Crypto Currents

The original plan for this issue was to cover the main trends from last week's Money20/20 conference and get a sense of how banking, payments, and FinTech have evolved over the last year and what the year ahead looks like.

I saw more multi-purpose banking and payments apps. I heard many people talk about the need for financial literacy and the importance of financial inclusion, themes that were barely mentioned at all last year. I also had conversations about banks and startups collaborating more, with startups doing a single function very well and banks playing the role of app curator for their customers.

And of course, I heard a lot of talk about initial coin offerings (ICOs) and the rise of crypto currencies, including the introduction of a cross-blockchain currency Metronome, from Chicago-based Bloq.

The main thing I took away: cryptocurrencies are best described as a new asset class.

With this foremost in mind, I decided to circle back to cryptofinance articles I have tagged over the past few months that attempt to explain the rapid rise of bitcoin this summer, along with ICO mania. This is where I started three years ago: the rise of bitcoin, the disbelief of global bankers, and the beginnings of payments partnerships with tech companies.

Here's a recap of articles that capture pieces of the current crypto currency economy:

A basic, rational explanation of cryptocurrencies
In an open letter to Jamie Dimon, following his comments on bitcoin, Adam Ludwin, CEO of Chain, a crypto asset firm, provides an introduction to crypto currencies and decentralized software and services. It's rational and balanced, as evidenced by the opener:

"It’s easy to believe cryptocurrencies have no inherent value. Or that governments will crush them.

"It’s also becoming fashionable to believe the opposite: that they will disrupt banks, governments, and Silicon Valley giants once and for all.

"Neither extreme is true.

"The reality is nuanced and important."

An introduction to cryptocurrencies and ICOs
Grant Hummer leads the San Francisco Ethereum Developer's Meetup and writes for the EconVue blog. In this primer, he steps you through blockchain, bitcoin, Ethereum, smart contracts, and ICOs, of which he writes, "The premise is simple - users send one of the larger, more established cryptocurrencies (such as Bitcoin or Ethereum) to the [investment] project in question, and the project then gives the user some amount of tokens in proportion to how much cryptocurrency was sent in." The tokens become more or less valuable as an investment in relationship to the ultimate success of the project.

A regulatory summary and analysis of ICOs
FinTech analyst and investor Pascal Bouvier summarized the legal and regulatory issues of ICOs in a post on his FiniCulture blog in September: "I think we can safely state the ICO craze has happened swiftly, over a short period of time, and been very “successful” based on one KPI: the amount of capital raised. We can also safely state the overt activity has been illegal (speculation) and that inevitable failures will occur thereby threatening sound and needed experimentation."

An introduction to banking and digital currencies
This debrief from the “Banking Digital Currencies” seminar hosted in Chicago on June 5, 2017, by the Digital Currency Group serves as a primer designed for bankers on bitcoin, distributed ledgers, and payments. Included are perspectives and progress on digital currencies from Silvergate Bank, San Diego, and Burling Bank, Chicago.

The beginning of futures trading in crypto
"It was only a matter of time until Chicago got in on bitcoin," reports Quartz. "The city has been coming up with things to trade, like pork bellies or onions, since the 19th century, enabling traders to bet on what prices will be at a later date though futures.

Chuck Mackie, writing for the Maven Wave consultancy, provides an update on bitcoin trading from the recent Futures Industry Association Expo. The most articulate champion for cryptocurrencies, he writes, described "how bitcoin has taught all of us that crypto value is backed by people and that we don’t have to settle for money that is green." 

A history of bitcoin as a currency
Now let's go back to 2014 for a view of bitcoin and the history of money. Jeffrey A. Tucker of the Foundation for Economic Education writes, "In other words, once you account for the razzle-dazzle technical features, bitcoin emerged exactly like every other currency, from salt to gold, did. People found the payment system useful, and the attached accounting was portable, divisible, fungible, durable, and scarce. . . . This money has all the best features of money from history but adds a weightless and spaceless payment network that enables the entire world to trade without having to rely on third parties."