Posted Thursday 2nd October 2014 by Andy Jarrett
Cryptocurrencies: What to look out for next…
Andy Jarrett and Philip Ozouf at Level 39, London.
The adoption of Bitcoin as an alternative currency will continue to progress at a modest pace while Tier 2/3 banks facilitate the exchanges and payment providers like Paypal help with further adoption. Currently, not until one of the clearing banks in the UK Faster Payment Service (FPS) or EU banks in the Single Euro Payments Area (SEPA) breaks ranks will traction increase and those Tier 1 bank early adopters will attract significant market share. This blog, however is more concerned with where the next developments might happen.
There is activity in the sphere of linking virtual and physical assets. Companies like iCoin are stripping Bitcoins to Satoshi’s, the smallest unit being 0.00000001 BTC - and linking them to gold or items that can be traded. This way, the block chain ledger can be used to trade traditional commodities.
Smart contracts and tools that facilitate and verify the performance of a contract, obviates the need for contractual clauses that they are typically self-executing, which reduces fees and provides better security to both parties. Early examples can be found in asset registration, where the process is linked to block chain and emulates the logic of contractual clauses. These developments can remove the need for layers of intermediaries and associated fees.
Alongside the emergence of smart contracts, sophisticated storage solutions for coins will become sufficiently robust for people allowing them to no longer worry about their security. The block chain itself was designed for small, lightweight transactions, therefore as applications continue to be developed off-block chain, processing will start to become commonplace.
Mining has become a numbers game, with groups of miners pooling resources. As this trend continues, there will be a move away from plumbing (mining storage etc.) into more mainstream applications such as capital flows, where real-world proof cases are tested, smart contracts are enforced and real assets are traded.
It does not take too much imagination to see how people might buy property abroad or engage in cross border transactions, considering that vehicles and property have already changed ownership using Bitcoin. It has been reported that many of the newly wealthy Chinese have signalled their desire to move abroad, suggesting that cryptocurrencies could be a means of facilitating movement of wealth.
The Altcoin world has tangible opportunities, both in the real world and the entertainment industry, with Bitcoin representing over 90% of the market. The Bitcoin volumes are such that mining them is probably out of the physical capabilities of third-world countries, Altcoins therefore offer far more accessible returns. Popularity might grow in these regions, and conceivably spawn national favourites, but the decentralised structure means that Altcoins will never be location-specific.
Celebrity coins are an amusing twist. They sound far-fetched, but, the creators of a Bitcoin-style currency named in ‘honour’ of Kanye West, known as Coinye West, have said they will launch the project early, despite the threat of legal action by the rapper's lawyers. Its creators allege the rap star has issued a cease and desist letter, calling on them to halt the project due to infringement, but they still plan to launch on 7th January to avoid any pre-emptive legal action. According to The Wall Street Journal, coders were warned to halt their plans ahead of the launch.
There are in excess of 300 alternative ‘coins’, I would expect this number to consolidate over the next 12 months to a number that is actively tradable for third world regional needs, application based, or for cultural and commercial purposes. Early applications will involve commodities, such as phone top-ups and companies trading vouchers for coins and payments, where rejections frequently occur. Projects like Miss Bitcoin will help cross the gender divide and demystify the technology, which will present opportunities through the lens of a consumer, rather than solely a financial gadget.