It’s probably useful to start off with some definitions and descriptions so here goes:

Cryptocurrencies: Electronic cash not issued by any government or central bank.

It started off being used as a substitute for traditional currency on the dark web, and it’s currently not legal tender. It has been popularized with the development of ‘cryptocurrency exchanges’ that were created to trade various cryptocurrencies, which encouraged lay and experienced speculators to invest which have both driven up prices and created considerable volatility. There are more than 4,000 cryptocurrencies in existence but only a few are popular. Bitcoin being the most well-known.

When private investors invest into cryptocurrencies, it’s more accurate to refer to them as cryptoassets. Thus, cryptoassets are subject to Capital Gains Tax (CGT) in the UK. There is very little regulation around cryptoassets.

Blockchain: It is the technology that underpins cryptocurrencies that is supposed to give it its integrity and thus investor confidence. It’s considered to be decentralized, that is, there is no single intermediary, such as a bank, verifying the integrity of a transaction or ‘store of value’.

Every time a transaction occurs, a record is created in a ‘block’; what follows is a series or a chain of blocks. Hence blockchain. It’s essentially a ledger of every single type of transaction, even erroneous ones.

The value of blockchain technology lies in how it stores data. In another age, it could be considered, black magic and wizardry. But basically, highly complex mathematics verify every single block, and the correct sequence of those blocks.

Those highly complex mathematics require computing power and those who invest in the technology to undertake that activity are colloquially called miners or in the case of Bitcoin, Bitcoin miners. Everytime they solve the highly complex mathematics; they are rewarded with Bitcoin or whatever other cryptoasset.

Bitcoin was the first cryptocurrency based on blockchain technology. We don’t know who invented it. Yes, you read that correctly. The name ‘Satoshi Nakamoto’ does get mentioned but no-one has ever seen or heard the creator who was supposedly a 37-year-old Japanese male. No-one has ever been able to verify whether Satoshi Nakamoto was a single person or a group of people. We know the name was a pseudonym. There’s been all sorts of tales as to Satoshi Nakamoto’s identity e.g., the CIA, MI5, as well as several real persons including Elon Musk (he’s denied it).

What do I think about cryptocurrency as a cryptoasset?

The value of popular cryptoassets is entirely driven by speculators. In some sense it’s like forex trading, in that they both involve the trading of currency, e.g., trading British Sterling for Bitcoin, having speculated it rising in value against it. Forex is however backed by central government that can influence the supply and demand of a currency because it has important utility as a medium of exchange.

Currently, cryptoassets have no utility. Investors are not investing into anything that can offer value to an end-user, unlike traditional currency that can be used to purchase goods and services. So, despite its growth in popularity, it can only remain a pseudo asset whilst regulation around it remains unclear and a light touch. If cryptoassets do not become legal tender I expect it will continue to suffer from uncanny rises and falls.

Unless you’re a globalist who believes in absolutely no trade barriers and believes in the most liberal form of free market capitalism, I think there’s good reason to be seriously concerned over any legitimization of the current decentralized structure of cryptocurrencies as legal tender. I can only imagine what economists would be thinking on the impact on inflation, labour, wages and especially international trade.

A decentralized currency would disempower governments, unwittingly hailing the rise of corporatocracy like you’ve never known it, seen it, or imagined it.

I do think as we move into a cashless society, blockchain technology is going to become very important in developing a centralised digital currency that can ensure integrity and efficiency in our financial markets. The Bank of England is already exploring an initiative known as the Central Bank Digital Currency (CBDC), which I think is a very positive move. This will be intimately tied in with other blockchain based applications.

What do I think about the future of blockchain?

The technology is powerful and the impact it may have on our societies when coupled with other emerging technologies will dramatically change our behaviours. Financial crime could become obsolete.  However, how people respond vis-a-vie our new social contract with central government remains to be seen. I still remember the furor around ID cards those many years ago.

The applications for blockchain technology across all industries can create a trust within the marketplace that can do away with all sorts of intermediaries and bureaucracy.

Imagine buying a house from a vendor that records not just the history of the title register but also every significant home improvement, and problem that house has had. Imagine blockchain technology integrating with ‘smart-homes’. Imagine AI interpreting the data in plain English. Imagine your real CV on blockchain – which records your education, exam results, career history. Now imagine not receiving a national insurance card, driving license or passport. Rather, you are being assigned a citizen blockchain account on birth that is integrated into the government’s educational, health, taxation and security systems; imagine that blockchain account recording every GP visit, every exam result, every school you attended, every job, and all your tax contributions.

The thing is all that data already exists across various government institutions that don’t always ‘speak’ to each other, with blockchain it’d all be centralised. That’s data centralization, which can only be made possible by blockchain. Although this may allow a government to intervene sooner with social support, because it will better identify your vulnerability, but at what cost is anybodies guess.

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Mohammad Uz-Zaman MA DipFA PETR is an international wealth manager who holds dual accreditations across wealth management and trust planning. He advises high-net worth (HNW) individuals how best to protect their family and structure their estate for the benefit of successive generations. Mohammad is also an associate member of the Society of Trust and Estate Practitioners (STEP).

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