Definition of a Cryptocurrency

  • 253
  • 0
When we talk about cryptocurrencies to someone who doesn't know much about them, the only response we get is the following: "these are virtual currencies”.

Most people only see cryptocurrencies as "virtual currencies" and a "virtual means of payment". That's not true!

Behind a cryptocurrency there can be a complete ecosystem, a simple project, a means of payment, a simple "parent" blockchain service, a simple independent software program, a restaurant chain that sells kebabs, etc. But not all cryptocurrencies will end up as a means of payment or a cryptocurrency that can be exchanged at an ATM (see Bitcoin).


To help you to understand cryptocurrencies, I am going to explain using a few metaphors.

A blockchain is like a virtual country, the difference being that without a blockchain the country dies.
In this country, there are regions; these are the sub-blockchains that can be created on the main blockchain.
In this country, there is a reference currency; this is the parent blockchain’s cryptocurrency. But each region also has its own currency; these are the child blockchainscryptocurrencies.
In this country, entrepreneurs have projects, they create companies, and need money to get started. So they raise money on the parent blockchain (ICO), or on the childblockchain (if they allow it).

Once fundraising is complete, investors receive several units of a new cryptocurrency that can be assimilated to a share of the company. If this company prospers, the price of the new cryptocurrency increases; if this company goes bankrupt, the cryptocurrency is withdrawn from the ratings.

These projects (companies) can be independent or work with the country. Example: a company sells kebabs, it is independent and will not, in any circumstances, need the parent blockchain to work in the long term. Conversely, a company can create a payment platform whose transactions are processed through the parent blockchain (the country.)

To improve the country (the blockchain), developers create new services (e.g. the ability to encrypt/secure/anonymize transactions made in the blockchain's basic cryptocurrency). To make this new service available, and to make the country pay commissions for its use, it is simpler to create the equivalent of a company, and thus a new cryptocurrency.

Finally, in this country people (us) and real companies (like Microsoft) live there, and use the services offered.

A good insight to consider: why do the companies which are created, and which have no relation to the blockchain, raise funds in this virtual country rather than in their "real" country (e.g.: in France)?

Answer: fundraising, or listing on a stock exchange, or borrowing money from a bank, are not necessarily easy things in reality. Entrepreneurs use the buzz around cryptocurrencies to raise much larger sums at a lower cost.

I may have lost you there, so I'll use an example. Why did the VIBE (VibeHub ) cryptocurrency come into being? This cryptocurrency can be equated to a share in the company VibeHub, and VibeHub is only software which creates videos and holograms. There is no link, in the long run, to the blockchain which let it raise its funds. It's a bit like if "Adobe" (adobe acrobat reader, you know, this is the software you use to open your PDF files.) had raised funds on a blockchain rather than by going to its banker or euronext. Well some people tell me, all the same, that VIBE needs blockchain technology to make "LIVE” work. Of course. Well, maybe I didn't use the best example. But what you have to understand is that some fundraising today is done using ICOs simply because it makes it easier and faster for companies to raise more money than through a bank or an IPO.

If you've followed me this far, you'll understand:
- that risky to trade on cryptocurrencies of "companies" which have no link with the blockchain.
- that may be more interesting to invest in a company's blockchain than in a company using a blockchain to operate. Because a good company increases the country's GDP. And a company "quoted in cryptocurrency" and using the blockchain in its service offering, will inevitably increase the value of the blockchain (and therefore the blockchain’s cryptocurrency).
NB: there is a reason why the cryptocurrencies with the best values at the moment are all blockchain cryptocurrencies.
NB: be well informed about what is hidden behind a cryptocurrency before buying.

If I've completely lost you, tell me. If you have any questions, ask them.
Finally, I hope that the term "cryptocurrency" is now more understandable to you and that you no longer see it as a simple means of payment with virtual money.

About author

  • 6
  • 21
  • 47
  • 0

Add a comment

no pic