have flooded the world in the last ten years. Not long ago, most people would disregard
them whenever the word was mentioned. After a while, the prevailing opinion was
that this was just a “fad” and would be over soon. However, it is now
clear that cryptocurrencies are slowly but surely emerging into essential
places in our society.
have emerged relatively recently, and many people feel that they have overtaken
them. Programmers and computer scientists who understood the new technology found
their way to cryptocurrencies very quickly, some of them making good money. If
nothing else, they all probably enjoy cryptocurrencies.
But – what
exactly are cryptocurrencies? Why do they represent something special? How do
they work, and in what dimension do they exist if we cannot touch them in any
common explanation, of course, is that cryptocurrencies are digital or virtual
money. But that definition does not make anything more apparent since many
people also mark the euros deposited in their bank account as virtual currency.
While it is true that we bring cash to the bank and deposit it in our account,
however, if we then send that money to a friend in France, the cash will not go
on to their bank account. The only thing that will increase in a few days is
our friend’s (digital) balance in their bank account.
Cryptocurrencies only exist in the virtual world, so we cannot hold them in our hands, and they are protected by cryptography, hence their name. However, they are protected in a way that they cannot be falsified or duplicated.
What does mining have to
do with cryptocurrencies?
heard the saying, “we are all equal before the law?” Well, with
cryptocurrencies, we are also all equal. No bank or other intermediaries are
required to hold, trade, send or receive cryptocurrencies. Cryptocurrencies are
therefore decentralised. All that is needed for the system’s successful
operation are miners, which is just a unified term for the operators who use
their computers to confirm crypto transactions and thus run the system.
banking license is required for this; miners can theoretically be anyone with powerful
enough computer equipment. In addition, due to cryptography, they do not have
insight into transactions. Therefore, recipients and senders of
cryptocurrencies are anonymous, which cannot be said for banking transactions.
cryptocurrencies are powered by blockchain technology. This may sound like
something complicated, but this technology is simple at its core. Blockchains are
like a kind of book or database of all transactions that occur under a specific
cryptocurrency. It is a digital database that is simultaneously copied and synchronised
across multiple computers worldwide, and many people can access it.
SIt can be accessed by practically everyone currently mining cryptocurrency, and all transactions are entered into this database upon confirmation. All this leads us to a critical feature of cryptocurrencies: their operation cannot be influenced by any individual, institution, or government.
What can we do with
cryptocurrencies are primarily used for capital storage and speculation. This
means that most people buy a specific cryptocurrency to sell it at a higher
value in the near or distant future, thus making a profit.
cryptocurrencies are working on their use in other areas as well. The word
“currency” does not stand in the name for no reason, as
cryptocurrencies can be used the same way as all other “traditional”
receive a salary in cryptocurrencies and buy bread from a bakery. We can shop
online or pay for a drink at a bar with them. All this, of course, is only on
the condition that the recipient and the sender of the money agree to this, as
the employer or the store owner must enable the receipt or sending of
In the Central
American country of El Salvador, the cryptocurrency Bitcoin has been granted status
as a legal tender. What does that mean? Since September 2021, sellers of
products and services must accept both Bitcoin and the US dollar whenever
possible; the dollar has been legal tender since 2001.
cryptocurrencies fluctuate enormously in their values, so vendors are not too
happy to use cryptocurrencies as a means of payment. A vendor would have to
change a product’s price in cryptocurrencies every day, if not every hour.
other hand, Crypto debit cards allow individuals to make purchases in a store
or online and withdraw cash at an ATM, even if these locations do not accept
cryptocurrencies. They work just like the debit card hiding in your wallet now,
with the difference that this debit card has no euros but is loaded up with Bitcoin
You are at the store; you take a juice that costs 1 euro and proceed to the checkout. Once you use your Crypto debit card, the system will convert the cryptocurrency into euros at the time of purchase. The trader gets euros on his account, and your balance in cryptocurrencies decreases.
exchanging cryptocurrency for “traditional” currency because you have to buy
something, you leave it as is and use your debit card. When you find yourself
at the cash register or in front of an ATM and use the card, the system
automatically converts the required amount of cryptocurrency into euros and completes
represent a new, decentralised form of money. In this system, intermediaries
such as banks and financial institutions are not required to review
transactions between two parties. Thus, the cryptocurrency system
eliminates the risk posed by a centralised financial system. There is no danger
that specific critical points would break, such as a bank or some other
institution, which would trigger the domino effect of crises worldwide, as was
caused in 2008 by the collapse of major US financial institutions.
because cryptocurrencies do not use external intermediaries, transfers of
cryptocurrencies between two users are faster when compared to standard money
transfers. In addition, crypto transfers are not restricted by a country’s
border unless the country, or state, decides to regulate or ban
transactions are anonymous, but they still leave a digital footprint that can
be deciphered by governments or other agencies. This poses a risk of
controlling and monitoring the financial transactions of ordinary citizens.
have also become a popular tool for illegal activities like money laundering
and buying illicit items. Cryptocurrencies are already almost a standardised
payment method on the so-called Dark Web, where many such activities are
carried out. Hackers also use cryptocurrencies in extortion and abuse
In theory, assets in cryptocurrencies are supposed to be divided among the many operators involved in the blockchain. In reality, however, ownership is very concentrated. For example, an MIT study MIT (Blockchain Analysis of the Bitcoin Market) found that only 11,000 investors own just under half of all Bitcoins globally.
Speaking about crypto mining, we like to emphasise that anyone can do this, which is true in principle. However, profitable and long-term cryptocurrency mining requires extremely powerful computer equipment and vast amounts of energy. Thus, mining has also moved under the roofs of larger institutions that can afford it. According to a survey by the National Bureau of Economic Research, 10 per cent of miners account for 90 per cent of all mining activities.
point, it is difficult to determine where the development of the crypto world
will lead. But one thing is for sure – regardless of new technologies, it is
still about the people facing these technologies. Just as we humans are
responsible for all the advantages and disadvantages of “traditional”
currencies, we humans are also responsible for all the advantages and
disadvantages of cryptocurrencies.
article is part of joint project of the Wilfried Martens Centre for European
Studies and the Anton Korošec Institute (INAK) Following the path of
digitalization in Slovenia and Europe. This project receives funding from the
information and views set out in this article are those of the author and do
not necessarily reflect the official opinion of the European Union
institutions/Wilfried Martens Centre for European Studies/ Anton Korošec
Institute. Organizations mentioned above assume no responsibility for facts or
opinions expressed in this article or any subsequent use of the information