Commercial Awareness Breakdown: 9–13 March 2020

Cryptocurrencies, Quantum Computing and Electric Cars

Posted at youthlaw.co.uk…

Commercial Awareness Breakdown deconstructs three of the week’s commercial stories in an understandable and jargon-free manner. Terms bolded and underlined may be more difficult to understand and are explained at the bottom.

Unsure about what exactly commercial awareness is? Click here to find out.

1) Cryptocurrencies

Values of cryptocurrencies across the globe fell sharply this week, with Bitcoin, recognised as the first cryptocurrency in circulation, falling by 50% to $3,800 in almost 48 hours. The currency was worth $10,500 in February. Similarly, Ethereum, another currency who’s blockchain has previously been utilised for major financial transactions, dropped to $95, a reduction of over 65% since February.

Bitcoin value over the past month, data provided by Google and Morningstar for Currency and Coinbase for Cryptocurrency.

Cryptocurrencies are digital assets, considered property under English law, which use cryptography to secure transactions. Being decentralised, these currencies have no central control, quite unlike central banking systems we are normally familiar with. Blockchain technology records transactions and ownership securely. This data storage method uses hashing, a method of encryption, to link the blocks in the chain together. As such, manipulation of the data is very difficult.

Perhaps prompted by this frenzy, two exchanges, BitMEX and Gemini, both went offline for about 45 minutes on Thursday night. BitMEX reported position liquidations of over $1 billion, the highest amount in over 18 months.

Bitcoin’s value grew by about 2700% in 2017, reaching a value of $19,891 in December of that same year. This rapid growth prompted economists to warn of a ‘bubble’, which would likely burst. These warnings became reality in 2018 when the price of the currency fell by 65% between January and February. By September, the value of Bitcoin was down 80%.

Bitcoin value over its entire lifespan, data provided by Google and Morningstar for Currency and Coinbase for Cryptocurrency.

The volatility of these cryptocurrencies may raise awareness of so-called ‘stable coins’, coins with value based on either assets (commodity-collateralised cryptocurrencies) or real-world currencies (fiat-collateralised cryptocurrencies). These are much more stable, making major fluctuations in value much less likely. This stability has attracted the attention of major corporations, with Facebook having previously proposed its own ‘stable coin’ in the form of its Libra project.

This value crash comes as markets around the world have suffered as a result of the recent Coronavirus outbreak. Whether the virus can be blamed for this crypto-crash too is uncertain, however many investors are seeing this as an opportunity, citing the technology’s ability to rapidly re-gain value. Barry Silbert, founder and CEO of the Digital Currency Group, wrote that this “is why bitcoin was invented”.

2) Quantum Computing

IBM has announced plans to build Europe’s first ever quantum computer with help from Germany’s state-funded Fraunhofer research institute. The company’s Q System One computer, standing nine feet tall, will be operational from early next year.

Ordinary computers use ‘bits’, which can either be off or on — quantum computers use ‘qubits’, which can be both off and on simultaneously, or at a spectrum between the two. Quantum computing, at a basic level, contain components that operate at the quantum level, allowing the computer to utilise uncertainty. Wired’s Amit Katwala wrote that “If you ask a normal computer to figure its way out of a maze, it will try every single branch in turn, ruling them all out individually until it finds the right one. A quantum computer can go down every path of the maze at once. It can hold uncertainty in its head”.

This technology, notes Fraunhofer’s president, Professor Reimund Neugebauer, has the potential “to solve complicated optimisation problems and to make artificial intelligence significantly more powerful”. One real-world example comes from Mercedez-Benz maker Daimler, who have recently used IBM’s quantum technology to help calculate the chemistry of the cells for their electric vehicles.

IBM has allowed companies and institutions to use their US computers before. However, the European Union’s proposed tightening of data laws means that many organisations based in Europe are uneasy about sending sensitive data and information to the US. Enabling IBM to build its own European computer will hopefully allow a quicker realisation of quantum benefits across Europe.

The German government has pledged to invest €650 million into quantum technology, citing it as “extremely relevant to security policy”. Countries such as the UK, Germany and France are now going to be much more able to engage with quantum development, potentially bringing huge growth for artificial intelligence, as well as science and medication.

3) Electric Cars

The recent developments of the coronavirus (COVID-19) breakout have had serious impacts upon the electric car industry. The industry has historically been heavily reliant on and centred around China, particularly for the supply of lithium batteries. Now, however, developers are being driven to localise supplies of cells.

Despite not having the largest reserves of lithium (Chile and Australia taking the top spots), China produces around 80% of the lithium hydroxide used in electric car batteries. Prices for the resource rose by 3.1% in February, the first increase since May of 2018. Some producers, such as Ganfeng Lithium, have had to increase their prices by around 10% in response to logistical difficulties caused by the virus.

Philidelphia’s Livent, a firm that extracts lithium from northern Argentia, is looking at starting a processing plant in Europe. Paul Graves, Livent’s CEO, has confirmed that the producer wants to do “more in the US and more in Europe”.

General Motors announced recently it was going to source its own raw materials — “We’re doing all of this with an eye to sourcing as much of the raw material from North America as possible” (Leading Battery Engineer, General Motors). This has been received pessimistically by consultancy firm CRU, with analyst George Heppel writing that beating china on costs would be difficult — “China is always going to be the most competitive place to buy battery raw materials”.

Xpeng, a relatively new electric vehicle start-up in China, recently stated that 2021 was to be a “turning point” for battery-powered cars. Analysts have, however, warned that China’s response to the coronavirus could be beneficial for petrol engines instead of electrics. Oil prices are at a low, making fuel prices cheaper and thus petrol engines more attractive for some consumers than switching to electric.

Tu Le, founder of Sino Auto Insights, stated that for “many of the already weak electric vehicle start-ups the one-two punch of supply chain disruption and slow sales is likely to be a knockout combo”. The difficulty in obtaining the necessary resources is a bad start for the market, however sales are even worse, with the number of electric vehicles sold since January having dropped by 54%.

For China, who seem to be on the way down from their peak of the virus, the situation is still somewhat bleak. Some carmakers, such as Tesla, have re-opened their production lines. However, this re-opening has been met with criticism, particularly as certain Tesla models have been shipped with old hardware due to supply chain delays.

For the electric car market, support can only really come in the form of financial help from governments. However, some have noted that these governments need the almost guaranteed quantity of petrol car sales to obtain income. Too much emphasis on electric vehicles may be ineffective. Rupert Mitchell, chief strategy officer at WM Motor, stated that there is, “of course, going to be a lag before things pick up”.

The outbreak of the virus has brought with it a variety of potential environmental consequences. The reduced prominence of air traffic could be a positive for greenhouse gas emissions, however the weakening of the electric vehicle market is certainly a step back for alternative, sustainable alternatives to fossil fuels.
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Difficult Terms:

Artificial Intelligence — Computer hardware and software with a degree of intelligence, designed to to work and react in a manner similar to humans.

Blockchain — A data storage system using records secured by cryptography.

CEO — Chief Executive Officer — the most senior officer in charge of an organisation.

European Union — An international organisation in which different countries are members. The union imposes certain trade and legal requirements upon its members.

Exchange — An exchange is a platform on which assets, ranging from stocks to commodities, are traded.

Fossil Fuels — Fuels formed by natural processes, commonly from the decomposition of buried dead organisms. These fuels are non-renewable.

Greenhouse Gases — Gases that cause the greenhouse effect when in an atmosphere — causing the planet to heat up.

Position Liquidation — A position is liquidated when assets, such as stocks, bonds or currencies, are sold for cash.

Start-up — A new company intending to grow to be a large-scale organisation.

State-funded — Something is state-funded when it is given financial backing from a government.

Supply Chain — A supply chain for a product/company is the network of production, wherein components make their way from source materials, to a manufacturer and finally to the customer.