cryptocurrencies directly on online sales sites
There are many platforms, some of which are very popular, such as Bitrefill, which allow the purchase of gift cards from the majority of brands such as Amazon, Carrefour, Deliveroo, Airbnb, Fnac Darty, Apple, Auchan… So, your cryptocurrencies can be used to purchase products and services through gift cards offered by these various brands.
Saving cryptocurrency to fight inflation in certain countries
In Argentina, Turkey, and several other countries, many citizens use cryptocurrencies to escape the volatility of their local currency. So, for example, Argentines convert their pesos into cryptocurrencies such as USDT / USDC, or even Bitcoin, to save them, and convert them again into pesos when they need them. There are even real estate agencies in Argentina that accept payments in cryptocurrency (Bitcoin) for the purchase of real estate.
In short, the cryptocurrency represents a major advance in the financial field, offering new perspectives for exchange, investment and innovation. Not to mention the future of Web3, and the development of the metaverse, which promise strong synergies with cryptocurrencies. Understanding how it works and its applications allows us to seize the opportunities offered by this digital monetary revolution.
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