$100bn market: The juicy, but a dicey business of cryptocurrencies

Financial technology is transforming every aspect of the business both nationally and internationally, which is why the story of crypto-currency cannot be ignored. Since its inception in 2010, many investors have had their gains and losses. PHILIP CLEMENT writes on the potentials and the risks involved in cryptocurrency businesses.

Crypto-currencies are forms of the digital currency that allow an investor to make online payments to other people or businesses without having to go through a third-party like a bank. Records of these transactions are logged onto a public ledger called a Blockchain, which is stored and duplicated on thousands of computers around the world; this is how the system remains relatively accountable and transparent.

Currently, Bitcoin is highly a valued crypto-currency in the global economy. The value of Bitcoin in the world is around $41 billion, which equates the net worth of Google co-founder Larry Page.

Also, according to howmuch.net, a financial website, if the net worth of Bitcoin if combined with that of Litecoin, Monero, Ethereum and all other cryptocurrencies, amounts to $100 billion.  Which is “As much as the current GDP of Morocco- the 60th-largest economy in the world.”

This shows how juicy the cryptocurrency market is, and eventually transforms the market cap of Bitcoin about 0.5 per cent of gold ($8.2 trillion), though the cryptocurrency has had periods in the past year of superior price stability, and did surpass the precious metal in valuation per unit last year.

There are currently about 1,500 types of cryptocurrency, including Bitcoin, Ethereum, Ripple, and Zcash.

It is said that one can only buy the “coins” in a variety of ways, including paying cash for them on an exchange like Coinbase; providing goods or services in exchange for the currency; or purchasing them from a Bitcoin ATM.

After successfully purchasing the cryptocurrency, It is then stored in an account called the “online wallet.”

Since the launch of Bitcoins in 2010, the price of one coin was $0.01. In December of 2017, that same coin was worth around $20,000. The value of Bitcoin rose more than 1,000 per cent in 2017 alone.

However, by August of 2018, a single Bitcoin was back down to $6,000 which indicates that most cryptocurrency could be extremely volatile.

Potentials 

Bitcoin business involves Initial Coin Offerings (or ICOs), which involve an investor purchasing cryptocurrency coins that are not part of a registered offering, but that provide the promise of a future stake in a start-up venture. In these cases, the start-ups create their own “coins” to sell to investors.

For years now loyalty programs like airline frequent flier miles, hotel points, and credit card points are all forms of digital currency.

Also, the benefits are gotten from these programs are not in dollars but in the company’s self-created currency.

In Nigeria, the Blockchain business is intensifying and many experts see it as the next business hub for Africa.

The Chief Executive Officer of Abuja Blockchain technology hub, Ogbonnanya Samuel Benedict has said that since its introduction, the blockchain business is bridging trade gaps between Africa and the rest of the world, thereby promoting economic development.

Speaking at the Blockchain and Crypto currency conference recently, he said “60 per cent of African countries are limited to cross-border trade because of centralized processing houses and in the process, spend $60 billion which he described as unnecessary.”

Benedict added that Nigeria particularly is limited to cross-border trade because of low international funds, adding that the only way commerce can be enhanced is to explore the financial opportunities which the Blockchain is ushering in the form of digital currency.

The CEO said the bitcoin offers a convenient and smart way of trading through smart wallet where people buy and sell globally and currently has 6,000 merchants all over the world and over 1,000 products.

Benedict stressed that although the Blockchain the industry is still in its infancy, it can be used by the CBN as a tool to facilitate regional trade objectives as set out by Economic Community of West African States (ECOWAS) and at the same time, promote Nigeria’s cashless economy policy.

Also on the global scene, the author of “The Bitcoin Economy, in Perspective”, says money and gold are fiduciary, entailing that they “only have as much value as the trust we place in them.”

Global and local risk involved

Locally, the Nigeria Deposit Insurance Corporation (NDIC), the agency saddled with the responsibility of insurance all customers’ deposits in collaboration with the Central Bank of Nigeria (CBN) have issued stern warnings to investors on the risk involved in crypto-currency business, the biggest of which is the fact that it is unregulated.

The agency said that there is no institution that regulates the business of crypto-currency which is why they warn potential investors on the dangers involved.

The NDIC argues that if someone invests his money and it goes down the drain, the tendency is for them to think the Nigeria Deposit Insurance Corporation will reimburse them, which is not possible as there is no law regulating it.

The Corporation admitted the business can be profitable but warned potential investors on the need to be careful, as there is currently no cover for such deposit.

NDIC stressed that since the business is done online, once an investor loses their quota, everything is lost everything.

The Corporation further said that unlike a bank deposit, no claim can be made for deposits of digital currencies because there is no document or trail or records as evidence that someone had invested a certain amount of money.

In the global scene, the same warning and risk is applied to the global scene concerning crypto-currencies as trading in cryptocurrency market is largely unregulated.

The coins are not backed by a government or a central bank. Also, no Securities and Exchange Commission oversees the buying and selling of this kind of currency as in the case of the United States dollars or the British pounds.

In addition, even though cryptocurrencies have been designed to be theft-proof, there’s also a chance of fraud and cybercrime.

For instance, in June of 2011, the Japan-based Mt. Gox (which was then the largest Bitcoin exchange) experienced a a security breach in which $450 million worth of Bitcoin was stolen.

In a similar vein, in December of 2017, the Slovenian cryptocurrency exchange, NiceHash, was hacked for a loss of $64 million.