The need for a balanced point of view on cryptocurrencies

A few years ago, the author wrote a material in which she drew the attention of readers to those aspects of Bitcoin that are not very well covered.

In this post, we are talking about tasks that still confront enthusiasts who believe that cryptocurrency will replace the traditional financial system.


In his article, the author acknowledges that Bitcoin is an interesting tool, but expresses the point of view that it is not even suitable for the role of savior of the international financial system.

A three-year observation of the growth of Bitcoin - the key concept of the world of cryptocurrencies - led to the fact that the author was only further strengthened in the opinion that all the points listed below are valid.

- Different scenarios for the use of alternative cryptocurrencies, which are much talked about today, lack understanding of the work of the modern financial system.

In a recent interview with the head of the International Monetary Fund, a case for using cryptocurrency was announced as a means of allowing women in developed countries to use mobile phones to conduct commerce safely. But this is already happening today, without Bitcoin or cryptocurrency.

For example, in the market of Kenya for 10 years already there exists a solution called M-Pesa. During this time, 26 million Kenyans and guests of the country sent and received funds totaling 184 billion Kenyan shillings. As a result, government officials and regulators report that the country is in fact " working for M-Pesa ." That is, we are talking about the movement within the country of 1.8 billion US dollars, and all this with the help of ordinary push-button mobile phones.

The initial scenario of the use of M-Pesa was to digitize bills that were once transferred to villages physically in paper bags by bus routes. M-Pesa would never take off if it were not for the possibility of converting digital money into a currency that their owners could spend on the local market. The launch of a network of agents that provide services for converting digital money into cash, which could be paid in stores, has led to the rapid popularization of M-Pesa. And those who say that women in the developing countries of Africa win by getting money in the cryptocurrency simply cannot understand what problems this approach creates. It's not just the volatility that accompanies cryptocurrency, but also the need to find a place in which they could exchange it for the currency that the seller can accept in their locality.

Africa is not the only emerging market in which attempts are made to digitize money and transactions with it without any use of cryptocurrencies. China actually digitized its money using Alipay, and last month it was already noted in the news with a loud announcement about the closure of cryptocurrency exchanges.

India uses QR codes together with the existing financial channels and its fiat currency so that after the demonetization carried out earlier, people in the country can send each other digital payments. Western Union has been working in the field of money transfer all over the world, including in developing countries, and has been doing this for the past 160 years without any cryptocurrencies. MoneyGram , Xoom and PayPal work in the same area.

Cryptocurrencies have been subject to the most thorough checks by banks and regulators around the world, including in some of the countries that they would seem useful to. In China, Vietnam and Bangladesh, cryptocurrencies are already declared illegal, or all sorts of restrictions are imposed on them. Singapore closes the bank accounts of individuals who do business in cryptocurrency, and according to the head of the Singapore Association of Cryptocurrency and Blockchain industry, he has information that the closure will also affect companies operating under the auspices of Fintech hubs.

Not to mention ICO - a tool that came into being thanks to cryptocurrency, which allows creating analogs of financial instruments in the gray legislative zone regulating work with securities.

With the help of ICO, an innovator who wants to receive financing gets an opportunity to issue a cryptocurrency - the so-called token - in exchange for his promise that with time the token will increase in price.

The amount of funds invested in various ICO is amazing. According to Pitchbook , this year alone, $ 1.3 billion was raised with the help of ICO. Over the same period, start-ups operating on the basis of cryptocurrency received $ 634 million in venture capital investments. Why should venture capital companies invest more when they can just wait until it turns out which ICOs will lead to the creation of truly viable companies?

ICO-investors do not receive either a share in the company, or even any metrics of their investment returns, but as one investor said , the risk of losing all invested funds remains no less real than usual. However, there are those to whom all this is at hand. For example, hedge funds, which, apparently, use ICO to increase their wealth. They buy tokens at a reduced price and almost immediately resell, receiving in return a large profit. Their actions, as some say, merely give an inexperienced individual investor false confidence in the value of an asset.

- Cryptocurrencies and financial services innovations are often viewed as going hand in hand, inseparable concepts

Satoshi Nakamoto's innovation was to create an open Internet network of a distributed registry, designed in the form of Bitcoin. The reputation of Bitcoin has led to the creation of alternative schemes for the implementation of distributed registries operating on the basis of new cryptocurrencies, such as Ethereum or XRP .

As a result, it has become accepted today that innovation in the field of global financial services, including such things as real-time transfers, is possible only if you add cryptocurrency to the technological mix.

While Bitcoin and ICO are capturing news headlines, innovations are emerging, taking all the best from distributed, managed, secure, and private registries. This concept allows digitizing any assets, including stocks, loyalty program points and contracts issued by regulated financial institutions and governments, as well as moving them and making real-time transfers worldwide. The process itself takes place within the framework of existing safe and regulated environments, based on the fiat currencies of all countries through which the systems pass funds on the way to the end point.

And if it sounds like something similar to the principle of operation of international card networks, then it should be so.



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