by Ralph Staniforth

DIGITAL ECONOMY

The flight of crypto

Gordon_Angus_(CCO)_Ed_O'Reilly_(COO)_Mike_Scott_(CEO)_preview.jpg

Only a few short months ago, the gossip around the house was still about the neighbours, braais were still dominated by the Springboks poor performances or the Proteas who are on the up. How times have changed. Suddenly, no matter where you are or where you look, the talk of the town seems to come down to one subject—Bitcoin.

Social media has been overtaken by many “experts”, while some rush to get their quick investment in. The thought of a quick buck can send many into a tailspin. Some of those who jumped in without care or thought have already learnt their lesson.

It was a very small portion of the population that can claim to be regular investors in coins—it is a slightly bigger small portion now but many have spoken, offered opinion and then decided to rather not get involved. So, is it a good idea to get involved, or will the Bitcoin crash like the many “experts” predict?

Well, firstly, what seems clear is that no one can with 100% clarity tell you what will happen in terms of crashing or not crashing. Those who understand it best are the ones who won’t tell you to invest or not to invest, but rather inform you of the possibilities and the risks involved.

In order to understand this new phenomenon a little better, Mike Scott, CEO of the Cape Town-based technology company, Nona Creative, shared his insights.

Despite the recent outpour of headlines, Bitcoin is not new on the market. A quick Google search will show you there are around 1 465 other coins on the market.

Scott, who has extensive experience in the game says he got involved in 2012. Unfortunately for him, back then, it wasn’t all fun and games.

“As exciting and romantic as it sounds, it was actually a disaster—we bought in and almost immediately it crashed quite dramatically before stabilising for two years. So, as great as people think it is, it actually took a lot of fortitude to hold on for so long when nothing was happening,” says Scott.

Bitcoin has created awareness around cryptocurrencies now. People are talking about it and maybe starting to understand it better, but Scott believes that a dangerous precedent has been set.

“I think a lot of people are investing just because other people are investing, which is dangerous, it is very dangerous,” he cautions.

Cryptocurrency is known to be very volatile, which adds to the risk investors take. This ensures that plenty of research is required before getting involved. However, Scott believes that while it will always be volatile, Bitcoin will be stabilised by the institutional money coming into the space. As of 18 December 2017, Bitcoin was launched on CME Futures market, “which allows Wall Street to trade on Bitcoin value without actually owning Bitcoin,” he explains.

According to Scott, this will bring “smart money” into the space. At this point, post all the positive reviews and headlines, the money coming into the space has mainly been from people “thinking they have missed out on this opportunity and better invest now, while not quite understanding what they are investing in,” he says.

Scott continues, “When you open this up to Wall Street in the Futures market, it is really clever, smart money trading—these are like Algorithmic traders, these are Macro’s traders, these are guys that know what they’re doing when it comes to trading volatility and when it comes to trading any financial instruments, so I think that will massively increase the price, and at the same time decrease the volatility, which is obviously a very good thing.”

Many experts have called this a bubble while others have claimed that Bitcoin has probably reached its peak, and while Scott doesn’t completely disagree with this assessment, he firmly believes that Bitcoin still has a fair way to go.

Scott explains, “I just don’t think we have scratched the surface, with regards to cryptocurrency, yet. So, if you look at the market capitalisation, I think we’re sitting on around US$540 billion in total crypto market valuation.

“You know, the Dotcom bubble—I stand to be corrected—but I think that it was over US$1.6-trillion when it burst, and that was just in America, crypto is the world over.

“What I’m essentially saying is that there is a lot of hype and I do think many people will lose money because they are not prepared to do the research to understand what they are investing in, but I also think there are some pretty amazing technological advancements coming out of this, much like what happened in the Dotcom boom, Amazon, Facebook, Google, AWS—they all came out of that and similarly, I think the decentralised technical world is what’s going to come out of this ‘bubble’,” he explains.

Despite many people’s reservations around cryptocurrency, Scott believes that there is a bright future. If his observations become reality, it might have a few people on the edge of their seats. With the digital trust it has built up, you technically do not need third parties such as banks and insurance companies anymore.

“I want to be clear, I’m not saying that insurance will no longer be required, but the middleman will no longer be needed.

“There are many very interesting start-ups going around now, they are being referred to as IPOs, but essentially they are start-ups. A good example of one is Fizzy, I think they are an American company, which does flight insurance.

“So what it does is, it uses the Ethereum (crypto) smart contract to remove the need for a third-party trust centre in insurance contracts. What happens is, I want to fly to London, I book my flight, then go to Fizzy, it’s a very simple user interface, you don’t even know that you’re using blockchain, which is actually really good. As with anything, you decide if you want to use them and if the answer is yes, you pay your premium to, for example, insure you for 2 000 pounds if your flight is delayed by more than two hours, but what you’re really doing is you’re entering into a smart contract that is now binding on the Ethereum network, and while you’re entering into an auto-executing un-editable single source of truth powered by the block-chain.

“Now, typically what would happen is the flight would be late, I would then have to phone an agent, I would have to say, ‘Hey, my flight is delayed’, and I would probably have to fill out some paperwork and hope to get paid in the next day or two or week.

But now what happens, it’s completely automated, the flight is missed, the smart contract thinks an oracle, which in this case would be the flight database, it thinks, ‘Oh, that flight number is late’, it automatically executes the contract, automatically initiates payment and everything is 100% frictionless with no people required at all. It’s 100% legally binding, which is absolutely amazing, so you’ve completely removed the need for a third party to sit in the middle with that transaction, which could probably apply to most financial institutions,” Scott enthuses.

Blockchain

However, for the average South African, cryptocurrency is new. What is even less understood is blockchain technology, the driving force behind cryptocurrencies.

“What we are really passionate about is the blockchain and there is definitely no bubble there, that is here to stay—it is really a little irresponsible to see crypto as its own thing, we have to consider all things together and as long as blockchain is around, crypto will be needed to fuel it,” Scott explains.

During the first quarter of 2018, Nona Creative will be running a course for people interested in crypto but more specifically, blockchain technology. Scott is keen to stress that while they as a company enjoy crypto as it is fun and intellectually stimulating, it is really the blockchain that they are interested in. This course will cover both aspects, but it is with blockchain experts that they want to align.

The problem, Scott explains, “Is that one has to be very careful in this space. You don’t want to be advising people who really cannot afford to get involved—one should only get involved with money you are prepared to lose.

“You has to be very careful—some people think they are now amazing investors because they invested in Bitcoin and then it happened to go up 150% in a month—it is not intelligence, that is luck. It happens, and good for them, but you cannot suddenly think you can quit your job because this game is easy.

“It is a different story if you can say that over the last six months, I have averaged X profit due to the strategy I took on my investments.” It is clear, according to Scott, that the question shouldn’t be which crypto, or how much crypto one should invest in, but questions should be based on educating individuals on the crypto and blockchain space.

Nona Creative is not telling people how to go about it, but rather showing them. Last year, they were the first company to buy out a shareholder using solely Bitcoin. Other than for business reasons, it was done this way to show people how simple it actually is to do these sorts of transactions.

Currently, Scott says they are working on something which he cannot share much about right now, but it has to do with a mechanism to do cross-border transactions using crypto throughout Africa.

We might be getting a good glimpse of the future here, or maybe the future is here. Depending on how things go, we might very well all be using these transaction methods shortly. 

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