Gold-i CEO Tom Higgins, a senior financial technologist with vast experience across London’s exchanges and in retail FX liquidity management R&D, looks back over 6000 years in the history of money and financial transactions, deducing that cryptocurrency bears resemblance to ancient methods of payment, and that it is a natural progression rather than anything revolutionary, which is why, when used in correct context, it must be taken seriously
Whilst it is most certainly the case that virtual currency, largely led by Bitcoin, has become an almost mainstream and staple component of the research and development strategy of many financial technologists globally, especially the database which contains a hash pointer as a link to a previous block, a timestamp and transaction data, known as ‘blockchain’ that is intrinsically part and parcel of virtual currency generation and sustenance, it can certainly be fair to say that the ‘crypto’ focus that has emerged recently represents an exponential raising of attention.
The recent craze that has engulfed virtual currency – now fashionably referred to as ‘cryptocurrency’, a likely manifestation of a reference to the blockchain structure’s continuously growing list of records, called blocks, which are linked and secured using cryptography, can really even very conservatively be described as an unprecedented and somewhat impulsive rally.
In order to dissect what aspects of blockchain technology and the virtual cryptocurrencies that it underpins are actually viable and sustainable subjects for development that may become accepted integral components of the financial services topography of tomorrow, it is more than prudent to consider the perspectives of those who actually spend their careers in the R&D centers of the major executing venues and institutions of Chicago and London, as this is the voice of experience and reason.
By contrast, the potentially insidious misuse of cryptocurrency as a vehicle for obtaining crowdfunded investment in non-entity startups that may never come to fruition with no recourse for investors, as is more than notable by its vast presence across the overtly trendy generic media from San Francisco to Tokyo, in the form of Initial Coin Offerings (ICOs), in many cases orchestrated by former binary options fraudsters who now seek to defile the confidence of well-intentioned speculators by duping them into buying nothing, supported by nothing, with a ‘nothing’ with a value of $6000 per virtual coin.
FinanceFeeds has made its perspective very clear on this fraternity which seeks to misuse technological terminology whilst riding a wave of fashionable and overused terminology to appear genuine, before running away with money that cannot be recovered by any means due to the absolutely non-existent nature of the item being invested in and the vehicle used to do so.
Whilst the dark streets of Ramat Gan are awash with former binary options orchestrators who utter the word ‘crypto’ at every opportunity have no place whatsoever in the future direction of the global electronic financial markets structure, those who have dedicated their resources, and continue to do so, toward refining the means by which electronic takes place on and off venue, in retail and institutional environments, are indeed positioned to assist virtual currency and its technological underpinnings into our every day lives.
Tom Higgins, CEO of Guildford-based liquidity management and trading system integration company Gold-i, exemplifies this categorically.
Mr Higgins founded Gold-i just over nine years ago, with a view to advance the infrastructure upon which the then-burgeoning retail FX industry was built, following a senior level prior engagement as a technologist at London Metals Exchange.
Last week, at the FinanceFeeds Sydney Cup FX industry networking event in Australia’s institutional and retail financial capital, Mr Higgins presented a thought-provoking dialog in which he likened the advancement of cryptocurrency in its genuine, technological format, not to a revolution as it is viewed by many, but rather to the exact same methodology by which all types of methods of payment ranging from stones to precious metal, and eventually to bank notes as legal tender, detailing that the creation and use of Bitcoin and its peers follows the exact same pattern that has led all methods of payment into the mainstream for the last 6000 years.
With an audience encompassing over 60 of Australia and the Asia Pacific region’s senior level industry figures, Mr Higgins explained “Materials that were used in ancient civilization have been developed in a similar way to how Bitcoin and other cryptocurrency is developed today.”
“Rai stones were one example, and they had monetary value but you couldn’t transport them around because they were too big. There were smaller ones but as they got bigger in value, they got bigger in size” said Mr Higgins.
Rai stones are large, circular stone disks carved out of limestone formed from aragonite and calcite crystals, and were quarried on several of the Micronesian islands, mainly Palau, but briefly on Guam as well, and transported for use as money to the island of Yap.
They have been used over a period of many years in trade by the Yapese as a form of currency. The monetary system of Yap relies on an oral history of ownership. Because these stones are too large to move, buying an item with one simply involves agreeing that the ownership has changed. As long as the transaction is recorded in the oral history, it will now be owned by the person it is passed on to and no physical movement of the stone is required.
“These were then divided into smaller segments virtually” explained Mr Higgins. “This way, you could have bit of paper to say that you own this part of Rai stone, which would then have a sign on it to show which part you own.”
“There is a story that one Rai stone fell off a ship, and ended up at the bottom of the sea. This gave rise to a discussion with regard to whether it was still valid curency, after which it was decided that it was still valid currency because it still existed, and because you didnt actually need the Rai stone itself, but instead needed the fact that you owned a bit of it” said Mr Higgins.
Referring to the similarity between this system and today’s Bitcoin, Mr Higgins said “This is interesting because this is the first time that there was some concept of virtual money, and it was a long time ago.”
“If we now get to today, we can look at this further” said Mr Higgins. “Now, today money is controlled by nbanks and there are multiple banks around the world, alll issuing different currencies and controlling them in different ways, which does create some difficulties and of course some expenditure”.
“Looking at how money is transferred in different parts of the world, for the non-banked which is about 90% of the population of the world, the only way to send money to someone else without actually physically going there is to use companies such as Western Union, and they charge varying amounts, but it’s about 10% to 12%, so if you want to send money to somewhere else, it is extremely expensive” – Tom Higgins, CEO, Gold-i
“Western Union do a lot of this buisiness, and make a great deal of money doing it, so this is a problem for the unbanked, which is the vast majority of the world’s population” he explained.
“The invention of cryptocurrency is important as this helps in a vast number of ways. We dont know the inventor’s identity, so I will refer to him by his pseudonym Satoshi Nakamoto. Satoshi solved a problem which is called the Byzantine Army problem, which is how you manage to communicate between disparate parties in a battle ground where you don’t want messages to get to the enemy and some ‘generals’ may be working for the enemy without you knowing, therefore you need the ability to have consensus without central control” explained Mr Higgins.
“Satoshi Nakamoto solved this mathematically, by inventing blockchain, with Bitcoin on top of it. It’s distributed, so it’s not centralized, therefore nobody can stop the issuance. It is immutable which means it can’t be changed. With normal bank-issued currency, you can change the values on the database, but with blockchain it’s impossible because everything works backwards using cryptographic hashes so you cannot change it. It has no double spending, without which would present an issue with digital currency, as being controlled by no central authority means not knowing what is spent. It is also anonymous, which many would argue is bad for governments and regulators as it can be used for crime, however cash is used for crime a lot more frequently” said Mr Higgins.
“Another interesting point regarding sustainability is that Bitcoin is verified by consensus, that being instrumental to its generation method, which is conducted by miners” said Mr Higgins.
“Bitcoin production uses the term mining because it is more of the equivalent of a commodity like gold. This is how to verify that the transactions are valid. It would be very difficult to get 6 independent people to go into collusion together when they are earning money independently out of mining. They get paid in Bitcoin for doing validation, and the first person to do so gets the money so there is massive competition in mining hence the increasingly powerful computers” he said.
Lead generation using Google and Bitcoin? What’s the link?
Mr Higgins then moved onto practical considerations:
“I was speaking to a company recently that generates leads using Google, so they do affiliate marketing, spending millions of pounds a month on Google. This company said that 80% of the demand they are seeing is for cryptocurrency trading in the areas which would have been typically the CFD and FX space, so it is absolutely enormous.” – Tom Higgins, CEO, Gold-i
Changing the way things are purchased – Money and goods handed over as one transaction
“So, you can do nothing, write it off as a fad, consider that it is going to go away. I do not think that is an option, especially with CME Group preparing to offer Bitcoin futures from next year, and in fact, having worked in the exchange world most of my life, I know that most of the futures exchanges are working on this too, just that CME announced it first” he said.
“You can wait to see what happens, you could dump all of your FX and CFD and go solely for cryptocurrency, or you could offer FX and cryptocurrencies, which is what most people do, with the some of the banks staying away from it” he said.
So, what can you do about it?
“I just want to talk in some detail about the future of where the technology is going” said Mr Higgins. “Bitcoin, and the activity of cryptocurrency trading, is just the first generation of blockchain, which is blockchain 1.0. Blockchain 2.0 is the second version, which is a considerable evolution over the first version.”
“One of the problems that you have today is that if you buy something from soneone today, you have to give them the money, they then have give you the goods. This is not an atomic operation, it is two operations so therefore if you give the the money to the seller, the seller could run away with the goods or vice versa” Mr Higgins said in his example.
“Blockchain removes this problem as it has smart contracts and smart money, which is programmable money in a smart contract. It ties up in a single operation the sale of goods and transfer of money, so you have no counterparty risk, therefore there is no need for central clearing as there is no counterparty risk between the people buying and selling shares for example you cant get money unless you have the shares. So the question is, with this technology, why would electronic trading infrastructure need a central counterparty with all that cost and complexity when this makes it redundant?” – Tom Higgins, CEO, Gold-i
“The next stage is blockchain 3.0, which is even more advanced. Rather than the data being distributed around the world, the entire application is distributed, so the process is shared using common protocols by different peoople so the entire application you are using is broken down into small parts” said Mr Higgins.
“So, I think it is really excuting where the entire blockchain behind the cryptocurrency is going and the cryptocurency world, I think, has major advantages and there is a lot more opportunity but there are questions centering on how to do it as it’s so early. I will leave you on this point” said Mr Higgins. “We at Gold-i launched our Crypto Switch product this week, which brings in prices from multiple crypto exchanges and aggregates them together, then gives a single reference price which is as close as the price as you can get.”
“The first version is pricing only, and the next version coming out at the end of the year allows you to trade, with the ability to go long and short on the market as you would do with normal liquidity providers. Next year, we will be adding custodian systems, and central wallets that are shared offline so they cannot be stolen, therefore there is a lot of exciting development to look forward to.”
“I think the future of money is crypto! Try it and enjoy it” enthused Mr Higgins in conclusion.