Bringing cryptocurrencies into the mainstream
Few need an introduction to the term cryptocurrency, even if for some its functionality remains a mystery. For many, the term still provokes imagery of masked hackers trading illegal goods in the shadows of the dark web. While its rise has been dramatic, it still hasn’t quite taken a hold of the global finance market as some may have predicted. Trust remains the obvious barrier to its further ascension. To counter this, governments in many progressive nations have begun to ask questions about how to legitimise this revolutionary financial concept.
Today, the total market capitalisation of cryptocurrencies has surpassed $100 billion. It has been hailed as a hugely significant milestone in its evolution, with around 900 cryptocurrencies trading globally today. About $45 billion of this is through market leaders Bitcoin, but rivals such as Ethereum are hot on their heels and gaining market share. While this figure is still barely a dent on the global financial market, it’s understandably still turning heads in the world of finance. If it isn’t being already, it is time to start taking the ‘future of finance’ seriously.
There is still quite a steep learning curve even when it comes to storing and using your digital assets, especially for those who have never traded currency online before.
The financial rebellion
The first cryptocurrency, Bitcoin, was an attempt to challenge the world’s long-standing, centrally-controlled economic order; a gargantuan, and in some people’s opinion, impossible task. It is no coincidence that Bitcoin was launched in 2009, a year after the 2008 economic crisis; a time in which people’s faith in financial regulation authorities was shattered.
One of Bitcoin’s main draws was that it is decentralised - its value dictated solely on the supply and demand of the market, and not the whims of governmental and authoritative bodies. As a result, there is little regulation and more freedom on who spends how much on what, and where - with the attraction for some some being that it provides transaction anonymity. The question since its conception, however, has been how to challenge traditional world currency fiats and take cryptocurrency to the next level.
CTO and co-founder CryptoCompare, Vlad Cealicu, told us:
"In the early days, Bitcoin was mostly used by people that found the technology behind it really fascinating and innovative. We are still far from mainstream adoption, as the space is still really volatile and young by financial standards.
However, over the past year we've seen more and more people interested in Bitcoin as a financial instrument, although there is still quite a steep learning curve even when it comes to storing and using your digital assets, especially for those who have never traded currency online before."
A matter of definition
The legality and definition of Bitcoin varies from country to country. Many nations have side-lined it as a ‘digital asset’ or ‘commodity’ rather than a currency. Its lack of a centralised authoritative body, such as the Bank of England in the UK and Federal Reserve in the US, make it extremely volatile and its value is known to fluctuate dramatically. Hence the reluctance of governments to acknowledge its place alongside other major currencies.
However, earlier this year Japan marked a hugely important step in the legitimisation of cryptocurrencies. On April 1st they introduced legislation that gave Bitcoin legal tender. Furthermore, they made Bitcoin exchanges comply with anti-money laundering regulations and officially authorised it as a regular payment method. Bitcoin’s 121% appreciation since can be seen as a direct result of this. They hope that this will bring about a growth in interested investors and users in this specific cryptocurrency, and start the process towards minor regulations which can help build public trust in Bitcoin.
Could this be the spark to ignite change?
The Japanese response could be seen as the first to ignite a flurry of government integration schemes. Barclays in the UK have opened discussions with the FCA (Financial Control Authority) about the possibility of bringing cryptocurrencies into the mainstream through various regulatory initiatives. These include proposals such as ‘know-your-customer’ legislation. While it would remove a level of anonymity that some users crave, it would also open the market up to the more cautious and mistrustful demographic.
Additionally, this would help to ensure the currency isn’t being used for illegal trade or money laundering, further building people’s trust in the system. The Russian Central Bank has also reportedly begun to explore ways in which it can regulate the cryptocurrency revolution, as have US financial bodies.
These combined efforts do at least show a recognition that cryptocurrencies will play an important role in the future of global finance. Finance experts should keep one eye on this potentially epoch-defining marketplace.
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