Voice of the Industry

Cryptocurrencies - the page in the economics book that people (should) read

Monday 25 November 2019 10:11 CET | Author Mirela Ciobanu | Voice of the industry

Payment Methods Report 2019

Bitcoin may be a product of computer science, but it is a very human story’ Larry Summers, American economist

Payment Methods Report 2019

Some money history…

Money in general is a human story, we might add, a tale that takes us from different stages through history, and using different technologies. Money, in general, and banking, in particular, are historical institutions, which were developed before modern capitalism and owe a great deal to the technology of an earlier stage.

Even if no one knows for sure who invented money, still, David Birch mentions in his book, Before Babylon, Beyond Bitcoin: From Money that We Understand to Money that Understands Us, that some 4,000 years ago the temples of Babylon were taking deposits and making loans. Money by that time was recorded on a clay tablet and was entries in a not-at-all shared ledger. The first recognisable coins date from Lydia (modern Turkey), more than 2,500 years ago, while paper money came from China. Some important years in the financial industry are marked by the creation of Bank of England in 1692, and by the launch of formal Electronic Funds Transfer (EFT) via telegraph use in 1871 by Western Union, which helped us distinguish between invention and innovation, and reinforced the point that ‘money innovation can come from communication companies rather than banks’, the author adds.

Cryptocurrency (Bitcoin) in the beginning and today

Almost 150 years have passed since the launch of formal Electronic Funds Transfer (EFT), and while cash used to be king for most of this period, lately it has started to disappear, and the potential not only for cash substitutes, but for cash alternatives has started to grow. As such, in a generation or so, there will be a completely new set of monetary arrangements in place, David Birch predicts in his book.

And even if until recently, digital money has been conservative – ‘an electronic emulation of the physical currency it is replacing’, we are now entering a new phase for payments/money where everything is digitalised, faster and conveniently.

Today we speak about cryptocurrency and how these ‘experiments’ ten years ago became a reality nowadays, with people using them to buy concert tickets, governments regulating them, banks trialling them and social media companies reinventing themselves via these tokens.

A cryptocurrency is a digital asset designed to work as a medium of exchange based on strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralised control as opposed to centralised digital currency and central banking systems. The decentralised control of each cryptocurrency works through distributed ledger technology, typically a blockchain, which serves as a public financial transaction database.

The first cryptocurrency to capture the public attention was Bitcoin. The Bitcoin concept first came into scene in 2008, when a pseudonymous software developer going by the name of Satoshi Nakamoto proposed it as an electronic payment system based on mathematical proof. To this day, no-one knows who Satoshi Nakamoto really is.

Bitcoin aimed (and still does) to challenge some of the most powerful institutions in our society – it held out the promise of taking the power from banks and governments and giving it to the people using money. In his book, Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money, Nathaniel Popper mentions that from the beginning, Satoshi envisioned a digital analogue to old fashioned gold: a new kind of universal money that could be owned by everyone and spent anywhere. The system was set up so that, like gold, Bitcoins would always be scarce – only 21 million of them would ever be released – and hard to counterfeit. As with the precious metal, it required work to release new ones from the source, computational work in the case of Bitcoin.

Moreover, Bitcoins were designed to exist within a cleverly constructed, decentralised network, just as all the websites in the world exist only within the decentralised network known as the internet. Like the internet, the Bitcoin network wasn’t run by any central authority. Instead it was built and sustained by all the people who hooked their computers onto it (which anyone in the world could do).

In the beginnings, Bitcoin:

  • was seen as a digital payment method that doesn’t require users to hand over identifying information each time they use it;
  • equalled universal money that doesn’t have to be exchanged at every border;
  • promised the fairness of a currency that even the poorest people in the world can keep in a digital account without paying hefty fees, rather than relying on cash;
  • promised the convenience of a payment system that makes it possible for online services to change small amounts of money, skirting the current limits imposed by the 20/ 30 cent minimum charge for a credit card transaction.

Nevertheless, because of its volatility, Bitcoin has been viewed as not such as a reliable store of value and because of its restricted use of a medium of exchange, it remained primarily a tool for speculations.

Therefore, many bankers, economists and government officials dismissed the Bitcoin fanatics as naïve promoters of a speculative frenzy similar to the Dutch tulip mania (1637). The use of cryptocurrencies, in general, has been compared to Ponzi schemes, pyramid schemes and economic bubbles. In 2017, J.P. Morgan CEO, Jamie Dimon claimed that cryptocurrency use in general is only fit for use by drug dealers, murderers and people living in North Korea, and more importantly, Bitcoin is a fraud that will ultimately blow up.

Some governments even prohibited the trading of cryptocurrencies due to the lack of control and market unpredictability. But none of the critics managed to destroy the enthusiasm of Bitcoin believers, and the number of users kept growing.

Current state, brands, market reach

The creator of Bitcoin, Satoshi, disappeared in 2011, leaving behind open source software that the users of Bitcoin could update and improve. In 2016, it was estimated that only 15 % of the basic computer code was the same as what Satoshi had written.

Since the release of Bitcoin, over 4,000 altcoins (alternative variants of Bitcoin, or other cryptocurrencies) have been created. Other popular cryptocurrencies include: Bitcoin Cash, Ethereum, Dash, Mixin, Litecoin, Zcash, Bitcoin SV and Monero. In the fourth quarter of 2018, the cryptocurrency used the most in daily transactions was Ethereum.

In April 2019, the cumulative market cap of all the cryptocurrency was around USD 417 billion and it is predicted to propel the entire cryptocurrency market to a valuation of USD 1 trillion, by the end of 2019. According to the CEO of Kraken, Jesse Powell, the reason behind this growth is the fact that there are many businesses revolving around cryptocurrencies now and there are many people in the know-how of cryptocurrency.

To be able to use Bitcoin or any other cryptocurrency, consumers need to have a digital wallet. A cryptocurrency wallet is a software program that stores private and public keys and interacts with various blockchains to enable users to send and receive digital currency and monitor their balance. Since the creation of Bitcoin, in 2009, the number of blockchain wallets has been growing, reaching nearly 35 million blockchain wallet users at the end of March 2019.

If users want to purchase Bitcoin via cash or debit card, they need a Bitcoin ATM. The number of Bitcoin ATMs increased from 954 in January 2016 to 2,053 in January 2018. Most Bitcoin ATMs, as of January 2018, were located in the US and Canada. The Bitcoin ATMs located in Europe constituted 20.42% of the global ATM market share.

Big companies, such as Microsoft, Overstock, Expedia, KFC Canada, to name just a few, accept Bitcoin and other cryptocurrencies, while others, like Corporate Traveller, Shopify, let customers make Bitcoin payments via crypto payment gateways such as bitpay. Or, there is the Lightning Network that Bitcoin spenders can use to shop at ecommerce sites like Amazon, with no direct merchant integration. The Lightning Network is a ‘Layer 2’ payment protocol that operates on top of a blockchain-based cryptocurrency (like Bitcoin). The network enables fast transactions between participating nodes and features a peer-to-peer system for making micropayments of cryptocurrency.

Overall, cryptocurrencies are not yet among the world’s payment trends but, despite the lack of usability, the number of payments made using cryptocurrencies is consistently on the rise. In fact, big social media companies or banks have also jumped on the crypto experiment bandwagon. We all are familiar with Facebook’s Libra and J.P. Morgan’s JPM Coin, a digital token designed to make instantaneous payments based on the blockchain technology. Other global messaging applications, such as Kakao, LINE and Telegram, Vkontakte, a Russian social media platform, have already revealed plans to move into the blockchain space and develop their own crypto.

Throughout the years, cryptocurrency, and especially Bitcoin, have spawned a global social movement with great ambitions – transaction transparency, no additional costs of moving money, empowering people financially in remote areas, etc. The concept of Bitcoin, maintained by tech developers and fintech visionaries across the globe, has attracted many jokes and critics, but this has not stopped it from growing into an industry worth billions of dollars, supported by followers and business people who have come to view it as the most important new idea since the creation of the internet.

This editorial was first published in our Payment Methods Report 2019 – Innovations in the Way We Pay, which provides a comprehensive overview of the up-to-the-minute trends, updates, and innovations in the payments space worldwide, depicting the key developments in the way people pay.

About Mirela Ciobanu

Mirela Ciobanu is a Senior Editor at The Paypers and has been actively involved in covering digital payments and related topics, especially in the cryptocurrency, online security and fraud prevention space. She is passionate about finding the latest news on data breaches, machine learning, digital identity, blockchain, and she is an active advocate of the need to keep our online data/presence protected. Mirela has a bachelor degree in English language and holds a Master’s degree in Marketing.


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Keywords: Bitcoin, Ethereum, cryptocurrency, crypto payments, blockchain, Libra, JPM Coin, payments, Bitcoin Cash, Ethereum, Dash, Mixin, Litecoin, Zcash, crypto wallets, Bitcoin ATMs
Categories: Blockchain & Cryptocurrencies | Cryptocurrencies
Countries: World
This article is part of category

Blockchain & Cryptocurrencies