by Sabine Hanger

As a child, I believed that an ATM is home to a small banking employee who would give out money to those who wantedAlso, it kind of works like that except for the small employee and; as a matter of fact, you can only withdraw money that you own.  
I do not exactly know how I would have imagined cryptocurrency as a child, but I know that there is a lot more technology to it than what comes with an ATM, which makes me wish I still had a child’s imagination.

Financial Technology 

FinTech, short for Financial Technology, describes the impact of new technologies on the financial services industry. It includes conventional Online Banking as well as Cryptocurrency. Innovation is growing at an exponential pace in this field; and so are the questions related to it – How safe is it? Do we need an official cryptocurrency? Should there be stricter regulations? Should there be any regulations at all? Also, most importantly – How does it even work?  

Although Online Banking, ATM’s and also Credit Cards are considered Financial Technology, Cryptocurrency is the one invention that has caught all our attention lately. In order to get at least a few answers, it is important to understand the greater meaning behind the idea of using crypto-technology in finance.  

The Rise and Fall of Cryptocurrency 

Quoting John Oliver, Cryptocurrency is a topic that combines everything you do not understand about money with everything you do not understand about computers. In order to discuss the impacts and whether regulations are needed, one must understand at least the basics. The usability of currency is based on the abstract concept of its monetary value. This means that each value-money depends on their direct utility value from traded goods, such as naturals and commodities. Nowadays, we use banknotes and coins as money, if the Head of State declares it as such – so basically, we all rely on them and hope for the best. As experienced in 2008, in the Global Economic Crisis, that system does not always work as we wish it would.   

That is one reason why Cryptocurrency was invented, because while it has some similarities in the way it works, it is still radically different thanks to the following characteristics: 

Cryptocurrency is not managed by one institution but instead finds its value automatically through the economic interest of each individual who participates.

Low Potential of Error
Instead of giving the control to governments or banks, cryptocurrency is controlled by algorithms, codes and protocols.  

Dynamic Creation of Value
It is based on a dynamic creation of value which increases the total quantity of available money in a reasonable degree. Cryptocurrency uses a specific technology called “mining”. 


Who are the big players in this field and why?  

It all started with Bitcoin, and that is why, of course, it is still number one in the cryptocurrency market. Many brands are gaining more and more attention and challenging Bitcoin to keep the crown. Second in the market would be Ethereum, which was founded by a 23-year-old Canadian-Russian super brain. With his innovation not only money can be transferred, but even contracts (so-called Smart Contracts) can be concluded. Third and worth mentioning is a company called IOTA, which is working on creating an “internet of things” and is trying to solve the technical problems Bitcoin, for example, is facing with respect to its massive consumption of electricity while mining.

So, do we need BitEuro 

Nevertheless, the Bank for International Settlements asked itself if we need an official cryptocurrency, let’s call it BitEuro. They concluded that it would be possible but unpredictable.  

The main strength of Bitcoin is its decentralised system, which on the other hand would be the weakness of an official cryptocurrency from the EU, as a single institution would handle it. Such a system hypothetically allows certain people in power to control it rather than a governmental system.  Another big problem would be the fluctuations of rates, as having an official currency that regularly and unpredictably put people’s money in danger, is, as a matter of fact, illicit. 

Last but not least, one should not forget what the initial idea behind Bitcoin, was. It was, and supposedly still is, to be an alternative to our current banking system. If one had to invent BitEuro, a centralised digital currency would be created, not a decentralised cryptocurrency.  However, whether Cryptocurrency will be successful in the future or not, many people believe that the fascinating thing about the idea is the innovative technology that it is built on, which is called blockchain.   

Normally, if someone would like to send money across the world, a bank would need to verify that transaction, which could take days. With the blockchain system, one can transfer money within minutes, thanks to not having a third party involved. On the other hand, a vast number of computers are used. 

Using this technology to keep transactions secure, blockchain creates a decentralised database of transactions that everyone on the network can see. Essentially this network is a chain of computers that must all approve an exchange before it can be verified and recorded. 

Let’s break down the innovation behind that technology. Blockchain is not just some technology that rebuilds our banking system – it has the potential to change the internet as we know it. No matter what new step is taken in this fast-moving crypto technology world, it all comes down to the decentralised system, which bears the ability to protect our data a lot better than it is secured right now. 

Speaking again in metaphors, let’s say the inventor of Bitcoin and Blockchain, Satoshi Nakamoto, created the first mobile phone. The genius behind Ethereum, Vitalik Buterin, made a Nokia 3210 out of it. This suggests that we are just at the beginning of a fast-moving new world of technology, but it will still take us a while to actually create a ‘smartphone’. Nevertheless, it is something our society and especially our government should be aware of, as there are some dangers related to it, especially because there are currently no real regulations.  

However, in March 2018 the European Commission adopted an action plan on FinTech to foster a more competitive and innovative European financial sector. The action plan focuses on, amongst other things, supporting the uptake of new technologies such as blockchain, artificial intelligence and cloud services. This is, indeed, an essential step towards becoming a true digital single market and will gain more and more importance in the future.

20 September 2018
This text was published in Bullseye issue 73