Alternative currencies, part 2: cryptocurrencies

In contrast to local currencies and their shared ideal, cryptocurrencies are designed to be global and decentralised like the peer-to-peer networks that host them.

Launched after the 2008 financial crisis, dematerialised cryptocurrencies were designed to be free of the financial and geopolitical risk faced by traditional currencies. Although they are not backed by a trusted third party such as a state or central bank, they do allow transactions to be completed securely. They have a fixed price in online marketplaces and fluctuate in line with supply and demand.

Bitcoin, the most iconic cryptocurrency with a money supply of 48 billion US dollars, was created in 2009. It is a virtual currency and payment method based on a blockchain technology structure. Incidentally, we still do not know the true identity of the creators of Bitcoin and the blockchain open source code, who work under the pseudonym Satoshi Nakamoto.

Bitcoin follows on from earlier projects, in particular B-Money which was created by computer engineer Wei Dai in 1999, and Bitgold, created in 2005 by legal scholar and cryptographer Nick Szabo.

Bitcoin offers quick transfers anytime, anywhere, and with lower costs than a credit card or a service such as Paypal (less than 2%). Since its creation, Bitcoin has been limited to 21 million units, added a little by little to avoid inflation or deflation.

The limited use of cryptocurrencies throughout the world and the small number of payment networks means that cryptocurrencies are not widely used. States where these dematerialised currencies are used in parallel with local currencies are at risk of the economy becoming destabilised, as it is difficult to establish a monetary policy that is lacking in official regulations.
Risks for some, opportunities for others: the cryptocurrency rift. For Jamie Dimon, CEO of JP Morgan, Bitcoin is a type of fraud that will end badly. However, for certain financiers, Bitcoin is highly attractive because it is more stable than gold.

However, legislation in this area varies significantly from country to country. Marred in its early stages by its use on criminal networks such as Silk Road, the US Senate now considers Bitcoin to be legitimate. It is considered to be an intangible asset and is taxed as such, like gold.

For the European Union, Bitcoin is included under the same VAT system as “currency, bank notes and coins used as legal tender”. As a result, it is not illegal, but equally it does not constitute a legal method of payment (in other words, it is a means of payment which cannot be refused).

Several countries are attempting to restrict its use (Argentina, China and up until recently, Russia). However, during their last summit, BRICS (Brazil, Russia, India, China and South Africa) discussed the creation of a Bitcoin competitor, the idea being to have an alternative to the dollar.
Other cryptocurrencies such as Litecoin, Monero, Peercoin, Ripple and Lisk, to cite the main competitors, have emerged over the last few years. The USC (Utility Settlement Coin), developed by six global banks including Barclays, Crédit Suisse, the Canadian Imperial Bank of Commerce and HSBC, will also be launched at the end of 2018.

Created in 2015, Ether ethereum.org (20 billion US dollars), has become a challenger to Bitcoin. Building on the Smart Contracts concept, it constitutes the second wave of cryptocurrencies which are more likely to be developed than to disappear.

Cyrille Baron

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