What are Cryptocurrencies? Part 1/2

Before starting, it is good to know that Cryptocurrencies, even if it contains the word ‘Currencies‘, are in no way a physical ‘Currencies’. If you see here and their representations of them in the form of real coins, they are only decorative accessories, or for collectors. These kinds of objects have no value, and are unrelated to any Cryptocurrencies.

Be aware that Cryptocurrencies are only a sequence of numbers (cryptographic language) stored on your Computer (or any other Wallet), and can only be decrypted using a Password (which you are the only person to have).

Cryptocurrency is:

• A Virtual Currency
• A Digital Currency 
• A Decentralized Currency
• An Encrypted Currency

Born nearly fifty-years-ago (1976), Friedrich August von Hayek, proposed the suppression of Fiat currency, replaced by Encrypted Currency transactions. After conducting several tests, the newly proposed currency did not function properly because of its ‘centralized‘ nature. The Encrypted Currencies functioned only through servers belonging to the companies which created them. To date, Bitcoin (BTC) is really the first Decentralized Cryptocurrency. Currently we have 8000+ different Cryptos.

Behind this Cryptocurrency, there is a Man: Satoshi Nakamoto, to this day, we still do not know the true identity of this one, and there is also a group of People: the Cypherpunk.

It seems that it was the global financial crisis of 2007 that precipitated the emergence of this new form of Currency, for example, that same year we read in the Press: 

• On the Island of Cyprus, a Country on the verge of Bankruptcy, the Government and the European Central Bank decided to siphon off the savings of the Bank of Cyprus’ clients (mainly those with more than 100,000€ in their accounts), to save the Local Banks. This is one of the examples among many others.

The main advantages of a Cryptocurrencies are:

• It’s not backed by a State, nor by a Central Bank (unlike other currencies such as the Dollar ($) or the Euro (€)).
• It has no legal tender, and its value depends solely on supply and demand.
• It can’t be seized by a state
• It also offers Security and Transparency

Cryptocurrencies are not regulated by a Central Agency, nor are they indexed to Gold, Dollars ($) or any other Fiduciary Currency.

Cryptocurrency is: A Virtual Currency 

A so-called Virtual Currency, is therefore Digital, many people think that it is easy to duplicate it (as we can duplicate a text document, an image, an audio or video file), just as it is possible to counterfeit Paper Currency, but on the contrary, there are secure ways to avoid this. 

First: It is defined in the White Paper of Cryptocurrency, the number of ‘Coins/Tokens’ that will be in Circulation (and there will not be one more nor one less), for example: for Bitcoin (BTC) it has been defined that there will be only 21 Million BTC in circulation (20,999,999,997 BTC), but also other essential information such as: 

• the Automatic Creation, based on rules established from the start (Consensus)
• Transaction numbers by hours, minutes or seconds

Second: All users of a Cryptocurrency use a Network dedicated to it: the Blockchain

The Blockchain lists all the transactions made since the birth of Cryptocurrency, it’s a Shared Registry, everyone has access to it, and all transactions are anonymous (We can see the public keys of those who send and those who receive Cryptos, but without having their name, some Cryptocurrencies are based on a 100% Anonymity principle).

Let’s take the example of Bitcoin (BTC), to use its Network you just need to have:

• A Computer
• An Internet connection

Then you need to download the BTC Software, to be able to connect to the Bitcoin Network. This software downloads the entire history of the transactions carried out on the Bitcoin (BTC) Blockchain (which is almost impossible to do with FIAT currencies).

As users of the Network, you become one of its “protectors”, because let’s imagine that if someone wants to modify the Blockchain, or tries to falsify it, it will have no impact, because as soon as the Falsified Blockchain is published online, it will correct itself, because you have the unaltered version of the Blockchain in your possession. Transpose this on a global scale, it would be necessary to simultaneously falsify the millions of Blockchain histories, which would be simultaneously uploaded to the exact second, in order for this to impact the network, so this is almost impossible!

Cryptocurrencies are stored in Wallets, there is a multitude of different Wallets:

• Smartphone
• Tablet
• Computer
• In the Cloud
• Cold Wallet
• Paper Wallet
• Hardware Wallet
• Brain Wallet …

There are only 2 ways to get Bitcoin (BTC) (or any other Cryptocurrencies)

• Either you mine it 
• Either you buy it from a person who mined it himself 

(Just like Gold, you either find it in Nature or you buy it from someone who found it in Nature).

Cryptocurrency is: Peer to Peer Exchanges

Exchanges are purely Peer-to-Peer (P2P) with no Trusted Third Party institution or financial institution. There is no Intermediary between the participants, each one is equal within the System.

A Network (the Blockchain) takes care of carrying out the transactions, and records the traceability in a timeless way, as well as the Public Address of the Issuer, the Recipient, the Timestamp, the Amount and a Cryptographic Footprint. 

This Network puts an end to all the restrictions we may experience in a conventional banking system.

• No more Card and Withdrawal limits
• No more Overdrafts (and the resulting Fees)
• No more transactions that take several days 
• No more exchange fees, when you want to make a bank transfer abroad in foreign currency 
• No more Freezing of Funds (in case of problems) …

We are finally (again?) entering the era where we own our Money!

We recover our Rights and our Power to control our money ourselves. We become financially independent from any outside entities.

To carry out exchanges of Cryptocurrencies we have 2 Keys:

• A Public Key: It is what identifies your address, and it is on this Address that you will receive your Cryptocurrencies (a Public Key / Address, is intended for only one Cryptocurrency, there will be as many Public Keys as Cryptocurrencies that you wish to manage).
• A Private Key: This Key (usually longer than the Public Key) secures your Wallet, it will also be used to retrieve your Wallet, if you change your Smartphone, Computer … Note that if you lose this Key, NO ONE (I really mean NO ONE) will be able to generate a new one, to access this account, and you will lose access to your funds (just like no one will ever be able to access your funds).

You want to better understand their usefulness, and how to differentiate them? Let’s take this simple description → A Letter Box 

• The Name displayed on the Letter Box is the address to which anyone can send you a postal mail → Public Key 
• And the Lock, of which you are the only one to possess the Key, is used to access the courier → Private Key 

To be continued…

See you soon

Christophe WILHELM

Bitcoin Meister

© Bitcoin Meister