The Rise of Blockchain & Cryptocurrency - Part 2 - Written For Business Insider Gulf

1. 73December 201672 December 2016
When Money
is No Object
The Rise of Blockchain &
Cryptocurrency: Part 2
By Jose Paul Martin
This is Part II of the two part series on Blockchain & Cryptocurrency.
In Part I, we introduced you to the concept of blockchain and how it
could form the building blocks of a new financial system. And why
banks are taking a great deal of interest in this, and the possibility
of this going mainstream as well as the three most promising
cryptocurrencies to keep an eye on. In Part II, we’ll touch upon how
you can buy, sell, earn or even trade and invest in cryptocurrencies
as well as how governments are viewing this new phenomenon
and the level of security this protocol provides.

2. 75December 201674 December 2016
Is blockchain
technology secure?
Yes & No.
Anything created by man, has its flaws.
Including the current fiat currencies we use.
Cryptocurrencies are not immune either
- Mt. Gox, the biggest Bitcoin exchange
disaster, in which almost 4 percent of the
finite supply of Bitcoin (at the time worth
$450 million) was lost through that exchange
- is just an example of how things can and
do go wrong.
Also with the DAO Hack (DAO stands
for Distributed Autonomous Organization,
an example of how a democratic
organisation can be set up) - millions of
‘dollars’ worth of Ether cryptocurrency were
removed or stolen.
And the most recent issue was with
Bitfinex (the largest cryptocurrency
exchange) and that caused the Bitcoin
cryptocurrency to fall by 30% before
recovering half way. This goes to show that
it’s not immune and hackers will do what
hackers do.
Think about this for a moment – building
trust, verifying, identifying, clearing,
settling and record keeping were done
by middlemen or intermediaries (Banks,
Google, Paypal, Uber, Apple) - but they’re
vulnerable to hacking as they’re centralised.
But because there are checks and
balances with Blockchain - the system
corrects itself. The proponents of
cryptocurrency believe that such issues
actually strengthen the currencies as it is
easier to trace the root cause of the problem,
unlike with existing systems such as SWIFT
- which took months before they even
disclosed that there was a hack.
So why would I spend all this time and
effort to talk about this? For one, you need to
know, just like I did. Technology will evolve,
and so will our love with currencies. What
comes next is anyone’s guess - but with this
knowledge, you can stay ahead of the 99%
before the crowd starts to pour in.
How can I start with
cryptocurrencies?
Opening a cryptocurrency “account” does
not require you to prove who you are, or
provide any sort of government ID, reference
or disclosure of financial information.
Although providing this will help the
companies that provide cryptocurrency
services, enable more advanced features - it’s
not a must, it’s optional.
Before you start, you’ll need a special
wallet – yes, somewhere to purchase
(receive), store or spend (send) and even
earn your cryptocurrency. These wallets
work both on your mobile or desktop and
there are some that are like USBs or what
we call hardware wallets. It’s like your own
private bank account.
The value of the cryptocurrency
coins stored in the wallet, could rise as
economic activity increases, even without
interest payment. This encourages people
to save instead.
You can check the price / chart of
these cryptocurrencies at CryptoWat.ch or
CoinGecko.com or TradingView.com or
check them against various fiat currencies at
BitPay.com to see how they’re doing.
How do you buy
cryptocurrency?
Ok, so once you have your wallet setup
– in order to fund it, you have to purchase
the cryptocurrency. Whilst there are many
options to do so, some are simple, some
require a bit of technical knowledge (and this
is where my tiff with cryptocurrency begins).
You can buy from private vendors
(exchanging your fiat currency for the
cryptocurrency) like LocalBitCoin.com or
even use a cryptocurrency ATM like the
Bitcoin ATMs popping up around the world
(see Figure 1).
You can also use an exchange service to
exchange one form of cryptocurrency for
another - which is what I’ve done.
What is
cryptocurrency
mining?
In order to bring this currency into
circulation, you require massive amounts
of computing power – remember this
is guided by mathematical formula. So
the process of making this calculations
requires a distributed network of
very powerful computers to verify
all cryptocurrency transactions. For
contributing to this processing power,
“miners” or individuals who share
their computer’s processing power are
rewarded with the cryptocurrency.
How do I use / spend
the cryptocurrency?
Your wealth has suddenly increased that
you’re itching to spend it. It’s the fruit of
your labour, why not? There is a growing
market of cryptocurrency accepting
merchants, even online retailer Overstock
is into the game and you can use Bitcoin
to pay for products sold on their site. As
this catches on, more and more will be
coming online. One such site is Gyft.com
- unfortunately, it’s only for those based
in the US (which is unfortunate for online
consumers). You could also sign up for a
BitPay Visa card that enables you to use
the card at any store or even withdraw
at an ATM - again, you can only sign up
with a US address.
HowdoIaccept
cryptocurrencyformy
products/services/
business?
Just like you would have a normal
merchant account, there are cryptocurrency
merchant services to enable you to setup
a payment gateway or shopping cart. Two
merchant services worth looking at are
Coinbase.com and Bitpay.com. Signing up
with BitPay is a straightforward process,
except you can’t add a bank account if
you’re based in the Middle East!
How do I trade /
exchange the
cryptocurrency?
In order to trade a crypto currency, you can
head over to Poloniex.com or Bitfinex.com or
for only trading Bitcoin, try Kraken.com.
How do I invest in
cryptocurrency?
Because of the restricted supply, the supply
and demand equation kicks in and as theFigure 1: Cryptocurrency ATMs around the world
“Those who purchase these cryptocurrencies
in the early days are fortunate enough to see
massive increase in value as it catches on - this
is part of what we call the network effect.”
Jose Paul Martin is a
private equity investor &
advisor with over 14 years
of experience in strategic
& financial advisory and
currently focuses on the
Information Technology,
Healthcare & Education. He
is also the Managing Director
of Eqoris Advisors - a
boutique corporate advisory
firm based in Bahrain.
demand soars as more and more people
use it as a means of exchange. Those who
purchase these cryptocurrencies in the early
days are fortunate enough to see massive
increase in value as it catches on - this is
part of what we call the network effect, i.e. it
becomes more valuable as more people start
using it. Take for instance the case of Bitcoin,
seen in Figure 2.
You see, as fiat currencies are suffering
from inflationary pressures and losing
value as more and more is being “printed”
i.e. increasing supply. The cryptocurrency
will also increase in value, because the fiat
currency is actually decreasing. And as the
demand for the cryptocurrency increases,
with more people exchanging goods and
What do I have to
worry about, is it
illegal or legit?
That’s a tough question. If you understand
the world of finance, you will wonder what
is legal and illegal. Is taxing an individual
legal, apparently some countries think it is,
while others think otherwise.
Whenever you talk about cryptocurrency
and the independence of the currency from
any government support - you wonder
whether it is legit.
Well, think of it like your PayPal account
where you have digital currency in either
US Dollars or Singaporean Dollars or other
currencies. Today, PayPal works with
various governments across the world to
make it more accessible. On the other hand,
Ripple, a new cryptocurrency, is doing this
today in the financial world… a smart move.
Unlike fiat currencies - cryptocurrencies
are not issued or controlled by a central bank.
However, there is a limit on the circulation
supply and it’s controlled issuance. Different
countries treat it differently. For example -
Switzerland treat it as currency, US treats it as
convertible decentralized virtual currency and
Australia treats it as an asset, not a currency -
and thus subject to taxes on the gain.
Governments are looking for ways to
tax citizens, to collect more revenue. It’s
a known fact. But what if you can’t tax so
easily - which is why gold was outlawed at
a point in time in the United States and how
many people were arrested? I’ve heard none.
And would it be used for illegal activity?
You might have heard of this thing called
The Silk Road, a black market which was
cracked down by the FBI… Well, money
knows no religion, race, it’s color blind and
doesn’t care who owns it. Just like a scalpel
can be used in the skillful hands of a surgeon,
it can also be used a weapon to murder
people. What you do with it is dependent on
the individual. But what is surprising is that
banks are now warming up to the concept of
Blockchain & Cryptocurrency.
Stay Abreast…
Keeping abreast of the developments in
blockchain and cryptocurrencies is going to
be a task in itself, so I’d recommend following
the headlines on CoinDesk.com. With each
day, developments are taking place and if
you’re going to be investing in blockchain and
cryptocurrencies - you might as well add this
site to your reading list.
Figure 2: Progression of Bitcoin’s value over the years
Figure 3: Gartner’s Hype Cycle of Innovation
services - you see a new dynamic play out.
But as in the case above, the cryptocurrency
is still in its infancy, being around for just
less than 5 years since 2011. Currencies
generally take time to mature, there’s a cycle
that should pan out. By the looks of it, these
cryptocurrencies are following the pattern
similar to that of Gartner’s Hype Cycle of
Innovation (Figure 3), as we enter the Slope
of Enlightenment and pass into the Plateau
of Productivity.
I’m guessing there will be a huge
interest in cryptocurrency in the coming
few years. And you should certainly be
looking out for asymmetric bets (i.e. where
you risk $1 to make $5, $10 or $100) so that
you can profit from it.