A lot of my readers know that I have been associated with firms that have helped me launch region-first products in the financial tech, blockchain, fiber-to-the-home and e-commerce spaces. Since I am a firm believer in teaching through experience and was around when blockchain tech was being implemented in the Middle East, I thought it would be best to weigh in on the founding use case for blockchain, which is cryptocurrencies. There is a lot of misrepresentation on the subject, and a lot of people are losing money fast due to a lack of base knowledge and market hype. (Please note that this is an academic piece; any investments should be made on the basis of further research and review.)
In the beginning, there was Bitcoin
To keep the conversation simple and focus my efforts on a single currency for now, I thought it best to focus on the founding currency itself: Bitcoin.
Although Bitcoin has been around since 2009, its incredible coming-out party started in 2017, when the world's first digital currency began an unparalleled ascendance that ultimately lifted the token to a value of nearly $20,000. Ever since then, Bitcoin and a cadre of other cryptos have consistently attracted mainstream headlines and big-time investors.
Today, cryptocurrencies boast a collective market cap that exceeds $300 billion, while standing apart as one of the most desirable investments in the digital age. There are thousands of digital currencies, but Bitcoin is by far the most popular, accounting for almost 70% of the crypto cap.
This transformative digital asset seems uniquely suited for our digital-first environment. At the same time, buying and holding Bitcoin is becoming easier than ever as new platforms help users eschew the industry's weaknesses while making Bitcoin more accessible than ever before.
A bit on Bitcoin
First released in 2009 in the midst of the global financial crisis precipitated by bad actors in the traditional financial system, Bitcoin was developed to serve as a digital currency that would allow direct P2P value transfers. Its creation is attributed to Satoshi Nakamoto, a pseudonym that could refer to an independent developer or to a collective looking to upend the established financial system; such anonymity is irrelevant to its many active community members.
Although the token is more than a decade old, its prominence is peaking as more extensive adoption and burgeoning use cases make it less of a fringe idea for its most ardent supporters and more of a global reorientation of money on the digital age.
Today, Bitcoin has nearly unanimous brand recognition, with 89% of survey takers reporting that they have at least heard of the digital asset. Moreover, new and better use cases are continually emerging. Mainstream stores such as Starbucks, Nordstrom and Whole Foods are accepting Bitcoin at checkout, and institutional investors are embracing it as a speculative asset in a portfolio of investments.
While Bitcoin's perfect use case is being decided by users and consumers, its rapid ascent hasn't always been smooth.
Problems in the making
Despite its unprecedented growth in the past few years, the crypto movement has several persistent problems. Notably, crypto price fluctuations can be extreme and unpredictable. Their wild price swings are now infamous, and ominous monikers like "flash crashes" largely define the space.
At the same time, crypto's UX makes it difficult to secure private keys, a deluge of hacks on exchanges and wallets costs investors money, and a murky regulatory landscape continues to plague investors. These problems hinder crypto adoption, but they are mild compared to the veritable PR disaster surrounding high-profile cryptocurrency exchange hacks and the continual regulatory concerns surrounding this nascent digital asset.
Exchange hacks
2018 set a record for crypto exchange hacks, as six prominent heists netted cybercriminals millions. That record is set to be broken in 2019, and thieves have already stolen $356 million from cryptocurrency exchanges, making it a real Wild West – full of instability and risk.
Indeed, while cryptocurrency is an incredible monetary expression that is uniquely suited for the digital age, the list of high-profile and expensive shortcomings is extensive, spooking many investors.
Regulatory concerns
As institutional investors become interested in cryptocurrencies, these problems are exacerbated. People wish to try new technologies knowing they can, at the very least, stay safe, and they look to regulators to step in and build more trust.
Platform developers and global regulators are slow to take action, but institutional solutions exist that allow cryptocurrency users to participate in this burgeoning economy without placing unnecessary risks in their path.
The rise of institutional solutions
When it first launched, Bitcon was an asset for individual investors. It mostly comprised those who firmly believed in its privacy feature and functionality. However, institutional investors have entered the space in a big way.
Professional solutions like CME's futures trading, IBM's Hyperledger alliance and Facebook's Libra are creating a comprehensive market for everything from crypto derivatives to advanced tax-planning platforms. Most importantly, they provide a solution to the vexing problem of cryptocurrency ownership and token storage.
For crypto investors, there are two approaches to currency storage: They can hold their assets independently with a digital wallet, or they can rely on a custodial service to store their currencies on their behalf.
Crypto wallet services have an uneven history, and users always run the risk of losing their tokens to theft, misplaced passwords or other user errors. Because crypto transactions are permanent, there is no way to undo this damage once it occurs.
For those investing significant sums in cryptocurrencies, custodianship is the most prominent solution to the problems of risk and regulatory uncertainty. With custodial services, investors gain access to digital currencies without having to personally store these assets.
Within my experience, I was looking for simplicity above complexity, a payment processing company that could help me buy and exchange crypto across multiple countries and currencies. Fortunately, I found Skrill. It gave me a fast, easy and secure way to transfer money across more than 200 countries using 40 different currencies.
I've had an intuitive and simple experience that, for me, eliminated many of the risks associated with cryptocurrency investment. Security was more of a concern than ease for me, but getting to this point required research to satisfy my wish list.
In addition, several crypto exchanges, including U.S-based Coinbase, offer custodial services that help bridge the gap for some investors. To use Coinbase's custody services, users need to register their institution through an application process. The platform includes designated, segregated cold storage and an insurance policy for their digital assets. Coinbase users can choose to use an independent Bitcoin wallet, like Electrum, to securely store their assets.
This simple approach to buying Bitcoin can get any user in the door, while providing a strong subset of features that make the approach accessible and secure.
A necessary development
Cryptocurrency has a defined and expansive ethos that supposedly eschews the need for trust and government oversight. To an extent, this is true, and its most ardent supporters believe in the decentralized manifesto that empowers all users.
Even so, as more people enter the crypto space, many will never want the responsibility of personally holding funds. Instead, people are looking for ease of use and functionality, something that new custodial services like Skrill and Square are happy to provide. This puts cryptos more on par with more traditional financial services, which, despite their own set of problems, have a well-established track record for usability and accessibility.
The industry's continued evolution accounts for these shifting sentiments, ensuring that the infrastructure and functionality is appropriate to meet our modern movement. Therefore, whether users want to trust a third party or not, there are many good ways to buy and hold Bitcoin.
In 2019, cryptocurrencies aren't just becoming more valuable. They are becoming more accepted, acceptable and accessible than ever before.