Cloudebate™

Cryptocurrency. Holy Grail or Fools Gold?

Wednesday, 12 May 2021

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Cryptocurrency. Holy Grail or Fools Gold?

Is it a get-rich-quick scheme or genuine alternative to traditional money?

Most of us have heard about it, but not many of us really understand cryptocurrency. Generally referred to as the original cryptocurrency, Bitcoin is a unique and non-governmentally issued digital money that has become more mainstream in recent years as its usefulness and reach have increased. Bitcoin specifically is widely known for the astronomic rises in its market trading value, as well as its spectacular losses in worth.

All this speculation in cryptocurrency does not relate to any inherent economic value creation, hence critics of Bitcoin, including value investor Warren Buffet, do not believe buying and selling Bitcoin to be a truly value-generative activity.

The CEO of the South African hedge fund, Protea Capital Management, Jean Pierre Verster, agrees and says he cannot logically say how much a certain cryptocurrency is worth, because it is not possible to apply fundamental investment principles to calculate this value (source: MyBroadband).

What is cryptocurrency?

As a basic definition, cryptocurrency is an independently created digital form of money with value, just like government-issued standard money, that can be used to buy and sell goods and services. In other words, it’s a medium of exchange in digital form.

The word crypto comes from the Greek ‘kryptós’ meaning ‘hidden’. Before cryptocurrency became a vogue term, the term ‘crypto’ was usually associated with words such as ‘cryptograph’, which is a device for encoding and decoding messages.

Cryptocurrency is created by way of complex, hard to fathom, formulaic digital means. In the traditional currency world, governments create and issue money, usually according to many well-established economic policies, standards and procedures, within a political framework.

This is not so in the instance of cryptocurrency. In the case of Bitcoin, for example, no-one knows the identity of its original creator. An individual who named themselves Satoshi Nakamoto is widely seen as the creator of Bitcoin, but nothing further is known about this originator.

According to bitcoin.org: “New bitcoins are generated by a competitive and decentralized process called mining, where the network rewards individuals for their services. Bitcoin miners are processing transactions and securing the network using specialized hardware and are collecting new bitcoins in exchange.”

Like we’ve said, pretty complex, right? The mystery surrounding the process of bitcoin mining and the complicated digital distributed ledger technology (DLT) framework that underpins it has the effect of cloaking Bitcoin in peculiarity and secrecy. Bitcoin uses a specific type of DLT called blockchain, which you may have heard about in the context of cryptocurrency creation before.

It is this network of systematic cooperation that makes a currency such as Bitcoin a useable and tradable form of money, as everyone has the same incentive to keep it intact, and because for the system to work, it needs all distributed parts to be present and linked, in blocks, just like a chain. (Hence, blockchain. Geddit?)

So, for this discussion about the impact of cryptocurrencies in the fourth industrial revolution (4IR) – the revolution we’re in right now – let’s accept that digital money is created and exists according to structures, systems and processes that safeguard the inherent nature thereof, just like central government-issued paper money (including its electronic form).

Cryptocurrencies are increasingly being used to buy and sell goods and services digitally, but digital money retains an unfortunate reputation of being the preferred currency for illicit goods and services. The ransomware file encryption hacking industry, which, incidentally, is run just like a real business, is notorious for its insistence to be paid in bitcoin to receive the unlock key to get your files back. Illegal trading hubs, such as the defunct Silk Road, traded almost exclusively in Bitcoin and similar cryptocurrencies. In short, the anonymity of Bitcoin tends to attract those who want, or need, to remain unseen and unknown.

Nowadays tech-savvy companies are gearing up to allow consumers to pay in Bitcoin. Elon Musk, the pro-cryptocurrency CEO of the tech-heavy electric carmaker, Tesla and other 4IR enterprises, recently announced that you’ll be able to buy a Tesla in Bitcoin. In preparation, the company invested approximately $1.5 billion in the cryptocurrency.

How am I affected by the rise of cryptocurrencies?

Rest assured, good old-fashioned central-bank-issued money isn’t going anywhere soon. These days, all money is predominantly used and traded via electronic transactions in any event, but the currency itself, apart from cryptocurrencies, are all issued by the central banks of governments, which means they are backed by real economic value generation.

So, the impact on you and me is, for now, limited. However, if you’re so inclined and would like to participate in this brave new world, or if you are forced to because of a ransomware attack, it’s probably a good idea to learn a bit more about it. If you’re a digital creator, for instance and participate in the global economy through producing digital products bought all around the world, accepting payment in bitcoin could be a perfectly normal activity.

Locally, the Intergovernmental Fintech Working Group (IFWG) recently announced Project Khokha 2, an endeavour between government and banks such as Absa, FirstRand, Nedbank, Investec and others to investigate the possibility of a digital currency for the country, using similar technologies to Bitcoin.

Naturally, if you’d like to speculate in the cryptocurrency market to “make money” by purchasing bitcoin and the like for less than you would eventually sell it, you need to be fully aware of the risks. Don’t venture into speculating with cryptocurrencies if you don’t know what you’re getting yourself into.

The big debate

Digital money, cryptocurrencies, blockchain, distributed ledger technology and all these terms might sound like mumbo jumbo to us ordinary folk, but the reality is that collectively it most likely represents a new way of creating and trading money to form a perfect example of what 4IR practically means. In an unregulated form, the risks will remain high, due to uncertainty and the fact that it’s not identifiable at the source, but governments worldwide are increasingly looking into legitimising digital currencies to bring it into the formal systems of monetary management and markets. When this happens, digital currency should be safer and more predictable, and all of us will feel more comfortable and will likely start using digital money in addition to traditional currency.

The big debate is perhaps therefore not whether cryptocurrencies are here to stay, or how to make money from them, but to what extent it’s possible to bring these new formats into the mainstream as a medium of exchange that can be trusted and used, just like traditional money can.

This is what experts will be talking about at the University of Johannesburg’s next Cloudebate™ on Wednesday, 12 May 2021 from 18:00 to 19:00 CAT. Don’t miss this topical discussion.

PANELISTS

Prof. Ylva Rodny-Gumede (Facilitator)

Ylva Rodny-Gumede (Facilitator) is the Senior Director: Division of Internationalisation and also Professor in the School of Communication at the University of Johannesburg.

She is a Senior Associate Researcher with the Stanhope Centre for International Communications Policy Research at the London School of Economics. She holds a PhD from the School of Oriental and African Studies (SOAS), London University as well as an MA degree in Politics from the University of Witwatersrand in South Africa and an MA in Journalism from Cardiff University in the U.K. Ylva is a former journalist and has also worked in marketing and PR. In addition, she has consulted for several government, private and academic institutions in Europe and Southern Africa on issues concerning media and democracy, including the United Nations Development Programme (UNDP), the Swedish National Agency for Higher Education, and the SADC Parliamentary Forum. Ylva holds a C 3 rating from the South African National Research Foundation (NRF) and is the current President of the South African Communications and Media Association (SACOMM).

Professor Monica Singer

Monica was the first CEO of South Africa’s Central Securities Depository (CSD), Strate (Pty) Ltd which she set up in 1998 until she resigned in August 2017.

In October 2017, Monica was appointed as South Africa Lead for ConsenSys, being the biggest blockchain company in the world. Monica lives in Cape Town and works remotely.

 Monica currently also participates as:

  • Board member of the South African Institute of Chartered Accountants (SAICA)
  • Professor of Practice in the School of Accounting in the University of Johannesburg specialising in blockchain for the accounting and auditing profession.
  • Board member of the Accounting Blockchain Coalition (ABC) which is defining market practices for accounting, auditing and taxes for crypto assets.

Monica previously worked at the Johannesburg Stock Exchange 1996/1998 and the World Bank in Washington DC in 1995/1996 and was the Technical Director of the South African Institute of Chartered Accountants (SAICA) from 1989 to 1995. Monica completed her articles with the audit firm Arthur Young in 1987.

Monica sat on various board over the years:

  • Vice chair of GLEIF and chair of the business strategy advisory committee of the Global Legal Identifier Foundation (GLEIF) based in Switzerland.
  • Chair of the Afrika Tikkun investment trust for 10 years
  • Strate Charity shares which donates to underprivilege children.
  • Vice President of the Africa Middle East Depositories Association (AMEDA).

Monica has been recognised over the last 20 years with many awards, the most notable being the first winner of the Conscious Company award in South Africa in 2017.

James Preston

James Preston is a philosophical Tech & Media entrepreneur who was born in Surrey, England and moved to South Africa in the nineties. From there he has grown a following as a media commentator on the technology industry, and in recent years has focused on Blockchain Technology and its implications on society – publishing the book “Can Blockchain Help Your Business” through Tomorrow Today Global. His talks are highly engaging, inspiring and extremely informative.

Brenton Naicker

Brenton Naicker is a Fintech fundi with experience and expertise within the crypto-asset and blockchain technology space. He currently serves as a Business Development Manager for Binance Africa.

In addition to this, he is the Co-founder of Chainlink Capital, a boutique Cryptoasset consultancy in SA, specializing in servicing high net worth individuals. He has extensive experience within the custody, OTC transaction, and algorithmic trading space. Brenton is also the founder of DCS – BlockAlpha, a non-custodial Software as a Service (SaaS) trading tool, aiming to automate and streamline trading in the nascent asset class.

In addition to this, he has spent the last 2 years as a senior partner and the fintech and blockchain lead at Torus Tech, a South African software development firm responsible for taking products and platforms to market across the spheres of sports betting, Fintech, ERM, supply chain management software and mobile applications.

Uche Chude-Okonkwo

Uche Chude-Okonkwo is currently a Senior Lecturer at the Institute for Intelligent Systems, University of Johannesburg, South Africa, and has over eighty (80) publications in reputable journals and conferences. He serves as a technical program committee member for the prestigious IEEE GLOBECOM, and associate editors for the Frontier in Communications and Networks, and the SAIEE Africa Research Journal. He was also named IEEE Transaction of Nanobioscience 2020 top Reviewer in appreciation for his service. He is an NRF-rated researcher, a member of IEEE and Engineering Council of South Africa (ECSA). His current research interests include (but are not limited to) Wireless communication, Molecular communication applied to advanced medicine, Artificial intelligence, Internet of Everything, Blockchain, Extended Reality, Complex systems, Systems biology, and Signal processing.