by Roland Stadler, Senior Manager and Data & Analytics Specialist, PwC Switzerland.

The subject of cryptocurrencies is new and wild, and its effects on the economy and society are largely unknown. It is nevertheless important to get to grips with the basics in a business context. We show you how and why.

There’s money. And then there are tokens.

The best place to start is by defining the terminology. This is because there are only a few “currencies” in the literal sense of the word. “Digital assets” would be a more accurate term.

Currencies like Bitcoin are both a means of payment and a payment network at the same time. They actually constitute “money”. The aim is to provide digital cash that can be used without the involvement of a central institution. Bitcoin has been around for almost ten years, works without problems and has never been hacked despite being worth more than 100 billion Swiss francs. Unlike more familiar money, which is issued by a central bank and subject to constant inflation, Bitcoin is set up like a scarce resource. There will never be more than 21 million bitcoins in total, and more than 17 million are already in circulation. Bitcoins are used to transfer a volume of several billion Swiss francs every day.

Utility tokens serve as “fuel” for using software or a service. In order to start up the Ethereum world computer, for example, you need Ether for the transaction fees. Although Bitcoin and Ethereum are often mentioned in the same breath, and both are used for financial speculation, they could not be any more different. Ethereum aims to create a platform for executing “smart contracts”. These are self-executing contracts that render legal institutions or other intermediaries superfluous. The technology is promising but still highly experimental, and has not produced any convincing applications. Despite the hype surrounding the subject, the five most important Ethereum apps currently have fewer than 1000 daily users.

Security tokens are digital securities such as shares in companies or rights to the future proceeds from a project. These assets are tricky from a regulatory perspective because they can essentially be subject to the same rules as a company’s IPO. That is why they are often referred to as “crowd-funding” or even “donations without rights” in project descriptions. This is window dressing, however

Area of use

The various different “digital assets” seem similar at first glance, but on closer inspection their purposes differ. There is a lot of speculation involving all of them, but only the digital currencies can really be used at present.

Speculation regarding rising prices put “digital assets” on the front pages at the end of 2017. Both the prices and the reporting have receded since then. Bitcoin is considered a long-term investment, with investors backing greater acceptance of the currency as a means of payment or digital gold. Technical stability plays a particularly important role. Priority is given to security and resistance to external influence through conservative technological development.

regarding rising prices put “digital assets” on the front pages at the end of 2017. Both the prices and the reporting have receded since then. is considered a long-term investment, with investors backing greater acceptance of the currency as a means of payment or digital gold. Technical stability plays a particularly important role. Priority is given to security and resistance to external influence through conservative technological development. Utility and security tokens should be thought of as venture capital, i.e. as an investment in a start-up in its initial phase with fast-paced innovation (“move fast and break things”). In this context the risk of failure is enormously high, even for above-the-board projects. Given the current hype surrounding blockchain technology, the proportion of confidence tricksters is likely to be significant.

and should be thought of as venture capital, i.e. as an investment in a start-up in its initial phase with fast-paced innovation (“move fast and break things”). In this context the risk of failure is enormously high, even for above-the-board projects. Given the current hype surrounding blockchain technology, the proportion of confidence tricksters is likely to be significant. Bitcoin already works very well as a means of payment. Small to very large amounts can be transferred around the world in minutes – something that no other financial network is currently capable of. A retailer can receive payments directly to his or her tablet or EPOS system without the involvement of a service provider. With fees amounting to just a few pennies, Bitcoin can bring significant benefits in terms of costs in the field of international trade, where traditional payment transactions can incur very high transaction fees. New developments like the Lightning Network are based on Bitcoin, and can transfer small amounts (from hundredths of a cent to several Swiss francs) in milliseconds. This facilitates entirely new forms of micropayments, for example for games or media. This is of course currently offset by the limited distribution and high degree of volatility. The subject therefore still entails some technical enthusiasm and speculation.

Bitcoin is a new currency that is independent of any particular nation state. Following the spread of the internet and the transformation of many sectors as a result of digitisation, there is a good chance that the concept of “money” could be called into question. This is fascinating from a technological, sociological and economic perspective, and offers a number of new opportunities for innovative business models. That is why you should be interested in Bitcoin & co. Don’t fall for the ICO hype and false promises such as “blockchain, but not Bitcoin”. And recognise the disruptive potential of digital assets.

What can you take away?

“Blockchain” and “distributed ledger technology” is in search of its first killer app. Don’t miss the obvious: with Bitcoin it’s already here. Nothing is more disrupting than challenging money in itself.

Smart contracts and tokenization of real-world assets will have some impact on business dealings in the future. But probably not with today’s technology, which is still very much in its infancy.

Stay away from the current ICO hype. It’s mostly scams and even honest projects are so small that the market is easily manipulated.

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