Blockchain stability means crypto has a future

This time last year the sky was the limit for doing business in the Metaverse and generating wealth from cryptocurrency trading – since then several colourful crypto-collapses have given the block-chain a bad name, leaving many asking if there is a legitimate role for cryptocurrencies in finance.

By Jacquelene Pearson*

The crypto currency marketplace is now worth $US1 trillion and there are over 22,500 cryptocurrencies to chose from. They are a form of currency that only exists in the digital realm without control by any central bank or financial institution. They can be traded or used to make purchases online. They have been around since Bitcoin was launched in 2009 and the general consensus is that they will be staying around for quite some time.

It has been a rocky 12 months for cryptocurrency. The collapse of FTX last November resulted in bankruptcy proceedings in the US courts and criminal investigations. It also resulted in substantial losses for investors.

Earlier in the year, ‘terra’ collapsed even though as a ‘stablecoin’ it was not supposed to be capable of collapse. Ironically the founder of FTX, the once-high-flying Sam Bankman Fried, had stepped in at the time to “rescue” terra.

It appears the cryptocurrency sector was spooked in 2022 by the same factors that concerned the more conventional financial markets – inflation, recovery from the pandemic and Russia’s invasion of the Ukraine. Even the biggest tokens, including Bitcoin, took a slide in value.

Commentators have suggested that the wild fluctuations in the cryptocurrency realm are not likely to have any flow-on effect to the broader financial marketplace. The collapse of terra, as a stablecoin, has, however, raised concerns.

It looks like regulators in the US and UK are poised to take a closer look at how they can rein in the DeFi (deregulated finance) sector. The main concern is that because stablecoins are backed by tangible financial assets, any stablecoin collapse could have flow-on effects to the broader market.

In terms of the potential of cryptocurrency to regain its popularity, having plunged in value from over $3 trillion to $1 trillion in a matter of months, the incredible stability of the technology at its core – the blockchain – means crypto is likely to have longevity as a financial instrument.

A blockchain is best described as a system in which records of transactions are shared across a peer-to-peer network and can never be erased. As such a blockchain maintains and secure and decentralised ledger or database of transactions. This technology removes the need for a third party, such as a bank, to keep a record of transactions.

The blockchain is the central nervous system of the digital, decentralised financial marketplace. Whilst cryptocurrencies are the main ‘product’ utilising the blockchain technology, further uses and innovations can be expected down the line.

Meanwhile, Acuity Funding has membership of the Society for Worldwide Interbank Financial Telecommunications (SWIFT) means we can complete cross-border transactions in almost real time.

We will keep a close eye on blockchain innovations and the potential of cryptocurrencies and related funds as a source of capital. However, our SWIFT membership, global desk and access to private equity means we can arrange finance for major projects of any size.

*Jacquelene Pearson is Acuity Funding’s content editor