Cryptocurrencies are digital means of payment independent of central banks, intermediaries or physical cash. Instead, encryption technology, peer-to-peer networks and digital wallets are used to keep track of the money and to make transactions. Groth & Co has assisted a Swedish software company to draft and file a patent application for a cryptocurrency.
As early as the 1990s people were trying to create digital money. But all of these attempts, such as Ecash and Digicash, failed. The cryptocurrency concept was first described in 1998, when Chinese engineer Wei Dai presented a proposal for a digital currency, which he called B-money. Although the idea of B-money was never implemented, it had a major impact when the pseudonym Satoshi Nakamoto launched the first cryptocurrency, bitcoin, in 2009. The most important aspect of Nakamoto’s invention was that it solved how to build a decentralised system, and the inspiration came from peer-to-peer networking for file sharing.
The creation of a digital currency previously required a central server to store balances and keep track of transactions. That was how the attempts in the 1990s were designed. But cryptocurrencies need no central actor. Instead, cryptocurrencies are distributed by consensus about what money is available and what transactions have been carried out. This consensus is achieved through a peer-to-peer network of voluntary users, who together verify the transactions with their computers. Each user in the network has a complete history of all transactions, and thus the balance of all accounts, anonymously. Once the entire network has confirmed a transaction, it has become part of an unchanging collection of historical data. This is what is called blockchain, and this is what made Nakamoto’s currency successful.
Since its launch in 2009, bitcoin has become the most famous and widespread cryptocurrency. But development in this area is very rapid. In May 2018, there were around 2000 cryptocurrencies globally. Among the most famous, in addition to bitcoin, are Ethereum, Litecoin, Dogecoin, Htmlcoin and Monero.
In 2018, we assisted a Swedish software company to draft and file a patent application for a cryptocurrency. One major problem with existing cryptocurrencies is that they require large amounts of electricity for all computers in the network to work and stay cool. Running a cryptocurrency is therefore neither energy efficient nor environmentally friendly. Our client’s innovation is to create an environmentally friendly and high performance distributed system with an associated low volatility cryptocurrency.
One exciting aspect of cryptocurrencies is that their value is not affected by political decisions or an increase in the production of cash by a national bank. In this way, cryptocurrencies can be compared to a kind of digital gold. In the long term, cryptocurrencies should therefore keep their value stable over time. This, coupled with the fact that money can be used globally without the impact of exchange rates and exchange charges, makes currencies attractive for the future. Initially, however, most cryptocurrencies have had problems with high volatility and thus been difficult to predict. This has laid the foundation for a speculative market for investors. The trading of cryptocurrencies takes place on special platforms and the volume of daily trading exceeds trade on some of Europe’s largest stock exchanges.
How we will use cryptocurrencies in the future remains to be seen. But in any case this new type of currency has attracted a lot of interest from individuals, companies, politicians and financial institutions. Cryptocurrencies therefore have the potential to affect the world economy and change how we look at both money and economic policy in the future.