Cryptocurrencies here to stay

Cryptocurrencies, money that is generated and stored digitally, are here to stay. That's the consensus of pundits as they examined the matter on the JNN/FG programme, The Exchange.

At the same time, they are urging caution regarding investment in cryptocurrencies or their regulation by the central bank. Referring to the recent Bank of Jamaica (BOJ) advisory, economist Dr Damien King said the BOJ's advisory is appropriate, noting that whenever there is an investment opportunity that is not properly regulated, the central bank properly urges caution.

King said that when there is a technological shift, it presents an opportunity for the paradigm to change. The economist is therefore calling for a delicate balance.

The Bank of Jamaica, while ensuring that there is stability in the financial system so that the rest of us can go about our business, at the same time needs to be open to those technological innovations that will allow us to do our business more efficiently, King said. The BOJ has to strike a balance between ensuring that there is stability in the financial system, but not be too rigid in its oversight of the system, he said.

The economist agreed with Alok Jain, advisory lead, Caribbean at Pricewaterhouse Coopers, that while cryptocurrencies are still in the developmental stage, they will form part of the financial system at some point.

"Can I imagine a world in which these currencies have evolved to the extent that they become the main source of payment infrastructures globally? Yes, I can. Are we there yet? No. Normal money, as we know it, will be here for a while, but longer term, I think we will move towards digital currencies," Jain said.

Regulate use instead

He is recommending that rather than regulate digital currency itself, the authorities should treat it like any medium of exchange and regulate what is done with it.

"So whether you use cash or cryptocurrencies to engage in money laundering or any illegal activity, the broad regulations should be the same. Beyond that, there are issues like taxation, and so on," Jain said.

The panel on The Exchange discussed cryptocurrencies within the context of how they are produced using blockchain technology, where the records that represent transactions are evenly distributed among all participants. They argue that the democratic nature of the distribution is such that it eliminates so-called middlemen, whose presence serve to drive up transaction costs.

Independent management consultant Peter Wright says while there is cause for concern regarding present arrangements and the operation of cryptocurrencies, it will be better in the long run for those who use them.

"The friction that's going to be taken out of the system when these cryptocurrencies evolve will far more compensate what's happening now. It's going to be so much cheaper that it will obviate the worries that we're having, because that middle person is the one we have to worry about," Wright said.

Senior financial adviser at Ideal Investment Orick Angus says while he is advising against investing in cryptocurrencies for the time being, he is looking to a future when they will be an integral part of the financial landscape.

"I think it is revolutionary, and the change is going to be so profound that we will begin to accept it in the future. But for now, it will take a while," Angus said.

Wright says the future for cryptocurrencies holds much promise, based on the level of investment involved and the extent of the infrastructure that supports them.

"The amount of technology and innovation behind bitcoin and other cryptocurrencies - the machines are not going away. The 500 largest supercomputers in the world are not as powerful as the machines that are out there running bitcoin," Wright said.