Are cryptocurrencies about to go mainstream?
Experts call for caution about digital currencies, such as bitcoin and Ethereum, but financial firms are considering adopting them or even establishing their own
By Edward Helmore
Jul 1 2017
Last Sunday a message posted on message board 4Chan started the rumor that Vitalik Buterin, the founder of cryptocurrency Ethereum, had been killed in a car crash. News of the 23-year-old, Russian-born programmer’s demise was soon proved false – but not before 20%, or roughly $4bn, had been wiped from Ethereum’s soaring market value.
The hoax not only drew attention to Ethereum, the second largest digital currency after bitcoin, which had seen its value rise fiftyfold since the start of the year to $300 a coin, but also to the booming market in other so-called cryptocurrencies that could now be on the cusp of mainstream financial credibility.
Last week Barclays’ CEO for personal and corporate banking, Ashok Vaswani, revealed the lender had opened discussions with UK regulators about adopting digital currencies.
“We have been talking to a couple of fintechs [financial technology companies] and have actually gone with the fintechs to the FCA [the Financial Conduct Authority, the UK regulator] to talk about how we could bring the equivalent of bitcoin, not necessarily bitcoin, but cryptocurrencies into play,” Vaswani told CNBC at a conference in Copenhagen, Denmark.
“Obviously [it’s] a new area, obviously an area we’ve got to be careful with. We are working our way through it.”
Vaswani’s comments came after several central banks from across Europe and Asia said they were looking into establishing digital-only currencies in addition to traditional denominations.
The People’s Bank of China has reportedly run trials, while the Danish central bank is considering a digital-only e-krone.
On 19 June, the International Monetary Fund issued a staff discussion note stating that banks should consider investing in cryptocurrencies, saying: “Rapid advances in digital technology are transforming the financial services landscape, creating opportunities and challenges for consumers, service providers and regulators alike.”
At the same time, IBM announced it had made a deal with the Digital Trade Chain Consortium – a group of seven European banks that includes Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit – to build a digital trade platform that will run on IBM’s cloud.
Andrew Levin, professor of economics at Dartmouth and co-author of a study on central bank digital currencies, told the Guardian that the concept of private institutions creating new forms of payment was not in itself new, “but the greater need is for consumers and businesses to have access to money that has a stable value and is practically costless to use. We think there’s a strong case for central banks to issue digital currencies that would be free to use.”
Crypto- or cyber-currencies are digital-only currencies in which encryption and registry techniques, often called blockchains, are used to regulate the generation of units of currency independent of a central bank.
It is a booming, dizzying market. Since the start of the year, bitcoin, the world’s biggest cryptocurrency, has almost tripled in value to $2,565. By some estimates, the cryptocurrency business could be worth $5tn by 2022. There are now close to 800 cryptocurrencies worth, in total, around $96bn.
One of the newest offered to market is Tezos, backed by billionaire venture capitalist and early bitcoin investor Tim Draper of Draper Fisher Jurvetson. According to a prospectus, a total of US$893,200.77 worth of XTZ tokens will be issued on 1 July.
“The best thing I can do is lead by example,” Draper told Reuters last month. “Over time, I actually feel that some of these tokens are going to improve the world, and I want to make sure those tokens get promoted as well. I think Tezos is one of those tokens.”