This article first appeared in Forum, The Edge Malaysia Weekly on June 19, 2017 - June 25, 2017

Wise men say, “Never invest in something you don’t understand.” But what does one do about cryptocurrencies?

Last week, as financial markets sweated over the latest will-she, won’t-she Fed/Yellen commentary on US interest rates, the two most famous such examples — Bitcoin and Ethereum (or Ether) — soared to fresh highs.

But what in the name of all that’s holy are they? Try Googling either Bitcoin or Ethereum to understand what exactly they are and why they are so valuable. Go on.

I did, and emerged on the other side of the afternoon dazed and confused. After hours of wide-eyed, fervent research this is what I kind of understand: Both Bitcoin and Ethereum are the best known of a bunch of cryptocurrencies that pay for technology called “blockchains”, which are said to be exciting because of essentially three things.

One, they remove intermediaries like central authorities or overseers, so, in future, entire corporations can run their businesses (for example procurement, human resources, finance/administration, product and service sales) using so-called blockchain “smart contracts” without any human or institutional intervention.

Two, every process that occurs on these blockchains is sent or “distributed” to every computer in the world using its technology, making them 100% secure, since there are public ledgers and records of every such transaction and exchange.

And three, while not all of them were set up as alternative currencies, they are swiftly gaining traction as exactly that, increasingly becoming known as “open-source payments”.

Precisely because of the above, folks are getting excited.

If these technologies have the ability to disrupt any application reliant on a central server or trusted third party (for example, gaming, shopping, banking or chatting), then surely it must be worth investing in the underlying currencies for which these smart contracts are satisfied.

One more thing. Since these technologies are nearly impossible to “mine”, the creation of additional units is extremely difficult and laborious, therefore curtailing the supply.

Which, in the simple law of economics, makes them more valuable as demand for them grows, much like say Patek Philippe watches or De Beers diamonds.

Right now, Bitcoin is the most famous (and expensive) but there are literally hundreds, maybe thousands, of such “cryptos”, including Ripple, Litecoin, Dash, Steem and Golem.

While most of them would be meaningless to 99.99% of us, as a collective whole, they are literally steaming ahead in tech-centric, esoteric investing circles, with familiar (and necessary) infrastructures like exchanges, trading platforms and marketplaces sprouting up all around the world.

In Malaysia there are sites like Luno, which facilitate transactions, though I understand one has to first buy Bitcoins before exchanging them for Ethereums.

So, right now, Bursa Malaysia is on a tear. Foreign investors have been buying local counters for 18 weeks straight and inflows in just the first five months of the year have already surpassed all of last year’s total.

The ringgit is up 5% in two months, currently sitting pretty among the region’s strongest currencies, and all seems hunky dory.

So why this interest in alternative currencies that use a language no one understands and that are being “mined” by pimply teenagers in dark rooms, not hardcore JCB or Caterpillar tractors?

I definitely know Malaysians are buying and dabbling in cryptos because folks on my Instagram feed are posting Bitcoin price charts that inform me daily of their stratospheric gains.

More to the point, a British colleague with no previous interest or inclination — at all — in securities recently waylaid me in the corridor, breathlessly sharing priceless information to the effect that he’s invested RM1,500 in an Ethereum and has seen a 100% return in just one week!

Hours later, he shot me an email full of links that told of rising volume, adoption in the banking industry, validation by Russian President Vladimir Putin and how Ethereums will “knock Bitcoin off its perch” as the No 1 cryptocurrency.

Said email ended with the following phrase: “It’s insane. I need some clarity!” 

All of which has translated into my now being able to reliably inform you that at the time of writing, one Bitcoin was worth around US$2,500, thanks to an 

ever-increasing number of people chasing just 16.4 million Bitcoins in current supply. And that in turn, each Ethereum is valued at US$361, with even more staggering gains in this so-called crypto. They were worth just US$10 each in January, even though there are far more (about 92.5 million Ethereums) in current supply compared to Bitcoins.

Of course it’s a bubble. How can it not be anything but? And yet.

If real companies are using Ether as a means of raising money (a friend’s fintech firm is planning an Ethereum-based “initial coin offering”, issuing so-called tokens matched to the blockchain technology he is using in his own platform), then there must be something here, right? RIGHT??

When Bitcoin came out in 2010 we were dismissive. Today, it has not only survived, but it has positively gone berserk and there is no sign of it stopping.

If the boffins are right and blockchain technology sits front and centre of the innards of the machines being built with Internet of Things and Big Data capabilities, then there could well be possibly something here.

I think it’s worth a punt. Because what’s the alternative? Buying FGV?

Khoo Hsu Chuang is associate editor at The Edge Malaysia

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