A summary of cryptocurrencies in 2017
Bitcoin, Ethereum and other cryptocurrencies have become more popular in the past 2 years across the world and have had its good times and bad times. Bitcoin was created in 2009 by persons with the pseudonym; Satoshi Nakamoto and has its source from Asian countries like China
It is unavoidable not to note cryptocurrencies’ phenomenal growth in price and volume of transaction all through2017.
Bitcoin rose to US$1000 few days into 2017 and rose to about $17,000 which is about 1700% increase by early December, 2017 while the highest growth stocks have seen is 18%.
Across the world, individuals and institutions have expressed mixed feelings about Bitcoin.
The big questions are; is it safe to invest in cryptocurrencies seeing that it hasn’t become stable, will trustworthy institutions back cryptocurrencies in order to curb its volatility and how soon will they start backing.
Before answering these, it is important to understand what cryptocurrencies like bitcoin, ethereum etc actually are.
Cryptocurrency is a secured and non-tangible encrypted digital asset used to represent financial or monetary value as medium of exchange. It is similar to having and exchanging dollar bills, but this time not in physical notes but digital tokens. The major difference presently is that it is not a recognized legal tender yet.
Banks are to currencies what Blockchain is to cryptocurrencies the only difference is that unlike banks; blockchain is open to the public to see transactions. Blockchain is the technology that manages, verifies and records transactions across the decentralized servers.
While dollar bills are printed by the US Treasury Department through the Bureau of Engraving and Printing, or BEP, and the U.S. Mint, cryptocurrencies are mined by anyone who can afford cryptocurrency mining hardware and software servers. The output of any miner depends greatly on the capacity of the servers.
Dollar bills, like other currencies, are centralized and controlled by apex financial institutions, but cryptocurrencies are decentralized, which implies that it is not controlled by any financial institution but it is coordinated by blockchain technology.
Because cryptocurrencies are non-institutionalized virtual assets, they are greatly influenced by almost any speculation and news. The People’s Bank of China have on two occasions made statements that caused major falls in the value of Bitcoin because bulk of bitcoin transactions happens in China.
Bitcoin Skyrocketed towards Q4 of 2017 and hit an all-time high of about $19,498 as of mid December, 2017. Few events and factors came into play in the sudden rise of Bitcoin and they include
• the approval of Bitcoin as legal tender in Japan,
• the split of bitcoin into BTC and BCH which doubled the holding of those who owned bitcoin before August 1st, 2017,
• increased interest and adoption of bitcoin by Stock markets and operators like Nasdaq, Cboe Global Markets Inc, CME groups
Cryptocurrencies in the real sense actually have no value like money, gold, diamond but it could be used as a medium of exchange or representation of value if its value is pegged to that of tangible goods or currencies.
Pegging has helped Bitcoin become more accepted of which two collaborating companies; Bitfinex and Tether limited are major players. They pegged every unit of their cryptocurrency(US Dollar Tether aka USDT) to US$1. So for every US dollar they issue they are backed with an equivalent of US$1 in the bank. This facilitated easy inter-cryptocurrency transfers and conversion to dollar. This boosted the confidence in people as they believe that trading with USDT/bitcoin is same as trading with a Legal tender.
However, the question is, the certainty that every USDT minted already has equivalent amount in Dollars in the bank, because at some point the companies started have issues with their banks because they couldn’t maintain matching up USDT noted they minted with the US Dollars in the bank.
Companies like Bitfinex and Tether limited have the opportunity to manipulate cryptocurrencies to their favour if they want to and which of course would mean that unsuspecting and naive buyers of USDT could be ripped off. These sort of manipulative possibilities make some experts liken Bitcoin to a Ponzi scheme or bubble.
According to Mark Cuban, a popular American investor and businessman; “if you want to invest in cryptocurrency, just pretend you’ve lost your money”. Several people have turned millionaires through Bitcoin trading and exchanges but as it stands Bitcoin is still profitable but also a high risk investment and it is advised that one should not invest more than 5% of your portfolio in cryptocurrencies. It is also important to know when to trade, when and where to buy.
Most cryptocurrency buyers usually make more money by buying ICOs (Initial Coin Offerings) which multiplies after weeks of launch. ICOs could be connected to IPOs (Initial Public Offerings). Companies use it to raise money to setup and run their companies and projects through crowdfunding. Theypublic investors would use Bitcoin or Ether to buy company shares represented by their cryptocurrency token with the perception that their cryptocurrency token could be sold and exchanged in future when the price of the token appreciate. Some investors get up to 700 profit from reselling their ICO tokens.
The big issue is not whether or not to trade on Bitcoin, because the technology backing the bitcoin is quite disruptive and highlights huge opportunity not just in payments but also in transparency and accountability in contracts and several business interactions.
Ponzi schemes and cryptocurrencies in Nigeria have always been condemned by most economic and financial experts (coupled with fact that it could be usedby dubious individuals or terrorists for duping and money laundering)but the fact remains that these schemes exposed some trends and behaviours of people especially Nigerians. How could one explain how MMM within months became the most visited website in Nigeria beating Google, Facebook, GTBank, Nairaland and several other big brands who all took years to grow to become top visited site. We saw scenarios where people who got online for the first time in their lives to do Ponzi schemes. How could one explain Nigerians investing Millions of Naira in a virtual currency?
This could mean that Nigerians might be ready to purchase and exchange shares using cryptocurrencies created by the Nigeria Stock Exchange and managed in a national controlled blockchain environment. This could facilitate the ways Stock Exchanges and securities are operated in Nigeria and cause huge growth in the Nigeria stock exchange.
The cryptocurrency tokens could also be applied in locally made blockchain environment to manage ownership of lands, fight counterfeiting of products, could be used to ensure transparency in governance and public sectors in Nigeria.
It is important for the Nigerian Government and financial experts to look into cryptocurrency and Blockchain technologies without bias in order to identify the opportunities which the people of Nigeria are already following with based on their interactive trends with this technologies.
DAVID ALOZIE (Guest Writer)
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