The business of bitcoin….a shiny scam or a gold mine?

Ideas panel


Sunday, March 18, 2018

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The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” As of today, 10,000 bitcoins are worth about US$120 million. A very expensive piece of pizza.

Worldwide, there are currently only 180 recognised paper currencies, but a staggering 1,500-plus cryptocurrencies have emerged, with Bitcoin being the largest in market capitalisation with each coin valued at US$12,000.

Is this a business opportunity that many of us have missed? And what do the experts consider about this as a real way for investors and business owners to make some money?

Our income ideas panel generally sees Bitcoin and cryptocurrencies as the future, once the kinks are worked out of the system.

UWI researcher Carolyn Hayle says, “This reminds me of the product adoption life cycle: early adapters, early majority, late majority, and laggards. It also underscores basic principles of economics namely the interaction between supply, demand, and price.”

Hakeem Goldbourne, a member of a group of 20-something Forex Traders headquartered in Kingston, explains, “First, let me say I am not a Bitcoin or cryptocurrency professional. I am just a rising millennial understanding the Forex industry, which includes Bitcoin, that empowers six billion plus people, many of whom have no access to a bank account, allowing them the opportunity to do local and global transactions. I am very awake now and so are those six billion people that are understanding the economy and strengthening their households.”

Dino Hinds, director of Micro Financing Solutions, adds, “As it stands now cryptocurrencies are more investment instruments for us as Jamaicans as opposed to being legal tenders. As such you will not find companies accepting them as payment for goods and services locally as is currently being done internationally.”

Bottomline, you can't use cryptocurrency of any kind in Jamaica, but you can speculate with it over the Internet.

Of course, the experts note that you speculate at your own risk. However, the technology driving cryptocurrencies is real.

Hinds adds, “Blockchain technology, I believe, is a very important development that has the potential to significantly simplify the global monetary systems. Cryptocurrencies however have seen significant appreciation over the past few years and much of this is based on speculation. The problem however is that crytocurrencies are being used fund a lot of illegal activities and over the long run will invite a global system of regulation. This I believe, will in the long run affect the value of the currency. So I believe the technology is here to stay but the skyrocketing valuation is not.”

So for those who hope to get rich quick from Bitcoin or any other cryptocurrency, Hinds says draw breaks. Once the regulators get involved, the price of Bitcoin and the rest will more than likely reflect a price that is more down-to-earth.

Robert Taylor, attorney at law, shared his view. “Bitcoin is undeniably a clever approach to redefining the monetary system. My concern, however, is that it is not working the way intended and once all the Bitcoin has been mined, it will reinforce the banking system it was invested to disrupt. Bitcoin was intended to break the monopoly of the banking system over central currency and credit. But, in the end, it will turn into just another platform for the big banks to do the same old extraction they always have.”

So Taylor is of the view that the banks will play catch-up and the cryptocurrency and block chain technology will be integrated into the traditional banking sector.

“At its most ambitious,” Taylor continues, “Bitcoin is meant to provide an anonymous, decentralised, frictionless, and incorruptible form of transaction — an alternative to the extractive, central, bank-issued currencies now enjoying a virtual monopoly in our economies. Cryptocurrencies aren't just about increasing efficiency, but taking down an economic elite that has been using its control over currency to maintain its wealth and power. Already, financial institutions like banks and brokerage houses are rising to the occasion, promoting their own blockchain – as well as authentication services for those who want to keep using existing cryptocurrencies. So instead of disrupting and replacing the banking industry and its fees, bitcoin and other blockchains simply feed into the banking monopolies. They don't disrupt banking, they reify it, only they do so through obscene expenditure of processing power and computing hardware.”

Investment banker Neilson Rose added, “Bitcoin is essentially a digital decentralised currency that allows for online payment or transfer of value. It is as relatively secure as online transaction can be. For as long as there are willing participants Bitcoin will carry some store of value and this seems set to continue for some time yet. This is so because it is significantly technology-based, not controlled by any government or state, which makes it attractive to young investors willing to take a risk with a promise of great reward. It does seem to offer great investment possibility but has very high risks.

“Though past performance is no guarantee it is certainly a guide, and that seems to offer a good guide as to its capability to grow investment value. The fact that it cannot grow past a set amount and therefore be manipulated by states and other central authorities (printing note money) is also an attractive feature for investors. Caution must, however, be exercised as there are many possible pitfalls and risks to contend with, and investors must ensure they take steps to mitigate these risk and limit their portfolio exposure.”

In regard to people who say that Bitcoin is a Ponzi system or a scam, the consensus is that the investment itself is incredibly risky, but the technology backing the cryptocurrencies is real and the global investor sentiment towards the emerging technology is also real.

Dr Hayle explains, “Why are we surprised at the interest in Bitcoin? Remember the barter system? What is different? Remember that money is a medium of exchange. In this instance people are exchanging traditional money for cryptocurrency. Basic economics where supply and demand intersect, price is set! So, it seems we are coming out of the early adapter phase and going into the early majority phase of the product adoption lifecycle, so we can expect to see prices of Bitcoin trending down. The markets are looking for the equilibrium to set the price.

“However, the traditional financial houses are not going to allow their client base to be eroded, hence the warnings and concern. The traditional financial houses see market share eroding but cannot get involved in the way they normally would because this product is off limits, according to regulators. The regulators are sceptical. This requires more research. The real concern is the unknown.”

Goldbourne adds, “With the understanding that blockchain technology has so far proven to be a secure and dependable way to exchange currency, and has allowed the world to be open for business in such a way that even Amazon is about to jump onto the trend and accept virtual currencies — I believe the future is good for Jamaica. You see, for Amazon the demand has gotten so large that now they have decided to supply the six billion brand new clients with this technology. We as a people can make the individual choice to get educated and open virtual wallets or further expand the challenge on our country to supply the demand. In other words, the future of Jamaica is in the hands of the people and their individual decisions collectively.”

Hayle concludes, “With that caveat from the Bank of Jamaica, I feel that Jamaica, given the nature of its people, will embrace cryptocurrency in the form of blockchain. Where we need to be savvy is to put our foreign trade and law enforcement experts to work to rapidly negotiate globally acceptable terms for us to use blockchain, probably keeping away from the trade in currency end of the bargain until more is known about it. This approach to this new phenomenon requires creative and open-mindedness liberally interspersed with integrity. Tall order!

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