Part of the financial news in recent months has been dominated by articles about ‘cryptocurrencies’. Sky-high gains, followed by significant price falls, both for the currencies and the companies involved, have been everyday occurrences. Little wonder, then, that comparisons have been made with the dotcom bubble: high valuations for technology that has not (yet) proved itself. In developed countries, cryptocurrencies are used mainly as a speculative asset. Believers see the long-term value of these cryptocurrencies mainly based on the underlying blockchain technology, which is expected to have many other applications in combination with new technology.
By contrast, in weak and underdeveloped states, there is mistrust with regard to cryptocurrencies, often because of their anonymity that facilitates criminal dealings. So, whereas believers see cryptocurrencies as a far-reaching innovation, others view it as a way to create ‘funny money’. And while some invest in these currencies based on the promise of a future market, there may be many dangers lurking around the corner, such as Internet fraud, phishing scams and hacking of the underlying software. Just where these virtual currencies will end up remains an unanswered question today. But allow us to provide you with an initial guide.