The Crypto Conundrum – Cryptocurrencies Introduction
Cryptocurrencies. It seems that they’re everywhere these days, whether you’re looking at the grandfather of them in Bitcoin (BTC, 2009), Ethereum (commonly referred to as Bitcoin Mk.2) or company based crypto coins such as Ripple, and Kodak, Initial Coin Offerings (ICOs) are all the rage and we’re here to dive deep into the mess with you.
Over the next couple of months, we’ll be releasing a series of articles (one per week) looking at cryptocurrencies, including the following topics:
- Underlying technology (blockchain)
- Real world implications of cashless economies
- Bitcoin and cryptocurrencies as cash
- Considerations/Implications for trading Cryptocurrencies
- Investment Considerations/Implications for Cryptocurrencies
- Regulatory pressures for Cryptocurrencies
If there is a particular area outside of the above which you would like us to consider writing about for this series or if you have any comment or feedback to give, please drop me a line on firstname.lastname@example.org
Before we start on the series proper though, let’s look at why we’ve come to the conclusion that we need to do this sort of extended piece of work (hint, no, it’s not just because BTC hit about $20k last year).
From Renegade to Mainstream(ish) – The Bitcoin Story
Bitcoin started from nothing. Initially a technical exercise made by what is assumed to be someone who was frustrated at the fractional reserve banking system which exists in most of the world today. Adopted somewhat as a means to secure privacy for people making transactions on “the dark web” for illegal or questionable activities, the initial value of its anonymity has been somewhat tarnished by the ultimate identification, arrest and incarceration of Ross Ulbricht (known as the “Dread Pirate Roberts”), the founder of the original Silk Road darknet market.
This aside, it is still not particularly easy to identify the parties involved in a transaction from a law enforcement perspective given that the modern world of banking has quite strict Know Your Customer (or KYC) rules which require extensive checks to effectively certify that a bank account or investment account holder is who they say they are. Bitcoin can be used by anyone with a wallet, which of course is a technical detail which doesn’t need you to take your passport along to your bank manager before you open an account.
This is changing however, many organisations which trade Bitcoin have requirements on identifying the parties they transact with and in some ways is seen as a sign of the currency growing up. Other indications are the slowly changing attitudes within the traditional financial services industry towards both the currency itself as well as the underlying blockchain technology. Perhaps none so stark as the U-turn embarked upon by Jamie Dimon (CEO of JPMorgan Chase) himself who has gone from calling it a fraud to in January 2018 saying he regretted that statement.
Other institutional acceptance has come about in the form of futures being listed on traditional exchanges (CME and Cboe), allowing traditional institutional financial services companies which are regulated entities to transact and offer their clients exposure to Bitcoin without ever having to touch the currency itself.
So, are we there yet? Is this the future of finance? Quite clearly, the answer is no, or at least not yet.
Cryptocurrencies – Issues Abound
From concerns about something which only exists in the digital world to volatility questions over its use as a store of value (what currencies are for), hacked exchanges and stolen wallets coupled with the inability to accept it as a genuine currency for normal transactions over delayed processing and even more volatility, there are a lot of potential issues with Bitcoin specifically and other cryptocurrencies such as Ethereum in general, perhaps none more so than the issue of mistrust. While we all know that the only constant is change, that doesn’t mean that as a species we like it.
Central banks and governments have our trust (to varying degrees), but as issuers of currency which is considered legal tender and (in the old days) promised something potentially real like some physical gold bullion, they are unsurpassed. Discussing this with the (in all likelihood) relatively technical readership of Wccftech is one thing, but talking to my butcher in the village who is good at spotting a decent side of beef is likely to result in a befuddled expression the moment I start talking about my graphics card’s hashing rate. Accusations of witchcraft would probably not be too far behind if I offered to pay him with Bitcoin for my steaks.
So there is a fundamental issue, both of education and trust which needs to be resolved. Education takes care of those in the early stages (which we’re still in) and once the critical mass of educated becomes significant enough, trust can follow (notice I said can, not necessarily will).
Keep it tuned here in the coming weeks. We’ll be talking about technology, money, trading, investing and regulation. We’ll look at wallets, distributed ledgers, Bitcoin exchanges, Steam, stock exchanges, investment portfolios, volatility and market manipulation.
We’ll draw comparisons with the gold standard, tulips, LIBOR fixing, bank bailouts, the great train robbery and Al Capone.
Stay with us, it’s going to be a wild ride!