Bitcoin has been around for a while, but it is just beginning to seep into the international banking system that some evangelists believe it was constructed to destroy.
Before we dive into the weeds, what is a cryptocurrency?
It is essentially both a commodity and a currency. There is no physical aspect to it – it is simply bits on a computer protected behind layers of advanced encryption. Cryptocurrency functions as a commodity because it only has value because people say it has value. It most resembles gold — in that it acts as a natural hedge against catastrophe. I sold my one Bitcoin the day of the Brexit referendum when it looked like the UK would stay, and the very next day, Bitcoin was trading for about $200 more than I sold it for.
Cryptocurrency is virtually impossible to fabricate, as a record of every transaction that coin was ever a part of is encoded into each unit into what is called a blockchain. This blockchain technology is weaving its way into every orifice of the banking industry and beyond, as it is the greatest innovation to date for ledgers. Get used to hearing the word.
They’re becoming so widespread that Business Insider reported on a new cryptocurrency hedge fund based out of San Francisco today, per Rachael Levy:
A 27-year-old has raised $10 million for an unusual hedge fund – with support of venture capitalists like AndreessenHorowitz and Union Square
This builds on the other big news in this space from the week: a Taiwanese blockchain consortium is integrating itself into the country’s regulatory structure. Per CoinDesk:
A consortium of Taiwanese financial institutions developing blockchain services is on the verge of entering a newly created safe-haven for FinTech startups.
Announced discreetly earlier this month, the Amis blockchain consortium currently consists of six local financial institutions and the Industrial Technology Research Institute of Taiwan, but has aired plans to go international.
Having already constructed a consumer-facing, peer-to-peer payments platform using Microsoft’s Azure blockchain-as-a-service platform, the consortium’s CEO, Alex Liu, told CoinDesk the move to the sandbox is part of the group’s plans to eventually commercialize its proof-of-concept in a global market.
This news is sure to dismay the more libertarian-minded early adopters of cryptocurrency, who believed that they had discovered an avenue outside of the international banking system. We’ve since seen that there is a ceiling to how mainstream they can get when operating outside the bounds of laws that business must work within. At the very least, the news out of Taiwan will provide us with a proof of concept as to how this would work under a regulatory structure. Most blockchains are being developed in-house, and the writing is largely on the wall for cryptocurrencies like Bitcoin: adapt, or J.P. Morgan will build a better model for themselves.