Central banks and conventional financing institutions are learning more about crytocurrencies, especially Bitcoin, to prep themselves for competition arising form the emergence of fintech.

Bank notes have long been the standard legal tender in almost all countries known to the world. However, Bitcoin and other crytocurrencies have drawn much attention from central banks. 

However, cryptocurrencies are nowhere near overtaking or replacing bank notes as legal tenders recognised by central banks, according to an industry expert.

In an interview with SME, Bill Barhydt, founder and CEO of ABRA shared his professional knowledge and opinion with me.

He said that Bitcoin’s value is fluctuating because it is not backed any other commodities. In fact, central banks treat Bitcoin as a type of commodity.

Using the United States as an example, he said, “The Federal Reserve (Fed) does not recognise Bitcoin as a legal tender, because if it does so, Bitcoin would be competing with the US Dollar. The Fed sees it as a commodity for investment purpose.

“Bitcoin’s current volatile value is due to the size of its capital market, which is not as huge in comparison to other commodities.

“The problem with Bitcoin’s trading activities now is that people or focussing on buying the cryptocurrency, and much lesser are selling. It is easier to influence the price when you are holding on to a lot of Bitcoins,” explained Barhydt.

A Disruptive FinTech

Blockchain is the underpinning technology for cryptocurrencies such as Bitcoin and Ethereum.

According to McKinsey, blockchains (blockchain) could revolutionise the world’s economy, driven by its innovation around privacy protection and business efficiencies.

On the other hand, global research firm IDC forecasts global spending on blockchain solutions will rise from US$945 million in 2017 to US$2.1 billion in 2018.

Key drivers of growth include the banking and finance, logistics, retail, and professional services. All these factors form crucial pillars of Singapore’s global competitiveness.

Forecasts show that blockchain spending will be led by the financial sector (US$754 million in 2018), driven largely by rapid adoption in the banking industry.

The distribution and services sector (US$510 million in 2018) will see strong investments from the retail and professional services industries.

Meanwhile, the manufacturing and resources sector (US$448 million in 2018) will be driven by the discrete and process manufacturing industries.