Cryptocurrencies. the future of money

It is important to receive this exposition open to all possibilities, before beginning I would like to make this suggestion that you receive this accumulation of ideas with an open mind and that we venture to ask ourselves about the feasibility of this premise, objectively, leaving a Satanization aside to make way for education.

WHAT ARE CRYPTOCURRENCIES?

Cryptocurrencies are technological financial instruments, which have been established as a possible and undoubtedly a good replacement for what is generally called money, since with these you can carry out operations to exchange goods and services, to execute the realization of payments and to deposit the wealth that is owned. Cryptocurrencies emerge as (I like to call them that) a tool that advocates anarchy and rebellion, by software developers, since they have as their intrinsic and main feature, the fact that no government or financial entity is Whether it is public or private, it can generate absolute influence on this type of money, that is, it is not issued or controlled by a central establishment, that is, they are decentralized.

Its name comes from the prefix “Crypto” that refers to terms of mathematical encryption and encryption, which is through cryptographic systems that these are created, stored and transferred. It is good to understand that cryptocurrencies cannot be physically owned, but must be stored in a "Digital Wallet", which have sophisticated security systems.

HISTORY

There is an interesting precedent that occurred in the year 1977 with the creation of a platform called “HashCash” carried out by Adam Back that had as its functionality the creation of POW (Proof-of-work) systems that were in charge of reinforcing the security of digital signatures avoiding the generation of spam. Although the first attempts were made to digitize money, they did not come about until 1993, thanks to David Chaumm with the creation of "Digicash and E-cash", which were the first crypto systems to make anonymous transactions of money, although they still maintained the characteristic of centralization. In 1997 “E-Gold” was created, which allowed to carry out instantaneous operations among gold users.

Then, in 1999, the first large P2P-type payment network (Peer-to-peer) was created, which allows transactions to be carried out without the need for an intermediary and only the interaction between peers was necessary, of " Person to person". And the definitive and most important moment is in 2009 when a pseudonym called Satoshi Nakamoto, publishes the first client program with the P2P network on January 3 and Bitcoin comes into operation.

HOW DO THE BLOCKCHAIN WORK AND FUNCTIONALITY?

The operation of cryptocurrencies, occurs through the use of "communication protocols", which are the formats defined for entities in a communication system to communicate, in reduced terms, are the rules of syntax, semantics and synchronization, as well as the recovery and learning of errors, between computers. Unlike fiat money (which is what we currently use), the cryptocurrency only generates a number of units that are mostly previously defined, at a rate that is limited by a previously established and publicly known value, through a open network.

Through the use of algorithms, which are developed within a blockchain scheme "BlockChain" which in this case would be in a public "ledger" of this type of currency, with the combination of POW / POS and P2P systems, which make transactions as effective as possible and without the intervention of any agent.

WHERE DO THEY COME FROM AND HOW TO GET THEM?

Cryptocurrencies come out in an absolute and general way from a virtual process called “mining”, in theory and literally, it is to drill in the cloud (understood as a cloud the place where all digital information converges and interacts) through the aforementioned algorithms, which by means of physical systems (hardware) decode in repetitive processes the necessary and correct nodes to unlock the entire block, this item is known as "nonce". Cryptocurrencies are collectively mined following a Poisson distribution, where at the end all the cryptocurrencies obtained from the block are distributed based on the power (brute force) contributed by each of the miners in relation to the entire nodes. In other words, miners are rewarded for using network services. However,cryptocurrencies can be obtained through exchange platforms, called "exchanges" which offer transactions for the purchase and sale through credit cards or virtual payment systems such as PayPal.

IMPLICATIONS AND IMPACT ON THE FINANCIAL SECTOR?

For the financial sector in general terms, cryptocurrencies represent both a threat, a challenge and an opportunity, because it will depend on the possible perspectives in which these financial innovations can be addressed. A threat, because without a doubt the cryptocurrency market has meant strong opposition to the traditional system due to its characteristics and objectives that each blockchain of the different cryptocurrencies carries intrinsically. Also, due to the recent popularity and massification of cryptocurrencies, a phenomenon that meets the theoretical characteristics of an economic “Bubble” has been generated in itself (although the intrinsic values of cryptocurrencies are really unknown), which has led that many capitals both swallows or not,they redirect their funds from the financial sector to trade on virtual platforms or to mining companies, which has meant a significant blow (and perhaps in the future it will be greater) to the money flows and trading volumes in the financial markets, so much so that On the day of the highest volume of negotiations, a total of 114,280,000,000 million dollars was reached on June 13 of this year, which had 5,249,410,000 million negotiated on that single day. Furthermore, insofar as the technical limitations and legal complications are overcome, it represents a real alternative to the different currencies issued by the world's central banks, which would generate a restructuring of the entire system and of our way of living.which has meant a significant blow (and perhaps in the future it will be greater) to the money flows and trading volumes in the financial markets, so much so that the day with the highest trading volume reached a total of 114,280,000,000 million of dollars, on June 13 of this year, which had 5,249,410,000 million traded on that single day. Furthermore, insofar as the technical limitations and legal complications are overcome, it represents a real alternative to the different currencies issued by the world's central banks, which would generate a restructuring of the entire system and of our way of living.which has meant a significant blow (and perhaps in the future it will be greater) to the money flows and trading volumes in the financial markets, so much so that the day with the highest trading volume reached a total of 114,280,000,000 million of dollars, on June 13 of this year, which had 5,249,410,000 million traded on that single day. Furthermore, insofar as the technical limitations and legal complications are overcome, it represents a real alternative to the different currencies issued by the world's central banks, which would generate a restructuring of the entire system and of our way of living.000,000 million dollars, on June 13 of this year, which had 5,249,410,000 million traded on that single day. Furthermore, insofar as the technical limitations and legal complications are overcome, it represents a real alternative to the different currencies issued by the world's central banks, which would generate a restructuring of the entire system and of our way of living.000,000 million dollars, on June 13 of this year, which had 5,249,410,000 million traded on that single day. Furthermore, insofar as the technical limitations and legal complications are overcome, it represents a real alternative to the different currencies issued by the world's central banks, which would generate a restructuring of the entire system and of our way of living.

A challenge, since, if the traditional system really does not want to be defeated by digital money, it will have to stick to the new characteristics of the market and find ways to make innovation one of the important departments in corporations, because they could stay laggards (as is the case with FinTechs) in technological terms. An opportunity, because it could take great advantage of this new technology, strategies could be generated where the entities that are in charge of managing and the operations that are carried out today with fiat money are the same sector. This will force them to meet the challenge of innovation. In addition, they will greatly reduce costs and increase efficiency in transactions, since money would be faster.All this under an operational structure that makes operations with cryptocurrencies as world currencies stable.

LEGAL SITUATION IN COLOMBIA?

Within the legal framework in the country, the Financial Superintendence through circular 29/2014 has conclusively decreed that cryptocurrencies do not represent a means of payment and that they are highly risky instruments that are provided to carry out financial crimes. However, since June, the possibility has opened up that, according to DIAN, it can start stipulating collections based on income statements and dividends on the exercises carried out in operations with cryptocurrencies, which raises a clear dilemma, since in which way liens can be attributed on assets that are considered illegal. However, in the country there are recognized and reliable platforms for the purchase and sale of cryptocurrencies (Bitcoin), but they are not within a regulatory framework. It is also important to highlight,that there is a valid category at the time of declaring income for agents who have capitalized with cryptocurrencies, which corresponds to the classification of "Other activities of personal services not previously classified" with code 9609 before the DIAN.

ADVANTAGE?

It is a global unit of currency, with equal value in all parts of the world Decentralization of electronic payments since it guarantees the secure realization of direct payments and collections between individuals by electronic means. The confidence offered by the blockchain system and the Difficulty to be violated by security systems. The operations carried out are processed in a matter of minutes to hours (depending on the traffic on the blockchain) with little or no commission rate. Freedom of payments, since you can receive any amount of money, from and anywhere in the world at any time. Security for merchants, since it does not compromise personal information,which would allow to cover themselves from fraudulent return operations and enter markets that are not allowed by financial institutions due to risks. They are neutral and transparent, since all the information is open.

LIMITATIONS?

Its main characteristic also represents one of its main disadvantages, since being decentralized, it does not have a measurement and support scheme for the currency, as were the gold standard and the current Bretton Woods.The anonymity of the transactions allow to facilitate the processes in illegal activities. • Volatility due to the consolidation of markets. The degree of acceptance, since really, cryptocurrencies are more rejected than accepted. Their status "development in progress" is a problem since the structure for the creation of these can vary, thus generating confusion and mistrust. Today, most cryptocurrencies are not at the same level in terms of transaction speed that credit cards have.

WHY IS THE MONEY OF THE FUTURE?

Due to the condition that money and transactions that occur in economies are required to be faster, to be more liquid each time, to be more efficient. Furthermore, the feature of digital is not new in financial systems, since, at present, fiat money is nothing more than photons of energy traveling through an infinite practicing network of optimal fiber, not for anything that transactions with money in cash are gradually falling into disuse. But its implementation will depend on the possible adaptation of this technology to the extensive regulation to which common currencies are subjected; The introduction of regulation in these types of electronic currency systems implies, among other interventions:

1) Provide a secure identity scheme

2) Hide the business elements of the transactions to which they concern.

3) Enable the blockchain for possible intervention by the monetary authority.

But in this scenario, when trying to comply with the third intervention that is specified, one would violate the main characteristic and foundation of the cryptocurrency, which is to eliminate the foundation of the common consensus, backing down then to the ordinary centralized system in the monetary authority. In the end, it is important to establish a “maxim”, which would be that the future is unstoppable, it is impossible to stop it, it is possible that none of the cryptocurrencies will be used in 20 years, but something that is certain, that digital money will be the The foundation of the next generation of the monetary system, so in the long run, cryptocurrencies are the inevitable evolution, and for this to not happen, the entire intermix has to be disconnected, which would be the same as the end of the human race.

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