Today we live in a digitalized society that significantly depends on the functioning of different technologies and their further integration in various processes. The high speed of the worlds transformation under the impact of innovations was increased by the emergence of the Internet, and it is becoming a potent tool in managing various activities. The creation of the worldwide net facilitated the development of ways of cooperation between individuals, organizations, and companies to achieve better results. It also preconditioned a need for a specific currency that could be used in various online deals. Under these conditions, the crypto currency (CC), as one of the potent payment options of the modern world, emerged.
Background
CC can be determined as a digital asset that serves as one of the payment instruments in financial operations performed via the Internet. One of its main features is the use of strong cryptography to protect all transactions and control the process (Kethineni & Cao, 2019). The first decentralized cryptocurrency was introduced in 2009 and was called Bitcoin, which served as the turning point in the history of this tool. Today, the topicality of the given issue remains high; however, there are both people who adopt and do not adopt CC for various reasons. For this reason, the given paper presents a literature review focused on the investigation of barriers and facilitators to the further spread of cryptocurrency, and its becoming a popular payment instrument.
Literature Review
First of all, delving into the issue, it is essential to outline the tendency towards the further rise in popularity levels of cryptocurrency such as bitcoins, Ethereum, and Monero. Kethineni and Cao (2019) explain this growing interest in innovative means of payment by the overall digitalization of the society and the increased convenience of deals or agreements that can be made using this very tool. From this perspective, it serves as the main factor for the adoption of CCs and their further use in everyday life. However, there are also some fears that can slow down the speed of the development of this technology, and its becoming the dominant option.
The criminal activity associated with bitcoins is one of the most significant fears and barriers preventing people from using them (Kethineni & Cao, 2019). A big percentage of users state that they are afraid of being cheated while using CC or engaging in financial operations presupposing its exchange (Kethineni & Cao, 2019). Additionally, Brown (2016) assumes that the image of this tool is now being corrupted by the fact that it becomes the currency of criminals who prefer to use bitcoins for drug dealing or other illegal activities. Realizing this fact, people acquire some fears related to the further use of CC and their promotion.
The existence of security concerns is also evidenced by Ducas & Wilner (2017), who state that is used outside the formal financial sphere, cryptocurrency becomes vulnerable to various schemes that can be used by malefactors who try to use the growing popularity of bitcoins to generate benefit. In many cases, simple users become cheated, and the level of trust in the innovational payment method decreases significantly, which prevents it from further rise. It becomes one of the barriers limiting the number of trading options and deteriorating the image of bitcoins.
Among factors stimulating the further adoption of CC and its use in transactions, many researchers admit the increased convenience which results from the digitalized character of society. For instance, McKay and Peters (2018) introduce the idea that bitcoin can be used to pay for the majority of services or goods if a person has a clear understanding of how it works and what devices can be used to make the transaction.
The tendency towards increased comfort becomes one of the major facilitators of the further adoption of cryptocurrencies and the rise of their popularity. Continuing cogitations about the given issue, Vidan and Lehdonvirta (2019) emphasize the fact that CC can also benefit people who correctly realize the mechanisms of its functioning and are ready to engage in operations associated with CCs trading or exchange. In this regard, there is a limitless number of opportunities to improve the current financial state by using bitcoin, Monero, or Ethereum to participate in transactions and guarantee a stable revenue. The past peaks of the price for bitcoin evidence the fact that there are multiple chances to generate high income.
The level of knowledge related to the issue can also be considered one of the factors impacting individuals readiness to adapt to CC and use it in financial operations. It can serve both as the facilitator of the further spread of this payment method and as a significant barrier slowing down the speed of its integration with society. Acknowledging the fact that tools such as bitcoin have become an integral part of the modern business world, Hayes (2019) is still sure that the vast majority of users do not understand principles that regulate its functioning and how it can have a certain value.
For this reason, this gap in knowledge still prevents persons from using CC in their activities and decreases the level of trust in it. On the contrary, the correct understanding of how the innovative payment method functions and what opportunities are associated with its further development contribute to the emergence of the stable interest to CC and its use in financial operations, which serves as the main facilitator of its adoption and rise (Elliott, 2018). The critical differences in knowledge observed today also evidence the necessity of simplification of processes that are associated with this sort of transaction.
Among possible barriers for the further adoption of CC and its widespread, specialists also outline price fluctuation. For a majority of users, it can become a serious challenge as having invested a particular amount of money; they can obtain a much lower amount back (Trekk, 2018). For this reason, there are many fears associated with the significant differences in price at different periods of time. Statistics show that among individuals who have the experience of using CC, there is a high percentage of dissatisfied persons who failed to generate income because of this very aspect (Nallapati, 2018). In such a way, there is a critical need for additional stability to ensure that barriers for the further introduction and use of bitcoins and other cryptocurrencies will be eliminated. Only under these conditions, some success can be achieved.
Nevertheless, the rise of technologies preconditioned drastic changes in the structure of society and the accessibility of cryptocurrencies for broad populations. This factor becomes one of the main facilitators of the further adoption of CC by people regardless of their social status, occupation, and available finances (Kuznetsov, 2018). The existence of the ability to buy a bitcoin by any individual ensures its further spread and growing popularity among various communities (Black, 2018). At the moment, there are about two billion people who have access to the Internet and cannot use conventional exchange systems (ET Online, 2017).
For this reason, they can become owners of various CCs who will contribute to the further development of the approach, and its becoming one of the leading options. This factor should also be considered while speaking about the future of the discussed payment method and opportunities for its further rise.
Conceptual Framework Analysis and Hypothesis
The following hypothesis regarding the discussed issue:
Elimination of the main barriers such as gaps in knowledge, fears associated with cryptocurrencies, criminal elements, and poor understanding of price fluctuations via the training and additional information can help to increase CCs adoption speed and facilitate their further rise.
The issue can be investigated with the help of the following conceptual framework.
Conclusion
Altogether, the reviewed sources evidence that at the moment, there are multiple barriers and facilitators of further bitcoin development and its integration with society. The accessibility of CCs, many opportunities associated with their use, and the increased convenience attract people and precondition their decisions to use this payment method. At the same time, the existence of criminal issues related to the topic, the increased complexity, the lack of knowledge, and the difference in prices can distract individuals and prevent CCS from further evolution. However, the majority of authors are united in the opinion that the future development of technologies will help to fill the gap and create an environment beneficial for the extensive use of CC in various spheres of peoples functioning.
Brown, S. D. (2016). Cryptocurrency and criminality: The bitcoin opportunity. The Police Journal, 89(4), 327339. Web.
Ducas, E., & Wilner, A. (2017). The security and financial implications of blockchain technologies: Regulating emerging technologies in Canada. International Journal, 72(4), 538562. Web.
Elliott, C. (2018). Learn something new every day. British Journalism Review, 29(4), 4550. Web.
The increased importance of cryptocurrency peculiar to the recent several years contributed to significant attention devoted to the investigation of this potentially beneficial means of payment. At the same time, there are also numerous attempts to oppose it to the traditional options such as precious metals and fiat money that have been used for a long period. In this regard, the paper delves into the peculiarities of cryptocurrency and its production regarding the stable popularity of other means of payment. Bitcoin is taken to investigate factors that impact the market and forces that might contribute to the increase or decrease of their potency. At the same time, the paper revolves around precious metals and fiat risks as the modern alternative and factors affecting the sphere. Perspectives associated with these means are discussed, probabilities for financing and benefits are also revealed. At the end of the paper, the conclusion is made.
Introduction
The last several years are characterized by the rapid rise of Bitcoin. Its rates achieved the highest ranks and provoked a powerful reaction in the market of virtual currencies (Andrianto & Diputra, 2018). Investors and coins owners acquired a potent tool to perform financial operations and guarantee particular stability. The given shift of priorities from traditional to innovative currencies also preconditioned the emergence of multiple debates regarding the future of this payment method and its use in deals. At the same time, the popularity and power of precious metals were doubted (Grier, 2014). However, the rise of Bitcoin was followed by its downfall as its price quickly became lower and created the ground for a new wave of discussions about the reliability of the coin and its ability to be used at the international level (Andrianto & Diputra, 2018). For this reason, there is the need for in-depth research of the given aspect with the primary aim to determine its potency, nature, and correlation with alternatives such as precious metals.
Nevertheless, bitcoin is not the only virtual currency that is used in the modern world. There are also Ethereum, Dash, Litecoin, and Monero that are characterized by the ability to accumulate money and serve as the promising investment to monitor the state of the market and play on forex rates (Andrianto & Diputra, 2018). Therefore, at the moment, it is one of the most well-known coins because of the recent rise and shock caused by its blistering growth. However, precious metals trading has always been an alternative to innovative methods because of their traditionally high reliability and understandable character (Grier, 2014). Cogitating about the forces impacting both these options, researchers assume that they are vulnerable to similar processes happening within the market and stock (Andrianto & Diputra, 2018; Grier, 2014). For this reason, the need for an in-depth investigation of the current situation along with the analysis of the perspectives and problems associated with these cryptocurrencies becomes obvious.
Problem Statement
At the moment, the wide use of the new payment method poses a certain threat to the market. The problem is that Bitcoin, Ethereum, Dash, Litecoin, and Monero, same as fiat money, do not have intrinsic value (Cuardas-Morato, n.d.). In this regard, the rapid downfall of this currency can be associated with the lack of a specific ground that supports the stable position of the coin (Papp, 2014). There is another concern related to cryptocurrency. The fact is that the anonymity peculiar to all transactions involving Bitcoins complicates the ability of the government to trace financial flows that might result in hyperinflation and other problems (Malik, 2016). Its use in the shadow economy and the high energy consumption introduces numerous doubts regarding the nature and future of this form of electronic cash (Bonneau et al., n.d.). For this reason, a particular problem with its management, mining, and use as the currency of the future emerges. Investigators suggest several methods to analyze this cryptocurrency and combat with oscillations of this course.
In such a way, the existing problem can be described as the lack of confidence regarding the mechanisms of the functioning of cryptocurrencies, their future, and perspectives as the would-be form of cash used on the Internet. The research is needed to determine several factors. First, aspects impacting the demand for Bitcoin, Ethereum, Dash, Litecoin, and Monero, precious metals as the alternative, and fiat money should be investigated. Second, the peculiarities of their management and manufacturing should be discussed. Finally, these means of payment should be compared to understand the advantages and disadvantages and their potential (Morisse, 2015). The problem is complicated by the fact that there is no generally accepted methodology utilized to investigate all peculiarities of the currency. For this reason, there is also the need for the in-depth investigation of sources devoted to the issue with the primary aim to determine approaches the authors used to acquire credible data needed for the research. Only considering these elements an appropriate analysis can be made.
Literature Summary
The bigger part of the modern literature devoted to the issue focuses on several aspects of cryptocurrency. These include phenomena impacting the evolution of coins, the state of the market benefit for the development and rise, mechanisms of their mining, management, and comparison with such traditional options as precious metals and fiat money (Sovbetov, 2018). At the same time, the literature also discusses central determinants for value formation and it is becoming an important tool for trading or investment. Under these conditions, investigating the works, specific attention to the criteria should be given. The pivotal aim is to outline the existing regularities, and mechanisms of Bitcoins formation and existence to be able to select the most appropriate research methodology that will help to collect credible data and provide a relevant conclusion.
The paper by Sovbetov Factors influencing cryptocurrency prices: evidence from Bitcoin, Ethereum, Dash, Litcoin, and Monero examines the factors that affect the value the of most commonly used cryptocurrencies, including Bitcoin, Litecoin, and others as determining the impact of various factors on cryptocurrency can help to predict future fluctuations. The given article contributes to the improved understanding of the mechanisms peculiar to the modern market and the way Bitcoins generate value and enter global operations and other deals on the Internet. To acquire credible information about the current situation in the market, the author included samples of five commonly used cryptocurrencies: Bitcoin, Ethereum, Dash, Litecoin, and Monero. Sovbetov (2018) states that they sampled top 50 crypto coins that have proportional contribution to market capitalization weights (p. 7). As a result, the sample covered about 92% of the entire crypto market, making up for a sufficient sample size to generalize the findings to other cryptocurrencies.
The methodology selected for the research presupposes the introduction of two variables. The weekly prices of crypto coins were the dependent variable, whereas measures including market beta, capitalization, trading volume, and SP500 index were the independent ones (Sovbetov, 2018). The researcher used the ARDL technique to establish the correlation between the variables.
Due to the utilization of the sample mentioned above and specific methodology, Sovbetov (2018) concludes that market variables, such as market beta and volatility, had a statistically significant effect on the prices of all five currencies examined as part of the study. Moreover, the attractiveness of coins to the audience, measured by their market capitalization, also had an influence on cryptocurrency prices in the long term (Sovbetov, 2018). The SP500 index also influenced some of the currencies (Bitcoin, Litcoin, and Ethereum), but this variable was not conclusive in predicting short-term prices.
Altogether, the given paper contributes to the examination of cryptocurrency production and manufacturing in three ways. First of all, it offers a framework for predicting coins prices in the long term, which could positively affect cryptocurrency trading and increase the demand for some of them. Secondly, the study proved that the attractiveness of a cryptocurrency had a significant impact on its price. As the attractiveness develops over time, cryptocurrency producers could use this information to impact the value of crypto coins. Finally, the study showed that the prices of a new form of money were not affected by exchange and interest rate, as well as gold prices, thus indicating that cryptocurrencies can develop independently of other traded money.
In other words, the research proves the idea that the demand for cryptocurrency will increase in the future, which is crucial for the investigation of the potency and nature of this phenomenon. Another central idea that should be used later in the research is that the value and price of coins remain independent from gold prices or interest rates. It means that virtual currency can be considered a direct rival to traded money, while the situation with the fiat ones remains complex.
Hayes (2017) provides another investigation of the given sphere. In his paper Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin he aims at the identification of the the likely determinants for cryptocurrency value formation, including for that of bitcoin (Hayes, 2017, p. 1308). The study sought to develop a model for evaluating bitcoin depending on the cost of production, which is why it is relevant to the field of coin manufacturing. To improve the understanding of numerous coins peculiarities, the author includes plenty of cryptocurrencies including Bitcoin, 365Coin, 42Coin, Alphacoin, Ixcoin, and 60 more in the sample. (Hayes, 2017). At the same time, he introduced the dependent variable which was the observed market price of a crypto coin. The independent variable was the cost of production, which was measured as the hash power, price of electricity, and hardware energy efficiency. Those measures were used to determine the production and thus were hypothesized to influence mining decisions and the resulting price of a cryptocurrency.
Due to the utilization of the given methodology, the author manages to formulate three critical predictors of cryptocurrency value. Firstly, the level of competition among producers positively impacted the value of all coins observed. Secondly, the rate of unit production contributed to mining decisions, thus indirectly increasing the cost of some cryptocurrencies by increasing the demand and competition. The difficulty of the mining algorithm also predicted the level of demand and had a negative correlation with the value of most alternative means of payment.
Altogether, the given study shows how mining decisions and the demand for cryptocurrencies correlate with their value. The author also proposes a model for determining the prices of coins based on production costs, thus contributing to their previous research on valuing and production.
The article Precious metals under the microscope: a high-frequency analysis by Caporin, Ranaldo, and Velo (2015) is focused on the investigation of precious metals as one of the direct rivals of all existing cryptocurrencies. The pivotal aim of the paper is to analyze patterns in spot prices, returns, volume, and selected liquidity measures of precious metals. For this reason, the sample included high-frequency observations of quotes and trades of gold, silver, palladium, and platinum. The data collection period was five full weekdays, during which the observation frequency was 100ms. The measures used to assess patterns in trading included prices, trade volume, log transaction prices, and the number of quotes and trades.
In the course of this investigation, Caporin et al. (2015) manage to show that there are certain periodic patterns based on the trading hours of the most active markets. Therefore, time variabilities in spot returns in precious metals are similar to those of other assets, including currencies. The authors also proved that gold is the most liquid and volatile asset, whereas platinum is the least. However, the research uncovered a strong commonality among precious metals in terms of their market liquidity and the variables affecting them.
In such a way, the study describes the characteristics of precious metal trading to discover how it compares to that of other financial assets. The results of the study provide important information on the liquidity of certain precious metals, which could affect their trading and influence the demand for production (Caporin et al., 2015). When considering a relationship between metal production and cryptocurrencies, the results of the study could mean that the growth in demand for cryptocurrencies could affect precious metals liquidity and trading volumes.
Another area of interest related to cryptocurrency is its impact on financial assets, investments, and the financial market. For this reason, researchers try to investigate this domain to improve its comprehension. Thus, Andrianto and Diputra (2018) conduct a study in this field and provide its results in the article The effect of cryptocurrency on investment portfolio effectiveness . The central purpose of this study is to figure out what effect cryptocurrency has on the conventional asset investment portfolio (Andrianto & Diputra, 2018, p. 229). Also, the goal is to trace the risks of producing cryptocurrency in the conditions of a specific model observed. Investor opportunities are assessed in terms of developing investment portfolios to maximize profits and avoid the threat of losing a significant part of the capital.
The authors note that to acquire credible data, it is critical to take the period from December 2013 to December 2016 as it will show the peculiarities of cryptocurrencys rise and it is becoming a potent asset. The sampling includes data from these periods compared to other financial indicators. However, commenting on sampling, it should be said that according to Cheah and Fry (2015), the historical record alone will not be sufficient to quantify the true level of risk in the market (p. 34). As Pavlovski (2015) remarks, a relevant security policy should be ensured to secure existing assets and prevent the production of cryptocurrency losses. Also, the author notes that the spread of virtual money with a decrease in the manufacturing of precious metals is due to the natural development of society towards digital progress (Pavlovski, 2015).
Nevertheless, Andrianto and Diputra (2018) implement the Modern Portfolio Theory approach as the mean of assessing an opportunity to develop an investment portfolio. Specific assets are used to compare the outcomes of the study. Three types of cryptocurrency are used as tools for intervention. Risk assessment as a percentage is conducted to draw up a comprehensive picture of the work performed and, consequently, to find ways to deal with potential financial threats.
The authors conclude that the effectiveness of the portfolio may be increased in two separate ways through the introduction of the model with cryptocurrency. Firstly, the standard deviation is minimized, which, according to Andrianto and Diputra (2018), can allow calculating the success of using this method of work. Secondly, investors receive a real opportunity to choose the possibility of allocating money without fear of losing a significant part of their financial resources because of dynamic rates and a drop in positions in the exchange market.
Altogether, utilization of the Modern Portfolio Theory helps to implement investments successfully and avoid fiat risks through the comprehensive monitoring of financial transactions and profit dynamics (Cuardas-Morato, n.d.). The approaches described above prove that the modern information field allows tracking the market of the cryptocurrency to make timely decisions regarding asset management. However, the lack of thoughtful methods, on the contrary, is fraught with losses caused by financial risks and volatile exchange rates.
As it has already been stated, there are some concerns related to the reliability of Bitcoin because of the nature of this cryptocurrency. That is why researchers also analyze the popular idea it can be a financial bubble. For instance, in the article Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin , Cheah and Fry delve into the factors that precondition the high value of this financial asset.
The purpose of the study is to investigate economic and econometric modeling of Bitcoin prices and assess how the production of precious metals can interact with the cryptocurrency (Cheah & Fry, 2015, p. 32). Also, the authors study is aimed at finding the factors affecting the formation of the Bitcoin course and the work of the virtual money market (Cheah & Fry, 2015). The fundamental value of the cryptocurrency under consideration is the basic direction of research. In the paper, the production of precious metals is compared with the manufacturing of cryptocurrency, and the perspective is calculated by using formulas. Assumptions regarding the influence of economic factors on the growth and decline in the prices of virtual money are extorted. The authors argue that Bitcoins digital mining processes are intended to replicate the production costs associated with precious metals (Cheah & Fry, 2015, p. 33).
Thus, analyzing sampling peculiar to the article, it should be said that other researchers provide similar ideas. Andrianto and Diputra (2018) cite the example of the cryptocurrencys prices and note that Bitcoin issued in 2009, the value is not more than USD 10, but in early June 2017, Bitcoin is worth about USD 3000 (p. 229). Also, they argue that volatility is one of the features that are typical for virtual money (Andrianto & Diputra, 2018). The precious metal was substituted for a minted form of paper currency (Pavlovski, 2015).
In the course of the investigation, Cheah & Fry (2015) assume that the behavior of Bitcoin in the financial market is more like an asset than a cryptocurrency. The outlook for development does not provide accurate forecasts regarding the growth or fall in value. Bitcoins main attraction seems to lie in being an object of speculation instead of functioning as money (Cheah & Fry, 2015, p. 34). The value of precious metals is not compared with the cryptocurrency since, for instance, gold can be exchanged for services or goods. The behavior of markets depends on the interaction between the fiat risk and return.
Altogether, the authors argue, the fundamental value of Bitcoin is zero (Cheah & Fry, 2015, p. 35). Speculative procedures are the typical feature of the work of the cryptocurrency markets. Academic studies on Bitcoin are insufficient to make comprehensive conclusions regarding the possible the currencys tendencies to fall and grow. Compared to precious metals, the risk of producing cryptocurrency is high, since there are not enough opportunities to be realized with the help of virtual money.
Finally, speaking about works devoted to the investigation of Bitcoin and its ability to impact the banking sphere, another article should be mentioned. Pavlovski (2015) in his paper Reference architecture for cryptocurrency in banking study the possibilities of using cryptocurrency in the banking sector and the introduction of this asset in the financial production processes. According to the author, the availability of a practical electronic currency has only recently gained actual adoption (Pavlovski, 2015, p. 74). A framework for investigating the impact of cryptocurrency on the financial activities of banks is proposed, and potential risks are assessed based on the effect on existing assets.
The fact is that as Cheah and Fry (2015) note, the status of Bitcoin as an alternative currency or another kind of speculative asset is still unclear and subject to on-going debate (p. 33). At the same time, Andrianto and Diputra (2018) assume that investors with high-risk tolerance prefer to implement virtual money in their activities, and banks with a stable financial base may allow this initiative. For this reason, the basis for the selection of the given topic and particular sampling is the fact that cryptocurrencies have received considerable attention recently by consumers and merchants (Pavlovski, 2015, p. 74). That is why the relevance of the given research cannot be doubted.
To conduct a study, the author proposes a reference architecture for supporting two forms of electronic currency (Pavlovski, 2015, p. 74). Also, the relationship between cryptocurrency and standard cash is considered for compiling the comparative analysis of opportunities and risks. Supporting systems are described as methods for avoiding potential threats. Visual schemes are made for the easy perception of the results obtained.
Thus, Pavlovski (2015) states that banks with high-risk tolerance can allow using cryptocurrency as one of the assets. The effectiveness and performance of security protocols are the most important features that ensure the safety of electronic money. Cryptocurrencies are unlikely to displace paper money and precious metals from financial markets. However, an increasing number of people prefer to use virtual currency as a means of payment. For this reason, the author concludes that the use of cryptocurrencies in the banking sector is acceptable if a particular organization has sufficient capacity to protect assets. The value of electronic money is high on the Internet, but in a normal financial environment, some risks arise, and the application of traditional currency and precious metals is still relevant. The choice of clients in favor of cryptocurrencies may be due to the convenience of paying for services and exchange.
In such a way, all these works prove the idea that the modern financial markets are impacted by cryptocurrency that has become a real perspective to such traditional options as precious metals. At the same time, the manufacturing of Bitcoin is opposed to the production of metals as a resource-demanding process is replaced with a new one that rests on calculations and other tasks performed by computers. That is why a new form of financial assets is considered an appropriate perspective to the old ones. At the same, there is the need for further investigation to acquire data about the relevance of cryptocurrency and its ability to satisfy growing demands.
Analysis of Research Methodologies
The investigation of the problem shows that the majority of authors are united in the necessity to analyze how the production of and oscillations in the course of Bitcoin are reflected in different journals to understand the existing attitude to the cryptocurrency and its future. In such a way, literature review remains one of the central methods. However, there are also original researches that collect different data sets related to factors that impact Bitcoin.
For instance, Sovbetov (2018) uses the ARDL technique to establish the correlation between the variables which are the price of coins and market beta, capitalization, trading volume, and SP500 index were. It helps to understand the situation in the market and predict the further development of coins. There is also a research method that presupposes the creation of detailed models that can be utilized to predict the way Bitcoins impact the market, prices for precious metals, and other assets (Andrychowicz, Dziembowski, Malinowski, & Mazurek, 2014). Bohr and Bashir (2014) in the research create specific graphs that represent his model and demonstrate the velocity of these cryptocurrencies if to compare with USD value, Satoshi Dice volume, and precious metals, which turns out to be an efficient approach.
Another methodology that is used is the in-depth investigation of the cost of production of all known cryptocurrencies including the price of electricity, hardware, and energy consumption. This method becomes central while comparing this option to the traditional use of precious metals as the way to enter markets or finance different ventures. Finally, researchers investigate the ability of coins to impact the market by tracing alterations that happened under the impact of its blistering rise (Bohr & Bashir, 2014). These methods contribute to a better understanding of the topic and its comprehensive investigation.
Analysis and Evaluation
From the literature mentioned above, we can understand that Bitcoins are one of the main factors impacting the modern financial market. The blistering rise of multiple cryptocurrencies triggered various processes in the world. However, it endangers a traditionally potent position of precious metals which has been used as the central financial assets and objects of interest for investors. Moreover, the weakening of their position impacts fiat money that does not have intrinsic value but is opposed to those which has it. In such a way, differences in the position of Bitcoin affect the whole market and other financial tools that have a significant impact on the global market. There are multiple fears related to the nature of these coins. The use of cryptocurrency presupposes complete confidentiality and the absence of monitoring (Biryukov, Khovratovich, & Pustogarov, n.d.). It creates the basis for the emergence of multiple uncontrolled flows of money that will be used for transactions on the Internet. This tendency might have a pernicious impact on the governments ability to regulate inflation and introduce appropriate measures to attain its needed levels.
Regarding these facts, oscillations in cryptocurrencies prices and their velocity might pose a significant threat to the traditional financial system, the market of precious metals, and fiat money. The increase of fiat risks can also trigger the development of various processes in countries where they are introduced (Biryukov et al., n.d.). At the same it, it can precondition the emergence of undesired changes in the global economy and financial crisis. For this reason, the investigation of the problem becomes critical for the creation of the appropriate solution.
Recommended Research Design
The significance of the problem contributes to the emergence of a need for deep research of the way Bitcoins, and other cryptocurrencies might impact the worlds financial market and how precious metals and fiat money will react to the empowerment or weakening of Bitcoin. As it has already been stated, there is a specific correlation between the price of cryptocurrency and precious metals that come from the high potential of this payment method (Caporin et al., 2015). Even though manufacturing processes are different, they both demand resources. For this reason, one of the possible research designs is the comparison of resources and money needed to create a particular amount of Bitcoins and precious metals. Furthermore, the paying capacity of these pieces and their position in the market should be compared. It will help to understand the opportunities and the potential for investments (Wolfson, 2018). At the same time, the level of inflation in countries using Bitcoins most of all during the period of its rise should be analyzed to outline its impact on fiat money, and governments ability to monitor the state of the financial sector. The slightest alterations will help to understand whether Bitcoins have a pernicious impact on the worlds economy or not.
Conclusion and Future Research
Altogether, cryptocurrency can be considered an important tool in the modern financial sphere. Its central advantage is another approach to its manufacturing and the possibility to be used on the Internet that becomes the main platform for various deals. However, the rise of this payment method might threaten the position of precious metals and fiat money because of the emergence of a direct rival and numerous opportunities for new investments (Caporin et al., 2015). For this reason, future research should be focused on the investigation of Bitcoins ability to become the central financial asset that will attract the attention of all potent players and replace other currencies that are not so innovative. The understanding of these mechanisms is fundamental for further analysis.
References
Andrianto, Y., & Diputra, Y. (2018). The effect of cryptocurrency on investment portfolio effectiveness. Journal of Finance and Accounting, 5(6), 229-238.
Caporin, M., Ranaldo, A., & Velo, G. G. (2015). Precious metals under the microscope: A high-frequency analysis. Quantitative Finance, 15(5), 743-759.
Cheah, E. T., & Fry, J. (2015). Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics Letters, 130, 32-36.
Grier, A. (2014). All that glitters is not gold. Computer, 47(4), 116-116.
Hayes, A. S. (2017). Cryptocurrency value formation: An empirical study leading to a cost of production model for valuing bitcoin. Telematics and Informatics, 34(7), 1308-1321.
Papp, J. (2014). A medium of exchange for an Internet age: How to regulate Bitcoin for the growth of Ecommerce. Pittsburgh Journal of Technology Law and Policy, 15(1), 33-56.
Pavlovski, C. (2015). Reference architecture for cryptocurrency in banking. Information Technology in Industry, 3(3), 74-80.
Sovbetov, Y. (2018). Factors influencing cryptocurrency prices: Evidence from Bitcoin, Ethereum, Dash, Litcoin, and Monero. Journal of Economics and Financial Analysis, 2(2), 1-27.
Enterprises have to plan and think about the future.
Demand forecasting (DF) is one of the strategies to minimize working expenses and maximize capital investments.
DF is a prediction that is based on past experiences and present forces.
Nowadays, the IT sector undergoes considerable changes because of the existing organizational problems and the economic downturn. There are many ways to promote effective planning and achieve the main goal that is to learn how to think about the future. During a considerable period of time, demand forecasting (DF) remains one of the well-known strategies in operations management. According to Reddy (2018), modern DF technologies help to minimize working expenses and achieve maximum value from capital investments. In addition, DF is compared to the ability to predict using already gained past experience and properly defined present forces.
How Does DF Happen?
Establishment of goals;
Estimation of the period;
Choice of the technique;
Generation of sales and collection of information through:
Distribution channels;
Factory outlets;
Value-added resellers;
Historical sales data;
General macroeconomic data (Reddy, 2018, p. 113);
Make a forecast and share information.
The process of forecasting is not complex, but all its stages have to be followed and properly understood. DF begins with an appropriate establishment of the goals that have to be achieved at the end of the operation. Then, it is required to identify the time period for which the forecast should be made. The choice of forecasting technique directly depends on the goals and the time given. The next step is the necessity to gather information. Reddy (2018) focuses on such sources as Distribution channels, factory outlets, value-added resellers, historical sales data, and general macroeconomic data (p. 113). These activities help to realize the quantities of finished goods that have to be produced. Finally, a forecast can be made.
What Is the Role of DF in Operations Management?
Operations management is the field where forecasts are frequently used.
DF technologies help to make important decisions to succeed at inventory levels and production planning.
DF technologies in operations management make sure that the supply meets the demand.
Operations managers have to deal with numerous tasks all the time. Planning processes may vary in operations, including capacity, production, inventory, and materials (Petropoulos, Kourentzes, Nikolopoulos, & Siemsen, 2018, p. 34). All of them rely on demand forecast. Therefore, operations management remains the field where DF can never be neglected. DF technologies help to make decisions and understand the connection between products and services that may be offered, available facilities and equipment that are available, and scheduling or budgeting that should be introduced (Reddy, 2018). The essence of the role of DF in operations management is to make sure that the supply meets the demand.
DF in Real Life
A company should be prepared for its forecast;
Managers must gather past data, feedback, and achievements;
DF technologies have to be chosen regarding the companys readiness;
It is normal to ask management gurus for help;
It is possible to ignore system recommendations after a thorough investigation.
Demand forecasting may have a variety of forms in operations management. Still, in real life, there are several rules every organization should know. First, it is important to be prepared for a forecast. A company as a whole and each its employee should learn the basics of forecasting to understand why it happens. Second, managers have to work hard to gather enough material for evaluation and analysis. The company is free to choose any technology, and the only requirement is to be ready for it. Sometimes, leaders may ask for additional help. Reddy (2018) calls them sales and marketing gurus and economists (p. 114). Petropoulos et al. (2018) support the possibility to ignore system recommendations if a forecast is based on a judgmental model. In general, companys resources and offered technologies have to be related to each other to introduce a perfect demand forecast.
DF and Cryptocurrency Production
DF may be developed within different fields;
Traditional financial systems undergo numerous changes;
Cryptocurrency and precious metal introduce the progress in the monetary system;
Evaluation and assessment help understand the worth of cryptocurrency production and manufacturing;
Fiat risks and potential threats can be identified.
DF technologies are available for the representatives of different fields. Sometimes, people are aware of their possibilities. In many situations, additional work and research may be required. The fact that traditional financial systems undergo numerous changes cannot be ignored, and cryptocurrency continues gaining a new meaning and value (Chuen, Guo, & Wang, 2018). As well as cryptocurrency, precious metal is frequently chosen for multiple financial operations. DF technologies help to develop the required evaluations and assessments and realize the worth of such innovations to prove the importance of its manufacturing. The analysis of past data shows what fiat risks can be dangerous for managers and potential users.
References
Chuen, D. L. K., Guo, L., & Wang, Y. (2018). Cryptocurrency: A new investment opportunity? The Journal of Alternative Investments, 20(3), 16-40. Web.
Petropoulos, F., Kourentzes, N., Nikolopoulos, K., & Siemsen, E. (2018). Judgmental selection of forecasting models. Journal of Operations Management, 60, 34-46. Web.
Reddy, R. (2018). Gazing at the Crystal Ball: Disregarding demand forecasting technologies during tough economic times can be a costly mistake. In W. J. Stevenson (Ed.), Operations management (13th ed.) (pp. 113-114). New York, NY: McGraw-Hill Education.
Today, Cryptocurrency has become a global phenomenon. Almost everyone who is in the shed of the digital age has been buying them, selling them, or simply investing in them. While still somehow geeky and difficult for people to grasp, most of the companies, governments, and banks are aware of the emerging boom of Cryptocurrency. AeonCryptocurrency is a privacy-centric, lightweight, and mobile-friendly cryptocurrency. It is considered a light version of cryptocurrencyMonero. Not light in terms of privacy but light in terms of resource usage and thus mobile friendly. It is designed to be scalable and prune-able and also gives an option to make your transaction traceable at a little extra cost. Aeon coin was forked from Monero by a Bitcointalk user named Aeon on June 6th, 2014, and later, Smooth and Arux joined him to contribute to this project. All of these three people are anonymous, but you can always reach out to them on the Bitcointalk forum. They have been quite active on Twitter, too, with the latest releases and patches.
There is no public roadmap of their development and next goals, although its Github is active with weekly (if not daily) commits. You can follow the latest updates on the Bitcoin Forum itself. Now that you know a brief about what AeonCryptocurrency is, let’s dig a bit deeper into what makes Aeon different from Monero or, as their founders say – what makes Aeon coin a Lifestyle. Key Features of AeonCryptocurrency: Mobile Friendly: 1 MB scratchpad allows Aeon Coin to run efficiently on low-end systems flawlessly and even on mobile phones. The hashing algorithm behind this cryptocurrencyaeon is – Cryptonight-Lite, which uses a smaller scratchpad for hashing, 1 MB instead of 2 MB, as in the case of Cryptonight used in Monero.
This more closely aligns with the cache size on low-end processors, especially in the case of smartphones. It’s anticipated to be mineable even on smartphones as per their roadmap. Different Proof-of-work: Aeon’s faster and lighter proof-of-work – Cryptonight-Lite, allows faster verification of the blockchain transactions than Monero in order to preserve efficiency. With the scratchpad being half in size, half the iterations are needed for hashing, thus making it feasible to be able to run on low-end processors. It prunes the blockchain to support scalability and thus also improves anonymity, thus preventing age-based attacks.
Understanding Aeon: Privacy Features, Acquisition, and Price Volatility
Ring Signatures: Another privacy-centric feature of AeonCryptocurrency is the use of ring signatures during verification. A ring signature is a group of public keys tied to each transaction in a way that makes them untraceable. People can only know the addresses that initiated the transaction but can never identify the exact starting node. Fast Syncing: CryptoNote coins have a higher verification procedure, thus leading to more orphaned blocks. Aeon Coin, on the other hand, handles this issue by increasing the block time to 4 min; thus, blocks need to be synced regularly as compared to Monero, which has a block time of 2 min. Coupled with lighter PoW, sync times can be improved by 10x or more on lower-end devices.
Optional traceable payments: Being a cryptoNote coin, all the payments are anonymous by default. But what differentiates Aeon coin from Monero is its ability to allow to make transactions traceable. You can turn off the privacy functionality for just a little extra fee. This exemplifies the user’s willingness to sacrifice some privacy for a better user experience. This feature can be used in the case of transferring to/from exchanges or for day-to-day small transactions where the extreme end of privacy doesn’t matter a lot. Where to buy Aeon?: Until the Aeon developers make Aeoncryptocurrencymineable on smartphones, enthusiasts are limited to buying it on three major exchanges, as mentioned on Coinmarketcap.com. The most preferred platform for Aeon coin currently is Bittrex, though it is also available on TradeOrge and HitBTC.
Considering its high-end privacy feature, we can soon expect it to be listed on Russian and Chinese exchanges. Buying Aeon for funds from your bank requires a 2-step process. You will need Bitcoin or ETH in order to purchase Aeon from any of the three exchanges. But in order to maintain privacy, you need to use a Peer-to-Peer solution to purchase Bitcoin and then later exchange it for Aeon. You can also set up a private transfer with someone you trust. Still, 98% of the total trade volume of Aeon coins is being exchanged via Bittrex.
An Aeon Coin desktop wallet was also being released by a third party in January 2018, but it has no legal connection to Aeon. Currently, this wallet is available for Windows, Mac, and Linux. Though a mobile wallet is in the production pipeline as per the Aeon development team and their roadmap, it’s still delusive when it will be released. Aeon Coin Price Performance: The price of AeonCryptocurrency has seen abrupt ups and downs in the last few years. The price of the coin was relatively flat in its first year of existence. It experienced its first upsurge at the end of August 2016, reaching its local high of $0.195. The next spike was noticed in September 2017.
Then again, just like the entire cryptocurrency market, Aeon coin was on a bull run in December 2017 and January 2018, reaching its all-time high of $9.04 in early January. Since then, the price has fallen significantly, and as of now, it’s all the way back to $0.54. With the project having a small market cap, it is difficult to establish any correlation between these price movements. With no discernible news about the upcoming development related to this project, it is not completely wrong to state that coordinated pump n’ dump has led to volatility in price.
Aeon’s Potential and Challenges: Mobile Mining, Privacy, and Ties to Monero
Aeoncryptocurrency needs to see an increased user base and usage to get some uplift in the price. Where does it stand now?: AeonCryptocurrency has a current market Cap of $9.676 Million with an overall ranking of #376. It has an algorithmic score of 2.4 out of 5, as per Coincheckup. The maximum supply of Aeon coin circulation is restricted to 18.4 million, with a block time of roughly 240 seconds. As per their initial roadmap, Aeoncryptocurrency was supposed to be used via mobile app, and they also claimed that it’s even possible for miners to mine these coins on mobile devices. But currently, all these claims are hypothetical as it is impossible to mine coins on a mobile phone.
Though Aeon has started gathering a small following, the users have started doubting that Aeoncryptocurrency is just a test bed for Monero. In fact, the lead developer of Aeon is also a Monero contributor, which also backs this claim up to an extent. From the exchange and trading perspective, Aeon is looking to cover a broader market, but if it delivers on its mobile-mineable privacy coin, it can see a massive surge. This will lead to more adoption by exchange platforms and a huge surge in users, and thus may also lead to a tectonic shift in price. It has also been stated as one of the best privacy coins to invest in 2018 by a very trending, informative, and reliable cryptocurrency YouTube channel, Altcoin Buzz. Aeon is looking to decentralize the whole currency system, due to which it’s not wrong to say that they won’t be popular or praised by the powers that be.
In fact, there is a high probability that they will be considered the enemies of the most centralized governments, especially the privacy-driven U.S. government. Maybe this clarifies the reason behind their anonymity so that they can avoid any potential future problems before they are established well enough to be able to fight back. To sum up, Aeoncryptocurrency is a lightweight, privacy-centricMonero, just like the way Litecoin seeks to be a lightweight Bitcoin. It is an interesting project and also catching the eyes of the users, but it has been so wrapped up in privacy, anonymity, and unclear roadmap that there is no way to know so far that it is even a real project or just a test environment for Monero.
But for now, the features and future promises Aeon has been portraying, it’s not wrong to say that Aeoncryptocurrency is a decentralized lifestyle in today’s world. Future: Anyone with a computer can have a hand on Aeon for now, but in the near future, it’s expected that anyone with a smartphone will be able to not only use Aeon but also mine it. This will not only open up the whole world of possibilities for the blockchain but also will result in a massive surge in users and, eventually, the price. Aeon is also going to benefit from the increasing popularity of Monero as it will encourage users to willingly accept the privacy coins that fly in the face of traditional governments and banks. But it’s for sure that Aeoncryptocurrency cannot be universally accepted till they deliver their promise of being Mobile-friendly.
References
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
van Saberhagen, N. (2013). CryptoNote v2.0.
Antonopoulos, A. M. (2014). Mastering Bitcoin: Unlocking Digital Cryptocurrencies.
Popov, S. (2016). The Tangle – IOTA Whitepaper.
CoinMarketCap. (Year). Aeon Price Charts and Historical Data.
Embracing the Future: The Transformative Impact of AI, Robotics, and Modern Banking Technologies
Advancing in technology has served a great benefit to most industries. While being a great benefit, it has also hurt a lot of industries as well. AI has infiltrated the business world and is taking down businesses faster than companies can keep up with. AI has made companies extremely successful and climb to the top of their industry, such as Amazon using more than efficient logistics and keeping prices low. Additionally, AI changes the way companies manage and operate, so if a company can not keep up, it will get booted out of business. Some companies can recognize these changes fast enough to adapt. AI changes the way companies manage and operate, so if a company can not keep up, it will get booted out of business. Today’s world of business is truly focused on keeping up with the changing trends in the world and being able to adapt to them. We will be talking about artificial intelligence, robotic technology, and fraud tracking for banking.
Robotics has come a very long way since the beginning. Robots are machines that are used to perform jobs, according to NASA. They are simulated to think like the human mind and carry out tasks in a way like humans would. It is developed through computer science and programmed to be controlled. Basically, robotics is replicating human minds/ actions in a mechanic form. Robotics have become much more common, and we can find them in most environments. We see robotics in restaurants, the medical field, cars, and much more. NASA currently uses a robotic arm to build space stations, move parts into place, and much more. This allows NASA to be able to execute missions and make groundbreaking discoveries. We also see robot technology in drone delivery systems; a lot of this technology is still in the development stage but is still being tested. This is a technology that would disrupt the whole logistics industry and would give a company a highly competitive edge.
Artificial intelligence stems from computer science. AI is teaching machines to learn through data screening and discovery. Computers can be trained to process large amounts of data and learn to recognize patterns and such. AI is used in banking, health care, manufacturing, retail, and many more industries. It adds intelligence, knows how to clean and find useable data, is very accurate, uses algorithms to have the best possible outcome, and has incredible computer power to analyze big data. AI is used in Google searches, dating apps such as Tinder to analyze and give you the best matches suited for you based on a like-system ratio, social media such as Instagram to provide the best feed for your personalization, and even Amazon to give you recommendations.
Instead of having someone monitor your bank statements, or you personally have to keep an eye out, banks use technology to monitor spending habits and catch any activity that seems out of the ordinary. This prevents theft or a stolen identity. Because of this, banking has been able to guarantee customers a more secure experience, knowing that if anything happens, it will be caught within minutes. When I use my bank card 6 states away when traveling, I get a call immediately from my bank if I do not alert them. This creates the state of mind that I can trust my bank.
As these technologies continue to develop and their uses are more widely utilized, the effects of their disruptive benefits will become more prevalent. The first major benefit will come in the form of cost savings when companies choose to commission a robot or an artificial intelligence database to perform tasks that they are currently paying employees a premium to do. Secondly, these technologies will greatly reduce errors, the human aspect will be eliminated, and processes will be left up to programming or algorithms to farm data or manufacture products. Lastly, in safety, blockchain will help to safeguard sensitive personal information over its aggregate of connected servers, and with robots and artificial intelligence that can perform processes in conditions that would typically be hazardous to humans.
Which industries are the most vulnerable? Why?
Some of the major industries that will be hugely affected by the increase in both robotics and artificial intelligence are manufacturing, banking, construction, public transportation, financial analysis, insurance, taxi, farming, and healthcare businesses (Ryan, 2018). These are just a few industries that have clear insights into possible interruption within the next ten years. It is a common prediction that artificial intelligence will likely have an effect on transportation. The idea of self-driving cars is becoming increasingly popular globally, and developers have introduced ideas surrounding networks of cars that have the ability to communicate with each other. Another area considered vulnerable to artificial intelligence is the healthcare industry. IBM has created supercomputers capable of diagnosing patients, even with rare cases, when provided with proper medical information and history. Since this process was proven to provide quicker results than doctors were able to provide, more research and development are being done in the creation of “robot doctors” and advanced diagnosing software.
A majority of industries are likely to be affected by this technology. Most industries, especially those that store information, which is the majority of businesses, will need to take advantage of these systems and be familiar with the capabilities of artificial intelligence, robotics, and fraud tracking in order to implement them successfully. This could be the key to survival for any modern business that is entering or remaining in the market. Saving time, energy, and money could be the sole intention for incorporating AI into a business model. Times are changing rapidly, and it is crucial to stay on top of educating ourselves about and using this technology. For technology such as AI to revolutionize businesses the way that is predicted, we should use it as a tool and take advantage of our resources, especially to improve the business culture.
Which major companies are threatened? Why?
Artificial intelligence has disrupted many formerly large industries, as described above. In these industries, there are several examples of major companies that have already been disrupted or may, in the future, be threatened. For example, retail companies are very much threatened by artificial intelligence in the future, even though it seems unaffected today. To understand how artificial intelligence threatens a company, consider Uber as an example. Today, Uber, regarded as the world’s largest taxi company, owns no vehicles. Instead, Uber pays regular people to use their personal cars. This new model of business revolutionized the taxi industry and effectively wiped out many formerly large taxi companies. However, new self-driving cars are currently undergoing development. This new application of artificial intelligence is showing promising results. According to James Paine, there were only 13 car accidents in Google’s self-driving car trial, in which 1.8 million miles were driven. In addition, these accidents were all caused by the other car, not the self-driving vehicle. It seems inevitable that self-driving cars will begin to become common on the roads, which threatens Uber’s current business model of employing human drivers (Condliffe).
It is safe to assume that Uber recognizes the threat of driverless cars. In fact, Uber has already invested about $1 billion dollars into purchasing self-driving cars from Volvo in 2019 through 2021 (Condliffe). Uber recognizes that their current business model, although it has performed well in the past, is severely threatened by artificial intelligence.
The public accounting industry has also been threatened by the new artificial intelligence technology. To illustrate this, consider the example of PricewaterhouseCoopers (PwC). PwC is one of the “Big 4” accounting firms. It provides services in 158 different countries through 743 locations and over 236,000 professionals. PwC is a massive force in the business world. However, its three major service lines, assurance, tax, and advisory services, are all threatened by artificial intelligence.
Through new software that uses artificial intelligence, companies, and individuals no longer need more basic accounting services. For example, if technology improves, tax software may become so adept at interpreting and applying tax law that there will no longer be a need for human labor. Assurance services, particularly financial statement audit services, are also threatened. Artificial intelligence can already perform the analytical procedures that consume much of an audit team’s time. Additionally, artificial intelligence can perform these procedures on the entire population of transactions; human auditors can only take a sample of transactions (Ovaska-Few).
Artificial intelligence may also be able to accurately predict industry trends, which may disrupt PwC’s advisory service line. If machines are able to more accurately predict trends, could they possibly make better advisory decisions than humans someday?
PwC, along with most public accounting firms, regardless of size, recognizes the looming threat of artificial intelligence software. Many have found ways to turn this threat into an opportunity. For example, with regard to financial audit/assurance services, PwC now actively looks for basic programming and big data analytics skills among its current and future employees (Ovaska-Few). PwC believes that instead of attempting to resist the change that artificial intelligence brings, the talent of the future needs to be able to effectively use the artificial intelligence tools provided.
Additionally, PwC is using artificial technology to improve the quality of an audit. Artificial intelligence software can perform basic analytical procedures at a faster rate than humans. Therefore, PwC uses artificial intelligence to carry out these basic tasks, which frees up the human auditor’s time to accomplish a more in-depth investigation of the financial statements and their implications (Ovaska-Few). This results in a more comprehensive audit, which provides more accurate and advanced assurance to the client and its stakeholders. Instead of ignoring the threat of artificial intelligence, PwC, like many accounting firms, has embraced it and turned it into an opportunity to provide higher-quality services.
What are the opportunities and threats?
Artificial intelligence has endless possibilities. The practicality of these systems will transform the world that we know today. Doing general jobs such as enhancing efficiency, making faster decisions, medical applications, education, and agriculture will become simpler and likely require less maintenance (Girishmahajan, 2018). These technologies will also be applied to our lifestyles in forms of technology that we use in our homes and in ways that commute and receive services.
There’s no doubt that AI will be able to change the world for the better, but there is some anxiety surrounding possibilities involving this technology. The cost of creating these complex machines is very expensive, particularly the intricate and complicated software and hardware. Many businesses will try to hop on the trend of AI, and it could potentially replace jobs, especially those that require little attention and high levels of repetition.
Another major factor in regard to these devices pertains to their inability to think outside of the box. The machines are made for specific functions and tasks, so it can be difficult to see anything remarkable happening on a day-to-day basis. There are also concerns about addiction, exploitation, and self-modification of the devices that would potentially lead to harm. A common threat that is considered when AI is discussed surrounds the idea of the technology being too smart and finding ways to overcomplicate human processes or even cause devastation. However, these are all concerns that can be addressed and maintained by human practicality and ethical judgment.
What actions should companies take, and how urgent are the issues?
As we know, times are changing and have been changing in terms of business. When it comes to the giants of certain industries, some adapt to the change and work well with it, and others continue to avoid change altogether. This is vital in some cases, such as Blockbuster, once at the top of the food chain, is now completely out of the picture due to changes like streaming.
Actions companies can take could be strategic in being the first to the party in some new technological or simple way, or it could be from simply keeping up with the competition and their actions. Amazon is a fantastic company that practices this with how they are implementing Artificial intelligence in their services and products as well as Tesla. Amazon is now supporting a new service called “Amazon Ai Services” with their AWS to develop a faster machine learning database to streamline data allocation and storage (Marr, 2018). Tesla is introducing AI that could start up the idea of driverless cars from a thought to reality. This could be groundbreaking in how they can increase safety with this AI. Companies like Amazon and Tesla are setting great examples of how the right actions can lead to your company jumping to the top in your market.
When it comes to the overall urgency, you would say that companies should be as urgent as possible to change and strive to be the first to be there in terms of great improvements using things such as technology. Thus leaving your competition always playing ‘catch-up’ with your company, leaving you always one step ahead. Companies late to the party do have an advantage in terms of not spending the money on an idea that might fall flat when it comes to changes. However, that minor advantage does not keep up with the advantage companies like Amazon and Tesla have as of now, so urgency is key.
Pick at least one company and actions it may be taking in terms of attacking existing companies and outline its success or potential failure. Examples are Tesla, Airbnb, Uber, Amazon, Apple, Netflix.
Artificial Intelligence is undeniably the trend of the business future, and several companies have learned quickly how to harness the power of machine learning. Machine learning helps these firms grasp consumer behavior and actively create suggestions to improve the customer experience. In particular, AirBnb has done an excellent job creating continuity between their Artificial Intelligence advances and their large search pool of home offerings for customers.
What makes AirBnB’s job so difficult is that each one of their listings for homes or locations is “unique” while containing different advantages and pain points for clients (Halder, 2018). There are so many differentiating characteristics for living spaces, like location, price, amenities, and so much more; this makes it difficult for a human user to be able to program the desires of hundreds of thousands of customers on a yearly basis around the globe. Of course, AirBnB has designed Artificial Intelligence capabilities that can assess large amounts of data per customer to help refine their results for preferences. What makes their process so inventive is how they are able to take these results and combine them with the results of listings available by their hosts. Both of these processes require a vast amount of data and narrowing this data down to one “perfect match.” More specifically, AirBnb has designed a system that targets the idea of Neural Networks, which, in layman’s terms, computers the process of matching both users with their inputs. (Haldar, 2018).
Works Cited:
“Artificial Intelligence – What It Is and Why It Matters.” Multichannel Marketing: What It Is and Why It Matters | SAS, www.sas.com/en_us/insights/analytics/what-is-artificial-intelligence.html.
Condliffe, Jamie. “Uber Is Making a $1 Billion Bet on Owning a Fleet of Driverless Cars.”
MIT Technology Review, MIT Technology Review, 20 Nov. 2017, Girish Mahajan. “20 Advantages And Disadvantages Of Artificial Intelligence You Should Know -.” TECHNODISTRICT, 31 Aug. 2018, technodistrict.com/advantages-and-disadvantages-of-artificial-intelligence/.
Haldar, Malay. “Applying Deep Learning To Airbnb Search – Airbnb Engineering & Data Science – Medium.” Medium.com, Medium, 6 Nov. 2018, medium.com/airbnb-engineering/applying-deep-learning-to-Airbnb-search-7ebd7230891f
Marr, Bernard. “The Amazing Ways Tesla Is Using Artificial Intelligence And Big Data.” Forbes, Forbes Magazine, 17 Jan. 2018
McRae, Hamish. “‘Tesla, Amazon, and Uber Will Not Dominate the Market Forever – so Why Are Our Economies So Reliant on Them? ‘.” The Independent, Independent Digital News and Media, 4 July 2018, www.independent.co.uk/voices/tesla-model-3-amazon-uber-tech-rally-capital-markets-share-price-a8431431.html.
Mearian, Lucas. “What Is Blockchain? The Most Disruptive Tech in Decades.” Computerworld, Computerworld, 31 May 2018, www.computerworld.com/article/3191077/security/what-is-blockchain-The-most-disruptive-tech-in-decades.html.
Owen-Hill, Alex. “What’s the Difference Between Robotics and Artificial Intelligence?” Robot-Enabled Factories: 5 Powerful Statistics for 2017, 19 July 2017, blog.robotiq.com/whats-the-difference- between-robotics-and-artificial-intelligence.
Ryan, Kevin J. “24 Million People in Rural America Still Lack High-Speed Internet. All Points Broadband Is Changing That.” Inc.com, Inc., 5 Sept. 2018, www.inc.com/magazine/201809/kevin-j-ryan/2018-inc5000-all-points-broadband.html
Cryptocurrency is decentralized digital money that is based on blockchain technology and secured by cryptography. To understand cryptocurrency, we need to understand three basic terminologies – blockchain, decentralization, and cryptography.
In simple words, A blockchain is a distributed database that is shared among the nodes of a computer network. A blockchain stores information electronically in a digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions.
Centralized money refers to regular money, which is governed by authorities like the Reserve Bank of India. Decentralization in cryptocurrency means there is no similar authority that can be held responsible for supervising the rise and fall of a particular cryptocurrency.
Cryptography is the method that secures data from unauthorized access by the use of encryption techniques.
How Does Cryptocurrency Work?
Cryptocurrency can be generated from mining, buying, storing, selling, and also from investing.
Cryptocurrencies are generated through a process called “mining.” Users today can buy cryptocurrencies from central exchanges, brokers, and individual currency owners or sell them to them. Cryptocurrencies like Bitcoins can be easily transferred from one digital wallet to another using only a smartphone.
Many governments worldwide are focused on digital currencies and transactions these days. Even some people do not want their money and transactions to be regulated. This resulted in more innovation in a new currency, cryptocurrency, one of the most sophisticated, ambiguous, and regulation-free currencies.
Some also claim that cryptocurrencies eliminate the need for middlemen such as banks, it would have a detrimental influence on the global economy, particularly in underdeveloped countries.
There are many advantages in dealing with cryptocurrencies. They are private and secure. They are decentralized, immutable, and transparent. They are a hedge against inflation.
Disadvantages include that they are prone to risks, not widely understood, and legality.
Cryptocurrency in India
Until the 2022 Union Budget announcement, the fate of cryptocurrency in India was largely undecided. In the Budget, the Indian Finance Minister’s announcement on levying a 30% tax on gains on the transfer of virtual digital assets, which includes cryptocurrency, was initially seen as an endorsement of cryptocurrencies. There have also been speculations that a ban on private cryptocurrencies would follow the launch of the RBI’s own official digital currency.
Impact of cryptocurrency on the Indian economy
Cryptocurrency enhances transparency, where every transaction can be traced back to the source.
The crypto industry currently employs about 50,000 individuals. As per a report, the industry is poised to see massive employment opportunities, pegged at over 800,000 by 2030. India already has a strong talent pool of Fintech professionals and IT experts. Additionally, the talent is available at cost-effective rates.
As mentioned earlier, India already has a strong base of IT professionals. The collaboration of IT and the financial sector can bring endless possibilities in terms of business opportunities and overseas cash influx.
Cryptocurrency transactions are both time and cost-effective. The transactions are carried out between the sender and receiver without the need for a third party, making the transactions instantaneous. With the government proposing the creation of a single, officially recognized cryptocurrency, the dependence on third-party, private, and foreign-based cryptocurrency will be eliminated.
Conclusion
The cryptocurrency market cannot be ignored, and the possibilities are endless. India has one of the highest numbers of crypto users. Even the government has acknowledged the potential of cryptocurrency as a means of payment, thereby proposing a bill to issue and regulate RBI-backed cryptocurrency in the country. In the future, we can see cryptocurrency becoming the primary player fueling the country’s economy.
References
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
Tapscott, D., & Tapscott, A. (2016). Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. Penguin.
Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and Cryptocurrency Technologies. Princeton University Press.
RBI publications and circulars related to cryptocurrency and digital currency.
Government of India. (2022). Union Budget Speech.
Zohar, A. (2015). Bitcoin: under the hood. Communications of the ACM, 58(9), 104–113.
Casey, M. J., & Vigna, P. (2018). The Truth Machine: The Blockchain and the Future of Everything. St. Martin’s Press.
Today we live in a digitalized society that significantly depends on the functioning of different technologies and their further integration in various processes. The high speed of the world’s transformation under the impact of innovations was increased by the emergence of the Internet, and it is becoming a potent tool in managing various activities. The creation of the worldwide net facilitated the development of ways of cooperation between individuals, organizations, and companies to achieve better results. It also preconditioned a need for a specific currency that could be used in various online deals. Under these conditions, the crypto currency (CC), as one of the potent payment options of the modern world, emerged.
Background
CC can be determined as a digital asset that serves as one of the payment instruments in financial operations performed via the Internet. One of its main features is the use of strong cryptography to protect all transactions and control the process (Kethineni & Cao, 2019). The first decentralized cryptocurrency was introduced in 2009 and was called Bitcoin, which served as the turning point in the history of this tool. Today, the topicality of the given issue remains high; however, there are both people who adopt and do not adopt CC for various reasons. For this reason, the given paper presents a literature review focused on the investigation of barriers and facilitators to the further spread of cryptocurrency, and it’s becoming a popular payment instrument.
Literature Review
First of all, delving into the issue, it is essential to outline the tendency towards the further rise in popularity levels of cryptocurrency such as bitcoins, Ethereum, and Monero. Kethineni and Cao (2019) explain this growing interest in innovative means of payment by the overall digitalization of the society and the increased convenience of deals or agreements that can be made using this very tool. From this perspective, it serves as the main factor for the adoption of CCs and their further use in everyday life. However, there are also some fears that can slow down the speed of the development of this technology, and it’s becoming the dominant option.
The criminal activity associated with bitcoins is one of the most significant fears and barriers preventing people from using them (Kethineni & Cao, 2019). A big percentage of users state that they are afraid of being cheated while using CC or engaging in financial operations presupposing its exchange (Kethineni & Cao, 2019). Additionally, Brown (2016) assumes that the image of this tool is now being corrupted by the fact that it becomes the currency of criminals who prefer to use bitcoins for drug dealing or other illegal activities. Realizing this fact, people acquire some fears related to the further use of CC and their promotion.
The existence of security concerns is also evidenced by Ducas & Wilner (2017), who state that is used outside the formal financial sphere, cryptocurrency becomes vulnerable to various schemes that can be used by malefactors who try to use the growing popularity of bitcoins to generate benefit. In many cases, simple users become cheated, and the level of trust in the innovational payment method decreases significantly, which prevents it from further rise. It becomes one of the barriers limiting the number of trading options and deteriorating the image of bitcoins.
Among factors stimulating the further adoption of CC and its use in transactions, many researchers admit the increased convenience which results from the digitalized character of society. For instance, McKay and Peters (2018) introduce the idea that bitcoin can be used to pay for the majority of services or goods if a person has a clear understanding of how it works and what devices can be used to make the transaction.
The tendency towards increased comfort becomes one of the major facilitators of the further adoption of cryptocurrencies and the rise of their popularity. Continuing cogitations about the given issue, Vidan and Lehdonvirta (2019) emphasize the fact that CC can also benefit people who correctly realize the mechanisms of its functioning and are ready to engage in operations associated with CC’s trading or exchange. In this regard, there is a limitless number of opportunities to improve the current financial state by using bitcoin, Monero, or Ethereum to participate in transactions and guarantee a stable revenue. The past peaks of the price for bitcoin evidence the fact that there are multiple chances to generate high income.
The level of knowledge related to the issue can also be considered one of the factors impacting individuals’ readiness to adapt to CC and use it in financial operations. It can serve both as the facilitator of the further spread of this payment method and as a significant barrier slowing down the speed of its integration with society. Acknowledging the fact that tools such as bitcoin have become an integral part of the modern business world, Hayes (2019) is still sure that the vast majority of users do not understand principles that regulate its functioning and how it can have a certain value.
For this reason, this gap in knowledge still prevents persons from using CC in their activities and decreases the level of trust in it. On the contrary, the correct understanding of how the innovative payment method functions and what opportunities are associated with its further development contribute to the emergence of the stable interest to CC and its use in financial operations, which serves as the main facilitator of its adoption and rise (Elliott, 2018). The critical differences in knowledge observed today also evidence the necessity of simplification of processes that are associated with this sort of transaction.
Among possible barriers for the further adoption of CC and its widespread, specialists also outline price fluctuation. For a majority of users, it can become a serious challenge as having invested a particular amount of money; they can obtain a much lower amount back (Trekk, 2018). For this reason, there are many fears associated with the significant differences in price at different periods of time. Statistics show that among individuals who have the experience of using CC, there is a high percentage of dissatisfied persons who failed to generate income because of this very aspect (Nallapati, 2018). In such a way, there is a critical need for additional stability to ensure that barriers for the further introduction and use of bitcoins and other cryptocurrencies will be eliminated. Only under these conditions, some success can be achieved.
Nevertheless, the rise of technologies preconditioned drastic changes in the structure of society and the accessibility of cryptocurrencies for broad populations. This factor becomes one of the main facilitators of the further adoption of CC by people regardless of their social status, occupation, and available finances (Kuznetsov, 2018). The existence of the ability to buy a bitcoin by any individual ensures its further spread and growing popularity among various communities (Black, 2018). At the moment, there are about two billion people who have access to the Internet and cannot use conventional exchange systems (ET Online, 2017).
For this reason, they can become owners of various CCs who will contribute to the further development of the approach, and it’s becoming one of the leading options. This factor should also be considered while speaking about the future of the discussed payment method and opportunities for its further rise.
Conceptual Framework Analysis and Hypothesis
The following hypothesis regarding the discussed issue:
Elimination of the main barriers such as gaps in knowledge, fears associated with cryptocurrencies, criminal elements, and poor understanding of price fluctuations via the training and additional information can help to increase CC’s adoption speed and facilitate their further rise.
The issue can be investigated with the help of the following conceptual framework.
Conclusion
Altogether, the reviewed sources evidence that at the moment, there are multiple barriers and facilitators of further bitcoin development and its integration with society. The accessibility of CCs, many opportunities associated with their use, and the increased convenience attract people and precondition their decisions to use this payment method. At the same time, the existence of criminal issues related to the topic, the increased complexity, the lack of knowledge, and the difference in prices can distract individuals and prevent CCS from further evolution. However, the majority of authors are united in the opinion that the future development of technologies will help to fill the gap and create an environment beneficial for the extensive use of CC in various spheres of people’s functioning.
Brown, S. D. (2016). Cryptocurrency and criminality: The bitcoin opportunity. The Police Journal, 89(4), 327–339. Web.
Ducas, E., & Wilner, A. (2017). The security and financial implications of blockchain technologies: Regulating emerging technologies in Canada. International Journal, 72(4), 538–562. Web.
Elliott, C. (2018). Learn something new every day. British Journalism Review, 29(4), 45–50. Web.
The area of money and finance is witnessing transformations that have the potential of affecting the global economy significantly. In particular, the advent of innovative financial instruments and systems is changing the way parties engage in monetary transactions. The introduction of cryptocurrencies in the recent past is one of the outcomes of innovation in the money market. Bitcoin is one of the cryptocurrencies that have recorded a significant market value over the last few years. The growth of cryptocurrencies has influenced the development of new business opportunities that have contributed to the advancement of economies such as the United Kingdom, Germany, and France. While these countries have gone a step further to implement policies that embrace this new business concept, others such as China and South Korea have proscribed any cryptocurrency operations.
This contrast indicates how some concerned parties identify cryptocurrencies as legitimate institutions that play key functions, owing to the benefits realized by such innovative financial instruments. Nonetheless, economists who have raised opposing opinions question the sustainability of cryptocurrencies because of the inconsistent nature of digital financial instruments. However, it is crucial to examine what cryptocurrencies entail, including their mode of operation. As this paper states, economists who argue against the sustainability and legitimacy of virtual means of doing business claiming that artificial bubbles generated by cryptocurrencies have the potential of crippling economies at an international scale are probably agents hired by governments to spearhead their monopolist agendas. In my opinion, such digital currencies should be introduced into the global market, owing to their capacity to address the issue of inflation and insecurity associated with government-controlled fiat currencies.
Cryptocurrencies and their Functionality
A cryptocurrency consists of a chain of virtual inscriptions allowing individuals to sign digitally after acquiring it from the previous proprietor. The digital signing process entails altering the nature of all preceding transactions and public keys of the succeeding vendor. Effected changes are then added at the end of the digital coin (Farell 4). The programmed computer code lines are stored in the form of hard drives or through Internet-enabled wallets.
According to Hileman and Rauchs, bitcoin is a pioneer cryptocurrency that commenced its operation in 2009 (15). The decentralized nature of digital currencies depends on peer-to-peer technology to facilitate their functionality. The transfer of bitcoins requires proprietors to specify the amount they need to transmit from the wallet to other users before entering the recipients’ address and completing the process (Howden 747). As denoted by its technology-based features, significant innovative efforts influenced the successful creation of bitcoin. Currently, hundreds of cryptocurrencies operate in the digital market. Some of them, which lack a sense of innovation, are regarded as altcoins. Important to note, most altcoins function ineffectively compared to stable cryptocurrencies such as bitcoin. As shown in Figure 1, bitcoin has a greater share of the cryptocurrency market capitalization relative to other currencies.
Fig. 1. Percentage of total cryptocurrency market capitalization (Hileman and Rauchs 18).
From the information presented in Figure 1 above, bitcoin has recorded consistent growth in the total cryptocurrency market share capitalization compared to rivals such as Ether and DASH (Hileman and Rauchs 18). The innovativeness of bitcoin has led to its popularity and hence its greater competitive edge compared to rival cryptocurrencies. Nonetheless, bitcoin’s rivals emulate the functionality of the pioneer cryptocurrency to realize market capitalization. As a result, this digital currency has recorded a reduction in market capitalization because competitive forces such as DASH continue to secure a larger share of the market.
According to Farell, the exchange of cryptocurrencies, especially bitcoins, requires the logging of dealings on the blockchain, which is an unrestricted ledger coin (5). The blockchain is a crucial aspect of self-regulation in the cryptocurrency market. As Hileman and Rauchs assert, a network of participants shares the blockchain that facilitates the logging of dealings involving a given digital currency (21). The use of native tokens also offers the participants incentives that aid the operation of the decentralized network. Cryptocurrencies operate in the absence of a central regulatory authority unlike the case of the traditional fiat money.
Forces of supply and demand determine the value of bitcoin among other cryptocurrencies (Farell 5). In this respect, digital currencies do not gain value from the interventions of the government. As a result, the lack of administrative involvement paves the way for self-regulating cryptocurrencies (Howden 756). Such regulation function of cryptocurrencies goes a long way in addressing the issue of double-spending, which is a notable problem in the traditional financial system.
As noted earlier, transactions involving innovative cryptocurrencies require signatures that enhance the transfer of ownership. Such inscriptions offer security by preventing the previous proprietor from spending an already used cryptocurrency again. In particular, the distribution of a ledger in the entire bitcoin fraternity addresses the issue of double spending in the market. Preventing forgery using the blockchain is referred to as mining (Howden 748). Importantly, mining provides buyers an opportunity to earn bitcoin without the need for transactions involving third parties. Instead of introducing a third party, the public ledger facilitates the recording of transactions regarding a particular bitcoin. In this respect, the aspect of mining in cryptocurrencies enhances the legitimacy of transactions.
Notably, the functionality of cryptocurrencies such as bitcoin is founded on the need to foster price, safety, and ambiguity (Howden 750). Transactions involving bitcoin among other cryptocurrencies require no extra charges, owing to the elimination of other parties such as governments or financial agencies, for instance, PayPal and Payoneer, which charge transaction fees after verification. In this regard, cryptocurrencies do not involve the conversion of currencies in the international market.
Bitcoin transactions are founded on security mechanisms that enable users to mine such digital currencies without any attempt at double-spending. Furthermore, the self-monitoring element of cryptocurrencies fosters clients’ security by preventing the interference of governments, as well as the central bank. As such, it is possible to prevent inflation through the provision of a fixed supply of a given cryptocurrency. According to Howden, cryptocurrencies are believed to gain more stability with increased participation of users across the world (751).
The aspect of inscrutability also influences the functionality of bitcoin. Here, the address of a particular cryptocurrency is not connected to a particular public identity that can disclose users’ information. The blockchain functions in a way that stores various transactions, as well as addresses, without revealing them to the public. Instead, the blockchain publicly logs transaction records, which do not expose the individual or entity behind the business deal. Nonetheless, amid the anonymity surrounding cryptocurrencies and their acceptance by recognizable business entities, some users still view it as an unnecessary feature of facilitating transactions (Howden 752). Nonetheless, concerns have developed regarding the sustainability of decentralized currencies. Therefore, discussing the sustainability issue in cryptocurrencies is crucial in the context of this paper.
Cryptocurrencies as Schemes that Create Artificial Bubbles
Cryptocurrencies have experienced considerable criticisms regarding their sustainability in the market. In particular, the creation of artificial bubbles by cryptocurrencies is identified as a major issue, which has the potential of undermining the sustainability of decentralized currencies, including bitcoin. According to Hanley, cryptocurrencies offer users an array of counterfeit claims that seek to conceal the dysfunctionality of the digital currency in the long term (1). For instance, according to Hanley, claims such as the ability of cryptocurrencies to act as a reserve coinage for banking and the assumption that hoarding is analogous to saving mislead users (1). In this light, developers of cryptocurrencies seem to establish forged claims to attract more participants in the cryptocurrency community. Such false declarations are perceived as strategies for concealing the unsustainable nature of cryptocurrencies.
Hanley questions the integrity and possibility of cryptocurrencies expanding in the future (2). The segment of bitcoin, namely satoshis, seeks the realization of at least 21 billion bitcoins that can sustain the currency demands of the world (Hanley 2). In particular, developers of bitcoin project that the attainment of 2.1 quadrillion Satoshis, equivalent to 21 million bitcoins may be sufficient to cater for the currency needs of the entire world. In this respect, the realization of the 21 million bitcoins is expected to support the currency expansion demands of various nations.
However, Hanley identifies this asymptotic maximum value of bitcoins as unworkable because it is generated synthetically (2). Furthermore, the author refutes the point that cryptocurrencies have the potential of functioning comparably with financial institutions through reserve banking. Notably, conventional banking systems run through reserves and the issuance of loans to create money (Hanley 10). The exclusivity of cryptocurrencies implies that they cannot be duplicated. In other words, they are unable to avail of a mortgage that facilitates the creation of money. Therefore, the nature of cryptocurrencies experiences a limitation regarding the foundation of money, which is one of the fundamental functions of central banks that regulate the distribution of fiat currencies in an economy.
The fact that cryptocurrencies cannot be applied in reserve banking undermines the possibility of allocating such virtual coins to savings. Instead, bitcoins among other cryptocurrencies can only be disbursed, accumulated, or mislaid. According to Chohan, uninformed investors fail to understand that they cannot save bitcoins to realize interest (2). Therefore, the inability to save bitcoins undermines its capability of earning interest when the owner is not making transactions. In this respect, cryptocurrencies cannot be widely applied in the economy when the user is quiescent. On the other hand, fiat currency deposits intended for savings allow banks to redistribute the money in the economy to bolster growth. As a result, it is difficult for economies using cryptocurrencies to record economic growth because the currency cannot be hoarded.
Chohan also points out that the lack of regulatory mechanisms in cryptocurrency markets undermines the chances of economic restoration after a crisis (2). Notably, in the traditional market, governments and financial institutions intervene during financial predicaments to facilitate the recovery of an economy. Specifically, the instability of cryptocurrencies, especially bitcoin, makes it difficult to secure its fluctuation against traditional currencies (Howden 751). The issue of unpredictability discourages participants from investing or accepting the digital currency. Hence, it is impractical to expect governmental interventions in the cryptocurrency market, a situation that subjects investors to a decision-making dilemma. Therefore, the lack of last-resort institutions undermines the sustainability of cryptocurrency markets, especially after the emergence of any crisis.
As shown in Figure 2, the absence of regulation provides large miners an opportunity to alter the cryptocurrency markets to their advantage. Notably, some groups have interfered with the mining process of bitcoin. This attempt has established a sense of control that can undermine the sustainability of the cryptocurrency (Howden 750). On the other hand, as can be seen in Figure 2, small miners experience a reduced influence on policy establishment in the market.
Fig. 2. The ability of small and large miners to influence protocol development (Hileman and Rauchs 91).
The hoarding element implies that the owner of bitcoins only realizes personal wealth after a devaluation of the decentralized currency. Important to note, the deflation of currencies is an indication of a financial breakdown (Hanley 16). In this respect, cryptocurrencies benefit owners at the expense of the growth of an economy. Hence, hoarding a cryptocurrency to realize profits may result in a financial crisis. The process of hoarding cryptocurrencies while expecting an economic slowdown is almost unsustainable. However, stockpiling is the only way of realizing short-run income after which investors are subjected to huge losses. In other words, cryptocurrencies are short-lived schemes that end up creating artificial bubbles at the expense of investors.
Cryptocurrencies as Legitimate Institutions
It has been a quite common occurrence that economists offer contradicting opinions concerning particular business matters. This situation poses a substantial risk to the affected business schemes because they negatively influence shareholders’ level of investment, owing to the lack of a clear picture of the future of such business ventures. With these highlights in mind, although the previous section has depicted cryptocurrencies as illegitimate schemes that may not last long before the bubble bursts, other economists seem to hold a contrary opinion by presenting the same business as a justifiable venture that seeks to serve constructive functions and whose nature does not call for any form of regulation.
Friedrich Hayek and Nikolai Kaplanov are some of the well-known economists who view cryptocurrencies as a legitimate venture whose operation should not be subjected to governmental control. According to Hayek, the entire plan of governments regulating currencies, in general, has been counterproductive to the extent that it has led to the provision of an unreliable mode of making transactions while at the same time resulting in volatilities and inflation, both of which have been linked to money for centuries (12). The author approaches the issue of governmental control of money from a monopolistic point of view. He regards countries as monopolies whose agenda of controlling currencies is to make profits, as opposed to allowing money to serve its core function of facilitating transactions. This situation informs Hayek’s claim that countries should not be allowed to exercise a monopoly regarding monies, including cryptocurrencies (13). Consequently, it is crucial to examine how monopolies operate and how they take advantage of various factors to attain supernormal profits in the short and long term at the expense of other legitimate schemes such as cryptocurrencies whose entry into the market is sufficient to address issues ranging from currency instability to inflation.
From an economic perspective, a wholesome monopolistic government or business is known to be the sole provider of a particular commodity, in this case, money. Although it does not mean that other potential agencies have no power to supply the same item, a monopoly creates a situation that bars the survival or even the entry of other rivals into the market. In the current context, governments may be viewed as schemes that enjoy supernormal returns from their sole supply and regulation of money at the expense of the common individual and other potential competitors. The move by rivals such as cryptocurrencies entering the market and supplying another form of money, virtual currencies, may not be welcome by government officials. Such states people may attempt to publish articles or even air news on various media platforms such as TVs depicting cryptocurrencies as illegitimate schemes whose bubble may burst anytime. It is crucial to point out that such attempts are characteristic of monopolies. In other words, governments will adopt this strategy while being aware that cryptocurrencies are lawful ventures. Figure 3 below shows how a monopoly generates supernormal returns at the expense of other potential rivals such as cryptocurrency schemes.
Fig. 3. A monopoly in the long and short-run (Manesh and Karimani 3).
Figure 3 above reveals why a monopoly such as a government reaps supernormal returns when the price D=AR is greater compared to AC. In other words, when the difference between AR and AC is positive, a monopoly attains nonstandard returns, although the situation does not last before other competing forces are introduced into the market. Nonetheless, respective monopolies (governments) will use their financial powers to disrupt any entry efforts made by rivals, in this case, cryptocurrency schemes. As such, they continue realizing abnormal revenue in the long term. In other words, from Figure 3, the link between the price (P), Marginal Revenue (MR), and Quantity (Q) of the money availed in the market continues to hold, despite attempts by rivals to join the business.
In line with Hayek’s opinion, the case of supplying metallic money was a preserve of the government, regardless of whether the provided currencies met the goals they were supposed to achieve or not (31). However, the fact that monopolies leave consumers with no alternative forces them (clients) to continue using what is availed to them, regardless of the cost attached. In other words, according to Hayek, the step by governments to regulate money is a well-calculated move that is purely meant to block efforts to discover other probably superior mechanisms for achieving similar goals or requirements for which a pure monopoly, in this case, the government, lacks an enticement plan (31). Innovative alternatives implied here entail cryptocurrency schemes whose entry into the market may revolutionize the entire idea of doing business by introducing virtual coinage that is free from government regulation and consequently inflation.
Hayek reveals a worrying issue whereby monopolies such as the government have subjected their citizens to substantial expenses, which they (people) incur following periodic currency fluctuations and inflation, owing to the lack of alternatives such as cryptocurrency agencies (28). In this case, such schemes are not only legitimate ventures that can successfully serve the same function of currency supply, although in a different form, but also avenues that can address issues of currency inflation and volatility costs revealed by Hayek (14). Governments may not be viewed as being unaware of the contribution that cryptocurrency schemes can make to the world of money business. Nonetheless, as earlier mentioned, they will try to paint a biased picture that such ventures are unlawful and hence prohibited from transacting businesses. As shown in Figure 4, their high performance noted since 2015, despite the resistance introduced by monopolies, is a proof that digital currencies will overcome the pressure from governments and revolutionize the nature of conducting business around the globe.
Fig. 5. A Retrospective performance of the currently leading digital currencies (“5 Cryptocurrencies Investors Should Watch”).
Kaplanov holds a similar opinion that cryptocurrency agencies are legitimate schemes that can overturn the financial sector once introduced into business (113). This economist argues that virtual currency organizations have only suffered the fate of monopolistic governments, which claim to encourage conventional money-based transactions, owing to the lack of security when cryptocurrencies used as a new means of exchange (Kaplanov 113). However, this author presents the claim of insecurity as ill-informed and outdated because the entry of bitcoin into the market as the first virtual currency shook the confidence of economists who embraced the idea that cryptocurrencies could not survive in a monopolistic market. It was realized that such virtual money could operate without any control from governments. As Kaplanov reveals, while conventional monies gain or lose their worth because of governments’ involvement in regulating them, virtual currencies such as bitcoin only require the existence of peer-to-peer connections to boost their worth or retain their security based on the applications run by customers on their PCs (113). In other words, these legitimate schemes are not only safe to use but also economic-friendly because they rarely subject users to unwarranted inflation expenses witnessed in conventional government-controlled transactions.
Opinion
In my judgment, challenges that have been linked to fiat currencies for centuries can be tackled effectively with the introduction of other competing means of exchange into the market. According to Brennan, cryptocurrencies will change the future of contemporary business dealings (8). Some of the substantial losses that people faced during the Great Depression may be linked to governments’ move to exercise monopolistic powers of controlling the supply of fiat currencies. This strategy has had the potential of influencing the value of conventional money in favor of monopolies that solely adopt this strategy to hinder the survival of other potential rivals. Although digital currencies such as bitcoins may be facing a significantly harsh entry into the market, the resistance should be viewed as normal and bound to happen whenever a shift from outdated means of transaction to a contemporary and public-friendly option is about to be witnessed.
Based on my opinion, challenges associated with conventional currencies, especially their unsteadiness and the unpredictable loss of worth, may finally be solved through the entry of cryptocurrency schemes since bitcoin among others attain value depending on the prevailing supply-demand conditions or specifically via what the public is ready to buy or sell (“5 Cryptocurrencies Investors Should Watch”). On the contrary, fiat currencies that operate under the influence of monopolies (governments) subject the public to not only unmerited expenses but also insecurity issues, which cryptocurrency schemes have managed to overcome. Zhuravlyova depicts cryptocurrency technologies as the way forward for entrepreneurs not only in Switzerland but also across the world (18). The security and convenience of transacting with digital currencies are guaranteed through the elimination of third-party involvement.
Conclusion
Decentralized currencies led by bitcoin have received considerable criticisms, as well as support by concerned parties. Their lack of credibility regarding expansion, their inability to act as a financial reserve, their failure to facilitate savings, and the influence of large miners undermine bar investors from joining cryptocurrency schemes. This paper has revealed the significant role that governments play in hindering the survival of cryptocurrency schemes in the market. For instance, the use of monopolistic powers by governments has played a substantial role in painting a public image that cryptocurrencies are bubbles that can burst anytime. This characteristic of monopolies entails hiring various economists who publish information warning interested parties not to invest in cryptocurrencies. On the contrary, presently, huge economies such as the United Kingdom, France, and Germany among others have realized the momentous revolution brought by cryptocurrency organizations.
As such, they have implemented policies that encourage people to seize this innovative and game-changing business opportunity. Advantages of cryptocurrencies, including cost efficiency, security, and ambiguity, foster the sustainability of these decentralized coins. The functioning of cryptocurrencies has a bearing on the legitimacy of the instruments as useful mediums of exchange in the contemporary money and financial system. Notably, some financial institutions have accepted cryptocurrencies partnering with bitcoin among other cryptocurrencies, thus denoting the growing authenticity of the present-day medium of exchange. Nonetheless, China and South Korea have been depicted as regimes that have exercised monopolistic powers to ban cryptocurrency operations. In other words, as explained in this paper, their agenda is to continue subjecting citizens to inflation and instability costs associated with fiat currencies.
Hayek, Friedrich. Denationalization of Money-The Argument Refined. 3rd ed., Ministry of Economic Affairs, 1990.
Hileman, Garrick, and Michel Rauchs. Global Cryptocurrency Benchmarking Study. University of Cambridge, 2017.
Howden, Ed. “The Crypto-currency Conundrum: Regulating an Uncertain Future.” Emory International Law Review, 29, 2015, pp. 742-798.
Kaplanov, Nikolei. “Nerdy Money: Bitcoin, the Private Digital Currency, and the Case Against its Regulation.” Loyola Consumer Law Review, vol. 25, no. 1, 2012, pp. 111-174.
Manesh, Mahtab, and Farhad Karimani. “Differences Between Monopoly and Perfect Competition in Providing Public Transportation (Case Study: Lane No. 10 and 96 of Mashhad Bus System).” International Journal of Economic Management Science, vol. 6, no. 3, 2017, pp. 1-8.
Zhuravlyova, Sonia. “The Future of Money: Bitcoin and Other Cryptocurrency Technologies are a Way of Life in this Small Swiss Town; The Town of 30,000 has Attracted Entrepreneurs who have Created Cryptocurrency Startups.” Newsweek, vol. 169, no. 3, 2017, pp. 18-21.
“5 Cryptocurrencies Investors Should Watch.” Bitcoinira. 2017. Web.
The introduction of cryptocurrencies into the global financial system has led to the growth of a new sector of finance known as FinTech.1 It is largely characterised by technological innovation, which is redefining the nature and structure of traditional areas of finance. The development of cryptocurrencies has emerged from this trend. It is defined by unique characteristics, such as the decentralisation of financial functions, anonymity of the players involved, and privacy in financial transactions. Stemming from the implications of these characteristics for the financial sector, regulation has been proposed as a tool for streamlining FinTech.2 This proposal explains why several governments (locally and internationally) are reviewing cryptocurrencies with a special emphasis on finding the appropriate type of legal framework to adopt. This push is partly informed by the fact that cryptocurrencies offer an alternative to conventional banking. Additionally, they significantly change the way vendors and buyers make payments.
FinTech regulation is a relatively unexplored area of research because it offers a new way of financial modelling. The legality of the process is also under review because cryptocurrencies outline a decentralised model that operates outside of the conventional judicial framework. Therefore, the need to explore legal issues pertaining to cryptocurrencies emanated from the failure of different countries to account for the threats that cryptocurrencies introduce to the global financial system. For example, although money laundering is a comprehensively explored area of research and a threat to the conventional financial system, it is not explored in a similar manner in FinTech.
This research argues that attempts to regulate cryptocurrencies are misguided because those advocating for the same do not understand the technology that underpins this area of financial revolution. Key pieces of evidence that support this position are derived from the decentralised nature of cryptocurrencies, the borderless nature of their transactions, the lack of an issuing authority for digital currencies, and the lack of a clear set of actors in the virtual market. Although counterarguments are discussed, this study largely demonstrates that different forms of regulation (as currently proposed) do not take into consideration the above-mentioned factors and fail to recognise the complex technology that underpins FinTech. This research is guided by two research questions highlighted below.
Research Questions
Which opportunities provided by cryptocurrencies are relevant for regulatory bodies?
What are the threats and barriers to the regulation of cryptocurrencies based on their inherent characteristics?
Review of the Literature
Research Methodology
This paper is the product of a desk research of secondary research materials investigating the merits and demerits of regulation in FinTech. The secondary research materials reviewed were mainly in the form of scholarly texts and legal documents.
Research Findings
Introduction to Cryptocurrencies and FinTech
Cryptocurrencies and FinTech are new areas of financial innovation. They are distinguished by their unique features, which make them stand out from traditional instruments of finance. The lack of a common authority is one of the main design features of cryptocurrencies, which distinguish it from fiat currencies.3 Bitcoin is the most popular cryptocurrency. It was invented after the 2007/2008 global financial crisis, which was partly attributed to the activities and unethical business practices of banks.4 Therefore, by their very design, Bitcoin and other crytpocurrencies do not support a centralised financial model because they eliminate the need for currency issuance and settlement. At the same time, they minimise the lurking moral risks associated with such a financial system. Nonetheless, it should be understood that cryptocurrencies cannot directly substitute the role of central banks because the functions of such financial institutions are broad and include credit expansion, price stability and the control of monetary flow in an economy.5
Cryptocurrencies are deemed to be incapable of fulfilling the above roles. Although cryptocurrency enthusiasts have shown their disapproval for a centralised financial monetary system, proponents of regulation still say that price volatility and deflation are inherent risks associated with their use.6 Particularly, they draw attention to the possibility that cryptocurrencies are vulnerable to external clashes because of the lack of a centralised system. They also point out that such a decentralised system is prone to hacker attacks and incorrect coding which may undermine the credibility of the entire system.7 In the same breadth of analysis, they have said that changes in transaction sizes will affect the value of Bitcoin if there is no central authority to control the entire system. However, their concerns are still true for the conventional financial system because regulation has not eliminated them yet.
The fact that the quantity of some cryptocurrencies, such as Bitcoin, has been capped is another point of support that critics have used to advocate for regulation because it reflects the quantitative control of currencies as a measure of exchange. Here, since digital and fiat (regular) currencies have a quantitative control of currency value, cryptocurrencies could be significantly devalued when the system fails because of the lack of control by a central authority. In this analysis, the complexity of cryptocurrencies as alternative modes of payment stems from the fact that currencies are essentially deemed as “public goods,” which require protection from the state.
The lack of an issuing body for cryptocurrencies and no central authority in the issuance of the same could lead many people to believe that digital currencies would falter in design and functionality. However, this is not the case because the blockchain technology that underpins the functionality of cryptocurrencies is designed in such a way that accountability is built into its functionality. In other words, the structure and organisation of cryptocurrencies are such that every transaction involving the medium of exchange is recorded on a public ledger, where people can trace transactions that have occurred from and to a cryptocurrency account.8 The underlying premise of value creation is hinged on collaborative mining. Collaborative mining occurs only when parties within the blockchain validate transactions. This type of transaction makes cryptocurrencies less attractive to fraudsters and money launderers, compared to “hard cash” because it is impossible to track the movement of physical money by merely looking at it. Relative to this view, it is understandable for governments to request cryptocurrency exchange platforms to provide information about their clients, but such a request should not be guaranteed by burdensome regulations.
Many people who advocate for government intervention in the use of cryptocurrencies also do not understand that virtual currencies work in the same manner as fiat currencies do. The only difference is that there is no intermediary present to complete a transaction involving cryptocurrencies. This financial design means that there is no one available to stop or reverse a transaction when it starts. Although this feature may seem problematic to some people, it emerges as one of the strengths of cryptocurrencies. What many people do not understand is that although regulation is meant to protect consumers, digital currencies provide the same protection, but through cryptography. This technology makes cryptocurrencies some of the most reliable forms of value exchange commodities. Security concerns, which have affected some transactions that involve the use of cryptocurrencies, are also disappearing because cryptocurrency platforms are competing for users and only those that have the highest standards of accountability are gaining more customer numbers. In this regard, users act as regulators because they have the power to “punish” platforms that do not employ high ethical standards and fair business practices.
The involvement of users as regulators means that different people could be mining a currency from different locations and at different times. In this regard, the prospect that a single entity would penetrate the network and gain control of it is remote. However, it is important to point out that in 2014; one company was reprimanded for gaining control of almost 51% of Bitcoin mining activities.9 The concern was that the entity was becoming too powerful because it was centralising mining operations to its users. However, this threat only existed for a few hours. If the activity persisted for long, it would mean that a single entity would have owned a majority of all the cryptocurrencies mined. There is also a possibility that the conglomerate could send false information over the network and alter transaction history. Such a risk caused panic in the cryptocurrency network, thereby prompting users to urge members of the conglomerate to seize their activities and prevent the company, which operated as “GHash.io,” from acquiring a 51% stake of all Bitcoin mining activities.10 After the incident, the mining company sent out a statement that it would take proactive measures to ensure its activities do not surpass the 51% mark.
The lesson to be learnt from the above example (and that relates to regulation) is the strict public oversight that underpins crytpocurrency activities. Even with its decentralised nature, it is difficult to undertake unethical transactions without people noticing. Therefore, even without a centralised authority like a central bank, the integrity of the system is still safeguarded.
The above example mimics what always happens in the cryptocurrency space because it shows that its users are inherently responsible for the system through the blockchain technology. It is difficult to conceive a situation where a foreign entity such as a government (or any of its proxies) would infiltrate the system and regulate it. The decentralised nature of crytpocurrency operations means that the system is too vast to control. Comparatively, regulation only works when a central authority does not only formulate the rules and policies to be followed, but also enforces them. The decentralisation of cryptocurrency transactions shows the difficulty of achieving this goal because, although it may be possible to formulate a single set of rules to be followed by cryptocurrency users, it is difficult to enforce the same on a system that has millions of anonymous users.11
The lack of an issuing authority in cryptocurrency trade highlights some of the challenges that could be witnessed in regulation. This problem emerges from the fact that central banks are important authorities in the regulation of financial services and without their involvement, it would be nearly impossible to achieve any serious regulatory milestones. Therefore, the absence of a central issuing authority has increased scepticism surrounding the feasibility of regulating cryptocurrencies. Such concerns are legitimate in the wake of a deeper understanding of how cryptocurrencies work because many people who have advocated for regulation in this sector are misled to think that it is possible to implement it effectively in a virtual market where there is no central issuing authority. Therefore, unlike how banks would use fiscal and monetary policies to influence the performance of the financial system and the economy, it is difficult for the same approach to be adopted in a framework that does not recognise any issuing authority. This analysis means that Bitcoin users and vendors are the ultimate authority in the operations of cryptocurrencies and because of the public nature of cryptocurrency transactions; regulation is achieved without the involvement of a government authority or agency. What this means is that without a central issuing authority, the structure for regulation is undermined, thereby making it nearly impossible to achieve significant regulatory gains in this regard.
Legitimacy
The legitimacy of cryptocurrencies as legal tenders has been characterised by the different interpretations of laws regarding the same. Stated differently, many countries assume varied levels of legitimacy for cryptocurrencies. The variation causes differences in cryptocurrency legitimacy across borders. This is one reason why regulation is not necessary. In other words, cryptocurrencies are not linked to one country or legal framework because by gaining access to an internet connection and a cyrptocurrency wallet, one can undertake financial transactions virtually. Furthermore, one institution that has regulatory power does not oversee the blockchain technology, which supports cyrptocurrency transactions.12 This finding means that although it may be prudent to introduce legislation in countries that can regulate cryptocurrencies, it may be difficult to enforce the same laws in other nations that have lax regulation. Therefore, based on this challenge, it may be difficult to enforce existing regulation on Bitcoin. At the same time, different countries have unique approaches for prosecuting cybercrime. Even when cooperation is sought, it may be difficult to gain international cooperation when prosecuting cyber-related crimes. For example, some countries in Asia, such as China and North Korea have a strict and “no-nonsense” approach to cyber-related crimes because of national security issues.
Relative to the above view, in 2013, China banned the use of Bitcoin – a move that saw the world’s most popular cryptocurrency plummet in value.13 In 2014, several accounts linked to Bitcoin were closed. Such moves sparked concern among cryptocurrency owners that government regulation would affect the growth of the virtual currency. There have been similar attempts in the US to regulate cryptocurrencies, as was evident in a recent case in New York, where the state won a landmark ruling that guaranteed it access to the identities of 14,000 Bitcoin users. Additionally, the New York state government introduced a new regulation that required Bitcoin traders to have a “BitLicence.”14
The lesson to be learnt here is that some countries may have a different approach to prosecuting crimes that are related to cryptocurrencies from western countries, which have a more liberal stance on the same. For example, western nations may not necessarily perceive crimes related to cryptocurrencies as falling within the realm of national security issues, but rather from an economic crimes standpoint. Alternatively, they have a responsibility of balancing national security issues and rights and freedoms, which are enshrined in their constitutions. It may be challenging to reconcile the two approaches of regulation to provide a holistic framework for regulating cryptocurrencies.
Although the above views indicate that cryptocurrencies were developed from complex technology, the premise in which they work is simple – any person, located anywhere on the globe with an internet connection can exchange credits, products and services easily. Unlike traditional forms of payment where merchant accounts and payment gateway accounts are needed, cryptocurrencies provide the freedom from such sort of third-party obligations.15 This feature explains why Bitcoin has gained a lot of interest in different parts of the world.
Another issue that emerges in crytpocurrency regulation is the capacity to enforce laws across different jurisdictions or to prosecute a case involving a breach of law in the use of cryptocurrencies. This concern emerges from the fact that operating virtual currencies require some technical knowledge from the law enforcers. In most cases, hackers and people who launch attacks on cryptocurrency users are too sophisticated for law enforcers to understand the nature of the crimes they commit. Although the capacity to prosecute cryptocurrency-related crimes may improve, it is difficult for law enforcers, especially in jurisdictions that do not have highly advanced cybercrime units, to secure a conviction associated with cryptocurrency use. This concern partly explains why the cross-border nature of cryptocurrencies is a serious impediment to regulation. Even if one country builds the capacity to prosecute cryptocurrency-related transactions, it would be difficult for them to make other authorities understand their point of view. More importantly, it would be difficult for them to police the entire world. In this regard, it remains a difficult task for authorities to find a practical way of not only introducing regulation, but also enforcing it across a borderless framework.
The institutional model, which governs the operations of many regulatory activities today, cannot be relied upon to spearhead initiatives aimed at regulating cryptocurrencies because they are not designed to work across borders.16 The institutional model works by giving an opportunity to regulators who have appropriate expertise to apply them in specific fields of financial regulation. However, this model has two main issues. The first one is premised on the fact that varied financial institutions may produce products that are functionally the same, but are governed by different regulatory agencies. Such is the problem that characterises the use of cryptocurrencies in the sense that although they may be similar in function to fiat currencies, they are different in terms of the varied approaches to regulation that may adopt. The cross-border nature of crytpocurrencies is one such difference that explains the limitations of regulation. Furthermore, it provides strong incentives for regulatory arbitrage.17
An example that explains the above issue happened in the 1990s, when different actors in the securities market participated in credit intermediation. They used the same method to create deposit-like and short-term credit claims similar in manner to how banks would do. The securities exchange commission (SEC) which is supposed to regulate such activities was supposed to act on this, but did not do so because it lacked the regulatory framework and soundness to perform its duties as a regulator of banking activities.18
The institutional model, which is used in the banking industry, and that has been proposed for implementation in the cryptocurrency space, is similarly not equipped to work in the sector because it cannot cope with systemic risks associated with digital currencies. Managing systemic risks would require a proper engagement and understanding of the entire market, but this is not the case for the cryptocurrency space because few regulatory agencies understand how it works and comprehend what areas of its operations need regulation, relative to the implications of the same actions on the market in general. Besides being unable to manage systemic risks that could affect the financial sector, the current institutional model that is proposed for use in the cryptocurrency space is poorly placed to deal with changes that characterise the financial sector and that govern new innovation in the financial sector, such as those witnessed through Bitcoin and other cryptocurrencies. Therefore, if crytpocurrency use spanned across different sectors, they would be subjected to a patchwork of legal provisions, which would be implemented in the pretext of introducing regulation in the cryptocurrency space. The process will ultimately undermine the merits of FinTech. In other words, the appropriate expertise needed for supporting fair play and cryptocurrency development may be lacking if the current proposals to regulate virtual financial transactions are successful.
The challenge of implementing regulatory proposals across different jurisdictions is an old one. It has also proved to be problematic for experts who have tried to address the problem in the past. For example, at the turn of the century, the United Kingdom (UK) tried to streamline the designs of its regulatory proposals under a common regulatory authority by making sure that its officers were not limited by regulatory boundaries. After a few months of implementation, they discovered that the problem was insurmountable.19 The challenge was attributed to the poor consideration of prudential supervision, which should have been a priority in the regulation of cross-border financial transactions. Poor prudential supervision is also a significant threat in the regulation of cryptocurrency trade today because there is an overzealous group of people who are advocating for consumer protection at the expense of prudential supervision. Similar to the failure of the UK’s Financial Service Authority, such an attempt at providing a single unified regulator is not superior to the borderless design of the cryptocurrency financial system.
The borderless nature of cryptocurrencies also poses a problem in the creation of a regulatory framework for managing FinTech because of problems associated with enforcement. For example, the revocation of licenses is a significant tool used by regulatory authorities to ensure rules are followed. In the cryptocurrency framework, such a tool is useless because, except for New York, many states around the world are not required to provide a license for trading cryptocurrencies. Even users of Bitcoin in New York may still exploit the borderless nature of cryptocurrencies and choose to conduct their businesses from another location to avoid the regulation. In this regard, it becomes increasingly difficult to enforce laws and regulations involving financial transactions of a borderless nature. Furthermore, an attempt to enforce the rules of one country in another one would generate too much political controversy that would make it impractical to enforce regulatory laws or approvals in different countries.20
A counter argument that has been proposed to address enforcement problems in a borderless world is the use of other tools of “punishment,” such as reputational damage. In other words, a simple argument that one firm is notorious for flouting regulatory principles is likely to cause a reputational damage on the same company. However, it is difficult to conceive a situation where such a tool may work in the current financial system because cryptocurrency use is not defined by the activities of different companies. In other words, there are no merchants to blame for flouting regulatory policies because cryptocurrencies eliminate the need for third parties in the financial system. Consequently, it is difficult to understand how to introduce regulatory frameworks in cryptocurrency use when the borderless nature of cryptocurrencies poses an insurmountable threat to the enforcement of the same laws.
Investor Protection
Regulatory approaches employed in the financial system are meant to protect consumers above all other actors involved in the same system.21 Although the theoretical definition of a consumer (in the context of a financial system) is subjective, there is little contention that users of financial models need the utmost protection from risks that could emerge from the implementation of the financial model. This view informs bold suggestions by critics of digital currencies who say that regulation would not only protect the interest of investors, but also promote the acceptance of digital currencies as legal tenders. In other words, they believe that when cryptocurrencies are under regulatory approval, they are more likely to be accepted in the mainstream financial industry.
The above view has been partly supported by critics who believe that regulation would elevate cryptocurrencies to the same level of mainstream financial services, thereby increasing their odds of being received as an acceptable mode of payment. However, accepting regulation in the FinTech space would only bring digital currencies under the control of the mainstream financial system. In other words, it would shift the power of innovation and its control back to banks, which are regarded as some of the most powerful players in the global financial system. Based on this understanding, it is important to understand that consumers of the conventional financial system may not need the same level of protection as those who use cryptocurrencies because of different levels of exposures involved.
The conventional financial system exposes consumers to different types of risks (mostly systemic) that need to be mitigated through regulatory interventions. In other words, government agencies have to ensure that regulation is followed to protect the interests of customers. They often do so to achieve several key objectives, which include the facilitation of improved consumer choice (through information-based strategies), imposing restrictions on poor choices (product regulation), minimizing the predatory behaviours of rent-seeking financial institutions, protecting the system from “nudging” consumers, and providing welfare safety nets.22 These key objectives, which are focused on the protection of consumer interests in the conventional financial system, explain why regulation has been proposed as a necessary tool in the proper functioning of the financial system. However, a careful review of these objectives show that, although users of cryptocurrencies could also be exposed to some types of systemic risks, they do not stand to benefit from any other advantages above the objectives of regulation, as is currently designed.
Generally, four types of regulatory tools are used to protect investors in the current legislative framework. The first one centres on the imposition of capital requirements on banks to maintain healthy balance sheet reserves. The goal of introducing such a stipulation is to meet any shortfall in the value of the banking assets, relative to the liabilities they have. This provision shows that cryptocurrencies do not need to be subjected to regulation because they do not share the same risks as those experienced by banks. For example, they do not need capital requirements because there is no need for a balance sheet to maintain, as there are no assets or liabilities. Additionally, unlike banks, cryptocurrencies do not have banking assets or a need for “loss absorbency,” which has necessitated regulation in the conventional banking sector. The immunity from such risks emanates from the decentralised nature of cryptocurrency trades. Therefore, it is difficult to understand why regulation is needed in this field because cryptocurrencies do not expose their users to the same type of risks as banks do.23
The second reason why regulation was introduced in the financial sector is to require banks to have a significant portion of their assets in liquid form to meet depositors’ withdrawal requests. Again, cryptocurrencies do not have the same problem. Therefore, they need not be subjected to the same regulation. Stated differently, no liquidity problems are associated with the use of cryptocurrencies. The same is true when the risk of losses on deposits is analysed because existing regulation is in place to make sure that depositors do not lose their money. In other words, authorities always ensure that there is adequate regulation as insurance against the loss of deposits. This problem is non-existent in the use of cryptocurrencies because they are not centralised. Therefore, the need for regulation, when analysed within the context of insurance provision, is unnecessary.
The same is true for regulations that are set in place to create a lender of last resort in centralised financial systems. This principle works by introducing the central bank, or the government, as the ultimate authority that is supposed to bail out financial institutions when they are unable to meet their financial obligations. The same principle is unnecessary in cryptocurrency use because there is no central financial structure where the principle of the lender of last resort is applied. In other words, cryptocurrencies do not act as banks where they are supposed to meet the financial obligations of their clients in a centralised financial system. This analysis shows that although cryptocurrency use could pose as a direct threat to the banking system (as it is currently constituted), the need for regulation, as conceived through the operations of banks and other financial institutions in the conventional financial space, is inapplicable in the virtual financial system.
Collectively, the four needs for regulation in the financial sector, which have been highlighted in this paper, highlight the need to protect depositors’ money, the need to maintain balance sheet reserves, the need to hold some assets in liquid form and the need to set up a lender of last resort are inapplicable in the crytpocurrency space. Many critics of digital currencies and advocates of regulation in this sector do not understand that crytpocurrencies work differently from the conventional financial system. Therefore, regulation as currently proposed to mimic the types of structures adopted in the conventional banking system cannot work for the benefit of its users. The decentralised nature of cryptocurrencies makes any arguments for regulation impossible to implement because it is difficult to understand how regulation would work in a decentralised environment where the needs for regulation, as proposed in the financial sector, do not apply.
Disclosure of Information and Transparency
A cardinal principle applied in financial regulation is the identification of culprits and making them accountable for their actions. Cryptocurrencies pose a challenge in this regard because some of the transactions that are completed on the platform are anonymous. Therefore, there is no clear set of actors involved in such a trade. This way, it may be difficult to identify offenders when laws are contravened. Relative to this assertion, law enforcement officers often find it increasingly difficult to trace illicit proceeds, which are obtained through cryptocurrencies.24 This view emphasises the prosecutorial challenge that authorities may face when regulating cryptocurrencies. Consequently, the development of any meaningful legal control needs to be supported by a global concerted effort, which is typically difficult to achieve. At the same time, the actions of one country in creating regulatory control could easily be negated by the inaction of another using a proxy system that would allow users to transact internationally.
Evidence of the difficulty of regulating cryptocurrency trading is seen through frustrations experienced by governments around the world in shutting down torrent sites.25 In many western countries that have tried to do so, the issue has proved to be problematic because regulating peer-to-peer technology platforms is a difficult undertaking. A fairer comparison of the difficulty to regulate cryptocurrencies is seen in the “dark web.” Although some people could be arrested for participating in illegal activities on the dark web, it is difficult to conceive a situation where the government can effectively regulate it. This analysis means that it is technically difficult to regulate cryptocurrencies.
In response to cases where governments have successfully managed to obtain the identities of those who engage in transactions involving cryptocurrencies, it is still difficult to link the same identities with real people. In other words, it is possible for users to hide their identities when using cryptocurrencies through VPN, thereby making it difficult to trace them. In the same manner, it is possible to hide a cryptocurrency wallet (offline) making it difficult for authorities to establish the true owner of cryptocurrencies.
Although some researchers have highlighted the above challenges in cryptocurrency regulation, some proponents of regulation have voiced the need to structure regulations in a way that prevents users from cashing out.26 However, for such a proposal to work there needs to be a concerted effort globally. Nonetheless, it is difficult to achieve such universal cooperation, especially because it is possible for users around the world to trade any major currency online, from anywhere in the world with an internet connection, and cash out. Furthermore, if the government wanted to regulate one type of cryptocurrency, users could simply shift to another. With dozens of cryptocurrencies in circulation and more being made, it would be practically impossible for the government to track and regulate them, unless they stop the use of currencies altogether. At the same time, numerous online financiers who accept cryptocurrencies do not require any form of identification to complete transactions.27 In this regard, cryptocurrencies upset how retailers, vendors and purchases relate to the marketplace. This disruption makes it difficult to impose a set of regulations that would govern the activities of unknown actors.
Although the consumer is the most important actor in the cryptocurrency market, it is difficult to understand how the same stakeholder would benefit from regulation. The anonymity that surrounds cryptocurrency use is one impediment to realising the benefits of regulation in this sector because it is often difficult to know the identity of those involved in cryptocurrency transactions. Furthermore, it is difficult to know where they are located on the globe. Therefore, if regulation were to be introduced in the cryptocurrency space with the goal of benefitting users, such impracticalities would suffice. Consequently, it would be difficult to understand who the intended beneficiary of regulation should be. In any case, studies have shown that regulation would only stifle the activities of users in the virtual marketplace, thereby acting to their detriment, as opposed to encouraging their innovation, which should be the case.28
Consumers are not the only actors involved in the cryptocurrency trade; vendors are other entities that need to benefit from regulation as well. However, existing proposals aimed at introducing regulation in the virtual marketplace make it difficult to understand how vendors would benefit or receive protection from regulation. In fact, current regulatory proposals seem to discourage vendors from accepting Bitcoin and other forms of cryptocurrencies, as an acceptable mode of exchange, because of limitations in the acceptability of cryptocurrencies as a legal tender. Since it is easy to establish the identity of merchants who accept Bitcoins, it would be expected that regulation would benefit them directly and clearly. However, this seems not to be the case. In many jurisdictions, limitations on cryptocurrency use have been proposed as a prohibitive tool for discouraging vendors from destabilising “status quo.” In this regard, regulatory proposals appear to be protecting the current conventional financial system as opposed to creating fair play and practice in the system. In this regard, regulation does not seem to have a tangible value to the ecosystem that supports digital currencies.
Broadly, it is difficult to enforce regulations in FinTech because the innovation is underscored by the principle of collective actions, which make it difficult to hold one party responsible for an infringement of law. At the same time, it is difficult to conceptualise a framework that would guarantee cooperation among all the market entrants involved. Collectively, these considerations reveal a situation where the imposition of regulatory limitations on cryptocurrency use would be ineffective because the regulatory concerns that apply to FinTech are different and more severe than those observed in the conventional financial system are.
Legal Aspects
Current Laws
The regulatory framework proposed for use in FinTech traces its history to the 2007/2008 financial crisis where a raft of recommendations was introduced to control banking activities. As explained by the Harvard Law School, most of the regulations proposed in that era were conceptualised under the Dodd-Frank Act and significantly altered the regulatory landscape.29 Notably, Wall Street and traditional banks found themselves engulfed in a web of financial regulation that affected different aspects of their operations, including conforming to new restrictions on propriety investing and committing themselves to support new legal frameworks to ensure banks and insurance firms survive in the wake of financial stress. Although current proposals to regulate FinTech have been based on similar recommendations, the innovation underpinning financial technology poses a challenge to this proposal. For example, the Dodd-Frank reforms identified specific financial institutions and termed them as “important entities.”30 Although such proposals were meant to protect investors, they failed to see a growing undercurrent of decentralization in the financial sector that was started by cryptocurrencies and that is shifting away the focus from Wall Street.
Notably, small technological start-ups were starting to provide services that were traditionally offered by central banks, thereby eliminating the need to have third party financial services. For example, in this paper, the role of merchants in global trade is highlighted as one of the services that is under threat from the growth of cryptocurrencies. Based on this example, alone, it is possible to see how the wave of legal reforms introduced in the post-crisis era are ill equipped to address some of the fundamental changes that cryptocurrencies have introduced to the global financial system. Different countries have reacted to these changes in varied ways. Table 1 below explains the status of cryptocurrency legitimacy across different jurisdictions in the world.
Table 1. Legitimacy of Cryptocurrencies across Different Jurisdictions.
Country
Legitimacy
Reason
Japan
It is a legal tender.
All financial exchanges involving cryptocurrencies that are registered with the Japanese Financial Service Authority are considered legal. The legitimacy of crytpocurrencies in Japan explain why it is such a big market for Bitcoin because studies show that up to 50% of all Bitcoin daily transactions are traded in the country, using the yen.31
United States of America
Not a legal tender
Although American laws do not recognise cryptocurrencies as legal tenders, the policy on exchanges suggests that transactions involving these tools of trade may assume legitimacy in some states. The reasons for the lack progress in the legitimisation of cryptocurrencies is the varied opinions experts and lawmakers have towards digital currencies. For example, some of them say it is a form of security, while others believe it is a commodity.32
European Union
Not a legal tender
Cryptocurrencies are not recognised as alternative currencies because no EU-member state can introduce a new currency. However, the policy on exchanges is that cryptocurrencies may be considered legal, depending on the country in question. The biggest concern surrounding the legitimisation of cryptocurrencies in the EU centre on money laundering concerns. Current efforts are being directed at improving regulation efforts. France and Germany are on the forefront in doing so.33
United Kingdom (UK)
Not a legal tender
The policy on exchanges dictates that cryptocurrencies may be legal, depending on whether they are registered with the Financial Conduct Authority, or not. In other words, transactions registered with this body may assume a legal status, while those that are not registered with the same may not assume the same status. Here, transactions, involving cryptocurrencies are subjected to the same anti-terrorism and money laundering laws in the country.34
South Korea
Not a legal tender
The policy on exchanges regarding cryptocurrencies in South Korea dictates that cryptocurrencies may be legal, but holding virtual and anonymous digital wallets may be unlawful. The law stipulates that for such a legal status to be guaranteed, the associated transactions need to be registered with the country’s Financial Service Commission. Regulators have given mixed signals regarding where their policies will follow, but South Korea accounts for up to 4% of the world’s cryptocurrency (mostly Bitcoin) trading volumes.35Generally, there is a stalemate regarding the direction that regulation processes should follow.
China
Not a legal tender
The Chinese policy on exchanges dictates that all cryptocurrency transactions are illegal. For example, in 2017, the Chinese government banned all forms of initial coin offerings to prevent small start-ups from raising capital through the accumulation of digital currencies.36Nonetheless, there are cryptocurrency related activities ongoing in China, such as Bitcoin mining. The government is generally working to end the practice of cryptocurrency exchanges.
Singapore
Not a legal tender
The policy on exchange in Singapore suggests that cryptocurrency exchanges may be legal, depending on whether transactions are registered with the Monetary Authority of Singapore, or not. Transactions that are registered with this body may automatically assume a legal status, while those that are not registered are deemed illegal. Generally, Singapore is positioning itself on the Asian peninsular as a country that is friendly with cryptocurrency exchanges. At the same time, it is one of the world’s most popular destinations for initial coin offerings.37
India
Not legal tender
Reports indicate that India is working to outlaw cryptocurrency trades, but its policy on exchanges dictates that such transactions may be legal in certain instances. Currently, the Indian government does not regulate exchanges, but is looking for an agency that will undertake this task. Current efforts are aimed at outlawing crypto-assets because there is a potential for criminals to use the same to finance criminal activities.38
Switzerland
Bitcoin is legal
Although crytpocurrecies assume a legal status in Switzerland, they need to be registered with the Swiss Financial Market Supervisory Authority. There is a legal acceptance of cryptocurrencies in Switzerland because the country has a reputation for having among the friendliest regulations for digital currencies in the world. Most cryptocurrency companies are based in Switzerland. For example, Etherium foundation’s headquarter is in the state.39In other words, the country has gained the reputation of having “relaxed” regulations for cryptocurrencies.
South Africa
Legal
South Africa is considered to have friendly regulations towards cryptocurrency exchanges. Current efforts are aimed at striking a balanced approach to regulation.40Recently, there have been no major government commitments to regulate cryptocurrencies.
Ghana
Not a legal tender
Regulation on cryptocurrency use in Ghana is still being developed with current proposals suggesting the need to limit cryptocurrency transactions to Electronic Money Issuers only. However, like India, current the current trend in legislation seems to prefer limiting the growth and development of cryptocurrencies.
Canada
Not a legal tender
Although cryptocurencies are not deemed legal tenders in Canada, the North American nation has strived to paint an image of being a transparent country in terms of cryptocurrency regulation. In 2017, communication emanated from the Canadian Securities Administrators requiring the public to know that cryptocurrencies would be subjected to securities law.41However, like America, there is confusion regarding the definition of cryptocurrencies, which is further stalling efforts to provide an elaborate regulatory policy to govern the same.
Based on the table above, the growth of FinTech has questioned the assumption that the regulation of systemic risk needs to be focused on centralised financial services and the dominance of large and seemingly important “too big to fail” financial institutions. The conventional view of financial regulation is premised on a few key principles. The first one is that banks have grown to become important financial institutions, which require support; otherwise, if they were allowed to fail, they would affect the performance of other parts of the economy.
Alive to this fact, many governments around the world have gone out of their way to bail out these financial institutions, especially those that are deemed “too big to fail.” The principle of financial bailout is a reasonable one especially because governments have a duty to protect their citizens from the adverse economic effects of financial impropriety. However, it is difficult to ignore the fact that a guaranteed government bailout will not have a significant effect on the decision-making processes of such banks. In other words, the banks may engage in risky financial transactions because they are sure of government guarantee. This way, they know that they will be protected from the adverse effects of their actions if their strategies fail to pay off. Such risky financial behaviours happened and reached a crescendo when banks took unnecessary and risky gambles in the subprime mortgage market using complex derivatives that were meant to cover financial risks in a wider and faulty financial framework that collapsed and caused a global financial crisis.42 Ever since that time, the precedence in financial regulation has been centred on the need to regulate institutions that are “too big to fail,” or that are important for the economic prosperity of a nation.
Nonetheless, this principle of regulation, under the concept of “too big to fail,” assumes that systemic risks could only come from centralised financial bodies. It is faulty because it undermines other sources of systemic risks that could come from small entities perceived to be unimportant. Indeed, according to the findings of the Harvard University Law School, smaller financial entities may pose significantly worse risks than those predicted under the conventional legal model of regulation.43 Based on this premise alone, regulations that are designed to control operational issues in a centralised financial system may increase the risk profile in a decentralised one.
Issues with Current Laws
Current regulatory models in cryptocurrency trades have little chance of success because FinTech poses a challenge for three main reasons. For instance, FinTech is more vulnerable to adverse economic shocks compared to conventional currencies. These shocks are more likely to spread to all other parts of the model, which rely on the financial framework, unlike the traditional financial design. Regulation is likely to fail in such a decentralised financial model because it would be difficult to monitor financial activities in cryptocurrency use compared to a centralised financial system where a few large entities hold a lot of power. Furthermore, Fintech offers regulators little information about the structure and operations of its markets. One theme that emerges from these discussions is the opportunities that decentralised monetary systems pose to societies. Cryptocurrencies are designed in a decentralised framework because they do not have a focal point of operation. Since traditional financial systems are centralised, cryptocurrencies (and FinTech in general) provide a new way of thinking in the way the global financial system operates.44
Potential Threats and Possible Remedies
Potential threats associated with the use of cryptocurrencies are confined within arguments that highlight money-laundering, fraud, theft, and hacking as possible issues related to its use. However, one of the main arguments against regulation has been based on an attack on the merits of cryptocurrencies. People who have expressed their reservations about this platform believe that cryptocurrencies, such as Bitcoin, are only “passing clouds” in the financial system because they do not offer any intrinsic value to it. For example, their response to the recent rise in the value of Bitcoin is that the currency’s value has risen almost 17 times because of speculative forces. Based on this argument, they believe that cryptocurrencies have caused a “bubble” that will soon burst. With such contempt for cryptocurrencies abound, there have been little prospects for regulation and even a smaller agreement that it is important to regulate a “passing cloud.” Based on this view, the possibility that such arguments would not pose as a barrier to regulation is small. However, critics who overlook the power of cryptocurrencies do so at the expense of failing to understand that cryptocurrencies are powerful tools of trade that are here to stay. More importantly, they fail to understand that these digital currencies are immune from regulatory control because there is no clear set of actors to hold personally responsible for legal breaches.
Another problem associated with cryptocurrencies is the fact that most laws that have been proposed to regulate cryptocurrencies have been borrowed from the banking industry and the centralised conventional financial system, which is mostly maligned with the interests of small start-ups and small technology companies. The operations of cryptocurrencies in the global financial system reflect the business lifecycle stages that small technology start-ups undergo. However, there is an exception because unlike how the government promotes the growth and development of small technology start-ups (such as those based in the Silicon Valley), cryptocurrencies are treated with a lot of suspicion. Additionally, proposed regulations to govern its operations are designed to stifle its growth and undermine the innovative platform that make it work. Using most types of regulation, such actions (as currently being promoted in different jurisdictions around the world) are not helping to promote the technology or the innovation behind it, but rather to “kill” it. In fact, according to two researchers, Brito and Castillo, the application of banking industry standards on Bitcoin and other cyrptocurrencies would almost assuredly lead to negative outcomes.45
The decentralised nature of cryptocurrencies means that it is difficult to introduce regulations that would holistically govern them because they cannot be controlled or clamped down easily. In other words, cryptocurrencies are not associated with any arrangement involving a national bank or central oversight authority. Therefore, it works outside the domains of direction. The fact that digital currencies are decentralised means that no government owns them and by this definition alone, authorities do not have the direct control required to enforce laws.
The decentralised nature of cryptocurrencies has been hailed as one of the key selling points of virtual currencies because it gives users unlimited access to their currencies. In this regard, it is termed as a sophisticated type of currency. According to one author called Sean Bennett, in his book aimed at helping people understand how cryptocurrencies work, he said banks are even considering using certain aspects of FinTech in their conventional banking systems to make them more appealing to their customers.46
One problem associated with critics of cryptocurrencies who advocate for the growth and development of the conventional banking industry at the expense of cryptocurrencies is the fact that they do not recognise that the banking system also has many risks such as those affecting cyptocurrencies. For example, the banking theory argues that such financial institutions operate on the premise that people are not going to make withdrawals at once; otherwise, the banks will suffer a “bank run,” which occurs when the institutions deplete their financial reserves at once. The principle behind this risk is called fractional reserve, which means that only a specified amount of money is usually set away for withdrawals, while others are issued as loans. This principle explains the “magic” and the “catastrophe” that could be the banking system because on one hand, they could be instruments for economic growth and prosperity, and on the other hand, they could be agents of spectacular financial crises and disasters.
Although there are calls to regulate Fintech, there is a consensus among regulatory bodies worldwide that the financial risks that are to be regulated do not necessarily occur because of the technology of financial products to be regulated, but because of corporate governance weaknesses.47 This view is partly explained in an article by Europa, which says that the absence of effective checks and balances within financial institutions have contributed to some of the world’s most notable financial crises.48 The article also explains that imprudent risk-taking is largely to blame for systemic financial issues in many states around the world. In response to such kind of problems, different jurisdictions have introduced legislations that would address them. For example, Europe introduced Directive 2004/39/EC to address weaknesses in corporate governance.49 However, there are calls to supplement such legal provisions with more detailed principles and minimum standards of financial regulation.50 More importantly, experts have cautioned that the same provisions should be applied in recognition of the complexity and scale of the operations being regulated.51
The above recommendations are not being observed in attempts to regulate cryptocurrency operations around the world because there has been little attention paid to the scale and complexity of virtual transactions. More specifically, critics of cryptocurrencies have paid no attention to the global nature of digital currencies and the borderless nature of payments. By any scope of measurement, most of the regulatory proposals currently under consideration in western countries do not factor in these issues when proposing new regulation and are blind to the limitations of regulatory implementation in a decentralised economic environment.
The observation of European experts in financial regulation, which point out to corporate governance weaknesses as being the root cause of financial and systemic risk, seem to support anti-regulation calls because cryptocurrencies are not governed by corporate rules. In this regard, they are not vulnerable to the same risks as fiat currencies. The support comes from the decentralised nature of cryptocurrency trade and the equal power it gives both buyers and sellers on the trading platform.52 Although there are arguments that support a contrary position that cryptocurrencies are subject to manipulation, they seem to be confined to the trading of cyrptocurrencies on the securities and commodities market, as opposed to the actual working of the innovation that underpins it. Furthermore, most of the people who have made such claims seem to target Bitcoin and its recent gain in price. However, Bitcoin is only one type of cryptocurrency. Its merits and demerits are not representative of all types of cryptocurrencies and it does it outline the vulnerabilities or weaknesses of all types of all digital currencies. Therefore, such arguments seem to lack the focus, depth, or insight required for regulatory approval. More importantly, they describe the misinformation that surrounds cryptocurrency use.
Based on the above views, regulatory proposals, which are meant to govern cryptocurrency trade, are being made without a proper understanding of how cryptocurrencies work, or the basic nature of the innovation that supports them. Particularly, people who have made proposals to regulate cryptocurrencies are oblivious of the fact that transactions involving digital currencies are decentralised. This fact means that the cryptocurrency structure is unlike the conventional banking model where financial transactions are centralised within a framework that is controlled by central banks (as envisaged in the conventional financial system). Typically, each country has a unique name for its central bank, but the structure is usually the same – the central bank, which controls most financial transactions, sits at the top of the financial model in a controlled financial framework. In the cryptocurrency field, transactions are not designed in such a manner because there is no focal authority that controls the financial system.
The possibility of cryptocurrencies growing into a bigger global phenomenon necessitates policymakers to look at it this issue more seriously. Relative to this concern, criticisms highlighted above concerning cyryptocurrencies stem from their ability to realize a decentralised orderly governance. In other words, it is difficult to accept cryptocurrencies as effective credit management tools if they are not accepted as a legal tender or a national credit endorsement.53 However, studies have shown that the lack of a central authority in a financial system does not necessarily mean that the system would degenerate into chaos.54
Such is the findings of research studies that have used the open source theory and common governance principles to investigate financial regulation in a decentralised framework. In other words, the same findings demonstrate that seemingly “loose” organisations can still thrive on sound financial management so long as there are healthy relationships among the actors involved. Such is the case of cryptocurrencies and the virtual financial system because they are bound by healthy interactions among stakeholders. Here, different actors who are involved in the decentralised financial system, such as vendors, miners and programmers, are able to make changes to the financial system in a manner that a central bank will do. Additionally, they have kept some cryptocurrencies functioning well, as is the case of Bitcoin, which has operated successfully for close to a decade.
Based on the above analysis, it is not easy to understand the need for regulation in a system where communities managing cryptocurrency ecosystems can reach a consensus without a board meeting or a group resolution, as would be needed in a centralised financial system.55 For example, there was one incident, involving the use of Bitcoin, where some transactions were not recorded on the Bitcoin ledger in a timely manner because the cryptocurrency’s growth was happening too fast.56 Without a centralised authority, community members agreed to improve the operations of the blockchain technology, which underpins Bitcoin operations, to record transactions much faster than was previously done.57 This review shows that communities that support cryptcurrencies work in the same way as central banks do and could exhibit the same type of effectiveness in a decentralised organisation structure.
Summary of Findings
Based on the arguments presented in this report, it is important to point out that the decentralisation and migration of financial services from the mainstream financial sector to virtual networks (triggered by the proliferation of cryptocurrencies) will demand that regulators adopt a new look at financial regulation. More importantly, they ought to recognise the need to rely less on entity-based regulation. Stated differently, entity-based regulation in its traditional sense will not work in the future as activity-based regulation takes centre-stage.58
Another important issue that has emerged in this investigation is the delicate balance that promoters and regulators have to strike between privacy and transparency concerns. These two elements of the financial system have been integral to this analysis because they affect trust, which is a key ingredient to the future acceptance of digital currencies and which keep the current financial system working. More importantly, the blockchain technology that supports cryptocurrency use and the distribution of information across networks has highlighted the importance of balancing transparency and privacy concerns. However, the sharing of data across an open network without a common regulator makes it increasingly difficult to protect the privacy of users who use cryptocurrencies and still avail data freely to meet transparency stipulations. Therefore, regulators have a difficult role of developing an approach that address both privacy and transparency concerns.
Another challenge that regulators face is the problematic area of regulating algorithms that underpin cryptocurrency use. The challenge exists in providing a regulatory framework that will both improve consumer trust in cryptocurrencies and at the same time provide an oversight to the complex algorithms that underpin the digital currency system.59 Ideally, the algorithms that underpin the financial system need to be designed in a manner that they do not expose consumers or the financial system to undue risk.
As the financial system exists today, there are few ways of understanding how the regulation of cryptocurrencies is done across different countries. This situation informs why creating a general regulatory framework for managing cryptocurrency trade may be difficult because many regulatory loopholes exist. Therefore, international regulation and harmonisation will be central to manage systemic risks that may be involved in the use of cryptocurrencies. This need is dire today more than ever because blockchain and distributed ledger technologies are becoming more mainstream than in the past.
The point that could be learnt from the above facts is that no financial system is perfect. Therefore, the same cryptocurrency system, which is partly criticised for its lack of stability, has the same chance of success and failure as the conventional banking system (with or without regulation). In any case, the cryptocurrency model itself ensures some of the risks associated with the conventional banking system cannot occur. For example, it is impossible to have a “bank run” in the cryptocurrency model because the framework is not based on a centralised system, such as the conventional one, which is controlled by banks. In other words, the decentralised model ensures such risks will not occur. Therefore, it is inherently safer than the conventional model in this regard and much less in need of regulation to manage such a risk.60
Additionally, a comparison of the need for regulation in the banking industry and the cryptocurrency space show that the centralisation of funds in the conventional financial system creates the necessity for regulation, unlike the decentralised financial system, which supports cryptocurrencies. In other words, governments introduce regulation in the conventional banking system to check the power of banks in the centralised model because they could significantly alter key performance indicators in the country’s economy. Here, banks play a central role in safeguarding the economic health of a country because they are key players in the centralised financial model. In fact, the performance a country’s currency could be significantly influenced by the activity of banks because of the centralised nature of financial transactions in the conventional operating model.
Regulation is necessary in such a system because banks cannot be left to operate on their own when they have such immense powers not only to influence the economic performance of a country, but also to affect the performance of its currency. Crytpocurrencies do not have such influence. Based on their decentralised system, it is difficult to understand why regulation may be needed when they do not have the powers that banks do. Furthermore, they are not exposed to the fragility that is associated with the banking system and that necessitates regulation in the first place. For example, regulators understand that the banking system is fragile. Therefore, they have introduced regulation to protect depositors from such risks. For example, in many jurisdictions, central banks act as lenders of last resort, to protect depositors from the excesses of the banking industry.61
Suggestion for Future Research
The lack of an issuing authority is at the centre of arguments advanced by proponents of cryptocurrencies who have drawn the world’s attention to the manipulative power of central banks and the monopoly they hold in not only influencing national but global economies as well.62 For example, movements like “Occupy Wall Street” and the populist “Main Street” movements stem from this idea. Although the reasons for discontentment are varied and wide, the concept of monopoly of power in the financial system is unsettling for some users of cryptocurrencies who have been profoundly attracted to use digital currencies because of the seeming inability of governments to interfere with the structure and working of cryptocurrencies. Their arguments are partly focused on the idea that, in many countries, central banks are interestingly opaque government entities that have the monopoly and the ability to control financial systems, while cyrptocurrencies are transparent entities that work well without the need for government intervention.63 Their potential to make mistakes is more disturbing for many people who believe that cryptocurrencies provide them the freedom they need to interact with vendors freely. The freedom and transparency that cryptocurrencies provide their users partly explain why the alarm is always raised whenever there is suspicion that one entity in the system is gaining a monopoly.
In a world where technological advancements are creating a narrative that excludes central banks from the monetary system and make people question whether they are necessary in the first place, an argument can be made that regulation is unnecessary in an environment where there is no central issuing authority. From an ethical standpoint, it is even easier to question the authority of central banks who have caused millions of people financial and emotional pain by engaging in corrupt deals that have resulted in global financial crises, such as the Great Recession, where central banks have colluded with banks to abate economic crimes (willingly or unwillingly). With the existence of a central authority, it is wrong to undermine a cryptocurrency system that saves users millions of dollars that have been traditionally pocketed by merchants in the form of (intermediary) transaction fees. In this regard, regulation is unnecessary in the wake of technological innovation that naturally eliminates the need for intermediaries in the first place.
Nonetheless, an existing threat of cryptocurrencies is the fact that governments are closely studying them and even though they pose a direct threat to the existence of central banks, it is difficult to conceive a situation where they would be dethroned as the apex issuing authority without a fight. The current lull that exists between governments and users of cryptocurrencies could be partly explained by the fact that the adoption of cryptocurrencies is still slow and they do not pose a significant threat to the current monetary system. However, it is believed that if the adoption of crytptocurrencies continues to grow, central banks around the world could start to issue their digital currencies thereby undermining the growth and development of existing ones. Based on this possibility, future research should explore the implications of governments issuing their own digital currencies.
Based on the information highlighted in this paper, four recommendations suffice if regulation should be considered a feasible step in the growth of cryptocurrencies. One of them is the need to produce a regulatory framework that can generate more and better information about cryptocurrencies and how they work. Secondly, there needs to be a limitation regarding how contagion may be propagated in cryptocurrency use. Thirdly, regulation should be focused more on promoting self-policing, as opposed to the introduction of a new entity or party in FinTech regulation. Lastly, FinTech regulation cannot work in a borderless environment where there is little international cooperation and communication. These reforms could better reduce the seriousness of the systemic risks that exist in FinTech. Without them, it is difficult to understand why regulation should be introduced in this new and emerging sector of financial innovation in the first place.
Conclusion
This paper has explored supporting and opposing views of regulation in the cryptocurrency space. The main arguments presented in support of regulation centre on four main pillars, which highlight the need to encourage institutions to accept regulation as an accountability tool for managing systemic risk, to protect consumer interests in a market where information is not freely shared, to support competition and prevent oligopolistic behaviour, and to enable flexibility and regulatory arbitrage. Here, support for regulation has premised on the need to make sure that systemic risks are contained and regulation goals are sustained. Analogously, regulatory proposals have been made in the backdrop of a belief that legal controls would bring sustainability to an otherwise disorderly sector of the financial market. Relative to this view, consumer protection has emerged as a core pillar of support. Support for this view has also emerged from the perception of regulation as one way of approving the type of innovation that supports cryptocurrency use. The common wisdom is premised on the view that regulating the financial sector would promote consumer trust in digital currencies because it will be approved as a new type of payment system.
Based on these arguments, supporters of regulation in FinTech seem not to understand the types of changes that have been brought by cryptocurrencies. For example, they fail to understand that the technology is revolutionary and has transformed how the financial management system works. Particularly, it has redefined how banks operate, how capital is raised, and made people question what they believe about the concept of money in the first place. Some of the changes that FinTech has introduced into the mainstream financial system mean that there needs to be a reconceptualization of regulation as it is currently constituted. A key finding that emerges in this analysis is the failure of the current regulatory framework to address distinct systemic risks associated with FinTech because they have been traditionally designed to prevent systemic risks in traditional financial institutions that are “too big to fail.”
It is normal for analysts and observers to be sceptical about cryptocurrencies and the role they play in the world’s global financial system because no other instruments of trade like them have ever existed before. A peer-to-peer financial system such as that being used by most of the world’s major cryptocurrencies were initially inconceivable because the technology that was previously available could not support it. Nevertheless, this technology now exists and it is defined by blockchain innovation. This paper demonstrates that most of the calls to regulate cryptocurrencies stem from people who do not understand this technology and how it works. Here, it should be recognised that cryptocurrencies are tools that can be used to achieve good and bad objectives, just like any other financial tool. However, failing to understand how cryptocurrencies work has made some sections of the society to blow its threats out of proportion because of the anonymous nature of the transactions.
However, based on the findings highlighted in this study, it is important to embrace digital currencies as new modes of payment, as opposed to fighting them through regulation. In other words, digital currencies should be viewed more like gold and not like PayPal because they are not agents of payment, but rather currencies of exchange. However, it is not expected that people will openly embrace the as legal tenders because the conventional financial model, which controls the global market, has been fine-tuned over the century to work in many parts of the world. Furthermore, it is difficult to integrate the cryptocurrency model with it. Consequently, it is important for nations to recognise the warning sign by accepting cryptocurrencies as legal tenders. Indeed, it is difficult to undo the financial innovation that underpins cryptocurrencies. Therefore, it is not going anywhere. The future of cryptocurrencies should be created in an inclusive framework where developers and users interact. It is simply a smart and effective way of undertaking global commerce.
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Today, the financial systems of separate states and other aspects of the economy are improving and progressing in the context of globalization, the spread of IT technologies, and general computerization. In this regard, new financial institutions, tools, and forms of interaction between people emerged. Additionally, the analog of traditional payments – cryptocurrency and its most common digital cash, ‘bitcoin’ appeared. The existence of a large volume of cryptocurrencies and the rapid change of exchange rates require constant monitoring of their movement and identification of current trends in monetary systems in the world market.
However, today there are many unresolved issues on methodological and legal issues in this area. Attempts to effectively regulate cryptocurrencies vividly illustrate the problems faced by government agencies around the world, not only when creating a legal platform for business, but also when trying to define decentralized systems. It is essential to find out what other reasons led to the emergence of a new payment method, what this phenomenon is, and how it is used, regulated, and taxed.
Cryptocurrency: the Essence and How It Works
The monetary system has shown extreme instability during the global financial crisis of 2008-2009. At this time, confidence in the US dollar weakened, and the idea of creating new currencies, including regional ones, emerged in society. At that time, the peer-to-peer payment system Bitcoin,’ developed by Satoshi Nakamoto, began to take shape, and the term ‘cryptocurrency’ was used for the first time (Younus 2021, 8).
Although it was a local cryptocurrency at the beginning of its development, used only by a limited number of people (its founders and their affiliates), it has become a world-class system in a few years. Electronic money is usually defined as financial obligations that are exchanged and settled with information technology. Summarizing the various positions and interpretations of the definition of cryptocurrency, several basic approaches can be distinguished.
First of all, it can act as currency, an analog of fiat money, as at the moment, bitcoin can be used to pay for any goods. Cryptocurrency can also act as money surrogates, such as bills of exchange, checks, and other financial instruments. Given that it is generated online, it can also act as a commodity, property, or different asset with its value. In addition to being a method of payment, cryptocurrency can also serve as a means of accumulation and savings. For example, nowadays, in addition to exchanges, exchangers, and Internet resources, some stores and service centers also conduct bitcoin transactions.
They are accepted for payment in many restaurants and hotels in some states. Several Asian countries are even used as an alternative to bank accounts and plastic cards because banking services are pretty expensive (Frankovic, Bin, and Suardi 2021, 3). Having defined the essential characteristics of cryptocurrency, it is crucial to understand its method of operation, which consists mainly of encryption in a decentralized system.
For the first time, cryptography methods were applied in the payment system ‘Digi Cash’ in 1990 by its founder David Chomm. It was done to ensure the security and confidentiality of payments made. Later Satoshi Nakomoto proposed a new bitcoin payment system based on ‘Blockchain’ technology with the elements of a cryptographic cipher, the so-called ‘hash code’ (Pernice and Brett Scott 2021, 6).
Hashing means entering preliminary information of any size and getting the output of the transformed result into some code with a specified required size. It is a multilevel and multifunctional information technology designed for reliable accounting of different assets, including storage, communication, and archiving functions. In the case of cryptocurrencies, blockchain acts as a distributed registry in which validated transactions are stored in blocks linked together in a single chain. In this matter, through complex calculations, all information about transactions acquires a unique kind of hash code.
Despite the complex mining process, cryptocurrency continues to spread its influence around the world. Presumably, the main reason for the demand is its decentralized nature and the resulting features. If in a large bank, the principal supervisor of the reliability of money transfers is the bank itself, in digital currency, such supervisors are network participants – ordinary users. The next advantage is anonymity, it is possible to follow transactions and see how many bitcoins have moved from one wallet to another, but it is not easy to determine who exactly owns them (Co 2021, 6). Anyone can open a bitcoin account; people need the right software and access to the Net. It is also not afraid of inflation, as the total number is known in advance and is limited.
At the initial stage of cryptocurrency emergence, the attitude of governments to them was sharply negative; many states began to prohibit it and introduce responsibility for payments in cryptocurrency. Then, realizing that the process of issuing bitcoins is impossible to control, states made attempts to regulate their circulation and taxation. Moreover, the situation has changed radically: international lawmakers tend to consider cryptocurrencies as a new promising direction in the market rather than an uncertain currency surrogate in the shadow economy. Australia is also among the countries seeking to provide a favorable environment for developing the cryptocurrency industry and creating its own financial and technological centers (Co 2021, 6). However, the problem of taxation still exists.
Electronic money is an entirely new phenomenon in the world, so there are no effective control mechanisms. In this regard, each state is testing its methods according to national characteristics, and this is a complex process that needs time and resources.
Cryptocurrency Taxation
The Reserve Bank of Australia 2013 determined the bitcoin cryptocurrency as an alternative to currencies of different countries and a payment system. However, digital currency (cryptocurrency) is not considered a financial product by the Australian Securities and Investments Commission. Money activities, such as mining, or its use as a means of payment or exchange, are not subject to licensing. According to the Australian Digital Currency Industry Code of Conduct developed by the Australian Digital Currency & Commerce Association, the proper standards of cryptocurrency business are set and binding only on the members of the Association.
The organization itself can impose penalties on its members if they violate the Code. In 2014, the Australian Taxation Office noted the possibility of introducing taxation of cryptocurrency transactions (AT0 2021). Presently, cryptocurrency transactions in Australia are subject to average income and Corporate Taxes.
At the same time, when accepting cryptocurrency as an investment, there is no need to pay Capital Gains Tax. However, it is constitutionally possible in Australia to pay wages in cryptocurrency, but only if a contract exists between the employee and the employer. In addition, Australia is actively developing anti-money laundering and financing legislation to regulate the activities of cryptocurrency exchanges, which would be an effective response to crimes committed with the use of cryptocurrency. Thus, the relevant information is that cryptocurrency in Australia will be taxed. However, a few transactions are exempt from the capital gains tax, which is a concern for financiers (Johnson 2021, 15). Therefore, the tax system states that if a corporation receives payment for services and goods in the form of cryptocurrency, it will be counted as part of ordinary income. Accordingly, the value in Australian dollars will be the cryptocurrency’s market price that can be obtained on a reputable cryptocurrency exchange.
Although, when purchasing a business with cryptocurrency, companies are entitled to a tax rebate based on the market rate of the purchased item. However, the application of cryptocurrency for commercial purposes can create tax consequences for capital gains. Currently, personal assets are also exempt from capital gains tax (PGT) if they cost less than $ 10,000. The Australian Tax Office (ATO) will agree that a cryptocurrency is an asset for personal advantage if it costs less than $ 10,000 and is used primarily to purchase goods and services (Johnson 2021, 15). Concerning the regulation of cryptocurrency when buying investments, the rules apply the same as to stock traders. The system assumes that if a business accumulates cryptocurrency to obtain a considerable profit, it is an investment.
Thus, the investment is not subject to the rules of personal practice and is subject to taxation. Although, there is a proclamation that if a company invests for 12 months or more, it is entitled to a 50 discount from CGT. However, ATO may consider a firm a cryptocurrency trader if the goal of business investment is to purchase and sell cryptocurrencies for short-term gain, not long-term growth. In this case, any income will be taxed as estimated income, and a 50% discount will not apply. Another tax transaction in Australia, exchanging one cryptocurrency for another, will also be considered a taxable event (AT0 2021). The first transaction is the trade of the first cryptocurrency, and the second is the purchase of another cryptocurrency (Strauss, Helena, Schutte, and Fawcett 2020). Even if corporations do not receive payment on hand, they will still have to pay tax on any income from the first cryptocurrency’s disposal.
The taxation system of mining is also essential due to the possibility of hiding benefits. In this case, any proceeds from the extraction of minerals will be considered as estimated income. Similarly, any costs incurred in mining activities will be deducted from any income received from the cryptocurrency mining business. The income tax for cryptocurrency miners varies depending on whether their extraction is a personal activity (hobby) or a business. This is decided in each case; hobbies are usually engaged in for relaxation, entertainment, or pleasure, not for business reasons.
ATO provides practices to determine whether cryptocurrency activities are related to business or not. A common question is how extensive a cryptocurrency mining operation must be to be classified as a transaction. It is crucial to remark that the Australian cryptocurrency tax in 2021 is complex because the ATO does not provide clear, precise rules on the scale of cryptocurrency quarrying operations. Instead, the ATO service is considering the intentions of the cryptocurrency mining operation (Strauss, Helena, Schutte, and Fawcett 2020). If the transaction is conducted on a market basis with the expectation of commercial viability of a trading plan, the transaction will likely be classified as a business.
Activities of Revenue Authorities to Ensure Proper Taxation in the Regions
The problem is that regulation on cryptocurrency has not been approved. Therefore, Australian law does not inspect cryptocurrency as capital. The Reserve Bank of Australia (RBA) does not plan to issue a central bank’s digital currency (CBDC) for retail customers. Therefore, the issue of proper taxation of cryptocurrency has been included in the Australian anti-money laundering system. Thus, this means that cryptocurrency commerce must be registered with the Australian Transaction Reporting and Analysis Centre (AUSTRAC) (Peláez-Repiso, Sánchez-Núñez and Calvente 2021, 95). Accordingly, this will serve to solve the problem of unification of the difference between the involvement of cryptocurrency for commercial and personal purposes.
At the same time, the ATO will regularly receive reports on cryptocurrency transactions so that people who trade cryptocurrency refund the appropriate amount of tax. Data that will include information on the purchase and sale of cryptocurrencies can also identify serious fraud and evasion of the black economy. The ATO operation estimates that between 500,000 and 1 million Australians have invested in cryptocurrencies (Brett Scott 2021, 6).
It is evaluated that most of them do not recognize their activities as commercial and do not pay additional tax. The Australian Tax Service has announced it has continued its partnership with Australian cryptocurrency exchanges, requiring them to submit their trading data by 2022-2023. In this manner, the authorities will be able to obtain a list of recipients of profits and assess who is involved in non-profit activities (Peláez-Repiso, Sánchez-Núñez and Calvente 2021, 95). Accordingly, the rest of the entrepreneurs will be noted warning to pay taxes. The means for this can be to send a pop-up message if people file their tax declarations through the myTax portal. Otherwise, reminders may be mailed to their registered tax agent to include cryptocurrency-related activities in the tax return.
Thus, the revenue authorities in the regions will be able to obtain a tax return that will include information from the cryptocurrency exchange. In conclusion, they will be qualified to legally differentiate between commercial business and demand payment of taxes. Such measures are highly effective for tax collection in the Australian states, but the officials must have reliable data from the cryptocurrency exchange to implement them.
Effectiveness of Methods Taken by Tax Authorities
As was stated earlier, almost no countries welcomed the emergence of a new method of payments. The trade and market capitalization levels of crypto-assets are increasing, and their technical characteristics are evolving rapidly, creating problems for tax administrations, one of which is anonymity. Generally, if it is possible to carry out an operation bypassing banks and state regulators, the attention of lawbreakers around this phenomenon is growing many times over.
Although this is a challenging issue, I believe that the measures taken by the Australian Tax Office are among the most effective. Firstly, very often, the reason for the non-payment of taxes by citizens is a lack of understanding of their obligations. Cryptocurrencies are a very new phenomenon, and many users do not know how to keep proper records of all transactions. To help taxpayers understand this, the ATO has published guidelines on several very detailed and practical topics. In my opinion, in this way, conscientious citizens get a real opportunity to comply with their tax requirements without spending much effort (Kabve 2020, 776).
However, those who deliberately ignore the requirements are now also at risk, as the ATO will collect data on cryptocurrency transactions from service providers. Comparing them with available records will help identify individuals who may not be fulfilling their obligations to reporting, submission, and payment for cryptocurrency transactions.
Anonymity and lack of practice remain a real challenge for the police and tax authorities. The system is not yet fully established, but it is clear that the regulatory system proposed by Australia is only becoming more effective and successful. Entering the Joint Global Tax Support Committee is also positive. It brings together key experts from different countries and allows to monitor and receive a large amount of data on transactions and share them. Thus, there are real opportunities to catch all taxpayers in the field of cryptocurrency; it is only a matter of time.
Conclusion
Assuredly, the explosive growth of bitcoin and other similar cryptocurrencies has become a popular investment choice in recent years. In recognition of the growth, people managed to earn and lose significant amounts of money in short periods.
Accordingly, there is a question about the tax regulation of profits from cryptocurrencies in Australia. At present, the law distinguishes between commercial income on which an additional tax is introduced and personal benefits, which are taxed under the general rules. However, there is no clear distinction between the two types of taxation, so companies and individuals often pass off commercial business as personal profit. Recently, negotiations have been held to obtain data on cryptocurrency transactions from trading exchanges, so it will be possible to track the amount of income. Thus, Australia is implementing effective tax methods that will operate effectively in the future.
References
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Australian Taxation Office. 2021. Tax treatment of crypto-currencies in Australia – specifically bitcoin. No. 42159-QC. Tax treatment of cryptocurrencies | Australian Taxation Office.
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