What are cryptocurrencies and why are they - for better or for worse - becoming so popular?
Cryptocurrencies started as an alternative method to make transactions without intermediaries. Although they are becoming a vital asset worldwide due to their number of users, the speculation and high volatility of these currencies have been labeled risky by experts. What is the truth about cryptocurrencies?
In 2008, a user named Satoshi Nakamoto changed how money was transferred by publishing a document that established the basis for paying with Bitcoin, the first cryptocurrency, a decentralized payment network in which neither banks nor governments take place.
Nakamoto, whose identity is not known with certainty – whether a person or a group – determined that bitcoin would be an instrument to transfer money completely managed by users, based on a peer-to-peer network.
What are cryptocurrencies for?
This currency runs by devising a technology that allows users to make direct exchanges with excellent security: the blockchain. To achieve an explicit transaction without intermediaries, the creator of bitcoin-based himself on the fact that the transactions should be public. What used to work as a bank card to keep track of someone's transactions is now a public ledger that keeps track of all movements made by every network user. Each user has a digital wallet from which he receives or makes payments, and each transfer is sent publicly to the user network. Still, for these transfers to be verified and considered valid, they are issued with a mathematical code or algorithm that must be decrypted.
What is the advantage of cryptocurrencies?
The possibility of making transfers between two people without a centralized entity charging commissions has been a feature that has seduced many users. Now, more wholesalers and retailers accept bitcoin payments. For example, Domino's and Subway chains already offer their products in exchange for bitcoin, and you can even pay for university degrees or travel destinations with bitcoin. This coin was followed by thousands of cryptocurrencies, like Ethereum, that focus on the exchange of applications and decentralized contracts that can be executed automatically. Its growth in the last five years has gone from about 11 dollars to 4,700 per unit.
"Ethereum growth in the last five years has gone from about 11 dollars to 4,700 dollars per unit."
Risks to be aware of
The volatility of these currencies is also a considerable risk for those who bet on buying them. As they are not regulated, and there is no entity to support their issuance, the value of bitcoins and many other cryptocurrencies depends on multiple external factors. In the last weeks, Bitcoin fell below USD 20,000 for the first time since November 2020. Over the past seven months, its value has shrunk by more than 70%. For now, only time will tell if this financial technology applied to multiple spheres of society has come to stay and become the new method of bartering and social organization or if the speculation that surrounds cryptocurrencies will end up being the end of what promises, until now, to be a financial revolution.