What is Cryptocurrency? an interesting learning guide

Each Blockchain is associated with a cryptocurrency (also called a token). The most well-known is the Bitcoin, a currency invented by Satoshi Nakamoto in 2008. Today, there are several hundred different digital currencies. They all share the common trait of beinga virtual means of exchange, not based in any single state, as opposed to the Dollar or the Euro. They circulate via peer-to-peer networks, based on cryptographic algorithms, and are not necessarily intended as a payment system between users.

The number of units in circulation and the maximum money supply are defined in advance and visible to all. Until proven otherwise, cryptocurrency cannot be counterfeited or stolen.

It is possible today to define several separate families of cryptocurrency, which are adapted to the objectives of the communities who use them:

“Infrastructure” currency: the type of currency likely to bring about the most profound changes, whose ambition goes far beyond being a simple means of payment, and which has the objective of offering a real alternative to the existing financial system.

Examples: Ethereum, NXT, Ripple...

“Social” currency: currency created to allow the easy exchange of small financial amounts between web users (“social tipping”), on existing social networks in particular.

Alternative currency: broadly inspired by Bitcoin, these currencies attempt, via technical innovation, to function either more easily, more securely or more rapidly, for example by reducing transaction verification times.

Examples: Litecoin, Digibyte...

Anonymous currency: currency created solely to serve as a purely anonymous means of payment, protecting both the user’s identity as well as their transactions.

Examples: Monero, Bytecoin…

Cryptocurrencies are primarily an investment of potential profitably. These alternative digital currencies represent, in effect, a new kind of investment intrinsically linked with our modern digital economy. While extremely volatile, they can demonstrate impressive financial performances:

Bitcoin exceeded a rate of 6,000 USD in October 2017, despite being traded at a rate of 434 USD in January 2016!

Indeed, it’s because of cryptocurrency’s speculative nature that it attracts investors, who generally appreciate the risky characteristics of this kind of market. Speculation is rampant in the universe of cryptocurrency, not only in regards to
rate variation against the dollar, but also regarding the financial operations that cryptocurrencies finance.

Many investors are also in search of an asset to provide diversification to their portfolio, and thus invest a small proportion of their assets with a view towards a long-term gain. Cryptocurrency can effectually provide for the needs of investors seeking to diversify their risks by turning toward alternative investments.

As an investor, the search for reliable information often resembles a complex quest: how can we identify the limited number of good resources? How can we sort them out? How can we interpret this information in order to make informed decisions?

In addition, while certain investors may benefit from a lack of information, others feel «overwhelmed» by the flow of available data and will inevitably find themselves exposed to an overabundance of information. This phenomenon of overexposure will result in an alteration in decision-making and a decline in investment performance. Information encountered about investments needs to be sufficient without becoming overwhelming, as well as easy and practical to use.

The sheer amount of information available renders each investor more vulnerable to emotion when investing. « Fear of Missing Out » (FOMO), « Panic sell », « Fear, Uncertainty and Doubt » (FUD), are several examples of the phenomena that can negatively influence the ability of investors to manage their emotions while making decisions.This poor emotional management then leads to ill-thought-out short-term actions, including sudden changes in trading and investment strategies, and the following of unfounded trends… often at the expense of invested capital.