How is blockchain technology and cryptocurrency changing business?
William Mougayar joins the Capital Gains podcast to help investors understand blockchain and cryptocurrency beyond the hype.
Blockchain allows any two parties to send and receive money without having anybody in the middle. It removes the intermediaries, such as banks and financial services.
Transactions are validated and authenticated on the blockchain. It might take a number of years for intermediaries to be removed, but it is a possibility.
Banks and financial services roles will be challenged, and the lag between clearing and settlement of transactions is shortened and done at a lower cost with blockchain.
Blockchain does the job of validating identities, checking the authenticity of parties involved, and validates the transactions.
Why blockchain technology has limited risks
As blockchain is a distributed network, transactions that take place don’t fail and it does its job. The bad things that happen include security breaches and hackers, but they are not related to the blockchain.
One weak point with blockchain is scalability, but this will be resolved over time. William compares this to the internet, as the scalability of this was also solved as years passed.
Cryptocurrency is more secure than our current banking system as everything is transparent. All transactions are out in the open, meaning limited crime or money laundering. It is not easy to lose track of money on a blockchain like it is in our banking system.
What the future of blockchain looks like
A year ago, the cryptocurrency market was worth around $12bn. Now, it’s worth around $100bn.
New wealth is being created from cryptocurrency, which is making the value go up. Money is being reinvested into the thousands of new blockchain startups, ideas, and applications.
William says it’s too early to predict whether there will be some kind of standardization or merger amongst cryptocurrencies, but the current trend is to have multiple as they have different functions.
He speculates that there will eventually be government regulations put in place in the mid- to long-term, but at the moment people are watching the market and trying to understand what’s going on.
Bitcoin vs. Ethereum - the two dominant cryptocurrencies
Bitcoin is the oldest blockchain and has been in operation since 2009. Ethereum is newer and has been in operation since 2015.
Ethereum is more of a software development framework and is more popular with developers. Bitcoin was created just to be a currency. It does have development capabilities but it has a more cryptic language.
William says the trend seems to be in favor of Ethereum in terms of developing applications on a blockchain. It is being accepted inside banks and big companies, as it’s easier to run a private version than Bitcoin has the capacity to do.
Both are viable blockchains and are the two dominant ones at the moment. The measure of a successful blockchain is the ecosystem behind it - the users, developers, capital being invested, and adoption of technology by enterprises.
Are cryptocurrencies a viable investment asset class?
William says that if you look at the first 100 cryptocurrencies, only around 20 of them are in the operational stage. This makes them a speculatory type of investment.
The valuation of these blockchain technologies is currently ahead of the true value of the companies behind them.
The expectation with the high valuation on so many cryptocurrencies means they won’t be able to sustain the figure without users and developers. There may be a few hundred companies emerging from this phenomenon, but all may not succeed.
William recommends that, if you’re interested in investing in cryptocurrency, you keep reading and educating yourself on the space.
Don’t believe everything you read, as there is a bit of hype around the market at the moment. And don’t be greedy. If you make a gain, don’t be afraid to take it out.
Connect with William Mougayar
For more information on making the right investment decision with cryptocurrency, go to William’s blog at http://startupmanagement.org/blog/
Connect with Jonathan Twombly
Find more great content from Jonathan at www.twobridgesmgmt.com.