Global Trustee and Fiduciary Services News and Views Issue 50

power than any potential fraudsters attacking the system (more on that later). To summarise, cryptocurrencies exist to create a medium of exchange free from the restraints of government, banks or regulation, where money can be transferred anonymously from one entity to another. It should be noted that, despite some of the negative outcomes associated with cryptocurrencies, the works published by Dai, Nakamoto and others on anonymised transactions were not intended to create an underground system for illicit money transfer but as a proof of concept for demonstrating the operation of cryptography, verification and distributed-ledger technologies. Tied to nothing, are they worth anything? Cryptocurrencies like Bitcoin are not backed by anything: their value is based purely on demand and their volatility is nothing like that of fiat (government declared legal tender) currencies. Yes, there is volatility in currency exchanges… In the period immediately following the United Kingdom’s referendum on leaving the European Union (Brexit), for example, the value of sterling against the US dollar fell to a 31-year low, losing around 10% the day after the results were announced. 4 There’s also the months following Black Wednesday in 1992, which saw sterling fall 20% against the dollar between 16 September and the end of December. 5 Still, the price of a pint of milk, or even a goat, in the UK remained by and large the same. Cryptocurrencies don’t come with the implied guarantee of a central bank or government. Their value is purely what other people are prepared to pay for them. According to the Bank for International Settlements (BIS), in its 2018 Annual Report, even those cryptocurrencies engineered to have a stable value such as BitUSD and Dai have fluctuated substantially. 6 It’s estimated that the value of cryptocurrencies worldwide is in the region of USD300 billion. Well, it was towards the end of July 2018. On 7 January 2018, the total value of all known coins and tokens hit USD813.9 billion. 7 Bitcoin is by far the most widely recognised cryptocurrency in existence and at its peak in December 2017 each coin was worth nearly USD20,000. By the last week in June 2018, they had fallen to around USD5,900. 8