Bitcoin has been in the headlines almost weekly for the past six months. Most have heard about worldwide ransomware attacks demanding payment in Bitcoin, the ease of buying opoid drugs online with Bitcoin, or the currency teasing to hit the $3,000 mark. Despite the usual stories involving Bitcoin, one thing being overlooked by most media sites is the rapid evolution of digital currencies that has occurred over the past six months. These changes have the potential to impact blockchain investigations and change what law enforcement currently knows about Bitcoin.
Recent news about Bitcoin revolves around the price surge the coin has been experiencing. On January 1st, 2017 one Bitcoin was worth $993. On June 11th, 2017 Bitcoin was worth $2947. This is an increase of 66% over six months. There are multiple reasons behind this surge.
Basic economics of supply and demand is the main catalyst for this increase. On April 1st, the Japanese government formally recognized Bitcoin by implementing rules for Japanese financial regulations to apply to Bitcoin and other digital currencies. This led to the South Korean government announcing plans to introduce regulations sometime this year. After this announcement, a frenzy for Bitcoins led to local bitcoin traders in Korea asking $4500 for a Bitcoin. Then on June 1st, China lifted the withdrawal freeze on currency exchangers in China which has further fueled the demand for Bitcoins. The global economy is pivoting from the U.S. and Europe to Asia, and digital currencies are following.
There are other reasons that are providing a smaller impact to the currency’s rise. In May, a U.S. Federal Reserve official announced that there is a greater acceptance among financial institutions that blockchain technology has great potential. Another small impact is the rise of Bitcoin money transfer services in Asia. These services are allowing users to avoid the high fees charged by Western Union or MoneyGram and keep more money themselves as they send money to loved ones. Lastly, the ransomware virus that infected millions worldwide, brought some attention the coin, and may have brought additional speculative buyers to the currency.
Despite the growth of Bitcoin, the currency’s dominance has decreased. Once the only “real” digital currency at 90% dominance, today Bitcoin dominates only 40% of the digital currency marketplace. With no compromise in sight to solve Bitcoin’s technical issues, such as higher fees and taking twenty minutes to confirm transactions, people have moved
into buying other currencies. Some analysts see this as Bitcoin becoming similar to gold and other currencies becoming the payment currency of choice.
Competition is also diminishing the dominance of Bitcoin. Ethereum has grown significantly over the past year. As an alternative to the classic blockchain, the adoption of Ethereum by banks and corporations has led to its rise in popularity. Today the coin commands 32% of the total market capitalization. One area that is capitalizing on this popularity are the dark markets. One can now purchase items on many of the illicit sites with Ethereum. The rise in popularity, and price, of alt coins is driving many to seek a cheaper investments. The price of most non-Bitcoin currencies has followed the price increase of Bitcoin.
Lastly, the rise of cryptocurrencies is catching the attention of world governments. In June 2016, central bankers from over 90 countries met in Washington D.C. with Bitcoin experts. This has led to a speculation of a "fedcoin“ or a digital currency owned by a government. China appears to be the front runner in making fedcoins a reality. In February of this year, the People’s Bank of China announced it completed trials and is one step closer to issuing a digital currency. While the U.S. has been slow to adopt electronic payment from phones, Asia has dominated and forged the growth of online payment through smart phones.
Developing a digital currency will not create adoption issues in China whereas other countries will face issues. (My previous post discussing the evolution of Messenger apps highlights how WeChat dominates China and everything you can purchase with it.) In November 2016, India scrapped 86% of their printed currency to combat corruption but also fuel adoption of electronic payments, which were only 14% of all payments. Some feel it will only be matter of time before the U.S. announces a fedcoin of their own.
The evolution of digital coins is changing. No longer can law enforcement know just Bitcoin. The technology behind Bitcoin and how it has created multiple other coins needs to be understood. Multiple types of blockchains and knowledge in the variety of coins is required. When central governments do create digital coins, knowledge in today’s coins will help investigators in the future. OKcoin’s Vice President Duan Xinxing stated,
“Talking about digital money now is like trying to predict how the Internet would transform lives in the 1980’s. It has the potential to change the entire economic infrastructure. We’re just not sure about when and how.”
Whether it’s Bitcoin, Ethereum, or a future Fedcoin, we will all use digital currencies one day. It’s better to be functionally prepared now then trying to catch up through education later. Contact Juliet Bravo Solutions today to learn about how our Digital Currency class can empower your agency today.