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Don't talk balls: cryptocurrencies are not dead

Nigel Morris-Cotterill

It's almost impossible to open a website or blog with even a peripheral interest in financial matters and not see a headline saying something like "The Death of Bitcoin." Total tosh. So are the click-bait headlines in the style of "is blockchain dead?"

This is why.

Those banks which blocked the use of credit cards to buy crypto-currencies as the bubble expanded have been vindicated; had they not done so, then millions of card holders would be sitting on debt, at credit card rates, bought for several multiples of their current worth. Just like over-borrowing on a household mortgage right before prices start to tumble. Had that happened, the effect would have hit a completely different part of the market: it would have hit many who do not own property but hoped that, by gambling on the inexorable rise of crypto-currencies, they might make enough profit to make at least a decent contribution to buying their own home. Like most gamblers, they lost and, like most gamblers, they were the ones who could, often, least afford to lose. Having pilloried the banks in the media, they are uniformly silent in the thanks they should be expressing.

There are valid reasons why crypto-currency isn't taking off for shopping and the first is the coldest, hardest reason that cash wins: paying with cash costs nothing. Paying with any form of plastic costs the buyer, or the seller, or both. Those costs are driven by cartel (the card companies say it's by competition but the reality is that there is no long-term differentiation between the major players and for those that use their cards outside the country of issue, the charges are often outrageous for both payments and cash withdrawals. Also, merchants have to wait for payment, often three or four days. Bad as that is, crypto-transfers are worse: the costs of transfer often greatly exceed those of card payments and the time for clearing is often said, by the clearers themselves, to be seven to ten days.

Who are the beneficiaries of these issues? Fascinatingly, it's traditional banks who are fighting a clever (if unintended) rear-guard action against all the multiple payment options now being offered, be it mobile, token, card or crypto-currency. The most cost effective way of paying for things these days is... on-line bank transfer, so long as the payment is not crossing borders. The only way the new entrants are going to beat the banks' free offering (technically not free - it's included in the monthly charges but individually it's a no-charge service) is to pay people to use their services. Wise shoppers and shops are, in my experience, bypassing even card payments and making direct deposits into the accounts of retailers, especially for goods that are to be delivered. Everyone, except the card companies, benefits. True, the guarantees applicable to card purchases are lost but ironically there is a positive social issue developing: customers and retailers are building personal relationships and in those circumstances the guarantees are less important than when dealing with cavalier box-shifters and distant strangers.

These are the fundamental challenges crypt-currencies face, not that traders have lost interest and that coin-miners now say they are not earning enough to pay for the electricity bills. Even a major supplier of specialist mining equipment, Chinese company CANAAN, says that its boxes have been reduced from around USD750 to around USD200. Does that mean coins will be in short supply? No, not at all. It just means that the huge factories that sprung up around the world for the sole purpose of finding coins that had, until then, not been identified and claimed, are unlikely to be added to, replaced or renewed any time soon. But there are criminal gangs and terrorist organisations who, as I warned 18 months ago, will produce their "black label" currencies and will find both second hand and new, cheap, boxes - and the staff to run them - cheaply available.