Fiduciary
While cryptocurrencies are internationally thriving, they still sometimes cause reluctance in Luxembourg. Are the reasons for this reluctance serious ? Are cryptocurrencies safe ? Finally, should we consider a cryptocurrency (or crypto assets) wallet as a secure investment?
Genesis of cryptocurrency
The first cryptocurrency to emerge was Bitcoin.
Bitcoin was created in 2009, based on the work of an author named Satoshi Nakamoto. But "Satoshi Nakamoto" is actually just an invented alias. And in reality, nobody knows exactly who really created Bitcoin.
And the anonymity of its creator is a fact very representative of what features Bitcoin as cryptocurrencies are not based on any individual, nor on any official organization, nor even on any state that should be trusted.
On the contrary, cryptocurrencies (and blockchain in general) are based just on a mathematical model and on an open community of users, that is to say a community of which every internet user can be a part if they wish.
It is also not surprising that Bitcoin was born in 2009. For this we just have to remember the great financial crisis of 2008 and the resulting mistrust of governments (deemed unable to regulate the markets) and mistrust of banking institutions (quite rightly accused of not respecting the rules).
During the financial crisis of 2008, some states took measures that definitely undermined the confidence that individuals could have in them. For example, the Cypriot government authoritatively took possession, in the form of nationalization, of all bank assets exceeding 100,000 €. Or India, which suddenly demonetized all the 500 and 1000 rupees notes.
In this climate, a new currency, which would no longer depend on any government or any institution and which could as a result be trusted, could emerge.
This is the quintessence of cryptocurrency, not to rely on any particular person or institution but just on a public mathematical algorithm.
Any manipulation thus becomes impossible and the currency, which was until a "governmental truth" becomes "mathematical truth".
The creation and circulation of cryptocurrency is perfectly predictable and controllable by everyone.
How cryptocurrency works?
Each individual can participate in the operation of the cryptocurrency of his choice by providing the power of his computer to operate the blockchain (i.e. the calculation chain for the creation and allocation of the cryptocurrency) on the basis of the mathematical algorithm that governs this currency.
Cryptocurrencies are thus created by "miners", that is to say all internet users who participate in the operation of the algorithm by installing a program using the cryptocurrency algorithm on their personal computer.
Each Internet user can thus, on his own computer, calculate the register of transactions, as it results from the movements of cryptocurrencies that have taken place and the mathematical results that the application of the algorithm to these transactions generates. The new transaction log page (normally generated every 10 minutes) will only be validated if there is consensus among all miners. A consensus that is theoretically easy to reach since it is based on a mathematical truth. The miners who participated in the calculation are rewarded for their participation in the work of the algorithm by the allocation of cryptocurrency created permanently by the algorithm, in a regular and predefined rhythm.
And among the notable innovations offered by blockchain technology, unlike traditional banks which are only account keepers, blockchain also ensures the permanent maintenance of transaction history.
Here is an example: whereas a traditional bank which maintains Jason's account could only say, at a given moment : Jason has € 1,500 in his account because he received € 2,000 from Oliver and then transferred € 500 to his sister Emily, the blockchain will also include, at any time, according to the mathematical algorithm which runs it, the following information : Jason has 1,500 BTC (bitcoins) in his account because he received 1,500 BTC from Oliver who had himself received this amount from Parker, who had himself received 1,000 BTC from Evan and 500 BTC from Kendal, Evan having received his 1,000 BTC from Olivia and Kendal having received his 500 BTC from Charly, and so on ... Blockchain ledgers contain the full flow of transactions for every bitcoin and all cryptocurrency that exists.
This is also one of the keys to the inviolability of cryptocurrency : the complete flow of each cryptocurrency is entered permanently, without time limit, on the register of the cryptocurrency that crank it up. Thus, no counterfeiting is possible since any exogenous currency would immediately be rejected by the algorithm.
Are cryptocurrency investments safe?
If cryptocurrency is, in itself, a safe currency as it is based on a mathematical truth that is predictable and observable by everyone, it seems, on the other hand, that the global system of holding assets in crypto currency is much less secure ... and frankly, maybe even completely random!
Owning cryptocurrency assets indeed supposes the storage of these assets, and unless you are able to participate directly in the blockchain as one of the most initiated investors (familiar with both IT and finance), you must resolve to resort to portfolio platform services which will be responsible for holding and transferring, on your behalf, your cryptocurrency assets. These platforms abound on the internet: Bybit, Binance, Etoro, Exodus, Coinbase, etc ...
But while many savers are usually vigilant and critical when it comes to choosing their bank (asking endless questions such as: "is HSBC safer than the BNP ? "), these same savers surprisingly place a blind and unjustified trust in internet platforms to which they will entrust their cryptocurrency on deposit, even though these platforms are not subject to any control or supervision, and can disappear overnight with the entrusted assets and without any effective remedy then being possible...
For example the mishap that recently happened to a saver known to Fiduciaire LPG (a case for which a police investigation is currently underway and the elements of which are therefore still conditional): This saver opened an account at beginning of the year 2021 on the EXMO exchange platform (a platform which had existed for a few years and which was not however the subject of particular negative comments on the web) and transferred her cryptocurrencies to this EXMO exchange platform from BINANCE exchange. When this saver then requested the transfer of her cryptocurrencies placed with EXMO, first EXMO indicated that it was the subject of an attack by hackers and forced the saver to open a new account by means of a link to a new exchange called SIMEX (which, however, is not the subject of negative comments on the internet either). Once the crypto-asset wallet was received by SIMEX, this new exchange platform just blocked access by closing the account of the saver, without any recourse being possible ... And despite actions carried out by the French judicial police, it seems that this cryptocurrency wallet has simply disappeared in the meanders of the global internet, without any concrete action being likely possible… Neither SIMEX nor EXMO have answered to any questions from the saver or the police or can even be reached (as they do not have any physical address, …).
And this mishap is unfortunately only one example among many others, because even when these platforms enjoy a good reputation, nothing prevents these same platforms from one day being attacked by hackers, or even sold to an unscrupulous crook, who can freeze accounts as in the example just mentioned, or modify the rules of the game as he wishes to take his depositors hostage.
Conclusion
The limit of cryptocurrency is not so much the cryptocurrency itself as its ecosystem.
If it seems today that the cryptocurrency (Bitcoin, Libra, etc.) is, in itself, a certain and reliable currency thanks to the mathematical algorithm that runs it, the same is not true when it comes to the storage or the transfer of these cryptocurrencies.
The holding, circulation and especially the storage of cryptocurrencies is indeed much more dangerous because, when cryptocurrencies are deposited on or circulate through unreliable platforms, these cryptocurrencies can disappear overnight (due to indelicacy or even incompetence of the platform), without any action then being possible to recover them...