Cryptocurrency, What is it ?

Cryptocurrency refers to both a digital currency and a peer-to-peer payment system. 

This includes digital currencies that do not exist in physical form (notes, coins), that is regulated by its users instead of a central authority and whose value is not linked to any legal currency or commodity.

Where does cryptocurrency come from ?

Cryptocurrency was introduced by the Cypherpunks movement in the beginning of the 80's, which defended the respect of digital privacy by using cryptography.

Even though the first digital currency was born in 1989, the first cryptocurrency made accessible, Bitcoin, was created on January 3rd in 2009 by Satoshi Nakamoto, legendary character or group whose true identity remains a mystery to this day.

Its safety comes from the use of cryptography, “encryption techniques that protect the privacy of information between the sender and the recipient”.

Why is it so popular?

Cryptocurrency attracts investors to the financial services industry because of its market dynamics. The prices of these digital currencies are indeed established according to supply and demand and are traded on many markets.

As of today, crypto assets are considered by many as stores of value, especially due to their non-inflationary character.

 

The blockchain

The blockchain is a technology introduced by Satoshi Nakamoto in 2008.

This technology is used for storage and transmission of information or transactions. It is a global database shared between several users.

This solution operates without a central control body. At any time, each user is able to verify the information, add data and record a transaction through a cryptographic system.

The transaction is authorized almost instantaneously. However, it can vary depending on the size of the operation. In that case, it would take 10 minutes for the operation to be confirmed.

How does it work?

1 - One requests a transaction.

2 - The requested transaction is broadcasted on a peer-to-peer network made up of computers, called a node.

3 - A verified transaction may involve cryptocurrency, contracts, records or other information.

6 - The transaction is confirmed and complete.

5 - The new block is then permanently and unalterably added to the existing blockchain.

4 - Once verified, the transaction is combined with others in order to create a new data block for the ledger.

Decentralization of Cryptocurrency

A decentralized cryptocurrency does not operate under the control of a central authority (Government, institution, bank…).

 

Meaning that if one holds a currency such as Bitcoin or Ether in a private wallet, it cannot be taken or seized by any external authority nor by the developers of such currency.

One can store his funds knowing that they are safe on the sole condition of protecting them by using a private key.

Important dates

January 2009

Bloc Genesis, the first ever block recorded on the Bitcoin Blockchain was created.

October 2009

First valuation of the Bitcoin based on its "production cost". Bitcoin is worth 0.001 USD, which is €0.00071.

May 2010

Lazlo Hanyecz, a developer living in Florida paid a Bitcointalks forum user no less than 10 000 BTC for two Papa John's pizzas.

February 2011

Bitcoin reaches parity with the dollar and a few days later with the euro.

June 2011

In order to get around American sanctions, Wikileaks decides to accept Bitcoin donations.

January 2012

Publication of the Mastercoin white paper allowing users to create their own currencies such as MaidSafeCoin or Tether.

October 2012

The European Central Bank publishes a first report on digital currencies.

September 2013

Ben Bernanke, Chairman of the Federal Reserve of the United States, addresses a letter to a Senate committee introducing the Bitcoin as a fast, secure and efficient payment system.

November 2013

The US Federal Reserve (Fed) and the US Department of Justice express rather positive opinions describing Bitcoin as "legitimate" currency as former Fed Chairman Ben Bernanke says it showed "potential".

May 2014

The Federal Reserve Board of the United States (FED) introduces Bitcoin "as a bargain" for the economy.

June 2014

Paymium* launches the first solution of bitcoin payments in France.

May 2016

European Parliament's Committee on Economic and Monetary Affairs publishes a report on digital currencies that are likely to contribute to the well-being of the citizens and to the economic growth and development.

January 2017

Bitcoin exceeds €1000 reaching a peak of €1087 on January 5.  Market capitalization Record: $18.5 billion.

December 2017

Bitcoin breaks a new all-time high with a peak of €16 323 and $19 891.

* Source "Bitcoin.fr"

May 2018

During an entrepreneur’s breakfast, Bruno Le Maire, Minister of the Economy, states that he wishes to make France the first place of blockchain and crypto-assets innovation place in Europe.

June 2019

Bitcoin makes a discreet entry in an official lesson plan for teachers of economics and social studies in junior year (Lower 6th).

June 2019

Publication of the Libra White Paper, Facebook's digital currency.

January 2020

Creation of ADAN, the French Association for the Development of Digital Assets.

March 2020

Financial crash due to the covid-19 crisis. The Bitcoin drops more than 45% in value to reach a new low of €3790.

What about France?

In France, cryptocurrencies have been defined and regulated by law since January 1, 2019.

After an insecure period, they are part of the wider category of digital assets and their tax regime is defined and specified by the General Directorate of Public Finance.

The current regime, voted with the finance act of December 28, 2018, defines cryptocurrencies as digital assets in article L54-10-1 of the Monetary and Financial Code: digital assets are intangible movable property, liable to income tax, on the basis of article 150 VH bis of the general tax code.

Capital gains on the sale of digital assets benefit from the same single flat-rate deduction as income from movable capital: flat rate of 12.8% to which must be added 17.2% of social contributions (flat tax of 30%). A tax exemption applies when the gross annual amount of assets sale (not of capital gains) is less than 305 €.

Since January 1, 2020, any account opened, held, used or closed on a digital assets exchange platform must be declared when completing tax return. * Source "Légifrance"

World's most crypto-friendly countries

  • Germany

  • Bermuda

  • Belarus

  • China

  • Estonia

  • Georgia

  • Gibraltar

  • Japan

  • The Netherlands

  • Lithuania

  • Malta

  • United Kingdom

  • Singapore

  • Slovenia

  • Switzerland

  • Ukraine

The best-known cryptocurrencies

Bitcoin - King of the crypto-jungle

Bitcoin is a digital currency created in 2009 by the mysterious Satoshi Nakamoto, whose true identity remains unknown. Bitcoin is a decentralized currency as opposed to currencies issued by banks and governments, which allows transactions to be made quickly and inexpensively.

Ethereum - The ICO Machine

Ethereum is one of the most popular cryptocurrencies after Bitcoin. It has received a lot of attention over the last few years because of its central role in many cryptocurrencies fundraising projects: ICO.

Ripple - The digital currency of the banks

Ripple is a technology acting as a cryptocurrency and a digital payment network for financial transactions. Ripple is better known for its digital payment protocol than for its token, XRP. Ripple allows any form of money exchange in euros, dollars or bitcoins.

Litecoin - Digital money

Launched by Charlie Lee in 2011, Litecoin is an alternative cryptocurrency based on the Bitcoin model.  Litecoin is based on a global, open source and decentralized payment network. While Bitcoin is often compared to digital gold, Litecoin is compared to digital money.

Bitcoin Cash - An improved version of Bitcoin?

Bitcoin cash is a cryptocurrency created in August 2017, after a Bitcoin Fork.  The main improvement is the increase in size of the blocks, which allows to process a greater number of transactions per second making them faster and cheaper. 

EOS- New horizons for dAppsEos

This is a decentralized blockchain-based operating system.  The project is designed to create, host and support decentralized stand-alone applications (dApps). These can be commercial or personal and operate much like web applications. 

Binance Coin - The Chinese steamroller that outperforms in 2019.

BNB (or Binance Coin) is the token of the eponymous exchange: Binance. It was the cryptocurrency that suffered the least during the cryptocurrency bubble burst in January 2018. The coin has been rising sharply since January 2019, which is mainly explained by the success of the Binance platform, the world leader. 

Cardano - The third-generation token

Bitcoin and Ethereum are first- and second-generation tokens respectively. In this configuration, Cardano is considered as a third-generation token which would correct the issues of the Bitcoin ramp-up thanks to an intelligent contractual platform. 

Tether - King of stablecoin

It is a cryptocurrency, stablecoin type, issued by the Tether Limited company. Historically, the company claimed that every coin was backed by a U.S. dollar, but effective March 14, 2019, it changed its backing to include loans to affiliates.

NEO - Chinese Ethereum

The project was launched in 2014 under the name of AntShares, it is the first Chinese public and open source blockchain. The project raised 8.820 BTC by making 2 ICOs. NEO's goal is to tie the real economy to the blockchain using processes such as Digital Identity, which makes it possible to verify the identity of users and comply with the real-life rules.

*Source «Cryptoast»

Helpful resources

Glossary

Arbitrage : Trade that profits by exploiting the price differences of the same asset on different cryptocurrency exchanges. For instance; buying 1 bitcoin 5000 euros on a X marketplace and then transfer it to a Y marketplace where it will be possible to sell it for 5200 euros.

Blockchain : A blockchain is a distributed, transparent and secure database. It allows the transmission of information without the need of a central control body and takes the shape of a transactions or operations register.

BTC : BTC is the unofficial ISO code for Bitcoin.

Private key : Private encryption key. This allows a transaction or operation to be encrypted before sending it to the network and acts as a signature. It is used to authenticate the author of an order.

Public key : Public decryption key. This key is distributed to all the miners on the network and makes it possible to decode the transaction or operation. The originator of the order is then confirmed.

Confirmation : When a transaction is confirmed, it means it is permanently registered on the blockchain ledger. A transaction has been confirmed n-times for n-block following the original block where the transaction is registered: the more confirmations there are, the more the transaction is secure.

Day Trading : As opposed to "Holding", "Day Trading" involves carrying out regular transactions over periods ranging from a few hours to a few days.

Fork : Blockchain bifurcation: an alternative blockchain is generated when a group of miners perform a modified protocol. It may come from a bug, a malware attack or it might be the result of the developers desire to change the protocol to improve the blockchain. The longest chain is generally known to be the main chain.  

Hold/Hodl : Strategy consisting in holding cryptocurrencies in the long term assuming they will gain in value and persist.

White paper : The white paper is the technical and utilitarian presentation of a blockchain, usually written by the development team around the project.

Peer to Peer (P2P) : Decentralized computer network model where each client is a server: P2P can be used for distributed computing, communication and file sharing.

Wallet : A wallet uses a storage system to keep the private encryption keys used to sign blockchain operations.

Address: A blockchain address is the equivalent of a bank account number and takes the shape of an alphanumeric sequence such as: 0xfb56d73bf4608b12ed9d4e77a38f485011178da8.

Airdrop: Promotional campaign involving giving out free cryptocurrencies for a limited period of time and under certain conditions. The aim is to increase the project's visibility and its community.

Altcoin: An Altcoin refers to all cryptocurrencies other than Bitcoin.

ATH/ATL (All Time High/Low): The ATH is the highest price recorded since the launch of a cryptocurrency. In the same way, the ATL is the lowest price reached.

51% attack: A 51% attack occurs when more than half of the network's mining hash rate or computing power is controlled by a miner or a group of miners, in which case they are able to:

- Issue a transaction that would conflict with someone else's.

- Prevent new transactions from gaining confirmations.

- Double-spend.

- Prevent other miners from validating blocks.

However, a 51% attack does not give full control over the blockchain: only the most recent blocks are vulnerable. The older the blocks, the more secure they are against this kind of attack.

ASIC (Application-Specific Integrated Circuit): An ASIC is an integrated circuit chip designed for a specific application.  For example, there are ASICs specifically designed for Bitcoin mining.

Bollinger Bands: statistical chart revealing market volatility.

BIP (Bitcoin Improvement Proposals): Technical and concise conceptual document designed to introduce features to the Bitcoin network. This is a standard communication method as Bitcoin does not have a formal structure.

Bitpay: Bitpay is a Bitcoin payment system allowing merchants to accept bitcoin payments.

Transaction block: A block gathering all confirmed transactions on the blockchain over a specific period of time.

Orphan block: Block that is not included in any valid blockchain (for example, you might generate an orphan block if you are not the first miner to have mined the block).

Client: A client is a software that executes a blockchain protocol. Lite Clients do not own the entire copy of the blockchain since its creation.

Correction: Sudden decline in the price of a cryptocurrency following an increase.

CPU (Central Processing Unit): The CPU is the heart of the computer.

Cryptography: Cryptography is a branch of mathematics whose application is to encrypt (then decrypt) information.

DApps: Decentralized applications that can be based, for example, on the Ethereum blockchain, supported by smart contracts.

DCA (Dollar Cost Average): Strategy consisting in regularly investing part of its initial capital over a long period in order to soften the impact of market volatility.

DDos (Denial-of-Service attack): A Denial-of-Service attack involves the issue of a large number of requests to a service platform, in order to overload the server and block the bandwidth.  The service is no longer accessible to legitimate users.

Difficulty: In the blockchain universe, difficulty refers to the work required (computing power) in order to mine a new block.  The latter can be automatically regulated to obtain a mining of the block at regular intervals.

ECDSA: Elliptic Curve Digital Signature Algorithm is a cryptographic digital signature algorithm.

Faucet: Faucet sites distribute bitcoins for free to users in exchange for advertising viewing or completing a questionnaire or a CAPTCHA.

FIAT or Fiduciary money: Refers to conventional currencies (Euro, Dollar, Etc.).

Fomo (Fear of missing out): The action of "Fomo" underlies a decision taken in an irrational and impulsive way. Fear leads the act of buying, the attitude can affect a group of individuals buying for fear of missing an opportunity thus driving up the price.

Fork: Blockchain fork: an alternative blockchain is created when a group of miners perform a modified protocol.  It may come from a bug, a malware attack or it might be the result of the developers desire to change the protocol in order to improve the blockchain.  The longest chain is generally known to be the main chain.

Transaction fees: Transaction fees are given to miners as a reward for mining the block in which the transaction will be included.

FUD (Fear, Uncertainty, Doubt): Technique involving influencing the community using negative information through social networks and forums.  The goal is generally to lower the exchange rate.

Genesis block: Bloc Genesis is the first block ever recorded on a blockchain.

GPU (Graphics Processing Unit): The GPU is an integrated circuit, most often in graphics cards, specialized in calculating the display on the screen. GPUs are particularly effective in the mining of certain currencies.

Hash: Function that converts an input of letters and numbers into an encrypted output of a fixed length. The hash function has two important characteristics: firstly, it is mathematically difficult to identify the initial data by looking at the output data; secondly, by changing a tiny part of the initial input, the output data is then completely changed.

Hashrate: Indicator of the computing power of a miner or mining network.

Lightning Network: The Bitcoin network is currently technically limited (number of transactions/second, transaction fees, etc.). The Lightning Network is the name of a technology that corrects these limitations. It takes the shape of a parallel network (off chain) supporting the main Bitcoin network.

Masternode: Server connected to the network (blockchain) in order to perform certain tasks and allow its proper functioning. A Masternode is paid in cryptocurrency.

mBTC: mBTC is a thousandth of a bitcoin (0.001 BTC).

MEW (MyEtherWallet): Web service allowing the creation and management of an Ethereum portfolio.

Mining: Execution of the protocol of a blockchain through a client. Mining is often rewarded.

Network node: Refers to the computers performing the protocol of a blockchain through a client.

Pool: Group of miners. A Pool allows the miners to share their processing power and to split the reward equally.

Pump/dump: Fast inflation of the asset price on a short period / Fast drop of the asset price.

Proof of Work: The Proof of Work consensus is used to ensure the proper functioning of the blockchain.  Bitcoin is based on a proof of work.

ROI: Return on investment ((profit/investment) *100). A ROI of 100% means the investment has doubled.

Satoshi: A Satoshi is the smallest unit of bitcoin available. One Satoshi = 0.00000001 BTC.

Scalability: Property of a system to handle a growing amount of work by adding resources to the network in order to cope with various issues such as transactions slowdowns and high user fees.    The aim is to maintain the network performances despite an increasing number of users. Scalability is a big challenge for the actors of the blockchain universe.

Scalping: Strategy aimed at taking advantage of fluctuations in the prices of cryptocurrencies in the short term (several transactions on the same day and on the same market). This strategy can mainly be used on high volume markets.

Segwit (Segregated Witness): Cryptocurrency's soft fork allowing to increase the capacity of a block, the format and the security of the transactions.

SHA-256: SHA-256 is a hash function used for the cryptographic encryption of many cryptocurrencies.

Sidechain: Chain of blocks whose starting point (first block/ genesis block) comes from another blockchain (main chain). 

Signature: Combination of private and public keys allowing to electronically sign and thus prove the origin of the transaction.

Stop-Loss: Action aimed at securing an investment in the event of a drop in the price by placing a sell order below the buying price.  The fixed sale price equals the maximum loss acceptable to the investor.  The position is cleared automatically.

Testnet: Testnet is an alternative network used to test blockchains before their mainstream launches.

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