Making Sense of Cryptocurrencies: Part #1

What do you say when your client asks you about cryptocurrencies? In this short series of Global Business Voice (GBV) Business Alerts, we explore the unfolding phenomenon of cryptocurrencies, Bitcoin chief amongst them. We are aiming to demystify the topic and put things in layman’s terms. In this GBV we unpack Bitcoin mining and why being bad for the planet might burst the bubble.

Most people these days are familiar with the fact that a Bitcoin is an electronic token, with the supply limited and ownership determined by a blockchain algorithm. It is a decentralised system, and by its nature operates entirely outside any structure of supervision or financial regulation. It is said to be practically untraceable and offer anonymity.

Unlike a conventional currency, Bitcoin has no backing of any central bank or pool of resources, labour or even intellectual property. The curious truth is that Bitcoin (or any other cryptocurrency) only has a value to the extent that a counterparty is prepared to accept it for value. That being said, apparently even Goldman Sachs and Morgan Stanley are moving certain clients into Bitcoin – it really seems to have gained an element of mainstream in recent months. But doubts still linger over an investment that has no physical manifestation or regulatory framework. And now, questions are being asked about the environmental cost of Bitcoin mining. Oh, and other cryptocurrencies are also available. Actually, there are many.