How digital money will shape our future

Only two years ago most of the people had never heard about cryptocurrencies or had foreseen the development of digital money as we experience it right now. When in 2010 the first public payment transaction with Bitcoin had been done there was no public awareness with regards to this new finance chapter in how it could have defined the way we use money. What impact has digital money such as cryptocurrency in day to day life and in our future?

Stefano Virgilli: For those who are not familiar with cryptocurrencies what are the main characteristics and what the average Joe needs to know?

Joerg Haupt: It is quite complex, but I will break it down to 7 major characteristics:

1. Cryptocurrency is operating outside the money monopoly of the banks.

2. Cryptocurrency is basically independent from political aspects.

3. Cryptocurrency is decentralised and without boundaries. 4. As Cryptocurrency is based blockchain technology manipulation impossible and a high level of security granted.

5. The number of Coins (this is how the unit of a Cryptocurrency is called) are limited or restricted by democratic rules on is is which are defined in the blockchain. With this measure in place, any expansion of money supply is not possible.

6. It allows free convertion into other Cryptocurrencies and/or Fiat money.

7. Transactions are based on peer-topeer 24/7, 365 days a year.

To summarise, Cryptocurrency is global private market money which provides a high level of privacy and security.

Stefano Virgilli: Bitcoin was the first mover in the field of cryptocurrency but meanwhile there are more than 3,000 different crypto currencies available on the market. What are the differences?

Joerg Haupt: Not every cryptocurrency is public. There are about 700 different crypto currencies which are registered in a cryptocurrency exchange platform but only about 100 of them have a noteworthy turnover. Basically all the coins born after Bitcoin had the chance to learn from Bitcoin experience and are operating on level 2.0, as in a new stage of development. There is already level 3.0 on its way to endeavour the world. One international provider launched recently a hybrid-cryptocurrency combining the aspect of an intrinsic value (80 per cent of the purchase price is invested in a value basket holding precious metals and other currencies) of the traditional money system with the features of a blockchain based cryptocurrency.

Beside technical questions, one of the major aspects to qualify as a cryptocurrency is the market development strategy. In which way is a cryptocurrency organised when it comes to attracting users and merchants willing to accept it for their products and/or services? This is a crucial aspect that could determine the success or the failure of any cryptocurrency.

Stefano Virgilli: Looking at the market capitalisation of cryptocurrencies we ahve experienced a growth from $25 billion at beginning of this year, to about $100 billion by end of June. What are the reasons for this enormous development?

Joerg Haupt: Almost on a daily there are news about Bitcoin and basis other cryptocurrencies. Japan accepted Bitcoin as official currency, Australia followed as from July this year and even India legalised Bitcoin. Following up on this aspect, there are more and more merchants around the world who welcome Bitcoin as a form of payment. Other cryptocurrencies have gained traction based on the the success of few. Those events drove high the demand and the price of some cryptocurrencies skyrocketed. Such performance have to be assessed carefully.

Stefano Virgilli: How do you future of cryptocurrencies?

Joerg Haupt: We are at the doorstep of a major change in how we are going to use money in future. The traditional (fiat) currencies as we all know them, are the “one fits all” instruments. We may be using different currencies, but they are all based on the same concept: it is a central bank money plus credit money created by the banks. In future we will see that people are using different money and different currencies as a bundle of functionalities based on their individual strategy.

To me it is clear: the future of money is digital currency. Based on the 2015 data of the BIS, the worldwide volume of our money (M1) is about $80.9 trillion. Let’s assume that within the next 10 years the part of complementary currencies will only be 5 per cent — we are talking about a $4 trillion market! It is certainly something to see the look forward to.

Stefano Virgilli: What potential impact has cryptocurrency onto the countries of the Middle East?

Joerg Haupt: There is a special aspect with regard to Sharia conformity. First of all a cryptocurrency is a so called “full money system” and not related to any credit or loan which involves interest fees. In regard to the previously mentioned hybrid cryptocurrency, it provides an intrinsic value mostly based on precious metals. Further to that I see that the peer-to-peer functionality allows payments around the world. According to the 2015 database of the World Bank the volume of the remittance flow out of Arab countries (namely UAE, Yemen, Saudi Arabia, Qatar, Oman, Kuwait, Jordan, Bahrain and Iraq) was about $101 billion — Oman $10.991 billion.

Stefano Virgilli: How one can participate in future development of cryptocurrency?

Joerg Haupt: Those really interested should definitely grab information from the Internet and watch videos about cryptocurrencies.

But be careful when it come to choosing the service provider, as one of the major issues in this field is the conformity with the existing laws regarding money laundry and restrictions of financing illegal operations. There are several ways in participating but it is hard to find a qualified consultant providing valuable advice.