Heard of Bitcoin and cryptocurrencies? That’s not surprising since CNBC and CNN have been explaining how to ‘invest’ in them for the last two months.
You might be tempted to do so seeing as the total market cap for all cryptocurrencies has just passed the $100 billion mark with most of the gains happening over the summer – there was a 300% increase in just 60 days. However, sound financial advice would be to resist the temptation to plunge all your capital into cryptocurrencies; it’s impossible to know whether this is just a bubble or if they’re really on the up-and-up, more so than any fiat, gold-backed currency.
On the surface, it looks like cryptocurrencies are ideal. They’re safe, anonymous and completely and utterly decentralized. Their flow is determined by market demand and the incredibly complicated system of coding that they use mean that they’re nigh on impossible to hack or counterfeit. By use of a shared ledger, the blockchain, transactions are transparent and incorruptible. In fact, a lot of blockchain companies are now embracing the new technology to digitalize financial transactions such as money transfers and online investments while assuring the security of its platforms.
The most well-known currency of this type, Bitcoin, was first introduced in 2009 and it quickly became the favorite one, dominating 80% of the cryptocurrency market cap until recently when it fell to 50% thanks to Ethereum and Ripple. The fact that at any one time, there are around 60 currencies with tokens on sale also means that while Bitcoin’s value won’t diminish, their market share will.
Another cryptocurrency currently receiving a lot of attention, Ethereum, is an interesting case. It is a perfect example of a successful ICO (Initial Coin Offering) project. Upon announcing the project in 2014, the ICO raised $18million in Bitcoins which worked out to $0.40 per Ether, the coin tokens used. By 2016, the Ether value went up as high as $14 with a market capitalization of over $1billion. It tried to address some of Bitcoin’s short falls with by introducing smart contracts for each individual transaction. As the currency matures, we can see if it is successful in this aim.
With cryptocurrency value skyrocketing, it is no surprise that the banking industry is adapting and banks using tokens are starting to be established. Bankera is one such bank that is testing the virtual waters. Based on SpectroCoin, the infrastructure is similar to a real-life bank but with all the advantages and security that blockchain banking can offer. They aim to be adaptable and competitive; accepting deposits in the the major cryptocurrencies (Bitcoin, Ethereum and Dash) would certainly help them in their quest. As mentioned on their FAQ page, the revolutionary aspect of Bankera is that it aims to combine cryptocurrencies with traditional banking with the result that assets held with them can also be used as collateral when applying for credit, moving the blockchain out of the realms of being just another electronic wallet. You can probably expect more banks to begin offering similar services.
However, the real world and the functions that the average consumer would quite rightly expect might limit the number of people who are willing to initially go with the new system. Bitcoin is the go-to currency, but it doesn’t allow for something as simple as refunds. How would the retail industry deal with such transactions and still observe their customers’ statutory rights? Blockchain banking with Ethereum allows for refunds, but the smart contracts are going to need to be rethought a bit if real-world collateral is to be involved. Is it going to be possible to do everything necessary with just a few lines of code?
Much like credit cards became omnipresent and several countries around the world are verging on becoming cashless societies – despite initial reluctance on behalf of those who distrusted the system – the future of banking is in cryptocurrencies. Expect slow progress, but it’s coming.
Image source: pxhere.com
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