The big financial news of these days is the launch on the Chicago Board Options Exchange of financial derivatives that allow you to bet on the evaluation of the most famous cryptocurrency in the world, the Bitcoins.
The news is a bomb not only because the financial market, which has always snubbed and even slightly derided Bitcoin and brothers, has now decided to open to this innovation, but also because it is having an exceptional success, in fact the site of the Chicago Board Options Exchange has crashed multiple times due to too many logins.
You have to think that a Bitcoin in May 2012 was worth 2 Dollars, in 2013 it was already worth almost 200, and on its access to the financial market in Chicago has reached the threshold of 19,000 Dollars, to then settle around 14500.
Bitcoin has reached a market value of $ 271 billion, more than 488 of the 500 Corporation of Standard & Poor’s 500. To be clear, Bitcoin is worth more than giants like Goldman Sach.
Now that we know what we are talking about economically, we need to clarify what the Bitcoins are technically. But first, you need to know what a cryptocurrency is, because it is sensational that there is a price list on a financial market and above all what is BlockChain, because it is the one on which everything is based. And then I also tell you what ICOs are, that is the most complex and perhaps most important financial issue of the next global financial future.
Bitcoin is the name of a cryptocurrency, just like Dollar or Euro is the name of a classic currency.
Why this so trivial specification? Because often Bitcoin is confused with the very concept of cryptocurrency, being the most famous. Yes, it is the most famous, but it is absolutely not the only one.
In fact today there are about 1300 cryptocurrencies, for a value that is around 400 billion dollars. Of these cryptocurrencies, however, only 17 exceed the value of 1 billion.
All these currencies differ from the classic currencies for two main aspects:
1- they do not depend on any state or confederation of states. They are stateless currencies, they exist only in the network.
2- they are not under the control of any bank, such as BCE, Bank of Italy, the Federal Reserve, FMI etc … The only body that manages it is the market demand.
Now the question to ask is, who issues the Bitcoins or other cryptocurrencies? Well, this is where the BlockChain comes into play, that is based on a peer-to-peer protocol.
Basically it is a Distributed Database, impossible to tamper with. It is based on Blocks, Miners and Nods.
There is no easy way to explain it, but I will try to be as much easy as possible.
Each block in the chain is made up of two alphanumeric codes which are used to connect it to the previous block and the next one. Each block also contains the number of transitions.
Bitcoins are extracted from these blocks by the Miners. Miners are software that can decrypt blocks and solve very complex mathematical problems. Whenever a Miner solves a problem, a certain number of Bitcoins are released and the block is completed with the information of the transition made.
Finally, there are nodes, which are computers connected to the Bitcoin network, which keep and distribute a copy of each block. If a node were to be broken, nothing would happen because the information of each block, and of consequence of every financial transition, is memorized by each node and no information can be lost.
This makes the BlockChain unassailable by hackers or cyber incidents.
For this the BlockChain lends itself to be used for other functions besides that of cryptocurrencies.
Finally there are the ICOs, acronym of Initial Coin Offering.
They are a method of capital procurement for companies based on the issuing of their own cryptocurrency. This is something similar to an Tender Offer, but with many differences.
First of all, the Tender Offers are issued by consolidated companies, while the ICOs are issued by companies in the Start-Up phase. In addition, the Tender Offers are controlled by all the bodies in charge of the control function that work with the financial market and allow the acquisition of part of the shares issued by the company.
With Ico, on the other hand, the company does not issue shares, but Tokens of their own cryptocurrency, whose value is linked to the company’s performance. So who buys the Tokens, does not have the power to vote on the company and does not have “a little piece of it”, but has a currency linked to the market value of the company itself.
Although still in its infancy and is clearly criticized by all financial institutions, this type of investment could really become the next singularity in the world of finance.
In fact, until a few years ago all financial operators also discredit Bitcoin, and many still do, often they are right, because the investment risk is high and not everyone should participate in this game, but often these criticisms hide the fear of financial institutions to lose their leadership in the face of the most democratic issue of currencies ever seen in human history.