In September, diamond jeweller Samer Halimeh made the decision to start trading with cryptocurrency. Also, digital cash brand Dash has partnered with the National Association of Jewellers to specifically target the UK market. This all begs the question: is it time for jewellers to invest in cryptocurrency?
What is cryptocurrency?
Cryptocurrency is money which is secure through the means of encryption. Like certain files or web pages on the internet, it is coded to protect the person it belongs to. The owner of the cryptocurrency is identifiable by a unique and almost uncrackable code which is only made available to the people involved in a transaction. This mode of currency was made for digital transactions.
Where did it come from?
Bitcoin was the first form of cryptocurrency to be created and is probably the most widely known. It was first formed in 2009 by a developer – or group of developers – working under the pseudonym Satoshi Nakamoto. There are now roughly 900 different currency forms of the digital cash.
How does it work?
Cryptocurrencies allow users to make payments without having to disclose their name, details or go to the bank. It operates on a blockchain platform which lists every transaction which has ever taken place. It is a decentralised form of currency so there is no “bank” as such, it works as a peer-to-peer system. When one user wants to send digital cash to someone else as a means of a transaction, they publicise the details of the transaction which will be their public key, the recipient’s public key and the amount of cash being exchanged. Not all cryptocurrencies are equally anonymous as some require the provision of ID and others show some personal details.
How do you invest in cryptocurrency?
To invest in cryptocurrency means to hold a share in the company that owns that particular form. As with any other investment, a share will be worth a certain amount of money which can fluctuate over time. However, it differs in the sense that this share can be traded as money or used as an asset. They can be bought in ways usually seen with internet transactions – PayPal, bank transfer, debit cards – alternatively, they can be traded peer-to-peer, taken out from a Bitcoin ATM or paid for with SMS verification. Larger amounts are advised to be bought through brokers and some exchanges require a wallet to store cryptocurrency in first.
To look at it crudely, a large amount of the popularity of cryptocurrency may be down to early adopters of a new technology. But more recently, the value of cryptocurrencies has shot up meaning it has become more sought after. To give examples, in early May, Bitcoin was worth just under $1000, rocketing up to $4,440 on 14 August. The price of Etherum has risen by 4000% in the last year and Lite-coin by 2000%.
What is it worth?
This depends on the cryptocurrency you choose to invest in. The most popular form, Bitcoin, has the highest value and, at the time of writing, 1 bitcoin (BTC) is worth £4386.51. One Dash (DASH) is worth £203.63 and one Monero (XMR) is worth £64.74.
How is it better than traditional money?
It is very secure; because of the encryption factor, it is usually anonymous, harder to fall into a fraudulent transaction and it is near enough impossible for the currency to be stolen by another user. It is not directly linked to any credit, debit or bank details so not only does it not affect your credit, it has no attachment to your real life details.
Also, there is no third party. While third parties can be essential when it comes to internet trading to avoid being scammed and to find a solution when you are, this can also mean having to pay a fee to use the service. PayPal, banks and selling platforms like eBay take a cut from the price of items sold whereas most cryptocurrencies offer a direct method of exchanging cash for goods – it is simply the direct passage of money from one party to the other. There may be charges for certain cryptocurrency companies if you want to be paid in Sterling on a cryptocurrency transaction, but these tend to be relatively low.
On the other hand, there are some cryptocurrency services which do help users manage their wallets and while these services may incur fees, they are not completely necessary to complete a transaction.
With regard to the jewellery industry, some forms of cryptocurrency can be traded as assets themselves, as Dash crypto consultant Stuart Bean states, this particular cryptocurrency can be used as digital gold which can be traded, invested and holds the same value as a gold bullion.
Furthermore, because cryptocurrencies are web-based, there is no form of cryptocurrency which is unique to one particular part of the world. There is always the possibility that anyone anywhere can have access to the exact same currency as you without the hassle of exchanging or transferring money. With regard to Dash, Bean explains, “With very low transaction costs, businesses anywhere in the world can receive payments instantly and far more cheaply than with international wire transfers.”
Cryptocurrency is also an asset that the investor has full control over; because there is no third party involvement, no one else has a say over how the money is looked after. For example, PayPal may suspend an account which is seen to be trading against its standards, which is sometimes the result of a misunderstanding rather than deliberate misconduct.
Also all forms of cryptocurrency have a limit on the amount which can be created, which means that while its value may change over time, it is ‘inflation proof’.
How is it worse than traditional money?
It is still very new. Although it seems to be getting more popular, there will still be many people who are not using it. Without a reliable, existing customer base that you know are is already using the currency, it could seem like a useless investment in the meantime. Unlike the use of credit cards, debit cards or online money services like PayPal which still use recognisable forms of legacy currency, cryptocurrency is unlike anything we use in the physical world so it may still be a few years until it seems like a worthwhile business move.
Cryptocurrencies can be very confusing. While the process may seem similar to investing in stocks, in many ways it is also very different. It can take a while for a newbie to get their head around the different forms of cryptocurrencies before deciding which one is best to invest in.
It also isn’t exempt from being prohibited. The trading of cryptocurrency is allowed in most countries but there is nothing stopping the government from outlawing it – which has been done in China. While it is legal in Russia, it is illegal to purchase goods with anything other than Russian rubles and in the United States, cryptocurrency is seen as property rather than currency to regulate its tax status.
Though it is secure in a sense that it doesn’t affect the money in your bank, your cryptocurrency may be at risk if someone manages to hack your digital key or wallet. In addition, if you lose your own cryptocurrency key, this can lead to the permanent loss of your investment.
Although it may seem like an exciting time for cryptocurrency, the value of it is just as subject to dramatic drops as it is to its recent sudden increases. There may be a chance that the currency you invest in ends up being worth less when converted to traditional money than what you paid for it.
Also, as it works on a peer-to-peer network, there is not much regulation and it isn’t exempt from criminal activity. Fraudulent individuals can set up cryptocurrencies then shut them down without warning, leading to the loss of your investment. And just like any other computer files, cryptocurrency can also be lost as a result of malware. Without any third party or regulatory body, there is no mediator which can provide compensation, limit loss or bring charges to criminals.
Overall, while cryptocurrencies have their setbacks, they also have advantages and are clearly becoming a prominent form of currency. It can open any business or industry up to a whole new market on a global scale and provided enough research is done, risks are assessed and the right cryptocurrency is invested in, it can prove to be a savvy business move.