Here is a quick overview of Bitcoin mania and the world of cryptos
With Bitcoin about to celebrate its tenth anniversary and the recent discovery of a potentially catastrophic security flaw, it remains both highly sought-after and controversial.
A cryptocurrency, or crypto-asset, is a currency that can be used on a decentralised (peer-to-peer) computer network. It is based on the principles of cryptography and involves users in the processes of issuing and settling transactions.
While they are often referred to as virtual currencies or cryptocurrencies, they are best described as crypto-assets, as they are not really currencies.
“Initially designed as exchange instruments in the digital world, cryptoassets have gradually gained a foothold in the real economy, with services making it possible to purchase or sell them in exchange for legal currencies, store them, and use them as an exchange instrument or, with the recent emergence of Initial Coin Offerings (ICOs), as an investment and financing instrument. These recent developments, as well as the rapid growth of a speculative bubble, are now leading regulators and supervisors of the financial system to consider changes to the regulatory framework to take into account the rise of these assets” (see ‘Focus Banque de France’, March 2018).
These digital assets are based on a computer network and the blockchain. They do not require a “trusted third-party” institution: within this ecosystem, the blockchain plays the role of central bank. The blockchain is used to record all transactions made using a cryptocurrency, in a huge ledger, and to issue payments. (This record is open and can be consulted by all online. It includes the constituent parts of each transaction made: the amount of the transaction, the address of the issuer and recipient, and a “cryptographic fingerprint”.
Cryptocurrencies: ten years already!
At the height of the financial crisis, a technophile’s dream of a currency without social intermediation, independent of private banks and public monetary authorities, and whose monetary power belongs to individuals, led to the birth of a “protest currency”: the Bitcoin (BTC).
The first block of the Bitcoin Blockchain (known as the “genesis block”) was written on the 3rd of January 2009. As an interesting aside, the founder of BTC, Satoshi Nakamoto (the identity of the person or persons hiding behind this name remains a mystery) inserted the title of an article from the day’s Times, which spoke volumes about the climate at the time.
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
The first 50 Bitcoins issued as part of this process have never been sent to anybody. Only Satoshi Nakamoto has the cryptographic key required to move them. Bitcoins were sent for the first time on the 12th of January 2009, from Satoshi Nakamoto to Hal Finney (creator of the Proof of Work, or PoW, validation system at the heart of the blockchain).
On the 22nd of May 2010, developer Laszlo Hanyecz posted a request on the bitcointalk forum, offering 10,000 Bitcoin to any kind soul willing to deliver two pizzas to him! (Worth more than EUR 50 million at the current value). Four days later, he thanked a user in the UK who managed to order two pizzas over the phone from Papa John’s in Jacksonville (Florida). This day became known as “Bitcoin Pizza Day” – the first day a tangible good was acquired using a cryptocurrency.
Cryptocurrencies on the rise
The term “altcoin” is an abbreviation for “alternative Bitcoin”. It therefore means all cryptocurrencies other than Bitcoin. These are alternatives to Bitcoin insofar as they are also digital assets based on blockchain technology. While BTC is currently the benchmark cryptocurrency, the website coinmarketcap referenced 1977 cryptocurrencies on 20/09/2018
Five years after the first block of the BTC blockchain was written, Vitalik Buterin @VitalikButerin, a prodigious young Russian-Canadian programmer, aged just 20 years old, launched Ethereum — a blockchain inspired by Bitcoin while offering more flexibility and accessibility. The Ethereum network was also based on a new currency, named Ether (ETH).
With one of the first ICOs (Initial Coin Offerings) in history, he raised BTC 3700 in a dozen hours (worth approximately 2.3 million US dollars at the time).
Today, Ethereum is the second largest decentralised cryptocurrency, with a market capitalization of more than 20 billion euros.
Ranked third, Ripple aims to revolutionise the banking system with its payment protocol. Known as the Ripple Transaction Protocol (RTXP), or Ripple protocol, it is based on an open-source, distributed Internet protocol, a consensus record and a native currency named XRP.
The company provides a service (xRapid) that can operate independently and without an associated token. There is persistent confusion between this service and the token (which bears the same name), with some people confusing the token and the company’s shares.
The Group has stated that “new payment corridors have been opened in North America, Asia, Africa, Europe and South America.” It estimates the combined potential of these “corridors” to be more than 2 billion US dollars of flows.
The next article in this three-part series will arrive in a few days. Stay tuned!
Directeur conseil digital – SQLI