Background and Motivation

Cryptocurrency utilizes encryption to generate money and enable secure transactions. It enables
multiple parties to transact electronically outside a 3rd party regulatory framework. This was seen
as a difficult task because of the double-spending issue, which influenced all endeavors to make
electronic money since the beginning of the web. Thus, it was mostly a theoretical concept with
limited practical application until Satoshi Nakamotos revolutionary white paper in 2009.
The promise of lower transaction fees than standard online payment mechanisms and the fact
that it is operated by a decentralized authority, i.e., outside government or regulatory overview
ensured that Bitcoin found a lot of users very fast. But more importantly, the Supply of Bitcoin is
controlled in a manner that ensures limited supply in the market which is one of the major causes
behind its high current price.

Figure 1 Cryptocurrency Market Cap growth per month

Today the Market capitalization of Cryptocurrencies is nearly $100+ bn (a surge of about 4 times
in around 4 months) of which Bitcoin is leading at about $40 bn and it is evident that
cryptocurrencies are here to stay.
 Falling
Demand of
Bitcoin

Layoffs and
Wage Falling Prices
Reductions

Bankruptcies Debt Defaults

Figure 2 Deflationary Spiral due to Bitcoin

After facing pushback from regulatory authorities like Central Banks and Governments for many
years due to concerns about illegal activities, deflationary spirals and volatility among others, we
have recently observed a growth in number of banks and countries aiming to study and
implement Blockchain based distributed ledger currencies.
For example, Skandiabanken announced in May its plans to offer clients the ability to link their
cryptocurrency holdings with their bank accounts. It wants let users connect a bank account with
a Coinbase account, allowing users to view their cryptocurrency balances within the banking
app. The app would allow users to view their holdings, just as they would other investments,
though not buy and sell cryptocurrencies. Even though Skandiabanken has stressed that it does
not view bitcoin as a currency but instead another asset class we can see this as indicator of a
broader trend that sees bitcoin merge with broader fintech trends of offering customers newer
services.
Also, given the safety concerns regarding giving your cryptocurrency assets to payment wallets
who are new and thus as of now untrusted is a big barrier of entry for many investors as if a
wrong person gets unauthorized access to your cryptocurrency holdings and transfers the
currencies to their own wallet, there is be no getting it back. This opens up an opportunity for
traditional banks as most people already trust them.
The rising legitimacy given to cryptocurrencies combined with increased instability in
Cryptocurrency prices (See Figure 1) makes prediction of the future of Cryptocurrencies both
vital and interesting.
References:
https://steemit.com/cryptocurrency/@crazymumzysa/the-importance-of-cryptocurrency-is-
cryptocurrency-the-future-featuring-ann76-as-author
http://www.coindesk.com/banks-offering-cryptocurrency-services-a-new-reality-is-arriving/
https://venturebeat.com/2017/06/18/why-banks-need-to-start-offering-cryptocurrency-wallets/
www.bitcoin.org
www.coinmarketcap.com