The future of cryptocurrency

Cryptocurrency was meant to be a new, decentralised, boundary-less form of currency that removed “too big to fail” institutions from the money chain completely, and operated on a peer-to-peer (P2P), public distributed ledger. Following the near collapse of the global financial system in 2008 as a result of the greed of the “too big to fail” institutions, the experiment was and is of merit.

The future of a digital economy is in an interesting place internationally, with opposing views on the future of Bitcoin (the first widely-recognised digital currency), digital currency in general and the public ledger (Bitcoin’s ledger is blockchain) itself.

On the one hand, many believe digital currencies have failed. In mid-January, Bitcoin expert and developer Mike Hearn declared Bitcoin finished. His post is an interesting read.

Beyond the views expressed in the post, Bitcoin faces additional challenges. Russia’s Ministry of Finance is pushing for amendments to the Criminal Code of the Russian Federation by proposing two-year sentences for Bitcoin users. Sources say the Russian Interior and Finance ministries view cryptocurrencies as a threat to national security and the Russian economy.

In contrast, Japan's largest bank, the Bank of Tokyo-Mitsubishi, has announced it is developing its own digital currency, which they have called “MUFG coin”. It will initially be used as in-house tender to reduce financial transactional costs of remittance and transfers, but the bank also sees future potential for MUFG coin to be issued to customers.

The central bank of China, the People’s Bank of China, has also announced plans to release its own digital currency. Among other things, it will increase the central bank’s control over money supply and circulation – the opposite effect of the intended purpose of digital currency.

In Australia, it seems our leading banks have some belief in the future of digital currency, investing and participating in digital currency infrastructure.

Westpac’s venture capital fund Reinventure Group invested in a Bitcoin wallet and exchange service called CoinBase in 2015. It has also partnered with Ripple Labs – a variance of the P2P model that offers financial institutions a way of transacting with one another without a central counter-party or correspondent – in a bid to reduce transactional costs.

CBA has also partnered with Ripple Labs, and ANZ is said to be trialling the technology.

NAB says it does not trade in unregulated currencies.

While the infrastructure is being explored, it seems Australia’s banks are more conservative about the digital currencies themselves, and have closed bank accounts of many of the country's Bitcoin exchanges without warning or explanation beyond broad statements of “increased risk”.

Some might conclude the closures were aimed at preventing competition in the sector, with banks protecting their own current investments and future control of the space. Late last year, the ACCC launched an investigation into the matter, and the findings are still pending.

Whether digital currency is a currency itself, an asset or a commodity, appears confusing. In August 2014, the ATO declared that Bitcoin was not a currency but an asset. 

The future of cryptocurrencies is at an interesting stage in its evolution, and time will eventually reveal the result.

Troy McErvale is the founder and managing director of Freedom Home Loans and My Personal Lender, a combined mortgage broker and mortgage management business in Australia started in 2001. Since 2010, the company has offered an expanded service to include mortgages for foreign owners of US property, as well as US property consulting services to high net worth clients.