What are the most popular cryptocurrencies in trade finance?
While Bitcoin was the first, there are currently more than 3,000 cryptocurrencies in circulation. However, there are just a handful that have real value and liquidity; many can be discounted altogether. Some cryptocurrencies were created for humour like ‘Coinye’, others part of part of elaborate pyramid schemes, and some have no assigned or real value. But, there are some cryptocurrencies that are worth sitting up and taking note of and here we will have a closer look at the most popular ones out there, particularly those which have the potential to disrupt trade finance.
Bitcoin is the best-known cryptocurrency and it was also the first decentralized digital currency to be developed. Released in 2009 by the still unknown Satoshi Nakamoto, Bitcoin has had many ups and downs in terms of its value. As of 2017, there are between 2.9 and 5.8 million unique users of a cryptocurrency wallet and the vast majority of those are Bitcoin users. More than 100,000 merchants and vendors accept bitcoins, making it a legitimate payment system.
Litecoin was launched in 2011 by Charlie Lee. Litecoin is similar to Bitcoin in many ways, although it offers faster transaction confirmation due to its faster block generation rate. Litecoin is becoming more widely accepted by merchants as a payment currency.
Ripple was released in 2012. It differs from Bitcoin and other altcoins in that it doesn’t need mining, reducing how much computing power is used and therefore minimizing network latency. Ripple offers an instant, low-cost international payment system with market capitalization of $1.26 billion.
Launched in 2014, Monero is a donation-based and community-driven cryptocurrency. It is secure, private and untraceable, enabling complete privacy through its use of a special technique called ‘ring signatures’.
Dash was launched back in 2014, and was originally termed ‘Darkcoin’. Dash is another version of Bitcoin, offering more anonymity due to its foundations being born on a decentralized mastercode network. As a result of this network, transactions occurring on Dash are almost untraceable. Darkcoin was rebranded as Dash (Digital Cash) in 2015.
Etherium and the etherium blockchain are a more sophisticated and advanced technology, allowing for Smart Contracts and Distributed Applications to be built and run with no interference, fraud or downtime. Deemed as the cryptocurrency that banks will look to run on, and also hailed as Bitcoin v2.0, we believe that Etherium has opportunity within the trade and invoice finance space. It runs on ether, a platform-specific cryptographic token.
Launched towards the end of 2016, Zcash is relatively new in the industry, but it showed promise early on. It offered privacy and selective transparency for transactions. Users of Zcash are given the option to have ‘shielded’ transactions so that content is encrypted.
The validity and longevity of cryptocurrencies have become more apparent over recent months according to Crypto Head, following Facebook’s acquisition of a large number of Bitcoin, as well as the application of cryptocurrencies by many reputable banks.
The most sustainable cryptocurrencies are those with both a high market capitilisation such as Bitcoin, Litecoin, and Ripple, as well as those with many features and added security such as Etherium.
It’s also important to remember that the underlying infrastructure (blockchain) that’s associated with the cryptocurrency is often more important than the cryptocurrency itself or even its price.
Bitcoin remains the market leader in the world of cryptocurrencies, but some of the newer altcoin options offer advanced features while other virtual currencies are becoming popular for businesses or business banking.
Bitcoin’s Application to Trade Finance
The Etherium blockchain has been flagged as the most likely cryptocurrency for products such as trade finance, and companies such as Populous are already looking into this. We recently reported BBVA’s first trade finance transaction in latin America using blockchain technologies, and we certainly think it’s a foreseeable application for trade finance, especially if we can mitigate the risks and speed up payments on this often paper based process.
The potential benefits of using Bitcoin for trade finance are not unaccompanied by potential downsides, however the benefits are believed to outweigh the downsides as we are seeing increased levels of blockchain platforms raised world-wide for financing trade.
Bitcoin has faced a bumpy ride in recent years, yet has seen massive appreciation in the last two months. No one knows where it will go, but it would be remiss of us to ignore its investment, attention and uses in the trade finance community. The Bitcoin revolution continues.