How Cryptocurrencies are Affecting Traditional Markets

In December 2017, the cryptocurrency market value surpassed $500 billion for the first time – an increase of more than 2,700% when it was just $17.7 billion at the year’s start.

Furthermore, cryptocurrency trading platforms within the global market have reported adding more than 100,000 users per day, causing Binance – the global market’s largest cryptocurrency exchange – to temporarily disable new user registration at the beginning of 2018 due to an overwhelming surge in activity (reporting some 250,000 new users within a 24 hour period).

Given that cryptocurrencies have only really begun to catch on in the past year, it’s hard not to find these numbers staggering. As an article in The Motley Fool states:

“…a half-trillion dollars in value is now being assigned to digital currencies. By comparison, it’s taken the broad-based S&P 500 decades to deliver the same returns that some virtual currencies have returned in less than a year’s time.”

With such exponential growth and a surge of interest among the general populace, there are bound to be ripple effects. Indeed, while the full impact of cryptocurrencies has yet to be realized, they have already begun to disrupt the status quo – and show little signs of slowing down.

Perhaps the most obvious industry affected is banking, as cryptocurrencies pose a significant threat to a bank’s authority by circumventing the established financial system. Traditionally speaking, banks have acted as an intermediary between two parties, forming a centralized payment system that securely processes payments. Cryptocurrencies, however, eliminate the need for an intermediary by operating under a decentralized payment system that allows for a direct peer-to-peer exchange, recorded on a secure ledger that is foolproof and unable to be manipulated.

As the Bank for International Settlements (BIS), which is jointly owned by the world’s leading central banks, recently noted: cryptocurrencies could pose “a hypothetical challenge to central banks, not through replacing a central bank with some other kind of central body but mainly because it reduces the functions of a central body and, in an extreme case, may obviate the need for a central body entirely for certain functions.”

Operating in a decentralized system also creates the opportunity for people who are currently excluded from the financial system to participate in the global economy, ensuring easy and secure access without the oversight of banks and credit card companies. By the World Bank’s estimate, that means that over two billion people could be added to the global economy, leading to the formation of micro-economies in some of the most remote parts of the world.

Cryptocurrencies are also disrupting the global real estate landscape, offering the possibility for quicker, cheaper and more efficient transactions. Indeed, as a piece from Mansion Global reports, more and more luxury properties are being purchased with bitcoins – the most popular cryptocurrency – and offered to buyers in cities such as Los Angeles, London and Miami. Similarly, developers have started accepting bitcoins for new projects in New York and Dubai. 

With a peer-to-peer system that allows for the direct and secure transfer of funds, property titles and data without copious amounts of paperwork, cryptocurrencies could essentially replace the real estate middle man, such as brokers, escrow agents and banks. They’re particularly beneficial for international sales, allowing for an instantaneous transaction without having to worry about currency conversions or wait for transfers between foreign banks. For instance, according to this article from National Mortgage News, the startup Propy recently sold an apartment in the Ukraine through its blockchain, the technology behind crypto currencies that ensures the security and trust of the transaction.

While we are only beginning to see the impact of cryptocurrencies across multiple industries, it is hard to ignore the attention they have garnered. Deemed a “Disruptive Force,” the “Next-Generation Gold,” “A Permission-less Innovation”, and “The Future Currency of International Business”, surely cryptocurrencies – and the technology underpinning them, blockchain,  – are here to stay.

For more information on managing your company’s cryptocurrency infrastructure, contact Treehouse Technology Group.

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