Interesting reading to those interested in cryptocurrencies

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On the 30th of August newspaper MK Estonia published an article, in which our lawyers Jaanus Stern and  Mari Anne Valberg give answers to various questions about cryptocurrencies. Hopefully this is an exciting reading for all those who are interested in investing.

Do you know how many people in Estonia have bought bitcoins etc.?

There is a vast amount of different cryptocurrencies and their owners are changing constantly. Due to a worldwide market it is hard to determine how many people own cryptocurrencies. However, owning cryptocurrencies is becoming more popular, and so the number of cryptocurrency owners and users is increasing. Globally the amount of people who own or use cryptocurrency might reach millions. The increasing popularity is certainly also the result of cryptocurrency being seen as a reliable investment tool. At the same time we also need to consider that collectors and mediators lack the obligation to notify anyone about owning cryptocurrency. On the contrary – one of the bonuses of using cryptocurrencies is that the transactions can be made anonymously thanks to the block-chain technology. Obviously the accuracy of such arguments is debatable. In any case we suggest that the amount of people owning cryptocurrency is increasing daily.  

Should people buy cryptocurrency or not?

Cryptocurrency has gone through a massive growth over the past six months. Before this the market was rather calm and public interest relatively moderate. Combined with the huge increase of the cryptocurrency’s market value, cryptocurrency has received more attention. Of course it must be considered that the often discussed Bitcoin is not the only cryptocurrency. With a simple internet search, we can find dozens of types of cryptocurrency. The amount of transferrable cryptocurrencies is even bigger. The popularity of cryptocurrency is also the result of legally unregulated opportunities to obtain financial resources, which have started to spread amongst certain start-up companies – initial coin offering (ICO). The ICO’s attraction lies in gathering financial resources for launching a company by initial coin offering, where the supporters of the company have the opportunity to buy the company’s virtual currency, also known as tokens, using cryptocurrency, which in most cases are Bitcoins.

That is why purchasing cryptocurrency is definitely exciting and also can be a significantly profitable action when committing to it. However, it is also clear that the future is unpredictable and when entering into transactions with cryptocurrency, the outcome can be either positive or negative because, after all, this is an investment. Investing as such comes with a risk of loss and a profit that corresponds to the risk. 

Who is the best target group?

Cryptocurrency is a new and developing market. People often do not understand the nature of cryptocurrency, there is lack of adequate legislation, trading venues and personal computers are constantly targeted by hackers. The prices are volatile and market manipulation cannot be excluded. The right trade can result in multiple wins but can also lead to losing everything.

Investing in cryptocurrency is suitable for people who are willing to take these risks and can still sleep peacefully at night. It must also be noted that while trading with cryptocurrency, a person must always be ready to consult a competent legal or financial expert, although there are not many experts in the area of cryptocurrency and we lack relevant legislation. Due to insufficient knowledge, a person must keep in mind that in case of such novel phenomenon, Estonian public authorities might not have the necessary knowledge and means to help a person who has been, for example, a victim of a cyber-attack or fraud. 

Is it possible for elderly people to invest their deposits into cryptocurrency? Should they have some sort of IT-knowledge?

It has been said that cryptocurrency could be a new opportunity to ensure one’s pension. It’s a mixed bag.

There are no age restrictions to investing into cryptocurrency. If a person wishes to be engaged in purchasing and exchanging cryptocurrency, it is essential to have access to a computer (or even better - own one). It is also beneficial to be fluent in English to carry out personal research, since the information available about cryptocurrencies in the person’s native language might be limited. A person does not have to have much IT knowledge but they need to be a smart computer user. Somebody who works with a computer daily and also uses Google and reliable sources will probably succeed in investing independently. Nonetheless, here is a short description of the necessary steps.

To start investing, a person must first pick a suitable trading environment and create a user account. In every environment one can bargain with different cryptocurrencies. The price of the cryptocurrency and security differs in each environment. The investor is very likely to be asked to identify themselves, share personal data or send a copy of identity documents. This way it is not anonymous trading and the possibility of illegal activity is reduced. Also, money has to be sent to the trading environment that will be used to execute transactions with cryptocurrency.

Cryptocurrency acquired through the trading environment will be deposited in a so called wallet, offered by a third party, or in a wallet located in a personal computer. The wallet is a program that also presumes creating a user account and downloading and installing if necessary. In case of subsequent sales, the cryptocurrency moves from the seller’s wallet to the purchaser’s through the trading environment.

In addition to the above, investments can be made through personal contact. Both parties sign a contract and the cryptocurrency simply moves from one wallet to another. 

How has the price of cryptocurrency changed over the years?

As mentioned before, there are hundreds of types of cryptocurrency. Therefore, it is not reasonable to give an overview about the price formation for every cryptocurrency. However, we will provide an overview of the best known cryptocurrency – Bitcoin, Etherum and Bitcoin Cash.

Until February 2017, Etherum was still around 10 dollars but since March it started to raise its prices and is now worth about 320 dollars. The success story of Bitcoin is well known. For several years the price of a unit was balanced between 170-350 euros, until 2016 when it started to rise slowly and at the end of August 2017 it made a massive rise up to 3,400 euros.

A group of people separated from the team that created Bitcoin creator team and established Bitcoin cash. Bitcoin cash appeared on the markets at the end of July 2017 with an initial price of 470 euros. After that the price dropped down to about180 euros by the beginning of August. Since 17 August the price started rising again, even exceeding the 750 euro limit and as of 24 August the price has ”stabilised” near 550 euros. At the same time, it must be taken into account that cryptocurrency’s changing value is extremely volatile. In just a few hours the value of cryptocurrency can change by a couple of hundred euros on average. This must also be taken into account when a person wants to purchase cryptocurrency. 

There is a lot of criticism regarding the fact that cryptocurrency is not being properly protected. What is your opinion?

The criticism is justified. On 05 July 2017 BBC ( published an article that covers the trading environment’s data leak and the theft of cryptocurrency. According to one user, 1 million dollars were stolen from the trading environment Bithumb. Bithumb agreed to compensate the damages for each person, in the amount of 100,000 dollars.

Additionally, there are known cases in the USA  ( where criminals first take over the investor’s regular e-mail. After that their phone will be taken over and any other internet environments the person is using will also be affected. The goal is to obtain the information that the investor uses to log into the trading environment and then empty the investor’s account.

So the criticism is partly justified but at the same time people need to remember that no computer user is ever safe form cyber-attacks and a person can also do a lot to prevent it. Using different passwords and multilevel identification, separating the electronics used for investing from the previous use of internet and data exchange as much as possible and avoiding storing in the internet. 

What does an average cryptocurrency purchaser look like?

It is difficult to answer that question. We can only presume that the majority of Estonian purchasers are in the younger part of the population, are looking for new investment challenges. These are the people who are interested in the topic and have a certain monetary surplus. Similarly to the rest of the world, also in Estonia people who are better off probably hold a bigger amount of cryptocurrency than others. 

The complete article is electronically available here:

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