What's behind cryptocurrencies?

 

What's behind cryptocurrencies?

“It's a scam. They talk about it and feel like geniuses. The truth is that they are stupid to buy them. Sooner or later they will pay the consequences. It was certainly not Jamie Dimon's first cryptocurrency indiscretion. Yet the latest outing from JPMorgan's chief executive did not trigger the stampede from bitcoin. This is the paradox of the moment: the closer virtual currencies are to junk bonds, the more their value rises. Over the past 12 months, the price of a single bitcoin has soared from $ 705 to $ 7,117, surpassing $ 7,600 at the time of writing. Yet it was only last month that the Chinese authorities' turnaround was enough to halve its value.

   The 900% increase in value since the beginning of the year, despite an impressive series of precipitous devaluations and reckless recoveries, could not go unnoticed. High finance, and even central banks, have lit a beacon of attention on cryptocurrency, always calling for caution due to its obvious speculative content. Meanwhile, the number of waits that begin to transact with bitcoins increases, from Microsoft to Expedía. And the number of businesses that accept it is increasing. The real revolution, however, is in the technology behind bitcoin, the blockchain.

 The volatility of the most popular virtual currencies - from bitcoin to ether, through ripple, dash and monero - has turned the spotlight on the fluctuating returns that investors would be able to win. The value attributed to the various digital currencies also grows in relation to two factors: the number of users who use them and the number of businesses that accept them. After all, cryptocurrencies are not born in the context of financial speculation, but to establish a paradigm shift in transactions and payments between individuals, companies, machines. In the San Lorenzo district of Rome, the 123 apartments for sale in the De Lollis 12 complex can be paid for in bitcoin. The TenX company in Singapore has developed a prepaid card on the Visa circuit, whose main function is to convert bitcoin deposits into the corresponding value in euros, dollars, or yen. And also in the points of sale that accept to be paid in bitcoin are multiplying.

 "Bitcoin and cryptocurrencies are not intended to generate profits from the purchase and sale of securities on the stock exchange. Virtual currencies are not born to replace current currencies, but to create a decentralized and disintermediated system ", explained Stefano Capaccioli, president of Assobit, an Italian association that brings together entrepreneurs, professionals and companies focused on Blockchain technology. Payments with bitcoin e-money use the same technology. The system is based on a digital register, in which operations such as the deed of buying and selling a house, or transactions in virtual currency, are screened by multiple operators who guarantee their authenticity. The operators (blocks) of the chain (Blockchain) are natural persons who undertake to physically register the individual transactions on the digital register, receiving in exchange a consideration in virtual currency. And the benefits that come with the adoption of cryptocurrencies would outweigh the push in the spread of electronic payments in euros, dollars, or yen.

 Bitcoin, cryptocurrencies give the illusion of anonymity

«Traditional currencies collide with centralization, which slows down their transmission and requires expensive trust in central banks. Cryptocurrencies allow a non-repudiable transaction and enable an immediate relationship of advantage and disadvantage between beneficiary and debtor. Furthermore, payments in traditional currency leave data and allow profiling. The use of cryptocurrency decreases such data and remains pseudo-anonymous, "explained Stefano Capaccioli. After all, rejecting the criticism of the system's security, analysts observe that if the Blockchain were not secure, we would have dozens of new billionaires around the world.

 Yet a generalized outcry on currencies such as bitcoin, ether, ripple, and dash had risen regarding the issuance of virtual currency by companies specializing in cryptocurrencies, but also looking for funding. The financial instrument of ICOs, initial money offerings, does not allow investors to acquire stakes in a company, such as in IPOs, initial public offerings for fundraising, and stock market listing. The ICO allows companies specializing in cryptocurrencies to raise funds without selling shares on the traditional market, but by issuing virtual currency in exchange for financing in virtual currency.

   «The ICO is a fundraiser in cryptocurrencies instead of traditional currency. An idea or project is put on the market in the form of new cryptocurrencies that can be purchased mainly in exchange for bitcoin or ether. So many holders of bitcoin or ether decide, after reading the in-depth description of the project, whether to believe it or not. Choosing to believe in it, they would purchase this new cryptocurrency as a priority, which has yet to enter the market ”, explains Gianluca Comandini, an investor in virtual currency. On the international wave of funding raised with ICOs, more and more famous people have chosen to invest in virtual currencies such as bitcoin, ether, and dash. Gene Simmons, the frontman of the musical group The Kissworld famous, confirmed that he has started investing in bitcoin, using virtual currency to differentiate his personal investment portfolio. First came boxing champion Floyd Mayweather and heiress Paris Hilton.

 "ICO fundraisers have also been launched in Italy, like that of Eidoo which was very successful a few weeks ago," says Comandini. Yet in September People's Bank of China had decided to ban the underwriting procedures of companies that raise cryptocurrency loans. Coindash's fundraising, on the other hand, was blocked after the hackers managed to get their hands on 7 million dollars invested in the new cryptocurrency. Comandini reasons: «There is an absolutely high risk that ICO fundraisers are a bubble. We find ourselves having a very high percentage of initial coin offerings that raise millions and then disappear. It happens either that they are unable to make the product, or that they make a product that the market does not like, therefore the value of that new cryptocurrency collapses ".

 Yet a concrete and successful example is represented by one of the most widespread cryptocurrencies. Ethereum (ETH) is defined as a platform that allows you to register contracts digitally in a decentralized form. Ether is the virtual currency with which, within the platform, quantities of value are exchanged and the registration service of digital contracts is paid for. Launched in 2015, ether was developed by Vitalik Buterin, Gavin Wood, and Jeffrey Wilcke. According to Coinmarketcap, if ether were a publicly-traded stock, it would have a valuation in excess of $ 30 billion today. And ether was born thanks to an ICO fundraiser, an issue of a new cryptocurrency offered to investors in exchange for cryptocurrency financing.

 "The paradox is that ether itself has presumably a highly manipulated value by the ICO fundraisers themselves, as almost all of them are done only in ether, therefore most of the exchange flows in the ether are linked to the birth and death of many ICOs, both the really interesting ones and the totally useless ones, ”explained Comandini. We specified it at the beginning: the value attributed to the various digital currencies also grows in relation to the number of users who use them. And the more than $ 30 billion worth attributed to Ethereum, could reflect nothing more than the high rate of cryptocurrency issuance for the collection of another cryptocurrency. A short circuit that Jamie Dimon would know how to define.