The Mass Market Cryptocurrency Aspiration

The Mass Market Cryptocurrency Aspiration

Among over 700 cryptocurrencies, the pioneer Bitcoin is the most widely recognized and popular, closely followed by Ethereum, Ripple, Litecoin and OneCoin.

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Among over 700 cryptocurrencies, the pioneer Bitcoin is the most widely recognized and popular, closely followed by Ethereum, Ripple, Litecoin and OneCoin. With Bitcoin’s market cap of almost $15B and market share of 80%, other cryptocurrencies face a challenge to establish themselves on the market but there’s also a definite opportunity.  Despite paving the way for other cryptocurrencies, Bitcoin also posed justifiable fears related to its anonymity, decentralized model, lack of transparency and historically weak security.

Since Bitcoin’s launch, multiple altcoins emerged with the aim to develop and improve further the initial concept. Cryptocurrencies operate in an unregulated and competitive market, but they can definitely be considered an asset. But which ones should we watch out for and which ones have the features to become mass market alternatives to bitcoin?

Besides altcoins, cryptocurrencies are being developed by nations and financial institutions as well. Nation-based virtual currencies are developed in Iceland, Spain, Singapore, etc. Banks like Citibank, UBS, Deutsche Bank, Santander, the bank of Tokyo-Mitsubishi UFJ are either planning to develop or are already developing their own digital money, with the bank of Tokyo expected to launch their currency by the end of 2017.

In the beginning there was only Bitcoin

One of the biggest cryptocurrency critics is Warren Buffet, who in a recent article in Yahoo! Finance says that Bitcoin is nothing more than a mirage. His advice to investors back in 2014 was to stay away from virtual currencies and he seems to still believe he has been right.

However, Buffett considers Bitcoin as a very effective method of transferring money and he points out that this could be done anonymously. But still, it is a money transfer method, similar to checks and money orders, says Buffet. The idea that Bitcoin possesses some huge intrinsic value is just unreasonable to him. Fiat money relies on the economic performance of a given country to gain or lose value and according to Buffet cryptocurrencies like Bitcoin are not connected with any particular country, therefore raising the question of where the value of virtual currencies comes from.

Contrary to Buffet’s opinion, Bill Gates acknowledged the value of cryptocurrencies and shared it in one of his discussions with Reddit users in January 2015, saying: “Digital currencies can help the poor, but not Bitcoin” pointing at two important Bitcoin drawbacks, namely its volatility and anonymity.

“We don’t use Bitcoin specifically for two reasons. One is that the poor shouldn’t have a currency whose value goes up and down a lot compared to their local currency. Second is that if a mistake is made in who you pay then you need to be able to reverse it, so anonymity wouldn’t work”, Bill Gates, Reddit, AMA (January, 2015)

As discussed by Bill Gates one of the biggest inherent drawbacks of Bitcoin is its volatility and according to Buffett’s prediction expressed in the same Yahoo! Finance article, Bitcoin lost more than 80% of its value, falling from more than $1,000 per coin in December 2013 to about $200 in January 2015. After a 12-month hiatus in 2015 however, Bitcoin has since recovered to rally close to the $1,000 level as traders bought bullishly in a frenzy.

This became possible because over the last 12 months Bitcoin has been rallying an important point that attracted more users. It is simple: the U.S. dollar does not strengthen against other currencies because of the strength of the U.S. economy, but rather because of the stability investors believe it possesses. As such, Bitcoin traders have been betting on the cryptocurrency market believing it can provide the most stable currency in the future, precisely because it is not tied to any individual country and thus is not affected by socio-political events. In other words, this makes it a form of a global currency and therefore – more stable.

Cryptocurrencies as a safe heaven

The idea of cryptocurrencies as a safe heaven emerged, when the highly volatile Bitcoin price proved to be inversely related to fiat currencies in times of socio-political crisis, e.g. Brexit and the election of Donald Trump as President of the US. This view is expressed by Mr Peter Elofusim, the Managing Director of TSP Capital Limited – a foreign portfolio investment advisory firm.

In an interview titled “Why Nigeria should embrace digital currencies”, Mr Peter Elofusim speaks of the opportunities in adopting digital currency: “The reason digital currency or Bitcoin came into existence and has stayed till today and why the people should go for it, is that it is not affected by socio-political events.  It is finite… It means that once that technology is in place, nobody can mine more. That is why if you store your wealth in cryptocurrency, you’re sure that it is not going to face devaluation as a result of mining of more currencies”.

According to Elofusim, Bitcoin was created on an experimental level and therefore has flaws that more contemporary cryptocurrencies like Litecoin and OneCoin have successfully worked on to remove: “…there are many digital monies. There are Litecoin and Onecoin. They are universal currencies that are not controlled by any government or central bank. But we are promoting Onecoin because Bitcoin was created on an experimental level. It does not put certain measures in place to make sure it stands the test of time. The inventor lost control when it became a success. When Bitcoin was created, the issue of Know Your Customer (KYC) was not put in place. There were no tracking instruments to know who used the currency for transactions, so it was abused. This gave Bitcoin a negative vibe but it was taken care of in later years…“

Bitcoin Alternatives to Change the Market

The most popular cryptocyrrencies considered as strong future alternatives to Bitcoin are Ethereum, Ripple, Litecoin and OneCoin. Ethereum has the second biggest market cap on coinmarketcap.com, only $1B compared to the $14B of Bitcoin. The main problem of Bitcoin alternatives is that they lack liquidity and therefore have little or no usage by the mainstream consumer.

The third biggest cryptocurrency on coinmarkercap.com, Ripple, was launched in 2012 with the goal to enable safe and instant global financial transactions of any size with no chargebacks but just like Litecoin (released in 2011) are focused on trading and therefore provide no real value creation. LiteCoin’s differences from Bitcoin include faster transaction confirmation, improved storage efficiency, script usage in its proof-of-work algorithm and the Litecoin Network, expected to produce 84 million Litecoins or four times as many currency units as will be issued by the Bitcoin Network, expanding its lifespan.

In contrast, OneCoin provides an entirely new and highly discussed business model that provides a new approach to cryptocurrencies. The company has focused on growing the usability of the coin and complying with existing regulations by incorporating know-your-customer (KYC) information directly on its blockchain thus preventing dubious activities of users.

The OneCoin approach has captured the attention of experts like Mr Peter Elofusim, who in his interview explains the advantages of know-your-customer functionality in more detail: “Onecoin has put in place measures to mitigate the shortcomings of Bitcoin. First of all, from day one before you can acquire OneCoin, you must first of all fill out the KYC and supply your biodata. Unlike Bitcoin, in OneCoin, everybody enters their mining pool, so you don’t need to be technology or IT savvy. Onecoin is at the initial stage of creation and it will go public around 2018. So, the opportunity to recreate the kind of wealth that was witnessed in Bitcoin exists in Onecoin.”

Claiming to have nearly 3 million users, OneCoin seems to have the biggest user base compared to Bitcoin’s 1 million users (not wallets). It’s geographically distributed almost in all countries, with a strong presence in emerging markets. The most striking difference between it and the other virtual currencies is its structured approach to business with constant roll out of new products and services as seen in the OneCoin ecosystem on the company site. With 120B coins that can be mined and the right strategy, OneCoin has a good chance not only to capture but also to keep its place as the biggest cryptocurrency.

In conclusion

In 2008, the financial crisis in America was at its worst point. These rough times presented suitable conditions for the first digital money, Bitcoin, to be invented. Today, the socio-political situation is facing a serious crisis too, as unstable and dynamic events take place frequently. That has forced businesses to look for other and more stable ways of storing wealth and assets like virtual currencies.

The new generation of cryptocurrencies such as Etherium, Litecoin, Ripple, OneCoin and others offer possibilities for faster, low cost money transfers but we are yet to see if from a mere speculation they will present a good investment instrument. With inherent flows linked mostly to bitcoin, altcoins will need time to prove their worth.

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