Between the abrupt jumps in their values -which fueled the dream of many of becoming millionaires overnight- and the comments of a world technology leader like Elon Musk from his social media accounts, cryptocurrencies were gaining more and more prominence till nowadays represent a genuine investment option. Far from being a fad, cryptocurrencies and crypto assets are here to stay.
But first, it is worth defining what a cryptocurrency is: it is a unit of digital money that can be transferred over the internet without intermediaries and that is stored in virtual wallets with complex passwords and different levels of access validation to guarantee the maximum security.
The phenomenon was born at the initiative of Satoshi Nakamoto (pseudonym of a person or a group) that launched the Bitcoin protocol in 2008. In honor of its creator, the “satoshi” is the smallest unit in which a bitcoin is divided. Just as a penny is one part in 100 of a physical currency, the satoshi is one part in a hundred million in Bitcoin.
More and more options
Beyond the fact that this coin was ahead for many years, new options continually appear as the interest of users multiplies.
The expert portal CoinMarketCap, for example, adds on average a new coin every day. It is estimated that the number of available cryptocurrencies already exceeds 10,000 according to the same source. Whoever wants to launch their own virtual currency must carry out an ICO (Initial Coin Offer) and comply with a series of stipulated technical and security requirements.
Many governments are even working on their own official cryptocurrencies.
The technological heart
The technological heart of cryptocurrencies is blockchain: secure, decentralized, synchronized and distributed digital records of transactions in which multiple parties participate without the need for third parties to intervene. Each record is made up of a chain of blocks and each time a transaction is made, a block is incorporated plus a timestamp to indicate when it occurred and a connection with the previous block.
As the blocks cannot be deleted or edited and as it is impossible to intersperse blocks where there are already two concatenated, the information is simply inviolable: no modifications or data can be altered without the knowledge of all the participants. Transparency is absolute.
The technology behind cryptocurrencies encompasses another factor: mining. “Mining” is the process by which a user can put new cryptocurrencies into circulation. For that, you must contribute computing capacity to the network and receive compensation in the same cryptocurrency that you are mining. The more computing power (hashing) the connecting device (node) proves, the higher the reward.
Beyond cryptocurrencies
The concept of cryptocurrency has evolved to the point we now talk about crypto assets: digital elements with a value. The most visible face of this phenomenon are the fan tokens, launched by football clubs. Fan tokens allow their holders to access exclusive benefits such as attending training sessions, obtaining private information about the club, participating in voting to choose the shirt model for the next season or even meeting a player, among many others.
It is not about mere collecting: it can also be a big business, since the value of the fan tokens can also generate significant escalations as the one that happened when the soccer team, Paris Saint Germain, announced the incorporation of Messi. As a result, in a very short time the price went from US$22 to US$58.
The NFT model (non fungible token) does not only apply to token fans: it is also used to define any unique and unrepeatable digital piece that cannot be hacked or manipulated: a photo, a video, an image, an e-book, a work of art, a text, any document of any format can. These assets can only be put into the market after having validated its authenticity and the ownership of its owner. Returning to sports, a true global phenomenon is taking place with soccer player cards: Cristiano Ronaldo’s, to cite an example, was sold for more than 240,000 euros.
A passing fad? Nothing could be further away: during a digital transformation, in which working, educational, entertainment and social customs have changed, it is logical that this new way of saving and investing will also be consolidated.