Cryptocurrency is a trending news topic, with many people speculating whether it’s a 21st– century unicorn or the way all transactions will take place in the future. In early January of this year, the South African Reserve Bank (SARB) released a new consultation paper, focussing on the perceived risks and benefits associated with crypto assets. The paper proposed increased regulation of crypto assets in South Africa in 2019 in order to increase consumer protection and reduce possible misuse relating to money laundering and terrorist financing, circumventing exchange controls and increasing illicit financial flows.
What is cryptocurrency?
Cryptocurrency is defined as being a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions and the creation of additional units. Or you can think of it as a type of digital currency that only exists electronically. SARB defines cryptocurrencies as tokens, not money. The bank chooses to call digital currencies such as Bitcoin “cyber-tokens” because they don’t meet the requirements to be classified as money.
Bitcoin is often credited as being the world’s first cryptocurrency. There are currently 17 million bitcoins in circulation and the total supply to be ever created is capped at 21 million bitcoins. Bitcoin is decentralized which means it doesn’t have a central issuing authority and it has a ruthless verification system, which reduces fraud.
Can cryptocurrency be hacked?
While the actual structure of a cryptocurrency is extremely difficult to hack, the exchange platform where you trade money for cryptocurrencies like Bitcoin or Ethereum can be hacked. One of the most famous hacks was the Tokyo-based MtGox hack in 2014 when over 850 000 bitcoins valued at over $350 million disappeared from the exchange platform.
Another recent scandal relating to cryptocurrency occurred earlier this year when Gerald Cotton, the founder of QuadrigaCX, a Vancouver-based currency exchange system, unexpectedly died in December 2018. The cryptocurrency reserves stored by QuadrigaCX were stored in cold wallets According to reports, Gerald Cotton appears to have been the only person with access to the cold wallets, leaving $190 million frozen.
The value of cryptocurrency
Like any currency, each cryptocurrency has its own trading value. The price of one Bitcoin is currently worth R49 343. Like normal currencies, a cryptocurrency’s value only comes from people willing to accept them as payment. If something adverse occurs to the cryptocurrency market, like the hacking of an exchange, the value of cryptocurrencies tend to decline accordingly. Similarly, if more people want to buy a cryptocurrency, the price will rise.
2019 sees a rise in cryptocurrency markets
In early February of this year, Cryptocurrency markets suddenly saw a surge in bitcoin, ethereum and litecoin prices, following months of market stagnation. The surge in the market is a relief to investors who have been witnessing an on-going decline in prices ever since bitcoin reached a high of close to $20 000 at the end of 2017.
If you are a South African living or moving abroad and would like to know more about how you can maximise your finances through financial emigration, accessing your South African retirement annuity and our tailor-made tax solutions for South Africans around the world, contact FinGlobal today.
Send us a message
Leave your details below including a short message and a financial consultant will contact you.
Licensed South African Financial Services Provider FSP # 42872
You have Successfully Subscribed!
FinGlobal Newsletter Subscription
Subscribe to the FinGlobal newsletter to receive all the latest news and information regarding our services and South African Expats.