Crypto currencies: Means of payment of the future or just anonymous currencies for fraudsters?
Crypto-currencies have become known worldwide mainly through Bitcoin. It appeared on the scene in 2009 and is now the most famous digital currency in the world. In addition to Bitcoin, there are also many other crypto currencies. They all have one thing in common: they are controversial. For some, crypto currencies are a risky investment and the Internet currency of fraudsters, for others they are the means of payment of the future.
Digital currencies like Bitcoin have been very popular with many investors for years. Crypto fans in particular see the many electronic currencies as the future means of payment. Unlike conventional currencies such as the US dollar or the euro, crypto currencies are not printed. They exist exclusively in digital form. Traditional currencies, on the other hand, exist both digitally – Apple Pay or Paypal are examples – and physically in the form of cash as coins and bills.
The best-known crypto currency is by far the Bitcoin, which also ranks first in terms of market capitalization (the value of all currently available Bitcoins at the current price) with a current value of more than 163 billion Euro.
Bitcoin – the mother of all crypto currencies
Accordingly, Bitcoin is also referred to as the world’s digital currency, as it was the first type of digital payment option known today as crypto currencies. In the meantime, numerous other crypto-currencies, often also the term digital currency is used, have followed. The best known after Bitcoin are, among others, Ethereum or Ripple, even if the latter two cannot hold a candle to Bitcoin in terms of market capitalization:
- While Bitcoin shines with 163 billion euros, Ethereum comes to just 31 billion euros, followed by Tether, formerly Realcoin (13 billion euros), and the Ripple (8.5 billion euros).
- The figures show clearly: The Bitcoin is the measure of all things under that up-to-date more than 2100 different crypto currencies, which come together on a market capitalization of more than 270 billion dollar world-wide.
These are the alternatives to the Bitcoin
In addition to Bitcoin, the digital currency Ether is also very popular with crypto fans. It belongs to the circle of so-called stable coins. These are crypto currencies that are covered by a common currency. Ether is also actually the crypto currency of an open platform based on block chain technology, which enables developers to create and implement decentralized applications via so-called smart contracts. Smart Contracts are computer protocols that can map and verify contracts and provide technical support for their execution. This is also an important difference to Bitcoin: It is not just a digital currency, but part of its own closed network.
- One of the oldest crypto currencies is the rather unknown Litecoin. It was developed by a former Google employee and came out two years after Bitcoin.
- It is also based on the original source code of the Bitcoin, but offers a faster transaction time compared to it.
- On the part of the market capitalization the Litecoin belongs to the current Top Ten of the crypto currencies, comes however only on a volume of scarcely 2.5 billion euro.
Ripple: the “Bank Bitcoin
A much better known digital currency is Ripple (XRP), which is based on block chain technology by Ripple Labs. Here, too, there is a difference to Bitcoin. Ripple is not a pure crypto currency, but “only” a payment token, a currency of its own within the Ripple network called Ripplenet. Ripplenet has been equipped as a digital payment network for banks, with the aim of enabling international payment transactions between financial institutions at lower cost and in real time. In other words, Ripple is actually a digital currency for bank collaboration.
Another difference to Bitcoin and other crypto currencies is that at the launch of Ripple in 2012, the maximum number of 100 billion Ripple was created, so no new Ripple can be “dug”, as is the case with Bitcoin. Although Bitcoin also has a limited number of 21 million, not all of these have been “dug” to date. In practice that looks in such a way:
Every few hours a small number of new Bitcoins are generated with a constantly decreasing speed. When 21 million pieces are created, that’s it. Experts assume that all Bitcoins might be generated between the year 2130 and 2140. While thus Bitcoin is the crypto currency for everyone, Ripple could be called the “bank Bitcoin”. Already today financial institutions like Santander, UBS and the SEB bank belong to the customers of Ripple.
How do I buy and sell Bitcoin and Co.
Since crypto-currencies are not conventional physical means of payment, they cannot be obtained at bank counters or ATMs. Buying and acting one can buy all crypto currencies however over Internet commercial platforms, so-called crypto stock exchanges like for example the German side bitcoin.de.
Popular stock exchanges for the exchange of euro or US Dollar in crypto currencies in the English-speaking countries are also octopuses Bitcoin Exchange or Coinbase pro. So that one can buy and sell at all with these Internet stock exchanges, each user must announce itself. Most exchanges accept the purchase of Bitcoins via bank transfer or credit card payment.
Wallet – the digital purse
Afterwards one has – similarly as with the cash withdrawal at the cash dispenser, where one keeps afterwards the cash in the purse surely – a digital purse for the own crypto currencies as for example the Bitcoin, the so-called Wallet. This digital purse can be obtained in the form of an app, in order to be able to receive and send your own crypto currencies such as Bitcoin via this.
However, buyers of crypto-currencies should make sure to transfer their purchased digital money from their stock exchange wallets (the respective Internet purse) to their private wallets for security reasons. The reason lies in the past, in which it had come increasingly to Cyberattacken on large Cryptobörsen and afterwards many Bitcoin investors were robbed around their shares.
Just how popular Bitcoin is with investors can be seen from the recent development of possible purchase options for the digital currency. In recent years, special Bitcoin ATMs have emerged in the DACH region where Bitcoins can be bought. While there are about 50 such machines in Germany, the number in Austria is 170 and in Switzerland about 70 crypto machines. At these one can come completely simply to its Bitcoin: They pay in at the automats by EC or credit card, scan in the second step the QR code of the own mobile Wallet and receive then a direct credit note in the respective value on the Bitcoin Wallet credited. Ultimately, however, this method is only a very rare way to obtain Bitcoins.
How risky are crypto currencies as investments?
Off the large possibilities of using crypto currencies in the future as means of payment on broad front many investors jumped in the past years particularly on the Bitcoin as speculative Investment. That has to do with the “finiteness” of the Bitcoins. If 21 million pieces were created, is final. That again lures out many investors, who hold the old market principle highly:
If the demand rises, the supply however remains the same, the price of a Bitcoins might rise at the end. The long-term Bitcoin Chart shows however that the price of the most well-known crypto currency is in a constant up and down. Who buys at the wrong time Bitcoins, must have afterwards good nerves.
The dark side of Bitcoin
The popularity of Bitcoin also has a dark side. The digital currency is the favorite currency for Internet scams. The reason lies precisely in the anonymity of Bitcoin users. With Bitcoin, it is easier than with other currencies to conduct advance scams. The most recent case was a Twitter hack when unknown persons succeeded in spreading advertising for dubious crypto currency deals via the profile of India’s Prime Minister Narendra Modi.
Using Bitcoins for such scams makes sense to hackers in that not only is anonymity granted, but a Bitcoin transaction is irrevocable. Once you have transferred money (incorrectly), you cannot reverse anything.
Politics and the attempt at regulation
The coming months will show to what extent the regulatory plans of the EU Commission will really change the Bitcoin world. The fact that the acceptance on the part of governments rises noticeably opposite crypto currencies shows the example Switzerland: In the canton course one can settle its tax debts starting from next year also with crypto currency like the Bitcoin and ether.
However, the issue of digital currency has also long since arrived at the state level. China, for example, has been working on a kind of digital yuan for years. The plan is in clear contrast to the original idea of a bitcoin, namely that state central banks should not give any influence to a digital and anonymous currency. But it would make payment transactions faster in the future – and above all it would control them.