Written by Charles Siwele
There was a time when, if you worked in a country as a foreigner, sending money home would have been a tremendous task, both economically and psychologically. Considering the exorbitant fees associated with transferring money from a local bank to a bank in another country, the feeling of being ‘ripped off’ could be, and still can be, expected. There, too, used to be a time when investing in company shares was something you needed a broker for. Strict financial regulations would and still (intentionally or unintentionally) disadvantage small interested investors looking to explore the world of financial speculation and investment. Say, for example, when you want to speculate on the price of a company share price you need to have an account with a broker, to whom you need to pay monthly fees that can often be more than the combined earnings made per share for small-time traders and investors, and to whom you need to pay transaction fees that can often make share trading (no to be confused with share investing) unprofitable on a small scale or make you feel cheated of potential profit margins. Altogether the markets of shares and securities trading and investing have been made to be so daunting, both personally and financially for the average Joseph and Sipho that most don’t even consider it something worth their time to explore outside of passive pension funds and retirement investment programs. The conventional financial system and the way it works has been ultimately (again, intentionally or unintentionally) geared towards serving those that already have plenty of money to work with. While there do exist other alternatives such as Forex trading, these carry a level of exponential and detrimental risk in practice. However with the advent of blockchain assets and technologies, the traditional modes of doing business in these areas of financial business have since been challenged – they are losing.
Cryptocurrencies have made it revolutionarily easy to access share-like trading opportunities with significantly fewer and smaller costs. They have made it super convenient to transfer money value between countries and across geographical regions at a fraction of the conventional cost associated with transferring money and financial value across national borders. One of the most significant ways in which blockchain technologies, at a consumer level, open the doors of opportunity to regular users is through cryptocurrency trading platforms. These platforms offer a number of advantages over the conventional share trading and forex platforms; the most notable advantages and key characteristics being that they deal with asset OWNERSHIP instead of leveraged or DEBT-driven speculation. As a unique standard these platforms provide (1) a wallet facility that holds an account of your various currency units, (2) addresses to represent the various pockets in which your various different currencies are stored. These addresses are used as an equivalent of an “account number” used when one is looking to transfer value to or from the wallet. Thirdly these platforms usually provide access to a transparent collection of buy and sell orders put forward by other users for prices at which they are willing to either buy or sell their cryptocurrency units. This means that you as a user can firstly look for a price at which you are willing to buy into a currency at. If such a price is not provided for by any sellers on the platform then your buy order may stay opened while it awaits a seller to enter the market at the price you have requested. Then where a buying price has been met, the transaction is processed (with usually less than 1% market/service fee) and the corresponding currency’s unit amounts are transferred to your account making you the holder of Bitcoin, Ether or any other currency you may have bid for. If the bidding process takes too long for your patience or immediate needs, there are more often than not options for outright buying of currencies at aggregated market prices. These prices would however be generally higher than those of buying by market order.
The primary implications here are (1) User is now the holder of digital currency purchased at a given market price, (2) the user can now engage in various economic transaction with entities that accept such digital currencies as a means of payment, (3) the user can hold on to the purchased currency and wait for the price of such currency to fluctuate (appreciate in value compared to the price at which the user initially bought at) and sell on the market at a higher price to a will buyer similar to how was done when the user bought currency in the first place. At this point, if the user opts to hold onto the currency, it is quite possible that the price may fluctuate negatively, meaning where the user bought at a given price, the value of the currency may at a later point be less than what was initially paid. But this should not worry users too much as the prices constantly fluctuate, although sometimes such drops and rises may take place over the course of months at a time. But then this is where patience and composure can be expected from an investment and financial speculation point of view.
The currency wallets of relevant currencies hold the accounts of how much of a given currency users hold. The addresses associated with those wallets are the means by which those wallets are identified on blockchain networks when a transaction is processed. Because of the volatile nature of digital currency prices against fiat currencies (USD, ZAR, GBP EUR etc.), they make for an interesting speculation tool. This is because the cost of buying a unit of any cryptocurrency is usually less than 1% of the transaction value. Also, There are generally no fees associated with holding your currency units, where for a day, or for a year. This is, as any forex trader or broker will tell you, not a luxury conventional trading platforms afford users.
Generally speaking though, it is always a good idea to read up on security measures and market standards for keeping your currency units safe, but a general rule of thumb is to ensure that any currency units you don’t plan to actively trade or immediately use or speculate with should be kept safely on a wallet that is not on a trading platform. There are plenty of options available on the internet that allow provide peace of mind through safety precautions in the unlikely event of system failures, or security breaches or platform shutdown/termination.
So now we have explored the prospects of buying and selling digital currencies in exchange for local fiat currency on trading platforms and how that aspect alone is implicitly more transparent and affordable an investment and speculation option for the common [wom]man. When you have bought crypto units in your local currency at market-determined prices, on a local trading platform, you are able to easily (1) convert back into your local fiat currency through buy or sell orders, (2) send to another platform which is local to another country or geographic region; allowing those crypto units to be converted on this new platform to the new local fiat currency which can then be withdrawn into a local bank account at a the recipient’s timely leisure. In South Africa some of the most popular existing platforms have a lead time of up to 48 hours for a withdrawal from a crypto trading platform to a local bank account. As for what these lead times and associate platform fees might be; that can be left to personal research as there are usually sections on these platforms’ websites addressing queries such as fees, deposits and withdrawals.
Now, while the information provided in this article is non-exhaustive, I believe it sets a certain know-how level to get even the most basic “fundie” up and investing and at the very least talking about the prospects of investing, trading, and interacting economically using digital currencies. There is plenty of material out there that goes into more technical concepts in the realms of trading, investing, setting up offline wallets for safety, the kinds of digital currencies available on the market, the most popular options available and what makes them valuable – basically everything one might need to build on a theoretical base of understanding such as that which we have lain so far in this series. What will be discussed further in future is some of the interesting ways in which blockchain technologies have been applied to the development of applications, games and digital banks. Also an interesting philosophical exploration of the role the state and governing bodies should play in regulating (or not regulating) the cryptocurrency markets, the conflicts of interests faced by countries when cryptocurrencies are used by their citizens and others in their national borders as a substitute or alternative to their local currencies, this will include a look at cases where countries such as China have banned crypto exchanges and what the effects have been.