Crypto currencies: advantages and risks

  • Italiano

Who does not know bitcoin? This question seems silly today, but it is essential. In the last year the knowledge of the phenomenon of crypto currencies, of which bitcoin is the most famous, has spread and we witnessed first an impressive upside of its assessment with respect to current currencies, and recently a sharp correction of this way of thinking, generating conflicting views on the future of these tools.

The suspicion, however, is that very few, apart technicians and operators, have understood what it is. The first thing to emphasize is that bitcoin was not the first crypto currency but surely, was the one that has opened up the market to the main competitors that we see today appearing and growing among users such as Ethereum or the new Iota and, in the collective imagination, it has become almost a synonym of the sector.

This electronic currency, like the previous ones, has been created to facilitate and make e-commerce safer basing its emission on an algorithm that determines both the amount to be periodically released on the market and the asymptotic limit to which it must tend as overall mass. Exchanges, then, takes place via a P2P network, like the one on which the exchange of files on Emule is based, minimizing the concept, encrypted that allows to protect against theft and manipulations by allowing the owner to spend it, only once and only personally, in a pseudo anonymous way: any bitcoin amount, in fact, is linked to a pair of codes, cryptographic keys, one of which is private and known only by the owner, which allows him to spend it, and one public, i.e. the bitcoin address, that allows to receive it but that, at the end, allows to uniquely identify each type of transaction while maintaining, in fact, the formal anonymity of the actors of the same.

The alleged anonymity of the transactions and the independence of issuing the currency from any monetary policies by Central Banks, immediately attracted several people who from one side saw a means of payment to the bearer succedaneum to cash, allowing to ensure the privacy of the subjects involved in a transaction and on the other side the possibility of obtaining a cash commodity only linked to the market and not to political constraints, in practice to pass from a traditional fiduciary currency, like the dollar or the euro, to a sort of electronic standard commodity which in the end replicates, though in a much more efficient manner, the logic of barter.

It is true that the most interesting characteristic of bitcoin and of other crypto currencies is not so much the product itself but the technological infrastructure behind it, the blockchain, that lends itself to different uses and that probably will revolutionize the world of finance and of commercial transactions in the near future, but the attention of most of the people today is for the trend of the listing of these new financial instruments and it is on this that there is a need for clarification.

Why are they defined financial instruments and not currencies?
Because for currency, as definition, it is meant the whole collection of means of payment characteristic of trading and adapted to settle debts, in the economic relationships, then these have also the function of measurement value and unit of account; the crypto currencies, instead, although they can be used as a medium of payment in the P2P network on which they are exchanged, at the moment, cannot be used to settle debts and are not measuring value if not converted in the respective currencies of account of their reference markets, they can therefore be considered as assets, exactly like shares or bonds, but not currencies.

Once we have pointed out this aspect we shall also note that the same are very volatile assets, exchanged in dark room (i.e. in markets that are not official) and without the certainty of being able to liquidate one’s own capital in short time, but only by finding a user who wishes to exchange the instrument with a current currency, although today, with the existing demand and the relative market in growth, this hypothesis can be considered irrelevant in assessing the risk.

This speech, obviously, is not done to demolish the crypto currency instrument which, instead, represents one of the most interesting innovations in recent years and that could have future developments yet not even imaginable, while strongly doubting that it can replace the national currencies or make the banking sector obsolete as feared by some, but to indicate that there is no such thing as a safe investment and to warn to not take it lightly.

If someone wants to enter the market of bitcoin or of any other crypto currency must be aware of the existing risks, including that of losing a good part of the capital invested there, and that the DIY is rarely productive. The recourse to an expert consultant is the basis on which one shall build his investment strategy and the parcel that paid is certainly not money wasted but an insurance policy at least on the know-how needed for informed choices.

It is evident that those who bought bitcoin last year and then kept it in their electronic wallet today could celebrate with champagne, but for one person that earns there is always another one that sees his capital decreasing, in this case, and for this reason, it is always good to respect the rules of an aware investor: well differentiated portfolio, liquidity level adequate to the emergencies and timely information on the markets always.

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