From bitcoin to stablecoins: the cryptocurrency boom

Since bitcoin, the first and most famous of the cryptocurrencies, emerged in 2009, thousands have been created in its wake, and this number is growing every day. Their ease of creation and their ability to decentralize economic operations that have traditionally been under the control of intermediaries make them alternative assets on the rise. Out of the best-known cryptocurrencies, only the top four by market capitalization (bitcoin, ether, cardano and binance coin) are worth a total of 1.5 trillion dollars, a figure that contrasts with that of technology giants such as Appl (2.5 trillion) or Google (1.9 trillion).

Bitcoin emerged in 2009 to make payments and transfers to any part of the world quickly, easily and with low commissions. Its network was also the first blockchain in the cryptomarket, which introduced the proposal that today makes these technologies famous: to program and execute decentralized, secure digital transactions without intermediaries that accumulate the control of their validation. Following blockchain principles, all members of this network can generate bitcoin under the same conditions.

On the other hand, its creation follows a costly computational process called ‘Proof-of-Work’ (PoW) that requires progressively more powerful computers and technological resources and a high demand for energy, making it an energy-inefficient virtual currency.

Although bitcoin's initial purpose was to serve as an alternative payment method in certain digital environments, it is gradually working its way into wider arenas, even becoming legal tender in El Salvador. It concentrates almost half of the total market capitalization of cryptocurrencies as of September 2021.

The interest of investors in this type of solutions has led BBVA Switzerland, together with the favorable regulation of cryptoassets in the Swiss country, to enable a bitcoin trading and custody service for its private banking clients, with the aim of extending it to other cryptocurrencies in the future. BBVA does not advise on this type of investments, which have high risk and volatility, but, nevertheless, for five years it has been exploring blockchain and digital assets for their potential to impact and transform financial services.

From transferring tokens to guaranteeing loans

The second cryptocurrency by market capitalization is ether, the native currency of Ethereum, an open source blockchain platform for developing decentralized applications that surpasses Bitcoin in the creation and use of tokens, the bricks that make up these applications.

The Ethereum network's greatest potential lies in its ability to create and execute ‘smart contracts’. These smart contracts are immutable and enable secure, fast and efficient transactions without intermediation. They can cover simple actions, such as the transfer of tokens, or more complex ones, such as guaranteeing collateralized loans or managing the governance of decentralized organizations.

Although Ethereum also uses the PoW consensus model to carry out transactions, it will soon make the leap to the Proof-of-Stake (PoS) consensus model, in which computational power is no longer a determining factor and therefore the energy load required to operate is reduced.

But beyond these famous cryptocurrencies, there is a wide variety of new virtual currencies that are beginning to gain relevance. One of these is cardano, which is in fact third by market capitalization.

Its blockchain network differs from previous ones in that it has undergone peer review. Instead of publishing a white paper and then directly executing the creation of the network, as Bitcoin and Ethereum did, Cardano's proposal first underwent prior review and validation by academic experts. This is why it is considered the world's first scientific blockchain. Because of its modular architecture and its ability to improve scalability, decentralization and security, it is considered a third-generation blockchain network.

Constant evolution and search for stability

Another digital asset that is experiencing strong growth in 2021 is binance coin, created by the Binance Smart Chain (BSC) network to support its transactions: from January to August, its market capitalization has increased by 992%.

Conceived as a clone of Ethereum, the BSC network differs from it in that it is faster and destroys its tokens regularly, to control its volume and stabilize its value over time. Something that also distinguishes it from bitcoin. BSC has high adoption, as it is fully compatible with the Ethereum network's 'smart contracts', allowing its innovations to be quickly copied to Binance.

Binance uses the Proof-of-Authority (PoA) consensus model, in which transaction validation rests with a limited number of validators. In this way, the transparency, smooth operation and reliability of the network are ensured. However, in exchange, the much-valued decentralization and anonymity of the validators are lost.

The network is powered by Binance Exchange, the largest cryptocurrency platform by traded volume. Its users have their own card that works like a traditional bank card, although the payment currency is cryptocurrencies.

Another cryptocurrency on the rise is USD coin, but this time it is what is known as a stablecoin – a cryptocurrency associated with the value of a fiat currency (in the case of USD Coin, the US dollar), with material assets such as gold or real estate, or with another cryptocurrency, or controlled by algorithms.

Created in 2018, USD coin is attractive for payment systems that want to use cryptocurrencies but also want to avoid the volatility usually associated with them, as it combines the agility of cryptocurrency transactions with the stability of the dollar. It is subject to audits and also regulated by the U.S. Government's Financial Crimes Enforcement Network (FinCEN). It is currently ranked 10th by market capitalization.

Also gaining more and more prominence is the decentralized exchange platform Uniswap, whose prices and operations are not conditioned by buyers and sellers, but by a mathematical equation. Despite its youth (it came into being in 2018), it stands out because its market capitalization is among the fastest-growing in 2021: from January to August, it has increased by 1,028%.

These are just a few examples of the many cryptocurrencies that exist today. In fact, new ones emerge every day and it is difficult to keep track of exactly how many are on the market. In addition to those already mentioned, there are many others, such as Polkadot, Avalanche or Dash, whose objective is to generate an increasingly large and solid community of developers, investors and users.