Doing Business in the Middle East:
From virtual societies to virtual money!
with the rise of the internet world some thirty years ago, no-one imagined that people would start living virtual lives in virtual (online) communities. Some people even went one step further… they created virtual money and started to use it online. However, things did not stop at that level – it went even further. Some banks have started to recognise its existence and have started to accept trading in this virtual currency.
This virtual money has a name you might have seen mentioned in the press and online – it’s called BITCOIN – with people who deal in it named bitcoiners!
A Google search will take you to the definition as given by Wikipedia, which is: “Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer, Satoshi Nakamoto”
The virtual currency was created using computer algorithms and is traded electronically amongst people for their business deals. This means that, in effect, it’s a barter system – as was the trend for trading many centuries ago!
This ‘currency’ is not a stock, a bond or even a legal entity. There is no administrative or consultative structure to oversee it, nor any business plans or balance sheets.
However, it has become a very valuable commodity, real or virtual.
The price of one bitcoin has been extremely erratic, reaching a peak of $1,100 from less than $20 at the beginning of its virtual life. It has since retreated to around $638, according to a CoinDesk index, one of three popular bitcoin exchanges.
According to some financiers, banks are reticent to use this virtual currency because of concerns that the businesses involved could become bankrupt, fall foul of anti-money laundering laws or be involved in illegal activities. Regulators and central bankers around the world have raised similar concerns in recent months, as explained in an article published by Yahoo business, “Banks mostly avoiding bitcoin”.
The bitcoin is also explored in an article by Forbes magazine, and according to Boston University’s Finance Professor, Mark Williams, the value of the bitcoin has only really been driven by an influential few. Just 47 people own 29% of all outstanding bitcoins; 930 own 50%. Another 10,000 people bring the total owned by the largest coin holders to roughly 75%.