Cryptocurrencies are increasingly popular digital currencies that can be used anywhere in the world. They operate in a decentralized way thanks to blockchain technology and specific mechanisms, which may seem complex at first glance.
Today, who hasn’t heard of crypto-currencies? Whether it comes from a distant uncle at the holiday season, an old friend on Instagram, or during a promotion by an influencer, the word cryptocurrency is on everyone’s lips.
However, it is not always easy to understand what we are really talking about. The term cryptocurrency is often confused with the name bitcoin, and technical terms such as mining and Ethereum further complicate the matter. Finally, the many debates on the environmental impact of crypto-currencies are enough to make your head spin. Operation, creation, legality, controversy: we explain everything you need to know about crypto-currencies.
What is a cryptocurrency?
Let’s start at the beginning: what are cryptocurrencies? They are based on blockchains, a kind of large public and transparent account books that keep track of all transactions carried out on a network. Blockchains operate in a decentralized way, because there is not just one copy of the information: it is shared across the network, in nodes.
All this information is contained in blocks, which are gradually added to the pre-existing chain – hence the name blockchain, or chain of blocks in French. To be sure that the new block contains the correct information, special protocols have been implemented, which are called consensus protocols. Blockchains ensure the proper functioning of digital currencies, by verifying, for example, that a unit of currency is not spent twice, or that crooks do not artificially fill their account.
A crypto-currency uses its blockchain to exist: there is no paper version of these currencies. They only exist in their digital version, on the blockchains to which they are attached. It is therefore absolutely necessary to have access to the Internet to use it.
How are cryptocurrencies created?
Blockchains are secured using a method called the consensus protocol. These protocols ensure the security of the blockchain by ensuring that the information entered in the blocks is the correct one, and that it cannot be falsified. There are several methods, but we will only discuss the two main ones here: proof of work — or proof of work — and the proof of stake — proof of stake.
What is proof of work?
The proof of work (also abbreviated POW) is the best known method, as it is the one used by the bitcoin network. For a new block to be validated, the POW protocol requires network users, known as miners, to solve very complex mathematical operations and calculations, which require very powerful computers. The first to find the answer to these calculations “wins” the right to mine the next block, and in return receives a reward in the form of cryptocurrency. It is therefore a kind of race for power that is being played out, and which at the same time makes it possible to create new units of bitcoin – and therefore wealth. This process is called mining.
What is proof of stake?
The other most widespread method is that of proof of stake (or POS), and it is notably used by the Ethereum cryptocurrency. To create a new block with a POS, no need to solve calculations: you must instead stake a part of your possessions in cryptocurrency. We are therefore not talking about mining, but about validation. On the Ethereum blockchain, you have to stake 32 ETH in order to be able to “participate” and try to become a validator. Validators are chosen at random, and the sums withheld are used to ensure their good behavior: if a validator goes offline or has suspicious activity, they can lose their money.
How many cryptocurrencies are there?
Bitcoin is, by far, the most well-known cryptocurrency in the world. There are, however, many more, so many that it would be impossible to list them all here. Some crypto-currencies have a specific purpose, others have particular operating mechanisms that distinguish them, and still others are indexed to the course of classic currencies.
Among the best known, however, we can cite Ethereum, which is the 2nd largest crypto-currency in the world; the Doge Coin, a useless joke cryptocurrency that is adored by Elon Musk; BNB, developed by the Binance crypto exchange platform; or the USDT, a crypto-currency pegged to the rate of the dollar (so-called stablecoin).
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