LONT067 Global Finance

Introduction

The term cryptocurrency is becoming very popular in present in times. It is seen that cryptocurrencies are greatly affecting economic, political, cultural, as well as social life of humankind. However, it could be stated that digital currency is not becoming a substitute for real currency but it could argue that digital money act as an impetus for formation of a completely new currency system.

Attribution  

Various economists are of viewpoint that digital money will change world economy as well as currencies would go into a zone of electronic savings. Bitcoin is one of mostly used as well as most popular digital money that is being used in present times. Bitcoin is being referred as a decentralized currency that is free from any type of economic as well as political problems that usually intended to take place in case of traditional currencies. Bitcoin intend to reduce high reliance of economic on fiat money as well as used as an alternative for authorized or fiat money (Srokosz & Kopciaski, 2015). As per research study of Nakamoto 2008, it is argued that cryptocurrencies are being expected to provide a most significant benefit to overall economy by overcoming various issues such as lack of social trust as well as helping economy to strengthen by accessing to financial services (Vigna & Casey, 2016). However, it should be noted that mainly due to innovation in technologies as well as rapid emergence of virtual communities intend to create various new types of transactions and approaches of accounting that intend to go beyond prevailing state of knowledge in economies and even in case of existing legal solutions. The arrival of Bitcoin as well as various other peer-to-peer currencies or virtual currencies has changed global economy to a great extent. Business entities as well as people are preferring to make use of digital currencies rather than using traditional physical money (Taskinsoy, 2019). It could be stated that emergence of virtual currencies are not only due to shortcomings of traditional currency system that intend to face wide range of crises but also, there is rapid emergence of virtual currencies because of development of internet system for which digital currencies intend to prove to be a better and effective form of money. However, there is still a debate going regarding digital currencies that stated that Bitcoin and various other virtual currencies intend to present a financial system that goes beyond government control. It is analyzed that one of most significant reason for emergence of Bitcoin and other peer-to-peer currencies is because they are located in a decentralized system. The world crisis has led to emergence of virtual currencies in a faster way that result in steady progress of virtual currencies. However, various research study suggests that in field of both economics as well as law sciences, there are no evidences related to monographs that will explain essence of electronic modes of payments mainly based on digital currencies solutions (Leckow, 2016). The rapid emergence of virtual communities that are mainly intend to form on new technologies are continuously generating various forms of transactions as well as approaches of their settlement that is going beyond prevailing knowledge and legal structure (Rose, 2015). However, it is extremely essential to note that Bitcoin and other digital currencies are not being considered as legal tender as well as could not be qualified as electronic money. Thus, in order to get better understanding as well as clear insight about various digital currencies that are representing a financial system beyond government control, various peer reviewed journal articles will be discussed.    

Discussion

Bitcoin and other virtual currencies are setting up a financial system that is going beyond government regulatory framework. It is examined that Bitcoin refereed as first decentralized peer-to-peer payment network that is being powered by its users with having no central authority neither any type of middleman. Thus, it is examined that various economists as well as law sciences stated that there is a lack of central authority that is one of major reason due to which government regulatory bodies are afraid of cryptocurrency.

Various research study stated that digital currencies intend to attract numerous legal issues that will greatly impact users as they will be exposed to a significant legal risk (Narayanan et al., 2016). Most often it is seen that bitcoin are being used as extremely favourable means of methods of payments for hackers. It is examined that bitcoin cryptocurrency are being used in black market mainly Deep Web or Darknet in order to pay for drugs as well as pornography as well as counterfeited documents. Even various assumptions are being made that bitcoin are used to purchase illegal weapons as well as ammunition. At present times it could be stated that decentralized digital currencies, cryptocurrencies primarily bitcoin intend to gain a special attention from public, business entities as well as government framework (Kamenski et al., 2020). The cryptocurrencies such as bitcoin and various other peer-to-peer currencies intend to be used extensively in business entities transactions as well as in calculations of population at state level. In simple terms it could be stated that modern financial system tends to consists of a new tool in virtual form that is known as cryptocurrencies. Various research studies suggested that virtual form, cryptocurrencies could prove to be a most powerful tool that will lead to overall development of contemporary financial system.

However, it should be noted that even though there are profits of using cryptocurrencies but usage of digital currencies or cryptocurrencies are attracting various issues related to terminology, opportunities, risks as well as threats that are intended to associated with appearance and circulation of cryptocurrency (Carroll & Bellotti, 2015). It is examined that various threats as well as risks factors that are associated with usage of cryptocurrencies is raising several questions in minds of government regulatory bodies and economists that such a new revolutionary technology might proves to be a threat to traditional fiat system. It is an evident fact that unlike traditional funds, cryptocurrencies do not have a single emission structure as well as it is analyzed that digital currencies do not either have a central supervisory authority mainly in order to operate a digital currency exchange. Bitcoin intend to occupy a dominant position in cryptocurrencies mainly because of its greatest period of mining as well as circulations (Glaser & Bezzenberger, 2015). Nowadays, it is seen that there are various nations that are allowing use of cryptocurrencies and even digital currencies are used for trade purpose. Even though in this era of globalization, modern financial system is greatly accepting cryptocurrencies however, still there are various debates that are going on regarding authentication as well as reliability of using digital currencies beyond government control.

It is analyzed that there are certain limitations or demerits of using bitcoin and other peer-to-peer currencies financial instruments. Most often it is seen that digital currencies are sometimes considered as one and only modes of payment while purchasing as well as selling certain commodities that might includes stolen credit card numbers, personal credentials for authentication when accessing online accounts, such as PayPal and eBay (Chakravaram et al., 2021). Even research study suggested that trade in various controlled goods such as firearms could be operated by making use of bitcoin and other digital currencies, as virtual currencies nature does not complicate controls of arms trafficking. It is observed that using virtual currencies for trading in uncontrolled goods does not allow tracing link between arms as well as culprit using of a firearm.

It is a well-known fact that innovation in technology intend to attract both opportunities as well as various adverse implications for economy. Technological innovation has led to tremendous change in financial system and it is examined that bitcoin as well as other cryptocurrencies intended to testifies major potential of technology of distributed registries. Various economists are of viewpoint that bitcoin as well as other peer-to-peer currencies intend to pose specific amount of risks that could mainly be seen in terms of money laundering and several terrorists financing. It is analyzed that major risk in case of expert community is being referred as anonymity. Researchers stated that anonymity might lead to contribute towards fraud, as well as could lead to acquisition of weapons, and various other financing of terrorism. However, government most often become afraid by usage of bitcoin and other digital currencies mainly because of its decentralized nature as there is a risk in case of decentralization that means that there is absence of a single centre for production, and even there is no single centre that could operate circulation supervision of cryptocurrencies as well as could supervise affect of rate of emission and block suspicious account or transactions.

It is well said that bitcoin and other digital currencies are virtual in nature as well as they do not intend to have a central repository, thus, it is possible that digital cryptocurrencies balance could be destroyed in case of infected data or for any failure in system (Dwyer, 2015). Even though bitcoin and other cryptocurrencies are being refereed as an attractive financial instrument that are used for measuring as well as have various benefits as compared to traditional payment financial instrument. It is examined that use of cryptocurrencies intend to saves costs, as well as facilitate exchange and is being transferred in more volumes thus, considered beyond reach of central financial institutions as well as government bodies. It is examined that even though bitcoin and other cryptocurrencies intend to represent a new financial system but it is also, true that cryptocurrencies could not be safeguarded from threat of hacking. Economists as well as various other financial advisor stated that risks and threats of these financial instruments intend to pose significant threat to fiat monetary system as well as hamper traditional mode of payment system. Various expert studies even expecting that bitcoin and other cryptocurrencies has led to evolution in financial system and it might be possible that during period of financial evolution majority of individuals as well as business entities could refuse to use government issued money and thus, preferring to make use of cryptocurrencies as a profitable tool mainly in order to gain financial growth and freedom.

It is analyzed that over past decades bitcoin has gained immense popularity form individuals as well as from government. However, there are specific government bodies that stated that bitcoin could be used to circumvent capital controls that could be used for various illegal activities such as money laundering as well as for illegal purchase of uncontrolled goods and could even proves to be risky for investors (Dyntu & Dykyi, 2018). As it is discussed above bitcoin and other cryptocurrencies could pose threat to fait currencies thus, some governments are afraid of using cryptocurrencies in financial system. Governments has responsibility to control fiat currencies and implement monetary policy to issue or destroy money. The central banks make use of monetary policy to exert economic influence (DeVries, 2016). The movement of fiat currencies are being tracked as well as identification could be done if fiat currencies are used for any type of criminal activities. Thus, it could be stated that all these government controls will be lost if non-governmental bodies intend to create their own currencies.  It is an evident fact that bitcoin users do not need existing banking system as all transactions take place without need of an intermediary (Fry & Cheah, 2016). Thus, government fears that if bitcoin and other peer-to-peer currencies intend to become widely adopted then entire baking system might proves to be an irrelevant. However, it is not possible for a nation to operate without a well-structured banking system. There is also very crime concern that are associated with usage of bitcoin and other digital currencies. The cryptocurrencies transactions are referred as untraceable financial transactions that could lead to facilitation of various illegal or criminal activities (Chatterjee et al., 2018). In simple terms it could be stated that use of bitcoin and other cryptocurrencies intend to operates in a complex financial system and in an environment that is having very limited legal resources.

Qutation 

Bitcoin intend to have numerous demerits for an example if an individual tend to make a payment to another individual via credit card and found that transaction was faulty or if someone sold credit card then also, one remains safe as bank will always come to rescue but in case of bitcoin its entirely different approach, as once money is being send its gone. Thus, various research studies as well as financial adviser believes that it will be wrong to believe that bitcoin or other cryptocurrencies would one day entirely replace fiat monetary system as money is being present in circulation and are issued by central banks and also, are within preview of government controls (Kypriotaki, Zamani & Giaglis, 2015). It is analyzed that if government provides complete authority or even give permission on large-scale for anonymous payments then there will be time that might come in future where due to anonymity in criminal as well as financial activities, various types of illegal activities will take place in economy such as money-laundering, proceeds of tax evasion, and financing of terrorism. However, various experts stated that certain distributed technology that is mainly based on cryptocurrency registry intend to has tremendous perspective as well as slowly some bitcoin users are stating that state would allow making anonymous transactions by making use of virtual currencies and also, there will be time in future in which cryptocurrencies will be used in a legitimate manner.

It will be correct to stated that tremendous development of various innovative financial instruments intends to have a positive effect on overall economic development of nations worldwide. Research activities based on cryptocurrencies stated that in coming future, virtual currencies could be referred as an innovative financial instrument and might soon become a regular mode of payments as well as an investment tool primarily for small and medium sized business enterprises (Extance, 2015). With rapid development of technological system, it could be possible that bitcoin and various other virtual currencies could replace traditional money or fiat currencies however, central banks are being afraid of various uncontrolled emissions as well as other abuses and threats that are associated with cryptocurrencies (Kaiser, Jurado & Ledger, 2018). Some government bodies are of viewpoint that using bitcoin and other cryptocurrencies do not intend to provide protection to a user and even it is known that there are numerous risks factors that are related to exchange rate volatility in case of bitcoin and other virtual currencies. Making transaction by using bitcoin or other cryptocurrencies could lead to various cyber threats and bitcoin is most often associated with illegal activities that includes money-laundering and trafficking in illegal goods and even not traceable as transactions are done anonymously (Ammous, 2018). Even though at present times it is seen that bitcoin and other digital currencies are being widely used as well as greatly accepted in modern financial system but it is also, true to state that operational activities with virtual currencies or cryptocurrencies intend to demonstrate specific issues mainly in regard to execution of tax as there till time being there is no legal rules and regulations that could define status of virtual currencies financial instruments.

One of most significant reason due to which government bodies become afraid of bitcoin and other cryptocurrencies transactions as such currencies are not stable and even investment of such virtual currencies might not be favourable for most of investors (Nabilou, 2019). Even it is observed that businesses those are involved in turnover of bitcoin and various other digital currencies are beyond legal framework thus, automatically increasing risks related to transactions. Therefore, in simple terms it could be stated that even though bitcoin and other peer-to-peer currencies intend to represent a financial system that goes beyond government control but there are various challenges that are taking place in case of cryptocurrencies and even some governments are afraid of more usage of such currencies in modern financial system. Bitcoin and other similar cryptocurrencies intend to challenge fundamental principles of underlying fiat currencies as it is a well-known fact that fiat currencies are backed by government and central banks credibility, however, cryptocurrencies are not backed by any sources or central regulatory body (Kaminskaya & Petrova, 2018). Thus, it could be argued that bitcoin and other cryptocurrencies are said to operate beyond government regulations because such virtual currencies intend to present various opportunities for fraud and even it is analyzed that cryptocurrency market is still opaque in nature as well as regulatory framework in regard to cryptocurrency is still in process of development.                                                    

Conclusion

Lastly, paper could be concluded by stating that even though bitcoin and various other similar virtual currencies intend are used in present business environment but cryptocurrencies intended to represent a financial system that goes beyond government controls. It is analyzed that governments becomes afraid of more usage of cryptocurrencies as such virtual currencies tend to facilitate tax evasion. Even virtual currencies are being used to circumvent exchange and capital controls that might lead to fraudulent activities. cryptocurrencies such as bitcoin was being used as a currency of choice in case of “Silk Road” that is a dark web market place mainly for illegal goods that was being shutdown by USA law enforcement authorities in year 2013. Thus, it is advisable that if cryptocurrencies are to be included in financial system completely there must be an adequate and proper framework of regulations that will remove various risks and threats associated with use of cryptocurrencies. There must be a common set of rules, regulations, protocols that should govern operations of cryptocurrencies and all users should adhere to such regulations.              

Bibliography  

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