| | July 20168CIOReviewCryptocurrenciesIn My OpinionAre You Preparing?By Bill Miller, CIO, EMS USA, Inc.ryptocurrencies, digital cur-rencies that are based on cryptography, are becom-ing a pivotal focus area for capital markets in 2016. As these new currencies become more widely accepted, the potential for mas-sively disruptive technological change is clearly looming.Some analysts estimate that there are over 700 new cryptocurrencies already circulating, though many are admittedly in their infancy, and most will never be widely used. That said, the biggest of them, Bitcoin, has already surpassed over $6Billion in market capitalization, and is growing rapidly. Other options include Ethereum and Litecoin, both of which are already over $100Million. Ripple is yet another story, which includes a payment exchange as well as its own cryptocurrency.What is Bitcoin? As quoted in US Congressional Research Service, "Bitcoin: Questions, Answers, and Analysis of Legal Issues," January 28, 2015, like the U.S. dollar, Bitcoin has no intrinsic value, meaning it is not redeemable for some amount of another commodity, such as an ounce of gold. Unlike a dollar, a Bitcoin has no physical form, is not legal tender, and is not backed by any government or any other legal entity, and its supply is not determined by a central bank. The Bitcoin system is private, but with no traditional financial institutions involved in transactions. Unlike earlier digital currencies that had some central controlling person or entity, the Bitcoin network is completely decentralized, with all parts of transactions performed by the users of the system. What is 'Blockchain'?As stated by Investopedia, Blockchain is a public ledger of all Bitcoin transactions that have ever been executed. It is constantly growing as `completed' blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.From a much broader standpoint, as quoted by Inside Bitcoins, various research groups have determined that cryptocurrency disruption is becoming much more likely, and soon. For example, back in December of 2014 Technology Strategies International (TSI), a research from out of Canada, concluded that cryptocurrencies would be a "major disruptive force" within five years.Clearly, this is a new and exciting market, but there are many questions. They include: What happens when traders and investors want to use cryptocurrencies instead of dollars, euros, or yen? How will trading platforms be impacted? How will funds be deposited, traded, reported, and paid? How will firms utilize Swift-based infrastructure in a cryptocurrency environment? How will firms quickly verify ownership of the currency in high-frequency trades? What are the tax and regulatory impacts? The list is endless.With So Many Questions Pending, What are Leading Financial Institutions Doing to Respond?Through early 2016, financial institutions have demonstrated mixed responses to CBill Miller
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