Cryptocurrency Evolution And Its Impact On The Global Economy

Evolution

1.1 Background of the study

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Evolution

Even though the notion of electronic currency can be dated back to 1980s, Bitcoin, introduced during the year 2009 by pseudonymous developer named Satoshi Nakamoto can be considered as the first ever victorious decentralized cryptocurrency. Particularly, cryptocurrency is in actual fact a virtual method of coinage that works as a typical legal tender, helping different users to deliver disbursement for goods as well as services liberated from a central trusted authority. LEE et al. (2018) asserts that cryptocurrencies depend on digital transmission of information, using cryptographic mechanisms to make sure legitimate, exclusive transactions. In essence, Bitcoin took virtual market for coins one stage ahead, decentralizing this currency and liberating the same from hierarchical structures of authority and power. Fundamentally, Litecoin was offered during the fall of the year 2011, gaining humble achievement and getting highest market cap of cryptocurrency only subsequent to Bitcoin till it was surpassed by particularly Ripple during 2014 (Décourt et al. 2017). Essentially, Litecoin customized protocol of Bitcoin, enhancing speed of transaction with the thought that it might prove to be more suitable for regular transactions. Again, Ripple, introduced during the year 2013, established an completely exclusive model utilized by electronic currency and presently preserves second uppermost capitalization of specific market of roughly $255 million. The cryptocurrency sector comprised of more than 550 coins with diverse bases as well as trade volumes of users. Owing to increasing volatility, capitalization in the market of particularly cryptocurrency business alters radically, and is estimated to be higher than $3.5 billion. However, virtual currency reflects around 88% of entire market capitalization (Bouri et al. 2017).

In essence, there are diverse and at the same time confronting alternatives as regards prospect of cryptocurrencies on the whole and specially bitcoin. However, the ones with libertarian opinion regarding life are necessarily optimistic and embrace the system of cryptocurrency. On other hand, there are authors, instigators, economists along with scholars from this particular field who are not keenly interested about usage of cryptocurrency specifically in the scheme of disbursements as well as financial transactions (Guo and Li 2017). They also assert that cryptocurrencies are extremely volatile and can be utilized for the purpose of money laundering otherwise different financing illegal actions.

1.2 Aim of the research

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The aim of the current research is to analytically assess influence of cryptocurrency on different economic actions. In essence, this research intends to concentrate on materialization and development of cryptocurrency in the upcoming period. Also, the research study also aims to examine the way cryptocurrency has exerted influence in the arena of accountancy, and the way the same can affect diverse accountants. Again, yet another purpose of the current piece is to highlight the way the cryptocurrency plays an important part in the global economy. Analysis of the reports declared by World Economic Forum reveals the fact that 10% of Gross Domestic Product can be maintained and stored on block chain associated technology by the year 2025 (Lehner et al. 2017). Basically, this reflected that the manner in which different transactions are registered and interlinked can be entirely altered within the specified period. Also, ‘evolution of money’ also calls for adequate education and training of future accountants on Bitcoin along with other cryptocurrencies, since it is anticipated to dominate various business transactions of the upcoming period (Bunjaku et al. 2017). In itself, it can be hereby observed that this occupation also requires evolution and skills of adaptation over the future years. Accountants and auditors have therefore begun work of auditing business transactions within the block chain. Essentially, cryptocurrency is extensively put to use over the past few years for buying goods/services as well as for investment purposes (D’Alfonso et al. 2016). The evolution of cryptocurrency will affect accountancy, as accountants are expected to help clients understand the reporting and tax ramifications of cryptocurrency.

Aim of the research

1.3 Objectives of the Study

Objectives of the current research study are as mentioned below:

  1. To analyse the significance of cryptocurrencies within the market.
  2. To detect the future development of cryptocurrencies.
  3. To evaluate positive as well as negative influence of cryptocurrency in economic actions, and the way it will affect accountancy.

 

Research Questions

  1. Do cryptocurrencies influence the actions taking place in the economy?
  2. Does cryptocurrency have prospects of further development in upcoming period?
  3. Can cryptocurrencies pose threat to banking as well as financial industries in upcoming period?
  4. Does cryptocurrency upset the global economy?

1.4 Research Problem

There are different as well as confronting viewpoints concerning effect of cryptocurrencies on economic actions and future of cryptocurrencies in general. There are libertarians opinions of life that are necessarily optimistic and embrace this system of cryptocurrency; diverse authors, varied economists as well as different scholars from this specific arena are not keen regarding usage of cryptocurrency in the system of disbursement and pecuniary transactions. The optimistic opinion regarding cryptocurrencies usage is supported by the fact that they make it easier to transfer finances between two diverse parties in a particular transaction. In essence, these transactions are assisted by means of use of public as well as private keys for purposes of security. Fundamentally, transfers of finances are carried out with minimal processing fees, permitting users to avert the steep fees charged by majority of banks. On the other hand, the opponents of this virtual community of cryptocurrencies state that cryptocurrencies are extremely volatile and can be utilized for money laundering else wise financing illegal actions. Therefore, the current study intends to evaluate pessimistic and optimistic views on cryptocurrencies and assess influence of the same on economic actions based on analysis of advantages as well as disadvantages of the same.

1.5 Rationale of the current study

The current study can help in analyzing the use of cryptocurrency in general and evaluate the benefits along with the drawbacks of the same. Study of advantages as well as disadvantages can help in analyzing nature of influence of the same taking place in the economy both nationally as well as internationally. Also, the study can help in analyzing whether the future holds a certain place for this virtual currency as a momentous currency solution or show the way to financial fraud that subsequently can lead to crumpling of the financial system.

Chapter 2: Literature review

2.1: Introduction

 A structured literature review is undertaken for giving an overview of the state of field of academic research on the topic of crypto currencies. In this particular section of literature review, several philosophies that have been developed in the context of crypto currencies have been highlighted. There have been introduction of numerous private crypto currencies since the introduction of Bitcoin in year 2009. Concerning the technology of digitized assets, the first application is the introduction of crypto currencies. This section further highlights and includes discussion on the development and emergence of crypto currencies along with the advantages and disadvantages and how such digitized assets development has impacted the economy. Analysis illustrates how the development of crypto currencies impacts the economy in different aspects.

Objectives of the Study

2.2: Theoretical framework

Over the course of the short life span of crypto currencies, there has been unprecedented and erratic evolvement of its market. There has been development of more than 550 crypto currencies along with a considerable doze of confusion on the ongoing scenario. In spite of such facts, the contribution of academic research on crypto currencies are done by exposing pitfalls and limitations payment system of crypto currencies. The operation of Bitcoin began in January 2009 being called the first decentralized crypto currencies and Namecoin being the second crypto currency that emerged in year 2011. Public ledger is the common element in the system of different crypto currency (Gamble 2017). Crypto currency is the system of virtual coinage that enables users to make the virtual payment of goods and services that does not account for central trotted authority. A unique and legitimate transaction is enabled by crypto currencies by relying on digital information transformation utilizing the methods of cryptographic. A large clone of bitcoin and other currencies forms the majority of crypto currencies and it incorporates different parameters value. It can be seen that there has been three times increase in the total market capitalization of crypto currencies since 2016 making the value to reach at $ 25 billion in year 2017 (Elendner et al. 2017).

                                                                        

The innovative crypto currencies contribute a growing share while a relatively low share is allocated to duplications that are altcoins. After Bitcoin, the largest crypto currencies comprised of dash, Ethereum, Ripple, Monero and Litecoin. The most dominant crypto currency in terms of market capitalization has been Bitcoin along with other crypto currencies getting into capturing the market share. Use of crypto currencies is facilitated by emergence of companies and multitude of projects for building the infrastructure and mainstream users. Ecosystem of crypto currencies composed of traditional finance, public block chains and several economic sectors. Such currencies are provided with additional value due to existence of such services as the native currencies and means for block chains are done in context of broader economy (Teo 2015).  The industry of crypto currencies comprised of important groups that is industry sectors such as exchange, wallet, payment and mining.

Rationale of the current study

                                                                            

.2.3: Emergence and development of crypto currencies 

Historically, it was military, intelligence agencies and secret services that made use of crypto currencies for protecting the leakage of classified information. Such currencies would help in facilitating quick and easy accomplishment of money transfer across region at both international and domestic level without involvement of any government regulations.  Bitcoin is the virtual currency that is not backed by any sovereign obligation and or any physical commodities and involves the combination of peer to peer protocol and crypto graphic protection for witness settlements (Brenig et al. 2015). The main idea behind the crypto currencies is to provide users with an easier way to transfer the funds globally while maintaining privacy and keeping transaction cost at low. At the same time, users are not dependant on any third parties. The essential factor to crypto currencies is the concept of proof of work since the integrity of block chain is guaranteed by it. For the occurrence of transactions, the one transaction in a block cannot be changed by attacker and all the work is required to be done again. The difficulty in finding the black increases if there is increase in network of processing power. Therefore, the difficulty will be higher along with safety level if the network has more processing power. These computational efforts are reward because of increase reliance on miners.

2.4: Analyzing the positive and negative impact of crypto currencies on economic activities

The main of crypto currencies in terms of economy is to make development of method of exchange that did not require creation of trust in the third party financial intermediaries. However, the basic functions of money is arguably failed to be satisfied by such currencies. The increased popularity of the crypto currencies is encouraged by genuine economic considerations that include irreversibility of transaction, lower cost of transactions, pseudonymous payments and the potential to attract the new customer base. It has been identified by some research bodies that the main factor motivating the use of crypto currencies is the demand side factor that is lower cost of transaction. For the small business, the important factor is transaction cost. For instance, it is indicated by high credit fees that more than half of business in America do not accept credit card. In relation to international transaction, lower cost of transaction is a particular advantage provided by such currencies. Factors such as concerns over physical security and physical transportation cost are responsible for unconstrained the crypto currency resulting from ubiquitous nature of internet. It was indicated by some early analysis that compared to transaction cost of 8% to 9% for traditional remitters; using bitcoin for international remittances had transaction cost of 1% indicating that there is considerable reduction in cost (Bouoiyour et al. 2016).

Chapter 2: Literature review

                                                           

                                                                                                    (Source: Haddad and Hornuf 2016)

The recent data on Bitcoin suggest that its transaction fees are ranging from 0.35% to 0.31% of total transaction value. Many new business platforms have been sparked by the advent of crypto currencies along with new forms of peer to peer economic activities. Since the central banking system does not control the currency, a number of concerns regarding the tax authorities and law enforcement agencies are raised because of anonymity (Bianchetti et al. 2017).  

The payments systems of banks are the main function of banks are the main function of crypto currencies that enable exchange of money between counter parties not having enduring transactional relationship. The competitive pressure on financial institutions providing payments for service has increased by the introduction of crypto currencies. Factor of cost advantage is alleged by the introduction of crypto currencies and such advantage is large enough for competing with the traditional financial institutions. Many varieties of crypto currencies are created by the open source nature of Bitcoin. Transactions are facilitated by the closed application network of block chain technology. In order to respond to competitive pressure of crypto currencies, there is evolvement in the business practices of traditional intermediaries such as banking institutions. The inter bank transactions are facilitated by using the distributer technology and such technologies being investigated by central banks (Li and Wang 2017).

The maximum number of Bitcoin is limited to 21 million of Bitcoins. There does not exist any possibility for the development of inflation in future as such order relating to currencies cannot be changed by the corporations or political factors. In addition to this, there exists unlimited number of transactions using such currencies system as the number of transactions cannot be controlled. The emergence of crypto currencies has been created in a wish to allow for cheap and quick transactions and introduction of such currencies intended to solve the problems of double spending. Concerning the crypto currencies, there are substantial differences between such currencies in terms of market capitalization, average amount of transactions and market price. While carrying out the economic analysis relating to the usage of crypto currencies, it has been ascertained that there have been increase in total number of crypto currencies in circulation (Gamble 2017). With respect to make payment for international transactions, there does not exist any restriction in the convertibility to other currencies.

2.1: Introduction

The insurance industry has a major bottleneck relating to the process of claim management because of existing dispute between insurers and reinsurers and insurers and customers. The technology of block chain can solve such issue by auditing the documents of insurance and time stamping. This would also automate the payment by embedment of smart contacts once the events of payment triggers occur. Moreover, services of trade finance are greatly enhanced by offerings from banks with the leveraging of smart contracts. The contingent payments can be automatically triggered by such contracts that would help in boosting the efficiency and freeing up the capital in emerging markets among the small business (Blankenship 2017).

  In near term, central bank should not be materially impacted by the development of crypto currencies in terms of the implementation of monetary policies in their fiat currencies. The influence of central bank on economic activities can diminish if the crypto currencies become the most popular mechanism of making payment and this would have an adverse impact on macro stabilization (McBride 2015). It has been ascertained that the ability of Reserve bank of Australia to deliver stable and low inflation is hindered by the crypto currencies. The reason is attributable to the fact that there is a pre determined supply path resulting from schemes of crypto currencies that cannot be altered for matching it to the cycle of business. For all the regulators, several challenges are posed by crypto currencies there will not be any involvement of central authority for regulation in the presence of decentralized ledger system. The regulation of exchange called by financial action task force has created interface between fiat and crypto currencies. Service providers of Crypto currencies are regulated by the enforcement network of US treasury financial crimes. There is no immediate threat to the financial system by the crypto currencies as perceived by the regulatory authorities and central banks (Burns 2016).

The influence of crypto currencies on financial market have been evidenced by number of laboratory experiments and observational studies and the dynamics of crypto currency markets is specifically studies by growing body of work studies. In the market of bitcoin, there is a presence of specific behavior.  The main concern about the challenges facing the crypto currencies is related to transparency. There cannot be easy identification of cash transactions whilst the transactions are completely transparent.  

In using crypto currencies as a means of payment, it is likely that the trust will be hampered due to high volatility of crypto currencies. It is suggested by reports that in such events, there can be creation of currencies alternative to crypto currencies. However, creation o such virtual currencies pose some problems due to the risks associated with it. It can also be considered that the crypto currencies would have considerable impact on the stability and the financial system. The reason attributable to the fact is that there is no connection of the virtual world with the real economy. In spite of this, it can be said that the real money out of circulation can be driven out of the economy by crypto currencies under extreme circumstances (Robertshaw et al. 2016). There can be shrinking balance sheet if the non cash and cash money would be replaced by the crypto currencies and this would have considerable impact on conducting monetary policy. Moreover, there would also be difficulties in measuring the supply of money.  It can be argued by considering the above factors that development and emergency of the phenomenon should be treated as the next stage in the money development. It has been found that the rapid fluctuation in the rate of exchange have been due to the thinness of market of crypto currency (Yao 2018). It is indicated by this fact such form of accumulation of capital cannot be constituted by money due to high exchange rate of fluctuations relating to uncontrolled level of risk.

2.2: Theoretical framework

Chapter 3: Research Methodology

3.1 Introduction

As per the setting of the current research study, this section elucidates thoroughly the methodology that is deployed for conducting the current research. Essentially, this segment reports on philosophies of the research, approaches adopted, strategies of research, design of conducting the research and techniques of research evaluation and interpretation of amassed data (Taylor et al. 2015). For the most part, the whole discussion presented in this current part orients around detected problem of the research and are in conjunction with objectives set for the research.

Different methodological dimensions otherwise concentration parameters for the research piece is hereby presented below:

3.2 Research Onion

As rightly indicated by Mackey and Gass (2015), research onion illustrates different phases that researchers adopts in a bid to develop policy for carrying out this study. In essence, this research onion primarily replicates six different phases that is associated to time horizon along with process of research.

                                                                

3.3 Research Philosophy: 

Lewis (2015) suggests that there are mainly four different types of philosophies of research namely, positivism, realism, pragmatism and Interpretivism. The research philosophy of pragmatism essentially accepts notions to be pertinent if and only if action is supported. Fundamentally, pragmatics are of the view that there are several ways of analyzing the world and conducting research, and that no single opinion can ever present the whole picture as there might be multiple realities (Flick 2015). Research question is considered to be the most important determinant of research. Therefore, pragmatics can amalgamate both positivism as well as Interpretivism notions within the research scope as per question of the research. The research philosophy of realism depends on the thought of independence and liberty of reality from human psyche. As such, this specific philosophy is founded on the supposition of a scientific draw to knowledge development. The research philosophy Interpretivism, also referred to as interpretivist philosophy requires researchers to analyse different components of the research study, hence Interpretivism assimilates interest of human into a study. Formulation of interpretivist philosophy is primarily founded on critique of philosophy of positivism in particularly social sciences. For that reason, this philosophy stresses on qualitative over quantitative analysis (Silverman 2016). However, as a research philosophy, positivism sticks to the opinion that “factual” knowledge derived by means of observation (that is through the senses) and measurement, is reliable. In positivism based researches the role of learner is limited to collection as well as interpretation of data in an objective manner. In these cases, findings of the research are more often than not observable and quantifiable.

2.3: Emergence and development of crypto currencies

The learner has adopted the positivism philosophy of research as these validate theories and notions. In essence, the positivism research philosophy stresses on acceptance of consistent information that helps in developing effectual scientific knowledge. It can be hereby mentioned that positivism helps in developing valid knowledge that derived from substantiated data (Ledford and Gast 2018). For that reason, it can be said that the selection of the positivism has helped the learner to acquire secondary and substantiated data also positive facts derived from various sources that are referred to as empirical evidences.  

3.4 Research Approach

The deductive research approach deployed by the researcher can be said to be justified since this assists in development of research hypothesis based on subsisting concepts as well as notions, notions and aids in formulation of a strategy of research for assessment of the framed hypothesis. Fundamentally, this approach also helps in moving from specific knowledge to generalized notions (Brinkmann 2014). In case when causal relation or nature of association seems to the indicated by a concept, then this approach might possibly prove to be true in certain cases. As a result, deductive research approach that facilitates assessment of nature of association or else connections deduced from generic situations can be said to be effective.  Deductive approach also aids in framing research hypothesis and presentation of proposition of linkages between research variables and validates or rejects the entire hypothesis based on assessment results.

3.5 Research Design: 

Descriptive research design learner has been applied by the learner for the purpose of carrying out the present research. Essentially, selection of this research design can be said to be justified as this specific design facilitates the process of exploring and illustrating whilst presenting requisite information on definite matters relatable to research topic under consideration. The learner adopts this descriptive research design since this employs secondary data together with thorough and comprehensive evaluation of formerly accepted and recognized facts that are important to a great degree (Humphries 2017).  

3.6 Data Used for the study

The current study is mainly founded on secondary data. As rightly put forward by Gog (2015), there are a range of ordered text (this includes varied reports, findings of prior surveys, academic literature in particularly books, articles journals along with websites and many others) collected as qualitative data. In essence, the data utilized for this study largely consist of theme that refers to specific set of inter-associated premises, explanations together with suggestions that can deliver systemic opinions as regards events or circumstances by indicating towards associations among research variables (Taylor et al. 2015).

3.7 Technique of Interpretation of gathered data

For the purpose of carrying out the research, the learner assumes analysis of qualitative research that can essentially be used for starting a procedure of enquiry into definite reasons behind performance and actions of human beings whether be it ethical or else unethical (Mackey and Gass 2015). In essence, the researcher uses analysis of different case studies, analysis of themes and systematic analysis of prior body of academic literature for thorough evaluation of gathered qualitative data.

Chapter 4: Data Analysis and Interpretation

4.1 Introduction

The present section presents analysis of data to acquire usable and at the same time effective information. The evaluation intends to describe and present the data in a succinct manner, recognize associations between variables, compare different variables, recognize the variances between different variables and predict the outcomes. Essentially, qualitative data analysis is carried out for understanding recurrent patterns or else themes that are emergent from the prior body of literature. Also, this section also presents analysis of various pertinent and prior business cases for analysing the subject matter under consideration.

4.2 Qualitative Analysis of the acquired data 

Theme 1- Positive effects of the cryptocurrency

As rightly indicated by Adams et al. (2014), there are open codes for mainly cryptocurrency. The only variance of internet banking is the disclosure of specific information regarding the users, however, there is no data regarding the recipient or else the sender of virtual currencies. There is no inflation that is to say the total number of coins is firmly limited and there exists neither political forces nor corporations to alter this specific system. In essence, there exists no prospect for development of inflation in this specific system that can positively affect the economic operations. As recommended by Böhme et al. (2015), there are unlimited probabilities of transaction and each one of the holders of wallet can make payments to anyone, anywhere or of any amount. In essence, transactions cannot be particularly controlled or else prevented and can undertake transfers everywhere in the world wherever another holder of wallet of Bitcoin is located.

Chuen (2015) suggests that in itself, there exists no boundaries and disbursements made in this specific system cannot be cancelled. Essentially, the virtual coins cannot necessarily be faked, copied otherwise spent twice. In essence, these capabilities and potential of the cryptocurrency help in assuring overall integrity of the whole system. In essence, every month the total number of different online shops, corporations as well as resources accepting these coins are increasing. As suggested by Dwyer (2015), there is a lower cost of operations of cryptocurrency. Cryptocurrency operates as physical cash combining purpose of e-commerce. There is no requirement to disburse commission as well as fees to different banks as well as other business concerns. As such, the most important part of this specific procedure is mathematics that necessarily does not require money. In itself, the commission fee used in this specific system is comparatively lower in comparison to others. It can be observed that it amounts to around 0.1% of the overall amount of transaction. Gandal and Halaburda (2016) suggest that there exists no central authority that can regulate the entire network. Essentially, the network is essentially distributed to different participants. This implies that the central authority possesses no authority or power to present rules to owners of the virtual currency. This suggests that even if certain areas of this network goes offline, then also the system of transaction can operate in a stable manner.

As suggested by Gans and Halaburda (2015), the virtual currencies are necessarily easy to use and considering overall process of opening a specific account. The wallet of cryptocurrency gets started within 5 minutes and immediately begins to utilize the same without posing any further questions or else payment of commission. Therefore, the account can be effortlessly handled without any kind of hassle that in turn makes the entire system extremely uncomplicated. Also, the transactions are also carried out speedily and this has the capability to transfer money anywhere in this world within a few minutes after completion of the process of disbursement.

As rightly put forward by Hoy (2017), complete anonymity is maintained in this system of cryptocurrency, and complete transparency is also maintained. Thus, it can be hereby mentioned that any business concern can generate infinite coins and address without referring to any name, address or else any other information. Also, stores of coins however stores history of different transactions that have occurred. Essentially, this is known as a sequential chain of blocks else wise block chain. Furthermore, block chain also maintains information regarding everything.

Theme 2- Negative effects of cryptocurrency

There exists strong volatility and majority of the ups and downs of value of virtual currency rely on declared assertions of government of different nations. Essentially, this is said to generate problem in the market during the short term period. Also, there exist huge risks of investing in particularly cryptocurrency that need to be taken into consideration specifically in the medium as well as long term.

Hutchings and Holt (2017) is of the view that overall disadvantages as well as limitations of cryptocurrency are comparatively much longer and are associated to the threats of money laundering along with different other illegal action funding, dearth of central issuer that implies that there exists no legal formal unit that can provide assurance in case of occurrence of any bankruptcy. Nevertheless, even though it is very complicated to forecast, several academics as well as professionals claim that the future of this virtual community of cryptocurrencies is very bright as it can remove barriers and intermediaries. This can lessen the transaction costs and thus promote trade as well as overall economy. Nonetheless, there is need to take into account pessimistic voices even in the academic world, advising that higher volatility risk, risks of hacking and dearth of institutional backup makes future of cryptocurrency very pessimistic.

Findings:

Based on the empirical research it can be observed that the overall future of this virtual community of cryptocurrency can be very bright provided certain formal as well as institutional conditions are satisfied. Essentially, the advantages of using cryptocurrency are said to facilitate trade operations in a nation and lessen cost. These are said to be recognized by majority of academics. Also, it can be hereby mentioned that bitcoin as well as other cryptocurrencies have the capacity to replace different traditional along with new mechanisms of payment. However, in order to the attain the same and to become a dominant power in a worldwide system of transactions, there is need to deliver distinctive incremental value for the purpose of addressing and at the same time overcoming diverse critical challenges, namely formal regulatory concerns. However, that is unlikely to happen in the near future. But banking as well as finance industry has the need to take a close look at the specific technology that underlies these cryptocurrencies as a potential generic way to transfer ownership of value in the long term.

Theme 3: Impacts of Identified Factors of cryptocurrency

-1) Regulations of the government

In spite of the footing that virtual currency has gained over last decade, the entire path of cryptocurrency can be considered to be turbulent. There are many who disagree that presentation of chaotic and lawless cryptocurrency has been overriding and uncontrollable as compared to publicity it stimulated at the time when the same appeared during the year 2009 (Kristoufek 2015). The following factors help in understanding effect of cryptocurrency industry and influence of the same on development as well as assimilation into broader pecuniary scheme.

Whilst the expanding market of cryptocurrency has the prospective to transfigure the entire manner of exchanging funds, its establishment into international site is loaded with threats along with probable downside (ElBahrawy et al. 2017). As virtual currencies (that is cryptocurrencies) are not recognized across the world as certified mode of payment for different goods as well as services, formulating consistent mechanisms for its utilization is important. As suggested by Pilkington (2016), for the virtual currencies to be sustainable, there needs to be establishment of their legal status.

It can be hereby observed that systems of regulatory mechanisms are growing, with innumerable tactics being adopted by varied governing bodies. Present authoritarian dimensions are in formative years and persist to advance with the speedily intensifysing section (Dyhrberg 2016). In essence, regulations and directives can present enhanced authenticity to a legal tender that is thriving to attain approval of the entire mass. Tavares et al. (2016) asserts that they shall standardize components of the market and reduce volatility. Whilst governments are examining a blend of regulatory stages, their ending goal remains the same that is to restrict fraudulent acts, guard consumers, revere economic approvals, and establish viable taxation systems. In essence, an aspect of present cryptocurrency strategy in varied states can deliver clarity and a wide overview of up to date regulation efforts (van Hardeveld et al. 2016). Owing to infancy stage of virtual currency, existing data is essentially in unrest and is exposed to repeated alteration.

Study of different cases on government regulation

United States:

The United States of America has adopted a permissive, somewhat neutral standpoint on cryptocurrencies. Essentially, the present threat encountered by controllers is intensifying subsisting directives to permit for exclusive facets and threats of electronic currency community. However, for the current requirement of taxation, electronic currencies are in essence referred to as “property” and not as notes or legal tender, and dealings are subject to the identical taxation rules as other kinds of property. Particularly, at national stage, the “Financial Crimes Enforcement Network” has implemented regulatory mechanisms (Vovchenko et al. 2017). The early attempts of the Enforcement Network to make clear place of cryptocurrencies’ in particularly the financial market can be traced back to the year 2013 with assertion that whilst usage at individual level of electronic currencies cannot be regarded as money service business, transactions in addition to switch of electronic currencies certainly come under money service business. For itself, transmitters of virtual currency have the need to follow requirements of the government that are already in place for money service business, counting reporting systems, documenting and sticking to the “Bank Secrecy Act of  the year 1970” (Wenker 2014). In itself, this can be considered to be noteworthy that it stresses on a great extent on liability from transmitters of electronic currency and act as a security against scam.

Australia:

In Australia, where citizens stand for approximately 7% of users of Bitcoin, has not officially adopted rules for electronic currency (Adams et al. 2014). However, the nation has instituted a taxation system for particularly the coinage. Particularly, trading carried out in the shape of cryptocurrency is put through preexisting rules of tax of the nation associated to both goods as well as services. Whilst the government of the nation has clarified that Bitcoin is not a lawfully accepted general means of transaction as well as form of paying as per the regulations of Australia or else laws of other nation (Adams et al. 2014). However, it has offered space for electronic currency to exist contentedly.

Canada

Canada possibly has the for the most part unified as well as developed system of regulation and is considered to be the first ever nation in the entire globe that set up taxation on electronic currencies. In essence, this arrangement of taxation has the necessity to cut overall risks at a regular basis linked to cryptocurrencies that includes reduction of money-laundering and terrorist-financing. Chuen (2015) has asserted that “The Bank of Canada” has uttered a keenness to recognize the emergent market of electronic currency, but at present identifies and considers electronic currencies as Investments Avenue rather than a currency for transaction.

China

There is disbelief regarding “money surrogates” and the nation China too has this disbelief and has carried out steps to limit utilization of virtual money. During the period of December of the year 2013, Central Bank of China barred financial institutions from managing transactions of Bitcoin, restricting legal trade of electronic coins to different individuals as well as private parties (Dwyer 2015). Also, citizens are also inspired to consider bitcoins as well as other cryptocurrencies as a good and not a workable currency.

– 2) Emerging markets

Empirical evidences show that significant devaluation of particularly national currency can also take benefit of efficiencies that are offered by the electronic currency in respect of money both moving in as well as out of the nation (Hutchings and Holt 2017). Let us consider the example of Kenya. In this nation, more than half of the GDP of the nation is influenced by the digital currency. A study conducted by PricewaterhouseCoopers shows that the influence of uptake of emerging market can be considered to be more pertinent (Gandal and Halaburda 2016). This reflects that more than 14 million coins are in circulation that has the highest adoption along with lowest volatility.

– 3) Financial Markets

Prior scholars indicate towards the fact that financial institutions have expressed a willingness towards experimenting with specific block chain technologies for the purpose of driving level of operational efficiencies and access previously untapped markets. However, there is disinclination by large sized financial institutions to accept particular currencies as enterprises are looking forward towards validating transaction procedures that is something that is seen to get challenged by adoption of block chain technology (Kristoufek 2015).

– Fintech Uptake

The applications of blockchain for fintech can be considered to be more desirable for the platform of Ethereum since it is a supple platform for these kinds of institutions to execute their operations. As such, the benefit that is attained is a secure way of transaction along with a single ledger that lessens the requirement to bring together independent ledger of each and every party involved (Pilkington 2016). There are benefits of individual currencies in case if the fintech corporations would intend to enhance liquidity in comparatively less liquidity markets, although this is a moderately small break.

-E-commerce uptake

A study carried out by Tavares et al. (2016) shows that current systems of payment by e-commerce companies are established such that there remains several touch points that again shows the way to pricey transactions (that is almost equal to 10%) and longer times of processing. In this case, the cryptocurrencies can eradicate the necessity for these long procedures of verification and considerably lessen the time required for transaction. Therefore, it can be hereby observed that Bitcoin seems particularly effective towards minimization these identified costs, even as there remains higher propensity for hacks and breaches of security as a consequence of intricacy for Ethereum, the probability and degree of impact might perhaps be less for versatile network of Ethereum (Vovchenko et al. 2017).

-Effect of compromise of different network

As suggested by Wenker (2014), in a particular ecosystem that sponsors exceedingly complex as well as anonymous data exchanges, the likelihood for compromises of major network (that is to say, ‘hacks’) appears to be high. The instance of DAO attack leading to 3.6 million units of Ether to be drained off into a DAO refers to the likelihood and probable rigorousness of this kind of hacks (Cocco et al. 2017). Whilst possibility of a ‘51% of the attack’ where a greater part of stakeholder can considerably influence overall value of electronic currency, the probability of a key hack is improbable due to the rigid structure of virtual currency and comparative dearth of extensive utility, the only notable exception being Bitcoin Exchange failures as in the case of the Mt. Gox meltdown. Conversely, Ether has already experienced a significant hack, leading to the fork between Ethereum and Ethereum Classic (Liu et al. 2016).

Chapter 5: Conclusion and Recommendation

Summary of Findings:

Founded on findings of the research it can be said that overall prospect of this virtual community of cryptocurrency can be very bright given certain formal as well as institutional conditions are fulfilled. Essentially, the advantages of using cryptocurrency are said to facilitate trade operations in a nation and lessen cost.

Based on the findings in this regard it can be seen that with in USA dealings are put through identical taxation rules as other categories of assets. Enforcement Network makes place of cryptocurrencies’ in particularly the financial market and this acts as a guard against financial scams (Bankston et al. 2017). Thus, it necessarily has enhanced the exchequer of the government through taxation. In Australia as well, trading carried out in the shape of cryptocurrency is put through preexisting rules of tax of the nation associated to both goods as well as services, therefore, adding to the government exchequer. Bank of Canada” also recognizes electronic currencies as Investments Avenue rather than a currency for transaction, therefore, is said to affect the gross domestic product of the nation.

Thus, it can be hereby observed that electronic currency benefited from principally tolerant regulation in western nations; however, the same has been subject to stricter regulations in particularly Asia. However, it can be said that regulations will present better validity to a legal tender that is striving to get mass endorsement. This can homogenize components of this market and the same time lessen volatility (Bankston et al. 2017). Essentially, it can also be hereby concluded by varied sources that in a bid to attain widespread adoption among financial institutions, regulation must be in place to ensure safe and secure transactions.

Also, prior studies suggest that there are different factors that affect the global economy both positively as well as negatively. It can be observed from prior study that compromise of network leads to higher propensity of hacks. Uptake by e-commerce industry reduces transaction cost and time for transaction and thereby positively affects the sector. Uptake by fintech enhances liquidity in less liquidity markets and positively affects the sector. Again, financial markets are also adopting the block chain technologies for the purpose of driving level of operational efficiencies and access previously untapped markets (Gainsbury and Blaszczynski 2017). Devaluation of particularly national currency can also acquire benefit of efficacies that are presented by the virtual currency with regard to money both coming in as well as out of the emerging markets. Despite all the positive effects of virtual currency on economy, the risks of hacks and breaches of security seems to be high that in turn exerts immense negative influence on the economy.

The current introductory section of the study elucidates in details about background of the topic, aim of studying impact of innovative technologies and emergence of virtual communities generating new modes of transactions as well as methods of accounting on global economy. The current section also presents intention of analyzing these virtual communities that generate and distribute own disbursement medium for exchange of both goods as well as services. In that way it can deliver a mode of transaction, in which emissions or else centrally authorized monetary units are not engaged.  Also, the current section presents research objectives and questions framed for understanding nature and degree of influence of virtual currencies (indicating cryptocurrencies) on economic actions. The study also analyses cryptocurrencies from the perspective of economic and legal factors together with its advantages and limitations. Also, the present study expresses research problems identified in the piece and presents the reason and significance of the research.

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