Aug 24, 2022 in Informative

Crypto Currencies

The Nature and the Reasons for Crypto Currencies Popularity

The rapid development of the financial and banking sphere predefined the emergence of electronic money. The latter in the future can even replace paper banknotes. It can happen due to the fact that such money is easy to use as well as comfortable to transfer, exchange, and pay for something. At the same time, the rapid development of society, computerization, as well as digital transformation lead to the emergence of new types of electronic money. The so-called cryptocurrency is the economic necessity of the current economical monetary systems. Since its emergence in 2009, the opportunities and popularity of cryptocurrency have only increased. Moreover, these systems result in saving of social labor, reduction in the costs of money turnover, an increase in the speed of turnover, as well as growth in the reliability and convenience of the movement of money. Thus, cryptocurrency is a new and promising type of money. It can be considered in different ways that have its own pros and cons, cause an effect on the economy and international business, and even have its place in the world economy as a global digital currency.

Nowadays, electronic money is developing and already gained recognition and popularity in the world. It is due to such factors as rapid and easy payments, transactions, and the modern security system (Chief Investment Office Americas, 2017). Therefore, cryptocurrency is one of the most perspective types of electronic currency that does not have any material appearance. It has some unique features, for example, the protection against forgery, as it encrypts data and cannot be duplicated by any internal or external system, thus allowing control of all the transactions. However, most cryptocurrencies have a limited amount (Christensen, 2017).

Pros and Cons of Crypto Currencies

Cryptocurrency, like any national or global banknote, has its pros and cons. Therefore, the main features and advantages of this type of money are:

Physical appearance. Crypto currency has no physical appearance, it is not issued by the central bank, and does not have connections with the economy of any country. Thus, it is not controlled by the authorities, and no one can limit these processes. The exchange rate is formed by a market supply and demand and is not directly depend on the economic situation in any particular nation.

Anonymity. Crypto currency is absolutely anonymous, and it is almost impossible to determine the participants of the transactions. All information that is available represents a set of characters in the address of the wallet (Christensen, 2017).

Direct transactions. Nowadays, there are no processing centers, intermediaries, issuers, and third parties in this virtual currency system (Douma, 2016). Thus, there is a simple and direct transfer of money among people who use such type of funds. It is a great advantage of the cryptocurrency.

Independence. Initially, the Bitcoin (BTC) was a fully decentralized and independent currency (Hurlburt & Bojanova, 2014). It meant that the network participant with such type of money in the US was equal to their colleague in South Africa.

The advantages of crypto currency are huge; however, while comparing it with the traditional money, digital funds also have some disadvantages. Instability of the exchange rate is one of the drawbacks of the cryptocurrency and the reason why many people still do not use this means of payment. The desire of some states to regulate the cryptocurrency can be considered as a disadvantage. It should be mentioned that cryptocurrency also has a bad reputation due to its impermanence, unreliability, as well as constant flow of the rate among others. The greater the demand for a certain cryptocurrency is, the higher its rate is. The demand, in turn, depends on the advantages that the digital money offers. For example, if BTC becomes the official currency of China, its value would become enormous (Hurlburt & Bojanova, 2014). Its demand also depends on the news, current developments, and announcements of the companies that form the distrust in them. Moreover, crypto currencies are used in the “black market” due to their anonymity and inability to control (Hurlburt & Bojanova, 2014). The potential drawback is “Attack 51%”. The situation when 51% of the amount of one currency might be accumulated in the hands of one participant (Douma, 2016). It that case, this participant might completely control the currency and duplicate the transactions.

Crypto currency is not officially regulated. Such situation is good for certain persons or group of people who trade or transfer such money but not for the economy of the state, as the nations cannot control legal or illegal transactions. The latter are not taxed and even increase the rate of crimes such as frauds. Therefore, as it was previously mentioned, many states try to regulate or forbid digital money since it can also undermine the national currency and economic as well.

The Use of Crypto Currency

Crypto currency can be useful for various purposes, starting from purchases and ending with saving money. Therefore, it can be used it the next spheres:

Payments. The transactions are anonymous, fast, and direct. The operations are carried out among private individuals for various purposes.

Storage of money. It is practically impossible to steal the crypto currency. Since all operations are irreversible and use private keys, they cannot be intercepted or hacked.

Investments. Some types of crypto currency are considered the investment asset due to fluctuations in the exchange rate and overall growth in popularity. However, for several months, the exchange rate shows a tendency to decrease; therefore, it is suitable for the short-term earnings by trading in the stock market.

The Effect of Crypto Currencies on International Business

For today, cryptocurrencies have the minor impact on the international or global businesses. However, such digital currency has small transaction outgoings, thereby some companies, especially in the IT sphere, use payments in the crypto currency (Hurlburt & Bojanova, 2014). However, global or international enterprises do not risk, as owing to the instability of the exchange rate, they can easily lose money. Therefore, they prefer to use traditional money and online payment systems for their transactions (Hurlburt & Bojanova, 2014). However, some international companies gain money for trading the crypto currencies. It should be pointed that there also exists some start-ups for which the funds are collected through the initial coin offering (ICO) in the cryptocurrency (crowdfunding). Therefore, if someone has a business idea associated with block chain or virtual currency, he or she can initiate fundraising through the ICO. In the economic and currency terms, the crypto currencies represent payment system, an infrastructure, and a technological innovation. It raises the question of the future of the current currencies, thus changing the powers of central banks and/or states. Moreover, the technologies of the crypto currencies and block chain have a great potential. According to the estimates of the Bank of England, the creation of its own crypto currency can bring the additional 3% to GDP growth due to lower interest rates and costs (Christensen, 2017). Therefore, it shows that thought today, crypto currency has not gained a big influence on international business and the bank system, it may have a big impact in future.

Conclusion

Summing up, it is essential to mention that there is no single solution to the further development of cryptocurrencies in the world, but the latter is constantly evolving and replacing the traditional banknotes. Moreover, as it appears, it also has its pros, such as anonymity, independence, as well as security. As for the cons, there is a need to mention the flow of the rate and instability among others. Apart from that, the cryptocurrency has a controversial influence on the state’s economy. Nowadays, digital currency almost does not affect the international or global businesses; however, everything may change in the future. Thus, the electronic money is a new type of fund that change the traditional monetary and economic paradigm, and although they are not currently stable and reliable, they can take their place as a global digital currency.

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