1. Executive Summary
Cryptocurrency is defined as an online digital and virtual currency which only exists electronically. This revolution of cryptocurrency is growing and growing everyday with hundreds of cryptocurrencies such as Bitcoin can be now accepted in shops around the world as a form of payment. [finder. 2018] There are many types of Cryptocurrencies that well- known in the world today the top 5 being Bitcoin, Ethereum, Bitcoin Cash, Ripple and Litecoin all these types of cryptocurrencies all have their merits and shortcomings, which I will explain later in this report.
The most popular bitcoin wallet and exchange provider, Coinbase, has over 13 million users. This suggest that bitcoin users base is between 13 million and 28.5 million. This is huge number which is growing by the day. [Bitcoin Market Journal. 2018.] Because of the many users on the internet today, it is necessary for user of cryptocurrency to make sure that their identities are kept anonymised. There is plenty of cybercrime being committed. Anonymization is extremely important when dealing with online digital currencies. It is highly important to keep your personal data secure. Major cryptocurrencies will help you do this by techniques such as Bitcoin mixing.
Cryptography plays use an important role in relation to cryptocurrency as it is an idea of encrypting specific data or information to ensure it is kept a secret from third parties. [World Crypto Index. 2018] It protects users identities and personal data against common cyberattacks. It its almost important that any one looking to start trading cryptocurrencies to their research before so. They should also be aware of the regulation regarding cryptocurrency in their country as in some Countries like China, ICO are banned. [Bitcoin Magazine. 2018.]
Table of Contents
1. Executive Summary
2. A definition of what a Cryptocurrency is
3. How cryptocurrencies work. The role of cryptography in protecting cryptocurrencies
4. The role of decentralization exchanges
5. The merits and shortcomings of major cryptocurrencies and decentralized exchanges
6. Anonymization and cryptocurrencies
7. The economic and regulatory implications and challenges of cryptocurrencies
2. A definition of what a Cryptocurrency is
Cryptocurrency is an online digital and virtual currency which only exists electronically where it is designed to be secure and anonymous. This online currency can be offered as a medium of exchange that operates independently of a central bank. Being independent is a massive attraction for many people as it won’t have any government tampering as there is no central controlling authority. [Investopedia. 2018][Oxford Dictionaries | English. 2018] Users on the network would confirm every transaction which then become a public record. This helps prevents the same digital/virtual currency from being spent more than once by the same individual.
The ever-fast-moving market of cryptocurrency with exchange rates that can dramatically change by day or even sometimes by the hour Is quite a difficult market to understand. [finder. 2018] In the 90’s they were many attempts to create digital currencies but most of them failed due to reasons such as fraud and financial difficulties. However, in 2009 an anonymous programmer or group of programmers under the name ‘Satoshi Nakamoto’ introduced the well-known, dominate cryptocurrency out there which is named Bitcoin. Satoshi described it as ‘peer-to-peer electronic cash system’. [Cointelegraph. 2018] Bitcoin has a valuable reputation and obtains many users. There are many merchants online and offline that accept Bitcoin as a form of payment. Some online retailers such as ‘Overstock’ and ‘Amazon’ accept bitcoin as well in shops, bars and restaurants. Bitcoins is also accepted in hotels, apps flights and many others.
There are also markets that would only accept cryptocurrencies as a form of payment such as ‘Bitify’ and ‘OpenBazza’. [finder.2018] [Cointelegraph. 2018] There are other types of cryptocurrency that aren’t as big as Bitcoin but still popular these are Blackcoin which requires users to stake coins from their own wallet for the right to verify a Blackcoin block. If the block isn’t verified than the coins are spent. [finder. 2018] Dash is another example of a type of cryptocurrency which is a two-their network, the first their are for the miners to secure the market network and transaction. The second their uses ‘Masternodes’ that deliver multiple transactions at once. [finder.2018]. [Cointelegraph. 2018]. Many people talk about why you should use cryptocurrencies and tell us why they are so good.
One of these reasons is that it has high identity protection. For example, paying with your credit or debit cards online, you will be asked to submit sensitive banking details that can easily be stolen whereas, cryptocurrency you send to an individual without the need for any of the sensitive information details or credit cards require. [finder. 2018] Also due to the high accessibility of the internet in the 21st century many people have quick and easy access to cryptocurrency online whereas not everybody has access to banks or money exchange systems. [finder. 2018]
3. How cryptocurrencies work. The role of cryptography in protecting cryptocurrencies
To understand how cryptocurrencies works it’s important to know some of the basic terms that are mentioned a lot when talking about cryptocurrency such as;
- Public ledgers: This virtual currency can be transferred between people and confirmed in a public ledger through a process action called mining. All transactions that have been accepted and confirmed from the start are kept in a public ledger, these ledgers ensure that corresponding virtual wallets can adjust for a spendable balance. The coin owner’s identity is not given and kept secure. [CryptoCurrency Facts. 2018]
- Transactions: Simply means the transfer of funds, but when talking about cryptocurrency it refers to the transfer of funds between two digital wallets. Transactions get sent to the public ledger where they wait to be confirmed. When using bitcoin and when a transaction is made the wallet uses an encrypted electronic signature. This piece of data is called a cryptographic signature which provides proof that transactions came from the sole owner of the wallet. [CryptoCurrency Facts. 2018] As mentioned above the process called ‘mining’ takes some time to confirm. Miners are those who confirm the transaction. It takes ten minutes for bitcoin miners to confirm transactions. [CryptoCurrency Facts. 2018] [YouTube. 2018]
- Mining: As mention already it’s the action of confirming transactions to be able to add them to the public ledger. However, a ‘Miner’ must solve a complex puzzle to be able to add to the ledger. Because of this mining is open source so any one can confirm the transaction. Whoever is the first miner to solve the complex puzzle gets to add a ‘block’ of transactions to the ledger. Once added, all other transaction is put in stone and made permanent. During this they add a small transaction fee to the miner’s wallet as well new coins. During this mining process value is added to coins which is also known as ‘proof-of-work-system’. [CryptoCurrency Facts. 2018]
- Node: Computers connected to the blockchain network that uses a buyer that carry out the task of approving transactions. [ Blockgeeks. 2018]
Cryptocurrency is storied in a digital online wallet that exist on the blockchain. The blockchain is the public ledger where transactions are recorded and stored. [finder . 2018] Transaction are sent between individuals from their digital wallets where one individual must match up codes which relates back to another user encrypted keys. Whoever sends a transaction their identity is kept secret and where each transaction is made it is led back to a digital wallet. Everyone has their own password/key that they only know. Whoever owns the key to the digital wallet owns the cryptocurrency that has been sent to the blockchain. When transactions are made in the wallets one individual must set up public and private passwords. Transaction can be queued up to be added to the ledger or even added all at once. These so-called blocks of transaction are added in slowly.
This is where blockchain gets its name from. [CryptoCurrency Facts. 2018] Blockchain is basically a financial ledger entry of transactions. When one new transaction is made or even the editing of an existing transaction these transactions are sent to every user with “full node” wallets. [CryptoCurrency Facts. 2018]. Miners as mentioned above try to solve the puzzle, which in turn lets them add a “block” of transactions to the ledger. Whoever solves the puzzle first gets the coins as a reward. Often miners could work together where in turn they would share the coins. Each puzzle relies on agreement so if most miners issue the same answer it would confirm that the transactions are correct. [CryptoCurrency Facts. 2018].
Cryptography is the idea of encrypting specific data or information to ensure it is kept a secret from third parties. [World Crypto Index. 2018] This is a huge advantage in relation to cryptocurrency’s as today’s world and the internet has problems in relation to protecting our identity and much more. Resulting of these scares, blockchain uses ways of encrypting technology. [Blockgeeks. 2018] Cryptography plays and important role in protecting cryptocurrencies. It uses cryptography for three main reasons. To secure transaction, to control the creation of additional units and to verify the transfers of assets.
To achieve all these, cryptocurrencies rely on “Public Key Cryptography” [World Crypto Index. 2018] Public key cryptography consists of having a both public and private key. Both keys are encrypted which consist of a bunch of random numbers and letters that could look like: hIbfiaifhd82EY28YdsknuiUSB729198. These types of keys tend to be 20 numbers and letters long. Public keys are used for people to be able send money to a certain address. The private key unlocks the public key to retrieve the money that was already sent. [World Crypto Index. 2018] This is an important feature that cryptography plays to protect cryptocurrencies as by doing the above only the person knows the meaning of the encrypted private key that can unlock the public key. The public key cryptography is changing the online payment industry as people will now use to their cryptocurrencies for payments of some kind as they know their identity and other personal information are kept safe.
4. The role of decentralization exchanges
There are two types of exchange platforms in the world of cryptocurrency, centralized and decentralized exchange. Must of the worlds cryptocurrency trading is done by centralized exchanges such as Coinbase and Bittrex. [Hacker Noon. 2018.] A few examples of decentralized exchanges are, Bitssquare, NVO, BlackHalo, Coinffeine and Blocknet. [steemit.com. 2018] For this report I will be talking about the role of the decentralization exchange also known as DEX.
To understand what it does it most important to understand cryptocurrency exchange. This is a platform that allows for the conversion of fiat money to cryptocurrency and the other way around. It also allows for the conversion of all different types of cryptocurrency. [ Medium .2018] Decentralized exchanges goal is to tackle the ongoing problems of centralized structures by creating peer-to-peer marketplaces directly on top of the blockchain. Ethereum does this, where it also trader to have responsibility of their funds. [ ConsenSys Media. 2018 ] There are few differences between Centralized and Decentralized exchanges these are as follows;
- Authentication: users of the centralized exchange rely on a platform to authorize their transactions whereas with decentralized exchanges there is no third party involved. This crypto exchange was built to provide trust-less authentication in relation to exchange transactions. This plays an important role in relation to decentralization exchange as users will feel more secure. [ Medium .2018]
- Control of funds: User of the centralized exchange make deposits to the exchange in other to make the exchange transaction easier. These are controlled by the centralized exchange service. [ Medium .2018] Because of this the users don’t have control of their funds. In Decentralized exchanges platforms user would make transactions directly with the other people involved with no need for a central sever. This is an important role for decentralized exchanges as users control their own funds which allows them to have a better understanding of the process involved with the exchanges. [ Medium .2018]
Due to lack of security and efficiency in relation to Centralized exchanges resulted in a strong demand for decentralized exchanges. [ ConsenSys Media. 2018 ] Because of the high demand for decentralization it offers two big benefits which plays an important role in the world of cryptocurrencies, these are:
- Security and control: this means that users will have control over their own information about them and over their assets. [ AirSwap Blog. 2018]
- Global marketplace: Decentralized exchanges allow for a global market place to emerge. [ AirSwap Blog. 2018]
5. The merits and shortcomings of major cryptocurrencies and decentralized exchanges
From researching the major cryptocurrencies out in the world today I noticed that are five major ones they are; Bitcoin, Ethereum, Bitcoin Cash, Ripple and Litecoin. [A Guide to the 5 Major Cryptocurrencies | DailyForex . 2018]
Firstly, I will talk about Bitcoin merits and shortcomings. Bitcoin is the world’s first decentralized peer-to-peer cryptocurrency. It has faced a lot of love also a lot of criticism, there for it has many merits and shortcomings in relation to these are;
- Anonymous and Private: This a popular merit to bitcoin as it keeps the identity of the users safe. Unlike payment that go through banks where your transactions can be tracked easier than doing through Bitcoin. [ KryptoMoney. 2018 ]
- Payment Freedom: payment through bitcoins provide flexibility as it will allow you to transfer money to any user to any part of the world. No delay due to bank holidays or strikes. No payment restrictions such as a payment limit is always a major merit. [ KryptoMoney. 2018]
- Degree of acceptance: As may people are not aware of the power of bitcoin the list of the companies that allow exchanges for bitcoin is small so therefore harder for people to change over. [KryptoMoney. 2018 ]
- Volatility: Due to increases and decreases of bitcoin prices, some people think it is too risky to invest in bitcoin because of the chances of losing money. [ KryptoMoney. 2018]
Ethereum is another open source platform built off the blockchain technology [WhatIs.com. 2018]
- The use of Turing language: allows for more complex contract to run on the network, where there is no need for third party’s services. Therefore, Ethereum is betrayed as whole package. [Quora. 2018]
- Acts as a platform for other products and services: As more information is being published about Ethereum every year, it will makee it easier for developers to contribute. [Quora. 2018]
- Platform design: as Ethereum was developed as a platform it will not be as effective as other chains that are especially designed for cryptocurrency e.g. Bitcoin. Ethereum is trying to be a super computer for a lot more users [Quora. 2018]
- Lack of tutorials and documentation: those that are online are either out of date or not probably completed. This means that there is really nothing out there that can help Ethereum developers [Quora. 2018]
Bitcoin Cash Merits:
- Exchanging funds: Bitcoin cash will allow you to exchange funds with anybody around the world with no fees involved. This results in saving money and saving time. [Bitcoinhideout.com. 2018]
- Cash Increase: Bitcoin cash is expected to increase in the years to come. [Bitcoinhideout.com. 2018]
Bitcoin Cash Shortcomings:
- Hacking: Bitcoin cash is still prone to hacking, there is not guarantee that your account will be safe due to hackers trying to hack the website every day. [Bitcoinhideout.com. 2018]
- Price Fluctuation: The price for Bitcoin Cash a change dramatically from being very high one day to the opposite the day after. This makes it difficult to figure out the best time to sell. [Bitcoinhideout.com. 2018]
Ripple takes pride in being a tool for banks around the world as it has taking a global approach. [Michael LaVere. 2018] Ripple Merits:
- Long term stability and decreased volatility: Many people see Ripple as a safer investment that offers protection. [Michael LaVere. 2018]
- Ripple Seeks to Complement, rather than compete with Bitcoin: Ripple is created for large financial institutions a fast transaction involving a wide variety of currencies. [Michael LaVere. 2018]
Litecoin is also another open source software platform which has its merits and shortcomings Litecoin Merits:
- Strong Currency: due to Litecoin being built upon Scrypt it makes it much stronger than other currencies which in turn benefits the entire ecosystem of cryptocurrency. [Using Litecoin. 2018]
- Secure: With Litecoin you can keep your financial information safe. There are no credit or debit cards involved therefore no need to give your bank details. [Using Litecoin. 2018]
- No central authority: although some people argue its better off having no central authority, however if your money up getting lost or stolen there is nothing you can do about it. [Using Litecoin. 2018]
- Client code: is not kept up to date an is based on an out of date version of bitcoins. [Using Litecoin. 2018]
After discussing the main merits and shortcoming of these major cryptocurrencies I have noticed after my research online that Bitcoin is far the safest. Due to its popularity and its huge awareness people tend to know more about bitcoin then the other cryptocurrencies. Moving on to the Decentralized exchanges there are also many merits and shortcomings these are as follows;
- Faster and Cheaper Transactions: provides a platform that allows for faster cheaper transaction than centralized exchanges. As there is no third party involved it reduces fees and stalling times before buy and sell orders are being processed. [Medium .2018]
- Potentially More Difficult to Hack: Decentralized exchanges are less common to hacks. There is no single point to entry, so hackers would have to compromise more half of the network to be able to take over the system. [Medium .2018]
- Seamless Integration with Secure Hardware Wallets: this is one of the major merits. Plenty of decentralized exchanges offer integration with popular hardware wallets like Trezor. [Medium .2018] this allows for a much safer transaction.
- Funds Controlled by Users Rather Than a Central Corporation: Decentralized exchanges are not controlled by any central corporation or third party but by themselves. Control of the money is in the power of the users. Transaction occur in means of smart contract between peer to peer which is controlled by using a private key of the participants. [Medium .2018]
- Difficult to use: unlike centralisation exchange, decentralization is difficult to use. The large number of smart contracts that need navigation is often confusing to use. [Medium .2018]
- Lack of Robust Features and Functionalities: Most of the decentralized exchanges that exist only support the basic cryptocurrency exchange function. [Medium .2018] A lot of the advanced training tools, tutorial and features are missing so there no up to date information on the features and functionalities. [Medium .2018]
6. Anonymization and cryptocurrencies
The definition on Anonymization as defined on ico.ork.uk is “The process of turning data into a form which does not identify individual’s where identification is not likely to take place.” [Anonymisation | ICO. 2018]. Anonymization is important when dealing with cryptocurrencies as it hides the individual’s identity and personal information. It will prevent attackers from discovering this information and using it against cryptocurrency. Websites such as Monero value anonymization. The well-known cryptocurrency Bitcoin has the idea that it is completely anonymous, this is not true, although the transaction in Bitcoin do not involved giving personal and private information. A user doesn’t have to use their name to spend a Bitcoin, but their transaction can be followed back the address where they have received Bitcoins. [ Blockonomi. 2018]. The Blockchain keeps a record of every transaction carried out therefore if the address is ever tied to their personal identity all transaction will associated with their personal data. [Blockonomi. 2018] If in fact your tie your personal details to a Bitcoin address is it easy for someone with technical skills to trace your identity. There a few ways which Bitcoin anonymity can be attacked, these are;
- Connecting Nodes: The peer-to-peer Bitcoin network is not 100% safe. It is possible for attackers to connect to multiple nodes and resulting of this, discover the connection of the element. [ Blockonomi. 2018]
- User Personal Identity: In some case, Bitcoin users could use their personal information in a Bitcoin transaction such a s exchange. If users do this, it will result in a loss of anonymity. Such an example of this would be if a user orders something on an online shop and the delivery address used for the online shop could connect the buyers name and home address to their Bitcoin. [ Blockonomi. 2018]
- The Transaction Ledger: Everyone has access to Bitcoins transactions, which means addresses can be traced. A group of Bitcoin addresses can be linked to a user. If it happens that one address it to linked to an individual’s identity, then others in the group can also be linked to their identity. This will result in the users personal data being compromised. [ Blockonomi. 2018]
With all these ways that your identity can be compromised it is important to know how to guarantee anonymity when you do make a Bitcoin transaction. To be able to hide your identity in the online world is often hard as you can you leave behind several footprints which are key for hackers to comprise your identity. You should follow these steps to hide your identity as best as possible using Bitcoin.
- Bitcoin Mixing: As I have outlined before, Bitcoin transactions are recorded in a public ledger. A person who traces a public address can know the destination. There is no contract to anonymize these bitcoins, therefore Bitcoin mixer are required to help keep your identity secure and safe. [CoinSutra - Bitcoin Community. 2018] Bitcoin mixing is defined as “the process which tries to break the likability or traceability” [CoinSutra - Bitcoin Community. 2018] Mixing stops the link between Bitcoin addresses by creating a brief one or by changing coins with other addresses of the same value. This method will in turn make the trail hard to follow on the blockchain. Another term for Bitcoin mixing is Bitcoin laundering, Bitcoin wash or Bitcoin tumbling. [CoinSutra - Bitcoin Community. 2018]
- Tor-Onion Router to stay anonymous: Tor is a browser that will allow you to connect to Bitcoin network. The volunteer community believes in anonymization and surveillance-free internet usage. [CoinSutra - Bitcoin Community. 2018] The nodes used in it will encrypt your internet traffic to random computer nodes on the network before reaching its destination. Because of this it becomes extremely difficult to locate the IP address or system from which the transaction was made. However, if you are using a KYC enabled Bitcoin sites such a CoinBase or Coinsecure then using TOR is wouldn’t help unfortunately. It highly recommended to use Tor on sites such as LocaBitcoin or Bitsquare. [CoinSutra - Bitcoin Community. 2018]
- Use Log less VPN: VNP encrypts every bit of your internet traffic and follows it through multiple servers of your liking at different locations before landing in its last destination. They are some log less VPNS that have a shared IP address for many users, making it difficult to pinpoint and trace one user’s identity and other personal information. Using lossless VPNs to connect to your Bitcoin client is another way to help keep your private information safe. [CoinSutra - Bitcoin Community. 2018] .
- New Address for Transaction: HD wallets are the most popular wallets which means that you can generate several of receiving address as well as every time you receive bitcoins from anywhere, you use a new address. [CoinSutra - Bitcoin Community. 2018] This can be confusing to new users as they would often wonder why their receiving address has changed. It important to know if you are using a HD wallet such as Ledger Nano S or Trezor you can generate as much Bitcoin addresses as you want. This method of using a new address for transaction will help you keep your Bitcoin anonymize. [CoinSutra - Bitcoin Community. 2018]
As explained by the points above Bitcoin is fully anonymous but if used correctly and if you follow the four steps outlined above it should increase your chances in staying anonymise in the future. Bitcoin faces competition with crypto currencies that have anonymisation as a core feature at their protocol level such as Monero and Dash. [CoinSutra - Bitcoin Community. 2018] Monero first launched in 2014 and is the world’s first private and secure online digital currency on the internet. Monero is growing to be the most unique cryptocurrencies available due to it being private and secure. No one can see how much balance you have by looking into your blockchain and irreversible cryptographic math secures Monero transactions and wallets. [CoinSutra - Bitcoin Community. 2018] Much people wonder how Monero is so anonymous compared to other digital currencies such as Bitcoin and etc, the reasons are as follows;
- Intractability through ring signature: These are digital signatures which can be performed by any member or the group. Ring signatures is by default suitable on the blockchain and it also enables transaction mixing as in when the money is sent as a group of random picked ring signed transaction of the same amount. [CoinSutra - Bitcoin Community. 2018] Resulting of this only one is the actual sender. Transactions that are incoming are coming in as a group of transactions which results in many possible senders, where each sender has the same chance of being the real sender. Thus, makes Monero a top pick for keeping a sender’s privacy safe. [CoinSutra - Bitcoin Community. 2018]
- Unlink ability through stealth addresses: These types of addresses take care of the recipient’s privacy, they do not allow a third party to see any transaction done in and out of that address on the blockchain. [CoinSutra - Bitcoin Community. 2018] Stealth addresses can be compared to your bank account number. With just having the bank account number alone you can’t see your transaction and you can’t see your spending habits. This Stealth address ensures the same amount of transactional privacy in Monero. [CoinSutra - Bitcoin Community. 2018] The public address of the receiver on the blockchain doesn’t not show when a transaction is done on the Monero blockchain. It creates a new one-time destination address instead, which is not linked to a receiver’s public address. [CoinSutra - Bitcoin Community. 2018]. The receiver is the only one that can scan the blockchain for these one-time stealth addresses and to verify their funds. [CoinSutra - Bitcoin Community. 2018]
- Transactional Privacy Through RING CT: Ring CT stand for ring confidential transactions. [CoinSutra - Bitcoin Community. 2018] This Ring CT hides the amounts that has been transacted on the blockchain. This feature not only hides the source of the funds but also will hide the amount being sent in a transaction. [CoinSutra - Bitcoin Community. 2018]
- Obfuscation of IP using KOVARI: Finally, Kovari is an open source technology that hides the IPS when transactions are made in Monero. It used the routing techniques and encryptions to hide the IPS. It also hides the geographical location of transaction by creating a new layer over the internet. [CoinSutra - Bitcoin Community. 2018]
Because of these four reason Monero will be the most trusted open source cryptocurrency in the world due to its anonymity.
DASH is another digital currency that understand the important of anonymity. Dash’s PrivateSend is a feature that provides user with financial privacy by obscuring the root of the funds. This is an optional feature which user may want to use. [Bravenewcoin. 2018] [CoinSutra - Bitcoin Community. 2018. ]
7. The economic and regulatory implications and challenges of cryptocurrencies
Cryptocurrency is among the biggest trends in the modern era as it is constantly on the news due to effect it has on the global economy. Blockchain is a major distributor of the global business process in relation to cryptocurrencies. [Medium .2018] The Us Dollar is what the global economy relies. The introduction of Bitcoin and the thousands of other cryptocurrencies, financial transactions are being decentralized on a huge scale. These decentralized transactions have no recourse to the US dollar. [Medium .2018]. International trade, foreign relations, diplomacy and the impact of economic sanctions will change in suffice. [Medium .2018]
Russia and Venezuela have also censured creating their own state-owned cryptocurrencies. The Venezuelan President accounted last December the launch of an oil-backed crypto currency to help the country to move out of a crippling inflation because of the US-led economic sanctions. This arrangement of a way to escape the solid economic sanctions and back into the global theatre is a massive attack in the dollar. [Medium. 2018] When using cryptocurrencies such as Bitcoin, Litecoin and Dash middle man is no longer required for authorizing and authenticating transactions. The transaction fees are also very low with some of these cryptocurrencies and can be done in a matter seconds and minutes. By cutting out the middleman in the transaction process it causes a huge disruption to the global payment system. It becomes much more difficult to trace back the transaction and the identity of the participant. Central banks and other financial institutions seem to have no control over these operations. [Medium. 2018].
Christine Laragde, head of the International Monetary Fund, in September 2017 warned that “cryptocurrencies have the potential to disrupt the Genera Baking system and to revolutionize the concept of money.” [Medium. 2018] Developers and entrepreneurs are no longer trying to get funding from banks and investors to input into their start-ups but, ICO, Initial Coin Offering have become the funding for these technology-based start-ups. This has led to the massive increase of many technology-based start -ups. China have banned ICOs in the late 2017. China have kickout bitcoin miners, ordered bank account freezes and introduced a nationwide ban on all mobile or internet access to things related to cryptocurrency trading. [Bitcoin Magazine. 2018.]
In Singapore, The Monetary Authority warned of risks of speculating in the cryptocurrency markets during the 2017 peak in Bitcoin prices. On January 9, 2018, Singapore’s Deputy Prime Minister Tharman Shanmugaratnam said that “the country’s laws do not make any distinction between transactions conducted using fiat currency, cryptocurrency or other novel ways of transmitting value.” [Bitcoin Magazine. 2018.]
In Japan, the government have been welcoming of the cryptocurrencies in contrast to its neighbours. In the US the Securities and Exchange Commission have issued warnings to investors of cryptocurrency investing risks. They have haltered several ICO and even stated the need for greater cryptocurrency regulation. [Bitcoin Magazine. 2018.] The Commodity Futures Trading Commission became the first U.S controller to allow for cryptocurrency derivatives to be able to trade in the public. [Bitcoin Magazine. 2018.]
In January 2018, Secretary of the Treasure Steve Mnuchin warned to those who attended that cryptocurrency could possibly be associated with money laundering activities. [Bitcoin Magazine. 2018.] In Canada, after weeks of hearings, which included experts like Andreas Antonopoulos, the Canadian Parliament approved Bill C-31 on June 19, 2014 the word first national law on digital currencies. [Bitcoin Magazine. 2018.]
The Canadian government has been very efficient in its regulatory framework on cryptocurrency ever since 2014, the Canadian Securities Administrators sent out a legal notice on August 24th, 2017 which they confirmed, “the potential applicability of Canadian securities laws to cryptocurrencies and related trading and marketplace operations and to provide market participants with guidance on analysing these requirements”. [Bitcoin Magazine. 2018.] Stephen Poloz, the head of Central Bank of Canada, was quoted recently on the 25th of January 2018, “that I object to the term cryptocurrencies because they are crypto, but they aren’t currencies … they aren’t assets for the most part … I suppose they are securities technically … There is no intrinsic value for something like bitcoin so it's not really an asset one can analyse. It's just essentially speculative or gambling.” [Bitcoin Magazine. 2018.]
From doing research on cryptocurrency throughout this whole business report I have come to the understanding that even though cryptocurrency have many benefits but also have many challenges. These challenges are both on a technical level and a social level. [Medium. 2018] The first technical challenge of cryptocurrencies is that there is a high level of complexity in relation to the size of the blockchain service, which in turn could leave the entire system falling. The main challenges include: the likelihood of DDoS attacks, Blockchain size and the bandwidth transactions per second. [Medium. 2018] Another challenge would be regulation. Currency’s must be stated by the government as legal. However, if the world adopts to cryptocurrency’s as a form of trade then all the government can do is Ban it from official transactions like banks. [Quora. 2018]
One of the major issues in relation to the cryptocurrencies market is the price manipulation. Prices of the cryptocurrencies would fall and rise dramatically over a short time period. If an asset that is tradable can fall by 49 percent in less than 24 hours that the volatility of the market is high. [Hacker Noon. 2018] Whales are users on the market that have large cryptocurrency holdings. These are individual’s that be a big contributor to the excessive volatility in the market. They are able change the market by manipulating the price of a cryptocurrency. [Hacker Noon. 2018 ] Another ongoing challenge of cryptocurrency would be cybercrime.
In the past there have a been several high-profile hacks that have resulted in the loss of millions of dollars. Resulting of these attacks many users would prefer to store their cryptocurrency holding in an offline wallet. When they wish to trade, they would have to move from offline storage to online storage before allowing to take part in the trade. This causes a lot of hassle in the already confusing trading world. [Hacker Noon. 2018] Transaction delays is a challenge that is across the blockchain. These delays begin from opening a trading account to verifying your identity. Transaction delays also include to being able to make deposits and withdrawals, the system is quite slow which causes individuals challenges to get their transaction traded. [Hacker Noon. 2018]
To conclude, after doing this report I have took in account how big cryptocurrency are and how they are changing the technology world Today. Cryptocurrencies have many benefits such as the no need for central authority but also many challenges as well, such as cybercrime. It is important to do all your research heavily before committing to this online digital currency. Digital currencies such as Bitcoin still have obstacle to complete to overcome problems such as anonymization. The Blockchain technology is non-stopped talk system. However, people could easily get into money trouble due it’s the price manipulation
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