Crypto in the pocket
The digital currencies, starting with Bitcoin, first launched in 2009 are now getting diversified in an economic scale. Are we going to a fully digital world with currencies valid all around the globe? Why the cryptocurrencies are the new sexy?
The booming innovation and disruption in Fintech are driving us to a future where issuing, funding and exchanging value and moving money will be far beyond what we do with electronic money today. The programmable digital money is a shift in our thinking and sourcing of money.
Based on the blockchain technology, which is considered as the next generation of Internet, untied to any regulatory entity, the digital currencies are not affected by the ups and downs of countries’ and regions’ macro economical situations. They act for exchange of value, exchange of currency. The money transfer is frictionless without any intermediary or middleman. There are investment means through their intrinsic value without involvement of the third parties. Their “truth” is transparent, is shared and made accountable across distributed ledgers. The data about the encrypted currency is first masked than verified by very, yes “very” powerful computers. The miners are rewarded to keep the blockchain working securely, and they are rewarded by crypto currencies. Electricity cost is the main hurdle to make money mining on thousands of computers spread worldwide. More than half of the cryptocurrency mining today is performed in China.
On blockchain side, according to CB Insights Fintech 2017 Q3 report, “deals and funding to VC-backed blockchain companies hit five-quarter high in Q3’17, reaching 300 million USD. Q3’17 saw 35 deals to VC-backed blockchain and Bitcoin start-ups, rebounding from a temporary dip in Q2’17. Funding to VC-backed blockchain and Bitcoin start-ups grow 24% on a quarterly basis. 30% of Q3’17 funding was driven by a $100M Series D mega-round to newly- minted unicorn start-up Coinbase.”
The interest in cryptocurrencies started with a network of tech-savvy users. The currencies became so popular, the estimated transaction volume as of October 2017 is 1,12 billion USD (as per quandl.com). The price of crypto currencies changes with their supply and demand, noting that the supply is fixed. Moreover, Bitcoin as a payment method for e-commerce is spreading fast. Recently, Bitcoin hit a record high of 5 520 USD (as per Coindesk), soaring more than 750% in the past year and outperforming any market. The total Bitcoin market is valued at 75 billion USD, compared to 9 trillion USD for gold, with approximately 5 million users worldwide. Many governments and state agencies seem worried about the accelerated rise of the crypto currencies and try to regulate this phenomenon at the same time they want to understand and even implement blockchain use-cases in their programs. Japan is a pioneering country that passed the regulation accepting Bitcoin as a legal tender and eliminating consumption tax and double taxation on trading Bitcoin.
Some finance giants such as JP Morgan react to cryptocurrencies with more scepticism. JPMorgan Chief Executive Jamie Dimon has criticized Bitcoin and digital currencies during the Investor Summit in India this autumn. Dimon called cryptocurrencies a "novelty" and said they are "worth nothing." While, Christine Lagarde, the head of IMF recently told publically that “It may not be wise to dismiss virtual currencies, instead, citizens may one day prefer virtual currencies.”
Alternative crypto currencies exist today. There are more than 20 in the market, the main difference between the two most popular ones Ethereum and Bitcoin is the fact that Bitcoin is a currency in itself and Ethereum is a ledger technology offered to companies to build apps and smart contracts on it. Ethereum, also working on Blockchain technology is open for innovation and tailoring the platform to businesses.
Talking about creating new money, ICO (initial coin offerings) is the hot topic trending in Fintech. With ICOs, companies raise funds through crypto-tokens in exchange of cryptocurrencies like Bitcoin or Ethereum. These tokens can be compared to bonds, equities or loyalty tools issued by companies today. To give an example, Ripple platform, the fourth most-valuable cryptocurrency has been developed by the issuance of XRP tokens in 2013. ICO space is developing and there are many online platforms to follow up the token sales and crowd-sales. Just like IPOs, depending on supply and demand, the price of tokens goes up and down, independent on the rise of cryptocurrency they are linked to. Recently, the Burger King fast food chain in Russia announced its own cryptocurrency called Whoppercoins issued on the Waves blockchain platform. Customers can get their Whoppers on a special digital wallet and collect cryptocurrencies. Well this seems to be more like a loyalty program for the time being. However once the platform is set and understood, it can be extended to more sophisticated use cases of the digital money, like using the Whoppercoins all around the world.
Companies who believe that the future with cryptocurrencies is getting close and offer many possibilities, have started implementing platforms and infrastructure for cryptocurrencies. We cannot be blind to the fact that the digital and programmable money is shifting the paradigm on how we exchange and store value in a more connected, transparent, decentralized and accountable world.
