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Bitcoin: what future for cryptocurrencies?

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By Jean-François FAURE. Bitcoins and cryptocurrencies are in the news almost daily. Adulated by some investors, in the sights of many regulatory authorities, at the mercy of a tweet by the whimsical Elon Musk… Let’s try to bring an objective look at cryptocurrencies, away from fears or admirers of virtual golden calves.

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Where do cryptocurrencies come from?

The first cryptoasset is Bitcoin (BTC). It was created in 2008. An anonymous person or collective publishes a ” white paper ” under the pseudonym satoshi Nakamoto which explains how it works.

Lack of a central regulatory authority

The whole principle of Bitcoin is explained in particular the use of the blockchain. But above all we discover the absence of a central authority to manage this “new currency”. The issuance, control and validation of transactions is done by the community, anonymously. And this is a real revolution. Bitcoin is a private currency as described by economist Hayek.

A reaction to the subprime crisis

If Satoshi Nakamoto created Bitcoin, it is because he saw American finance collapse in 2008. For him, the subprime crisis proved that the federal regulatory authority no longer controlled anything. The legal tender issued by the states (the dollar) but also the banking system were no longer trustworthy. So he thought about a system that could do without banks and fiat money.

States and Bitcoin

Obviously, the development of this private currency does not enchant the States for which the power to mint money must remain exclusive. They must retain control of monetary policy but also raise taxes. With Bitcoin or other cryptoassets, transactions are anonymous. It is therefore difficult to tax them. Moreover, it is not the principle of blockchain or virtual currency that bothers states, since projects are emerging in many countries to issue state cryptocurrencies. The Chinese e-yuan or a digital Euro; for other reasons the Petro, Venezuela’s oil-based crypto. In France, the Ministry of Finance has decided to tax crypto gains with the application of the flat tax.

China no longer likes Bitcoin

At the end of September 2021, the Chinese government decided to reject Bitcoin, probably due to the creation of its national cryptocurrency. The E-Yuan, in the minds of the Chinese, should allow them to establish their influence in Asia. So, Beijing is hunting down the creators of Bitcoin installed in the Middle Kingdom, not far from the hydroelectric dams. Indeed, to create BTC, it requires a strong computing capacity, so electricity, if possible inexpensive. We speak squarely of “mining farms”, that is to say gigantic warehouses where computers are stored in battery to validate transactions or create (mine) BTC. You should know that on the blockchain, the creation of cryptos or the validation of a transaction is remunerated. Beijing whistled the end of recess and Chinese farms were stopped. Bitcoin fell 10% after this announcement.

But El Salvador adopts Bitcoin

At the same time, a small Central American country is going the other way. El Salvador has decided to adopt BTC as its official currency in the same way as the dollar. In addition to the publicity stunt for its President, the approach is justified by the situation of the country’s population. Salvadorans are poorly banked and especially 25% of citizens have emigrated to the United States. Some of their salaries are sent to the country via services like Western Union that take commissions. For the president of El Salvador, it is wealth that is being diverted. With Bitcoin, fees are reduced. El Salvador is taking the opportunity to install ATMs (ATMs) everywhere that accept to exchange bitcoins into greenbacks. An experience to follow.

Bitcoin volatility: an object of speculation

Admittedly, the creator of the queen of cryptocurrencies really did not foresee that his anti-system currency would become the most speculative and volatile of assets.

First explanation of the volatility of this cryptocurrency: it is not a currency of use. Indeed, using it as a bargaining chip is difficult. A transaction currently takes several minutes to validate. Difficult to buy a baguette and have to wait 10 minutes in the bakery. Bitcoin is not a circulating currency. Owners store their assets pending valuation. It has therefore become an object of speculation.

The final number of Bitcoins is known

21 million bitcoins, not one more! This is the will of its creators. There are still more than 2 million to be created today. But it is estimated that a few hundred people hold 92% of the bitcoins in circulation. These whales can therefore in one click make the price fluctuate strongly.

Elon Musk and the “hype”

Last reason, cryptocurrencies are in the spotlight. It is therefore enough for an Elon Musk to announce on his twitter account that we will be able to buy a Tesla in BTC for the price to take 20% in one minute. But when, a few days later, he changes his mind and rejects this method of payment, investors sell and the price also drops by 20 %. At the moment, it is the statements of the various authorities that are being scrutinized. If an investment fund or private bank obtains a license for cryptos, immediately, the price starts to rise again.

Cryptocurrencies, the gold of the twenty-first century?

We often try to make the comparison with gold. Indeed, several elements are similar: a volume of material that is not extensible, “minors” in both cases, a positioning outside the traditional systems of finance. However, the similarities are not so obvious.

First, gold is being recycled and more and more. So even if the volume of raw material present in the earth is not extensible, reuse gives several lives (uses) to a nugget. We will not go back on the minors who are obviously not the same. As for the out-of-system posture, it is also accompanied by a long history for gold, a safe haven for millennia. The underlying of the two assets is really not comparable.

Making crypto-assets stable: stablecoins

Even if Bitcoin is considered the “mother” of all cryptos, today many digital “tokens” are developing, especially on the Ethereum blockchain. First of all, we encounter assets that have a utility other than commercial exchange such as the certification of a vote, a document, a transaction. So these stablecoins have a use value, as for Facebook’s DIEM project. But there are also “coins” (translation of coins) whose value is based on a real-life asset. For example the dollar or the ounce of gold. The idea is to bring to these cryptoassets what bitcoin lacks the most: stability.

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