Most of us are familiar with what cryptocurrencies are. A cryptocurrency is a true digital currency, existent only in a digital format. This is made possible by cryptography and blockchain technology. A blockchain is a decentralized distributed public ledger of transactions – it helps to prevent double spending, and provides transparency. All of this, combined with a process called “mining” (solving increasingly difficult math equations to help confirm transactions) makes cryptocurrencies possible. These have become quite popular among the online community, many of whom would love the idea of a decentralized form of wealth representation. Bitcoin and now other alt coins, offer anonymity as well. This factor is of course favorable for criminals, but it can also have it’s benefits for civilians who value privacy and freedom.

But what does the rest of the world make of them?

Well, for one thing, ever since Bitcoin (the first peer-to-peer digital cash system), and the blockchain technology behind it, and Ethereum (which upgraded the blockchain concept), cryptocurrencies have exploded, with now over 877 cryptocurrencies! Some of these have done quite well over the last few years, and the cryptocurrency market as a whole has been doing amazing over the last couple of months, in the shadow of Bitcoin’s skyrocketing price. This has been great for early speculative investors, and has only sparked more interest among a wider audience, and helped confirm in the minds of others that it’s something to take seriously, take a closer look at, and/or start a first investment in. Here’s some advice for first time Bitcoin investors.

Furthermore, new startups have moved cryptocurrencies beyond pure digital formats for digital cash and platform operation tokens, and have started pegging them to the prices of physical commodities, thus creating digitized assets. DinarDirham for example, has created the gold-backed DinarCoin, Bilur created an oil-backed token, and ZrCoin was created to help a new production line of synthetic Zirconium Dioxide (Zr02).

Additionally, governments and big banks have begun to realize the potential of cryptocurrencies, digitized assets, and blockchain technology. The idea of these being decentralized has not bode well with them in the past, and any efforts by these kinds of entities to create their own and “keep up with the times”, is likely to be grounded on centralization. Essentially, upgrading their own services and products with the benefits of blockchain technology, but keeping control over them. Which some would find ironic, giving that blockchains were originally designed with the opposite in mind. And in fact some would argue, like americanbanker.com, that this mindset will not last, and that banks will realize that a centralized blockchain doesn’t offer them any significant advantages than what they already have in place.

Blockchains in general do offer a number of benefits, if used properly. For example, blockchains can:

Create transparency, and thus improve trust and accountability.

Reduce manual intervention in contracts and complex agreements.

Drastically improve the speed of transfers, including international transfers.

Drastically reduce the costs involved in such transfers.

Helps make cryptocurrencies and digital assets possible, as we have them today, along with countless other applications.

Here’s an article by investopedia.com, explaining why governments and banks could be weary of Bitcoin and other digital currencies (as well as pointers as to why you as an individual might be weary of both central banks and cryptocurrencies).

There are a tonne of examples of individuals, economists, governments, and banks that were and still are skeptical about cryptocurrencies and blockchain technology, like this article at positivemoney.org from 2014, talking about Bitcoin’s supposed fatal design flaws – read the comments as well. Or this article by businessinsider.com from 2013, which makes the argument that Bitcoin has no intrinsic value and therefore will never be a danger or rival to fiat currencies. Or this article by telegraph.co.uk from 2015, which revealed that around 30 percent of all Bitcoins at the time had likely been irreversibly lost, which is a legitimate problem that could be growing by the day.

And the skepticism and red flags aren’t going away (though there is some positivity). In this article by Forbs from June 13th, 2017, Meltem Demirors, director of development at Digital Currency Group, had the following to say (among other things):

Bitcoin hasn’t lived up to original anticipations of numbers and acceptance so far.

→ She was surprised to see how many enterprise-aimed blockchain products there are, and how willing enterprises are to engage with this technology. As well as how some of the largest institutions are working on such products that touch the core of their business. However…

→ She reveals that although many institutions feel comfortable with blockchain, they still feel contention about blockchain-based digital assets.

→ On ICOs, she admitted that she was worried that negative events within ICOs could only add to the negative perception they’ve been battling for four years to overcome, and also had this to say:

“A lot of people who are buying these tokens don’t actually know what they’re buying. A lot of these projects that have gotten funded have no product…. The developers walk away with millions of dollars. and what’s their incentive then to build the platform or the product? It’s a weird timing mismatch issue. We see digital currencies worth hundreds of millions and massive market caps but there’s no product, there’s no network, there’s no protocol, there’s nothing.”

→ She also shared her skepticism of crypto hedge funds, stated that she believes we’re in a bubble with a correction coming, and that she’s not so sure that people who get into them know how to manage a portfolio or what they are getting themselves into. Read her full statements here.

But not all is doom and gloom for cryptocurrencies. In this article by coinidol.com, June 19th, 2017,  the author optimistically lists 10 reasons why Bitcoin’s price is set to grow in 2017. These include:
Bitcoin’s legal recognition as a currency in Japan.

→No more double taxing cryptocurrencies in Australia.

→More ICOs to drive cryptocurrencies onward.

→ Chinese exchanges have resumed (for now) Bitcoin withdrawals.

→ Bitcoin is speculated to become more mainstream as the populace becomes more and more informed.

→ Cryptocurrency speculators are entering the arena. Recent price fluctuations are attributed by some as the results of speculators and bubbles inflated by exchanges.

→ Demand from an ever-expanding group of investors, who see Bitcoin as a useful hedge/allocation when building their portfolios.

→ Small investments from small family offices and hedge funds into Bitcoin is believed to be happening by some.

→ Massive media frenzy over frequent new blockchain technologies is believed to be beneficial to Bitcoin.

→ Increased mining difficulty, and miners need to be compensated.

It would seem that blockchain technology and cryptocurrencies are going to continue to blossom and grow, the real question is… who are they going to benefit in the long run?

Central banks are starting to catch onto blockchain technology, and even to make their own cryptocurrencies. This article (2016) by telegraph.co.uk, discusses how the Bank of England is creating it’s own cryptocurrency, for example. And this article (2015) by uk.businessinsider.com makes the argument that these types of attempts by banks are “cynical” and simply meant to block people and to block people from innovating.

On an ending note, in more recent news in 2017, zerohedge.com writes that “Traders Are Flooding Morgan Stanley With Calls To Explain Why Bitcoin Is Soaring”, businessinsider.com states that the Russian government will be soon legalizing cryptocurrencies (a year after saying that people could be jailed for using them), and in this article posted by us last Feb, we talk about the problems facing different innovative blockchain based companies and cryptocurrencies (Bitcoin mainly) around the globe in the face of different stages of regulations – some not yet existent.

We live in a digital age, which has the paradox of both expanding government control, and allowing freedom of the individual to communicate ideas and exchanges of value as. Cryptocurrencies and blockchain technology, like most things, can be used for good or evil. They can help make life easier, but they could potentially help make life much harder for some. They are disruptive technology in the face of traditional banking and in the flow, issuance, and overall control of money. Like it or not, they have become a growing part of our society. What we decide to do with them is yet to be seen.

We hope you enjoyed this week’s article.
Have a great week!
The DinarDirham team.


References:

https://blockgeeks.com/guides/what-is-cryptocurrency/

http://www.investopedia.com/terms/b/blockchain.asp

http://www.dinardirham.com/blog/overview-commodity-backed-blockchain-assets/

https://coinmarketcap.com/all/views/all/

http://www.dinardirham.com/blog/overview-commodity-backed-blockchain-assets/

http://www.investopedia.com/video/play/new-buying-bitcoin-mistake-could-cost-you/

https://www.americanbanker.com/opinion/centralized-blockchain-projects-are-doomed-to-failure

http://www.investopedia.com/articles/forex/042015/why-governments-are-afraid-bitcoin.asp

http://positivemoney.org/2014/04/bitcoins-fatal-design-flaws/

http://www.businessinsider.com/bitcoins-have-no-value-2013-4?IR=T

http://www.telegraph.co.uk/technology/news/11362827/The-625m-lost-forever-the-phenomenon-of-disappearing-Bitcoins.html

https://www.forbes.com/sites/laurashin/2017/06/13/why-digital-currency-groups-meltem-demirors-is-concerned-about-the-ico-craze/#550abe2f43bc

https://coinidol.com/10-reasons-for-bitcoin-price-to-grow-in-2017/

http://www.telegraph.co.uk/business/2016/03/13/central-banks-beat-bitcoin-at-own-game-with-rival-supercurrency/

http://uk.businessinsider.com/banks-approach-to-bitcoin-is-cynical-says-an-ex-barclays-tech-chief-2015-10?IR=T

http://www.zerohedge.com/news/2017-06-14/traders-are-flooding-morgan-stanley-calls-explain-why-bitcoin-soaring

http://www.businessinsider.com/why-russia-legalized-cryptocurrencies-2017-5?IR=T

http://www.dinardirham.com/blog/when-innovation-precedes-regulation/

 

1 Comment

  • Colin Larcombe
    Posted July 29, 2017 7:19 pm 0Likes

    A well balanced article. I think, like a lot of new tech, there will be major fallout of the weaker competitors and things like interledger.org will balance the playing field removing a lot of the exchanges.
    But at the end of the day … who really knows ?

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