The digital currency Bitcoin, which allows users to send payments within a decentralised, peer-to-peer network, is unique in that it does not require a financial institution clearing transactions.
Furthermore, every satoshi — the smallest unit of bitcoin — is tracked through the whole transaction chain.
Gaining popularity around the world, a Dubai food outlet has also started accepting bitcoins.
However, the cryptocurrency has come under fire recently. Should you invest in bitcoin? GN Prime engages three insiders.
It delivers quick results
John Cromwell Ong, Dubai-based entrepreneur
I can’t find any other business to invest in that offers such high returns and that I am in full control of, except in cryptocurrency. I doubled all my investments in less than six months. But like all other investments, invest only what you can afford to lose. It is important to understand the way it works before doing anything.
One of the advantages of Bitcoin is its low transaction fee of Dh2.50. Compare that to PayPal, which charges 3.4 per cent plus Dh1.25, or Western Union, which charges a minimum of Dh20 to send money. You can also transfer funds anytime, anywhere.
On the downside, the currency is prone to volatility and speculation. Moreover, institutions and merchants are reluctant to use the cryptocurrency. But the end-user adoption rate is very high, so they will eventually understand the value in these transactions and adopt it.
As for Bitcoin’s future in the region, my partners and I are investing in a start-up called Dubit, which will bring transaction facilities to merchants and end-users locally. It is also a great way to put Dubai on the world map again.
At risk of unsustainable growth
David Woo, FX and Rates Strategist, Bank of America Merrill Lynch
Bitcoin could become a major means of payment in e-commerce and may emerge as a serious competitor of traditional money transfer providers. As a medium of exchange, it has clear potential for growth. There’s much speculation that it may help avoid high taxes, capital controls and confiscation. The correlation between the Chinese yuan’s share of volume of all bitcoin exchanges and the price of bitcoin is rising. That said, the fact that all bitcoin transactions are publicly available and that every bitcoin has a unique transaction history that cannot be altered may ultimately limit its use in the black market.
Bitcoin’s role as a store of value can compromise its viability as a medium of exchange. Its high volatility, a result of speculative activities, is hindering its general acceptance as a means of payment.
Is Bitcoin a bubble? Assuming it firstly becomes a major player in both e-commerce and money transfer and secondly, a significant store of value with a reputation close to silver, our fair value analysis implies a maximum market capitalisation of bitcoin of $15 billion or about Dh55 billion (1BTC = $1,300). This suggests that the hundredfold increase in bitcoin prices this year is at risk of running ahead of its fundamentals.
It isn’t quite viable just yet
Tim Searle, Dubai-based CEO of Globaleye, a wealth management firm
As with any new innovation, particularly in the financial world, one has to have a pragmatic approach and ensure they fully understand the implications of getting involved. The currency/FX world can be exciting enough even for the most seasoned investor, so a new arrival in this sector can only be considered speculative at best.
Without any central bank oversight, Bitcoin is unlikely to garner support at a federal level, and without government backing, it’s unlikely to offer any protection on the downside either through market fluctuation or more nefarious factors. The recent Mt Gox closure only adds more fuel to the fire of this argument.
Conversely, supporters will argue that traditional forms of money are also flawed since, in the aftermath of 2008, central banks have been pumping bundles of cash into the economy, essentially devaluing it.
Whatever your view, it is going to be some time before the naysayers and tech geeks have ironed out the viability of the bitcoin to the point it becomes an accepted form of payment.
