Cryptocurrency: friend or foe?

When technology stocks soared to sky-high heights in the 1990s, Alan Greenspan, then head of the Fed, called this price behavior "irrational exuberance." But if you describe the trajectory of digital currencies along which they have moved in recent years, then even such an assessment will sound too mild.

In 2010, one bitcoin was worth five cents, and at the recent peak on April 14, it exceeded the $ 65,500 mark. Just one dollar invested in 2010 would now generate over $ 1.3 million.

Another example: in October 2015, one Ethereum token was worth about 55 cents. The $ 100 invested at that time would have turned into more than $ 660,000 by May 6 of this year (when the $ 3,642.25 peak was recorded).

It is worth remembering, however, that even the incredible $ 2.4 trillion (at its peak) digital currency capitalization was only slightly higher than the value of the most expensive publicly traded company, Apple (NASDAQ: AAPL). As of the end of last week, APPL was valued at $ 2.085 trillion. According to many "adepts" of cryptocurrencies, even at a cost of $ 2.29 trillion, the digital market is not a bubble.Digital currencies are a kind of "libertarian" response to government control over the money supply. Many consider these tokens to be a product of the high-tech era, reflecting a shift in the direction of financial saas development process.

We talk about "irrational exuberance" in cases where the rise in the value of an asset creates an atmosphere of greed and forces market participants to invest in tokens and hope for a rally comparable to the rise of Bitcoin. The most recent example is Dogecoin, which was originally nothing more than a joke.

At the end of 2020, Dogecoin was trading significantly below a cent, and by the end of last week, one token was already worth more than 54 cents. The market capitalization of the currency exceeded $ 70 billion, which brought it to the fourth line of the cryptocurrency "hit parade", and this is no joke.

With each passing day, the recognition of digital currencies is growing, and regulators in the US and Europe will have to decide on their classification. Time will tell if the asset class is a bubble or a revolution that will change the nature of global cash flows.

Difficulties in the classification of the cryptocurrency

In 2017, the Commodity Futures Trading Commission authorized the Chicago Mercantile Exchange (CME) and other exchanges to place bitcoin futures, defining digital currencies as a commodity. Difficulties in classification are explained by the fact that cryptocurrencies simultaneously have characteristics similar to commodities, are prone to increased volatility, and are also an exchange tool that has much in common with classic currencies. Cryptocurrencies are unique, making them difficult to evaluate by proponents of traditional market theories.

However, few would dispute the fact that blockchain technology has revolutionized payment processing and record-keeping. The tokens that spawned fintech are another matter entirely.

I n 2017, JP Morgan Chase (NYSE: JPM) CEO and Chairman James Dimon called Bitcoin a “scam,” promising to fire any employee at his bank caught trading Bitcoin or other new instruments.

World-renowned value investor Warren Buffett, who heads Berkshire Hathaway (NYSE: BRKa), described BTC as "rat poison squared."

But now, four years later, JP Morgan Chase invites its best clients to invest in digital currency, and Mr. Buffett continues to stick to his convictions. This month, his partner Charlie Munger called digital currencies "disgusting and contrary to the interests of civilization."

Bitcoin and Ether futures contracts are currently traded on CME. On May 3, CME launched Bitcoin micro-contracts with lower margin requirements to expand the market.

The recent NASDAQ listing of Coinbase (NASDAQ: COIN) brought the OTC trading and investing platform for digital currencies (as well as providing related services to the open market); as of the end of last week, its shares were worth $ 258.37, and the exchange itself was valued at $ 48 billion. Yes, CME and the Intercontinental Exchange (ICE) (the two leading exchange platforms) are worth $ 77.92 billion and $ 63.74 billion, respectively, but it took about two decades to reach those marks. COIN did it in just a month.

On the day of its debut (April 14), COIN reached an incredible $ 100 billion in capitalization.

How to recognize a threat and not lose your funds

Fraudsters posing as Tesla and SpaceX CEO Elon Musk stole more than $ 2 million in cryptocurrency in October 2020 - March 2021. This follows from the report of the US Federal Trade Commission (FTC), published in May. In total, since October 2020, approximately 7 thousand people have told the FTC that they have transferred $ 80 million to crypto scammers.

There are several ways that criminals actively use. Let's talk about the main ones and how not to give your funds to cybercriminals.

Fake giveaways and Steve Wozniak

One of the popular cryptocurrency fraud schemes is fake digital coin giveaways. Attackers are taking advantage of the fact that many want to get cryptocurrency for free. In social networks, forums and other sources of information, scammers post announcements that they are ready to double the amount that the investor will send to their wallet. However, they do not send the cryptocurrency back.

In 2020, Apple co-founder Steve Wozniak was involved in such a fraudulent scheme. Scammers used his name to attract victims. The attackers posted videos on YouTube in which they convinced users to send cryptocurrency to a specific address, promising to send twice as much in return.

The businessman filed a lawsuit against YouTube, but his claim was dismissed with reference to US federal law, according to which Internet platforms are not responsible for content posted by users. The scammers also used the names of other famous personalities: Bill Gates, Elon Musk and Michael Dell.

In 2020, the police accused the 17-year-old of carrying out one of the largest attacks on the social network Twitter and gaining access to the accounts of Elon Musk, Bill Gates and other celebrities. Using the accounts of businessmen, the fraudster implemented a similar scheme, promising users to double their funds.

Fake exchangers

Over the past few years, the number of cryptocurrency wallets, exchanges, exchangers and other services has increased significantly. Fraudsters use this to create their own exchange offices, which are not engaged in exchanging, but stealing funds. Users are attracted to such sites with the help of supposedly closed information about what can be earned here on fluctuations in exchange rates.

Usually attackers describe this scheme as “dollars - cryptocurrency - dollars”. They promise the user a profit after buying digital coins in a real exchanger with their subsequent resale on a fraudulent platform. Real exchange platforms in such schemes are used to increase trust.

The essence of the scheme is that the user buys cryptocurrency for dollars on a real platform. Then he turns to the scam platform, since they offer a very favorable exchange rate for cryptocurrency to dollars. But there is no exchange. As soon as a user sends funds to a fake exchanger, he loses them.

Financial pyramids

Over the past six months, cryptocurrencies have risen greatly and have shown good returns. For example, Bitcoin has grown by 26% since January, Ethereum by 250%, and Binance Coin by 900%. Such numbers attract the attention of people who want to make money. But most of them do not have the necessary knowledge to properly invest in digital assets.

This is what scammers use, promising high returns to those who will provide them with cryptocurrency, allegedly in trust. Attackers imitate the work of full-fledged investment funds, publishing reports on transactions and profitability on a daily basis. Moreover, at first, fraudsters can even make some kind of payments to victims, working on the principle of a financial pyramid. Trusting cybercriminals, users start giving them even more money.

How to identify crypto scammers

Attackers work according to well-established schemes that allow them to enter the trust of users in order to deceive them later.

• Rush. Fraudsters in most cases rush their "clients" and try not to give them time to realize what is happening. They often use manipulations and threats for this purpose. Do not follow the lead of those who try to confuse you and rush you, do not forget to get acquainted with all available information and do not follow the lead of those who want to confuse you.
• Exclusive information. To attract attention, scammers use the "secret bugs" trick. On social networks, scammers often "share information" about an allegedly erroneous exchange rate, or about successful exchange chains. Both are losses of money.
• Cryptocurrency. If you have to make an operation with the sending of tokens, or a transfer in payment systems with a low degree of data verification, like QIWI, then you should be very careful about this. Fraudsters very often use the features of these systems to their advantage. For cryptocurrencies, these are non-refundable transactions.

The security of trillions of dollar wallets is a major issue for regulators to "protect society." Moreover, the loss of control over the money supply is clearly not in the interests of governments, because the ability to adjust rates, influence the profitability of public debt and regulate the amount of currency in the financial system are the most important instruments of monetary and fiscal policy. Against this background, the regulator will have to make decisions on assets that hardly fit into the existing regulatory verticals.

Although if you are the one who is managing a business with the ability to pay online with cryptocurrency, you should think about attracting a dedicated software development team to protect your customers from scammers. 

Blockchain is changing the old understanding of business

Blockchain technology is at the heart of the entire class of digital currencies, but it has also found application in fintech. Basically, a blockchain is a distributed and publicly accessible log of records (such as transactions).

Using bitcoin as an example: every operation carried out by network participants is recorded in “blocks” that cannot be changed. Almost all cryptocurrencies are blockchain-based, but the technology has other uses as well.

Blockchain payments are more secure than standard debit or credit card transactions. Moreover, accuracy is provided by enormous computing power, which increases the speed and efficiency of payment systems.

Blockchain also removes the need for intermediaries. In this case, confidential information is omitted during the formation of blocks, which provides a certain level of personal protection. While no system is completely reliable, blockchain has become a core concept in fintech, transforming legacy business models.

Final thoughts

Human nature pushes us into markets that offer fantastic and easy money (no matter how plausible the prospects may seem). There have never been such assets that can turn $ 1 into more than a million in just 11 years.

The potential of these assets will continue to fuel speculative frenzy until they are classified and controlled (if possible). The philosophy of cryptocurrencies (already facing a number of problems), rejecting state control over the money supply, may become too high a wall in their path.

So what exactly are cryptocurrencies? Another bubble or a new horizon? So far, they look like a mixture of these concepts, shrouded in mystery and calling into question the established approach to economics and politics.

If you yourself are interested in creating a product for trading cryptocurrency, then you are probably looking for custom software development services. Our experts are open for discussion and to help you implement any brave ideas.