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September 17, 2017

Cryptocurrency Explained

Bitcoin was created in 2009 by an anonymous individual (or possibly a group) under the pseudonym Satoshi Nakamoto – although the true identity of its creator is still unknown. Whoever ‘Nakamoto’ is or was, they hold an anti-authoritarian political and an extreme libertarian economic outlook digested from Ludwig von Mises writing. Von Mises was the professor of Friedrich Hayek, who shaped much economic landscape on his way to winning the Nobel Prize in 1974. As a result, many early users of bitcoin view it as project akin to the anti-authoritarian/anarchist/libertarian projects such as Silk Road; seeking to create a space on the internet without any state control. Thus, the anonymity of Nakamoto is important to many people who see bitcoin as a ‘system of mathematical proof that does not require trust. Bitcoin is a neutral framework of trust that can bring financial empowerment to billions of people. It works because it doesn't depend on any authority. Not even Satoshi's’. On the topic of state control, China have just announced a ban on cryptocurrencies, fearing its effect on the Yen.


In order for bitcoin to be created, programmers solve complex computer programs in a process called ‘mining’. This created bitcoin is then held in a secure digital wallet. It can be sold, swapped or spent, and its value has rocketed over the last few years and especially months. This is perhaps the main reason for the current media coverage surrounding bitcoin. In 2010, one bitcoin was worth $0.06. Today at the time of writing one bitcoin is worth $4323. It has no authority or central bank, and thus relies on a peer-to-peer network to underpin the system. This system is also called a blockchain, and this is, in essence, a very transparent way of storing data, and can be thought of much like a cloud-based filing system. Blockchains advantages are highly applicable to everyday transactions. A company called Province are already using blockchain to track food and drink. How do you really know that your coffee and bananas are fair trade, or that you’re not buying blood diamonds? You don’t. But with a blockchain that allows you to follow every part of the transaction, this becomes simple. People tend to believe that bitcoins allow you to hold money ‘anonymously’. Whilst, in essence, this is true as you do not need to have an ID linked to your online ‘wallet’, as soon as you start moving your bitcoins, a blockchain is created and the money is easily traceable.


Many very fortunate investors (perhaps better referred to in this case as speculators) have made enormous returns on bitcoin, often after having only acquired them to make a small, menial transaction many years ago. Currently, bitcoins application for our everyday life is fairly limited. But again, its uses are becoming more and more applicable for day to day life, with Microsoft, Dell and Virgin some of the household names beginning to accept cryptocurrencies. Even the governor of the BoE, Mark Carney said in June ‘There is more than a whiff of revolution in the air’, when discussing the avenues that the Bank of England is exploring with regards to how cryptocurrency can modernise, increase transparency and fundamentally improve central banks.


It seems that despite many doubters, bitcoin and other cryptocurrencies are here to stay. With evidence within our firm, Matt Sutton, recently acted for Vaultoro Limited on its seven-figure investment from Frankfurt-based FinLab AG.


Vaultoro is the leading real-time trading-platform for Gold and Bitcoin in the world. The investment has drawn considerable interest and will allow Vaultoro to invest in further expanding its Bitcoin/Gold platform.


Further information of our work on this transaction can be found at the following:


Gone are the days of people assuming bitcoin to only be of use for criminals and terrorists – its functionality and the advantages of the blockchain are becoming ever clearer, and whilst its ‘price bubble’ may not last forever, the cryptocurrency is most certainly here to stay. 


This article was first published on the 17th Sept 2017 on The Insider Media Website and can be read here.

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