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Cryptocurrencies

Blockchain: Why It Is the Future of Technology and Banking

 6 min read / 

Bitcoin is the flavour of the year, polarising many investors, and even laymen, who do not know its real benefits. Despite fears and concerns, the cryptocurrency is considered a great asset to invest in. The blockchain technology is central to bitcoin’s success.

Most of the doubters’ rhetoric revolves around bitcoin being in a bubble and lacking intrinsic value. However, many critics misunderstand the concept of bitcoin. More pressing is that some people feel that cryptocurrencies, such as bitcoin, Ethereum and Litecoin, have enabled a greater movement of transactions on the black market for money laundering, terrorism and trafficking. In addition, cryptocurrencies provide additional loopholes for money to be laundered due to its lack of regulation by a verified third party.

Scepticism, Speculation and Bubbles

Many Adam Smith fans and traditional economists feel that the bitcoin hype would eventually pass like the Dutch “Tulip Mania” bubble that took place from 1634 to 1637. Although the Dutch love affair with tulips during the mid-1600s was considered to be the first recorded financial bubble, the Tulip Mania of 1636-1637 was an episode in which tulip bulb prices were propelled by speculators to incredible heights before collapsing and plunging the Dutch economy into a severe crisis that lasted for many years.

According to Allan Bellows, successful Dutch tulip bulb traders – the archaic counterparts to the day traders of the dotcom bubble in the late 1990s and the house flippers of the mid-2000s US housing bubble – could earn up to 60,000 florins in a month, approximately $61,710 today. Jesse Colombo also went on to highlight that the:

‘Tulip bulb speculation became so widespread by 1636 that they were traded on Amsterdam’s Stock Exchange and in Rotterdam, Haarlem, Leyden, Alkmar, Hoorn, and other towns.

The speculation sent ripples within Europe spreading rapidly in Paris and England, where tulips were traded on the London Stock Exchange. In both cities, traders strove to drive tulip prices up to the lofty levels seen in Amsterdam, but were only moderately successful in their attempt (The Tulipomania, n.d).”

However, bitcoin’s doubters fail to realise that bitcoin is just a digital cryptocurrency that leverages a technology with strong value and application. The blockchain technology is a form of distributed ledger technology that is cryptographic, or encoded, ledger – a database of transactions in the form of blocks arranged within a chain.

Multiple users validate these through consensus mechanisms, (such as proof-of-work in bitcoin mining) shared across a public or private network. Bitcoin may be a hype or a bubble, but the blockchain has the potential to deliver significant transaction cost savings – the ability to make secure, efficient, and near real-time settlements.

Moreover, the decentralised essence of the ledger, backed by multiple miners, makes transactions potentially immutable. The technology has the potential to increase transparency for regulatory reporting, minimise counterparty risk, and improve contractual term performance. Other useful examples of this technology include inter-bank transactions, foreign exchange trading, maintaining digital records and transferring ownership of assets, among others uses beyond financial services.

Are the Critics Wrong?

As mentioned above, there are many people and institutions that are extremely critical of bitcoin (which is a fair grievance to have), but do not grasp the potential of the technology that underpins it. Discussions about bitcoin‘s intrinsic value are meaningless rhetoric because, in truth, almost nothing in the world of trading and money has “intrinsic value.” Money only has the value that is ascribed to it over time. Fiat currency, issued by nations, has always faced distrust from sceptics who say it is backed only a government’s good faith. Consequently, the critics need to move beyond their skin-deep analysis of bitcoin, demystify the hype and see the value that blockchain and distributed ledger technologies provide.

It should also be noted that critics that are dismissive of bitcoin have yet to understand the benefits of the blockchain technology and how it can truly disrupt existing business models as well as the movement of money, products and services within the economy. Jamie Dimon, J.P. Morgan’s CEO, caused a stir when he declared recently that Bitcoin will collapse because it is “worth nothing.” Bitcoin’s current market value, he claimed, is driven almost entirely by speculation, rather than by any real and present intrinsic value that bitcoin actually provides.

This is despite the fact that Martin Arnold recently mentioned in the Financial Times that ‘Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street have teamed up to work on the Utility Settlement Coin which was created by Switzerland’s UBS to make financial markets more efficient.’

The move comes as the project shifts into a new phase of development, in which its members aim to deepen discussions with central banks and to work on tightening up its data privacy and cybersecurity protections. Such a move highlights that, despite the hype around bitcoin, if companies can reverse engineer the blockchain there could be a variety of use cases and applications for them to start innovating and testing the technology to optimise their own product offerings.

Value in Blockchain?

Blockchain’s utility is not just the consensus in the variety of transactions, but the ability to demystify the opaqueness of several industries as society progresses towards a world that requires more transparency and closer integration. Distributed ledger technologies, such as blockchain, will advance humanity towards a state hopefully whereby we will not need third parties to provide the type of regulation that they do at present – not just over the movement of money, but how systems or industries operate and the parameters that they set for corporations as well as individuals.

Financial analysts also think that once distributed ledger technologies such as blockchain become more accessible and corporations are better able to understand how to utilise these technologies, there will be adoption and a diffusion of this technology to other industries such as consumer goods, manufacturing and many others.

Conclusion

Like many people, it is possible to understand the concerns and apprehensions that many have about bitcoin’s hyperinflated valuations. However, despite bitcoin’s unclear path, the value of distributed ledger technologies such as blockchain will produce radical shifts in how people conduct commercial transactions.

Financial services will continue to undergo significant disruption but will also remain balanced as regulation seeks to provide stability amid the chaos. Despite ATMs changing retail banking and algorithms altering trading. Bitcoin and digital currencies are the first waves of disruption that will alter peoples’ understanding of money, how it is used within institutions and within a peer-to-peer network, as well as across borders.

Given the transformative changes that digital disruption has caused, the worlds of money and industries are in need of further disruption to cope with the increasing needs and demands of consumers. Blockchain offers hope for changing the operational complexity of business and social structures globally.

Overall, more needs to be done for institutions and citizens to become aware and understand the implications of distributed ledger technologies – the values, challenges and complexity. However, there are no doubts that blockchain technology holds the key to advancing the world and unlocking more value than can be comprehended at the moment.

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Cryptocurrencies

Two New Blockchain ETFs, So What?

 4 min read / 

New Blockchain ETFs

With the recent failure to get cryptocurrency Exchange-Traded Funds (ETFs) up and trading, the Nasdaq has listed ETFs this week by two companies that have shifted their focus to building portfolios of publicly listed companies with their hands in blockchain technology.

On its face, this might seem like exciting news for blockchain and crypto enthusiasts looking to get some investment exposure in the technology. However, anyone reading the headlines should temper their expectations upon a deeper look.

What are They?

The two ETFs that are now trading on the Nasdaq are listed under the stock tickers (BLOK) and (BLCN).

BLOK is an actively managed portfolio run by the company Amplify ETFs. Under Amplify’s original registration statement prospectus with the Securities and Exchange Commision (SEC), the ETF was originally going to be called Amplify Blockchain Leaders ETF.

However, with good reason, the SEC was cautious to allow the fund to be listed with blockchain in its name over fear of having its stock price increase exponentially. Thus, Amplify settled on the name “Amplify Transformational Data Sharing ETF.” Since BLOK is actively managed, as opposed to its counterpart BLCN, the fund claims that this style of management will allow the fund to actively respond in real-time to blockchain related events and news such as IPOs, acquisitions, partnerships and strategic announcements, which could have an impact on the valuations of companies in the blockchain space. Amplify defines BLOK as a portfolio of “publicly-traded global equities actively involved in blockchain technology via investment, research or revenue creation.”

So, what are you buying if you decide to invest in the BLOK ETF? Well, many brand name tech companies that aren’t necessarily directly impacted all that much by blockchain technology. BLOK’s top holdings consist of giant tech companies such as IBM, Microsoft, Intel and NVIDIA, the e-commerce site Overstock.com, a payment processor Square, and the banking conglomerates Citigroup and Goldman Sachs.

Of those listed, only a few actually have heavy investments in blockchain. The two leaders being IBM, which has a department of 1,500 employees dedicated to blockchain technology, and Overstock.com, which is quickly transitioning from an e-commerce to a blockchain Bitcoin company.  That is not to say that these companies can’t indirectly benefit from the developments of blockchain and the growing popularity of cryptocurrencies.

For example, NVIDIA’s stock price has increased by over 400% in the last 2 years because of the strong demand for its graphics processor units (GPUs). NVIDIA’s GPUs are among the most popular computer chips used by cryptocurrency miners who are looking to get rich and act as nodes for blockchain networks such as bitcoin. In fact, all of the holdings of BLOK do in some capacity have exposure to blockchain – although some are slight. However, any investor wanting to gain real exposure to the technology should look elsewhere, because the ETF resembles something more of a tech ETF, with some random payment processors and banks thrown in the mix, than an actual blockchain ETF.

Unfortunately, BLCN hasn’t distinguished itself from BLOK and a real blockchain ETF. BLCN is a passively managed ETF from the company Reality Shares ETF. Reality ran into similar trouble with the word blockchain being in its original name, Reality Shares NASDAQ Economy ETF, in its registration statement prospectus with the SEC. Reality settled on the name “Reality Shares Nasdaq NextGen Economy ETF.” Unlike its counterpart BLOK, BLCN is a passive index tracked ETF that will track an index, similar to the S&P 500, on the NASDAQ and will not be actively managed.  The holdings in the index are very similar to the current holdings of BLOK, and features names such as IBM, Overstock.com, Intel, Microsoft, and NVIDIA. This leaves investors without real hard blockchain exposure.

Final Thoughts

Even though the two new ETFs aren’t exactly what blockchain enthusiasts were hoping for in terms of gaining easy access and a more diversified exposure to companies that are specifically focused on blockchain tech, it is a good start for those looking to perhaps dip their toes in the water of the blockchain world. However, it still remains that, outside of investing in the Bitcoin Investment Trust from Grayscale traded under the ticker GBTC, purchasing bitcoin and other cryptocurrencies outright on Coinbase or a purely crypto exchange like Bittrex or Binance is the only way to get a true exposure to blockchain and the crypto economic world.

Keep reading |  4 min read

Cryptocurrencies

Cryptos Rally Slightly

crypto prices

Following one of the worst crypto crashes since 2015, cryptocurrencies posted moderate recoveries.

Editor’s Remarks: Bitcoin dipped into four-figure territory at the nadir of the short-lived crash that many touted as the “end of cryptocurrencies”. However, most major currencies were up yesterday as they commenced a recovery. Ripple, which fell as low as $0.90, was up to $1.40 by midday, while NEO resumed its upward trend. Bitcoin’s recovery has been notably weaker than its smaller cousins, some of whom are up 60% in the last 24 hours against bitcoin. Ethereum gained back some of the ground it lost too and is settling in once more above the $1,000 mark.

Read more on Cryptocurrencies:

Keep reading |  1 min read

Cryptocurrencies

Crypto Carnage: Blood on the Dance Floor

 3 min read / 

crypto crash

It is said that ‘Blue Monday’, typically the third Monday of January, is the most depressing day of the year. This has, undoubtedly, been the case for cryptocurrency owners worldwide; from Monday onwards, almost all of the world’s major cryptocurrencies have seen a drastic slump in their prices.

Having reached the $14,000 mark last week, Monday onwards marked a severe fall in Bitcoin’s value. On Wednesday, the dubbed ‘king of cryptocurrencies’ dropped to below $10,000 for the first time since the end of November, before making a small recovery on Thursday. It stands at $11,500 at the time of writing, but the day is still young.

And Bitcoin has only been leading the way. At this point last week, the price of Ethereum, the second most valuable cryptocurrency, was approximately $1,200; a slump on Monday saw it fall to a low of $800 on Wednesday before pushing through the $1,000 threshold again, and reaching $1,030 a day later.

Ripple’s XRP also followed suit; the cryptocurrency has almost halved in value over the past week – from around the $2 mark to a low of $1.20 on Tuesday. Since then, it has marginally recovered in price, to $1.48 at the time of writing.

Monero, IOTA and Cardano were also impacted – since Monday, they have declined in price by 35%, 22% and 21%, respectively. Litecoin now sits at $195, down from $240 at the beginning of the week.

The crash occurred at a time of optimism and hope for cryptocurrency owners. Just earlier this week, US money transfer company MoneyGram announced a partnership with Ripple in the aim of streamlining money transfers. Yesterday also marked the expiration of the first Bitcoin futures contract that had been listed by the CBOE.

Still, China’s offensive rhetoric against Bitcoin and other cryptocurrencies in the last seven days is likely to have stoked fears amongst investors, causing a major sell-off. The country confirmed earlier this week that it was seeking to further clamp down on its restrictions against virtual currencies by eliminating cryptocurrency trading.

It has also recently announced plans to further restrict Bitcoin mining within the country. Recent statements coming from Chinese governmental circles could go as far as to suggest that China wants to eliminate cryptocurrencies outright: the People’s Bank of China (PBoC) vice governor, Pan Gongsheng, purportedly encouraged the state to introduce a total ban on cryptocurrencies.

China is by no means the only country to have espoused hostility toward cryptocurrencies. Russia also partially echoed China’s scepticism – President Vladimir Putin noted this week that “in broad terms, legislative regulation will be definitely required in future”.

South Korea’s unreceptive stance toward digital coins – it was reported earlier this week that its finance minister, Kim Dong-yeon, had stated that the government would be introducing measures to clamp down on the “irrational” cryptocurrency investment rage – may have also played a part in driving prices down.

Still, for every bear, there seems to be a bull. Time shall tell whether increasing restrictions on cryptocurrencies from different governments will further impinge on their price, or if they will find a way to adapt to the new obstacles and prove all those championing them (and making millions in the process) right.

Keep reading |  3 min read

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