What has been said so far about bitcoin can be translated into other virtual currencies: Ethereum, Ripple, Litecoin, Neo, Cardano, Stellar, Eos, Nano … just to mention the most popular and strong ones.
The system was then enriched with additional appendices, such as that, for example, of the ICO (Initial Coin Offers) , which is based on smart contract technology (which, in turn, is based on that of DLTs, i.e. distributed or shared registers, the same as cryptocurrencies). It is a financing instrument that follows the structure of the takeover bids. Normally, however, the funds are not used to increase the company’s capital, but to finance a start-up activity. In practice, the promoter of the project publishes a white paper in which all aspects of the proposal are defined, in particular that concerning what the subscriber will be able to boast following the payment of money (also virtual). This ‘credit’, called ‘token’, which comes in the form of a file, can then be freely transferred. Usually these loans are made through the Ethereum cryptocurrency (which, therefore, is not issued through an activity similar to that of bitcoin ‘miners’).
Uses of virtual currency: risks and opportunities
But in practice – one wonders – how can bitcoin champion buy and sell cryptocurrencies? There are two ways: since virtual currency is, in essence, a password, the buyer can physically meet with a person who holds it and exchange it by paying in current currency (in France some tobacconists are gearing up to sell bitcoins). The other way is to sign up for a trading platform and buy them for a cash deposit. What you get makes up the ‘portfolio’, like any other financial security. This ‘wallet’ can be stored directly on the platform (which, as mentioned, can be ‘burglarized’) or can be stored on external media (sort of smart keys).
During the holding period, virtual currencies can be used to make payments or they can be exchanged with other virtual currencies for speculative purposes – and this is what normally takes place – to be finally converted into current currency (the person who converts virtual currencies into other currencies and vice versa is called an ‘exchange’). As regards payments, there are openings to this effect both between private individuals and the public: in Ohio, for example, businesses can pay taxes with bitcoins.
Role of virtual currency
In this sense, virtual currency is both a currency and a financial instrument and, at the same time, it is neither: it is not a pure financial instrument as it has not been recognized as such and it is not a currency because its value is exposed to market volatility and, moreover, it is not subject to a central authority.
The new currency, as it is not controlled, can be used for purposes that are not always ‘clean’. This allowed, for example, the Chinese to circumvent the ban on converting the Yuan in foreign currency or to evildoers from illegally selling drugs, prohibited drugs and weapons, in the so-called deep or dark web, or to request ransoms to ‘free’ computers blocked and sensitive files taken hostage.
The European Parliament has also focused on these issues, with the Resolution of May 26, 2016, has clarified the intrinsic risks of virtual currencies: the absence of structures for the protection of users and the functioning of the system, the high market volatility, legal uncertainty, energy consumption, potentially negative effects on the markets ordinary financial services, the potential limitations of the effectiveness of monetary policy and the possibility of black market transactions. In the face of this, Parliament suggests making sure that the States develop a solid legal framework, without, however, early regulation of a phenomenon that is still evolving, which could be hindered by inappropriate legislation and which could lead to results. , on the contrary, decidedly positive, such as, for example: the reduction of transaction and payment costs and their traceability.
In any case, the virtual currency demonstrates the possibility of aggregation even outside the established institution, in this sense by demonstrating the intrinsic strength of the currency for this purpose, a force which has been bet on for the unification of Europe.