What’s going on with cryptocurrency?
Having previously led some successful fintech PR campaigns for a number of clients, here at Babel we aim to keep abreast of news and trends in the sector. One of these we can’t help but notice is the surge of popularity around cryptocurrency.
Bitcoin, Ethereum, Litecoin, Ripple. These are the cryptocurrencies that are bandied around when the conversation turns towards the burgeoning sector. Indeed, the rise of Bitcoin a couple of years ago had led some to start predicting that we were on the brink of a ‘crypto revolution.’ At one point a single Bitcoin was valued at around $20,000! These claims turned out to be wide of the mark, and Bitcoin’s partial collapse in the last six months or so has stifled the optimism somewhat.
Despite the momentum, to many the technology remains shrouded in mystery, while its volatility and association with illicit activities, such as cryptojacking and the Dark Web, can create an ominous perception. However, ominous or not, it remains a prominent dimension within the booming fintech sector, and now offers very real and legitimate investment opportunities for normal people, not just for those ‘in-the-know.’
What is cryptocurrency?
Fundamentally, cryptocurrency is a digital currency designed to help users exchange value securely. Bitcoin, for example, describes itself as “cash for the internet.” However, there are some more complicated underlying technologies that support it, including cryptography and blockchain, which “facilitate secure and anonymous transactions.” With this in mind, and before we delve any deeper into the world of cryptocurrency, it’s probably worth taking a closer look at these.
Originally conceived during the Second World War to conceal and secure sensitive communication, cryptography is “the process of converting legible information into an almost uncrackable code to track purchases and transfers.”
Blockchain, on the other hand, acts as a kind of ledger in lieu of a centralised bank that would otherwise keep a record of activity. A common analogy for blockchain compares the technology to a highly encrypted and verified Google Document. Cryptocurrencies run on this ‘Document,’ which acts as a record or tamper-proof log of all transactions and sensitive activity, updated and held by currency holders.
In tandem, cryptography and blockchain allow users to make secure payments and store money in a virtual setting, without needing to use their name or go through a bank.
Why all the fuss around crypto?
There are some obvious financial benefits to investing in cryptocurrency – there are multi-millionaires and billionaires who made their fortunes through crypto – but the likes of Bitcoin have also been notoriously volatile, so a poorly-timed investment could be just as likely to lose you your fortune as make it. And if you’re not in the crypto game for investment purposes, but rather as an alternative to centralised banks, what benefits are there?
Amongst the main advantages of cryptocurrency is freedom of payment. Bitcoin can be sent and received anywhere in the world. Transactions aren’t impeded by bank holidays, borders or bureaucracy.
Another commonly stated benefit is security. Payments and transactions can be made without personal information, meaning that identity theft is protected against. Finally, blockchain ensures that money is backed up and encrypted.
Then, of course, there is the transparent nature of the cryptocurrency supply chain. Because Bitcoin, for example, is cryptographically secure, no individual or organisation can control or manipulate its protocol. This “allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.”
Meanwhile, Ethereum (another cryptocurrency) enables users to create smart contracts which release a digital currency called ‘ether’, only when certain conditions are met. This contract is also included in the ledger to avoid any corruption and misuse of documentation.
The flip side, as we’ve touched on, is the volatile nature of crypto, which makes owning and exchanging in Bitcoin, for example, a high-risk investment. This unpredictability is mainly due to the fact that there is a limited amount of coins in circulation. Founder Satoshi Nakamoto (this is an alias that could refer to one or a group of people who created Bitcoin) made sure that only 21 million Bitcoins could ever be mined. However, as the popularity of Bitcoin rises and the demand for it increases, so does the instability of the currency. Nonetheless, this hasn’t prevented both industry and ‘have-a-go’ investors from jumping on the band wagon.
The crypto revolution, so far
Naturally, the financial services industry is capitalising on the growing popularity of cryptocurrencies. In July, Mastercard won a patent for cryptocurrencies, while IBM has launched a blockchain platform aimed at banks. Challenger bank Revolut has introduced a function for exchange of cryptocurrencies to its mobile app.
In the world of football, Tottenham Hotspur, Arsenal, Southampton and Leicester City are among the nation’s leading football clubs that have set up trials or forged partnerships involving cryptocurrencies, after expert predicted that bitcoin could replace sterling in the player transfer market.
For those who are able to successfully navigate the peaks and troughs of the market, there is no shortage of opportunity to flaunt their crypto wealth. De Louvois is an ‘elite’ marketplace where the crypto -rich can buy all manner of rare, expensive and some, quite frankly, pointless items. These include a 360-350 BC Greek Drachm for ฿0.07711 (nearly £400), a 17th Century Dutch painting attributed to Michiel Van Miereveld (anyone?) for ฿1.58860 (around £7,800), a Malibu beach house for ฿2,077.40000 (over £10 million) and a 2014 ‘Cryptocurrency Astronaut Easter Bunny’, price available only on request.
Clearly, there is still a fair amount of momentum behind the industry. However, Bitcoin has declined by 70% since its peak of $20,000, leading sceptics to herald the doom of cryptocurrency. However, although cryptocurrency has become prominent in the public domain over the last few years, its demise was actually first anticipated back in 2010 when it was valued at a mere $0.23. Today its value is closer to £5,000.
I’ve tried to unearth and explain what crypto is all about – and the financial benefits it can bring – but there’s still a lot more we don’t know, and the future of crypto as an investment opportunity is still pretty murky. But, in a year when investment in fintech exceeded a record $100 billion in investment, it would be surprising to see too many hedge their bets against crypto just yet.