Cryptocurrencies - Characteristics, PROs and CONs
A cryptocurrency is an electronic means of payment and payment system that uses a peer-to-peer network which is fully decentralized and has no server or central authority.
Characteristics of Cryptocurrencies
- DECENTRALIZED: In traditional forms of currencies, central authorities and banks have control over the financial system while virtual currencies have no central authority.
- IMMUTABLE: Transaction records are accessible to the public and it's extremely difficult to change them.
- SCARCITY: Cryptocurrencies have a maximum supply which make them deflationary.
- ANONYMOUS: Cryptocurrencies have a decentralized network of users that create anonymous digital identities that they use to make transactions and authenticate them.
The first version of cryptocurrencies and the most prominent one is the Bitcoin which first appeared in 2009.
The absence of a centralized third party and the anonymity that characterizes virtual currencies make it harder for regulatory bodies to effectively fight tax fraud and money laundering.
Despite a hostile regulatory environment, cryptocurrencies have experienced uninterrupted development that is evidenced by:
- The proliferation of protocols;
- The invention of smart contracts;
- The evolution of share prices;
- The launch of Initial Coin Offerings (ICO);
- The launch of the stablecoins project by Facebook that is called "Libra".
⇒Can you think of a possibility to both benefit from cryptocurrencies' advantages and also fight against tax evasion and money laundering?
Sources:
William O'Rorke & Alexandre Lourimi., (2020) "Cryptomonnaies et LCB-FT: Etat des lieux", Revue internationale de la compliance et de l'éthique des affaires, 2020, February, pp. 6-17
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Meheresh
Management Consultant, India
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Comparison of Regular Currencies with Crypto Currencies My 2 cents… Let us regress it… From Crypto Currency to Currency: Who maintains the "value" of currency? Answer: the central banks.
Though the intrinsic value of a crypto currency is calculated, as you pointed out, the underlying process makes it anonymous (anonymous digital identities). Hence, as long as it is anonymous, will the nations agree with crypto currencies, that is a big question.
For comparison purposes consider LIBOR (London Inter-bank Offered Rate).
Though it is not anonymous, it will still be transitioned to other rates due to the fraud that occurred (collusion of banks).
Thus, even financial instruments which are not anonymous and which are publicly maintained by central authorities/banks, are not free of frauds.
So with anonymous financial instruments (read crypto currency or anonymous electoral bonds here), the possibilities remain uncertain.
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