Cryptocurrencies: Concept, Structures and Taxonomies

What does cryptocurrency mean? In practice, it translates into any form of digital or virtual currency that exploits encrypted data to guarantee the completion of transactions. These do not derive from a central issuing or regulatory authority, that is, they use a decentralized system to record transactions and issue new units. In other words, it does not fully comply with all traditional currency requirements: i) unit of account under the authority of a central bank; ii) store of value; and, iii) be a means of exchange.

So, what is the reason for a debate or the high media coverage of the topic? The reality is that the economic weight of these currencies in the world economy is already representative; and, the debate surrounding the economic model of currency creation has long been questioned. And, regardless of the vision, cryptocurrencies are true representatives of Web 3 (sharing and not centrality). The security component will be discussed in the future.

But how does the currency creation process occur? These are generated via a computational mining process, which means that it explores the potential of machines dedicated to solving complex mathematical problems. Users can also purchase currencies through exchanges and, therefore store and spend them through their wallets.

Some examples of cryptocurrencies are:

  1. Bitcoin- founded in 2009, it was the first cryptocurrency and continues to be the most traded. Developed by Satoshi Nakamoto, a pseudonym for an individual or group of people, whose exact identity remains unknown;
  2. Ethereum- developed in 2015 under the umbrella of the cryptocurrency’s blockchain platform. It is the most popular cryptocurrency after Bitcoin;
  3. Litecoin – similar to Bitcoin, with rapid evolution and aims to develop innovations, particularly in terms of payments and faster transaction processes;
  4. Ripple – distributed ledger system founded in 2012. It has a broader spectrum, as it allows tracking different types of transactions and beyond. The company that developed it cooperated with several banks and financial institutions (attempted acceptance).

Finally, how to acquire cryptocurrencies? As a general rule, and without ignoring the potential risks, it is necessary to choose the platform (traditional broker versus exchange). Brokers offer various financial assets in addition to crypto, such as shares, bonds and ETFs; while exchanges are storage exchanges whose fees are charged based on asset values.

The next step is to transfer funds to the account to trade, with rules varying from platform to platform. Avoid purchasing via credit card because some companies in the sector do not allow it. Finally, it is to promote the request associated with the acquisition of cryptocurrencies and manage the asset portfolio similar to any other.