Bitcoin, blockchains, initial coin offerings exchanges, ether, bitcoin. You’ve probably seen the term “cryptocurrencies” (and their associated terminology) have created quite an outrage across the press, on online forums, and perhaps during dinner conversations. Despite all the hype but the meanings behind these terms are still unclear to the majority of people’s understanding. Maybe we can put it in the same way like Stephen Colbert does below, however we’ll be more specific.
The first time they were viewed was as safe houses for criminals as well as money laundering, cryptocurrencies have made significant strides in regard to technology advancement as well as the popularity. The market for cryptocurrency is expected to be the level of $1-2 trillion in the year 2018. The technology behind cryptocurrencies has been deemed to possess significant applications in a variety of industries including healthcare, to media.
But cryptocurrency remains a source of controversy. Although critics such as economists Paul Krugman and Warren Buffet have described Bitcoin as ” evil” and an ” mirage,” others, like the venture capitalist Marc Andreessen, tout them as ” the next internet.” For anyone who claims that cryptocurrencies are a bubble, there’s another who insists that they’re the next step in the democraticization of finance. In their simplest form they’re just the latest fad in fintech but at a more complicated level, they’re a technological revolution that is challenging the economic, political, and social underlyings of society.
This article will try to clarify the appeal of cryptocurrencies and the complex technology behind it and how a digital currency can be valuable. The article will also explore the issues that remain in the subject, such as the changing accounting system and their the way they are treated by regulators.
What Is a Cryptocurrency and Why Use It?
Bitcoin and other cryptocurrencies can be described as digital currencies that rely on cryptography as an encryption method that provides security. Cryptocurrencies are mostly used for the purchase and sale of items and services, but they also serve to establish an array of regulations or obligations for their holders. We will talk about this in a future article. They are not intrinsically valuable as they aren’t exchangeable for other commodities like gold. Contrary to conventional currency they are not issue by an apex bank and are not considered to be legal tender.
In the present, the cryptocurrency use is restricted only to “early adopters.” For size, there are approximately 10.3 millionBitcoin holders around the world, with around half having Bitcoin only for investment reasons. The truth is that cryptocurrencies are not required since government-backed currencies work well. For the majority of people the benefits of cryptocurrencies are merely theoretical. So, widespread adoption is only going to happen in the event of a substantial tangible benefit to making use of cryptocurrencies. What are the benefits of making use of these?
PSEUDONYMITY (NEAR ANONYMITY)
The purchase of goods and services using cryptocurrency can be done on the internet and doesn’t require the identification of the buyer. One of the most common misconceptions about cryptocurrency is that they offer anonymous transactions. What they really offer can be described as pseudonymity that is a state that is near-anonymous. It allows consumers to make purchases without providing any personal information to merchants. From an enforcement standpoint it is possible to tracked back to a specific person or company. However, in the face of growing concerns of identity security and theft, cryptocurrencies may offer benefits for users.
One of the major advantages of cryptocurrency is the fact that they don’t require financial institution intermediaries. The absence of an intermediary or “middleman” lowers transaction costs. Consumers have an enormous benefit in the event that the financial system is breached or if the customer doesn’t trust the conventional system. If, for example, the bank’s database was compromised or damaged and the bank was entirely dependent on backups to fix any missing information. In the case of cryptocurrency in the event that a part was compromised, the other parts would be able to verify transactions.
But, they aren’t totally safe from security risks. As part of one of the ” largest digital heists in history,” the Decentralized Autonomous Organization (DAO) was an uncentralized fund that was created to make it easier for people to fund Ethereum project, has been compromised. The Decentralized Application (DAPP) created on Ethereum, the Ethereum currency was breached and hackers gained control over one-third of the DAO fund ($55 millions). Fortunately, the majority of funds were returned. The incident, however, shaken the entire community, and led to an SEC choice to subject offering as well as exchanges under US Securities laws.
PROGRAMMABLE, “SMART” CAPABILITIES
Certain crypto currencies can provide additional advantages to their owners such as restricted ownership and the right to vote. For example, a cryptocurrency-funded organization can include voting rights in the currency’s software code. The cryptocurrency could also contain fractional ownership rights in physical assets like real estate or art.
The majority of cryptocurrency’s appeal and security advantages result from its pioneering technological innovations.
Blockchain Technology Explained
Blockchain technology is the basis of Bitcoin as well as many other cryptocurrency. It’s based on a publicly, continuously updating ledger that records the transactions that occur. Blockchain is revolutionary as it allows transactions to be processed by any central authority, such as banks, the government or a payment business. Buyers and sellers are able to communicate directly eliminating the need for verification by a trusted third party intermediary. This eliminates expensive middlemen and allows companies and services to become decentralized.
One of the most distinctive features in blockchain technology is the openness to those involved. It’s similar to Google Docs, where several parties are able to access the ledger simultaneously and in real-time. When you write someone else a check, both you and your partner will both balance your balances when the check is made. However, things can be a mess when your friend doesn’t change their checkbook ledger or when you don’t have enough money cash in your bank account to pay for the amount of check (which the bank doesn’t have a means of knowing prior to the time).
With blockchain, both you as well as your friend will be viewing the identical transaction ledger. The ledger isn’t controlled by either of you however, it works by consensus, which means that both of you have to accept and confirm the transaction in order for it to become part of the chain. The chain is secured by cryptography and, most importantly nobody can alter the chain after it has been established.
From a technical point of view The blockchain uses algorithmic consensus and transactions are recorded on numerous Nodes instead of being recorded on a single server. A node is an computer that is connected with the network of blockchain. It automatically downloads a copy the blockchain when it joins the network. In order for a transaction to be valid, all the nodes have to agree.
Although blockchain technology was initially conceived as a part of Bitcoin in 2009, there could be several different applications. Consulting firm for technology CB Insights has identified 27 ways it could fundamentally alter processes such as cybersecurity, banking, voting as well as academics. It is the Swedish Government, as an instance is currently conducting a study on the possibility of using blockchain technology to keep track of land transactions that are currently stored on paper and sent by physical mail. It is estimated that the World Economic Forum estimates that in 2027 10percent of the world’s GDP will be recorded using blockchain technology.
“Mining” refers to a procedure that involves two elements the verification of transactions in cryptocurrency as well as new forms of crypto currency is created. A successful mining requires robust equipment along with software.
When it comes to verifying A single computer isn’t capable enough to be able to efficiently mine cryptocurrency because it would increase your electric cost. To counter this, miners usually join groups to boost computational power and share the profits of miners to other members of the. Mining groups are competing to validate transactions and profit by leveraging the use of specialized hardware and low-cost electricity. This type of competition is helpful in ensuring the security of transactions.
The most popular pools are AntPool, F2Pool as well as BitFury and BitFury, with AntPool alone accounting for more than 19 percent of the total mining. The majority of mining pools are in China which accounts for over 70 percent of all Bitcoin mining. China is the main producer of mining equipment for cryptocurrency and makes use of the nation’s low electricity costs.
Exchanges for cryptocurrency are websites where users can purchase, sell, or exchange cryptocurrency for another traditional currencies or digital currency. They can also convert cryptocurrencies into major currencies that are backed by the government, and convert cryptocurrencies into other currencies. The largest exchanges are Poloniex, Bitfinex, Kraken along with GDAX that can handle over $100 million (equivalent) every day. Nearly every trading platform is under federal laws against money laundering as well as customers must provide evidence of identity before opening an account.
Instead of exchanges, individuals frequently utilize the peer-to-peer method of transactions through websites like LocalBitcoins which permit traders to keep private details. Peer-to-peer transactions are when users trade cryptocurrencies using software, and without the assistance from any intermediaries.
Bitcoin wallets are essential for users to exchange and receive digital currency as well as check their balance. They can be software or hardware, but the hardware wallets are thought to be more secure.. As an example the Ledger wallet is a type of USB thumb drive and connects to the PC’s USB port. While the balances and transactions of a bitcoin account are kept on the blockchain and the private key that is used to sign transactions is stored in the Ledger wallet. When you attempt to make an account your computer will ask for the Ledger wallet’s signature the transaction and broadcasts it onto the blockchain. Because the private key remains in the wallet’s hardware Bitcoins are protected even if your device is compromised. If the wallet is not you backup your wallet losing your wallet could cause losing the wallet’s assets.
However, a software wallet like Coinbase is a different matter. Coinbase account is a virtual wallet. The type of device allows the owner to place their funds online and in the hands of the wallet provider that poses additional security risks. Coinbase launched the Vault program to enhance their security for its digital wallet.
To get a more in-depth look at the tech behind cryptocurrency read this article on The Toptal Engineering blog.
Types of Cryptocurrencies
There are currently two main categories of cryptocurrency which are used to purchase of services and goods as well as those that permit creating “smart contracts,” which are contracts which can be enforced using codes instead of courts. This article will discuss both of them. section.
As per specialists in the field, “There won’t be one supreme digital currency…A kind of crypto-pluralism is taking hold.” Although Bitcoin and Ethereum represent the bulk of the market share for cryptocurrency (see Chart 2 below) We’ve seen the rapid development and emergence of a variety of technological advancements. Actually there are more than 1,000 cryptocurrency that are in use today (called “altcoins”); more than 600 of them have market capitalizations that exceed 100,000 dollars.
In 2009, HTML0 was released by a person who went under the name Satoshi Nakamoto, Bitcoin is the most popular of all the cryptocurrencies. Despite the complex technology that underlies it, making payments through Bitcoin is very simple. In a transaction, both the buyers and sellers use mobile wallets to make and receive money. There is a growing number of businesses who accept Bitcoin continues to grow and includes companies that range from Microsoft, Expedia, and Subway the sandwich chain.
While Bitcoin is widely acknowledged as a pioneering technology, it’s not without limits. It can, for instance, only handle seven transactions per second. In contrast, Visa handles thousands of transactions every second. The time needed to verify transactions has increased. It’s not just that Bitcoin slow compared to its rivals however, its capabilities are also restricted. This can be seen on its market shares that has dropped from 81 percent in June of 2016 to 40 percent just two years after. While the price of Bitcoin has seen an increase however, in the beginning of 2018, Bitcoin’s price plummeted significantly, dipping below $8,000 when news of tighter regulations of China in China and South Korea surfaced (to be discussed in a future section). Bitcoin’s price fell further due to announcements of SEC clampdown on crypto exchanges , and following reports that Binance was said to have been compromised. Other currencies similar to Bitcoin comprise Litecoin, Zcash and Dash that claim to offer more privacy.
Ether and Ethereum
Ether and other currencies that are based upon the Ethereum blockchain are becoming increasingly well-known. The month of August, 2017 the market capitalization was approximately $28 billion. At one time, financial analysts had believed that the market capitalization of Ether was going to exceed the value of Bitcoin (the ” flippening“). But, problems related to Ethereum technologies have caused a drop in the value. Ethereum has experienced its fair part of volatility. Similar to Bitcoin In mid-January 2018 the price of ethereum saw a drop from around $1,400 to less than $1,000 in only a couple of days.
Sometimes, they are used interchangeably. Ethereum is an exchange platform that allows the creation of relatively simple smart contracts. Ether is an ” token” that is used to make transactions through Ethereum. Ethereum blockchain. Simply put smart contracts are programs on computers that instantly execute the conditions of an agreement. They work in a similar way to that of the “IF (then)” Excel function when a pre-programmed event occurs and the smart contract is executed, the smart contract follows the contract clause in the same way.
Let’s take this as an illustration. Let’s imagine you’re a company that manufactures and sells gaming consoles for video games. You collaborate with suppliers and shipping companies, and are focused on ensuring that 1.) that the consoles have been produced efficiently and in time 2.) there aren’t any labor-related violations, and) everyone is paid in time. If you were to operate in the traditional way, many contracts would be required to build a console, with each of the parties keeping their own copy of the contract.
When together and backed by Blockchain, Smart Contracts can provide an automated system for accountability. They can be used in various ways such as when a truck is picking the consoles that are manufactured from manufacturing, the company that delivers them inspects the boxes. They are then added on the blockchain. This triggers the release of money from the account of the video game company. There is no invoice, nor is there chase down of payment. Beyond the payment, a worker in the production line could take a picture of their ID which is later verified by third-party sources to confirm that they are not in violation of the labor laws.
As with Blockchain technology, smart contract be used in different industries such as healthcare, or media/music.
Other Popular Cryptocurrencies
- Litecoin: Launched in 2011 Litecoin is similar as Bitcoin in that it is open-sourced, decentralized, and is backed by cryptography. It was designed to play a similar function in addition to Bitcoin, ” the silver to Bitcoin’s gold.” Litecoin offers an increased rate of block generation and has a quicker transaction confirmation.
- Dash: It was released at the end of 2014as “Darkcoin,” Dash has since been changed and now offers greater security for its users because of its mastercode network that is decentralized. Dash is the “Masternode” network which has an even stronger foundation that Bitcoin. Bitcoin.
- Zcash: Released in October, Zcash is a relative newcomer in the field. However, there is a claim that it is the only completely anonymous cryptocurrency to be discovered because of its use of zero-knowledge SNARKS that does not require transactions records at all. The technology makes sure that, in spite of all the data being encrypted, it’s still true and double-spending isn’t possible.
- Monero: Monero possesses unique privacy properties. For instance, Monero enables complete privacy through a method known as “ring signatures.” It’s becoming very popular on the black market of the dark web that lets users buy anything from firearms to drugs.
- Ripple: Released in 2012, Ripple offers instant and inexpensive international payment. Ripple makes use of the blockchain as its method of verification . It does not require mining, which differentiates it in comparison to Bitcoin and other cryptocurrency. Therefore, it needs less processing power.
Investing in Cryptocurrencies
As previously mentioned the fact that cryptocurrency is not a currency has no intrinsic value. So why all the hype? Investors invest in cryptocurrency for several motives. The first is that there’s an speculation element to the price of cryptocurrency that can entice investors to profit from fluctuations in market values. For instance, the cost of Ether rose from around $8 each unit back in the month of January to nearly $400 within six months, after which the Ether market grew more bullish, only to fall to $200 per unit by July due to technical problems.
In addition to the pure speculation aspect, many investors invest in cryptocurrency as an investment in geopolitical security. When there is uncertainty over the direction of politics the cost for Bitcoin tends to rise. In the wake of economic and political uncertainties in Brazil intensified between 2015 and 2016, Bitcoin exchange rates was up by 322% and the adoption of wallets increased by 461 percent. Bitcoin prices have also have increased due the Brexit and Trump victory, and continue to rise in conjunction with Trump’s political scandals.
Factors Affecting Cryptocurrency Prices
- Supply and Demand. The supply of Bitcoin is restricted by the code within the Bitcoin blockchain. The rate of growth of the amount of Bitcoin diminishes until the amount of Bitcoin exceeds 21 million that is anticipated to occur around the year 2140. As Bitcoin popularity grows but the decline in the amount of Bitcoin is almost certain that the cost of Bitcoin will increase.
Bitcoin isn’t the only cryptocurrency to have limitations on its issue. It is expected that the supply of Litecoin is set to be restricted to the 84 millions units. The goal of this limit is to increase transparency regarding the quantity of money as opposed to the government-backed currencies. Since the majority of currencies are built on open source code that means any individual is able to identify the supply of the currency and then make a decision about its value.
- Application of Cryptocurrency. Cryptocurrencies require an application to be able to provide any worth. The miner of rare metal might witness a rapid increase in value in the event that it’s utilized as an example, such as the coming iPhone 8; if the metal isn’t utilized however, it will become useless. Similar dynamics apply to cryptocurrency. Bitcoin is valuable as a method of exchange and alternative currencies can be improved upon the Bitcoin model or use a different method that generates value, like Ether. When the uses of cryptocurrency increase the demand for them, and their value will also rise.
- Modifications to the Regulation. Because the regulation of cryptocurrencies is yet to be established, their value is heavily influenced by the expectation of future regulations. In a case of extremes such as, for instance it is possible that the United States government could prohibit individuals from holding cryptocurrency in the same way as holding of gold inside the US was banned at the time of the 30s. It’s possible that the ownership of cryptocurrency would shift to another country in this scenario but it would seriously diminish the value of cryptocurrency.
- technology changes. Unlike physical commodities technological changes impact the prices of cryptocurrency. The months of July and August 2017 witnessed the value of Bitcoin adversely affected by the debate regarding the alteration of the technology to speed up transaction times. After the changes were completed in July, the cost of Bitcoin increased from $2700 to an all-time record-setting $4000 in less than two weeks. In contrast, news reports about hacking usually result in price reductions.
However, given the extreme volatility of this phenomenon it is possible of a collapse. Numerous experts have pointed out there is a chance that, should the market collapse, it is the retail investors would be the ones to suffer the most. Based on Mohamed Damak, S&P Global Rating sector leader, “For now, a meaningful drop in cryptocurrencies’ market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate.” Find out further here about the bear case in the crypto market.
Initial Coin Offerings
Initial coin offering (ICOs) have become the latest trend in the field of investing in cryptocurrency. ICOs allow companies to raise funds to develop new technology in blockchain and cryptocurrency. Instead of releasing shares of ownership the ICOs provide digital tokens that are “coins.” Investors gain early access to technology and are able to utilize it in any way they choose. Startups can raise capital without having to compete with venture capitalists or private investors. Bankers are becoming more and more reluctant to give up their lucrative jobs to take their piece from the ICO pie.
Are you skeptical about the hype? In the past year an ex- Mozilla Chief Executive Officer Brendan Eich raised $35 million through the ICO within just 30 seconds as well as Bancor Protocol raised $153 million in less than an hour. Furthermore Blockchain-related companies have raised over $1.6 billion through ICOs until now, while venture capitalists have offered only 550 million for crypto-related companies in more than 120 transactions.
Unsolved Issues with the cryptocurrency market
While cryptocurrency is still in its beginning stages there are many questions concerning its growth. It is interesting to consider the political and philosophical implications of the cryptocurrencies. They are essentially political since they go against the conventional ” social contract” which societies operate within. In this model the citizens of societies implicitly agree to surrender certain rights to the state in exchange for peace, stability and security of their rights. In creating a decentralized version of wealth, cryptocurrency is controlled by only code.
There’s no reason to be surprised then that accounting practices as well as the privacy issues related to blockchain and cryptocurrency remain to be established. In the next section, we will explore the tangible aspects of development of cryptocurrency.
Accounting Treatment of Cryptocurrencies
Based on current accounting rules in the current accounting guidelines, cryptocurrencies are in the category of cash and cash equivalents as they are not able to have that liquidity and liquidity found in cash as well as the value stability that cash equivalents have. However, the accounting approach of cryptocurrency is not yet clear since there is no an official statement on the matter by The International Finance Reporting Standards (IFRS) or The American Institute of CPAs (AICPA).
2014 INTERNAL REVENUE SERVICE RULING
Within the US, IRS Revenue Resolution 2014-21 stipulated that those who own cryptocurrency must be able to declare them as personal property with profits or losses arising from sales or purchases. The value of cryptocurrency assets in balance sheets should be equal to fair market value at date of receiving. Thus, due to the rapid rise in value selling cryptocurrencies can generate huge profits when they are sold Take a look at the capital gains tax on purchasing Bitcoin with a price of $100 and then selling it for over $4,000 in 2017.
The ruling leaves a number of questions not answered. For instance, it’s not certain what happens when you exchange one currency for another is tax-deferral under what’s known as”the ” like-kind exchange” rules. These rules prohibit certain investments, but do not explicitly exclude cryptocurrency therefore their application isn’t clear. In the case of an exchange of Bitcoin against Ether It isn’t clear if both currencies are alike to be of the identical “kind” and thus eligible for tax treatment similar to that of the other, or if they’re in the same “class”–which is not eligible.
INTERNATIONAL TAX TREATMENT OF CRYPTOCURRENCIES
Outside of the US the accounting procedure for cryptocurrency differs. In the EU the decision from the European Court of Justice rules that cryptocurrencies must be considered as government-backed currencies and that the holders shouldn’t be taxed on purchases and sales. In certain countries like Germany or those in UK cryptocurrency are treated as “private money” and not tax-free unless they are used for commercial uses.
In Japan cryptocurrency was recently classified as an “means of settlement” of transactions, thus being exempt from the consumption tax in Japan. Prior to that, purchases of cryptocurrencies were subject to a consumption tax.
Regulation of Cryptocurrencies
The regulatory treatment of cryptocurrencies is evolving, however, since the technology is able to transcend global boundaries, the impact of the national regulators is degraded. Since cryptocurrency was designed to be able to evade the shackles of government and regulations, it’s unclear if these initiatives will succeed.
JAPAN IS THE FIRST TO TAKE AN UNAMBIGUOUS, ENCOURAGING REGULATORY APPROACH
Japan has not just legalized Bitcoin however, it has it also established a regulatory framework to ensure the growth of the market. This is seen as a major advancement in the legalization of cryptocurrencies. But, Japan has also mandated that, by October 1 that any Bitcoin as well as “alternative coin” must be registered with the Japan Financial Services Agency and be subject to audits every year. Although registration costs are expensive and complex (including an annual business plan of three years and anti-money laundering regulations) Many parties are seeking registration due to the lucrative reward is ” voracious” Japanese retail investors. The media generally has been supportive of the new system but it is the Japanese Bitcoin group has expressed displeasure with the system for being a hindrance to the development of. This follows the massive financial losses and fraud of investors from this year’s Mt. Gox Bitcoin exchange scandal.
Mike Kayamori, chief executive of the cryptocurrency exchange Quoine states, “When you are discussing startups, which are, of course, a lot of Bitcoin-related companies are, you don’t really consider regulation as a positive thing…But in this instance it could be different. The investor who is a retail customer–Mrs. Watanabe doesn’t want to live in the wild wild west. She’s seeking something controlled and reliable.”
US, CHINA, AND SOUTH KOREA NATIONAL REGULATORS CRACK DOWN ON CRYPTOCURRENCIES
- US. On the other the other hand, US regulators have been not overly enthusiastic regarding the growth that virtual currency has experienced. It is the Financial Stability Oversight Council, one of the regulators, has expressed concerns in the recently released year-end report: “Market participants have limited experience working with distributed ledger systems, and it is possible that operational vulnerabilities associated with such systems may not become apparent until they are deployed at scale.”US regulators are now beginning to clamp down on not regulated cryptocurrency business. Consider the initial coin offering (ICOs) for example. Despite their popularity ICOs are for new cryptos with uncertain business models which have been extensively criticized for being scams.In response to the issue, the SEC declared that tokens made by ICOs should be registered in accordance with The US Securities Laws in the event that they are sold at a price to US residents. Since ICOs can be offered across borders It remains to be determined if ICO issuers decide to adhere or simply relocate transactions out within the US. Because of the anonymity that is inherent in ICO transaction, it might be difficult for governments of different nations to limit the sales of cryptocurrency or trading.Regulations are also expanding beyond the ICOs. As of March the SEC is now requiring for cryptocurrency-related trading companies to are recognized as official “exchanges” like the New York Stock Exchange or CBOE. The move comes as the result of a concern that crypto investors believe that they’re getting the benefits and protections from a registered exchange, when they aren’t. To date, compared to securities brokers, cryptocurrency exchanges have had no capital rules and have been largely unregulated other than for anti-money laundering–something that seems to be subject to change. Exchanges that have been registered by the SEC will be subject to inspections and are required to oversee their marketplaces, and are required to follow regulations aimed to ensure fair trading. The SEC announcement came in conjunction with an ” large-scale” attack on the cryptocurrency exchange Binance.
- China. China has banned ICOs, also known as on local exchanges , to prevent trading in cryptocurrency and has imposed a limit on mining. Bitcoin and other cryptocurrency-related trading can still be traded, however only on over-the counter (OTC) markets which is a slow procedure that can increase risk to credit. China has also recently took action on a loophole in cryptocurrency that permitted Chinese customers to buy and sell cryptocurrency through exchanges in other countries. In general, China has taken an uncompromising position regarding cryptocurrencies, aiming to clean the financial markets for a long time and observing crypto currencies as a shadow banking industry as a method of moving money out from the country. But this doesn’t mean that the country is opposed to the concept. Actually there is evidence that the People’s Bank of China has developed their unique digital currency prototype and plans to become the very first bank in China to create digital currency. According to the Chinese authorities believes that its benefits are lower cost of transactions, improved accessibility to banking services in rural areas, as well as increased efficiency of the monetary policies. But, it would like to ensure full control over the transactions.
- South Korea. South Korea has become a center for trading in crypto both for housewives as well as students. South Korea’s won contributed to more than 10 percent of Bitcoin transactions during the second half of 2017 , and it was also the leading payment method for transactions within Ethereum up to the end of the year. But, South Korea banned ICOs in September of 2017 and, since then, regulators have considered closing local crypto exchanges and banning deposits into virtual accounts that are anonymous at banks, or even imposing taxes on capital gains on cryptocurrency trading. It is yet to be determined what the impact of regulation will be out.
INDIVIDUAL US STATES HAVE ADOPTED VARYING APPROACHES
New York State created the BitLicense system which has imposed new rules for companies seeking to do transactions through New York residents. At the time of writing, only three BitLicenses have been granted however, there was a much larger number of them have been revoked or refused. In 2015, the price for obtaining a license was estimated at up to 100,000 and triggered the outflow of cryptocurrency-related companies out of New York state.
However, Vermont and Arizona have adopted the latest technology. Both states passed laws giving legal status to any documents or facts tied to the Blockchain such as smart contracts. Arizona also adopted another law which prohibits the use of blockchain technology to locate or monitor the control of firearms.
Security and Privacy Issues
Computer theft and hacking continue to remain obstacles to wide acceptance. The issues continue to increase in line with the growing popularity of cryptocurrencies. In July 2017 One of five biggest Bitcoin as well as Ethereum exchanges was compromised which led to the theft of information about users along with several hundred million of Korean Won. According to the FTC also noted an increase in identity fraud cases that exceeded 100% from 2013 to 2016 and Coinbase the biggest American-based exchange, experienced hacking of accounts increase by more than a third between November and December of 2016.
The fact that blockchain transactions are pseudonymous and Bitcoin transactions can also cause questions. In the typical transaction that is centralized, when the product or service isn’t as good the transaction may be terminated and the funds returned to the purchaser. In the cryptocurrency world there’s no central entity to provide recourse against sellers.
Despite advances since their introduction, cryptocurrency has sparked both anger in the general public. The problem that advocates must address for is how to advance technologies to their maximum potential while gaining the trust of the public needed for widespread acceptance. The truth is there are many who believe that critics are right. It’s clear that there’s plenty of hype in the field. Bitcoin’s price is an expression of expectations that aren’t necessarily true It’s not difficult to imagine the day that another cryptocurrency could take over it. Bitcoin as well as its investors may be like brick and mortar stores overshadowed by the next major new thing. The latest developments in cryptocurrency are usually coupled with a variety of dangers: the theft of wallets with cryptocurrency is increasing and fraud continues make a dark shadow of the business. The tension between promises and risk makes this world completely different from anything we’ve seen before.
However, blockchain and cryptocurrencies can be truly transformative. Imagine an election in which vote totals are verified by hundreds of nodes working in an open-source environment instead of just one department’s laptop computer. For instance, the sale and purchase of real estate does not require the signature of a document as well as an officially authorized “closing”–just an exchange of cryptocurrency that is backed by the smart contract. The only limitation to your creativity.