Editorial: A front-seat ride

Back in late March, we reported that the Antigua and Barbuda government was moving to set-up a cryptocurrency exchange. If you are already lost, you can take comfort in the fact that you are not alone. Cryptocurrency is a black box of mystery for the vast majority of people and due to its very technical nature, will probably remain so for a good, long while.
We are not even going to attempt to demystify that black box, save and except to describe cryptocurrency as virtual money that exists in the digital world. Its value is not supported by any country or entity; rather, it gets its value from the underlying technology and the demand. A cryptocurrency exchange allows an interested party to buy and sell cryptocurrencies for hard cash. Much like the bank, the exchange makes its money in the spread between the buy rate and the sell rate. Going much beyond that requires more space than is available in this piece.
While there is a great deal of mystery as we face the unknown, that is not enough to deter the administration from jumping head first into the cryptocurrency pool, as it seeks to cash in on the global wave of financial technology and the perceived gold rush that it offers. The administration has said that the necessary legislation to set up the relevant legal framework for operation will soon be presented in parliament so that we can start swimming with the cryptocurrency sharks.
Before we go any further, let’s be clear on one thing. We have no objections to the concept of cryptocurrency, and we are not seeking to deter the government from investigating the technology for the betterment of everyone in our bit of paradise. In fact, we see huge potential for a properly regulated and secure cryptocurrency exchange, as well as the blockchain technology which provides its foundation.
We are happy to see that we at least have a cryptocurrency czar in the name of Calvin Ayre, who knows a thing or two about the world that we are so eager to enter. He certainly has the blockchain/cryptocurrency credentials to be a significant asset for any push into this brave new world. At the same time, we have concerns.
The world of cryptocurrencies and exchanges are fraught with serious risks. We understand the concept of ‘risk and reward’ and ‘nothing ventured, nothing gained,’ but we already have a somewhat dodgy reputation in the international world when it comes to financial matters (think gaming), so let us make sure that any firm decision to stick our toe into the cryptocurrency waters is well researched and secure.
The government statement on these matters said, “Antigua and Barbuda is determined to be on the cutting edge of the new system of creating wealth with the expectation that the Exchange will generate non-tax revenue for the Treasury.”
Information Minister Melford Nicholas, followed that up, saying, “By establishing an exchange here it will bring Antigua into the game as it were should there be any potential economic spinoffs we should be in the front seat.”
In the news business, we have a saying that goes something like this: “better last and right than first and wrong.” We keep reflecting on that because there have been many who have rushed to be in the front seat only to suffer the most damage when there was a crash. A visit to deadcoin.com will list the names involved in the front-seat cryptocurrency carnage and give you an idea of how hard this will be to execute. On our last visit, there were almost 800 cryptocurrency coins, initial coin offerings (ICO) and exchanges that have failed in one way or another.
We are not trying to be pessimistic, but with the likes of Bill Gates and Warren Buffet essentially rejecting cryptocurrency in a recent show on CNBC, we are preaching serious caution. Buffet, Chairman of Berkshire Hathaway, and considered by many to be the greatest investor of all time, has expressed serious concern over cryptocurrencies despite their remarkable increases in valuations, referring to them as “nonproductive assets” and pegging their value on what the next person is going to pay you for your coin. In agreement, Gates said, “It’s kind of a pure ‘greater fool theory’ type of investment.”
So that no one gets scared, we have seen no indication that the government will invest in cryptocurrency, only the exchange, but that also comes with a good amount of risk. We need only look at Mt. Gox, which is the most famous of the failed cryptocurrency exchange. Based in Tokyo, Magic The Gathering Online eXchange was established in July 2010 as a trading platform for playing cards. It morphed into a cryptocurrency exchange, and at its peak of popularity, it handled approximately 70 percent of all bitcoin transactions. In February 2014, the company suspended trading, closed its website, and filed for bankruptcy protection. Approximately 850,000 bitcoins evaporated from customers. The lost value, at the time, was more than U.S. $450 million.
A loss like that today would be valued at almost U.S. $8 billion and more than double that when bitcoin flirted with U.S. $20,000 each. To this day, the majority of the ‘missing’ bitcoin remains missing. And that is the risk. If hackers steal the exchange’s bitcoin, those bitcoin are very likely lost forever. That is the beauty and curse of most cryptocurrencies – digital anonymity.
Now, imagine if our exchange became popular, fell victim to hackers and billions disappeared? What will be the reputational damage? And we haven’t even started talking about the other risks, like nations thinking we are facilitating currency exchanges for bad entities. This is why we are preaching caution. Too much is not enough when it comes to sitting in the front seat of this ride.