Will Cryptocurrency Ever Enter the Mainstream for Businesses?

At this time in 2018, the very idea of bitcoin becoming an accepted currency among major corporations would have been unlikely. Now, the idea still attracts some raised eyebrows — but it isn’t as immediately dismissed.

Cryptocurrency had its first spotlight moment in 2018. It was the modern era’s equivalent of the gold rush; all around the country, adventurous bitcoin dabblers found themselves raking in thousands — sometimes tens of thousands — of dollars after investing comparatively paltry sums.

“Bitcoin and, subsequently, a proliferation of other cryptocurrencies had become an object of global fascination, amid prophecies of societal upheaval and reform, but mainly on the promise of instant wealth,” journalist Nick Paumgarten wrote of the time for The New Yorker. “A peer-to-peer money system that cut out banks and governments had made it possible, and fashionable, to get rich by sticking it to the Man.”

But that promise of high returns soon began to buckle. In January of 2018, the total market capitalization of cryptocurrencies had peaked at $800 billion, skyrocketing up from the mere $18 billion reported the year before. It didn’t take long for the market to plunge; by the end of the year, the market had lost three-quarters of its value and stood at a mere $200 billion.

The cryptocurrency bubble had popped. But unlike other markets, it seemed as though the sheer intensity of the crash would bring the boom-and-bust cycle to a grinding (and permanent) halt. Headlines shared stories of would-be investors who invested their life savings, insurance payouts, and loans in the new market only to see the lion’s share of their hard-earned and borrowed money trickle away.

“What the average Joe hears is how friends lost fortunes,” Alex Kruger, a former banker and current cryptocurrency trader, told reporters for the New York Times. “Irrational exuberance leads to financial overhang and slows progress.”

The response from corporate interests was, at the time, similarly cold. One writer for the Financial Times noted that even well-regarded cryptocurrency enthusiasts were “met with a cold shoulder by US regulators” when they attempted to open exchange-traded funds for Bitcoin and encourage wider adoption.

But in recent months, hints of another crypto boom have begun to circulate. Recent reporting from Forbes’ Ron Shevlin indicates that trading of Bitcoin, Ethereum and other major cryptocurrencies increased sharply at the open of 2020, peaked in February, and remained at high levels through the first half of 2020. Roughly 15 percent of American adults now own cryptocurrency — and notably, half of them invested in the sector for the first time this year.

Corporate America, for its part, hasn’t paid the recovering cryptocurrency market much attention. But, as of October, two major financial firms have diverged from their peers to invest in the opportunity they believe the sector offers. Their names: PayPal and Square.

Early in the month, Square announced that it had purchased a total of 4,709 bitcoins at the cost of roughly $50 million, or one percent of the company’s total assets.

“We believe that bitcoin has the potential to be a more ubiquitous currency in the future,” Square’s Chief Financial Officer, Amrita Ahuja, shared in a press release. “As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”

PayPal took another route in upholding cryptocurrency. Rather than purchase bitcoin, it launched a cryptocurrency service that will allow customers to buy, hold, and sell digital currency on its site and associated applications. PayPal’s President and CEO, Dan Schulman, explained the company’s decision to create its crypto platform was based on the idea that the “efficiency, speed and resilience of cryptocurrencies” could “give people financial inclusion and access advantages.” Moreover, he said, the eventual shift to such digital currencies was “inevitable.”

But what would this “inevitable” future mean for businesses? If you were to ask Gavin Brown, the co-founder and director at the venture capital firm Blockchain Capital Limited, the answer would be a fundamental change in trade currency.

“In an era where companies such as McDonald’s have a higher credit rating than countries such as Ireland, the notion that multinational firms may issue their own currencies and request that their customers purchase with them is not that outlandish,” CNBC journalist Eustance Heung paraphrased of Brown’s perspective in a 2019 article. “What we’re probably likely to see is … almost like [corporate] groups or alliances coming round around mainstream currencies.”

There are certainly a few benefits to using cryptocurrency in business. Bitcoin and other similar currencies facilitate secure, speedy transactions that offer chargeback protection — because cryptocurrency doesn’t support debt or loans, companies can be sure that payments conveyed via bitcoin aren’t fraudulent or reversible. Bitcoin’s decentralized nature also allows businesses to reach international buyers who may not have previously been able to access their goods or services.

Cryptocurrency offers increased accessibility; however, it isn’t without its detractions.

At present, cryptocurrencies are not stable, insured, or regulated. This lack of clear support from federal bodies makes for tremendous market volatility and puts investors at a high risk of losing their — or their clients’ — fortunes. Most businesses will not want to roll the dice on a currency they can’t rely on.

So, will bitcoin see another, more long-lived, heyday in corporate America? The answer is unclear.

While there might be another cryptocurrency boom on the horizon, it will be a while before bitcoin and its competing currencies come into regular corporate trade. The degree of usage will most likely depend on what we see in the cryptocurrency market over the next few months to a year. Will we see another dramatic boom-bust cycle? Will investors flock to or flee cryptocurrency? Will matters stabilize or devolve once more into wild speculation?

If the market stabilizes and provides more consistent (if less lucrative) returns, we can expect businesses to enter into a period of cautious experimentation. PayPal and Square’s investments have lent bitcoin some credibility. Still, it remains to be seen whether — now that they have been giving tacit industry “permission” — other corporate interests will begin making investments in bitcoin and/or using it in trade.

If cryptocurrency does take off in the corporate sector, it seems likely that federal authorities will begin regulating the market. If we were to reach this point, we would be in a world where cryptocurrency has established an (albeit preliminary) place for itself as a credible form of business currency.

However, even this scenario requires a lot of if’s. It would appear best for companies and institutional investors to approach cryptocurrency conservatively and see how the above hypothetical plays out. Bitcoin may eventually lose its novelty status in big business — but there’s no sense in major corporate players charging forward while its stability remains unclear.

This article was originally published on Medium

By |2021-03-31T23:28:50+00:00January 29th, 2021|Business, Current Events, Technology|

Taking a Byte Out of Real Estate with Cryptocurrency

Whether it’s a bubble or bona fide, anyone who pays even cursory attention to the financial world can’t deny that bitcoin is a force to be reckoned with. The decentralized digital cryptocurrency, a form of payment comprised of lines of code, entered the mainstream consciousness late in 2017 and has remained a controversial topic.

The currency that’s purely digital whose value rises and falls quite unpredictably has understandably earned many antagonists. But for true believers, bitcoin represents a revolution in money, where power has been wrested from big bankers and into the hands of the people who use it. So what does that mean for real estate, where major, life-changing transactions happen every day?

There’s been a number of quick adapters all over the industry. From the East coast to the west and even across the globe, Bitcoin has come into enthusiastic use for purchasing real estate. To say that these sellers are simply hopping on the newest craze sells a bit short the advantages that bitcoin carries for the property business.

Average people joining the bitcoin revolution enjoy the freedom from financial institutions that cryptocurrency offers. Rather than a credit card where you’re entrusting your money to a network of institutions, crypto is a one-stop shop without third party interests or issuers taking their cut.

This simplicity in moving funds around is a special advantage when purchasing real estate. The ease of movement eliminates the long waiting periods necessary for looping in the banks, lenders, and fee payments that have been part and parcel of real estate transactions for generations. Today’s cutting-edge homebuyer, armed with bitcoin, can close as soon as they find a property they like, as long as they have a seller willing to play ball. Such expediency is an undeniable advantage.

Buyers hoping for privacy will find exactly what they’re looking for with bitcoin and other cryptocurrencies as well. In an industry where secrecy is often a must for major private transactions, the untraceable, encrypted payment enabled by blockchain technology can give anonymous buyers the complete discretion they desire. Blockchain can also cut down on fraud, so even faceless buyers can be held to the same standard of financial transparency as the rest of us when it comes to spending funds.

Some influential names in real estate proclaim to be intrigued by the Bitcoin craze, but when pressed admit they don’t want to tie their own money into crypto. The risk factor in using a currency that’s more like a commodity is simply too volatile for many, and the potential that bitcoin amounts to another risky bubble has left major financial giants steering clear. So where does that leave the average homebuyer?

For many everyday people, buying a home is enough of a major undertaking without adding in the risk of dealing with such a volatile payment method. In a real estate world prone to bubbles in its own right, mixing bitcoin into the equation may well pile on risk to a situation where buyers and sellers would rather minimize, not multiply, potential hazards.

But for those untimid about riding the ups and downs of this craze wherever it may end up, there are worse things you can do with your money than acquire some valuable real estate. With a growing number of agents and sellers using bitcoin to gain an edge on the competition, you may well end up financing the house of your dreams with money that exists only in computer servers. If the unpredictability of cryptocurrency can be held in check in the future, expect this to truly be the beginning of a transformation in real estate.

By |2020-02-11T16:33:35+00:00September 5th, 2018|Technology|

The Ethics of Bitcoin: Is the Cryptocurrency Better for Banking?

If you’re anything like me, you’re equal parts fascinated and befuddled by the evolving world of cryptocurrency, and Bitcoin in particular.

For those of us used to paper and plastic, the idea of a decentralized, digital payment can seem pretty pie in the sky. But many are quick to call it the currency of the future, and if the buzz is any indication, it could be. According to Realtime Bitcoin there are more than 16.5 million Bitcoins in circulation. The current exchange rate is one Bitcoin to US $3,917.83. That puts the total amount in circulation at almost US $65 trillion.

Created sometime between 2008 and 2009, Bitcoin only took off in 2013 when it hit an all-time high––at the time––of US$1,100. Over the next few years, the price fluctuated. Recently, however, the virtual coin has garnered resurgent interest, skyrocketing to an all-time high of US $4,522.13 in August.

But what caused the newfound appreciation for the cryptocurrency? And what concerns should we have regarding the ethics of Bitcoin? Technology that seems amazing often poses ethical quandaries we need to engage with, as I’ve talked about in regards to AI.

Here’s a look at the current state of Bitcoin and what it means for banking, both today and in the future.

Bitcoin’s Surge

There are a few clear reasons for the recent surge in Bitcoin stock. First, its blockchain technology has been of special interest to some major players in finance. Morgan Stanley, Goldman Sachs, and JP Morgan believe that this technology may improve the trading of loans, securities, and derivatives.

Second, Japan and China have begun to embrace the cryptocurrency. In April, regulators in Japan introduced certain rules to integrate Bitcoin into the regular banking system (rather than peg it as an outlaw currency). This change has caused many investors to swap their Yen for Bitcoin.

In addition, Chinese authorities who have been critical of Bitcoin in the past have recently gained more tolerance for the currency. This has made Bitcoin-related investments in the region far less risky and far more attractive.

Thanks to these developments, Bitcoin has taken a step forward in legitimacy. People will be less likely to hold it for speculative purposes and start buying actual things with it.

But this begs an important question: Will Bitcoin, blockchain, and other cryptocurrencies bring us to a more ethical level of banking? Or will the challenges of these new systems create an equally murky financial system?

A Case for Bitcoin

Trust plays a key role in finance today. But what if we eliminated the need for trust in conducting business transactions? A successful transaction would be guaranteed, no matter who you were dealing with.

Garrick Hileman, an economic historian at the London School of Economics and University of Cambridge, points out, “A big part of the problem with Lehman Brothers in 2008 came from counterparty risk and the fact that settlement could not be counted on.”

With the advent of blockchain technology and smart contracts (computer programs set to execute a transaction once certain criteria are met), it could be possible to take trust out of the equation entirely. Transactions are conducted on the basis of guarantee because collateral is posted instead of withheld. Potentially, this could avoid a Lehman situation in the future.

Bitcoin also offers the advantage of cutting costs. Right now, banks put a lot of money into the transaction process. Part of the reason is that much of banking is still done manually and saturated with paperwork. This occupies both time and resources. With an automated system, verified by blockchain technology and smart contracts, we would save billions in capital, conduct transactions more quickly, and achieve it at zero marginal cost.

While the engineering behind this technology is still not yet ready to be rolled out for use in banks and other financial institutions, the promises of automated settlements, a higher level of transparency, and an overall reduction of overheads promise a more stable financial sector.

The Challenges

Cryptocurrency doesn’t come without its challenges. Though it has its proponents, some go as far as to call it “evil”. And this isn’t without reason. Those who argue against cryptocurrency have posed concerns on the anonymity of how transactions are conducted. Case in point: Bitcoin has long been associated with shady business transactions and entities such as Silk Road (which was shut down late 2014).

This anonymity, they say, allows the currency to be used for criminal activity in ways that other currencies cannot. It could be argued that this actually encourages unethical transactions.

However, it’s important to note that the anonymity isn’t absolute. Transactions conducted using Bitcoin are made public on the blockchain. That means that parties involved can be found linked to their Bitcoin addresses, although they are often difficult to find. A good example of this is the Silk Road founder, Ross Ulbricht. We were ultimately able to break the anonymity and discover his identity, but it took both time and resources.

In short, we don’t want to create a lawless market. That means there need to be additional measures put in place to ensure that the government, the technology, and the banks are in close contact. We must protect the ethics of cryptocurrency.

What it all means

Finance often falls into ethically questionable territory. That’s why banking needs an ethical solution that’s available to all parties, that is affordable and verifiable, so that there is accountability across the board.

On the other hand, the structure of cryptocurrencies and the blockchain technology allows for scalable ethical banking. This would be achieved by first combining the digital efficiency of the currency and the scalability of computers and networks. Existing rules and regulations would ensure that the consumer is adequately protected.

We’ll just have to wait and see on which side the Bitcoin lands.

By |2020-02-11T16:45:11+00:00March 12th, 2018|Culture, Current Events, Technology|