Cryptocurrency: How to Invest in Crypto, Bitcoin and Virtual currency

What is a cryptocurrency? How to invest in crypto currencies? Our Top 10 virtual currencies in circulation as well as the price of the main cryptocurrencies of the day. Operation, uses and recommendations, find out everything you need to know before investing in digital currencies such as Bitcoin, Ethereum, Litecoin, Ripple… which no longer have anything virtual.

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CRYPTO CURRENCY AND VIRTUAL CURRENCY: WHAT ARE THEY?

Definition of a cryptocurrency

By crypto currency is meant both a cryptographic currency and a peer-to-peer payment system. These digital currencies are therefore virtual currencies in the sense that they are characterized by an absence of physical support: neither coins nor banknotes, and payments by check or bank card are not possible either.

These are alternative currencies that are not legal tender in any country in the world. Their value is not indexed to the price of gold or to that of traditional currencies, nor are they regulated by a central body or financial institutions. There are no central banks at their head. And yet, security and transparency are their main assets! Because in fact cryptography secures transactions which are all verified and recorded in a public domain, ensuring both confidentiality and authenticity thanks to Blockchain technology.

What is a cryptocurrency? How to invest in crypto currencies? Our Top 10 virtual currencies in circulation as well as the price of the main cryptocurrencies of the day. Operation, uses and recommendations, find out everything you need to know before investing in digital currencies such as Bitcoin, Ethereum, Litecoin, Ripple… which no longer have anything virtual.

CRYPTO CURRENCY AND VIRTUAL CURRENCY: WHAT ARE THEY?

Definition of a cryptocurrency

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Blockchain: the basic technology of cryptocurrency

Crypto currencies are all based on the same principle: the Blockchain . Cryptocurrencies are a series of numbers stored on a computer in the form of chains of blocks. The principle is actually quite simple and particularly well explained in the article published in Les Échos Bitcoin and crypto currencies, new digital coins: “Take a database.

Allow anyone to make changes to this database, on the sole condition of declaring themselves a "member". Set up a very long and complex control procedure which must be carried out each time a certain number ("block") of changes is requested. This procedure is carried out not by a single controller, but by all the voluntary “members”. Once validated, the "block" of changes is dated and added to the others in the registry. Finally, let everyone read the registry, and you have a blockchain database ”. Thus, it is up to the network (all the peers) to validate and confirm each transaction.

This technology and this system are the basis of the vast majority of cryptocurrencies, but Blockchain applications do not stop there. Indeed, it could disrupt the entire financial sector but also certain sectors such as the legal or administrative sector by eliminating the need for trusted third parties. No need for a notarial deed or civil status register or even a cadastre with this distributed register technology which helps to make data more secure and transparent. Blockchain technology is after all a technology whose database cannot be changed without meeting certain conditions.

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HOW IS CRYPTOCURRENCY MADE?

People who make cryptocurrency are called miners. It is also said that they mine a cryptocurrency. Minors are an integral part of the process. Without them, the Blockchain would be frozen. A miner in fact confirms the transactions that take place on the Blockchain.

For example, imagine that Peter gives 3 Bitcoins to Paul. The transaction will be immediately broadcast over the network, peer-to-peer, made up of computers called nodes. However, it is only after a certain period of time that the transaction will be confirmed by the computers belonging to the networks using the algorithms specific to said Blockchain. Once committed, the transaction now forms a new data block for the ledger. It is added to others in the existing Blockchain, permanently and immutable.

Behind these computers on the network, miners validate transactions. To confirm a transaction, a miner must find the product of a cryptographic function that connects the new block to its predecessor. This is called proof of work. In exchange for their services (and the computing power mobilized for this purpose), they obtain a reward which takes the form of tokens or tokens.

How to mine a cryptocurrency?

To undermine a cryptocurrency, it is usually sufficient to install software on your computer using the processor or the graphics card, or even both, in order to be able to solve the cryptographic problem requiring a relatively large calculation power, which will allow you to touch new units of the cryptocurrency in question.

Be careful however, the main cryptocurrencies have become too difficult for individuals to mine. The mining of many of them has become largely professionalized and takes place in part on Chinese farms, buildings of several thousand m2 where tens of thousands of servers run day and night to mine cryptocurrencies (Bitcoin, Litecoin , etc.).

Faced with this competition, cloud mining solutions have been developed. No investment in specific hardware is required. All you have to do is get in touch with a company that has invested in the necessary equipment and “hire” your computing power. But beware, there are many scams!

Which cryptocurrency to mine?

Obviously, individuals are keen to mine the most profitable virtual currencies like Bitcoin, but also Dash, Ethereum, Monero, Litecoin, etc.

However, it is very difficult today to make money by mining a cryptocurrency. It is often much more interesting to invest in virtual currency in order to hope to make profits.

Miner / developer: who makes the cryptocurrency?

The role of the cryptocurrency miner is therefore to validate the transactions carried out. He is thus paid in tokens of the cryptocurrency for which he has confirmed a new block.

The role of the developer is very different. A cryptocurrency developer will develop the computer protocol at the base of the cryptocurrency which defines in particular the number of tokens in circulation, their speed of circulation, their storage power, etc. He is somewhat the architect of the network.

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BITCOIN, ETHEREUM, RIPPLE: THE MAIN CRYPTOCURRENCIES

How many cryptocurrencies are there? This often asked question sounds simple, but in reality it is very difficult to know the exact number of virtual currencies. No site lists them all.

The Ministry of the Economy and Finance counted more than 2,871 in 2019, without having carried out an update since. There could be nearly 3,000 today, but that's not the most interesting thing.

It should be noted that there are very many cryptocurrencies but that only a few dozen can be qualified as popular cryptocurrencies. We often tend to rank promising cryptocurrencies based on their market capitalization, and rightly so.

The cryptocurrency Bitcoin, created in 2008 by Satoshi Nakamoto (without knowing who he is, whether it is a man or a woman, or even a single person or several) is the first of cryptocurrencies. He is somewhat the digital gold standard of the cryptocurrency sector, the benchmark in the field. The main crypto currency experienced a “fork” in August 2017. A disagreement in the Bitcoin community over the speed of transactions gave rise to the birth of a new currency: Bitcoin Cash, which immediately rose to third position in the Top 10 cryptocurrencies and has held its own since then. in this Top 10.

Indeed, in parallel with Bitcoin, there are many other crypto-currencies such as Ethereum for example, which also experienced a "fork" in the summer of 2016. Ethereum, more complete than Bitcoin, is based on all Blockchain applications since it can not only process transactions but also complex contracts and programs.

We can also mention Ripple which is not only a cryptocurrency (XRP) but also a transfer system operating independently of the XRP token. It is above all a digital payment protocol intended to facilitate interbank payments. Litecoin , Cardano , NEM , Monero, Stellar, or Iota are also cryptocurrencies that are regularly part of the 10 most important crypto-currencies.

Since the creation of Bitcoin by Satoshi Nakamoto, around 3,000 crypto-currencies have emerged. It should be noted that crypto currencies are numerous, that new ones can emerge and challenge the heavyweights of the sector, but also that disagreements within a community can lead to a "fork" (fork in French), that is to say a split within the community and the creation of a new currency based on the technology of the old but with modifications.

CRYPTOCURRENCY PRICE OF THE DAY

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visit coin marketcap to get latest price

Coinmarketcap.com

CRYPTO CURRENCY: AN ANTI-CRISIS SAFE HAVEN?

If the coronavirus crisis has also impacted the price of crypto-currencies which have experienced a massive drop since the confinement of populations in the hope of stemming the Covid-19 epidemic, they largely caught up at the end of the year. year. The Christmas rally of Bitcoin and other virtual currencies in its wake has been impressive to say the least. In this troubled context, cryptocurrencies have finally succeeded in establishing themselves as a safe haven. As Nathalie Janson, Economist and teacher-researcher at NEOMA Business School underlined at the beginning of December 2020: "radical economic uncertainty, negative rates, weak dollar" are all factors that contribute to the rise in the price of crypto currencies.

Bitcoin, which set a new record at more than $ 40,000 in early 2021, leads cryptocurrency in terms of market capitalization.

Remember that the price of Bitcoin is only partially correlated with the global economic situation and rather obeys a momentum effect and that most other virtual currencies are correlated during the first of the cryptocurrencies. But this is less and less true and challengers manage to make remarkable breakthroughs like Tether or Litecoin for example.

In addition to the macroeconomic context, upward factors linked to the evolutions of the cryptocurrency may exist as is for example the case of the Bitcoin halving , which takes place approximately every 4 years, the last having taken place on May 11. 2020. This phenomenon which consists, every 210,000 blocks of transactions, in halving the reward for minors and almost systematically leads to an increase in prices.

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RANKING OF VIRTUAL CURRENCIES ACCORDING TO THEIR 2021 STOCK MARKET VALUATION

Coinmarketcap.com performs a ranking of cryptocurrencies according to their market valuation.

You may be wondering which cryptocurrency to buy or looking for information on which cryptocurrency to invest in or which cryptocurrency to trade. Investors often favor cryptocurrencies with a substantial market capitalization and relatively high prices, which reflects a certain confidence in the currency and a relative strength of the token.

Discover the ranking of the 10 most important virtual currencies taking into account their market capitalization, that is to say the total value of all tokens in circulation (price of a token X number in circulation).

Also consult our file:

1. Bitcoin (BTC)

Creation date: 2009

Market capitalization as of January 7, 2021: $ 638.506 billion

Price variation over 1 year (USD): + 336% approximately

2. Ethereum (ETH)

Creation date: 2015

Market capitalization as of January 7, 2021: $ 129.635 billion

Price variation over 1 year (USD): approximately 725%

3. Tether (USDT)

Creation date: 2015

Market capitalization as of January 7, 2021: $ 22.181 billion

Price variation over 1 year (USD): - approximately 0.03%

4. Ripple (XRP)

Creation date: 2015

Market capitalization as of January 7, 2021: $ 11.399 billion

Price variation over 1 year (USD): around 18%

5. Litecoin (LTC)

Creation date: 2013

Market capitalization as of January 7, 2021: $ 10.218 billion

Price variation over 1 year (USD): approximately 267%

6. Cardano (ADA)

Date of creation: 2017

Market capitalization as of January 7, 2021: $ 9.102 billion

Price variation over 1 year (USD): approximately 705%

7. Polkadot (DOT)

Date of creation: 2020

Market capitalization January 7, 2021: $ 8.868 billion

Price variation over 1 year (USD): approximately 242%

8. Bitcoin Cash (BCH)

Creation date: 2017

Market capitalization January 7, 2021: $ 8.012 billion

Price variation over 1 year (USD): approximately 85%

9. Stellar (XLM)

Creation date: 2014

Market capitalization January 7, 2021: $ 6.658 billion

Price variation over 1 year (USD): approximately 539%

10. Chainlink (LINK)

Date of creation: 2017

Market capitalization January 7, 2021: $ 6.386 billion

Price variation over 1 year (USD): approximately 684%

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WHAT IS CRYPTOCURRENCY USED FOR?

Virtual currency as a means of payment for the purchase of goods and services

What are the reasons for using cryptocurrency? Like any currency, cryptocurrencies allow the purchase of goods and services. Not being under the influence of a central authority and escaping any regulation, they have long been the preserve of illegal transactions (ransomware, drug trafficking, etc.) but they tend to shed their bad reputation by democratizing and attracting a wider audience. Today, cryptocurrencies are increasingly used for legal transactions.

Virtual currencies, like Bitcoin, allow the purchase of many common consumer goods. For example, it is possible to buy with Bitcoins, computer equipment of course, but also food, jewelry, decorative objects, cultural products, etc. Overstock, a general merchant site, accepts payment in Bitcoins, just like Shopify. Paying for everyday goods with other cryptocurrencies is more difficult, but not impossible. The Ether, for example, could be used to buy works of art exhibited by young artists at La Compagnie (Paris X) in the spring of 2017. The virtual currency which wants to compete with Bitcoin has thus done, on this occasion, its entry into the real world. At the end of 2021, Paypal said in a statementits intention to “join the cryptocurrency market […] by allowing customers to buy, sell and hold bitcoin and other digital assets, using the company's online wallet accounts”. This announcement allows to consider a certain and rapid democratization of virtual currencies that will be offered by this giant of online payment.

Despite everything, it is more difficult today to carry out a transaction of everyday life in cryptocurrency than with the currency that is current in the country where you live. Ditto for digital payments. However, cryptocurrencies could eventually lower the cost of a digital transaction. And the financial and banking sector is watching these advances very closely. In the future, electronic payment based on cryptographic evidence may be the norm. Enough to embarrass the banks by forcing them to completely review the transaction model!

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Cryptocurrency as a financial asset for investing

Cryptocurrencies must find their balance between means of payment and financial asset. Because it is indeed a good on which investors have positioned themselves en masse in recent years. For many people who have flocked to these new kind of financial assets, cryptocurrencies are first and foremost a potentially profitable investment.

However, are virtual currencies an investment like any other? What is certain is that digital alternative currencies can constitute a new kind of investment, while participating in the new digital economy. It is common to include crypto-currencies in the category of various goods and other atypical investments. This typology is relevant in the sense that it calls for prudence and to invest only a whole part of its capital in such assets.

Bitcoin was around $ 20,000 in December 2017 after a record year when the famous crypto currency saw its price multiplied by 15 in dollars. And Bitcoin has been in the news again recently with a spectacular rise in late 2020 that continues into early 2021 with a high of over $ 40,000 reached on January 7. Even if these dazzling price increases are accompanied by a consequent volatility, we understand the interest that can arouse the virtual currencies, able to display impressive performances which are matched only by their volatility. The increase in the volume of trade and the massive rise in the market capitalization of virtual currencies clearly indicates the interest of investors in these new financial assets.

Keep in mind, however, that buying crypto currencies more or less amounts to betting on innovative technology. If the digital currency you have invested in becomes dominant (they all try with varying degrees of success to dethrone Bitcoin), you will have made a good deal. Ethereum remains the great challenger of Bitcoin with a market capitalization close to the most famous of the crypto currencies.

Note also that online brokers are starting to offer trading in crypto-currencies like Bitcoin, notably via CFDs.

The Intercontinental Exchange (ICE), parent company of the New York Stock Exchange (NYSE), the New York Stock Exchange, is at the origin of the "Bakkt" platform, specializing in Bitcoin and crypto-currencies, which allows 'buy, sell, spend and even store Bitcoins. Its Bitcoin futures are listed on a federally regulated market. An initiative that clearly reflects the interest of major financial players in cryptocurrencies.

Some do not even hesitate to compare crypto-currencies to gold , considering that in both cases, it is a safe haven. We can even go so far as to think that Bitcoin and other cryptocurrencies are the digital gold of young generations who do not maintain the same relationship as the previous ones with the precious yellow metal.

Crypto-equity crowdfunding: another use of crypto currency

Finally, crypto-currencies have another function, more niche but just as important: the financing of projects by raising funds from people (individuals and institutional investors or business angels). You may be wondering: what is a cryptocurrency ICO? It is neither more nor less than a fundraising in cryptocurrency.

Crypto-currencies can indeed also be used to finance companies via crypto-equity crowdfunding, crowdfunding in virtual currencies. The process, which has developed significantly since 2014, consists of financing equity crowdfunding through virtual currency. This type of practice is referred to by the term of ICO or Initial Coin Offering . Several platforms offer this solution, such as Swarm for example.

WHAT MAKES THE VALUE OF A CRYPTOCURRENCY?

Why is a cryptocurrency going down? Why is a cryptocurrency falling? How does a cryptocurrency increase in value? Find out what are the factors that influence crypto prices.

Confidence in virtual currency

First, as with any currency, virtual or real, the founding element is trust. People need to trust cryptocurrencies in general and trust a particular cryptocurrency, but that's not impossible - far from it. During the Greek crisis, some massively bought Bitcoin, a currency that inspired them more confidence than that, real and regulated, which suffered the full brunt of the monetary crisis and had to face galloping inflation.

In addition, to flourish and see its price advance, a cryptocurrency needs a favorable regulatory framework and a benevolent approach from regulators. On September 26, 2019, Bitcoin jumped 42%, from around $ 7,000 to over $ 10,000, after Xi Jinping's statements about the potential of Blockchain technology, which he called a "major breakthrough" for innovation independent of basic technologies ”. The 3 ^rdBitcoin's largest daily rise is therefore largely due to China's pro-Blockchain policy. In its wake, other cryptocurrencies have adopted a bullish movement. China, by praising the underlying technology of Bitcoin, gave a strong buy signal to market participants who saw in the statements of the Chinese President a clear desire to allow the development, if not the acceleration of cryptos, this which naturally boosted the entire sector.

The number of users of the crypto currency

What also makes the value of a virtual currency is the importance of its network and the number of people who use it all over the world.

The more users a cryptocurrency has, the more its value increases, which means that the price of the token goes up.

Two essential factors will push people to buy a virtual currency: the penetration rate in the real economy (i.e. the ease with which one can buy goods and services in real life by paying with said crypto currency) and the prospect of positioning itself in a crypto-asset while achieving a relatively large capital gain.

Speculation is still the main driver of the development of cryptocurrencies and their prices vary considerably depending on the appreciation of traders who think they will make money easily or not on a particular token, creating bubbles as in 2017-2018 . Intrinsic value doesn't really come into play. And the situation is very likely to continue as long as demand in the real economy remains relatively weak.

The growing democratization of virtual currencies is boosting the price of cryptos

The democratization of virtual currencies reflects the growing confidence of the general public in this type of asset. Individuals will now be able to pay for more purchases of goods and services via virtual currencies with their Paypal account as we have seen previously or with the future Facebook token, the Diem, which will make it possible to pay for purchases on the marketplace of famous social network.

Governments and central banks are also showing more inclination to adopt virtual currencies with an effort made on the regulation of crypto currencies and the emergence of digital currencies from central banks . Finally, the financial markets also seem to be making room for cryptos. Many brokers now offer to invest in virtual currencies. Several large investment banks have a unit dedicated to crypto assets, and more and more traditional funds and hedge funds are positioning themselves in crypto assets. Last notable event: Coinbase, the American crypto currency exchange platform, should soon go public.

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HOW TO INVEST IN CRYPTOCURRENCY?

1 in 4 French people have already bought cryptocurrency. 1 in 3 French people intend to buy them according to the February 2018 study carried out by the Paypite Association. If 94% of people over 60 do not intend to buy, according to the same study, a poll for “Les Echos” by Odoxa-Linxea in January 2018 indicated that a quarter of 18-24 year olds are considering to buy them, and 36% of them even think that they will one day replace the official currencies. According to a study carried out in April 2019 by the crypto exchange BitFlyer, two-thirds of the 10,000 Europeans surveyed believe that cryptocurrencies will still be there in ten years. However, barely a tenth of those surveyed bet on the use of cryptos as a currency in the future.

The Paypite study also reveals that 18% of French people do not know how to buy cryptocurrency. If you are not lacking the desire but do not know how to proceed, find here our explanations and advice for positioning yourself in crypto currency.

2 ways to buy your virtual currency

There are two ways to get crypto currencies:

by selling a good or a service and demanding payment in the cryptocurrency of your choice;
by converting "classic" currencies (euro, dollar, etc.) into encrypted currency.

Kraken, Bitstamp, Poloniex, Coinbase, or even Circle make it possible, for example, to convert euros into Bitcoins quite easily, or even into other virtual currencies.

To convert your euros into Bitcoins, you must register on this platform by providing an electronic copy of an identity document and a recent invoice (gas, electricity, internet) to prove your address.

Choose your crypto currency exchange platform or virtual currency broker

To avoid scams and see more clearly in the offer of crypto-currency intermediaries, the Pacte law has set up a new specific regime governing these service providers on digital assets (PSAN). According to the AMF, these PSANs bring together all the “financial intermediaries who offer various services relating to investment in crypto-assets”. Since December 2020, these PSANs must, in order to be able to offer crypto-asset custody services or access to crypto-assets or the purchase / sale of crypto-assets against currencies having legal tender, must be registered. with the financial market policeman who will ensure the reliability of the service provider. Any player who has not registered may find himself on the AMF's blacklists.

In addition, an optional authorization can also be requested by the PSAN which, after having obtained it, will have the right to be able to canvass new customers.

Before any investment and any transaction, check that the actor with whom you plan to deal is not on the AMF blacklists, that he is registered with the Autorité des Marchés Financiers and, if you are canvassed, that this actor has the authorization which gives him the right to do so.

Note that it is also possible to trade crypto currencies through derivatives offered by online brokers.

Create a cryptocurrency wallet

Whatever your method of obtaining, you will have to create a "wallet" in order to keep your change.

An encrypted currency wallet is an address in the form of a series of digits which can be accessed using a password. You can create a Bitcoin address and password for yourself for free and quite simply on a dedicated platform like BitAddress.org for example. For other crypto-currencies, other specific platforms exist. Cryptanor thus supports several currencies.

Finally, to pay with a cryptocurrency (or receive a payment in cryptocurrency), an intermediary is necessary. You will have the choice between:

an exchange platform similar to a broker;
software to download.

Please note, these intermediaries usually charge commissions. We also cannot recommend enough that you choose your intermediary carefully, many of them have already gone bankrupt.

Also watch out for scams of all kinds that flourish on the web and "brokers" who refuse to return the sums held in your account.

How to trade cryptocurrency

All over the world, new initiatives are developing to invest in the cryptocurrency market. Thus, as we have seen, the New York Stock Exchange announced in August 2018 the creation of the "Bakkt" platform by the Intercontinental Exchange (ICE), parent company of the New York Stock Exchange (NYSE), which allows you to buy, sell and store Bitcoins. But the United States is also seeing the creation of trust companies specializing in crypto currencies such as LLC and ITbit, two companies which, in addition to meeting the requirements of the New York State Department in terms of capitalization, reserves, compliance, consumer protection and cyber security, also provide guarantees of computer storage systems and cold storage vault systems for Bitcoin holdings from the famous GABI fund.

In France, the individual who wants to position himself on the crypto-currency market can turn to a specialized online broker who offers virtual currency trading via CFDs.. For example, eToro allows you to trade Bitcoin, Ethereum, Ripple, Bitcoin Cash, and Cardano. IG allows you to trade Bitcoin, Ethereum, Ripple, and Litecoin. You will also be limited in terms of leverage. Indeed, a CFD on cypto-actives cannot have a leverage greater than two. Recall that 89.4% of retail traders lose money according to the Study of results of retail investors on CFDs and Forex trading in France carried out by the Autorité des Marchés Financiers on the basis of the results obtained by nearly 15,000 French retail traders from 2009 to 2013. The AMF also points out that the financial intermediary who markets this type of CFD must be approved and, as such, appear on Regafi's registers .

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CRYPTO CURRENCY TAXATION 2021: HOW TO CALCULATE THE CAPITAL GAIN AND DECLARE THE GAINS IN VIRTUAL CURRENCY

Capital gains generated by the activity of buying and reselling crypto currencies are taxable as "digital assets" since 1 ^st January 2019. This is the flat tax of 30% which applies to gains from crypto currency trading activities. The taxpayer nevertheless has a transfer allowance of 305 euros per year.

Note: transactions are only taxable when converting virtual currencies into traditional currencies such as the euro, the dollar or the Swiss franc, including if the money remains on the exchange platform without moving.

The amount of its capital gains must be indicated in the income tax return, in the box “Capital gains or losses on digital assets”, to which must be attached the form 2086 providing details of taxable transactions.

6 TIPS FOR INVESTING IN CRYPTOCURRENCY

Find our 6 tips for investing successfully and knowingly in a crypto currency.

1. Understanding Blockchain Technology

Before investing in this type of currency, make absolutely sure that you understand this innovation and especially the technology behind it. This ultimately comes down to fully studying the Blockchain technology from which crypto currencies originate. Also, and especially, pay attention to the details that differentiate currencies from one another: the programming language, the blockchain validation system, governance, the currency's ability to adapt to an order of magnitude change of demand for example.

2. Take into consideration the token expansion limit

The unit of cryptocurrency is called a token. The number of tokens created can be limited, as is the case with Bitcoin which will be limited to 21 million Bitcoins in circulation, making the product relatively rare, which of course contributes to its value. But a cryptocurrency can also follow a deflationary pattern. In this case, the quantity of money in circulation is unlimited, which could over time encourage the stagnation (or even decrease) of its price.

3. Check the transparency of virtual currency

Favor a cryptocurrency with a website with clearly identified investors and developers, a presentation of the project, possibly a roadmap indicating the planned technological advances. If none of this is accessible, beware, you could invest in a Ponzi scheme.

4. Stay informed on cryptocurrency websites

To be up to date in this ultra-niche and ultra-geek field, and therefore ensure an investment under the best conditions by having all the information on the targeted asset, it is better to look for the information where it is found, that is to say on the web! Many cryptocurrencies offer their own websites, but broaden your search to community websites like Reddit or Slack which will allow you to publish, consult articles, discuss and share issues and opinions. The Bitcointalk forum fulfills the same role but is exclusively devoted to crypto-currencies (not just Bitcoin because it has a dedicated altcoins section).

5. Learn about the quality of virtual currency developers and their funding

What makes the success of a crypto currency above all is the quality of the developers who are at the origin of this innovation. So check their experience, education, work history, etc. Do they form a tight-knit team with good rapport? You can verify that their interactions on the Slack or Reddit community are both cordial and constructive.

Finally, you must know who pays the developers: a company or a private equity fund outside of cryptocurrency? Are developers paid with their cryptocurrency? The important thing is to be able to assess the motivation of developers and any conflicts of interest.

6. Limit your investments in these volatile high risk assets

Volatility is one of the major characteristics of crypto currencies. Thus, the value of a crypto currency, i.e. its price, can increase or decrease, very quickly, in an unpredictable way. In question: its young economy, its unusual nature and especially its sometimes illiquid markets. And the number of platforms further adds to the lack of liquidity of the tokens. Thus, at the end of 2019, “a volume of 143 bitcoins is enough to vary its price by 1% on the Bitstamp platform. Coinbase and Kraken are much more liquid, and it is respectively 456 and 672 bitcoins that must be exchanged to move the price of the leader in cryptos by 1% ”reports the site Les Echos.

Investing in crypto currency is therefore not recommended for cautious profiles with a strong aversion to risk. For others, think all the same not to keep a large part of your savings in Bitcoin or others which remain high-risk assets. There is a real risk of losing a large part of the money invested in this way.

If the cryptocurrency adventure tempts you, go for it with money that you are ready to lose. It must be an investment representing a very small part of your financial assets. Cryptocurrency is more of an experiment to try if you feel like it than a reasoned investment made with a view to diversification. Wanting to make money really fast is never a good reason to invest in cryptocurrency.

Some questions about cryptocurrency?

What is a cryptocurrency?

The term cryptocurrency refers to both a virtual currency and the peer-to-peer payment system that goes with it. These are virtual currencies without physical media, not regulated by a central body and whose value is not indexed to a legal currency or a commodity.

How to invest in a cryptocurrency?

You can invest in cryptocurrency by purchasing tokens through a specialized platform. You can also trade cryptocurrency through an online broker like eTor , investing in a derivative that has virtual currency as its underlying. Be careful in any case to only devote a very small part of your assets to this type of investment.

What makes the value of a virtual currency?

The price of a cryptocurrency is linked to the confidence it inspires among investors, to its technical characteristics, to the ease with which we can or not buy things in real life with it, but also to the possible more -value that the virtual currency will allow to achieve.

What is cryptocurrency used for?

There are several reasons to use a cryptocurrency: to buy goods and services, to realize short-term capital gain for the purpose of speculation or to invest for the long term in an innovative technology that is believed to be will revolutionize digital transactions.

If you want to learn how you can do this using Bitcoin and Cryptocurrencies and want a real shot at life-changing wealth from very calculated downside risk, it’s essential that you watch this no-cost presentation right away:

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History

See also: History of bitcoin

[Masterclass] Cryptocurrencies explained ,

This is by far the best explanation of Bitcoin and cryptocurrencies I’ve come across and I HIGHLY recommend you watch it right now, before Dirk takes it down:

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In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash.^[6][7] Later, in 1995, he implemented it through Digicash,^[8] an early form of cryptographic electronic payments which required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient. This allowed the digital currency to be untraceable by the issuing bank, the government, or any third party.

In 1996, the National Security Agency published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system, first publishing it in an MIT mailing list^[9] and later in 1997, in The American Law Review (Vol. 46, Issue 4).^[10]

In 1998, Wei Dai published a description of "b-money", characterized as an anonymous, distributed electronic cash system.^[11] Shortly thereafter, Nick Szabo described bit gold.^[12] Like bitcoin and other cryptocurrencies that would follow it, bit gold (not to be confused with the later gold-based exchange, BitGold) was described as an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published.

The first decentralized cryptocurrency, bitcoin, was created in 2009 by presumably pseudonymous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, in its proof-of-work scheme.^[13][14] In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It used scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin used a proof-of-work/proof-of-stake hybrid.^[15]

On 6 August 2014, the UK announced its Treasury had been commissioned a study of cryptocurrencies, and what role, if any, they can play in the UK economy. The study was also to report on whether regulation should be considered.^[16]

Formal definition

According to Jan Lansky, a cryptocurrency is a system that meets six conditions:^[17]

The system does not require a central authority; its state is maintained through distributed consensus.
The system keeps an overview of cryptocurrency units and their ownership.
The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
Ownership of cryptocurrency units can be proved exclusively cryptographically.
The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.

In March 2018, the word cryptocurrency was added to the Merriam-Webster Dictionary.^[18]

Altcoins

Tokens, cryptocurrencies, and other types of digital assets that are not bitcoin are collectively known as alternative cryptocurrencies,^[19][20][21] typically shortened to "altcoins" or "alt coins".^[22][23] Paul Vigna of The Wall Street Journal also described altcoins as "alternative versions of bitcoin"^[24] given its role as the model protocol for altcoin designers. The term is commonly used to describe coins and tokens created after bitcoin. The list of such cryptocurrencies can be found in the List of cryptocurrencies article.

Altcoins often have underlying differences with bitcoin. For example, Litecoin aims to process a block every 2.5 minutes, rather than bitcoin's 10 minutes which allows Litecoin to confirm transactions faster than bitcoin.^[25] Another example is Ethereum, which has smart contract functionality that allows decentralized applications to be run on its blockchain.^[26] Ethereum is the most-actively used blockchain in the world according to Bloomberg News^[27] and has the largest "following" of any altcoins according to the New York Times.^[28]

Significant rallies across altcoin markets are often referred to as an "altseason".^[29][30]

Crypto token

A blockchain account can provide functions other than making payments, for example in decentralized applications or smart contracts. In this case, the units or coins are sometimes referred to as crypto tokens (or cryptotokens). Cryptocurrencies are generally generated by their own blockchain like Bitcoin and Litecoin whereas tokens are usually issued within a smart contract running on top of a blockchain such as Ethereum.^[31]

Architecture

Decentralized cryptocurrency is produced by the entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly known. In centralized banking and economic systems such as the Federal Reserve System, corporate boards or governments control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers. In the case of decentralized cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in it. The underlying technical system upon which decentralized cryptocurrencies are based was created by the group or individual known as Satoshi Nakamoto.^[32]

As of May 2018, over 1,800 cryptocurrency specifications existed.^[33] Within a cryptocurrency system, the safety, integrity and balance of ledgers is maintained by a community of mutually distrustful parties referred to as miners: who use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular timestamping scheme.^[13]

Most cryptocurrencies are designed to gradually decrease production of that currency, placing a cap on the total amount of that currency that will ever be in circulation.^[34] Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be more difficult for seizure by law enforcement.^[1]

Blockchain

Main article: Blockchain

The validity of each cryptocurrency's coins is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography.^[32][35] Each block typically contains a hash pointer as a link to a previous block,^[35] a timestamp and transaction data.^[36] By design, blockchains are inherently resistant to modification of the data. It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way".^[37] For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.

Blockchains are secure by design and are an example of a distributed computing system with high Byzantine fault tolerance. Decentralized consensus has therefore been achieved with a blockchain.^[38]

Timestamping

Cryptocurrencies use various timestamping schemes to "prove" the validity of transactions added to the blockchain ledger without the need for a trusted third party.

The first timestamping scheme invented was the proof-of-work scheme. The most widely used proof-of-work schemes are based on SHA-256 and scrypt.^[15]

Some other hashing algorithms that are used for proof-of-work include CryptoNight, Blake, SHA-3, and X11.

The proof-of-stake is a method of securing a cryptocurrency network and achieving distributed consensus through requesting users to show ownership of a certain amount of currency. It is different from proof-of-work systems that run difficult hashing algorithms to validate electronic transactions. The scheme is largely dependent on the coin, and there's currently no standard form of it. Some cryptocurrencies use a combined proof-of-work and proof-of-stake scheme.^[15]

Mining

Hashcoin mine

In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network. The rate of generating hashes, which validate any transaction, has been increased by the use of specialized machines such as FPGAs and ASICs running complex hashing algorithms like SHA-256 and scrypt.^[39] This arms race for cheaper-yet-efficient machines has existed since the day the first cryptocurrency, bitcoin, was introduced in 2009.^[39] With more people venturing into the world of virtual currency, generating hashes for this validation has become far more complex over the years, with miners having to invest large sums of money on employing multiple high performance ASICs. Thus the value of the currency obtained for finding a hash often does not justify the amount of money spent on setting up the machines, the cooling facilities to overcome the heat they produce, and the electricity required to run them.^[40] As of July 2019, bitcoin's electricity consumption is estimated to about 7 gigawatts, 0.2% of the global total, or equivalent to that of Switzerland.^[41]

Some miners pool resources, sharing their processing power over a network to split the reward equally, according to the amount of work they contributed to the probability of finding a block. A "share" is awarded to members of the mining pool who present a valid partial proof-of-work.

As of February 2018, the Chinese Government halted trading of virtual currency, banned initial coin offerings and shut down mining. Some Chinese miners have since relocated to Canada.^[42] One company is operating data centers for mining operations at Canadian oil and gas field sites, due to low gas prices.^[43] In June 2018, Hydro Quebec proposed to the provincial government to allocate 500 MW to crypto companies for mining.^[44] According to a February 2018 report from Fortune,^[45] Iceland has become a haven for cryptocurrency miners in part because of its cheap electricity.

In March 2018, the city of Plattsburgh in upstate New York put an 18-month moratorium on all cryptocurrency mining in an effort to preserve natural resources and the "character and direction" of the city.^[46]

GPU price rise

An increase in cryptocurrency mining increased the demand for graphics cards (GPU) in 2017.^[47] (The computing power of GPUs makes them well-suited to generating hashes.) Popular favorites of cryptocurrency miners such as Nvidia's GTX 1060 and GTX 1070 graphics cards, as well as AMD's RX 570 and RX 580 GPUs, doubled or tripled in price – or were out of stock.^[48] A GTX 1070 Ti which was released at a price of $450 sold for as much as $1100. Another popular card GTX 1060's 6 GB model was released at an MSRP of $250, sold for almost $500. RX 570 and RX 580 cards from AMD were out of stock for almost a year. Miners regularly buy up the entire stock of new GPU's as soon as they are available.^[49]

Nvidia has asked retailers to do what they can when it comes to selling GPUs to gamers instead of miners. "Gamers come first for Nvidia," said Boris Böhles, PR manager for Nvidia in the German region.^[50]

Wallets

An example paper printable bitcoin wallet consisting of one bitcoin address for receiving and the corresponding private key for spending

Main article: Cryptocurrency wallet

A cryptocurrency wallet stores the public and private "keys" or "addresses" which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet.

Anonymity

Bitcoin is pseudonymous rather than anonymous in that the cryptocurrency within a wallet is not tied to people, but rather to one or more specific keys (or "addresses").^[51] Thereby, bitcoin owners are not identifiable, but all transactions are publicly available in the blockchain. Still, cryptocurrency exchanges are often required by law to collect the personal information of their users.^[^{citation needed}^]

Additions such as Zerocoin, Zerocash and CryptoNote have been suggested, which would allow for additional anonymity and fungibility.^[52][53]

Fungibility

Main articles: Fungibility and Non-fungible token

Most cryptocurrency tokens are fungible and interchangeable. However, unique non-fungible tokens also exist. Such tokens can serve as assets in games like CryptoKitties.

Economics

Cryptocurrencies are used primarily outside existing banking and governmental institutions and are exchanged over the Internet.

Block rewards

Proof-of-work cryptocurrencies, such as bitcoin, offer block rewards incentives for miners. There has been an implicit belief that whether miners are paid by block rewards or transaction fees does not affect the security of the blockchain, but a study suggests that this may not be the case under certain circumstances.^[54]

The rewards paid to miners increase the supply of the cryptocurrency. By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power. The verification algorithm requires a lot of processing power, and thus electricity in order to make verification costly enough to accurately validate public blockchain. Not only do miners have to factor in the costs associated with expensive equipment necessary to stand a chance of solving a hash problem, they further must consider the significant amount of electrical power in search of the solution. Generally, the block rewards outweigh electricity and equipment costs, but this may not always be the case.^[55]

The current value, not the long-term value, of the cryptocurrency supports the reward scheme to incentivize miners to engage in costly mining activities. Some sources claim that the current bitcoin design is very inefficient, generating a welfare loss of 1.4% relative to an efficient cash system. The main source for this inefficiency is the large mining cost, which is estimated to be 360 Million USD per year. This translates into users being willing to accept a cash system with an inflation rate of 230% before being better off using bitcoin as a means of payment. However, the efficiency of the bitcoin system can be significantly improved by optimizing the rate of coin creation and minimizing transaction fees. Another potential improvement is to eliminate inefficient mining activities by changing the consensus protocol altogether.^[56]

Transaction fees

Transaction fees for cryptocurrency depend mainly on the supply of network capacity at the time, versus the demand from the currency holder for a faster transaction.^[^{citation needed}^] The currency holder can choose a specific transaction fee, while network entities process transactions in order of highest offered fee to lowest.^[^{citation needed}^] Cryptocurrency exchanges can simplify the process for currency holders by offering priority alternatives and thereby determine which fee will likely cause the transaction to be processed in the requested time.^[^{citation needed}^]

For ether, transaction fees differ by computational complexity, bandwidth use, and storage needs, while bitcoin transaction fees differ by transaction size and whether the transaction uses SegWit. In September 2018, the median transaction fee for ether corresponded to $0.017,^[57] while for bitcoin it corresponded to $0.55.^[58]

Some cryptocurrencies have no transaction fees, and instead rely on client-side proof-of-work as the transaction prioritization and anti-spam mechanism.^[59][60][61]

Exchanges

Main article: Cryptocurrency exchange

Cryptocurrency exchanges allow customers to trade cryptocurrencies for other assets, such as conventional fiat money, or to trade between different digital currencies.

Atomic swaps

Atomic swaps are a mechanism where one cryptocurrency can be exchanged directly for another cryptocurrency, without the need for a trusted third party such as an exchange.

ATMs

Bitcoin ATM

Jordan Kelley, founder of Robocoin, launched the first bitcoin ATM in the United States on 20 February 2014. The kiosk installed in Austin, Texas, is similar to bank ATMs but has scanners to read government-issued identification such as a driver's license or a passport to confirm users' identities.^[62]

Initial coin offerings

An initial coin offering (ICO) is a controversial means of raising funds for a new cryptocurrency venture. An ICO may be used by startups with the intention of avoiding regulation. However, securities regulators in many jurisdictions, including in the U.S., and Canada, have indicated that if a coin or token is an "investment contract" (e.g., under the Howey test, i.e., an investment of money with a reasonable expectation of profit based significantly on the entrepreneurial or managerial efforts of others), it is a security and is subject to securities regulation. In an ICO campaign, a percentage of the cryptocurrency (usually in the form of "tokens") is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, often bitcoin or ether.^[63][64][65]

According to PricewaterhouseCoopers, four of the 10 biggest proposed initial coin offerings have used Switzerland as a base, where they are frequently registered as non-profit foundations. The Swiss regulatory agency FINMA stated that it would take a "balanced approach" to ICO projects and would allow "legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with national laws protecting investors and the integrity of the financial system." In response to numerous requests by industry representatives, a legislative ICO working group began to issue legal guidelines in 2018, which are intended to remove uncertainty from cryptocurrency offerings and to establish sustainable business practices.^[66]

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Legality

The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed their use and trade,^[67] others have banned or restricted it. According to the Library of Congress, an "absolute ban" on trading or using cryptocurrencies applies in eight countries: Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, and the United Arab Emirates. An "implicit ban" applies in another 15 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican Republic, Indonesia, Iran, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and Taiwan.^[68] In the United States and Canada, state and provincial securities regulators, coordinated through the North American Securities Administrators Association, are investigating "bitcoin scams" and ICOs in 40 jurisdictions.^[69]

Various government agencies, departments, and courts have classified bitcoin differently. China Central Bank banned the handling of bitcoins by financial institutions in China in early 2014.

In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.^[70] Regulations and bans that apply to bitcoin probably extend to similar cryptocurrency systems.^[71]

Cryptocurrencies are a potential tool to evade economic sanctions for example against Russia, Iran, or Venezuela. Russia also secretly supported Venezuela with the creation of the petro (El Petro), a national cryptocurrency initiated by the Maduro government to obtain valuable oil revenues by circumventing US sanctions.^[^{citation needed}^]

In August 2018, the Bank of Thailand announced its plans to create its own cryptocurrency, the Central Bank Digital Currency (CBDC).^[72]

Advertising bans

Cryptocurrency advertisements were temporarily banned on Facebook,^[73] Google, Twitter,^[74] Bing,^[75] Snapchat, LinkedIn and MailChimp.^[76] Chinese internet platforms Baidu, Tencent, and Weibo have also prohibited bitcoin advertisements. The Japanese platform Line and the Russian platform Yandex have similar prohibitions.^[77]

U.S. tax status

On 25 March 2014, the United States Internal Revenue Service (IRS) ruled that bitcoin will be treated as property for tax purposes. This means bitcoin will be subject to capital gains tax.^[78] In a paper published by researchers from Oxford and Warwick, it was shown that bitcoin has some characteristics more like the precious metals market than traditional currencies, hence in agreement with the IRS decision even if based on different reasons.^[79]

In July 2019, the IRS started sending letters to cryptocurrency owners warning them to amend their returns and pay taxes.^[80]

The legal concern of an unregulated global economy

As the popularity of and demand for online currencies has increased since the inception of bitcoin in 2009,^[81] so have concerns that such an unregulated person to person global economy that cryptocurrencies offer may become a threat to society. Concerns abound that altcoins may become tools for anonymous web criminals.^[82]

Cryptocurrency networks display a lack of regulation that has been criticized as enabling criminals who seek to evade taxes and launder money. Money laundering issues are also present in regular bank transfers, however with bank-to-bank wire transfers for instance, the account holder must at least provide a proven identity.

Transactions that occur through the use and exchange of these altcoins are independent from formal banking systems, and therefore can make tax evasion simpler for individuals. Since charting taxable income is based upon what a recipient reports to the revenue service, it becomes extremely difficult to account for transactions made using existing cryptocurrencies, a mode of exchange that is complex and difficult to track.^[82]

Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money. Rather than laundering money through an intricate net of financial actors and offshore bank accounts, laundering money through altcoins can be achieved through anonymous transactions.^[82]

Loss, theft, and fraud

Main article: Cryptocurrency and security

In February 2014 the world's largest bitcoin exchange, Mt. Gox, declared bankruptcy. The company stated that it had lost nearly $473 million of their customers' bitcoins likely due to theft. This was equivalent to approximately 750,000 bitcoins, or about 7% of all the bitcoins in existence. The price of a bitcoin fell from a high of about $1,160 in December to under $400 in February.^[83]

Two members of the Silk Road Task Force—a multi-agency federal task force that carried out the U.S. investigation of Silk Road—seized bitcoins for their own use in the course of the investigation.^[84] DEA agent Carl Mark Force IV, who attempted to extort Silk Road founder Ross Ulbricht ("Dread Pirate Roberts"), pleaded guilty to money laundering, obstruction of justice, and extortion under color of official right, and was sentenced to 6.5 years in federal prison.^[84] U.S. Secret Service agent Shaun Bridges pleaded guilty to crimes relating to his diversion of $800,000 worth of bitcoins to his personal account during the investigation, and also separately pleaded guilty to money laundering in connection with another cryptocurrency theft; he was sentenced to nearly eight years in federal prison.^[85]

Homero Josh Garza, who founded the cryptocurrency startups GAW Miners and ZenMiner in 2014, acknowledged in a plea agreement that the companies were part of a pyramid scheme, and pleaded guilty to wire fraud in 2015. The U.S. Securities and Exchange Commission separately brought a civil enforcement action against Garza, who was eventually ordered to pay a judgment of $9.1 million plus $700,000 in interest. The SEC's complaint stated that Garza, through his companies, had fraudulently sold "investment contracts representing shares in the profits they claimed would be generated" from mining.^[86]

On 21 November 2017, the Tether cryptocurrency announced they were hacked, losing $31 million in USDT from their primary wallet.^[87] The company has 'tagged' the stolen currency, hoping to 'lock' them in the hacker's wallet (making them unspendable). Tether indicates that it is building a new core for its primary wallet in response to the attack in order to prevent the stolen coins from being used.

In May 2018, Bitcoin Gold (and two other cryptocurrencies) were hit by a successful 51% hashing attack by an unknown actor, in which exchanges lost estimated $18m.^[88] In June 2018, Korean exchange Coinrail was hacked, losing US$37 million worth of altcoin. Fear surrounding the hack was blamed for a $42-billion cryptocurrency market selloff.^[89] On 9 July 2018 the exchange Bancor had $23.5 million in cryptocurrency stolen.^[90]

The French regulator Autorité des marchés financiers (AMF) lists 15 websites of companies that solicit investment in cryptocurrency without being authorised to do so in France.^[91]

Darknet markets

Main article: Darknet market

Properties of cryptocurrencies gave them popularity in applications such as a safe haven in banking crises and means of payment, which also led to the cryptocurrency use in controversial settings in the form of online black markets, such as Silk Road.^[82] The original Silk Road was shut down in October 2013 and there have been two more versions in use since then. In the year following the initial shutdown of Silk Road, the number of prominent dark markets increased from four to twelve, while the amount of drug listings increased from 18,000 to 32,000.^[82]

Darknet markets present challenges in regard to legality. Cryptocurrency used in dark markets are not clearly or legally classified in almost all parts of the world. In the U.S., bitcoins are labelled as "virtual assets".^[^{citation needed}^] This type of ambiguous classification puts pressure on law enforcement agencies around the world to adapt to the shifting drug trade of dark markets.^[92]^[^{unreliable source?}^]

Reception

Cryptocurrencies have been compared to Ponzi schemes, pyramid schemes^[93] and economic bubbles,^[94] such as housing market bubbles.^[95] Howard Marks of Oaktree Capital Management stated in 2017 that digital currencies were "nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it", and compared them to the tulip mania (1637), South Sea Bubble (1720), and dot-com bubble (1999).^[96] The New Yorker has explained the debate based on interviews with blockchain founders in an article about the “argument over whether Bitcoin, Ethereum, and the blockchain are transforming the world”.^[97]

While cryptocurrencies are digital currencies that are managed through advanced encryption techniques, many governments have taken a cautious approach toward them, fearing their lack of central control and the effects they could have on financial security.^[98] Regulators in several countries have warned against cryptocurrency and some have taken concrete regulatory measures to dissuade users.^[99] Additionally, many banks do not offer services for cryptocurrencies and can refuse to offer services to virtual-currency companies.^[100] Gareth Murphy, a senior central banking officer has stated "widespread use [of cryptocurrency] would also make it more difficult for statistical agencies to gather data on economic activity, which are used by governments to steer the economy". He cautioned that virtual currencies pose a new challenge to central banks' control over the important functions of monetary and exchange rate policy.^[101] While traditional financial products have strong consumer protections in place, there is no intermediary with the power to limit consumer losses if bitcoins are lost or stolen.^[102] One of the features cryptocurrency lacks in comparison to credit cards, for example, is consumer protection against fraud, such as chargebacks.

Some companies such as NCR Corporation, which partnered with Flexa and Gemini, have started integrating them in their POS systems and retailers that have such POS systems (like Starbucks, Wholefoods, Nordstroms, ...) hence offer the possibility of paying with them.^[103][104]

Cryptocurrency mining consumes significant quantities of electricity and has a large associated carbon footprint.^[105] In 2017, bitcoin mining was estimated to consume 948MW, equivalent to countries the scale of Angola or Panama, respectively ranked 102nd and 103rd in the world. Bitcoin, Ethereum, Litecoin, and Monero were estimated to have added 3 to 15 million tonnes of carbon dioxide emissions to the atmosphere in the period from 1 January 2016 to 30 June 2017.^[106] By November 2018, Bitcoin was estimated to have an annual energy consumption of 45.8TWh, generating 22.0 to 22.9 million tonnes of carbon dioxide, rivalling nations like Jordan and Sri Lanka.^[107]

There are also purely technical elements to consider. For example, technological advancement in cryptocurrencies such as bitcoin result in high up-front costs to miners in the form of specialized hardware and software.^[108] Cryptocurrency transactions are normally irreversible after a number of blocks confirm the transaction. Additionally, cryptocurrency private keys can be permanently lost from local storage due to malware, data loss or the destruction of the physical media. This prevents the cryptocurrency from being spent, resulting in its effective removal from the markets.^[109]

The cryptocurrency community refers to pre-mining, hidden launches, ICO or extreme rewards for the altcoin founders as a deceptive practice.^[110] It can also be used as an inherent part of a cryptocurrency's design.^[111] Pre-mining means currency is generated by the currency's founders prior to being released to the public.^[112]

Paul Krugman, winner of the Nobel Memorial Prize in Economic Sciences, has repeated numerous times that it is a bubble that will not last^[113] and links it to Tulip mania.^[114] American business magnate Warren Buffett thinks that cryptocurrency will come to a bad ending.^[115] In October 2017, BlackRock CEO Laurence D. Fink called bitcoin an 'index of money laundering'.^[116] "Bitcoin just shows you how much demand for money laundering there is in the world," he said.

Academic studies

Main article: Ledger (journal)

In September 2015, the establishment of the peer-reviewed academic journal Ledger (ISSN 2379-5980) was announced. It covers studies of cryptocurrencies and related technologies, and is published by the University of Pittsburgh.^[117]

The journal encourages authors to digitally sign a file hash of submitted papers, which will then be timestamped into the bitcoin blockchain. Authors are also asked to include a personal bitcoin address in the first page of their papers.^[118][119]

Aid agencies

A number of aid agencies have started accepting donations in cryptocurrencies, including the American Red Cross, UNICEF,^[120] and the UN World Food Program.

Cryptocurrencies make tracking donations easier and have the potential to allow donors to see how their money is used (financial transparency).

Christopher Fabian, principal adviser at UNICEF Innovation said that UNICEF would uphold existing donor protocols, meaning that those making donations online would have to pass rigorous checks before they were allowed to deposit funds to UNICEF.^[121][122]

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