The Crypto Gold Rush

by: Joanne-Lee Marshall

Date: Mar 08, 2018

RMI Investment Managers recently hosted a panel of leading cryptocurrency experts, Ran Neu Ner, ex-CEO/founder of The Creative Counsel and host of CNBC show Crypto Trader, and Lorien Gamaroff, founder/CEO of Bankymoon and co-founder/CEO of Centbee. The two specialists shared insights with wealth managers on the world of cryptocurrencies and blockchain technologies.

 

Biggest revolution of our time

 

World leaders are calling bitcoin a fraud but Neu Ner believes it is irresponsible for financial institutions not to hold bitcoin. “They have a fiduciary duty to buy bitcoin and at least try it, even if they don’t believe in it”, he said.

 

 

“Financial institutions have a fiduciary duty to buy bitcoin and at least try it, even if they don’t believe in it” Ran Neu Ner

 

According to Neu Ner, bitcoin is the fastest growing asset class in history and its advent will be the biggest revolution in our lifetime. “It’s going to make the internet revolution look like child’s play”, he said.

 

He believes that cryptocurrencies have such capacity to disrupt the world, that there may no longer be the need for institutions like banks (at least in the form we currently know them) in time to come.

 

Gamaroff however, believes there is too much hype around the subject and that it won’t make financial institutions obsolete. “I’m sceptical that bitcoin is the one thing everyone must drop everything for and start investing in. The cracks are already starting to show”, he said.

 

Behind bitcoin: blockchain

 

Bitcoin is just one of more than 1,500 cryptocurrencies in circulation; the market as a whole is worth in excess of $459 billion. Key to understanding how these cryptocurrencies work is a grasp of the technology behind them: blockchain.

 

“To understand blockchain, you have to first understand the concept of centralisation”, according to Neu Ner.

 

He pointed out that in a centralised financial system, there is a central body (such as a bank) that determines fees, stores information about transactions on a central system (which can be vulnerable to issues such as hacking) and generally implements a censorship mechanism which can decide whether or not a transaction is processed. Importantly, there is also one centre of contribution.

 

“As an individual, you can’t contribute to a bank’s array of products by adding your own product to their selection. Only the bank can ever decide to offer something new”, he cited as an example.

 

Decentralisation = no central body

 

In contrast to how today’s financial system operates, blockchain works on a decentralised system whereby there is no central power to determine fees, record or censor transactions, or significantly, to limit contributions. Anyone can create a cryptocurrency or join an established network.

 

Blockchain records transactions in a decentralised manner for peer-to-peer electronic cash systems like bitcoin, in which there is no “trusted” third party (like a bank) to do so. Instead, a network of connected individuals called miners, record and confirm the transactions.

 

“Blockchain is a tool to make your business more efficient, to decrease the cost of transactions and increase the security of your information” Lorien Gamaroff

 

 

“Blocks” of these transactions are dated and time stamped by the miners, with the first miner that confirms the block “rewarded” with bitcoin (currently 12.5 BTC).

 

“Blockchain is a tool to make your business more efficient, to decrease the cost of transactions and increase the security of your information”, according to Gamaroff. “It works best when there are no trusted participants in the transaction”, he said.

 

Which cryptocurrency will dominate?

 

In Gamaroff’s view, it will be cryptocurrencies though, not blockchain, that will have a radical impact on the world.

 

He believes that cryptocurrencies have come about as a solution to a widespread erosion of faith in today’s financial system given the prevalence of hyperinflation and bubbles in nearly every sector imaginable.

 

“I believe 99% of cryptocurrencies will die. The most useful one will come to dominate and be used by people throughout the world. The question is, which one? Controversially, I don’t believe it will be bitcoin”, he said.

 

Bitcoin’s transaction fees are too high and the processing is too slow, according to Gamaroff, which is why he is an advocate of bitcoin cash. Bitcoin cash is an offshoot of bitcoin that doesn’t charge a transaction fee and makes use of bigger blockchains in order to process more transactions at a time.

 

“More and more merchants are coming out in support of facilitating bitcoin cash transactions”, he said.

 

Gold rush

 

There is an element of mania surrounding the blockchain and cryptocurrency topic reminiscent of Johannesburg’s gold rush of the late 1800s.

 

While it is too early to tell where this technology will lead us, there can be little doubt that it has the potential to disrupt a vast number of industries across the world. Neu Ner cited examples of this disruption to a number of sectors ranging from the film industry, to insurance, sports betting and property.

 

Investors would do well to keep educated on the subject.

 

About the Author

 

Joanne Lee-Marshall

Co-founder of Quill Editorial

 

Jo Marshall is the founder of Quill Editorial Pty Ltd, an investment writing and editing firm committed to producing clear, concise and easy-to-understand content for the South African financial services sector. Prior to this, Jo was based in London where she worked for Schroder Investment Management as a manager on the Investment Communications team, responsible for covering global equities and, previously, emerging market equities.