In the financial landscape since the end of the 2000s, cryptocurrencies have intrigued and created dreams… and anxieties at the same time. The recent surge in the biggest of these cryptocurrencies, Bitcoin, is proof of this. The virtual currency has multiplied its value eight times in one year and the total capitalization of Bitcoin is close to 76 billion USD. Should we see cryptocurrencies as a normal evolution of the current financial system? Or are they rather the source of a true revolution to come in terms of the circulation of financial flows?
Democratization ahead for financial flows?
Although it is too early to make a final judgement, one fact remains: cryptocurrencies themselves raise a host of questions about the methods of exchange. Based on the use of blockchains, cryptocurrencies arise as a safe and democratic solution for exchanging traditional money. In fact, they cannot be manipulated by a government or central bank, since their price is strictly the result of supply and demand. And since transactions are direct, from one entity (individual or organization) to another, the presence of a bank or credit card issuer becomes superfluous. Transaction costs are minimal, when compared with those that are currently charged on the market.
Stability and confidence
Some caution is nonetheless called for regarding these new means of exchange. A currency acquires its credentials when its market is relatively stable and, above all, when it relies on a solid foundation of trust. As far as stability is concerned, it must be recognized that speculation is one of today’s major problems with cryptocurrencies. Some analysts believe that speculation remains the source of a great majority of the volume of cryptocurrencies. Joseph Lubin, the co-founder of the Ethereum cryptocurrency, is one of these, estimating that 90% of their value is the mere fact of speculation. This should cool the ardour of some. Regarding trust, it is on the way to being established. More and more companies, and not just the smallest, now accept certain cryptocurrencies to settle transactions with their clients. The American online merchant Overstock, its Japanese equivalent Rakuten and the travel operator Expedia are all betting on cryptocurrencies. Tokyo has even led the way by last spring legalizing the use of Bitcoin on its territory, while other countries, including Australia, Singapore and Viet-Nam, to name just three, are seriously considering it. And in a sign that cryptocurrencies are probably here to stay, 80 of the largest global banks have associated themselves with the R3 firm to work on developing cryptocurrency technology.
The age of reliable, secure and anonymous monetary exchanges may not be far off!
So you want to pay for a purchase in cryptocurrency?
Your wallet, a virtual account with a cryptocurrency provider, will be debited by the amount and that of the merchant credited by the same amount. The transaction is encrypted with a unique key, guaranteeing the security and anonymity of the monetary exchange. This transaction is included in a general accounting ledger, the blockchain, a vast distributed database which contains all the prior transactions settled in cryptocurrency. An armada of users, several tens of thousands, make the computing power of their computers available to check the validity of information relating to all transactions. Once confirmed, your purchase is added to the chain of other transactions and cannot be modified or deleted.