A study released last week by the Cambridge Centre for Alternative Finance, which gathered data from more than 100 cryptocurrency companies, estimated that there are up to 5.8 million active users of cryptocurrencies in the world, of which Africa and the Middle East makes up less than 1% of market share, with cryptocurrency Bitcoin taking a 72 percent share of the market.
A cryptocurrency is a medium of exchange such as the US dollar. Bitcoin, the first cryptocurrency, appeared in January 2009.
A digital currency, or cryptocurrency, used to make payments of any value without fees. It runs on the blockchain, a decentralised ledger kept running by “miners” whose powerful computers crunch transactions and are rewarded in bitcoins.
Who invented it?
Satoshi Nakamoto, a secretive internet user, invented bitcoin in 2008 before it went online in 2009. Many attempts to identify Satoshi have been made without conclusive proof.
What’s it for?
People see value in money free from government control and the fees banks charge; as well as in the blockchain, to verify transactions. Bitcoin has been seen as a useful tool for private, anonymous transactions.
Is it worth anything?
Yes. As of December 2016, there were around 16 million Bitcoins in circulation. In March 2017, the value of a Bitcoin, at $1,268, exceeded that of an ounce of gold ($1,233) for the first time.
What is blockchain technology?
The blockchain is a ledger, or list, of all of a cryptocurrency’s transactions, and is the technology underlying Bitcoin and other cryptocurrencies. This decentralised public ledger keeps a record of all transactions that take place across the peer-to-peer network. Users can contribute to the network by providing computational power to assist with the verification of transactions in real time (known as “mining”).
This technology allows market participants to transfer assets across the Internet without the need for a central third party. Specifically, the buyer and seller interact directly with each other and there is no need for verification by a trusted third-party intermediary. Identifying information is encrypted, and no personal information is shared. However, a transaction record is created. For this reason, transactions are considered pseudonymous, not anonymous.
Cryptocurrencies in emerging markets
Perhaps the greatest opportunity for those involved in the cryptocurrency ecosystem is in the potential this technology has in developing economies. In fact, rapidly developing technology has enabled many emerging economies to completely skip entire stages of development. For example, cell phones made it unnecessary for African countries to build telephone lines. Similarly, cryptocurrency may one day enable developing economies to forgo the need to build large financial infrastructures, clearing houses, and other third-party intermediaries. There is already strong evidence of this concept at work in the M-Pesa and M-Paisa systems that have developed in Kenya and India, respectively. Cryptocurrency will likely build on these innovations to offer the potential for micropayments and cheaper remittances across borders. If cryptocurrency is able to offer lower cost solutions for economically disadvantaged populations, this may be the technology’s greatest legacy.
Striking the right balance
In the short term, businesses will find success if they can strike the right balance between growing market demand and an evolving regulatory landscape. For example, strategic partnerships formed by companies such as Coinbase and BitPay serve as bitcoin “wallets” and payment processors for merchants. By holding the digital wallets that receive bitcoin payments from customers, and then immediately paying those merchants the cash value of those bitcoins, Coinbase and BitPay effectively enable merchants to accept cryptocurrency payments without taking on the risks of holding bitcoins on their books. Forging these types of strategic partnerships and solutions is the key to driving the market forward in the short term. As the regulatory landscape develops and the market matures, more traditional business strategies may begin to play a greater role in achieving success. However, as with most groundbreaking markets, the combination of ingenuity and speed to market is likely to distinguish the market leaders.