The ‘future of money’ will benefit from inbuilt safeguards

The interest in cryptocurrencies shot up significantly after Bitcoin hit a record high of $19,783.21 per coin in December 2017. Investors began to take a real close look at the potential returns offered by cryptocurrencies, with one renowned venture capital investor even making a bold assertion that the value of bitcoin, in particular, will reach $250,000 per coin by 2022.

For many, cryptocurrencies — such as bitcoin, litecoin, ethereum, dogecoin, stellar, and cardano — and the underlying blockchain technology are expected to reshape the business landscape amid continuous digital innovations.

A major downside, however, is that the industry remains controversial and unpredictable, making some investors wary despite the promise of ample profits. And they remain controversial and unpredictable because many cryptocurrency exchanges are still unregulated, which means that they are not obligated to disclose ownership or financial data, among others, as required in a regulated environment.

Regulations are critical to minimise risks, formalise the industry, and gain investors’ trust. A majority of the estimated 200 cryptocurrency exchanges operating today are reported to be unregulated.

Apart from regulations, security concerns are a stumbling block to the industry’s growth as well. The Middle East, Turkey and Africa region, for instance, saw a significant increase in crypto-mining attacks last year. According to Kaspersky Lab, the number of such attacks grew from 3.5 million in 2017 to 13 million in 2018.

Some countries, including Japan, have proposed frameworks and changes to current rules to accommodate digital currencies, but others have remained opposed to them because of the risks. Despite mixed reactions, the influence of crypto transactions is palpable in the world of business, with some going as far as proclaiming the virtual currency as the “future of money”.

Even in the GCC, while still at its infancy, the crypto industry remains a hot topic of debate. Saudi Arabia initially declared digital asset trading as illegal, effectively debunking claims by some companies that they were authorised to engage in such an activity. Later on, however, Saudi Arabia had a change in policy.

The Kingdom, along with the UAE, announced that it would launch a cryptocurrency in 2019 specifically for faster facilitation of banking and financial transactions rather than retail transactions.

More countries are expected to enter this space, either by introducing their own cryptocurrency, teaming up with relevant crypto firms, or investing in companies actively offering such solution. As it is, Microsoft and PayPal are now accepting bitcoins as a form of payment, while a growing number of leading international banks and billionaires have already joined the cryptocurrency space because of the sector’s potentials.

Moves towards regulating the sector are also gaining in light of increasing interest in digital money. Once regulations have been set, anxiety among investors is expected to ease. Stakeholders are also keen to close loopholes to beef up security measures and implement new mechanisms to guarantee safe investments.

Amid the steady mainstream adoption of cryptocurrencies due to attractive returns, the industry’s growth is going to be unstoppable. The future remains bright as the sector continues to evolve, improve, and develop.

Nidal Abou Zaki is Managing Director at Orient Planet Group.