Info-Graphs, Technology

The ups and downs of Cryptocurrencies (interactive chart)

Cryptocurrencies are entering the mainstream, but the alternative currency system remains a culture of its own that is baffling to most outsiders.

Indeed, even those who are intimately involved in the mining and trade of digital currencies are in the dark a lot of the time – so unpredictable and uncontrollable are the forces that dictate their value. As this new chart from 99Bitcoins shows, even the top five currencies are far from stable – but visualized like this, the data does at least begin to tell the story of how the latest ‘get rich quick scheme’ is here to stay.

The system is not without its believers. Tech whizzes have created over 1380 types of cryptocurrency, 39 of which – according to the FT – are valued at over $1bn. Which of those will continue to thrive, which ones may suddenly take off, and which are a poor bet, will all depend largely on public perception of how each is faring. Cryptocurrencies are not tied to the stock market, so figuring out which one is about to soar or crash depends a lot on the hearsay of others in the know.

The Ghash.io incident

Naturally, this is a dangerous situation for investors. Indeed, it may be why so few people are involved in the markets compared to how ubiquitous words like ‘Bitcoin’ have become in our culture. And other threats have yet to be satisfactorily resolved.

For example, way back in 2014 an incident occurred in which a consortium of miners, Ghash.io, gained majority control of the processing power used to regulate Bitcoin. Had they wanted, they could have totally warped the system by creating and covering up transactions so as to appropriate more of that Bitcoin wealth. Disaster was only averted by the quick-thinking and morally commendable action of some of Ghash’s members who removed their computers from the system, bringing the strength of the consortium back down under 50%.

But the security weakness occurred only months after another near-miss of the same nature. While such a breach could be quickly repaired if it happened again, there’s no saying how much damage could be wreaked by less honorable parties before things were straightened out. It’s a fundamental flaw in the cryptocurrency system, although hopefully one that will be straightened out as the teething problems are worked through and national governments take a closer interest in the legality of the method.

Ethereum, a rival cryptocurrency, suffered its own security breach in June 2016. Etherium’s advantage is that is both a currency and coding platform. This has earned it great interest, loyalty, and investment from its supporters. But its value was decreased by nearly a quarter after a coding loophole was exploited, result in the siphoning of around $56m-worth of the coin.

Dealing with the theft required Ethereum’s movers and shakers to reconsider the very principles of the blockchain system on which cryptocurrencies depend. Ethereum and other cryptocurrencies are attractive for their combination of transparency and anonymity, peer control and individual agency. When the rules get tightened, this delicate balance is at stake. Commentators reckon the solution will depend more upon smart human thinking than the pure digital might of blockchain technology.

But it’s notable that the values of both Bitcoin and Ethereum have soared following their respective stumbles.

Alternative cryptocurrencies to watch out for

While Bitcoin has become (inaccurately) synonymous with ‘cryptocurrency’ for the layman observer, the culture is characterized by innovation. The next big thing in cryptocurrency is likely to be the result of a smart idea that captures the public’s imagination.

For example, The Japan Bank Consortium are developing an app named ‘MoneyTap’ to allow its customers to complete transactions instantly. The system will be powered by Ripple’s blockchain technology, and is the first such app to be developed by multiple Japanese banks.

Importantly, MoneyTap will allow such transactions to occur outside of regular business hours for the first time in Japan. Sixty-one banks controlling 80% of banking assets come under the consortium’s umbrella, making this a seriously big deal in the world of Japanese finance.

Other systems such as Litecoin have shown astonishing growth, while remaining unable to fully emerge from the shadow of Bitcoin. Just as the internet became slowly more centralized and calcified around a few stand-out players, it seems conceivable that the minnows of the cryptocurrency world may soon find themselves out of their depth – unless they have something truly new to offer.

The future of cryptocurrency

The Ripple/MoneyTap development comes in the aftershock of the Japanese government’s plan to legalize cryptocurrency as legal tender. It is both a legal and cultural step that could change the face of the world’s economy. But it’s yet another proposal that has been forced by cryptocurrency’s underlying flaws – in this case, the folding of Mt. Gox, an affair through which coins worth hundreds of millions of dollars were lost.

Meanwhile, a court case in Miami concluded with the decision that Bitcoin couldn’t be considered ‘real money’. This was seen as a positive result by many cryptocurrency users, who are concerned that classifying their digital coins as legal tender will compromise the utopian ideal of a free and transparent alternative economy.

But it’s yet another ongoing ‘unknown’ in the complex world of cryptocurrencies. And while what happens next remains a mystery to even the most engaged of Bitcoin buffs, studying the ups and downs of the main coins to date is at least a way to learn about how little we know about what’s going on in the world of cryptocurrencies!