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Cryptocurrency Essential Knowledge for Business Cryptocurrency Essential knowledge for business With you in business, with you in life. blasermills.co.uk Cryptocurrency – Essential knowledge for business 1 Cryptocurrency has dominated the financial Contents What is cryptocurrency and how pages over the last six months; innovative is it used? Blockchain technology has allowed an Why is it relevant and what are increasing number of new, decentralised the risks? digital currencies to make exponential Cryptocurrency around the world gains, in both value and user adoption. Blockchain has the potential to revolutionise The main players in the market several industries, particularly those with What does it all mean? innate transactional inefficiencies, but it is (The jargon explained...) international, peer-to-peer payment systems How does a cryptocurrency that have seen early success. transaction work? Buying and selling cryptocurrency However, talk of a bubble has continued UK taxation and accounting issues whilst the FCA have warned of the risks of investing in newly launched currencies. UK/ The Newsroom EU regulators have now set their sights on Contact us cryptocurrency trading to combat its use in laundering criminal assets. Here we look at the brave new world of cryptocurrency, which in 2017 saw: • Bitcoin hit record high of £15,375.64 ($19,843.10) per coin; • Total market cap of all cryptocurrency hit $813 billion (roughly the size of Turkey’s GDP); • Bitcoin futures trading launch on Chicago’s largest derivatives exchanges; • Record number of digital transactions and new wallet openings; • IBM launch enterprise-ready Blockchain platform (the technology that underpins Bitcoin and other cryptocurrencies); • Criminal usage of cryptocurrency switch from Bitcoin to encrypted types such as Monero. Cryptocurrency – Essential knowledge for business 2 What is cryptocurrency? It’s risky, and some respected Blockchain commentators have compared In the UK, we have seen some world virtual currencies to Ponzi schemes. firsts in user-adoption of blockchain Cryptocurrency, otherwise known So why the buzz? Comparatively, Distributed Ledger Technology (DLT), as virtual or digital currency, is the cryptocurrency is quicker, cheaper and which threatens to revolutionise or online alternative to traditional more secure than any other traditional ‘disrupt’ certain industries, such as money. Cryptocurrencies are peer- currency in use. The total market property conveyancing. October 2017 to-peer monetary systems that use cap of all currencies in circulation saw the first ever UK conveyancing cryptography to generate and manage has exploded, growing to roughly transaction conducted using the exchange, rather than relying on the equivalent of Turkey’s entire GDP blockchain technology, without the a central authority. Transactions are in size in the space of less than 10 need for lawyers. A dentist in Wales made over a shared online ledger, years, making it a highly significant acquired a £700,000 commercial using digital wallets that hold your and increasingly influential part of the property in an online deal executed currency. Most can be re-sold for modern global economy. in four seconds using blockchain traditional currencies at the prevailing technology, within days of the offer exchange rates over an ever- Uses of cryptocurrency for sale being listed. The platform increasing number of cryptocurrency claims to use hash and encryption exchanges, used to conduct technology to ‘record the bidder mainstream purchases or traded for Cryptocurrency has both commercial verification process, offers made, other tokens. and criminal applications. offers accepted and the formation Commercially, it is increasingly of online electronic contracts’, which What started as a ‘cypherpunk’ functioning like any traditional foreign could potentially remove the need pipedream is now being piloted exchange currencies, but remains for the UK Land Registry and other by a host of major international to many primarily an investment third party intermediaries who's corporations, including IBM, Walmart opportunity rather than a serious functions currently involve checking and Nestle to name a few. The best platform for conducting business. and verifying the various stages of the known and most widely adopted The wildly fluctuating but steadily transaction. variant, Bitcoin, recently attracted increasing value of virtual currencies international headlines when the make for potentially large gains for Organised crime and money exchange rate hit $10,000 for the first the initiated investor, but this has also laundering time. By early December 2017, Bitcoin fuelled fears of a bubble similar to the Until fairly recently governments and was trading at or above $17,000. dot com crash of the early 2000s. mainstream industry have been slow This incredible run means that had to get to grips with cryptocurrency, you invested the equivalent of £100 Cryptocurrency, like gold, offers a due in part to its historical association in Bitcoin in 2010 it would be worth form of portfolio insurance due to with the dark web, meaning it remains around £1.25 million today. its de-centralised nature. Individual in many ways a regulatory 'grey area'. coins have different key features Criminals favour cryptocurrency for These sorts of headlines, and the and technological fixes meaning an its anonymity, which grants them almost unparalleled earning potential investment portfolio can be spread financial independence free from of cryptocurrency, have attracted across a number of established and government oversight. Transactions major interest from the investment emerging currencies. in Bitcoin are rife on the dark web, world. Towards the end of 2017 there where illegal goods such as narcotics was a huge surge in Bitcoin trading, and weapons can be bought and particularly in new accounts being sold with minimal scrutiny. There is opened, in the build-up to the launch Bitcoin reached parity growing concern amongst UK law of “futures” contracts by two major with an ounce of gold enforcement regarding the 100+ American exchanges, meaning Bitcoin ATMs across the country, and that institutional investors will now on 2 March 2017. the ease with which criminals can find it easier to buy and bet against utilise these to launder large amounts Bitcoin. Shortly afterwards there was of criminal proceeds. However, since a price ‘correction’, which was widely the authorities are getting better at predicted, and Bitcoin again showed tracking the use of Bitcoin, emerging its volatility, shedding roughly 35% of ‘encrypted’ currencies such as Monero its value in the last 10 days of 2017. have begun to attract increasing traffic amongst the criminal community. Cryptocurrency – Essential knowledge for business 3 Why is it relevant? of all dealings, insuring against faked transactions. New transactions (blocks) must be approved by multiple Warning: as things Blockchain technology, the digitised, users before they are added to the stand, cryptocurrency de-centralised public ledger that shared ledger (chain), which means supports all cryptocurrencies, that it would be very difficult (or even losses due to wallet holds enormous potential for both impossible) to coordinate a false hacking are generally companies and private individuals. record of a transaction. Advances in the application irrecoverable. of the technology have seen What are the risks? pilots in the food industry, global logistics, healthcare, real estate, international finance and many As an exclusively online technology, more. The potential for instant, cryptocurrencies are vulnerable to Governance secure, transparent and low-fee or the same cyber-attacks as any other One of the major issues to consider free transactions anywhere in the business with an online presence. is the internal governance of the world at any time mean that the Furthermore, fraudsters will seek to individual currencies, which can technology could transform certain exploit the public’s lack of awareness result in ‘forking’. Forks can pose a industries overnight, as well as of cryptocurrency by tricking threat to the viability and stability of render others almost obsolete. people into fraudulent transactions the blockchain, and consequently, or business opportunities. This is they can have a significant impact Investment opportunity especially damaging given that upon the value of the asset. A The global cryptocurrency market cryptocurrency transactions are ‘soft-fork’ refers to a change in the has been appreciating in value for neither refundable nor cancellable, protocol enforced by the majority of the last 8 years, and has recently as the identity of the parties in a miners, leading to a change in the gone through a period of enormous transaction cannot be identified once code that is ‘backwards-compatible’, and sustained growth. The total value it has taken place. Furthermore, the i.e. the previous transaction remain of all the world’s cryptocurrency is anonymity provided by cryptocurrency valid despite following the old rules. literally increasing by the millisecond networks means it is very difficult for A hard-fork involves splitting the and at the time of writing is worth offenders to be identified and any path of blockchain and invalidating well over $800 billion. Whilst many stolen property or currency retrieved. the previous transactions to allow speculate that the price of Bitcoin a radical upgrade to the protocol, has reached or is close to reaching The most recent high profile which requires universal user its zenith,
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